-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PASeZAQw+iI32KoluqMwrxv3NocatqOB3ltoj84zlyg1Ddbt1OLyvcMf7PkAQw+T JCg7nOQNJJn3p4wYa5B3rA== 0000927016-97-001034.txt : 19970410 0000927016-97-001034.hdr.sgml : 19970410 ACCESSION NUMBER: 0000927016-97-001034 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 29 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970409 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDALLION FINANCIAL CORP CENTRAL INDEX KEY: 0001000209 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043291176 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27812 FILM NUMBER: 97577118 BUSINESS ADDRESS: STREET 1: 205 E 42ND ST STREET 2: STE 2020 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126823300 10-K/A 1 FORM 10-K/A ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark One) [X] AMENDMENT NO. 1 AND RESTATEMENT OF ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to___________________ Commission file number 0-27812 MEDALLION FINANCIAL CORP. (Exact name of registrant as specified in its charter) DELAWARE NO. 04-3291176 (State of Incorporation) (IRS Employer Identification No.) 205 EAST 42ND STREET, NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code) (212) 682-3300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [_]. The approximate aggregate market value of voting stock held by non-affiliates of the Registrant as of March 20, 1997 was $100,465,000 based on the last reported sale price of the Registrant's Common Stock on the Nasdaq National Market as of the close of business on March 20, 1997. There were 8,250,000 shares of the Registrant's Common Stock outstanding as of March 31, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Definitive Proxy Statement for its 1997 Annual Meeting of Shareholders to be held on June 5, 1997, which Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant's fiscal year-end of December 31, 1996, are incorporated by reference into Part III of this Form 10-K. ================================================================================ MEDALLION FINANCIAL CORP. 1996 FORM 10-K ANNUAL REPORT Table of Contents Page ---- PART I................................................................. 3 Item 1. Business of the Company.................................. 3 Item 2. Properties............................................... 22 Item 3. Legal Proceedings........................................ 22 Item 4. Submission of Matters to a Vote of Security Holders...... 22 PART II................................................................ 25 Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters......................... 25 Item 6. Selected Financial Data.................................. 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 35 Item 8. Financial Statements and Supplementary Data.............. 48 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures................. 48 PART III 49 Item 10. Directors and Executive Officers of the Registrant....... 49 Item 11. Executive Compensation................................... 49 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................... 49 Item 13. Certain Relationships and Related Transactions........... 49 PART IV 49 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................... 49 2 THIS AMENDMENT NO. 1 TO AND RESTATEMENT OF ANNUAL REPORT ON FORM 10-K OF MEDALLION FINANCIAL CORP. AMENDS ITEMS 1, 6, 7 AND 8 OF AND RESTATES THE REMAINDER OF THE ANNUAL REPORT ON FORM 10-K OF MEDALLION FINANCIAL CORP. FILED WITH THE COMMISSION ON MARCH 31, 1997. PART I ITEM 1. BUSINESS OF THE COMPANY GENERAL Medallion Financial Corp. ("Medallion Financial") acquired on May 29, 1996 the ------------------- specialty finance businesses conducted by Tri-Magna Corporation ("Tri-Magna"), --------- Edwards Capital Company (collectively with its successor, Edwards Capital Corp., "Edwards") and Transportation Capital Corp. ("TCC" and, collectively with Tri- --- Magna and Edwards, the "Founding Companies") as well as the taxicab rooftop ------------------ advertising business conducted by Tri-Magna. Tri-Magna had conducted its specialty finance and taxicab rooftop advertising businesses through its wholly owned subsidiaries, Medallion Funding Corp. ("MFC") and Medallion Media, Inc. --- ("Media"), respectively, and references herein to Tri-Magna include such - ------- subsidiaries unless the context indicates otherwise. Prior to the closing of the acquisitions of the Founding Companies (the "Acquisitions"), Medallion ------------ Financial had no operations. See "Business - Formation Transactions." ----------------------------- UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES HEREIN TO THE "COMPANY" INCLUDE MEDALLION FINANCIAL CORP. AND THE FOUNDING COMPANIES COLLECTIVELY AND REFERENCES HEREIN TO "MEDALLION FINANCIAL" SHALL MEAN MEDALLION FINANCIAL CORP. ALONE. ----------------------------- The Company operates a specialty finance business and its principal focus is the origination and servicing of loans financing the purchase of taxicab medallions and related assets ("Medallion Loans"). As an adjunct to its finance --------------- business, the Company also operates a taxicab rooftop advertising business. The Company has been engaged in taxicab medallion lending since 1979 and has developed a leading position in the industry. The Company also originates and services commercial installment loans, financing small business in targeted industries outside of the taxicab industry ("Commercial Installment Loans"). ---------------------------- The Company intends to use the expertise it has developed in its areas of concentration to further expand the range of financial products it offers as well as the industries and geographic areas it services. The Company believes its taxicab rooftop advertising business is one of the largest providers in the nation of this segment of the out-of-home advertising industry. At December 31, 1996, the Company had approximately 2,000 installed taxicab rooftop advertising displays ("Displays"). The Company sells advertising -------- space to advertising agencies and companies promoting products. Currently, the Company provides such advertising in New York City, Philadelphia, Miami and Boston and intends to expand to other major metropolitan areas. Medallion Financial is a closed-end, non-diversified management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). -------- The investment objectives of the Company are to provide a high level of distributable income, consistent with preservation of capital, as well as long- term growth of net asset value. The Company is managed by its executive officers under the supervision of its Board of Directors and has retained FMC Advisers, Inc. ("FMC") as an investment adviser. The principals of FMC had --- served as directors and executive officers of Tri-Magna and MFC 3 since inception of these businesses until their acquisition by the Company on May 29, 1996. The Company has elected to be treated as a business development company under the 1940 Act. In addition, it has elected to be treated for tax purposes as a regulated investment company (a "RIC") under the Internal Revenue --- Code of 1986, as amended (the "Code"). As a RIC, the Company will not be subject ---- to U.S. federal income tax on any investment company taxable income (which includes, among other things, dividends and interest reduced by deductible expenses) that it distributes to its stockholders if at least 90% of its investment company taxable income for that taxable year is distributed. The Company pays quarterly cash dividends to comply with this requirement. Stockholders can elect to reinvest distributions. The Company's specialty finance subsidiaries, MFC, TCC and Edwards (collectively the "RIC --- Subsidiaries"), have also elected to be treated as RICs and distribute at least - ------------ 90% of their respective investment company taxable income to the Company. See "Business of the Company - The Company's Operation as a RIC." The following chart illustrates the organizational structure of the Company: THE COMPANY ---------------------------------------------------- Medallion Financial Corp. ("Medallion Financial") . RIC . BDC ---------------------------------------------------- - -------------------------------------------------------------------------------- Medallion Funding Edwards Capital Transportation Medallion Taxi Corp. Corp. Capital Corp. Media, Inc. ("MFC") ("Edwards") ("TCC") ("Media") . RIC . RIC . RIC . Taxicab . SBIC . SBIC .SBIC advertising business . C Corporation - -------------------------------------------------------------------------------- - ------------------ . BDC Business Development Company under the 1940 Act ("BDC"). . RIC Regulated Investment Company under the Code. . SBIC Small Business Investment Company registered under the 1940 Act and licensed by the U.S. Small Business Administration (the "SBA"). MFC and Media. Prior to their acquisition by the Company, MFC and Media were wholly owned subsidiaries of Tri-Magna which merged into the Company in connection with the closing of Medallion Financial's acquisition of MFC and Media on May 29, 1996. Tri-Magna was a closed-end, management investment company registered under the 1940 Act. Management of the Company had operated Tri-Magna and its subsidiaries since they were organized. MFC was incorporated in 1979 and is a closed-end, management investment company registered under the 1940 Act. Before the termination of the SBA's Specialized Small Business Investment Company ("SSBIC") program in September 1996, MFC was the largest ----- SSBIC in the nation. Following the termination of the SSBIC program, MFC was converted to a Small Business Investment Company ("SBIC") under an agreement ---- with the SBA entered into in February 1997 (the "MFC Conversion Agreement"). ------------------------ Operating primarily in New York City, MFC is a well established Medallion lender and has diversified its operations by developing a division that originates Commercial Installment Loans. As an 4 SSBIC, MFC was restricted to financing small business concerns owned and managed by persons deemed to be socially or economically disadvantaged ("Disadvantaged -------------- Borrowers"). As an SBIC, MFC is permitted to lend to any small business meeting - --------- the size and eligibility requirements established by the SBA rather than only small business concerns that are owned and managed by Disadvantaged Borrowers, subject to certain restrictions contained in the MFC Conversion Agreement. Accordingly, MFC now has a significantly larger borrower base and performs its credit analyses based solely on economic criteria. Although Edwards and TCC are also SBICs, unlike Edwards and TCC, MFC does not have SBA leverage outstanding and it is not, therefore, subject to SBA restrictions on the amount of third- party indebtedness it may incur. See "Business of the Company - Regulation of the Company by the SBA." The Company is also currently exploring the possibility of establishing a commercial paper program at MFC. The issuance of commercial paper will be contingent upon MFC obtaining an investment grade rating, among other conditions, and no assurance can be given that MFC will be able to establish such a program. Media, which was incorporated in 1994, provides taxicab rooftop advertising and has initiated a plan to become a national provider of such advertising. Media currently provides such advertising in New York City, Philadelphia, Miami and Boston and intends to expand within its existing markets and enter other major metropolitan markets. In furtherance of its expansion efforts, Media acquired 450 additional installed Displays in connection with the acquisition of the assets of See-Level Advertising, Inc. and See-Level Management, Inc. on July 25, 1996. In addition, on March 6, 1997 Media entered into an agreement with The Metropolitan Taxi Board of Trade, Inc. (the "MTBOT") to provide advertising ----- on over 1,800 New York City taxicabs owned by members of the MTBOT commencing on September 22, 1997. The effect of this agreement will be to increase the number of taxicabs Media currently has under contract in New York City from approximately 1,700 to approximately 3,500. With this agreement, Media is the leading taxicab rooftop advertiser in the city and one of the largest in the nation. Edwards Capital Corp. Edwards is a closed-end, management investment company registered under the 1940 Act and is licensed as an SBIC by the SBA. Operating almost exclusively in New York City, Edwards is a well-established medallion lender. Edwards' predecessor, Edwards Capital Company, was organized in 1979 and had operated as a privately held limited partnership from 1981 until the Company acquired substantially all of its assets and assumed substantially all of its liabilities on May 29, 1996 through Edwards which is registered as a closed-end, management investment company under the 1940 Act. Transportation Capital Corp. TCC is a closed-end, management investment company registered under the 1940 Act. TCC is a well-established and geographically diverse medallion lender with operations in Boston, Cambridge, Chicago and New York City. TCC was incorporated in 1979 and prior to its acquisition by the Company, was a wholly owned indirect subsidiary of Leucadia National Corporation. Like MFC, TCC was licensed as an SSBIC before the termination of the SSBIC program and is now licensed as an SBIC under the terms of an agreement with the SBA entered into in February 1997 (the "TCC Conversion -------------- Agreement"). Accordingly, like MFC, TCC is now permitted to make loans to - --------- borrowers other than Disadvantaged Borrowers, subject to certain restrictions contained in the TCC Conversion Agreement. See "Business of the Company- Regulation of the Company by the SBA." In the second quarter of 1997, the Company intends to merge TCC into MFC to increase MFC's capital and simplify the Company's corporate structure. See "Business of the Company - Sources of Funds." The Section 7(a) Loan Program. The Company intends to establish a new subsidiary and has applied to the SBA for a license as a participating lender in the SBA's Section 7(a) loan program (a "Participating Lender"). If the -------------------- Company's application is successful, the Company would become eligible to make loans guaranteed by the SBA to small businesses meeting certain size and other eligibility requirements under the Small Business Investment Act of 1954, as amended (the "SBIA") and SBA ---- 5 regulations thereunder ("SBA Regulations"). If the Company's application to ---------------- become a Participating Lender is approved, the Company intends to form a wholly- owned subsidiary organized as a Delaware limited liability company for the purpose of conducting these activities. This subsidiary would make secured loans to small businesses in principal amounts ranging from $10,000 to $1,000,000 with terms up to 25 years. These loans would be made both on a guaranteed basis under the SBA's Section 7(a) loan program and on an unguaranteed basis independent of the Section 7(a) program. There can be no assurance that the Company will be successful in its efforts to obtain licenses as a Participating Lender or, if successful, that the SBA will guarantee loans originated by it. GROSS LOAN PORTFOLIO SUMMARY DATA The following table classifies the Company's loans outstanding as of December 31, 1996:
Weighted Number Average Maturity Balance Type of Loans of Loans Interest Rate Date Outstanding - ------------------------------- -------- -------------- ---------- ------------ New York City Medallion Loans.. 1,354 9.72% 1/97-12/15 $124,759,130 Other Medallion Loans.......... 277 12.51% 1/97-2/02 9,855,769 ----- ------------ All Medallion Loans......... 1,631 9.92% 1/97-12/15 134,614,899 Dry cleaners and laundromats... 599 13.70% 1/97-9/05 34,080,398 Other.......................... 140 12.67% 1/97-10/02 7,844,891 ----- ------------ Total....................... 2,370 10.80% 1/97-12/15 $176,540,188 ===== ============
MEDALLION LENDING Industry Overview The New York City Market. A New York City taxicab medallion represents the only license to operate a taxicab and accept street hails in New York City. As reported by the TLC, individual (owner-driver) medallions currently sell for approximately $190,000 and corporate medallions currently sell for approximately $215,000. According to TLC data, over the past 20 years, medallions have appreciated in value an average of 10.2% each year. The TLC estimates that in 1993 New York City taxicabs transported approximately 226 million people and collected in excess of $1.0 billion in gross revenue. Taxicabs play a prominent role in intra-Manhattan travel. According to the TLC, taxicabs transported 154.0% more passengers than Manhattan buses in 1993. In addition, taxicabs provided 34.0% of all intra-Manhattan passenger trips taken in 1993 by subway, bus, livery car or taxicab. Between 1977 and 1993, taxicab ridership for intra- Manhattan travel increased by 42.0%, while citywide bus ridership declined by 40.0%. The Company believes that much of the popularity of taxicabs can be attributed to the difficulty and expense Manhattan residents encounter in maintaining a private automobile in Manhattan. The number of taxicab medallions is limited by law and until recently no new medallions had been issued since 1937. However, in January 1996, the New York City Council passed a law authorizing the city to sell up to 400 additional taxicab medallions. The first 133 of such medallions were sold in May 1996 and an additional 133 were sold in October 1996 with the balance to be sold over the next year. The Company believes that the auction has provided it with additional opportunities because it has financed the purchase of a significant number of the medallions sold at auction. As a result of the limited supply of medallions, an active market for medallions has developed. TLC estimates indicate that the total value of all New York City medallions exceeds $2.5 billion. The law limiting the number of medallions also stipulates that the ownership for the 12,053 medallions outstanding at December 31, 1996 shall remain divided into 5,086 owner-driver or individual medallions and 6,967 fleet or corporate 6 medallions. Corporate medallions are more valuable because they can be aggregated by businesses and leased to drivers. Based upon TLC statistics, the Company estimates that from 1989 through 1993 the number of taxicab medallions sold each year ranged from approximately 500 to 850, divided roughly equally between corporate and individual medallions. The purchase of a taxicab medallion is frequently financed with a loan and, in addition, there is an active refinancing market for such loans. Assuming that approximately 75.0% of the purchase price of corporate medallions and approximately 75% of the purchase price of individual medallions are typically financed, the dollar volume of New York City financing of medallion sales would range from $72.0 million to $124.0 million a year. The Company believes that the dollar volume of the refinancing market exceeds the dollar volume of financing of medallion sales. A prospective medallion owner must qualify under the medallion ownership standards set and enforced by the TLC. These standards prohibit individuals with criminal records from owning medallions, require that the funds used to purchase medallions be derived from legitimate sources and mandate that taxicab vehicles and meters meet TLC specifications. In addition, before the TLC will approve a medallion transfer, the TLC requires a waiver from the seller's insurer stating that there are no outstanding claims for personal injuries in excess of insurance coverage. After the sale is approved, the owner's taxicab is subject to quarterly TLC inspections. The Boston and Cambridge Markets. The Company estimates that Boston medallions currently sell for approximately $100,000. The number of Boston medallions had been limited by law since 1930 to 1,525 medallions. In 1993, however, the Massachusetts legislature authorized the Boston Hackney Carriage Bureau, which regulates the issuance of new medallions, to issue 300 additional medallions, but the Bureau has only issued 40 additional medallions which are restricted to "wheelchair accessible" taxicabs. The Company estimates that the total value of all Boston medallions and related assets is approximately $157.0 million. In addition, the Company estimates Cambridge medallions currently sell for approximately $85,000. The number of Cambridge medallions has been limited to 248 since 1945 by a Cambridge city ordinance; accordingly, the Company estimates that the total value of all Cambridge medallions and related assets is approximately $21.0 million. The Chicago Market. Based on the Company's experience, Chicago medallions currently sell for approximately $50,000. Pursuant to a 1988 municipal ordinance, the number of outstanding medallions, which currently is capped at 5,500, has increased steadily from 4,600 in 1988 and will be increased to 5,700 in 1997. The ordinance has also required two major taxicab companies to forfeit 1,300 medallions from 1988 through 1997. The newly issued and forfeited medallions have been reissued for nominal consideration to new owners by the city through a lottery. The Company estimates that the total value of all Chicago medallions and related assets is approximately $275.0 million. Market Position The Company has originated and serviced Medallion Loans since 1979 and has established a leading position in this industry. The Company's management has a long history of owning, managing and financing taxicab fleets, taxicab medallions and corporate car services. Medallion Loans collateralized by New York City taxicab medallions and related assets comprised 93.0% of the value of the Company's Medallion Loan portfolio at December 31, 1996. The balance consisted of Medallion Loans collateralized by Boston, Chicago, Cambridge, Newark, Philadelphia and Hartford taxicab medallions. The Company believes that there are significant growth opportunities in these and other metropolitan markets nationwide. 7 Most New York City medallion transfers are handled through approximately 35 medallion brokers who are licensed by the TLC. In addition to brokering medallions, these brokers also arrange TLC documentation, insurance, vehicles and meters as well as financing. The Company has excellent relations with many of the most active of these brokers and regularly receives referrals from them. However, the Company receives most of its referrals from a small number of brokers. The Company does not pay referral fees. Loan Portfolio Medallion Loans comprised approximately 76.3% of the Company's loan portfolio at December 31, 1996. On that date, the Company had 1,631 Medallion Loans outstanding ranging from $300 to $560,000 in principal amount outstanding with an average principal amount outstanding of $83,000 and an aggregate principal amount outstanding of $134.6 million. Substantially all of the Company's Medallion Loans are made at fixed rates of interest in excess of the Prime Rate. These loans generally require equal monthly payments covering accrued interest and amortization of principal over a ten-year schedule subject to a balloon payment of all outstanding principal after four years. More recently, the Company has begun to originate loans with two to four year maturities. Previously, the Company was not permitted to do so under SBA regulations. Borrowers may prepay Medallion Loans upon payment of a fee of 90 days' interest. The Company generally retains the Medallion Loans it originates. From inception of its business through December 31, 1996, the period between the origination and final payment of all Medallion Loans originated by MFC has been estimated by the Company to be 29 months on a weighted average basis. The Company believes that this weighted average time period varies to some extent as a function of changes in interest rates because borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rate payable on the borrower's loan is high relative to prevailing interest rates and are less likely to repay in a rising interest rate environment. At December 31, 1996, substantially all of the Company's Medallion Loans were secured by first security interests in taxicab medallions and related assets. The Company originates Medallion Loans at an approximate average loan-to-value ratio of 70.0%. The Company estimates that the average loan to value ratio of all of the Company's Medallion Loans at December 31, 1996 was 54.0%, which the Company believes is representative of its historical average loan to value ratio. The Company has recourse against the direct and indirect owners of the medallion through personal guarantees. Although personal guarantees increase the commitment of borrowers to repay their loans, there can be no assurance that the assets available under personal guarantees would, if required, be sufficient to satisfy the obligations secured by such guarantees. The Company believes that its Medallion Loan portfolio is of high credit quality because medallions have generally increased in value and are easy to repossess and resell in an active market. While loans in the portfolio of MFC have been from time to time in arrears or default, MFC never experienced a loss of principal on any of the $309.0 million in aggregate principal amount of Medallion Loans it originated during the period from 1979 through December 31, 1996. In addition, from the date of the Acquisitions through the date of this Report, Edwards and TCC have not lost any principal on the loans that were outstanding during this time. In the event of defaults by borrowers, the medallions collateralizing such loans have been seized and, when such loans have not been brought current, readily sold in the active market for medallions at prices at or in excess of the amounts due. COMMERCIAL INSTALLMENT LOANS Overview MFC began Commercial Installment Loan operations in 1987 to diversify its loan portfolio which, prior to that time, consisted almost entirely of Medallion Loans. MFC chose to concentrate these operations on originating loans secured by retail dry cleaning and coin operated laundromat equipment because of certain characteristics similar to medallion lending that make these industries attractive candidates for profitable lending. These factors include the following (i) relatively high fixed rates of interest ranging from approximately 500 to 700 basis points over the prevailing Prime Rate at the time of origination, (ii) low historical repossession rates, (iii) vendor recourse, (iv) significant equity investments by borrowers, (v) an active market for repossessed equipment, 8 (vi) a small average loan size of $60,000 and (vii) collateral service life that is frequently twice as long as the term of the loans. The Company estimates that there are approximately 4,000 retail dry cleaners and approximately 3,000 laundromats in the New York City metropolitan area. Specialization in these industries has permitted relatively low administrative costs because documentation and terms of credit are standardized. Moreover, the consistency among the loans has facilitated simplified credit review and portfolio analysis. The Company believes that other niche industries with similar characteristics will provide additional loan portfolio growth opportunities. Building on the success of MFC's Commercial Installment Loan Operations, the Company has continued to expand its lending activities in this area through Edwards, TCC and Medallion Financial itself. Moreover, if the Company succeeds in its application to become a Participating Lender under the SBA's Section 7(a) loan program, the Company anticipates that a significant proportion of the assets of the subsidiary formed for this purpose would be allocated to the origination of Commercial Installment Loans. Loan Portfolio Commercial Installment Loans comprised 23.7% of the Company's loan portfolio at December 31, 1996. These loans finance either the purchase of the equipment and related assets necessary to open a new business or the purchase or improvement of an existing business. The Company has originated Commercial Installment Loans in principal amounts ranging from $5,000 to $725,000. These loans are generally retained by the Company and typically have maturities ranging from one to seven years. At December 31, 1996, there were 739 Commercial Installment Loans outstanding with a balance of $41.9 million. Loans to dry cleaners and laundromats represented 81.0% of the aggregate principal amount of Commercial Installment Loans outstanding at December 31, 1996. The remaining Commercial Installment Loans are spread among other industries including food service, private pay phone, radio broadcast and accounts receivable financing. The principal amount of the Company's originations of Commercial Installment Loans has increased during the three years ended December 31, 1996. In 1996 the Company originated 326 Commercial Installment Loans in the aggregate principal amount of $38.2 million. The Company originated 350 Commercial Installment Loans in 1995 in the aggregate principal amount of $24.7 million. The Company originated 339 Commercial Installment Loans in 1994 in the aggregate principal amount of $24.1 million, compared to 181 Commercial Installment Loans in the aggregate principal amount of $17.2 million originated in 1993. Commercial Installment Loans made by the Company typically require equal monthly payments covering accrued interest and amortization of principal over a four- to five-year term and generally can be prepaid with a fee of 90 days' interest. At December 31, 1996, the Company's Commercial Installment Loans had a weighted average interest rate of 13.51%. The term of, and interest rate charged on, the Company's outstanding loans are subject to SBA Regulations. Under SBA Regulations, the maximum rate of interest permitted on loans originated by the Company is 19.0%. Unlike Medallion Loans, for which competition precludes the Company from charging the maximum rate of interest permitted under SBA Regulations, the Company is able to charge the maximum rate on certain Commercial Installment Loans and anticipates that Medallion Financial will be able to continue to charge in excess of the maximum rate since Medallion Financial is not subject to regulation by the SBA. The weighted average rate of interest on Commercial Installment Loans exceeded the weighted average rate of interest on Medallion Loans by 359 basis points at December 31, 1996. The Company believes that the increased yield on Commercial Installment Loans compensate for their higher risk relative to Medallion Loans and further illustrate the benefits of diversification. The Company generally originates Commercial Installment Loans at an approximate average loan to value ratio of 70.0% and estimates that the average loan to value ratio of all of the Company's Commercial Installment Loans at December 31, 1996 was approximately 60.0%. Substantially all of the Company's Commercial Installment Loans are collateralized by first security interests in the assets being financed by the borrower. At December 31, 1996, 81.0% of the aggregate principal outstanding in the Company's Commercial Installment Loan portfolio was secured by first security interests in retail dry cleaning and coin operated laundromat equipment and the balance, 19.0%, was secured by real estate, food service equipment, radio broadcast licenses and other equipment. In 9 addition, the Company requires the principals of borrowers to personally guarantee loans. Additional security is provided by equipment vendors, and at December 31, 1996, approximately 40.0% of the aggregate principal amount of Commercial Installment Loans outstanding was secured by full recourse guarantees from equipment vendors and approximately 5.0% was secured by partial recourse guarantees from equipment vendors. The Company's aggregate realized loss of principal on loans secured by retail dry cleaning and coin operated laundromat equipment originated to date is $111,000 or 0.15% of the approximately $72.1 million in principal amount of such loans originated to date. MARKETING, ORIGINATION AND LOAN APPROVAL PROCESS The Company employs six loan officers that originate Medallion Loans and Commercial Installment Loans. The Company's loan officers regularly receive referrals from medallion brokers and make use of an extensive referral network in the retail dry cleaning and coin operated laundromat industry. Equipment vendors are the single most important source of Commercial Installment Loan referrals and the Company attributes its excellent relations with these vendors in part to its success in financing the purchase of retail dry cleaning and coin operated laundromat equipment. Each loan application is individually reviewed through analysis of a number of factors, including loan-to-value ratios, a review of the borrower's credit history, public records, personal interviews, trade references and personal inspection of the premises and TLC approval, if applicable. The Company also requires each applicant to provide personal and corporate tax returns and premises leases or property deeds. The Company's Credit Committee establishes loan origination criteria. Loans that conform to such criteria may be processed by a loan officer and non-conforming loans must be approved by three of the four members of the Company's Credit Committee. GROSS LOANS RECEIVABLE The following table sets forth the Company's gross loans receivable:
December 31, ------------------------------------------------------------------------------ 1992 1993 1994 1995 1996 -------------- -------------- -------------- -------------- -------------- (in thousands) Loans Receivable Medallion Financial.. $ 14,640 8% Tri-Magna (MFC)...... $ 69,785 53% $ 82,014 57% $ 90,343 62% $ 96,956 64% 99,662 57 Edwards.............. 43,020 32 44,141 30 43,487 30 43,799 29 46,630 26 TCC.................. 20,192 15 18,074 13 10,981 8 9,797 7 15,608 9 Total.............. $132,997 100% $144,229 100% $144,811 100% $150,552 100% $176,540 100% ======== === ======== === ======== === ======== === ======== ===
During the year ended December 31, 1996, the Company originated over 1,000 loans in the aggregate principal amount of $88.1 million. For that period, the Company's realized losses of principal were 0.06% of its loan portfolio. During the year ended December 31, 1995, the Company originated loans in the aggregate principal amount of $52.7 million. For that year, the Company's realized losses of principal were less than 0.01% of its loan portfolio. 10 LOAN ACTIVITY The following table sets forth the Company's loans originated, renewed and repaid on a combined basis for the periods indicated:
Year Ended December 31, ------------------------------- 1994 1995 1996 --------- --------- --------- (in thousands) Loans originated................................ $ 61,357 $ 52,714 $ 88,070 Loan repayments (including renewals)............ (60,610) (46,983) (60,569) Decrease (increase) in unrealized depreciation.. 871 195 9 Loans (written off) recovered, net.............. (166) 11 5 -------- -------- -------- Increase (decrease) in loans receivable-net..... 1,452 5,937 27,515 Loans receivable-net (beginning of period)...... 141,590 143,042 148,979 -------- -------- -------- Loans receivable-net (end of period)............ $143,042 $148,979 $176,494 ======== ======== ========
DELINQUENCY AND LOAN LOSS EXPERIENCE Under the Company's collection policy, when a borrower fails to make a required monthly payment, the borrower is notified by mail after approximately 10 days, and a collection officer generally contacts the borrower if the payment remains unpaid after 10 additional days. The Company generally follows a practice of discontinuing the accrual of interest income on loans which are in arrears as to interest payments for a period in excess of 90 days. The Company delivers a default notice and begins foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action in the circumstances. At December 31, 1996, the Company had 88 loans with an aggregate principal balance of $8.4 million, or 4.8% of the portfolio, for which accrued interest and principal payments of $791,000 were delinquent for 90 days or more, compared to 69 loans with an aggregate principal balance of $6.4 million or 4.3% of the portfolio, for which accrued interest and principal payments of $512,000 were delinquent for 90 days or more at December 31, 1995. Of the 88 loans which were delinquent at December 31, 1996, 55, in the aggregate principal amount of $5.8 million, were Medallion Loans. The Company considers a loan to be delinquent if the borrower fails to make payments for 10 days or more; however, the Company may agree with a borrower that cannot make payments in accordance with the original loan agreement to modify the payment terms of the loan. Based upon the Company's assessment of its collateral position, the Company anticipates that a substantial portion of the principal amount of its delinquent loans would be collected upon foreclosure of such loans, if necessary. There can be no assurance, however, that the collateral securing such loans will be adequate in the event of foreclosure. The Company monitors delinquent loans for possible exposure to loss. In its analysis, the Company reviews various factors, including the value of the collateral securing the loan and the borrower's prior payment history. Based upon these factors and the Company's analysis of the yield and maturity of loans in the portfolio relative to current and projected market interest rates, the Company determines net unrealized depreciation of investments or the amount by which the Company's estimate of the current realizable value of its portfolio is below the cost basis thereof. 11 The following table sets forth the Company's unrealized depreciation of investments and the loan loss experience on a combined basis:
Year Ended December 31, -------------------------- 1994 1995 1996 -------- ------- ------- (in thousands) Balance, beginning of year........................ $2,639 $1,768 $1,573 Change in unrealized depreciation of investments.. (415) (145) (9) Realized loan losses.............................. (200) (62) 0 Recoveries........................................ 33 12 5 Interest income received.......................... (289) -- -- ------ ------ ------ Balance, end of year.............................. $1,768 $1,573 $1,569 ====== ====== ======
CUSTODIAL SERVICES Fleet Bank N.A. acts as the custodian of all of the Company's portfolio assets pursuant to a Security Agreement dated March 27, 1992 between MFC and Fleet Bank N.A. (formerly NatWest Bank N.A.), as amended. TAXICAB ROOFTOP ADVERTISING Media provides taxicab rooftop advertising which is a relatively undeveloped segment of the out-of-home advertising industry. Out-of-home advertising includes (i) traditional outdoor advertising, such as billboards and posters, (ii) transit advertising, such as taxicabs, buses, bus shelters, subway, commuter train and airport advertising and (iii) in-store point of sale advertising. The Company entered this business in November 1994 with the organization of Media and since that time the business has grown rapidly. In July 1996 the Company acquired See-Level Advertising, Inc., a taxicab rooftop advertising firm with 450 Displays in New York City. The Company intends to continue to expand this business through internally generated growth and additional acquisitions of taxicab rooftop advertising businesses. Under its agreement with MTBOT, the Company will add an additional 1,800 taxicabs to the number under contract in New York City beginning September 27, 1997. The Company currently provides taxicab rooftop advertising in New York City, Philadelphia, Miami and Boston and intends to expand its operations to other major metropolitan areas. The Company's goal is to become the leading national provider of taxicab rooftop advertising by establishing a presence in several major U.S. metropolitan markets. The Company believes that no provider currently operates nationwide. On December 31, 1996, the Company had approximately 2,000 installed Displays. Each Display is attached to the rooftop of a taxicab by the Company and the Company also performs all ongoing Display maintenance and repair. The Display remains the property of the Company. The Display serves as a platform or frame for advertising copy which is preprinted on vinyl sheets with adhesive backing and provided by the advertiser. The advertising copy adheres to the Display and is illuminated whenever the taxicab is in operation. The vinyl sheet is durable and is generally left on the Display for up to 90 days. The advertising copy is replaced at the advertiser's discretion and cost when advertising campaigns change. The standard size of the vinyl advertising copy, 14 inches high and 48 inches long, was designed to be proportionally similar to "bulletins" or "billboards" to permit advertisers to conveniently translate billboard copy to Display copy. Generally, the Company enters into agreements with taxicab associations, fleets or individuals to lease taxicab rooftop space for five-year terms. The Company markets the Displays to companies promoting products, advertising agencies and outdoor advertising buying agencies. Advertising contracts 12 generally vary from 30 days to one year and provide for monthly payments by the advertiser. The Company's advertising accounts have included Cathay Pacific Airways Limited; Allied Domecq Retailing Limited; Ringling Bros. Barnum & Bailey Combined Shows, Inc.; Young Men's Christian Association of Greater New York; Luxottica Group S.P.A.; HBO; R. J. Reynolds Tobacco Company; CBS, Inc.; NEC; NYNEX Corporation; Metro-Goldwyn-Mayer Inc.; and Brown & Williamson Tobacco Corporation. The Company believes the inherent in-motion nature of taxicabs and their concentration and distribution throughout densely populated metropolitan areas enhance their effectiveness as an advertising medium. Displays can be placed throughout an area, effectively covering the population and providing continuous exposure. Moreover, taxicab rooftop advertising is not zoned out of any of the areas in New York City, such as Park Avenue and Central Park, where stationary advertising is generally prohibited. Unlike other forms of transit advertising in New York City such as buses, bus shelters and subway and commuter train stations, which are prohibited from advertising tobacco products, taxicabs are not restricted by New York City from advertising tobacco products. In addition, the Company believes that taxicab rooftop advertising compares favorably with other forms of outdoor advertising, which in general have among the lowest cost-per-thousand impressions or "CPM", a standard measurement of effectiveness among media, of all advertising media. Currently, approximately 60% of the Company's taxicab rooftop advertising revenue is derived from tobacco products advertising. In August 1996 President Clinton signed an executive order adopting rules proposed by the U.S. Food and Drug Administration (the "FDA") restricting the sale and --- advertising of cigarette and smokeless tobacco products. Although certain advertising industry and tobacco industry organizations have filed lawsuits challenging these rules and certain members of Congress have indicated that they may sponsor legislation to prevent these rules from going into effect, there can be no assurance that such lawsuits will be successful or that such legislation, if proposed, will be adopted. Subject to the outcome of litigation or legislative action, these rules would become effective in August 1997. The Company believes that certain of these regulations which include provisions prohibiting the placement of tobacco product advertising within 1,000 feet of playgrounds and schools only apply to stationery advertising such as placards and billboards and, accordingly, do not restrict taxicab rooftop advertising. Certain other of these regulations, however, which limit tobacco products advertising to a format consisting of black text on a white background and require the inclusion of a statement which identifies the product as "a nicotine-delivery device for persons over 18" apply to taxicab rooftop advertising. Certain advertisers may be unwilling to advertise in this format; accordingly, these restrictions, which become effective on August 28, 1997, could have an adverse effect upon the taxicab rooftop advertising business of the Company. The Company believes, however, it could replace some of the revenue which may be lost due to the restrictions on taxicab rooftop advertising imposed under these regulations. SOURCES OF FUNDS Overview The Company funds its operations through credit facilities with bank syndicates and, to a lesser degree, through fixed rate, long-term subordinated debentures issued to or guaranteed by the SBA. The determination of funding sources is established by the Company's management, based upon analysis of the respective financial and other costs and burdens associated with funding sources. SBA financing is generally subordinate to bank financing and offers very attractive rates, for example currently as low as 8.08%, but such financing is restricted in its application and its availability is uncertain. In addition, 13 SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. Accordingly, the Company plans to limit its use of SBA funding and will seek such funding only when advantageous, such as to fund loans that qualify under SBA Regulations through Edwards and TCC which are already subject to SBA restrictions. At December 31, 1996, 76.6% of the Company's $125.8 million of debt consisted of bank debt, substantially all of which was at variable effective rates of interest averaging below the Prime Rate and 23.4% of the Company's debt consisted of subordinated SBA debentures, with fixed rates of interest with a weighted average rate of 7.38%. An additional $10.5 million of debt was available at December 31, 1996 at variable effective rates of interest averaging below the Prime Rate under the Company's $105.0 million in bank credit facilities. On January 28, 1997 MFC increased the amount available under its revolving credit facilities by $20.0 million and Medallion Financial increased the amount available under its line of credit by $1.0 million on February 10, 1997. The Company funds its fixed rate loans with variable rate bank debt and fixed rate subordinated SBA debentures. The mismatch between maturities and interest-rate sensitivities of these balance sheet items results in interest rate risk. The Company seeks to manage its exposure to increases in market rates of interest to an acceptable level by (i) purchasing interest rate caps to hedge a portion of its variable rate debt against increases in interest rates, (ii) incurring fixed-rate debt and (iii) originating adjustable rate loans. Nevertheless, the Company accepts varying degrees of interest rate risk depending on market conditions and believes that the resulting asset/liability interest rate mismatch results in opportunities for higher net interest income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management." Medallion Financial Medallion Financial has a $5.0 million revolving line of credit with a bank. At December 31, 1996, $4.5 million was outstanding under this facility, bearing interest at the rate of 6.84%. On February 10, 1997, Medallion Financial increased the amount available under its line of credit by $1.0 million. Edwards Funding Edwards has a $15.0 million revolving line of credit with a bank syndicate. At December 31, 1996, $12.5 million was outstanding under this facility, bearing interest at the rate of 6.81%. Under an agreement with the SBA, Edwards is restricted from borrowing more than $12.7 million in bank debt without the prior approval of the SBA. As an SBIC, Edwards is eligible to obtain low cost financing from the SBA through the issuance of subordinated SBA debentures. Edwards has debentures outstanding in the principal amount of $23.8 million and intends to seek to issue additional subordinated SBA debentures. SBA Regulations limit the amount of subordinated SBA debentures or "leverage" SBICs may issue. Generally, under SBA Regulations, the maximum principal amount of subordinated SBA debentures Edwards is permitted to issue is equal to 300% of its private or non-SBA paid-in capital and paid-in surplus ("Leveragable Capital"). SBA Regulations generally ------------------- also limit the aggregate amount of leverage SBICs under common control, such as Edwards, MFC and TCC, have outstanding to no more than $90 million. Accordingly, Edwards, MFC and TCC collectively may not issue subordinated SBA debentures in an aggregate amount that exceeds $90 million and at December 31, 1996, the aggregate amount outstanding was $29.4 million. The interest rates payable on outstanding subordinated SBA debentures at December 31, 1996 ranged from 5.00% to 9.80% with a weighted average of 7.38%. 14 At December 31, 1996, Edwards had Leveragable Capital of $9.6 million and had issued $23.8 million in principal amount of subordinated SBA debentures that carry fixed rates of interest and have ten-year terms. These debentures have maturities ranging from April 1, 1997 to September 1, 2004 and rates of interest varying from 7.15% to 9.80% per annum. Subject to the limitations discussed above, Edwards was eligible on December 31, 1996, to issue $4.9 million in aggregate principal amount of additional subordinated SBA debentures. MFC Funding MFC intends to rely on its bank credit facilities rather than on SBA financing to fund its operations. MFC has a credit facility with a bank syndicate consisting of an $85.0 million revolving line of credit and a $2.0 million term loan. Amounts outstanding under the revolving line of credit bear interest at the agent bank's prime rate or, at MFC's option, a rate based on LIBOR. At December 31, 1996, the average interest rate was 7.06% which was 119 basis points below the Prime Rate and 150 basis points above the 90-day LIBOR as of such date. The revolving line of credit is secured by all of MFC's assets and matures on June 30, 1997. As of December 31, 1996, there was an outstanding balance of $77.6 million under the revolving line of credit. The term loan bears interest at the rate of 7.50% and matures on July 31, 1997. SBA financing is limited and so long as an SBIC has SBA financing outstanding, the SBA restricts the amount of secured bank debt such SBIC may have outstanding. As a result of these SBA limitations, debt financing from all sources is effectively limited. To eliminate this funding cap, MFC has repurchased all of its outstanding subordinated SBA debentures and preferred stock and thereby terminated SBA limitations on the amount of secured bank debt MFC can incur. The Company believes that MFC will be able to obtain more funding from banks than it was able to obtain from the SBA and banks under SBA limitations, and that this will permit MFC to more effectively expand its operations. The Company is also currently exploring the possibility of establishing a commercial paper program at MFC as an additional source of liquidity. The issuance of commercial paper will be contingent upon MFC obtaining an investment grade rating, among other conditions, and in an effort to secure this rating, the Company intends to merge TCC into MFC to increase MFC's capital base. After the merger, MFC will hold TCC's debentures and ordinarily this would result in the imposition of limitations on the amount of third party bank debt that MFC could incur. MFC, however, intends to enter into an agreement with the SBA permitting MFC to continue to incur an unlimited amount of third party bank debt but providing that the debentures acquired by MFC from TCC will be secured by Commercial Installment Loans on a pari passu basis with the Company's third party bank debt. There can be no assurance that the Company will be able to enter into such an agreement with the SBA on terms acceptable to the Company or that MFC will be able to establish a commercial paper program. TCC Funding Prior to its conversion to an SBIC on February 21, 1997, TCC was eligible to obtain low cost financing from the SBA through the issuance of subordinated SBA debentures and the issuance of non-voting cumulative preferred stock to, or guaranteed by, the SBA. As of December 31, 1996, TCC had $5.6 million of subordinated SBA debentures outstanding and no preferred stock outstanding. At December 31, 1996 the interest rate payable on subordinated SBA debentures was 5.00%. As a result of an SBA subsidy program available to SSBICs, the effective interest rate on subordinated debentures issued by TCC prior to its conversion to an SBIC is 3.00% below the stated interest rate for the first five 15 years such debentures are outstanding. As an SBIC, TCC is no longer eligible to issue non-voting cumulative preferred stock. TCC is, however, still eligible to obtain low cost financing from the SBA through the issuance of subordinated SBA debentures and TCC intends to seek to issue additional subordinated SBA debentures, but the interest on such debentures will not be subsidized by the SBA. SBA Regulations limit the amount of subordinated SBA debentures or "leverage" SBICs may issue and the "300% of leveragable capital" and the $90 million limit on the aggregate amount of leverage permitted for SBICs under common control referred to above also apply. At December 31, 1996, the interest rate payable on newly issued subordinated SBA debentures was 8.08%. At December 31, 1996, TCC had Leveragable Capital of $7.5 million and had issued $5.6 million in principal amount of subordinated SBA debentures that have fixed rates of interest, ten-year terms and may be prepaid after five years without penalty. The interest rate payable on these debentures is 5.00% per annum and they mature on June 1, 2002. Future issuances of subordinated SBA debentures by TCC, including any refinancing or rollover of currently outstanding subordinated SBA debentures, are also limited by the SBA to the aggregate amount of TCC's outstanding non-Medallion Loans and the aggregate amount of non-Medallion Loans originated in connection with such financing. At December 31, 1996, TCC had $9.1 million in principal amount of non-Medallion Loans outstanding. Subject to the foregoing limitations, TCC was eligible on December 31, 1996, to issue $16.8 million of additional subordinated SBA debentures. Preferred Stock Repurchase Agreements MFC and TCC have repurchased all of their previously issued preferred stock from the SBA for an aggregate price of $4.4 million, representing a discount of 65% from the original aggregate issuance price of $12.6 million. The repurchase price discount of $8.2 million reflects the below market 3% dividend rate and the fact that the preferred stock was not subject to mandatory redemption at any time. The repurchase has resulted in the termination of SBA limits on the amount of secured bank debt MFC can incur and a realized gain in retained earnings in the amount of the repurchase discount which will be accreted to paid-in capital on a straight-line basis over 60 months, commencing August 12, 1994. However, if MFC or TCC is liquidated or loses its SBA license during the accretion period, the SBA will receive the remaining unaccreted amount of the realized gain attributable to the subsidiary liquidating or losing its license. At December 31, 1996, the aggregate remaining unaccreted amount of the realized gain for MFC and TCC was $4.6 million. THE COMPANY'S OPERATION AS A RIC The Company has elected to be taxed as a RIC under Sections 851 through 855 under the Code. The Company intends, during this and subsequent taxable years, to operate in a manner that permits it to satisfy the requirements for taxation as a RIC under the applicable provisions of the Code, but no assurance can be given that it will operate in a manner so as to qualify or remain qualified. The sections of the Code relating to qualification and operation as a RIC are highly technical and complex. The following sets forth the material aspects of the Code sections that govern the federal income tax treatment of a RIC and its stockholders. This summary is qualified in its entirety by the applicable Code provisions, rules and regulations thereunder, and administrative and judicial interpretations thereof. In brief, if certain detailed conditions of the Code are met, business development companies, such as the Company, that otherwise would be treated for federal income tax purposes as corporations are 16 generally not taxed at the corporate level on their "investment company taxable income" that is currently distributed to stockholders. This treatment substantially eliminates the "double taxation" (i.e., taxation at both the corporate and stockholder levels) that generally results from the use of corporate investment vehicles. A RIC is, however, generally subject to federal income tax at regular corporate rates on undistributed investment company taxable income. Furthermore, in order to avoid a 4% nondeductible federal excise tax on undistributed income and capital gains, the Company must distribute (or be deemed to have distributed) by December 31 of each year at least 98% of its ordinary income for such year, at least 98% of its capital gain net income (which is the excess of its capital gain over its capital loss and is generally computed on the basis of the one-year period ending on October 31 of such year) and any amounts that were not distributed in the previous calendar year and on which no income tax has been paid. If the Company fails to qualify as a RIC in any year, it will be subject to federal income tax as if it were a domestic corporation, and its stockholders will be taxed in the same manner as stockholders of ordinary corporations. In this event, the Company could be subject to potentially significant tax liabilities and the amount of cash available for distribution to its stockholders could be reduced. The Code defines the term "RIC" to include a domestic corporation that has elected to be treated as a business development company under the 1940 Act and meets certain requirements. These requirements include that (a) the company derive at least 90% of its gross income for each taxable year from dividends, interest, interest payments with respect to securities loans and gains from the sale or other disposition of stocks or securities or foreign currencies, or other income derived from its business of investing in such stocks, securities or currencies; (b) the company derives less than 30% of its gross income for each taxable year from the sale or other disposition of any of the following that are held for less than three months: (i) stock or securities and (ii) certain other financial interests (the "short-short test"); and (c) the company diversifies its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the value of its total assets is represented by (A) cash, and cash items (including receivables), U.S. Government securities and securities of other RICs, and (B) other securities limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of the company and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of total assets is invested in the securities (other than U.S. Government securities or securities of other RICs) of any one issuer or two or of more issuers controlled by the company and engaged in the same, similar or related trades or businesses. The foregoing diversification requirements under the Code could restrict the Company's expansion of its taxicab rooftop advertising business. Furthermore, in order to qualify as a RIC under the Code, each taxable year, a company also must distribute to its stockholders at least 90% of (a) its investment company taxable income and (b) the excess of its tax-exempt interest income over certain disallowed deductions. Provided that the Company satisfies the above requirements, neither the investment company taxable income it distributes to stockholders nor any net capital gain that is distributed to stockholders should subject the Company to federal income tax. Investment company taxable income and/or net capital gains that are retained by the Company should be subject to federal income tax at regular corporate income tax rates; provided, however, that to the extent that the Company retains any net long-term capital gains, it may designate them as "deemed distributions" and pay a tax thereon for the benefit of its stockholders. The Company currently intends to continue to distribute to its stockholders for each of its taxable years substantially all of its investment company taxable income and may or may not distribute any capital gains. 17 If the Company acquires debt obligations that were originally issued at a discount, or that bear interest rates that do not call for payments at fixed rates (or certain "qualified variable rates") at regular intervals over the life of the obligation, it will be required to include as interest income each year a portion of the "original issue discount" that accrues over the life of the obligation regardless of whether it receives the income, and it will be obligated to make distributions accordingly. In this event, the Company may borrow funds or sell assets to meet the distribution requirements. However, under the 1940 Act, the Company will not be permitted to make distributions to stockholders while senior securities are outstanding unless it meets certain asset coverage requirements. If the Company is unable to make the required distributions, it may fail to qualify as a RIC and may be subject to the nondeductible 4% excise tax. Furthermore, the SBA restricts the distributions that may be made to an amount equal to undistributed net realized earnings less the allowance for unrealized loan losses (which in the case of the Company is included in unrealized depreciation). As long as the Company qualifies as a RIC, distributions made to its taxable domestic stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be taken into account by them as ordinary income. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed the Company's actual net long-term capital gain for the taxable year) without regard to the period for which the stockholder has held its stock. Corporate stockholders however, are subject to tax on capital gain dividends at the same rate as ordinary income. To the extent that the Company makes distributions in excess of current and accumulated earnings and profits, these distributions are treated first as a tax-free return of capital to the stockholder, reducing the tax basis of a stockholder's Common Stock by the amount of such distribution (but not below zero), with distributions in excess of the stockholders's tax basis taxable as capital gains (if the Common Stock is held as a capital asset). In addition, any dividends declared by the Company in October, November or December of any year and payable to a stockholder of record on a specific date in any such month shall be treated as both paid by the Company and received by the stockholder on December 31 of such year, provided that the dividend is actually paid by the Company during January of the following calendar year. Stockholders may not include in their individual income tax returns any net operating losses or capital losses of the Company. If the Company chooses to retain and pay tax on any net capital gain rather than distribute such gain to its stockholders, the Company will designate such deemed distribution in a written notice to stockholders prior to the expiration of 60 days after the close of the taxable year. Each stockholder would then be treated for federal income tax purposes as if the Company had distributed to such stockholder on the last day of its taxable year the stockholder's pro rata share of the net long-term capital gain retained by the Company and the stockholder had paid its pro rata share of the taxes paid by the Company and reinvested the remainder in the Company. In general, any loss upon a sale or exchange of Common Stock by a stockholder who has held such stock for six months or less (after applying certain holding period rules) will be treated as long-term capital loss, to the extent of distributions from the Company required to be treated by such stockholder as long-term capital gains. THE COMPANY'S OPERATION AS A BDC As a BDC, the Company is subject to regulation under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between investment companies and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. In addition, the 1940 Act provides that the Company may not change the nature of its business so as to cease to be, or to withdraw its 18 election as, a BDC unless so authorized by the vote of a "majority of the Company's outstanding voting securities," as defined under the 1940 Act. The Company is permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock (collectively, "senior securities," as defined under the 1940 Act) senior to the shares of Common Stock if the Company's asset coverage of such indebtedness and all senior securities is at least 200% immediately after each such issuance. Subordinated SBA debentures guaranteed by or issued to the SBA by the RIC subsidiaries, are not subject to this asset coverage test. In addition, while senior securities are outstanding, provision must be made to prohibit the declaration of any dividend or other distribution to stockholders (except stock dividends) or the repurchase of such securities or shares unless the Company meets the applicable asset coverage ratios at the time of the declaration of the dividend or distribution or repurchase. Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act ("Qualifying Assets") ----------------- unless, at the time the acquisition is made, certain Qualifying Assets represent at least 70% of the value of the company's total assets. The principal categories of Qualifying Assets relevant to the proposed business of the Company are the following: (1) Securities purchased in transactions not involving a public offering from the issuer of such securities, which issuer is an eligible portfolio company. An "eligible portfolio company" is defined in the 1940 Act as any issuer which: (a) is organized under the laws of, and has its principal place of business in, the United States; (b) is not an investment company other than an SBIC wholly-owned by the BDC; and (c) satisfies one or more of the following requirements: (i) issuer does not have a class of securities with respect to which a broker or dealer may extend margin credit; or (ii) issuer is controlled by a BDC and the BDC has an affiliated person serving as a director of issuer; (iii) issuer has total assets of not more than $4 million and capital and surplus (shareholders' equity less retained earnings) of not less than $2.0 million, or such other amounts as the Commission may establish by rule or regulation; or (iv) issuer meets such other requirements as the Commission may establish from time to time by rule or regulation. (2) Securities for which there is no public market and which are purchased in transactions not involving a public offering from the issuer of such securities where the issuer is an eligible portfolio company which is controlled by the BDC. (3) Securities received in exchange for or distributed on or with respect to securities described in (1) or (2) above, or pursuant to the exercise of options, warrants or rights relating to such securities. 19 (4) Cash, cash items, government securities, or high quality debt securities maturing in one year or less from the time of investment. In addition, a BDC must have been organized (and have its principal place of business) in the United States for the purpose of making investments in the types of securities described in (1) or (2) above. In order to count securities as Qualifying Assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must make available to the issuer of the securities significant managerial assistance; except that, where the business development company purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available the required managerial assistance. The Company believes that the common stock of MFC, Edwards, TCC and Media are Qualifying Assets. REGULATION OF THE COMPANY BY THE SBA Edwards is an SBIC and as explained in further detail below, MFC and TCC were formerly SSBICs and were converted to SBICs under Conversion Agreements entered into with the SBA in February 1997. The SBIA authorizes the organization of SBICs as vehicles for providing equity capital, long term financing and management assistance to small business concerns. A small business concern, as defined in the SBIA and the SBA Regulations, is a business that is independently owned and operated and which is not dominant in its field of operation. In addition, at the end of each fiscal year, at least 20% of the total amount of loans made since April 25, 1994 by each SBIC and SSBIC must be made to a subclass of small business concerns that (i) have a net worth, together with any affiliates, of $6.0 million or less and average annual net income after U.S. federal income taxes for the preceding two years of $2.0 million or less (average annual net income is computed without the benefit of any carryover loss), or (ii) satisfy alternative criteria under SBA Regulations that focus on the industry in which the business is engaged and the number of persons employed by the business or its gross revenues. SBA Regulations also prohibit an SBIC from providing funds to a small business concern for certain purposes, such as re-lending and reinvestment. Prior to the enactment of the Small Business Programs Improvement Act of 1996 (the "Improvement Act"), the SBIA authorized the organization of SSBICs --------------- as vehicles for providing the same forms of assistance as SBICs provide to small business concerns which are at least 50% owned and managed by persons whose participation in the free enterprise system is hampered because of social or economic disadvantages. Disadvantaged Borrowers include African Americans, Asian Sub-Continent Americans, Eskimos, Hispanic Americans, Native Americans, Vietnam War era veterans and other groups identified by the SBA. A small business concern must either (i) have a tangible net worth, together with any affiliates, of $18.0 million or less and an average annual net income after U.S. federal income taxes for the preceding two years of $6.0 million or less (average annual net income is computed without the benefit of any carryover loss) or (ii) satisfy alternative criteria under the SBA Regulations that focus on the industry in which the business is engaged and the number of persons employed by the business or its gross revenues. The Improvement Act, which became effective on September 30, 1996, effectively terminated the SSBIC program by repealing the provisions of the SBIA which authorized SSBICs. Following the enactment of the Improvement Act and termination of the SSBIC program, the SBA established procedures for existing SSBICs to convert to SBICs. In February 1997, MFC and TCC each entered into an agreement with the SBA whereby MFC and TCC were converted to SBICs subject to certain conditions imposed by the SBA. Under the MFC Conversion Agreement, MFC is authorized to make loans to borrowers other than Disadvantaged Borrowers provided that, at the time of such loan, MFC has 20 in its portfolio outstanding loans to Disadvantaged Borrowers with an aggregate cost basis equal to or exceeding the value of the unamortized repurchase discount under the preferred stock repurchase agreement between MFC and the SBA. At December 31, 1996 the amount of such unamortized repurchase discount was $3.1 million and MFC had outstanding loans to Disadvantaged Borrowers with an aggregate cost basis equal to $100.5 million. Likewise, under the TCC Conversion Agreement, TCC is authorized to make loans to persons other than Disadvantaged Borrowers provided that, at the time of such loan, TCC has in its portfolio loans outstanding to Disadvantaged Borrowers with an aggregate cost basis equal to the sum of (i) the principal amount of TCC's outstanding subordinated SBA debentures which are subsidized by the SBA; (ii) the value of the unamortized repurchase discount under the preferred stock repurchase agreement between TCC and the SBA; and (iii) the amount of any unamortized preferred stock dividends under the preferred stock purchase agreement. At December 31, 1996, (i) the principal amount of TCC's outstanding subsidized SBA debentures was $5.6 million, (ii) the amount of the unamortized repurchase discount was $1.4 million, and (iii) the amount of unamortized preferred stock dividends was $99,000, for a sum total of approximately $7.1 million. At December 31, 1996, TCC had outstanding loans to Disadvantaged Borrowers with an aggregate cost basis of $16.2 million. Under current SBA Regulations and subject to local usury laws, the maximum rate of interest that MFC, TCC or Edwards may charge may not exceed (i) the higher of 19% and (ii) the sum of (a) the higher of (I) that company's weighted average cost of qualified borrowings, as determined under SBA Regulations, or (II) the current subordinated SBA debenture rate, plus (b) 11%, rounded off to the next lower eighth of one percent. The maximum rate of interest permitted on loans originated by the RIC Subsidiaries is 19%. At December 31, 1996, the Company's outstanding Medallion Loans had a weighted average rate of interest of 9.92% and outstanding Commercial Installment Loans had a weighted average rate of interest of 13.51%. SBA Regulations also require that each loan originated by SBICs have a term of between five years and 20 years; however, loans to Disadvantaged Borrowers may be for a minimum of four years. The SBA restricts the ability of SBICs to repurchase their capital stock, to retire their subordinated SBA debentures and to lend money to their officers, directors and employees or invest in affiliates thereof. The SBA also prohibits, without prior SBA approval, a "change of control" or transfers which would result in any person (or group of persons acting in concert) owning 10% or more of any class of capital stock of an SBIC. A "change of control" is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of an SBIC, whether through ownership, contractual arrangements or otherwise. Under SBA Regulations, without prior SBA approval, loans by licensees with outstanding SBA leverage to any single small business concern may not exceed 20% of an SBIC's Leveragable Capital. Under the terms of their respective Conversion Agreement, however, MFC and TCC are authorized to make loans to Disadvantaged Borrowers in amounts not exceeding 30% of their respective Leveragable Capital. SBICs must invest funds that are not being used to make loans in investments permitted under SBA Regulations. These permitted investments include direct obligations of, or obligations guaranteed as to principal and interest by, the government of the United States with a term of 15 months or less and deposits maturing in one year or less issued by an institution insured by the FDIC. The percentage of an SBIC's assets so invested will depend on, among other things, loan demand, timing of equity infusions and SBA funding and availability of funds under credit facilities. SBICs may purchase voting securities of small business concerns in accordance with SBA Regulations. SBA Regulations prohibit SBICs from controlling a small business concern except where 21 necessary to protect an investment. SBA Regulations presume control when SBICs purchase (i) 50% or more of the voting securities of a small business concern if the small business concern has less than 50 stockholders or (ii) more than 20% (and in certain situations up to 25%) of the voting securities of a small business concern if the small business concern has 50 or more stockholders. COMPETITION Banks, credit unions and finance companies, some of which are SBICs, compete with the Company in originating Medallion Loans and Commercial Installment Loans. Finance subsidiaries of equipment manufacturers also compete with the Company. Many of these competitors have greater resources than the Company and certain competitors are subject to less restrictive regulations than the Company. As a result, there can be no assurance that the Company will be able to identify and complete the financing transactions that will permit it to compete successfully. The Company's taxicab rooftop advertising business competes with other taxicab rooftop advertisers as well as all segments of the out-of-home advertising industry and other types of advertising media, including cable and network television, radio, newspapers, magazines and direct mail marketing. Many of these competitors have greater financial resources than the Company and offer several forms of advertising as well as production facilities. EMPLOYEES As of December 31, 1996, the Company employed a total of 33 employees. The Company believes that its relations with all of its employees are good, but that its future success will depend, in part, on its ability to continue to recruit, retain and motivate qualified personnel at all levels. ITEM 2. PROPERTIES The Company leases approximately 7,400 square feet of office space in a building located at 205 East 42nd Street, New York, New York. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 22 EXECUTIVE OFFICERS OF THE REGISTRANT The current executive officers of the Company are as follows:
NAME AGE POSITION(S) HELD WITH THE COMPANY - ------------------------- --- ------------------------------------- Alvin Murstein*....... 62 Chairman and Chief Executive Officer Andrew Murstein*...... 32 President and Chief Operating Officer Marie Russo*.......... 72 Senior Vice President and Secretary Daniel F. Baker*...... 33 Treasurer and Chief Financial Officer Michael Fanger*....... 39 Executive Vice President Michael J. Kowalsky*.. 51 Executive Vice President - ------------------
An asterisk (*) indicates an "interested person" as such term is defined in (S) 2(a)(19) of the 1940 Act. Each officer's term extends until the first meeting of the Board of Directors following the next annual meeting of stockholders and until a successor is elected and qualified. Alvin Murstein has been Chairman of the Board of Directors of Medallion Financial since its founding in 1995 and has been Chief Executive Officer of Medallion Financial since February 1996. Mr. Murstein has also been Chairman of the Board of Directors and Chief Executive Officer of MFC since its founding in 1979 and of Media since its founding in 1994. Mr. Murstein has been Chairman of the Board of Directors and Chief Executive Officer of Edwards and TCC since June 1996. He served as Chairman of the Board of Directors and Chief Executive Officer of Tri-Magna from its founding in 1989 until its acquisition by the Company in May 1996. Mr. Murstein received a B.A. and an M.B.A. from New York University and has been an executive in the taxicab industry for over 40 years. Mr. Murstein has served on the Board of Directors of the Strober Organization, Inc., a building supply company, since 1988. Alvin Murstein is the father of Andrew Murstein. Andrew Murstein has been President of Medallion Financial since its inception in 1995, Chief Operating Officer of Medallion Financial since February 1996 and President of Media from inception. Mr. Murstein has also been a Director of MFC, Edwards and TCC since May 1996. He served as Tri-Magna's Director of New Business Development from 1994 until the acquisition of Tri- Magna by the Company in May 1996. Mr. Murstein received a B.A. in economics, cum laude, from Tufts University and an M.B.A. in finance from New York University. Mr. Murstein serves on the New York City Private Industry Council. Andrew Murstein is the son of Alvin Murstein and the son-in-law of Mr. Rudnick, and is the third generation of his family to be active in the taxicab industry. Marie Russo has been Senior Vice President and Secretary of Medallion Financial since February 1996. Ms. Russo has also been Senior Vice President and Secretary of MFC, Edwards and TCC since June 1996. Ms. Russo served as Vice President of Operations of Tri-Magna from 1989 until its acquisition by the Company in May 1996. From 1989 to 1996 she was Vice President of MFC and from 1983 to 1986 she was Controller of MFC. Ms. Russo received a B.S. in accounting from Hunter College. Daniel F. Baker has been Treasurer and Chief Financial Officer of Medallion Financial since February 1996. Mr. Baker has also been Treasurer and Chief Financial Officer of MFC, Edwards, TCC and Media since June 1996. Mr. Baker also served as Tri-Magna's Vice President of Finance from 1992 until its acquisition by the Company in May 1996. From 1989 through 1991, he was Controller of Tri- 23 Magna and from 1988 through 1991 he was Controller of MFC. Prior to joining MFC, Mr. Baker was employed by Arthur Andersen & Co. Mr. Baker received a B.S. in accounting from Husson College. Michael Fanger has been Executive Vice President of Medallion Financial since February 1996 and President of TCC since June 1996. Mr. Fanger has also been Executive Vice President of MFC and Senior Vice President of Edwards since June 1996. He served as Tri-Magna's Vice President of Commercial Lending from its inception until its acquisition by the Company in May 1996. Prior to joining MFC, Mr. Fanger was a Vice President, Commercial Lending at Shawmut Bank, N.A. Mr. Fanger received a B.A. from Colby College. Michael J. Kowalsky has been Executive Vice President of the Company since May 1996. Mr. Kowalsky has been President of MFC and Edwards since June 1996. He also served as Chief Operating Officer of Edwards from 1992 until June 1996. Prior to joining Edwards in 1990, Mr. Kowalsky was a Senior Vice President at General Cigar Co. Inc., a cigar manufacturing company. Mr. Kowalsky received a B.A. and M.A. in economics from the University of Kentucky and an M.B.A. from the New York University Graduate School of Business. 24 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock commenced trading on May 23, 1996 in the Nasdaq National Market System under the symbol "TAXI." As of March 31, 1997, there were approximately 650 holders of record of the Company's Common Stock. The following table sets forth for the fiscal periods indicated, the range of high and low closing prices for the Company's Common Stock on the Nasdaq National Market System.
HIGH LOW YEAR ENDED DECEMBER 31, 1996 Third Quarter Ended September 30, 1996 $15 $10 Fourth Quarter Ended December 31, 1996 $15 1/4 $12 1/8
On November 26, 1996 the Company paid its first quarterly cash dividend of $0.20 per share to holders of record of the Company's Common Stock on November 12, 1996. On January 30, 1997 the Company paid its second quarterly dividend of $0.21 per share to stockholders of record on December 30, 1996. The Company currently anticipates that it will continue to pay quarterly cash dividends on its Common Stock. There can be no assurance, however, that the Company will have sufficient earnings to pay such dividends, if any, in the future. ITEM 6. SELECTED FINANCIAL DATA On May 29, 1996, Medallion Financial acquired each of the Founding Companies. Prior to this acquisition, each of the Founding Companies had been operating independently of each other and Medallion Financial had no operations. Accordingly, the following Selected Financial Data is comprised of two major sections. The first section, Consolidated Selected Financial Data, presents consolidated audited financial data of the Company for the period commencing May 30, 1996 and ending December 31, 1996 and is derived from the actual financial position and results of operation of the Company as set forth in the audited Consolidated Financial Statements of the Company included as Item 8 in this Report on Form 10-K. The second section of the following discussion presents the Historical Selected Financial Data of each of the Founding Companies. The Historical Selected Financial Data for the fiscal years ended December 31, 1995 and 1994 and the period ended May 29, 1996, have been derived from audited financial statements included in this Report on Form 10-K. The Historical Selected Financial Data for Edwards and TCC have been reclassified to permit a presentation that is consistent with the investment company status they acquired upon completion of the Acquisitions. The Historical Selected Financial Data for the fiscal years ended December 31, 1992 for Edwards and 1993 for each of the Founding Companies have been derived from their respective audited financial statements not included in this Report on Form 10-K. The Historical Selected Financial Data for the fiscal year ended December 31, 1992 for Tri-Magna and TCC have been derived from their respective unaudited financial statements not included in this Report on Form 10-K. These unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, contain all adjustments, 25 consisting only of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations of the Founding Companies for the period presented. The Selected Financial Data provided herein should be read in conjunction with the financial statements of Medallion Financial, Tri-Magna, Edwards and TCC, including the Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Report on Form 10-K. 26 MEDALLION FINANCIAL CORP. SELECTED CONSOLIDATED FINANCIAL DATA FOR THE PERIOD MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
THREE MONTHS ENDED MAY 30 TO ---------------------------------- MAY 30 TO JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1996 1996 1996 ----------- ------------------- -------------- ------------- (unaudited) (unaudited) (unaudited) STATEMENT OF OPERATIONS DATA (in thousands except per share amounts) Investment income............................................ $ 1,392 $ 4,264 $ 4,756 $ 10,412 Interest expense............................................. 699 2,100 2,209 5,008 -------- -------- -------- -------- Net interest income.......................................... 693 2,164 2,547 5,404 Equity in earnings (losses) of unconsolidated subsidiary(1)............................... 29 (23) (69) (63) Other income................................................. 58 234 119 411 Accretion of negative goodwill............................... 64 181 176 421 Operating expenses........................................... (266) (932) (1,033) (2,231) Amortization of goodwill..................................... ( 35) (101) (123) (259) -------- -------- -------- -------- Net investment income........................................ 543 1,523 1,617 3,683 Realized gain on investments, net............................ -- 26 58 84 Change in unrealized depreciation of investments(2).......... -- -- (46) (46) -------- -------- -------- -------- Net increase in net assets resulting from operations(3)...... $ 543 $ 1,549 $ 1,629 $ 3,721 ======== ======== ======== ======== Net increase in net assets resulting from operations per share (3).............................................. $ 0.07 $ 0.19 $ 0.20 $ 0.45 ======== ======== ======== ======== Dividends declared per share................................. $ 0.00 $ 0.20 $ 0.21 $ 0.41 ======== ======== ======== ======== MAY 30, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1996 1996 1996 1996 -------- -------- -------- -------- BALANCE SHEET DATA (IN THOUSANDS) (unaudited) (unaudited) (unaudited) Investments Medallion Loans.......................................... $116,398 $121,720 $125,039 $134,615 Commercial Installment Loans............................. 33,046 34,463 36,766 41,925 Unrealized depreciation of investments....................... -- -- -- (46) -------- -------- -------- -------- Investments, net of unrealized depreciation of investments... 149,444 156,183 161,805 176,494 Total assets................................................. 184,938 173,001 174,584 189,625 Notes payable and demand notes............................... 90,400 79,700 81,300 96,450 Subordinated SBA debentures.................................. 30,590 30,421 29,263 29,390 Total liabilities............................................ 125,877 113,284 113,649 130,619 Total stockholders' equity................................... 56,122 56,692 58,241 56,487 DECEMBER 31, 1996 -------- SELECTED FINANCIAL RATIOS AND OTHER DATA (unaudited) Return on assets(4)(5)....................................................................................... 3.36% Return on equity(5)(6)....................................................................................... 11.29 Average yield, e.o.p.(7)..................................................................................... 10.80 Average cost of funds, e.o.p.(8)............................................................................. 7.11 Spread, e.o.p.(9)............................................................................................ 3.69 Other income ratio(5)(10).................................................................................... 0.40 Operating expense ratio(5)(11)............................................................................... 2.02 Medallion Loans as a percentage of investments............................................................... 76.25 Commercial Installment Loans as a percentage of investments.................................................. 23.75 Investments to assets........................................................................................ 93.08 Equity to assets............................................................................................. 29.79 Debt to equity............................................................................................... 222.76 SBA debt to total debt....................................................................................... 23.36
27 MEDIA (1)
MAY 30 TO JULY 1 TO OCTOBER 1 TO MAY 30 TO JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1996 1996 1996 ----------- -------------- ------------- ------------- (unaudited) (unaudited) (unaudited) STATEMENT OF OPERATIONS DATA Advertising revenue........... $151,253 $452,943 $491,150 $1,095,346 Cost of services.............. 45,228 215,846 238,061 499,135 -------- -------- -------- ---------- Gross margin.................. 106,025 237,097 253,089 596,211 Other operating expenses...... 71,886 272,295 315,030 659,211 -------- -------- -------- ---------- Income (losses) before taxes.. 34,139 (35,198) (61,941) (63,000) Income taxes.................. 5,000 (12,500) 7,500 -- -------- -------- -------- ---------- Net income (loss)............. $ 29,139 $(22,698) $(69,441) $ (63,000) ======== ======== ======== ==========
__________________________ (1) Equity in earnings (losses) of unconsolidated subsidiary represents the net income (loss) for the period indicated from the Company's investment in Media. (2) Change in unrealized depreciation of investments represents the (increase) decrease for the period in the unrealized depreciation applied against the Company's investments to state them at fair value. (3) Net increase in net assets resulting from operations is the sum of net investment income, net realized gains or losses on investments and the change in unrealized gains or losses on investments. (4) Return on assets represents net increase in net assets resulting from operations, for the period indicated, divided by total assets at December 31, 1996. (5) Selected financial ratios have been annualized for the period from May 30, 1996 to December 31, 1996. (6) Return on equity represents net increase in net assets resulting from operations, for the period indicated, divided by total stockholders' equity at December 31, 1996. (7) Average yield, e.o.p. represents the end of period weighted average interest rate on investments at the date indicated. (8) Average cost of funds, e.o.p. represents the end of period weighted average interest rate on debt at the date indicated. (9) Spread, e.o.p. represents average yield, e.o.p. less average cost of funds, e.o.p. (10) Other income ratio represents other income, for the period indicated, divided by investments at December 31, 1996. (11) Operating expense ratio represents operating expenses, for the period indicated, divided by total assets at December 31, 1996. 28 SELECTED FINANCIAL DATA TRI-MAGNA (MFC, BUT NOT MEDIA, IS CONSOLIDATED WITH TRI-MAGNA)
YEAR ENDED DECEMBER 31, JANUARY 1 TO --------------------------------------------- MAY 29, 1992 1993 1994 1995 1996 ------------ ----------- -------- -------- --------------- (unaudited) (dollars in thousands) STATEMENT OF OPERATIONS DATA Investment income..................................... $ 7,953 $ 8,333 $ 8,820 $ 9,803 $ 4,423 Interest expense...................................... 3,509 3,661 4,756 6,034 2,517 ------- ------- ------- ------- ------- Net interest income................................... 4,444 4,672 4,064 3,769 1,906 Equity in earnings (losses) of unconsolidated subsidiary(1)........................................ -- -- 18 126 (53) Other income.......................................... 632 541 519 446 148 Total non-interest expense............................ 2,754 3,097 2,700 2,615 1,816 Dividends paid on minority interest................... 277 277 277 208 -- ------- ------- ------- ------- ------- Net investment income................................. 2,045 1,839 1,624 1,518 185 Realized gain (loss) on investments, net.............. (223) (115) (22) 61 -- Change in unrealized depreciation of investments(2)... 125 (53) 58 (140) -- Net increase in net assets resulting from operations.. $ 1,947 $ 1,671 $ 1,660 $ 1,439 $ 185 ======= ======= ======= ======= ======= SELECTED FINANCIAL RATIOS AND OTHER DATA(3) Return on average assets(4)(5)........................ 2.81% 2.12% 1.88% 1.50% 1.86% Return on average equity(5)(6)........................ 17.67 15.29 15.29 12.97 16.93 Interest rate spread Average yield(5)(7).................................. 12.11 10.99 10.20 10.61 11.00 Average cost of funds(5)(8).......................... 7.44 6.09 7.00 8.26 7.56 Spread(9)............................................ 4.67 4.90 3.20 2.35 3.44 Other income to average assets(5)..................... 0.91 0.69 0.59 0.47 0.36 Non-interest expense to average assets(5)(10)......... 3.97 3.92 3.05 2.73 2.98 Weighted average assets............................... $69,401 $78,921 $88,414 $96,189 $99,197 Weighted average investments(11)...................... 65,673 75,790 86,496 92,433 96,479 Weighted average equity............................... 11,019 10,931 10,855 11,094 10,899 Weighted average debt................................. 47,160 60,160 67,955 73,063 79,912 DECEMBER 31,(3) ---------------------------------------- MAY 29, 1992 1993 1994 1995 1996(3) ------- ------- ------- ------- ------- Medallion Loans as a percentage of investments........ 81.0% 81.0% 72.4% 68.4% 67.9% Commercial Installment Loans as a percentage of investments...................................... 19.0 19.0 27.6 31.6 32.1 Investments to assets................................. 93.8 96.4 96.7 96.3 97.0 Equity to assets...................................... 15.0 12.9 11.8 17.4 16.7 Debt to equity(12).................................... 259 315 356 464 482 SBA debt to total debt................................ 23.8 19.8 17.5 -- --
29 TRI-MAGNA
DECEMBER 31, -------------------------------------- MAY 29, 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (unaudited) (dollars in thousands) BALANCE SHEET DATA Investments Medallion Loans............................... $56,460 $66,437 $65,424 $66,338 $64,934 Commercial Installment Loans.................. 13,325 15,577 24,918 30,619 31,598 Unrealized depreciation of investments.......... (775) (828) (770) (910) (910) ------- ------- ------- ------- ------- Investments, net of unrealized depreciation of investments................................... 69,010 81,186 89,572 96,047 95,622 Total assets.................................... 73,603 84,239 92,590 99,788 98,605 Notes payable................................... 40,000 50,700 59,025 80,295 79,395 Subordinated SBA debentures..................... 12,500 12,500 12,500 -- -- Total liabilities............................... 53,341 64,171 72,480 82,474 82,116 Minority interest............................... 9,234 9,234 9,234 -- -- Total stockholders' equity...................... 11,027 10,834 10,876 17,314 16,489
MEDIA(1)
NOVEMBER 22 TO YEAR ENDED JANUARY 1 TO DECEMBER 31, DECEMBER 31, MAY 29, 1994 1995 1996 -------------- ------------ ------------- STATEMENT OF OPERATIONS DATA Advertising revenue........... $227,756 $1,542,013 $671,148 Cost of services.............. 83,341 483,721 283,891 -------- ---------- -------- Gross margin.................. 144,415 1,058,292 387,257 Other operating expenses...... 126,036 829,293 455,278 -------- ---------- -------- Income (losses) before taxes.. 18,379 228,999 (68,021) Income taxes.................. -- 103,043 (14,999) -------- ---------- -------- Net income (loss)............. $ 18,379 $ 125,956 $(53,022) ======== ========== ======== - ------------------
(1) Equity in earnings (losses) of unconsolidated subsidiary represents the net income (loss) for the period earned by Tri-Magna from its investment in Media. (2) Change in unrealized depreciation of investments represents the (increase) decrease for the period in the unrealized depreciation applied against Tri- Magna's investments to state them at fair value. (3) Unaudited. (4) Return on average assets is calculated as the net increase in net assets resulting from operations (excluding Merger Related Costs) divided by the weighted average assets for the period. (5) Selected financial ratios are annualized for the period from January 1, 1996 to May 29, 1996. (6) Return on average equity is calculated as the net increase in net assets resulting from operations (excluding Merger Related Costs) divided by the weighted average equity for the period. (7) Average yield is calculated as gross investment income for the period divided by the weighted average investments for the period. (8) Average cost of funds is calculated as interest expense for the period divided by the weighted average debt for the period. (9) Spread is calculated as the difference between average yield and average cost of funds. (10) Non-interest expense to average assets is calculated as the total non- interest expense (excluding Merger Related Costs) divided by the weighted average assets for the period. (11) Investments consists of the Tri-Magna's loan portfolio and excludes cash and cash equivalents and Tri-Magna's investment in Media. (12) Debt to equity is defined as total debt divided by total stockholders equity and minority interest. 30 EDWARDS
YEAR ENDED DECEMBER 31, JANUARY 1 TO -------------------------------------- MAY 29, 1992 1993 1994 1995 1996 -------- -------- -------- -------- --------------- (dollars in thousands) STATEMENT OF OPERATIONS DATA Investment income............................... $ 5,444 $ 4,955 $ 4,334 $ 4,317 $ 1,727 Interest expense................................ 2,873 2,741 2,765 2,748 1,098 ------- ------- ------- ------- ------- Net interest income............................. 2,571 2,214 1,569 1,569 629 Other income.................................... 412 476 620 443 129 Total non-interest expense...................... 1,512 1,022 1,108 885 660 Income tax expense.............................. 73 51 21 40 16 ------- ------- ------- ------- ------- Net investment income........................... 1,398 1,617 1,060 1,087 82 Realized gain (loss) on investments, net........ (13) -- -- -- -- ------- ------- ------- ------- ------- Net increase in net assets resulting from operations before extraordinary items......... 1,385 1,617 1,060 1,087 82 Extraordinary items(1).......................... -- -- (526) -- -- ------- ------- ------- ------- ------- Net increase in net assets resulting from operations............................... $ 1,385 $ 1,617 $ 534 $ 1,087 $ 82 ======= ======= ======= ======= ======= SELECTED FINANCIAL RATIOS AND OTHER DATA(2) Return on average assets(3)(4).................. 3.19% 3.60% 2.35% 2.42% 2.28% Return on average partners' capital(4)(5)....... 16.47 17.51 11.69 12.29 11.38 Interest rate spread Average yield(4)(6)........................ 13.10 11.51 10.06 9.92 9.40 Average cost of funds(4)(7)................ 8.14 7.97 7.97 7.96 7.54 Spread(8).................................. 4.96 3.54 2.09 1.96 1.86 Other income to average assets(4)............... 0.95 1.06 1.38 0.99 0.68 Non-interest expense to average assets(4)(9).... 3.48 2.27 2.46 1.98 1.63 Weighted average assets......................... $43,465 $44,953 $45,025 $44,829 $45,543 Weighted average investments(10)................ 41,567 43,047 43,074 43,508 44,103 Weighted average partners' capital.............. 8,409 9,235 9,064 8,846 9,112 Weighted average debt........................... 35,275 34,385 34,690 34,535 34,947 DECEMBER 31,(2) ------------------------------------- MAY 29, 1992 1993 1994 1995 1996(2) ------- ------- ------- ------- ------- Medallion Loans as a percentage of investments.. 98.3% 98.3% 98.3% 98.6% 98.7% Commercial Installment Loans as a percentage of investments................................ 1.7 1.7 1.7 1.4 1.3 Investments to assets........................... 96.7 97.0 97.5 97.1 96.7 Partners' capital to assets..................... 20.1 21.0 19.2 20.2 19.8 Debt to partners' capital(11)................... 382 365 408 382 385 SBA debt to total debt.......................... 73.2 71.6 71.4 71.7 71.2
31 EDWARDS
DECEMBER 31, -------------------------------------- MAY 29, 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (dollars in thousands) BALANCE SHEET DATA Investments Medallion Loans......................... $42,301 $43,383 $42,740 $43,177 $43,921 Commercial Installment Loans............ 719 758 747 622 589 Unrealized depreciation of investments....... (50) (43) (20) (20) (20) ------- ------- ------- ------- ------- Investments, net of unrealized depreciation of investments............................. 42,970 44,098 43,467 43,779 44,490 Total assets................................. 44,430 45,476 44,574 45,084 46,001 Notes payable and demand notes............... 9,125 9,900 10,000 9,850 10,100 Subordinated SBA debentures.................. 24,950 24,950 24,950 24,950 24,950 Total liabilities............................ 35,511 35,926 35,998 35,967 36,894 Total partners' capital...................... 8,919 9,551 8,576 9,117 9,107 - ------------------
(1) Edwards incurred a prepayment premium of $526,000 in connection with its refinancing of $4.6 million and $5.1 million of subordinated SBA debentures on June 29, 1994 and September 28, 1994, respectively. (2) Unaudited. (3) Return on average assets is calculated as the net increase in net assets resulting from operations before extraordinary items (excluding legal fees related to sale of assets) divided by the weighted average assets for the period. (4) Selected financial ratios are annualized for the period from January 1, 1996 to May 29, 1996. (5) Return on average partners' capital is calculated as the net increase in net assets resulting from operations before extraordinary items (excluding legal fees related to sale of assets) divided by the weighted average partners' capital for the period. (6) Average yield is calculated as gross investment income for the period divided by the weighted average investments for the period. (7) Average cost of funds is calculated as interest expense for the period divided by the weighted average debt for the period. (8) Spread is calculated as the difference between average yield and average cost of funds. (9) Non-interest expense to average assets is calculated as the total non-interest expense (excluding legal fees related to sale of assets) divided by the weighted average assets for the period. (10) Investments consists of Edwards' loan portfolio and excludes cash and cash equivalents. (11) Debt to partners' capital is defined as total debt divided by total partners' capital. 32 TCC
YEAR ENDED DECEMBER 31, JANUARY 1 TO --------------------------------------------- MAY 29, 1992 1993 1994 1995 1996 ------------ ----------- -------- -------- ------------- (unaudited) STATEMENT OF OPERATIONS DATA Investment income.................................... $ 3,944 $ 3,110 $ 2,217 $ 1,836 $ 682 Interest expense..................................... 1,538 1,064 709 450 148 ------- ------- ------- ------- ------- Net interest income.................................. 2,406 2,046 1,508 1,386 534 Total non-interest expense........................... 1,038 1,269 711 760 260 Income tax expense (benefit)(1)...................... 74 (983) 653 381 128 ------- ------- ------- ------- ------- Net investment income, adjusted for taxes(2)......... 1,294 1,760 144 245 146 Realized gain (loss) on investments.................. (646) (69) (144) (50) 5 Change in unrealized depreciation of investments(3).. -- 232 790 335 30 ------- ------- ------- ------- ------- Net increase (decrease) in net assets resulting from operations.................................... $ 648 $ 1,923 $ 790 $ 530 $ 181 ======= ======= ======= ======= ======= SELECTED FINANCIAL RATIOS AND OTHER DATA(4) Return on average assets(5)(6)....................... 2.46% 8.36% 3.90% 2.91% 2.56% Return on average common equity(6)(7)................ 14.73 33.84 11.22 6.74 5.23 Interest rate spread Average yield(6)(8)............................. 15.90 15.77 13.86 13.58 12.95 Average cost of funds(6)(9)..................... 8.56 8.10 7.60 6.14 5.58 Spread(10)...................................... 7.34 7.67 6.26 7.44 7.37 Non-interest expense to average assets(6)............ 3.94 5.51 3.51 4.18 3.67 Weighted average assets.............................. $26,338 $23,011 $20,260 $18,183 $16,983 Weighted average investments(11)..................... 24,235 18,994 14,442 10,389 9,745 Weighted average common equity....................... 4,398 5,683 7,042 7,859 8,312 Weighted average debt................................ 17,967 13,133 9,330 7,330 6,368 DECEMBER 31,(4) ---------------------------------------- MAY 29, 1992 1993 1994 1995 1996(4) ------- ------- ------- ------- ------- Medallion Loans as a percentage of investments....... 81.6% 85.4% 80.1% 81.5% 76.0% Commercial Installment Loans as a percentage of investments..................................... 18.4 14.6 19.9 18.5 24.0 Loans to assets...................................... 74.4 75.6 52.8 52.6 56.3 Equity to assets..................................... 33.2 46.5 57.1 60.2 63.7 Debt to equity(12)................................... 192 107 73 64 53 SBA debt to total debt............................... 73.4 100.0 100.0 100.0 100.0
33 TCC
DECEMBER 31, -------------------------------------------- MAY 29, 1992 1993 1994 1995 1996 ------------ ----------- -------- -------- -------- (unaudited) (dollars in thousands) BALANCE SHEET DATA Investments Medallion Loans............................ $16,471 $15,433 $ 8,796 $ 7,988 $ 7,543 Commercial Installment Loans............... 3,721 2,641 2,185 1,808 2,381 Unrealized depreciation of investments.......... (2,000) (1,768) (978) (642) (612) ------- ------- ------- ------- ------- Investments, net of unrealized depreciation of investments................................... 18,192 16,306 10,003 9,154 9,312 Cash and cash equivalents....................... 5,790 3,911 8,199 7,781 6,797 Total assets.................................... 24,453 21,569 18,951 17,416 16,551 Notes payable and demand notes.................. 4,132 -- -- -- -- SBA debentures.................................. 11,405 10,730 7,930 6,730 5,640 Total liabilities............................... 16,348 11,541 8,129 6,937 6,008 Total stockholders' equity...................... 8,105 10,028 10,822 10,479 10,543 - ---------------------
(1) Income tax expense (benefit) includes income tax provision (benefit) on investment income, realized losses on investments and change in unrealized depreciation of investments. See note (2). (2) Net investment income has been adjusted by combining TCC's income tax provision (benefit) in order to present TCC's financial statements on a comparable basis to the other Founding Companies. (3) Change in unrealized depreciation of investments represents the (increase) decrease for the period in the unrealized depreciation applied against TCC's investments to state them at fair value. (4) Unaudited. (5) Return on average assets is calculated as the net increase (decrease) in net assets resulting from operations divided by the weighted average assets for the period. (6) Selected financial ratios are annualized for the period from January 1, 1996 to May 29, 1996. (7) Return on average common equity is calculated as the net increase in net assets resulting from operations divided by the weighted average equity for the period. (8) Average yield is calculated as gross investment income excluding interest income on cash and cash equivalents for the period divided by the weighted average investments for the period. (9) Average cost of funds is calculated as interest expense for the period divided by the weighted average debt for the period. (10) Spread is calculated as the difference between average yield and average cost of funds. (11) Investments consists of TCC's loan portfolio and excludes cash and cash equivalents. (12) Debt to equity is defined as total debt divided by total stockholders equity and minority interests. 34 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in this section should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing in this Report on Form 10-K. In addition, this Management's Discussion and Analysis contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are set forth below in the Investment Considerations section. GENERAL The Company's principal activity is the origination and servicing of Medallion Loans and Commercial Installment Loans. The earnings of the Company depend primarily on its level of net interest income, which is the difference between interest earned on interest-earning assets consisting primarily of Medallion Loans and Commercial Installment Loans, and the interest paid on interest- bearing liabilities consisting primarily of credit facilities with bank syndicates and subordinated debentures issued to or guaranteed by the SBA. Net interest income is a function of the net interest rate spread, which is the difference between the average yield earned on interest-earning assets and the average interest rate paid on interest-bearing liabilities, as well as the average balance of interest-earning assets as compared to interest-bearing liabilities. Net interest income is affected by economic, regulatory and competitive factors that influence interest rates, loan demand and the availability of funding to finance the Company's lending activities. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-earning assets reprice on a different basis than its interest-bearing liabilities. Trend in Loan Portfolio Yield. The Company's investment income is driven by the principal amount of and yields on Medallion Loans and Commercial Installment Loans. The following table illustrates the Company's weighted average portfolio yield at the dates indicated:
May 30, 1996 December 31, 1996 ------------ ----------------- Weighted Percentage Weighted Percentage Average Principal of Total Average Principal of Total Yield Amounts Portfolio Yield Amounts Portfolio --------- ------------ ----------- --------- ----------------- ----------- Medallion Loan Portfolio 9.84% $116,398,395 77.9% 9.92% $134,614,899 76.3% Commercial Installment Loan Portfolio 13.42 33,045,702 22.1 13.51 41,925,289 23.7 ------------ ------------ Total Portfolio 10.63 $149,444,097 100.0 10.80 $176,540,188 100.0 ===== ============ ===== ============ =====
The weighted average yield e.o.p. of the Medallion Loan portfolio increased eight basis points from 9.84% at May 30, 1996 to 9.92% at December 31, 1996. Medallion Loans constituted 77.9% of the total portfolio of $149.4 million at May 30, 1996 and 76.3% of the total portfolio of $176.5 million at December 31, 1996./1/ The yields on the Company's Medallion Loans have been in a long-term decline. However, since December 31, 1994 the weighted average yield of the Medallion Loan portfolio has stabilized and since the commencement of the Company's operations following closing of the Acquisitions on May 29, 1996, slightly increased, resulting in slight increases in the weighted average yield of the entire portfolio. The weighted average yield e.o.p. of the entire portfolio increased 17 basis points from 10.63% at May 30, 1996 to 10.80% at December 31, 1996. The stabilization of the weighted average yield of the Medallion Loan Portfolio is partially the result of stabilization in market interest rates for Medallion Loans, which began in July 1994. - -------------------- /1/ e.o.p. or "end of period," indicates that a calculation is made at the date indicated rather than for the period then ended. 35 In addition, since December 1994, the weighted average yield of the entire portfolio has increased as older, lower interest rate loans in the portfolio have matured or been pre-paid and newer, higher interest rate loans have constituted a greater proportion of the portfolio. From inception of its business in 1979 through 1996, the period between the origination and final payment of all Medallion Loans originated by MFC has been estimated by the Company to be 29 months. The Company believes that this time period varies to some extent as a function of changes in interest rates because borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rate payable on the borrower's loan is high relative to prevailing interest rates and are less likely to prepay in a rising interest rate environment. The Company has also increased the average yield of the entire portfolio by shifting the portfolio mix toward a higher percentage of Commercial Installment Loans, which historically have had a yield of approximately 350 basis points higher than the Company's Medallion Loans and 500 to 700 basis points higher than the prevailing prime rate of interest charged by major commercial banks (the "Prime Rate"). The weighted average yield e.o.p. of the Commercial Installment Loan portfolio increased nine basis points from 13.42% at May 30, 1996 to 13.51% at December 31, 1996. In addition, the percentage of the entire portfolio composed of Commercial Installment Loans increased from 22.1%, or $33.0 million, at May 30, 1996 to 23.7%, or $41.9 million, at December 31, 1996. The Company intends to continue to increase the percentage of Commercial Installment Loans in the total portfolio. Trend in Interest Expense. The Company's interest expense is driven by the interest rate payable on the Company's LIBOR-based short-term credit facilities with bank syndicates and, to a lesser degree, fixed-rate, long-term subordinated debentures issued to or guaranteed by the SBA. In recent years, the Company has reduced its reliance on SBA financing and increased the relative proportion of bank debt to total liabilities. SBA financing can offer very attractive rates, but such financing is restricted in its application and its availability is uncertain. In addition, SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. Accordingly, the Company plans to continue to limit its use of SBA funding and will seek such funding only when advantageous, such as when SBA financing rates are particularly attractive, and to fund loans that qualify under the SBIA and SBA Regulations through subsidiaries already subject to SBA restrictions. The Company believes that its transition to financing its operations primarily with short-term LIBOR-based bank debt has generally decreased its interest expense thus far, but has also increased the Company's exposure to the risk of increases in market interest rates which the Company attempts to mitigate with certain matching strategies. The Company also expects that net interest income should increase because bank debt is more available than SBA financing and will thus permit an increase in the size of the loan portfolio. At May 30, 1996 and December 31, 1996, short- term LIBOR-based debt constituted 70.4% and 75.1% of total debt, respectively. On March 26, 1997, the Federal Reserve System increased the federal-funds interest rate by 25 basis points and, as a result, the prevailing Prime Rate has generally increased by 25 basis points. If these increases lead to a trend of higher interest rates, net interest rate spread could decline at least until the Company is able to originate new loans at the higher prevailing interest rates. The Company's cost of funds is primarily driven by (i) the average maturity of debt issued by the Company, (ii) the premium to LIBOR paid by the Company on its LIBOR-based debt, and (iii) the ratio of LIBOR-based debt to SBA financing. The Company incurs LIBOR-based debt for terms generally ranging from 30-180 days. The Company's subordinated debentures issued to or guaranteed by the SBA typically have terms of ten years. The Company's cost of funds reflects fluctuations in LIBOR to a greater degree than in the past because LIBOR-based debt has come to represent a greater proportion of the Company's debt. The percentage of the Company's total indebtedness composed of LIBOR-based indebtedness has increased from 70.4% at May 30, 1996 to 75.1% at December 31, 1996. 36 The Company measures its cost of funds as its aggregate interest expense for all of its interest-bearing liabilities divided by the face amount of such liabilities. The Company analyzes its cost of funds in relation to the average of the 90- and 180-day LIBOR (the "LIBOR Benchmark"). The Company's average cost of funds e.o.p. increased from 7.09% or 162 basis points over the LIBOR Benchmark of 5.47% at May 30, 1996 to 7.11%, or 153 basis points over the LIBOR Benchmark of 5.58% at December 31, 1996. Taxicab Rooftop Advertising. In connection with its Medallion Loan finance business, the Company also conducts a taxicab rooftop advertising business through Media, which began operations in November 1994. Media's revenue is affected by the number of taxicab rooftop advertising displays ("Displays") that it owns and the occupancy rate and advertising rate of those Displays. At December 31, 1996, Media had approximately 2,000 installed Displays, 450 of which were acquired in connection with the acquisition of the assets of See- Level Advertising, Inc. and See Level Management, Inc. on July 25, 1996. In addition, on March 6, 1997 Media entered into an agreement with the MTBOT to provide advertising on over 1,800 New York City taxicabs affiliated with the MTBOT commencing on September 22, 1997. The effect of that agreement will be to increase the number of taxicabs Media has under contract for rooftop advertising in New York City from approximately 1,700 currently to approximately 3,500. With this agreement, Media is the leading taxicab rooftop advertiser in the city. The Company expects that Media will continue to expand its operations. Although Media is a wholly-owned subsidiary of the Company, its results of operations are not consolidated with the Company because Securities and Exchange Commission regulations prohibit the consolidation of non-investment companies, such as Media, with investment companies, such as the Company. Factors Affecting Net Assets. Factors which affect the Company's net assets include net realized gain/loss on investments and change in net unrealized depreciation of investments. Net realized gain/loss on investments is the difference between the proceeds derived upon foreclosure of a loan and the cost basis of such loan. Change in net unrealized depreciation of investments is the amount, if any, by which the Company's estimate of the fair market value of its loan portfolio is below the cost basis of the loan portfolio. Under the 1940 Act and the SBIA, the Company's loan portfolio must be recorded at fair market value or "marked to market." Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses, but adjusts quarterly the valuation of its loan portfolio to reflect the Company's estimate of the current realizable value of the loan portfolio. Since no ready market exists for the Company's loans, fair market value is subject to the good faith determination of the Company. In determining such value, the Company takes into consideration factors such as the financial condition of its borrowers, the adequacy of its collateral and the relationships between current and projected market rates of interest and portfolio rates of interest and maturities. Any change in the fair value of portfolio loans as determined by the Company is reflected in net unrealized depreciation of investments and affects net increase in net assets resulting from operations but has no impact on net investment income or distributable income. Therefore, if recent increases in prevailing interest rates lead to a trend of higher interest rates, net increase in net assets resulting from operations could decline. Upon the completion of the Acquisitions on May 29, 1996, the Company's loan portfolio was recorded on the balance sheet at fair market value, which included $1.5 million of net unrealized depreciation, as estimated by the Company in accordance with the 1940 Act and the purchase method of accounting. From May 30, 1996 through December 31, 1996 there was a $46,000 increase in net unrealized depreciation of investments. Application of the "marked to market" policy to the Company's loan portfolio could result in greater volatility in the Company's earnings than was the case for the businesses acquired in the Acquisitions since they did not in all cases follow that policy. Recent Commencement of Operations. The Company commenced operations in connection with the simultaneous closing of its initial public offering and the Acquisitions on May 29, 1996. Prior to that date, the Company had no results of operations and each of Medallion Financial, Tri-Magna, Edwards 37 and TCC had been operating independently of each other. The following discussion under the caption "Consolidated Results of Operations" sets forth an analysis of the Company's actual results of operations and assets and liabilities for the period commencing May 30, 1996 and ending December 31, 1996. The historical financial condition and results of operations of each of Tri-Magna, Edwards and TCC for the period commencing January 1, 1996 and ending May 29, 1996 and the years ended December 31, 1994 and 1995 are then discussed. All period percentages involving income statement accounts have been annualized for discussion purposes. CONSOLIDATED RESULTS OF OPERATIONS For the Period Commencing May 30, 1996 and Ending December 31, 1996. Performance Summary. Since the Company's initial offering closed on May 29, 1996, investment income has been positively impacted by the strong growth of the entire loan portfolio which was primarily driven by an increase in the percentage of the portfolio composed of higher yielding Commercial Installment Loans. Interest expense for the period reflected an increase in the LIBOR benchmark e.o.p. of 11 basis points and growth in net borrowings offset by a nine basis point decrease in the spread over LIBOR charged by the Company's banks. The positive trend in the spread between the average yield on the entire portfolio and the average of costs of funds contributed to the $3.7 million of net investment income earned during the period. Investment Income. Investment income for the period was $10.4 million. The Company's investment income reflects the positive impact of portfolio growth during the period. Total portfolio growth was $27.1 million or 18.1% from $149.4 million at May 30, 1996 to $176.5 million at December 31, 1996. Investment income also reflects the positive impact of increases in the average yield of the entire portfolio. Average yield e.o.p. of the entire portfolio increased 17 basis points from 10.63% at May 30, 1996 to 10.80% at December 31, 1996. The increase was caused by (i) a slight increase in the average yield on Commercial Installment Loans and a shift in the portfolio mix toward a higher percentage of Commercial Installment Loans which historically have been originated at a yield of approximately 350 basis points higher than Medallion Loans and 500 to 700 basis points higher than the prevailing Prime Rate, and (ii) a slight increase in the average yield on Medallion Loans caused by stabilization, after a sustained period of declines, in market rates for Medallion Loans. The average yield e.o.p. of the Medallion Loan portfolio increased eight basis points from 9.84% at May 30, 1996 to 9.92% at December 31, 1996 and the average yield of the Commercial Installment Loan portfolio increased nine basis points from 13.42% at May 30, 1996 to 13.51% at December 31, 1996. The percentage of the portfolio composed of Commercial Installment Loans increased from 22.1% at May 30, 1996 to 23.7% at December 31, 1996. Interest Expense. The Company's interest expense was $5.0 million for the period. The Company's average cost of funds e.o.p. increased from 7.09% or 162 basis points over the LIBOR Benchmark of 5.47% at May 30, 1996 to 7.11% or 153 basis points over the LIBOR Benchmark of 5.58% at December 31, 1996. The increase in the average cost of funds e.o.p. was caused by an 11 basis point increase in the LIBOR Benchmark, which was offset by a nine basis point decrease in the spread over the LIBOR Benchmark charged by the Company's banks. The Company's net borrowings increased $4.8 million or 4.0% from $121.0 million at May 30, 1996 to $125.8 million at December 31, 1996. Interest expense also rose due to increased commitment fees paid to banks to establish larger credit facilities. The increased borrowings were incurred to fund portfolio growth and all related to LIBOR-based indebtedness which increased as 38 a percentage of the Company's total indebtedness from 70.4% at May 30, 1996 to 75.1% at December 31, 1996. Net Interest Income. Net interest income was $5.4 million for the period. Net interest income reflects the positive impact of a 15 basis point increase in spread e.o.p. which increased from 3.54% at May 30, 1996 to 3.69% at December 31, 1996. The increase reflects a 17 basis point increase from May 30, 1996 to December 31, 1996 in the average yield e.o.p. of the entire portfolio offset by a two basis point increase in the average cost of funds e.o.p. from May 30, 1996 to December 31, 1996. Equity in Earnings of Unconsolidated Subsidiary. For the period, Media generated advertising revenue of $1.1 million and incurred Display rental costs of approximately $500,000, resulting in a gross margin of approximately $600,000 or 54.4% of advertising revenue. The number of Displays owned by Media increased from 1,670 at May 30, 1996 to approximately 2,000 at December 31, 1996 as a result of an acquisition in July 1996. For the period, operating expenses were $659,000 and Media generated a net loss of $63,000 which is recorded as equity in earnings or losses of unconsolidated subsidiary on the Company's statement of operations. The loss primarily resulted from reduced Display occupancy rates and the Company's decision to maintain goodwill with the taxicab owners from whom it leases taxicab rooftop space by making lease payments to such owners for unoccupied Displays that are not otherwise required. Display occupancy declined from 73% at May 30, 1996 to 64% at December 31, 1996. The loss also resulted from the write-off of accounts receivable in the amount of $64,000 due under an advertising contract with a client which filed for bankruptcy protection and costs associated with expansion into new markets. Other Income. The Company derived $411,000 in other income, or 0.23% of investments for the period. Other income was primarily derived from late charges, prepayment fees and miscellaneous income. Prepayment fees are heavily influenced by the level and volatility of interest rates and competition. Non-Interest Expenses. The Company had non-interest expenses of $2.2 million for the period. Approximately $780,000, or 35.4% of non-interest expenses, was related to salaries and benefits, $410,000, or 18.6%, consisted of professional fees, $162,000, or 7.4% consisted of investment advisory fees. The operating expense ratio was 2.02% from May 30, 1996 to December 31, 1996, on an annualized basis, reflecting consolidation of the Company's operations, efficiencies of scale and elimination of redundant services, facilities and functions. The Company believes that operating expenses as a percentage of average assets will decline as the loan portfolio increases due to economies of scale. Amortization of Goodwill and Accretion of Negative Goodwill. The amortization of goodwill of $259,000 for the period relates to $6.5 million of goodwill generated in the acquisitions of Edwards and TCC. Goodwill is the amount by which the cost of acquired businesses exceeds the fair value of the net assets acquired. Goodwill is being amortized on a straight-line basis over 15 years. Negative goodwill is the excess of fair market value of net assets of an acquired business over the cost basis of such business. Negative goodwill of $2.9 million was generated in the acquisition of Tri-Magna and is being amortized on a straight-line basis over four years. Net Realized Gain/Loss on Investments The Company realized a net gain on investments of $84,000 during the period. The gain was the result of the sale of securities underlying a warrant for a gain of $157,000 and recoveries in the amount of $32,000 on certain radio loans previously written off, offset by the write off of certain equipment loans in the amount of $105,000. 39 Net Investment Income. Net investment income earned during the period was $3.7 million reflecting the positive impact of portfolio growth and slightly improved portfolio yield. Net Increase in Net Assets Resulting from Operations. Net increase in net assets resulting from operations was $3.7 million for the period and reflects portfolio growth and favorable spread e.o.p. Return on assets and return on equity from May 30, 1996 to December 31, 1996, on an annualized basis, were 3.36% and 11.29%, respectively, for the period ending December 31, 1996. TRI-MAGNA RESULTS OF OPERATIONS For the Period from January 1, 1996 to May 29, 1996 Net Interest Income. Net interest income increased during the period due to the higher average yield of the entire portfolio. The increased yield was primarily driven by increases in the yields of the Medallion Loan and Commercial Installment Loan portfolios during the period and an increase in the proportion of the portfolio composed of Commercial Installment Loans. Interest expense remained even during the period. Equity in Earnings (Losses) of Unconsolidated Subsidiary. During the period, Media generated a net loss of $53,000 which is recorded as equity in earnings or losses of unconsolidated subsidiary on Tri-Magna's statement of operations. The loss was in part due to an increase in expenses associated with the opening of a maintenance facility and Media's expansion into other markets. Other Income. Other income decreased during the period primarily due to decreased income from the receipt of prepayment fees and late charges. Non-interest Expense. Tri-Magna's non-interest expense increased during the period primarily as a result of direct costs incurred in connection with the merger of Tri-Magna and Medallion Financial. Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. During the period, Tri-Magna did not incur any realized gains or losses on investments and there was no change in net unrealized deprecation of investments. Comparison of the Years Ended December 31, 1994 and December 31, 1995 Net Interest Income. Net interest income decreased $295,000 or 7.3% from $4.1 million for the year ended December 31, 1994 to $3.8 million for the year ended December 31, 1995. The interest rate spread of 3.20% for the year ended December 31, 1994 decreased 85 basis points to 2.35% for the year ended December 31, 1995. This decrease reflected a 126 basis point increase in the average cost of funds offset by a 41 basis point increase in the average yield of the portfolio during the period. Tri-Magna's investment income increased $983,000 or 11.1% from $8.8 million for the year ended December 31, 1994 to $9.8 million for the year ended December 31, 1995. The increase in investment income was the result of portfolio growth of $5.9 million or 6.8% from an average of $86.5 million for the year ended December 31, 1994 to an average of $92.4 million for the year ended December 31, 1995. The increase in investment income was also the result of an increase in the average yield of the portfolio which increased 41 basis points from 10.20% for the year ended December 31, 1994 to 10.61% for the year ended December 31, 1995. Commercial Installment Loans represented approximately 27.6% of the gross loan portfolio at December 31, 1994 and 31.6% at December 31, 1995. 40 The increase in average yield was caused by both (i) a shift in the portfolio mix toward a higher percentage of Commercial Installment Loans which historically have had a yield of approximately 350 basis points higher than Medallion Loans and (ii) an increase in the average interest rate on Medallion Loans. Tri-Magna's interest expense increased $1.2 million, or 26.9%, from $4.8 million for the year ended December 31, 1994 to $6.0 million for the year ended December 31, 1995. The increase was in part the result of increased average net borrowings of $5.1 million or 7.5% from $68.0 million for the year ended December 31, 1994 to $73.1 million for the year ended December 31, 1995. The increased borrowings were incurred to fund portfolio growth. Interest expense also increased as the result of a 124 basis point increase in the average cost of funds during the period from an average of 7.00% for the year ended December 31, 1994 to 8.26% for the year ended December 31, 1995. Tri-Magna's 126 basis point increase in average cost of funds was driven by a 118 basis point increase in the LIBOR Benchmark and an 8 basis point increase in the difference between cost of funds and the LIBOR Benchmark. At December 31, 1994 and 1995, short- term LIBOR-based debt constituted 78.7% and 91.0%, respectively, of total liabilities. Tri-Magna negotiated an increase in the amount available under its credit facilities from $65.0 million to $85.0 million to repay $12.5 million in subordinated SBA debentures, repurchase preferred stock from the SBA and fund portfolio growth. Equity in Earnings of Unconsolidated Subsidiary. For the year ended December 31, 1995, Media generated advertising revenue of $1.5 million and incurred Display rental costs of $484,000, resulting in a gross margin of $1.0 million or 68.6% of advertising revenue. For the year ended December 31, 1995, Media generated $126,000 in net income which is recorded as equity in earnings of unconsolidated subsidiary on Tri-Magna's statement of operations and represented 8.3% of Tri-Magna's net investment income. Media began active operations in November 1994; accordingly, there were no corresponding operating data for the year ended December 31, 1994. At December 31, 1995, Media had 1,670 Displays. Other Income. Tri-Magna's other income decreased $73,000 or 14.1% from $519,000 for the year ended December 31, 1994 to $446,000 for the year ended December 31, 1995. This decrease was primarily caused by the receipt of fewer prepayment fees due to an increase in market rates for Medallion Loans resulting in decreased refinancing activity. Non-interest Expense. Tri-Magna's non-interest expense decreased $85,000 or 3.1% from $2.7 million for the year ended December 31, 1994 to $2.6 million for the year ended December 31, 1995. The decrease was primarily due to reduction in profit sharing payments. Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. For the year ended December 31, 1995, Tri-Magna had a realized gain on investments of $61,000 as compared to a $22,000 loss on investments for the year ended December 31, 1994. Tri-Magna's change in net unrealized depreciation of investments increased $198,000 or 341.4% from $58,000 at December 31, 1994 to negative $140,000 at September 30, 1995 due to the potential loan loss exposure associated with the increased proportion of Commercial Installment Loans in the loan portfolio and overall portfolio growth. 41 EDWARDS HISTORICAL RESULTS OF OPERATIONS For the Period from January 1, 1996 to May 29, 1996 Net Interest Income. Net interest income increased slightly over the period because of portfolio growth of $711,000 or 2.0%. This increase in interest income was partially offset by an increase in Edwards' interest expense caused by an increase in bank debt of $250,000 or 2.5%. Other Income. Other income decreased during the period primarily due to a reduction in the receipt of prepayment fees and late charges. Non-interest Expense. Edwards' non-interest expense increased during the period as a result of an increase in professional fees related to the sale of Edward's assets to Medallion Financial. Net Realized Gain/Loss on Investments. During the period, Edwards did not incur any realized gains or losses on investments because Edwards' portfolio consists almost entirely of Medallion Loans. Comparison of the Years Ended December 31, 1994 and December 31, 1995 Net Interest Income. Net interest income remained essentially unchanged at $1.6 million for the years ended December 31, 1995 and December 31, 1994. The interest rate spread of 2.09% for the year ended December 31, 1994 decreased 13 basis points to 1.96% for the year ended December 31, 1995. The decrease reflected a 14 basis point decrease in the average yield of the loan portfolio and a 1 basis point decrease in the average cost of funds during the period. Edwards' investment income decreased $17,000 or 0.4% to $4.3 million for the year ended December 31, 1995. The decrease in investment income was the result of the decrease in the average yield of the portfolio which decreased 14 basis points from 10.06% for the year ended December 31, 1994 to 9.92% for the year ended December 31, 1995. The decrease in investment income was offset by portfolio growth of $434,000 or 1.0% from an average of $43.1 million for the year ended December 31, 1994 to an average of $43.5 million for the year ended December 31, 1995. Edwards' interest expense decreased $17,000 or 0.6% to $2.7 million for the year ended December 31, 1995. The decrease in interest expense reflected a 1 basis point decrease in the average cost of funds during the period from an average of 7.97% for the year ended December 31, 1994 to 7.96% for the year ended December 31, 1995. The decrease was a result of the refinancings in June 1994 of $4.6 million and September 1994 of $5.1 million of subordinated SBA debentures at a lower interest rate and a decrease in average net borrowing of $155,000 or 0.5% from $34.7 million for the year ended December 31, 1994 to $34.5 million for the year ended December 31, 1995. The foregoing were offset by an increase in interest rates on bank debt. Edwards' 1 basis point decrease in average cost of funds was driven by a 118 basis point increase in the LIBOR Benchmark and a 119 basis point decrease in the difference between cost of funds and the LIBOR Benchmark. The decrease in the difference between cost of funds and the LIBOR Benchmark was primarily the result of a reduction in the weighted average interest rate paid on subordinated SBA debentures caused by the refinancing of $9.7 million of such debentures. Subordinated SBA debentures represented 69.4% of total liabilities at December 31, 1994 and remained almost unchanged at December 31, 1995. The balance of total liabilities is represented primarily by LIBOR-based credit facilities with banks. Other Income. Edwards' other income decreased $177,000 or 28.5% from $620,000 for the year ended December 31, 1994 to $443,000 for the year ended December 31, 1995. This decrease was primarily the result of decreased income from servicing Medallion Loan participations. Gross loans 42 serviced by Edwards for third parties declined by $4.5 million from $44.3 million at December 31, 1994 to $39.8 million at December 31, 1995. Edwards typically receives servicing fees which average 51 basis points of the principal amount of each loan participation that it services. Other income also decreased because of a reduction in the receipt of prepayment fees and late charges. Non-interest Expense. Edwards' non-interest expense decreased $223,000 or 20.1% from $1.1 million for the year ended December 31, 1994 to $885,000 for the year ended December 31, 1995. The reduction was primarily related to decreased professional fees which were higher in 1994 primarily because of costs associated with refinancing subordinated debentures. Net Realized Gain/Loss on Investments. During the year ended December 31, 1994 and 1995 Edwards did not incur any realized gains or losses on investments because Edwards' portfolio consists almost entirely of Medallion Loans. Extraordinary Item. Edwards incurred a prepayment premium of $526,000 in connection with its refinancing of $4.6 million and $5.1 million of subordinated SBA debentures on June 29, 1994 and September 28, 1994, respectively. TCC HISTORICAL RESULTS OF OPERATIONS For the Period from January 1, 1996 to May 29, 1996 Net Interest Income. Net interest income increased during the period primarily because of portfolio growth of $128,000 or 1.3%. Interest expense decreased marginally during the period as a result of a decrease in the principal amount of debentures payable to the SBA in the amount of $1,090,000. The SBA debentures repaid by TCC had higher interest rates than the debentures remaining outstanding. Non-interest Expense. TCC's non-interest expense decreased slightly during the period because of a reduction in operating overhead instituted in anticipation of the acquisition by the Company. Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. TCC realized a gain on investments of $5,000. Net unrealized depreciation of investments decreased $30,000. These gains were a result of an overall improvement in investment collateral value. Comparison of the Years Ended December 31, 1994 and December 31, 1995 Net Interest Income. Net interest income decreased $122,000 or 8.1% from $1.5 million for the year ended December 31, 1994 to $1.4 million for the year ended December 31, 1995. The decrease was primarily due to loan portfolio contraction in the amount of $1.2 million undertaken in connection with a change in investment policy instituted by Leucadia in 1993. Under this change in policy TCC substantially reduced Medallion Loan originations in New York City where competition had decreased yields, and emphasized originations in Boston, Cambridge, Chicago and Newark where yields were higher. The interest rate spread of 6.26% for the year ended December 31, 1994 increased 118 basis points to 7.44% for the year ended December 31, 1995. This spread increase reflected primarily a reduction in higher interest rate subordinated SBA debentures, resulting in a 146 basis point decrease in the average cost of funds for the period offset by a 28 basis point decrease in the average yield of the portfolio. TCC finances its portfolio with fixed-rate subordinated SBA debentures rather than LIBOR-based bank debt. TCC's investment income decreased $381,000 or 17.2% from $2.2 million for the year 43 ended December 31, 1994 to $1.8 million for the year ended December 31, 1995. The decrease in investment income was the result of a $591,000 or 29.5% decrease in interest earned on the loan portfolio which contracted $4.0 million or 27.8% from an average of $14.4 million for the year ended December 31, 1994 to an average of $10.4 million for the year ended December 31, 1995. In addition, the average yield of the portfolio decreased 28 basis points from 13.86% for the year ended December 31, 1994 to 13.58% for the year ended December 31, 1995. The decrease in interest earned on the loan portfolio was offset by a $210,000 or 97.7% increase in interest income earned on treasury bills from $215,000 at December 31, 1994 to $425,000 at December 31, 1995 attributable to an increase in the weighted average interest rate on treasury bills which increased 156 basis points from 3.96% at December 31, 1994 to 5.52% at December 31, 1995. TCC's interest expense decreased $259,000 or 36.5% from $709,000 for the year ended December 31, 1994 to $450,000 for the year ended December 31, 1995. The decrease was in part the result of a decrease in average net borrowing of $2.0 million or 21.4% from $9.3 million for the year ended December 31, 1994 to $7.3 million for the year ended December 31, 1995. This decrease was caused by the repayment of subordinated SBA debentures in the amount of $1.2 million. TCC repaid subordinated SBA debentures with higher average interest rates than the debentures remaining outstanding; accordingly, interest expense also decreased as the result of a 146 basis point decrease in the average cost of subordinated SBA debentures outstanding from an average of 7.60% at December 31, 1994 to 6.14% at December 31, 1995. Non-interest Expense. TCC's non-interest expense increased $49,000 or 6.9% from $711,000 for the year ended December 31, 1994 to $760,000 for the year ended December 31, 1995. The increase was primarily due to a $124,000 increase in pension expense. In 1994, pension expense was reduced due to the merger of the defined benefit pension plans of TCC and Leucadia. The increase in pension expense was offset by a $75,000 reduction in operating expenses relating to a reduction in rent and salaries associated with the contraction of the loan portfolio. Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. TCC realized a loss on investments of $50,000 for the year ended December 31, 1995, and a $144,000 loss on investments for the year ended December 31, 1994. TCC's change in unrealized depreciation of investments decreased $455,000 or 57.6% from $790,000 at December 31, 1994 to $335,000 at December 31, 1995 due to the reduction of potential loan loss exposure corresponding to the contraction of the loan portfolio. ASSET/LIABILITY MANAGEMENT Interest Rate Sensitivity. The Company, like other financial institutions, is subject to interest rate risk to the extent its interest-earning assets (consisting of Medallion Loans and Commercial Installment Loans) reprice on a different basis over time in comparison to its interest-bearing liabilities (consisting primarily of credit facilities with bank syndicates and subordinated SBA debentures). A relative measure of interest rate risk can be derived from the Company's interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities and negative when the inverse situation exists. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets. The following schedule of principal payments sets forth at December 31, 1996 the amount of interest-earning assets and interest-bearing liabilities maturing or repricing within the time periods indicated. The principal amount of Medallion Loans and Commercial Installment Loans are assigned to the time frames in which such principal amounts are contractually obligated to be paid. The Company has not reflected an assumed annual prepayment rate for Medallion Loans or Commercial Installment Loans in this table. The Company's interest rate sensitive assets were $178.2 million and interest rate sensitive liabilities were $125.8 million at December 31, 1996. The one year cumulative interest rate gap was negative $75.9 million, or 42.6% of interest rate sensitive assets. SCHEDULE OF PRINCIPAL PAYMENTS AS OF DECEMBER 31, 1996
MORE THAN 1 MORE THAN 2 MORE THAN 3 MORE THAN 5 LESS THAN AND LESS THAN AND LESS THAN AND LESS THAN AND LESS THAN 1 YEAR 2 YEARS 3 YEARS 5 YEARS 6 YEARS THEREAFTER TOTAL --------- ------------- ------------- ------------- ------------- ---------- -------- (IN THOUSANDS) Earning Assets Medallion Loans and Commercial Installment Loans................. $ 20,406 $ 19,627 $ 32,353 $25,773 $27,692 $50,689 $176,540 Cash and cash equivalents........... 1,665 -- -- -- -- -- 1,665 -------- -------- -------- ------- ------- ------- -------- Total.................. 22,071 19,627 32,353 25,773 27,692 50,689 178,205 -------- -------- -------- ------- ------- ------- ======== Liabilities Revolving line of credit................ 94,450 -- -- -- -- -- 94,450 Term loan.............. 2,000 -- -- -- -- -- 2,000 Subordinated SBA debentures............ 1,500 3,000 -- -- 15,190 9,700 29,390 -------- -------- -------- ------- ------- ------- -------- Total.................. 97,950 3,000 -- -- 15,190 9,700 $125,840 -------- -------- -------- ------- ------- ------- ======== Interest rate gap....... $(75,879) $ 16,627 $ 32,353 $25,773 $12,502 $40,989 ======== ======== ======== ======= ======= ======= Cumulative interest rate gap.................... $(75,879) $(59,252) $(26,899) $(1,126) $11,376 $52,365
Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates, although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Conversely, having interest-earning assets that mature or reprice more frequently on average than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during periods of falling interest rates. The mismatch between maturities and interest rate sensitivities of the Company's interest-earning assets and interest-bearing liabilities results in interest rate risk. Abrupt increases in 44 market rates of interest may have an adverse impact on the Company's earnings. Accordingly, if recent increases in prevailing interest rates caused by a 25 basis point increase in the federal-funds rate lead to a trend of higher inerest rates, net interest rate spread could decline at least until the Company is able to originate new loans at the higher prevailing interest rates. The effect of changes in market rates of interest is mitigated by regular turnover of the portfolio. From inception of its business in 1979 through 1996, the period between the origination and final payments of all Medallion Loans originated by MFC is estimated by the Company to have been 29 months on a weighted average basis. Accordingly, the Company anticipates that approximately 40% of the portfolio will mature or be prepaid each year. The Company believes that the average life of its loan portfolio varies to some extent as a function of changes in interest rates because borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rate payable on the borrower's loan is high relative to prevailing interest rates and are less likely to prepay in a rising interest rate environment. The Company seeks to manage the exposure of the balance of the portfolio to increases in market interest rates by entering into interest rate cap agreements to hedge a portion of its variable-rate debt against increases in interest rates and by incurring fixed-rate debt consisting primarily of subordinated SBA debentures. The Company has entered into interest rate cap agreements to limit the Company's interest rate exposure to 7.5% on $20.0 million of its LIBOR-based debt through April 7, 1997 and to 7.0% on an additional $20.0 million of its LIBOR-based debt through November 16, 1997. At December 31, 1996, these caps hedged 41.5% of the Company's LIBOR-based indebtedness. Prior to its expiration on April 7, 1997, the Company intends to replace that cap with a new cap which will limit the Company's interest rate exposure on $40.0 million of LIBOR-based debt. With the purchase of that cap, the Company will have limited its exposure on $60 million of debt. In addition, the Company manages its exposure to increases in market rates of interest by incurring fixed rate indebtedness, such as subordinated SBA debentures. The Company currently has outstanding subordinated SBA debentures in the principal amount of $29.4 million with a weighted average rate of interest of 7.38%. Of such debentures, 1.5 million mature on April 1, 1997. At December 31, 1996, these debentures constituted 23.4% of the Company's indebtedness. The Company will seek to manage interest rate risk by evaluating and purchasing, if appropriate, additional derivatives, originating adjustable-rate loans, incurring fixed-rate indebtedness and revising, if appropriate, its overall level of asset and liability matching. Nevertheless, the Company accepts varying degrees of interest rate risk depending on market conditions and believes that the resulting asset/liability interest rate mismatch results in opportunities for higher net interest income. LIQUIDITY AND CAPITAL RESOURCES The Company's sources of liquidity are credit facilities with bank syndicates, fixed rate, long-term subordinated SBA debentures that are issued to or guaranteed by the SBA and loan amortization and prepayments. As a RIC, the Company distributes at least 90% of its investment company taxable income; consequently, the Company primarily relies upon external sources of funds to finance growth. At December 31, 1996, 76.6% of the Company's $125.8 million of debt consisted of bank debt, substantially all of which was at variable effective rates of interest with a weighted average rate of 7.03% or 122 basis points below the Prime Rate and 23.4% consisted of subordinated SBA debentures with fixed rates of interest with a weighted average rate of 7.38%. The Company is eligible to seek SBA funding but plans to continue to limit its use of SBA funding and will seek such funding only when advantageous, such as when SBA financing rates are particularly attractive, or to fund loans that qualify under SBA regulations through Edwards and TCC 45 which are already subject to SBA restrictions. In the event that the Company seeks SBA funding, no assurance can be given that such funding will be obtained. In addition to possible additional SBA funding, an additional $10.5 million of debt was available at December 31, 1996 at variable effective rates of interest averaging below the Prime Rate under the Company's $105.0 million bank credit facilities. The Company has observed a practice of minimizing credit facility fees associated with the unused component of credit facilities by keeping the unused component as small as possible and periodically increasing the amounts available under such credit facilities only when necessary to fund portfolio growth. The following table illustrates the Company's and each of the subsidiaries' sources of available funds and amounts outstanding under credit facilities at December 31, 1996.
Medallion Financial MFC Edwards TCC Total ------------ ---------- ------------- ------- -------------- (dollars in thousands) Cash and cash equivalents............ $ 102 $ 676 $ 207 $ 680 $ 1,665 Revolving lines of credit............ 5,000(2) 85,000(3) 15,000 -- 105,000 Amounts available.................. 550 7,450 2,550 -- 10,550 Amounts outstanding................ 4,450 77,550 12,450 -- 94,450 Average interest rate............ 6.84% 7.06% 6.81% -- 7.03% Maturity......................... 12/97 6/97 4/97-7/97 -- 4/97-12/97 Term loans........................... -- 2,000 -- 2,000 Interest rate.................... -- 7.50% -- -- 7.50% Maturity......................... -- 7/97 -- -- 7/97 SBA debentures....................... -- -- 23,750(1) 5,640 29,390(1) Average interest rate............ -- -- 7.95% 5.00% 7.38% Maturity......................... -- -- 4/97-9/04 6/02 4/97-9/04 Total cash and remaining amounts available under credit facilities.. 652 8,126 2,757 680 12,215(2)(3) Total debt outstanding............... $4,450 $79,550 $ 36,200 $5,640 $ 125,840 - ----------------
(1) On April 1, 1997, 1.5 million of such debentures mature. (2) On February 10, 1997, Medallion Financial increased the amount available under its line of credit by $1.0 million. (3) On January 28, 1997, MFC increased the amount available under its revolving credit facility by $20.0 million. Loan amortization and prepayments also provide a source of funding for the Company. Prepayments on loans are influenced significantly by general interest rates, Medallion Loan market rates, economic conditions and competition. Medallion Loan prepayments have slowed since early 1994, initially because of increases, and then stabilization, in the level of interest rates and more recently because of an increase in the percentage of the Company's Medallion Loans which are refinanced with the Company rather than through other sources of financing. The Company makes limited use of SBA funding and will seek such funding only when advantageous. Since May 30, 1996, the Company has expanded its loan portfolio, reduced its level of SBA financing and increased its level of bank funding. At December 31, 1996, SBA financing represented 23.4% of total debt as compared to 25.3% at May 30, 1996. While bank funding often carries higher interest rates than SBA funding, the Company believes that such higher rates will be offset 46 by the increased volume of funding and loan originations which should result in increased net interest margin. Media funds its operations through internal cash flow and intercompany debt. Media is not a RIC and, therefore, is able to retain earnings to finance growth. The Company believes that anticipated borrowings from the SBA and under its bank credit facilities and cash flow from operations (after distributions to stockholders) will be adequate to fund the continuing operations of the Company's loan portfolio and advertising business for the foreseeable future. In addition, in order to provide the funds necessary for the Company's expansion strategy, the Company expects to incur, from time to time, additional short- and long-term bank debt and (to the extent permitted and advantageous) to use SBA leverage, and to issue, in public or private transactions, its equity and debt securities. The Company is currently exploring such external financing possibilities and MFC is exploring establishing a commercial paper program. The issuance of commercial paper will be contingent upon MFC obtaining an investment grade rating, among other conditions, and no assurance can be given that MFC will be able to establish such a program. The availability and terms of any additional financing will depend upon market, regulatory and other conditions and there can be no assurance that such additional financing will be available on terms acceptable to the Company. INVESTMENT CONSIDERATIONS The following are certain of the factors which could affect the Company's future results. They should be considered in connection with evaluating forward-looking statements contained in this Management's Discussion and Analysis and elsewhere in this Report and otherwise made by or on behalf of the Company since these factors, among others, could cause actual results and conditions to differ materially from those projected in these forward-looking statements. Interest Rate Spread. The Company's net interest income is largely dependent upon achieving a positive interest rate spread and other factors. Leverage. The Company's use of leverage poses certain risks for holders of the Common Stock, including the possibility of higher volatility of both the net asset value of the Company and the market price of the Common Stock and, therefore, an increase in the speculative character of the Common Stock. Availability of Funds. The Company has a continuing need for capital to finance its lending activities. The Company funds its operations through credit facilities with bank syndicates and, to a lesser degree, through subordinated SBA debentures. Reductions in the availability of funds from banks and under SBA programs on terms favorable to the Company could have a material adverse effect on the Company. Because the Company distributes to its shareholders at least 90% of its investment company taxable income, such earnings are not available to fund loan originations. Industry and Geographic Concentration. A substantial portion of the Company's revenue is derived from operations in New York City and these operations are substantially focused in the area of financing New York City taxicab medallions and related assets. There can be no assurance that an economic downturn in New York City in general, or in the New York City taxicab industry in particular, would not have an adverse impact on the Company. 47 Reliance on Management. The success of the Company will be largely dependent upon the efforts of senior management. The death, incapacity or loss of the services of any of such individuals could have an adverse effect on the Company. Taxicab Industry Regulation. Every city in which the Company originates Medallion Loans, and most other major cities in the United States, limit the supply of taxicab medallions. In many markets, regulation results in supply restrictions which, in turn, support the value of medallions; consequently, actions which loosen such restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market and, therefore, the collateral securing the Company's then outstanding Medallion Loans, if any, in that market. The Company is unable to forecast with any degree of certainty whether any potential increases in the supply of medallions will occur. In New York City, and in other markets where the Company originates Medallion Loans, taxicab fares are generally set by government agencies, whereas expenses associated with operating taxicabs are largely unregulated. As a consequence, in the short term, the ability of taxicab operators to recoup increases in expenses is limited. Escalating expenses, therefore, can render taxicab operation less profitable and make it more difficult for borrowers to service loans from the Company and could potentially adversely affect the value of the Company's collateral. Government Regulation of Tobacco Advertising. Currently, 60% of the Company's taxicab rooftop advertising revenue is derived from tobacco products advertising. In August 1996, President Clinton signed an executive order adopting rules proposed by the FDA restricting the sale and advertising of cigarette and smokeless tobacco products. Certain of these regulations which include provisions prohibiting the placement of tobacco product advertising within 1,000 feet of playgrounds and schools only apply to stationery advertising such as placards and billboards and, accordingly, do not restrict taxicab rooftop advertising. Certain other of these regulations, however, which limit tobacco products advertising to a format consisting of black text on a white background and require the inclusion of a statement which identifies the product as "a nicotine-delivery device for persons over 18" apply to taxicab rooftop advertising. Certain advertisers may be unwilling to advertise in this format; accordingly, these restrictions, which become effective on August 28, 1997, could have an adverse effect upon the taxicab rooftop advertising business of the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted in the response found under Item 14(A)(1) in this Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. 48 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The response to this item is contained in part under the caption "Executive Officers of the Registrant" in Part I hereof and the remainder is incorporated herein by reference from the discussion responsive thereto under the caption "Election of Directors" in the Company's Proxy Statement relating to its Annual Meeting of Stockholders scheduled for June 5, 1997 (the "Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The response to this item is incorporated herein by reference from the discussion responsive thereto under the caption "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this item is incorporated herein by reference from the discussion responsive thereto under the caption "Stock Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this item is incorporated herein by reference from the discussion responsive thereto under the caption "Certain Transactions" in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The financial statements and financial statement schedules as listed in the Index to Financial Statements are filed as part of this Annual Report on Form 10-K. (B) REPORTS ON FORM 8-K On June 11, 1996, the Company filed a current report on Form 8-K under Item 2 pertaining to the closing of the acquisitions of MFC, TCC, Media and the assets of Edwards. No financial statement were filed as they were previously reported in the Company's registration statement on Form N-2, as amended (No. 333-1670). 49 (C) EXHIBITS The Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is incorporated herein by reference. 50 MEDALLION FINANCIAL CORP. INDEX TO FINANCIAL STATEMENTS
PAGE ---- MEDALLION FINANCIAL CORP. Report of Arthur Andersen LLP, Independent Public Accountants............ F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995............. F-3 Consolidated Statement of Operations for the Period May 30, 1996 (Commencement of Operations) through December 31, 1996.................. F-4 Consolidated Statement of Shareholders' Equity for the Period May 30, 1996 (Commencement of Operations) through December 31, 1996..... F-5 Consolidated Statement of Cash Flows for the Period May 30, 1996 (Commencement of Operations) through December 31, 1996.................. F-6 Notes to Consolidated Financial Statements............................... F-8 EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) Report of Arthur Andersen LLP, Independent Public Accountants............ F-21 Report of Friedman, Alpren & Green LLP, Independent Public Accountants... F-22 Balance Sheets as of May 29, 1996 and December 31, 1995.................. F-23 Statements of Operations for the Period ended May 29, 1996 and the years ended December 31, 1995 and 1994.......................... F-24 Statements of Changes in Partners' Capital for the Period Ended May 29, 1996 and the years ended December 31, 1995 and 1994....... F-25 Statements of Cash Flows for the Period Ended May 29, 1996 for the years ended December 31, 1995 and 1994.............................. F-26 Notes to Financial Statements............................................ F-27 TRI-MAGNA CORPORATION AND SUBSIDIARIES Report of Arthur Andersen LLP, Independent Public Accountants............ F-34 Consolidated Balance Sheets as of May 29, 1996 and December 31, 1995..... F-35 Statements of Operations for the Period Ended May 29, 1996 and the years ended December 31, 1995 and 1994.......................... F-36 Statements of Shareholders' Equity for the Period Ended May 29, 1996 and the years ended December 31, 1995 and 1994....... F-37 Consolidated Statements of Cash Flows for the Period Ended May 29, 1996 and the years ended December 31, 1995 and 1994............. F-38 Notes to Consolidated Financial Statements............................... F-39 TRANSPORTATION CAPITAL CORP. Report of Arthur Andersen LLP, Independent Public Accountants............ F-50 Report of Coopers & Lybrand LLP, Independent Public Accountants.......... F-51 Sheets as of May 29, 1996 and December 31, 1995.......................... F-52 Statements of Operations for the Period Ended May 29, 1996 and the years ended December 31, 1995 and 1994.......................... F-53 Statements of Changes in Shareholders' Equity for Period Ended May 29, 1996 and the years ended December 31, 1995 and 1994....... F-54 Statements of Cash Flows for the Period Ended May 29, 1996 and the years ended December 31, 1995 and 1994.......................... F-55 Notes to Financial Statements............................................ F-56
MEDALLION FINANCIAL CORP. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Medallion Financial Corp.: We have audited the accompanying consolidated balance sheets of Medallion Financial Corp. (a Delaware Corporation) and Subsidiaries as of December 31, 1996 and 1995, including the consolidated schedule of investments as of December 31, 1996, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the period May 30, 1996 (commencement of operations) to December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included the confirmation of loans receivable as of December 31, 1996 by correspondence with the borrowers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As explained in Note 2, investments consist of loans valued at $176,493,888 (93% of total assets) as of December 31, 1996, whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. However, because of the inherent uncertainty of valuation, the Board of Directors' estimate of values may differ significantly from the values that would have been used had a ready market for the loans existed, and the differences could be material. In our opinion, the consolidated balance sheets referred to above presents fairly, in all material respects, the financial position of Medallion Financial Corp. and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the period May 30, 1996 (commencement of operations) to December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Boston, Massachusetts February 19, 1997 MEDALLION FINANCIAL CORP. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, -------------- ------------- 1996 1995 -------------- ------------- ASSETS Investments (Note 2) Medallion loans $134,614,899 $ - Commercial installment loans 41,925,289 - ------------ -------- Gross investments 176,540,188 - Unrealized depreciation of investments (46,300) - ------------ -------- Net investments 176,493,888 - Investment in unconsolidated subsidiary (Note 4) 937,000 - ------------ -------- Total investments $177,430,888 $ - Cash 1,664,603 2,000 Accrued interest receivable 1,696,584 - Fixed assets, net 89,815 - Goodwill, net (Note 2) 6,250,636 - Other assets 2,491,974 716,217 ------------ -------- Total assets $189,624,500 $718,217 ============ ======== LIABILITIES Accounts payable and accrued expenses $ 1,844,033 $716,217 Dividends payable 1,849,225 - Accrued interest payable 1,086,247 - Notes payable to banks and demand notes (Note 5) 96,450,000 - SBA debentures payable (Note 6) 29,390,000 - ------------ -------- Total liabilities $130,619,505 $716,217 ------------ -------- Negative goodwill, net (Note 2) 2,517,716 - ------------ -------- Commitments and contingencies (Note 8) SHAREHOLDERS' EQUITY (Notes 1 and 10) Preferred Stock (1,000,000 shares of $.01 par value stock authorized - none outstanding) $ - $ - Common stock (15,000,000 shares of $.01 par value stock authorized - 8,250,000 and 2,500,000 shares outstanding at December 31, 1996 and 1995, respectively 82,500 25,000 Capital in excess of par value 56,359,555 (23,000) Accumulated undistributed income 45,224 - ------------ -------- Total shareholders' equity 56,487,279 2,000 ------------ -------- Total liabilities and shareholders' $189,624,500 $718,217 equity ============ ========
The accompanying notes are an integral part of these financial statements. MEDALLION FINANCIAL CORP. CONSOLIDATED STATEMENT OF OPERATIONS FROM MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
Investment income: Interest income on investments $10,374,238 Interest income on treasury bills 37,603 ----------- Total investment income 10,411,841 ----------- Interest expense: Notes payable to bank 3,631,746 SBA debentures 1,376,747 ----------- Total interest expense 5,008,493 ----------- Net interest income 5,403,348 ----------- Non-interest income: Equity in losses of unconsolidated subsidiary (63,000) Accretion of negative goodwill 421,435 Other Income 410,991 ----------- Total non-interest income 769,426 ----------- Expenses: Administration and advisory fees 161,886 Professional fees 410,420 Salaries and benefits 779,445 Other operating expenses 879,187 Amortization of goodwill 259,260 ----------- Total expenses 2,490,198 ----------- Net investment income 3,682,576 Increase in net unrealized depreciation (46,300) Net realized gain on investments 84,447 ----------- Net increase in net assets resulting from operations $ 3,720,723 =========== Net increase in net assets resulting from operations per common share $0.45 =========== Weighted average shares and common share equivalents outstanding 8,276,250 ===========
The accompanying notes are an integral part of these financial statements. MEDALLION FINANCIAL CORP. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FROM MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
SHARES OF CAPITAL ACCUMULATED COMMON STOCK COMMON STOCK IN EXCESS UNDISTRIBUTED OUTSTANDING $.01 PAR VALUE OF PAR VALUE INCOME ------------------------------------------------------------ Balance at December 31, 1995 (Note 1) 2,500,000 $25,000 $ (23,000) $ - Issuance of common stock under offering (Note 1) 5,750,000 57,500 56,089,556 - For the period from May 30, 1996 to December 31, 1996: Distributable net investment income - - - 3,767,023 Dividends declared on common stock ($0.41 per share) - - - (3,382,500) SOP 93-2 Cumulative reclassification (Note 10) - - 292,999 (292,999) Change in unrealized depreciation - - - (46,300) ------------ -------------- ------------ ----------- Balance at December 31, 1996 8,250,000 $82,500 $56,359,555 $ 45,224 ============ ============== ============ ===========
The accompanying notes are an integral part of these financial statements. MEDALLION FINANCIAL CORP. CONSOLIDATED STATEMENT OF CASH FLOWS FROM MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES: Net increase in net assets resulting $ 3,720,723 from operations Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used for) operating activities: Depreciation and amortization 14,500 Increase in equity in earnings (losses) of unconsolidated subsidiary 63,000 Amortization of goodwill 259,260 Increase in unrealized depreciation 46,300 Decrease (increase) in accrued interest receivable (301,310) Decrease (increase) in other assets (1,933,829) Increase (decrease) in accounts payable and accrued expenses 371,503 Accretion of negative goodwill (421,435) Increase (decrease) in accrued interest payable (553,280) ------------ Net cash provided by (used for) operating activities $ 1,265,432 ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Originations of loans (investments) $(71,419,455) Proceeds from sales and maturities of loans (investments) 44,323,364 Payment for purchase of Tri-Magna, net (11,848,283) Payment for purchase of Edwards Capital Company (15,624,995) Payment for purchase of TCC, net (3,748,576) Capital expenditures (89,928) ------------ Net cash provided by (used for) investing activities $(58,407,873) ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds of notes payable to banks $ 6,050,000 Repayment of notes payable to SBA (1,200,000) Payment of declared dividends to former shareholders (542,012) Payment of declared dividends to present shareholders (1,650,000) Proceeds from initial public offering, net of expenses 56,147,056 ------------ Net cash provided by (used for) financing activities $ 58,805,044 ------------ NET INCREASE (DECREASE) IN CASH $ 1,662,603 CASH, beginning of period 2,000 ------------ CASH, end of period $ 1,664,603 ============ SUPPLEMENTAL INFORMATION: Cash paid during the period for interest $ 5,561,773 ============ SUPPLEMENTAL INFORMATION OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Note received for exercise of warrant $ 157,000 ============
The accompanying notes are an integral part of these financial statements. MEDALLION FINANCIAL CORP. CONSOLIDATED STATEMENT OF CASH FLOWS FROM MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996 (CONTINUED) SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: In conjunction with the Acquisitions, liabilities were assumed as follows:
Tri-Magna Edwards Capital Company TCC ------------ ----------------------- ----------- Fair value of assets acquired, other than cash $97,808,510 $51,356,894 $ 9,714,029 ----------- ----------- ----------- Cash acquired 1,529,717 - 6,797,183 Cash paid 13,378,000 15,624,995 10,545,759 ----------- ----------- ----------- Cash paid, net 11,848,283 15,624,995 3,748,576 ----------- ----------- ----------- Negative goodwill 2,939,085 - - ----------- ----------- ----------- Liabilities assumed $83,021,142 $35,731,899 $ 5,965,453 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (1) FORMATION OF MEDALLION FINANCIAL CORP. Medallion Financial Corp. (the Company) is a closed-end management investment company organized as a Delaware corporation in 1995. The Company has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the 1940 Act). On May 29, 1996, the Company completed an initial public offering (the Offering) of its common stock, issued and sold 5,750,000 shares at $11.00 per share and split the existing 200 shares of common stock outstanding into 2,500,000 shares. All share and related amounts in the accompanying financial statements have been restated to reflect this stock split. Offering costs incurred by the Company in connection with the sale of shares totaling $7,102,944 were recorded as a reduction of capital upon completion of the Offering. These costs were recorded, net of $200,000 payable by Tri-Magna Corporation and subsidiaries (Tri-Magna) in accordance with the Merger Agreement. In parallel with the Offering, the Company merged with Tri- Magna; acquired substantially all of the assets and assumed certain liabilities of Edwards Capital Company, a limited partnership; and acquired all of the outstanding voting stock of Transportation Capital Corp. (TCC) (collectively, the Acquisitions) (see Note 3). The assets acquired and liabilities assumed from Edwards Capital Company, were acquired and assumed by Edwards Capital Corporation (Edwards), a newly formed and wholly-owned subsidiary of the Company. As a result of the merger with Tri-Magna in accordance with the Merger Agreement dated December 21, 1995 between the Company and Tri-Magna , Medallion Funding Corp. (MFC) and Medallion Taxi Media, Inc. (Media), formerly subsidiaries of Tri-Magna, became wholly-owned subsidiaries of the Company. In connection with the Acquisitions, the Company has applied for and received the Acquisition Order under the 1940 Act from the Securities and Exchange Commission. The Company also received approval from the Small Business Administration (SBA) for these transactions. Tri-Magna was a closed-end management investment company registered under the 1940 Act and was the sole shareholder of MFC and Media. MFC is a closed-end management investment company registered under the 1940 Act and is licensed as a specialized small business investment company (SSBIC) by the SBA. As an adjunct to MFC's taxicab medallion finance business, Media operates a taxicab rooftop advertising business. Edwards is licensed as a small business investment company (SBIC) by the SBA and is registered as a closed-end management investment company under the 1940 Act. TCC, a wholly-owned subsidiary of the Company, is licensed as an SSBIC by the SBA and is registered as a closed-end management investment company registered under the 1940 Act. (2) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company primarily engages, directly and/or through its principal subsidiaries, in the business of making loans to small businesses and, to a lesser degree, in the business of taxicab rooftop advertising. The Company originates and services loans financing the purchase of taxicab medallions and related assets (medallion loans). The Company also originates and services commercial installment loans to small businesses in other targeted industries (commercial installment loans). While medallion and commercial installment loans are originated substantially in the metropolitan New York area, the Company also finances medallion loans in the Boston, Cambridge, Massachusetts and Chicago areas. The accounting and reporting policies of the Company conform with generally accepted accounting principles and general practices in the investment companies industry. The preparation of financial statements in conformity with generally accepted accounting principles require the Company to make estimates and assumptions that affect the reporting and disclosure of assets and liabilities, including those that are of a contingent nature, at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. The significant accounting and reporting policies of the Company are summarized below: MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (2) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Medallion Financial Corp. and its wholly-owned subsidiaries (except for Media) commencing with the period from the closing of the Offering and Acquisitions to December 31, 1996. Prior to the Acquisitions, Medallion Financial Corp. had no operations and each of the subsidiaries had been operating independently of each other. All significant inter-company balances and transactions have been eliminated. All references in the notes to the consolidated financial statements for the period ended December 31, 1996 refer to the period from May 30, 1996 to December 31, 1996. The Company's investment in Media is accounted for under the equity method. As a non-investment company, Media cannot be consolidated with the Company, which is an investment company under the 1940 Act. Refer to Note (4) for the presentation of financial information for Media. INVESTMENTS The Company's loans, net of participations, are considered investments under the 1940 Act and are recorded at fair value. Loans are valued at cost less unrealized depreciation. Since no ready market exists for these loans, the fair value is determined in good faith by the Board of Directors. In determining the fair value, the Company and Board of Directors consider factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience and the relationships between current and projected market rates and portfolio rates of interest and maturities. The Company's investments consist primarily of long-term loans to persons defined by SBA regulations as being socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 76% of the Company's loan portfolio at December 31, 1996 have arisen in connection with the financing of taxicab medallions, taxicabs and related assets, substantially all in the metropolitan New York area. These loans are secured by the medallions, taxicabs and related assets and are personally guaranteed by the borrowers, or in the case of corporations, personally guaranteed by the owners. The remaining portion of the Company's portfolio represents loans to various commercial enterprises, including dry cleaners, garages, gas stations and laundromats. These loans are secured by various equipment and/or real estate and are generally guaranteed by the owners, and in certain cases, by the equipment dealers. These loans are made primarily in the metropolitan New York City area. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of related loans. At December 31, 1996, net deferred costs totaled $567,204. Amortization expense for the period ended December 31, 1996 was $161,977. Loans are placed on non-accrual status, with the reversal of all uncollected accrued interest, when there is doubt as to the collectibility of interest or principal or if loans are 90 days or more past due unless they are both fully collateralized and in the process of collection. Interest received on non- accrual loans is recognized as income when collected. At December 31, 1996, total non-accrual loans were $2,450,702. For the period ended December 31, 1996, the amount of interest income on non-accrual loans that would have been recognized if the loans had been paying in accordance with their original terms was $111,209. The principal portion of loans serviced for others by the Company at December 31, 1996 amounted to approximately $60,160,000. MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (2) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) UNREALIZED DEPRECIATION AND REALIZED GAINS/LOSSES ON INVESTMENTS The change in unrealized depreciation of investments is the amount by which the fair value estimated by the Company is less than the cost basis of the loan portfolio. Realized gains or losses on investments consist of the excess of the proceeds derived upon foreclosure over the cost basis of a loan, write-offs of loans or assets acquired in satisfaction of loans, net of recoveries. For the period ended December 31, 1996, gross realized gains on investments were $189,000 and gross realized losses on investments were $105,000 and the increase in net unrealized depreciation was $46,300. Total unrealized depreciation was $1,568,717 on total investments of $176,493,888 at December 31, 1996, of which $1,522,417 existed at the date of the Company's acquisitions (see Note 3). GOODWILL Cost of purchased businesses in excess of the fair value of net assets acquired ("goodwill) is being amortized on a straight-line basis over 15 years. The excess of fair value of net assets over cost of business acquired ("negative goodwill") is being accreted on a straight-line basis over approximately 4 years. The Company reviews its goodwill and negative goodwill for events or changes in circumstances that may indicate that the carrying amount of the assets may not be recoverable, and if appropriate, reduces the carrying amount through a charge to income. FEDERAL INCOME TAXES It is the Company's policy to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies, which require the Company to distribute at least 90% of its investment company taxable income to its shareholders. Therefore, no provision for federal income taxes has been made in the accompanying financial statements. Media, as a non-investment company, has elected to be taxed as a regular corporation. Refer to Note (4) for financial information for Media. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE Net increase in net assets resulting from operations per share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents consist primarily of dilutive outstanding stock options computed under the treasury stock method. RECENT ACCOUNTING DEVELOPMENTS In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." This statement requires a review for impairment of long-lived assets and certain identifiable intangibles to be held and used by an entity whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment would be estimated if the sum of the expected future cash flows to result from the use and eventual disposition of the asset is less than the carrying amount of the asset. The adoption of this statement did not have a significant impact on the Company's financial position or results of operations. In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes a fair value-based method of accounting for stock options and similar equity MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (2) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) instruments of employee stock compensation plans. This statement allows the option of adopting the new fair value method or to measure compensation cost for those plans using the current intrinsic value-based method as prescribed by Accounting Principles Board Opinion No. 25 (APB Opinion No. 25), "Accounting for Stock Issued to Employees." Under this statement, the use of intrinsic value- based method, requires pro forma disclosure of net income and earnings per share as if the fair value-based method had been adopted. The Company opted to adopt the pro forma disclosure provisions of SFAS No. 123. See pro forma information in Note (7). On March 3, 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This statement establishes standards for the computation and presentation of earnings per share and applies to entities with publicly held common stock or potential common stock. The new statement which supersedes APB Opinion No. 15, is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption is not permitted. This statement when adopted, will require the restatement of prior years' earnings per share. Management expects that the adoption of this new statement will not have a material impact on the Company's previously disclosed earnings per share. (3) THE ACQUISITIONS The Acquisitions were accounted for under the purchase method of accounting. Under this accounting method, the Company has recorded as its cost the fair value of the acquired assets and liabilities assumed. The difference between the cost of acquired companies and the sum of the fair values of tangible and identifiable intangible assets less liabilities assumed was recorded as goodwill or negative goodwill. The fair value of these assets and liabilities is summarized as follows:
Tri-Magna Edwards Capital Company TCC ------------- ------------------------ ------------ Cash and cash equivalents $ 1,529,717 $ - $ 6,797,183 Investments * 95,621,617 44,510,149 9,312,331 Accrued interest receivable 870,073 406,817 118,583 Goodwill (Negative Goodwill) (2,939,085) 6,303,562 206,334 Other assets 1,316,820 136,366 76,781 Dividends payable (542,012) - (116,725) Notes payable to banks (80,300,000) (10,100,000) - Accounts payable and accrued expenses (1,360,570) - (69,660) Accrued interest payable (818,560) (681,899) (139,068) SBA debentures payable - (24,950,000) (5,640,000) --------------- ------------- ----------- Total acquisition cost $ 13,378,000 $ 15,624,995 $10,545,759 =============== ============ ===========
*Net of unrealized depreciation of investments of $1,522,417. The following unaudited proforma combined financial information for the years ended December 31, 1996 and 1995 is presented as follows assuming the formation of the Company and the Acquisitions described in Notes (1) and (3) had occurred on January 1, 1996 or 1995, respectively: MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (3) THE ACQUISITIONS (CONTINUED)
Year ended December 31, ------------------------ 1996 1995 ----------- ----------- Investment Income $17,130,990 $15,679,763 Net interest income 9,129,366 8,209,057 Net investment income 6,153,461 5,719,331 Net increase in net assets resulting 6,227,027 5,925,731 from operations Net increase in net assets resulting from operations per share $0.75 $0.72 Proforma weighted average share, and common share equivalents, outstanding 8,250,000 8,250,000
Such unaudited proforma combined financial information is not necessarily indicative of the results of operations which would have actually been reported had the Offering and Acquisition occurred on January 1, 1996 or 1995, nor does it purport to represent the Company's future results of operations. The proforma information also does not give effect to any anticipated benefits and cost reductions nor future corporate costs that are not under contract, in connection with the transactions. (4) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY The balance sheets at December 31, 1996 and 1995 for Media, are as follows:
DECEMBER 31, ---------------------- 1996 1995 ----------- --------- Cash ...................... $ 79,827 $ - Accounts receivable ....... 307,303 214,238 Equipment, net ............ 976,442 559,786 Other ..................... 330,839 55,720 ---------- -------- Total Assets ....... $1,694,411 $829,744 ========== ======== Notes payable ............ $ - $275,000 Notes payable parent ..... 584,566 Accrued expenses .......... 64,516 409,409 ---------- -------- Total Liabilities .. 649,082 684,409 ---------- -------- Equity .................... 1,001,000 1,000 Retained earnings ......... 44,329 144,335 ---------- -------- Total equity ....... 1,045,329 145,335 ---------- -------- Total Liabilities and Shareholders equity .................. $1,694,411 $829,744 ========== ========
The statements of operations of Media (1) for the period commencing with the Company's acquisition of Media from May 30, 1996 to December 31, 1996; (2) for the five month period ended May 29, 1996, (3) for the fiscal year ended December 31, 1995 and (4) for the period from inception (August 23, 1994) to December 31, 1994, respectively, are as follows:
SEVEN MONTHS ENDED FIVE MONTHS ENDED YEAR ENDED PERIOD ENDED ------------------- ------------------ ------------ ------------ DECEMBER 31, MAY 29, DECEMBER 31, DECEMBER 31, ------------------- ------------------ ------------ ------------ 1996 1996 1995 1994 ------------------- ------------------ ------------ ------------ STATEMENT OF OPERATIONS ----------------------- Advertising revenue $1,095,346 $671,148 $1,542,013 $227,756 Cost of services 499,135 283,891 483,721 83,341 ---------- -------- ---------- -------- Gross margin 596,211 387,257 1,058,292 144,415 Other operating expenses 659,211 455,278 829,293 126,036 ---------- -------- ---------- -------- Income (loss) before taxes (63,000) (68,021) 228,999 18,379 Income taxes - (14,999) 103,043 - ---------- -------- ---------- -------- Net income (Loss) $ (63,000) $(53,022) $ 125,956 $ 18,379 ========== ======== ========== ========
MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (4) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (CONTINUED) On July 25, 1996, Media purchased all of the assets of See-Level Management, Inc. and See-Level Advertising, Inc. (consisting of 450 taxicab rooftop advertising display units and certain contracts for advertising and fleet rental) for $700,000. In addition, the owners of these entities entered into noncompete and consulting agreements with Media for a period of 2.5 years. During 1996 the Company contributed $1,000,000 in capital to Media to fund this purchase. (5) NOTES PAYABLE TO BANKS AND DEMAND NOTES Short-term borrowings consisted of the following at: DECEMBER 31, -------------- DESCRIPTION 1996 ----------- ----------- Revolving Credit Agreements.. $94,450,000 Term Loan Agreement ........ 2,000,000 ----------- Total ...................... $96,450,000 =========== Borrowings under these agreements are secured by all assets of the Company. Revolving Credit Agreements On March 27, 1992 (and as subsequently amended), MFC entered into a committed revolving credit agreement (the Revolver) with a group of banks. MFC extended the Revolver until June 30, 1997 at an aggregate credit commitment amount of $85,000,000 pursuant to the Renewal and Extension Agreement dated June 28, 1996. The Revolver may be extended annually thereafter upon the option of the participating banks and acceptance by MFC. Should any participating bank not extend its committed amount, the Revolver agreement provides that each bank shall extend a term loan equal to its share of the principal amount outstanding of the revolving credit note. Maturity of the term note shall be the earlier of two years or any other date on which it becomes payable in accordance with the Revolver agreement. Interest and principal payments are paid monthly. Interest is calculated monthly at either the bank's prime rate or a rate based on the adjusted London Interbank Offered Rate of interest (LIBOR) at the option of MFC. Substantially all promissory notes evidencing MFC's investments are held by a bank, as collateral agent under the agreement. MFC is required to pay an annual facility fee of 1/4% on March 31, 1997 on the Revolver aggregate commitment. Outstanding borrowings under the Revolver were $77,550,000 at December 31, 1996, at weighted average interest rate of 7.1%. MFC is required under the Revolver to maintain minimum tangible net assets of $19,000,000 and certain financial ratios, as defined therein. The Revolver agreement contains other restrictive covenants, including a limitation of $500,000 for capital expenditures. At December 31, 1996, MFC was in compliance with all its terms. Edwards has $15,000,000 in lines of credit with five banks. Interest is charged at Edwards' option, at either the lenders' prime rate or at a rate based on the adjusted LIBOR. The amount of borrowings outstanding under the lines of credit was $12,450,000 at December 31, 1996, at a weighted average interest rate of 6.8%. Edwards is required to maintain under a promissory note agreement with two of the five banks, a minimum tangible net-worth of $8,750,000; a minimum tangible net worth plus subordinated debt of $32,000,000 and certain financial ratios, as defined therein. At December 31, 1996, Edwards was in compliance with all its terms. Under an agreement with the SBA, Edwards is restricted from borrowing more than $12,700,000 in bank debt without the prior approval of the SBA. In addition, all bank indebtedness is senior to SBA-guaranteed indebtedness pursuant to the SBA rules and regulations. On December 1, 1996, Medallion Financial Corp. entered into a revolving credit agreement with a bank. The agreement provides for short-term borrowings up to $5,000,000. The revolving credit borrowings, at the option of Medallion Financial Corp. are at the bank's prime rate or at a rate based on the adjusted LIBOR. Medallion Financial Corp. is required to pay a facility fee of 1/4% of the commitment. Outstanding borrowings under this agreement was $4,450,000 at December 31, 1996, at a weighted average interest rate of 6.84%. MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (5) NOTES PAYABLE TO BANKS AND DEMAND NOTES (CONTINUED) The weighted average interest rate for the Company's outstanding borrowings at December 31, 1996 was 6.9%. During the seven month period ended December 31, 1996, the Company's weighted average borrowings were $82,980,000 with a weighted average interest rate of 7.5%. The maximum outstanding borrowings of the Company were $94,550,000 at any month end in the seven month period ending December 31, 1996. Term Loan Agreement MFC has an existing term loan agreement (Term Loan) with a bank in the amount of $2,000,000, all of which was outstanding at December 31, 1996. Interest payments at a fixed rate of 7.5% are due quarterly. The weighted average interest rate paid on such borrowings was 7.5%, during the seven month period ended December 31, 1996. The Term Loan matures in July, 1997. Interest Rate Cap Agreements On April 7, 1995, MFC entered into three interest rate cap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. These agreements limit the Company's maximum LIBOR exposure on $20,000,000 of MFC's revolving credit facility to 7.5%. The premiums paid under these agreements were $46,875, $31,000 and $46,687, respectively. The premiums have been capitalized and are being amortized over the two-year term of the agreements, which expires on April 7, 1997. The Company is exposed to credit loss in the event of nonperformance by the counterparties on these interest rate cap agreements. The Company does not anticipate nonperformance by any of these parties. On November 16, 1995, MFC entered into three additional interest rate cap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. These agreements limit the Company's maximum LIBOR exposure on an additional $20,000,000 of its revolving credit facility to 7.0%. The premiums paid under these agreements were $13,000, $25,000 and $12,500, respectively. The premiums have been capitalized and are being amortized over the two-year terms of the agreements, which expire on November 16, 1997. The Company is exposed to credit loss in the event of nonperformance by the counterparties on these interest rate cap agreements. The Company does not anticipate nonperformance by any of these parties. (6) SBA DEBENTURES PAYABLE Outstanding subordinated debentures are as follows at December 31, 1996:
DUE DATE AMOUNT INTEREST RATE ----------------- ----------- -------------------------------- April 1, 1997 $ 1,500,000 8.95% June 1, 1998 3,000,000 9.80 June 1, 2002 5,640,000 5.00 (until June 1, 1997 and 8.00% September 1, 2002 3,500,000 7.15% thereafter) September 1, 2002 6,050,000 7.15 June 1, 2004 4,600,000 7.80 September 1, 2004 5,100,000 8.20 ----------- $29,390,000 ===========
MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (6) SBA DEBENTURES PAYABLE (CONTINUED) The SBA imposes certain restrictions, among others, including transfers of stock and payments of dividends by its licensees, to which the Company is subject. (7) STOCK OPTIONS The Company has a stock option plan (1996 Stock Option Plan) available to grant both incentive and nonqualified stock options to employees. The 1996 Stock Option Plan, which was approved by the Board of Directors and stockholders on May 22, 1996, provides for the issuance of a maximum of 750,000 shares of common stock of the Company. The Plan is administered by the Compensation Committee of the Board of Directors. The option price per share may not be less than the current market value of the Company's share of common stock on the date the option is granted. The term and vesting periods of the options are determined by the Compensation Committee, provided that the maximum term of an option may not exceed a period of ten years. A Non-Employee Director Stock Option Plan (the "Director Plan") was also approved by the Board of Directors and stockholders on May 22, 1996 and by the Securities and Exchange Commission on December 23, 1996. The Director Plan provides for the issuance of a maximum of 100,000 shares of common stock of the Company. The grants of stock options under the Director Plan are automatic as provided in the Director Plan. The option price per share may not be less than the current market value of the Company's share of common stock on the date the option is granted Options granted under the Director Plan are exercisable annually, as defined in the Director Plan. The term of the options may not exceed five years. Under the Director Plan, 16,969 shares have been granted as of December 31, 1996. The options outstanding have an exercie price of $13.75. The Company records stock compensation in accordance with APB Opinion No. 25 (see Note 2). Had compensation cost for stock options been determined based on the fair value at the date of grant for awards in 1996, consistent with the provisions of SFAS No. 123, the Company's net increase in net assets resulting from operations would have been reduced to the pro forma amounts indicated below:
Seven month period ended ------------------------ December 31, 1996 ----------------- Net increase in net assets resulting from operations: As reported $3,720,723 Pro Forma $3,696,480 Net increase in net assets resulting from operations per share: As reported $ 0.45 Pro Forma $ 0.45
The following table presents the activity for the stock option program under the 1996 Stock Option Plan and Director Stock Option Plan for the year ended December 31, 1996:
Weighted Number Exercise Price Average of Options Per Share Exercise Price ---------- -------------- -------------- Outstanding at December 31, 1995 - - - Granted 218,389 $11.00-$14.375 $11.52 Canceled - - - Exercised - - - ------- ------------- ------ Outstanding at December 31, 1996 218,389 $11.00-$14.375 $11.52 Options exercisable at December 31, 1996 7,576 $ 11.00 $11.00
At December 31, 1996, 181,820 of the 218,389 options outstanding have an exercise price of $11.00 with a weighted average remaining contractual life of 9.4 years. Of these options, 7,576 are exercisable at a weighted average exercise price of $11.00. The remaining 36,569 options have exercise prices ranging from $13.75 to $14.375 with a weighted average remaining contractual life of 4.9 years. None of these options was exercisable at December 31, 1996. MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (7) STOCK OPTIONS (CONTINUED) The weighted average fair value of options granted during the period ended December 31, 1996 was $3.21 per share. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants during the period ended December 31, 1996: Risk-free interest rate 6.4% Expected dividend yield 4.6% Expected life in years 5.8 Expected volatility 36.7% (8) COMMITMENTS AND CONTINGENCIES In May 1996, the Company entered into a sub-advisory agreement (the Sub- Advisory Agreement) with FMC Advisers, Inc. (FMC) in which FMC provides advisory services to the Company. Under the Sub-Advisory Agreement, the Company pays FMC a monthly fee for services rendered of $18,750. FMC will regularly consult with management of the Company with respect to strategic decisions concerning originations, credit quality assurance, development of financial products, leverage, funding, geographic and product diversification, the repurchase of participations, acquisitions, regulatory compliance and marketing. Unless terminated earlier as described below, the Sub-Advisory Agreement will remain in effect for a period of two years until May 1998. The term will continue from year to year thereafter, if approved annually by (i) a majority of the Company's noninterested directors and (ii) the Board of Directors, or by a majority of the Company's outstanding voting securities, as defined in the 1940 Act. The Sub- Advisory Agreement will be terminable without penalty to the Company on 60 days' written notice by either party or by vote of a majority of the outstanding voting securities of the Company, and will terminate if assigned by FMC. Two trusts affiliated with two officers, directors and shareholders of the Company have agreed to personally assure FMC of payment for the first 48 months of service under the Sub-Advisory Agreement pursuant to an escrow arrangement under which they have maintained in escrow common stock of the Company worth 200% of the advisory fees remaining to be paid by the Company to FMC during the first 48 months of service under the Sub-Advisory Agreement, thereby assuring FMC of the payment of $900,000 in advisory fees. Advisory fees incurred during the seven month period ended December 31, 1996 were $131,250. The Company has employment agreements with certain key officers for a term of five years. Annually, the employment period will renew for a new five-year term unless prior to the end of the first year, either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current five-year term. In the event of a change in control, as defined, during the employment period, the agreements provide for severance compensation to the executive in an amount equal to the balance of the salary, bonus and value of fringe benefits which the executive would be entitled to receive for the remainder of the employment period. In the normal course of business, there are outstanding commitments and contingent liabilities that are not reflected in the consolidated financial statements. At December 31, 1996, the Company had unfunded loan commitments of approximately $3,815,292, which bear interest at rates ranging from 8.75% to 16.0%. The Company has operating lease agreements for its executive and general offices expiring in December 1997, as amended. The existing leases call for an aggregate annual rental of approximately $235,000, subject to certain escalation clauses. Rent expense for the seven month period ended December 31, 1996 was $165,002. The Company is currently in the process of evaluating various alternatives for leased office space. Management does not expect that the terms of a new lease will have a material impact on rent expense. The Company and its subsidiaries become defendants to various legal proceedings arising from the normal course of business. In the opinion of management based upon the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision, would result in a material adverse impact in the financial condition or results of operations of the Company. MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (9) RELATED PARTY TRANSACTIONS Two directors, officers and shareholders of Medallion Financial Corp. are also directors of wholly-owned subsidiaries, MFC, Edwards, TCC and Media. Officer salaries are set by the Board of Directors. Directors who are not officers receive an annual fee of $10,000 plus a fee of $2,000 per meeting. Directors who are members of the committees of the Board receive $1,000 for each meeting attended. Total director fees and officer compensation were $37,542 and $588,065, respectively, during the period ended December 31, 1996. (10) SHAREHOLDERS' EQUITY On May 29, 1996, the Company issued and sold 5,750,000 shares at $11.00 per share in an Offering and split the existing 200 shares of common stock outstanding into 2,500,000 shares. All references to the amount and number of shares outstanding in the accompanying financial statements have been restated to reflect the stock split. The proceeds from the Offering were used to purchase all of the outstanding stock of Tri-Magna and TCC and acquire substantially all of the assets and assume certain liabilities of Edwards Capital Company. Refer to Notes (1) and (3) for a discussion of the Offering and the Acquisitions. In 1995, MFC and TCC repurchased and retired all of their previously issued 3% preferred stock from the SBA at a discount of 65% ($8,201,266) for an aggregate price of $4,416,067, under the SBA preferred stock repurchase agreements. Under the repurchase agreements, the SBA retains a liquidating interest in the amount of the discount on the repurchase, which expires on a straight line basis over five years or on a later date if an event of default, as defined in the agreements, has occurred and such default has not been cured or waived. Upon the occurrence of any event of default, the SBA's liquidating interest will become fixed at the level immediately preceding the event of default and will not accrete further until the default is cured or waived. In the event of MFC's or TCC's liquidation, the unexpired portion ($4,580,561 at December 31, 1996) of the liquidating interest becomes immediately payable to the SBA. The Company does not anticipate the occurrence of an event that would result in any amount being due to the SBA. In accordance with Statement of Position 93-2, ''Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies,'' $292,999 has been reclassified from accumulated undistributed income to capital in excess of par value on the accompanying consolidated balance sheet. This reclassification has no impact on the Company's total shareholders' equity and is designed to present the Company's capital accounts on a tax basis. (11) OTHER OPERATING EXPENSES The major components of other operating expenses for the period ended December 31, 1996 were: Office expenses $254,715 Insurance 254,440 Rent 165,002 Other 205,030 -------- $879,187 ======== (12) EMPLOYEE BENEFIT PLANS The Company has a 401(k) Investment Plan (the "401(k) Plan") which covers all full and part-time employees of the Company who have attained the age of 21 and have a minimum of one-half year of service. Under the 401(k) Plan, an employee may elect to defer not less than 1% and no more than 15% of the total annual compensation that would otherwise be paid to the employee, provided, however, that employees' contributions may not exceed certain maximum amounts determined under the Internal Revenue Code. Employee contributions are invested in various mutual funds, according to the directions of the employee. The Company intends to provide for employer matching contributions, at the discretion of the Board of Directors, in 1997. MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (13) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, ''Disclosures About Fair Value of Financial Instruments,'' requires disclosure of fair value information about certain financial instruments, whether assets, liabilities or off-balance sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Fair value estimates which were derived from broker quotes cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. In addition, SFAS 107 excludes certain financial instruments and all non- financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. (a) Investments As described in Note 2, the carrying amount of investments is the estimated fair value of such investments. (b) Notes payable to banks and demand notes-Due to the short-term nature of these instruments, the carrying amount approximates fair value. (c) Commitments to Extend Credit-The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels of interest rates and the committed rates. At December 31, 1996, the estimated fair value of these off-balance sheet instruments was not material. (d) Interest Rate Cap Agreements-The fair value is estimated based on market prices or dealer quotes. At December 31, 1996, the estimated fair value of these off-balance sheet instruments was not material. (e) Debentures Payable to SBA-The fair value of the debentures payable to SBA is estimated based upon current market interest rates for similar debt.
DECEMBER 31, 1996 -------------------------- CARRYING AMOUNT FAIR VALUE --------------- ---------- Financial Assets: Investments................................. $176,493,888 $176,493,888 Cash........................................ 1,664,603 1,664,603 Financial Liabilities: Notes payable to banks and demand notes..... 96,450,000 96,450,000 SBA debentures payable...................... 29,390,000 29,319,500
MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (14) SUBSEQUENT EVENTS On January 28, 1997, the Company increased the aggregate commitment of MFC's Revolver from $85,000,000 to $105,000,000. On February 11, 1997, the SBA approved an amendment to the charters of MFC and TCC, converting these subsidiaries from an SSBIC to an SBIC. The conversion eliminates the restriction for MFC and TCC to lend only to individuals as being socially or economically disadvantaged, or to small business concerns that are at least 50% owned by such persons as defined in the SBIA, subject to certain restrictions. Effective January 1, 1997, the Company decided to merge all of the assets and liabilities of TCC into MFC subject to the approval of the SBA. The Company expects to complete the merger by the end of the second quarter of 1997. CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
Number of Balance Loans Outstanding Rate ----- ----------- ---- 1 $ 60,754 5.000% 11 548,641 7.000-7.700 19 3,150,172 8.000-8.200 18 1,901,132 8.250 7 487,074 8.300 12 758,448 8.370 6 304,843 8.400-8.440 24 3,205,029 8.500 9 689,313 8.600 10 892,704 8.625 13 376,064 8.700 49 5,379,874 8.750 12 672,116 8.720 108 11,322,414 9.000 2 235,992 9.120 157 15,042,298 9.250 5 1,036,661 9.320-9.380 248 26,661,479 9.500 1 170,000 9.600 94 9,208,547 9.750 29 2,789,612 9.800-9.900 207 18,467,948 10.000 76 6,640,204 10.250 5 462,805 10.370-10.3750 47 4,855,909 10.500 30 2,592,974 10.750 1 50,983 10.900 164 10,290,809 11.000 17 1,483,897 11.250-11.900 107 5,910,504 12.000 11 1,014,949 12.500 3 351,109 12.750-12.950 254 10,113,883 13.000 4 633,040 13.250 56 2,914,663 13.500 5 128,772 13.550-13.750 166 8,044,479 14.000 11 176,089 14.050-14.300 36 3,064,635 14.500 11 354,145 14.750-14.950 262 11,806,060 15.000 11 610,583 15.200-15.250 9 590,210 15.500 8 511,816 15.750-15.950 15 745,357 16.000 5 160,939 16.500 4 202,387 16.640-16.950 1 24,750 17.000 3 193,142 18.000 6 205,193 19.000 ----- ------------ Total 2,370 $177,495,401 10.800% ===== --- Plus: Origination costs, net 567,204 ------------ Investments at cost 178,062,605 Less: Unrealized depreciation on investments (1,568,717) ------------ Investments at directors' valuation $176,493,888 ============
The accompanying notes are an integral part of these financial statements. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Edwards Capital Company: We have audited the accompanying balance sheet of Edwards Capital Company (a New York limited partnership), including the schedule of loans as of May 29, 1996 and December 31, 1995, and the related statements of operations, changes in partners' capital and cash flows for the five month period ended May 29, 1996 and the year ended December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As explained in Note 1, the financial statements include finance receivables valued at $44,490,149 (97% of total assets) as of May 29, 1996 and at $43,778,791 (97% of total assets) as of December 31, 1995, the values of which have been estimated by the General Partner in the absence of readily ascertainable market values. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the loans existed, and the differences could be material. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Edwards Capital Company as of May 29, 1996 and December 31, 1995 and, the results of its operations and its cash flows for the five month period ended May 29, 1996 and year ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Boston, Massachusetts March 26, 1997 INDEPENDENT AUDITORS' REPORT To the Partners of Edwards Capital Company: We have audited the accompanying balance sheet of Edwards Capital Company (a limited partnership) as of December 31, 1994, and the related statements of operations, changes in partners' capital and cash flows for each of the two years in the period ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Edwards Capital Company as of December 31, 1994, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Friedman, Alpren & Green LLP New York, New York January 28, 1995 EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) BALANCE SHEETS ASSETS DECEMBER 31, MAY 29, ------------ ------------ 1995 1996 ------------ ------------ Cash .................................. $ 115,571 $ 437,886 Finance Receivables: Medallions ........................... 43,177,063 43,920,609 Other, less allowance for doubtful accounts of $20,000 in 1995 and 1996.. 601,728 569,540 Accrued Interest Receivable ........... 396,000 406,817 Deferred Financing Costs, net of accumulated amortization of $176,967 in 1995 and $200,650 in 1996.............. 353,683 330,000 Property and Equipment, at cost, net of accumulated depreciation and amortization of $133,937 in 1995 and $140,407 in 1996 ..................... 66,826 60,356 Prepaid Expenses and Other Assets ..... 373,116 275,681 ----------- ----------- Total Assets ............................ $45,083,987 $46,000,889 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Bank Loans Payable .................... $ 9,850,000 $10,100,000 Subordinated Debentures Payable ....... 24,950,000 24,950,000 Accounts Payable and Accrued Expenses... 1,167,156 1,843,743 ----------- ----------- 35,967,156 36,893,743 Partners' Capital ..................... 9,116,831 9,107,146 ----------- ----------- Total Liabilities and Partners' Capital .............................. $45,083,987 $46,000,889 =========== =========== The accompanying notes are an integral part of these financial statements. EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS
YEARS ENDED PERIOD ENDED ----------------------- ------------ DECEMBER 31, MAY 29, ----------------------- ------------ 1994 1995 1996 ----------- ---------- ------------ Revenues: Interest from finance receivables ..... $4,334,100 $4,316,669 $1,727,102 Other income .......................... 619,716 443,190 129,101 ---------- ---------- ---------- Total Revenues ....................... 4,953,816 4,759,859 1,856,203 ---------- ---------- ---------- Operating Expenses: Interest on subordinated debentures ... 2,136,807 1,993,075 818,707 Interest on bank loans ................ 627,700 754,404 279,148 Salaries .............................. 351,715 354,041 123,244 Employee benefits ..................... 35,280 33,236 14,572 Payroll and other taxes ............... 28,576 28,266 14,467 Professional fees ..................... 393,513 204,071 41,437 Legal fees related to the sale of assets ............................... - - 350,000 Rent .................................. 39,996 39,996 16,342 Office expense ........................ 45,082 42,762 15,204 Computer expense ...................... 48,859 44,642 14,903 Telephone ............................. 9,963 9,685 3,860 Entertainment ......................... 17,378 9,901 2,205 Amortization of deferred financing costs ................................ 79,118 53,460 23,683 Processing and collection services .... 57,950 42,448 28,689 Depreciation and amortization ......... 22,586 18,292 6,470 New York City unincorporated business tax .................................. 21,289 40,111 15,610 Reduction in allowance for doubtful radio loans .......................... (23,415) - - Sundry ................................ 1,511 4,496 5,847 ---------- ---------- ---------- Total Operating Expenses ............. 3,893,908 3,672,886 1,774,388 ---------- ---------- ---------- Income Before Extraordinary Charge ... 1,059,908 1,086,973 81,815 Extraordinary Charge -- Premium on Prepayment of Subordinated Debentures .. 526,287 - - ---------- ---------- ---------- Net Income ........................... $ 533,621 $1,086,973 $ 81,815 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
PERIOD ENDED ------------- YEARS ENDED DECEMBER 31, MAY 29, --------------------------- ------------- 1994 1995 1996 ------------ ------------- ------------- Cumulative Capital Contributions .. $ 7,200,000 $7,200,000 $7,200,000 =========== ========== ========== SBA Permanent Capital ............. $ 8,400,000 $8,400,000 $8,400,000 =========== ========== ========== Balance, Beginning of Period ...... $ 9,550,947 $8,576,068 $9,116,831 Net income ..................... 533,621 1,086,973 81,815 Distributions -- General Partner ............. (16,000) - - Limited Partners ............... (1,492,500) (546,210) (91,500) ----------- ---------- ---------- Balance, end of period ............ $ 8,576,068 $9,116,831 $9,107,146 =========== ========== ==========
The accompanying notes are an integral part of these financial statements. EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS
YEARS ENDED PERIOD ENDED ---------------------------- ------------- DECEMBER 31, MAY 29, ---------------------------- ------------- 1994 1995 1996 ------------- ------------- ------------- Cash flows from operating activities: Net income............................. $ 533,621 $ 1,086,973 $ 81,815 Adjustments to reconcile net income to net cash provided by operating activities -- Extraordinary charge.................. 526,287 - - Amortization of deferred financing costs................................ 79,118 53,460 23,683 Depreciation and amortization......... 22,586 18,292 6,470 Reduction in allowance for doubtful radio loans.......................... (23,415) - - Changes in assets and liabilities -- Accrued interest receivable.......... (339) (67,000) (10,817) Prepaid expenses and other assets.... 91,806 (247,648) 97,435 Accounts payable and accrued expenses............................ (21,710) 118,697 676,587 Deferred income...................... (5,332) - - ------------ ------------ ----------- Net cash provided by operating activities......................... 1,202,622 962,774 875,173 Cash flows from investing activities: Origination of new finance receivables. (15,573,645) (8,348,655) (2,764,191) Repayments of finance receivables...... 16,228,136 8,036,706 2,052,833 Collection of notes receivable......... 272,546 - - Purchase of property and equipment..... ( 5,041) (9,769) - ------------ ------------ ----------- Net cash (used in) provided by investing activities............... 921,996 (321,718) (711,358) Cash flows from financing activities: Premium on prepayment of subordinated debentures............................ (526,287) - - Proceeds from bank loans............... 22,425,000 11,925,000 5,900,000 Principal payments of bank loans....... (22,325,000) (12,075,000) (5,650,000) Deferred financing costs............... (254,625) - - Distributions to partners -- General partner....................... (16,000) - - Limited partners...................... (1,492,500) (546,210) (91,500) ------------ ------------ ----------- Net cash used in financing activities......................... (2,189,412) (696,210) 158,500 ------------ ------------ ----------- Net increase (decrease) in cash......... (64,794) (55,154) 322,315 Cash, beginning of period............... 235,519 170,725 115,571 ------------ ------------ ----------- Cash, end of period..................... $ 170,725 $ 115,571 $ 437,886 ============ ============ =========== Supplemental disclosure of cash flow information: Interest paid.......................... $ 2,885,512 $ 2,699,890 $ 974,982 ============ ============ =========== New York City unincorporated business tax................................... $ 27,939 $ 14,058 $ 15,448 ============ ============ ===========
The accompanying notes are an integral part of these financial statements. EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MAY 29, 1996 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Edwards Capital Company (the Partnership) is organized under the laws of the State of New York as a Small Business Investment Company, subject to the rules and regulations of the Federal Small Business Administration (the SBA). The Partnership's principal activity is the financing of loans collateralized by New York City taxicab medallions. The Partnership has one General Partner and six classes of limited partners. Allocations of income or loss and cash distributions are based on formulas, as set forth in the Partnership Agreement. The formulas utilize the average prime rate for the year, net cash receipts, as defined, and the weighted average capital for each class of partner. On May 29, 1996, substantially all assets and certain liabilities of the Partnership were acquired by Medallion Financial Corp., pursuant to an asset purchase agreement dated February 21, 1996, for a purchase price of $15,624,995. The balance sheet as of May 29, 1996 and statements of operations, changes in partners' capital and cash flows for the period ended May 29, 1996 included the accounts of the Partnership prior to the consummation of the sale to Medallion Financial Corp. on May 29, 1996. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Finance Receivables and the Allowance for Doubtful Accounts Finance receivables, net of participation sold to others and an allowance for doubtful accounts, are stated at fair value. The fair value of such loans is determined in good faith by the General Partner. The allowance for doubtful accounts is maintained at a level that, in the General Partner's judgment, is adequate to absorb losses inherent to the portfolio. Finance receivables collateralized by New York City taxicab medallions are considered fully collectible, as the value of the collateral is deemed sufficient to assure full collection in the event of foreclosure. At December 31, 1995 and May 29, 1996, there is an allowance for doubtful accounts on receivables collateralized by radio rights, as the value of the collateral on certain loans is deemed insufficient. The allowance is reviewed and adjusted periodically by the General Partner on the basis of available information, including the fair value of the underlying collateral; individual credit risks; past loss experience; the volume, composition and growth of the portfolio; and current and projected financial and economic conditions. Interest is continued to be recognized as income on all finance receivables that are past due, as to principal and interest, when the value of the underlying collateral is deemed sufficient to assure full collection of the principal and associated interest in the event of foreclosure. At December 31, 1995 and May 29, 1996, the value of the underlying collateral on finance receivables was deemed adequate. The principal amount of loans serviced for others at December 31, 1995 and May 29, 1996, amounted to approximately $30,995,006 and $ 34,084,479, respectively. EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred Financing Costs Costs incurred in connection with obtaining subordinated debenture financing have been deferred and are being amortized on the effective interest rate method over the terms of the loans. Property and Equipment Property and equipment is recorded at cost. Depreciation is computed on an accelerated method over the estimated useful lives of the assets. Leasehold improvements are amortized over the estimated useful life of the asset or, if less, the life of the lease. Origination Fees Origination fees (included in other income) for loans are deferred and amortized on a straight-line basis over the terms of the loans. At December 31, 1995, loan origination fees were fully amortized. Income Taxes The Partnership is not a taxpaying entity for income tax purposes, and accordingly, no provision has been made for income taxes. The partners' allocable shares of the Partnership's taxable income or loss are reportable on their income tax returns. A provision is made for New York City unincorporated business tax. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to the current year's presentation. (2) FINANCE RECEIVABLES Finance receivables are interest-bearing loans that are secured by mortgages collateralized by New York City taxicab medallion rights, taxicabs or radio group rights, and the personal guarantees of individuals or stockholders of corporate borrowers. Maximum original terms of finance receivables at December 31, 1995 and May 29, 1996 are as follows: (ROUNDED TO 000'S)
DECEMBER 31, MAY 29, ------------ ----------- 1995 1996 ------------ ----------- 60 months $42,307,000 $39,961,000 84 months 1,027,000 754,000 120 months 465,000 3,795,000 ----------- ----------- $43,799,000 $44,510,000 =========== ===========
EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (2) FINANCE RECEIVABLES (CONTINUED) Contractual maturities of finance receivables at December 31, 1995 and May 29, 1996 are approximately as follows:
DECEMBER 31, 1995 MAY 29, 1996 ----------------- ------------ 1996 $ 2,623,000 $ 374,000 1997 4,482,000 993,000 1998 7,046,000 3,098,000 1999 15,329,000 13,582,000 2000 11,450,000 14,591,000 Thereafter 2,869,000 11,872,000 ----------- ----------- $43,799,000 $44,510,000 =========== ===========
Actual maturities may differ, as loans are often paid in advance of their maturities, and loans with participation sold to others contain subordinate prepayment provisions. During the year ended December 31, 1995 and the period ended May 29, 1996, the collections of loans and prepayments totaled approximately $8,037,000 and $2,053,000, respectively. (3) PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 1995 and May 29, 1996:
DECEMBER 31, MAY 29, 1995 1996 ------------ --------- Furniture and Equipment............ $162,700 $162,700 Leasehold Improvements............. 38,063 38,063 -------- -------- 200,763 200,763 Less -- Accumulated Depreciation and Amortization..... 133,937 140,407 -------- -------- $ 66,826 $ 60,356 ======== ========
(4) BANK LOANS PAYABLE The Partnership has lines of credit with four banks totaling $12,500,000, of which $9,850,000 and $10,100,000 were drawn upon at December 31, 1995 and May 29, 1996, respectively. Interest is charged at the borrower's option, at either the lender's prime rate or at a rate based on the adjusted London Inter-bank Offered Rate (LIBOR). Under an agreement with the SBA, Edwards was restricted from borrowing more than $11.5 million in bank debt without the prior approval of the SBA. The average amount of borrowings for the year ended December 31, 1995 and for the period ended May 29, 1996 was $9,585,000 and $ 9,997,000, respectively. The loans are secured by all of the Partnership's assets. Under an inter- creditor agreement, all banks share in the collateral. In addition, all bank indebtedness is senior to SBA-guaranteed indebtedness pursuant to SBA rules and regulations. EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (5) SUBORDINATED DEBENTURES PAYABLE Outstanding subordinated debentures, which are guaranteed by the SBA, are as follows at December 31, 1995 and May 29, 1996:
INTEREST --------- DUE DATE RATE AMOUNT ----------------- --------- ----------- September 1, 1996 8.75% $ 1,200,000 April 1, 1997 8.95 1,500,000 June 1, 1998 9.80 3,000,000 September 1, 2002 7.15 3,500,000 September 1, 2002 7.15 6,050,000 June 1, 2004 7.80 4,600,000 September 1, 2004 8.20 5,100,000 ----------- $24,950,000 ===========
(6) RELATED PARTY TRANSACTIONS The law firm of Herrick, Feinstein LLP provides legal services to the Partnership and subleases office space to it under a lease that commenced on June 1, 1992 and expires on April 30, 1997. The lease requires minimum annual rental payments of $40,000 and additional rentals based on increases in real estate taxes and operating expenses over base period amounts. It is cancelable by the firm upon giving 60 days' notice. Certain principals of the firm are limited partners of the Partnership and are shareholders of the corporate General Partner of the Partnership. Rent expense and legal fees paid and accrued to Herrick, Feinstein LLP for the years ended December 31, 1994, 1995 and period ended May 29, 1996 are as follows:
PERIOD ENDED ------------ YEARS ENDED DECEMBER 31, MAY 29, ------------------------- ------------ 1994 1995 1996, ----------- ------------ ------------ Rent expense $ 39,996 $ 39,996 $16,342 Legal fees 288,985 92,501 9,926 -------- -------- ------- $328,981 $132,497 $26,268 ======== ======== =======
During the year ended December 31, 1995 and the period ended May 29, 1996, legal fees of $225,000 and $125,000, respectively were incurred and accrued to Herrick, Feinstein in connection with the sale of assets by the Partnership to Medallion Financial Corp. These costs were charged to operations on May 29, 1996. (7) COMMITMENTS AND CONTINGENCIES In the ordinary course of business, there are outstanding commitments and contingent liabilities that are not reflected in the financial statements. At December 31, 1995 and May 29, 1996, the Partnership had an operating lease for office space which expires on April 30, 1997 (Note 6). EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (7) COMMITMENTS AND CONTINGENCIES (CONTINUED) There are lawsuits pending against the Partnership in the normal course of business. Based on its review of current litigation and discussions with legal counsel, management does not expect that the resolution of such matters will have a material adverse effect on the Partnership's financial condition or results of operations. (8) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of fair value information about certain financial instruments, whether or not recognized on the balance sheet. In addition, SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Therefore, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of the Partnership. The methods and assumptions used to estimate the fair value of each class of the financial instruments are described below: Finance Receivables -- As described in Note 1, the carrying amount of finance receivables is the estimated fair value of such loans. Subordinated Debentures Payable to SBA -- The fair value of the debentures payable to SBA is estimated based upon current market interest rates for similar debt. Banks Loans Payable -- Due to the short-term nature of these instruments, the carrying amount approximates fair value. The carrying amounts and estimated fair values of the Partnership's financial instruments are as follows:
MAY 29, 1996 ---------------------------- CARRYING AMOUNT FAIR VALUE --------------- ----------- Financial assets Finance receivables. $44,490,149 $44,490,149 Financial liabilities Subordinated debentures payable 24,950,000 24,950,000 Bank loans payable 10,100,000 10,100,000
EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP) SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS MAY 29, 1996 The distribution of loans at May 29, 1996 by rate of interest is as follows:
NUMBER BALANCE INTEREST ------ ------------- --------- OF LOANS OUTSTANDING RATE -------- ------------- --------- 9 $ 532,000 7.70% 5 200,000 8.00 2 300,988 8.20 12 800,000 8.25 13 722,000 8.38 6 239,000 8.40 5 214,473 8.44 4 184,000 8.50 4 161,200 8.60 13 375,000 8.70 15 974,750 8.75 9 507,500 8.88 51 3,485,039 9.00 2 239,768 9.13 15 2,028,924 9.25 2 265,658 9.39 83 8,876,722 9.60 3 789,656 9.63 62 7,584,689 9.75 3 214,887 9.80 1 18,125 9.88 19 2,602,540 9.90 50 6,464,952 10.00 29 3,636,894 10.25 4 476,062 10.38 6 618,236 10.50 9 736,561 11.00 2 185,620 11.25 2 295,394 11.50 2 144,062 11.75 2 363,586 12.00 1 2,033 12.50 2 117,611 13.25 1 36,910 13.50 1 58,196 13.55 1 12,966 14.00 2 44,147 15.00 --- ----------- 452 $44,510,149 9.58% === Less: Allowance for Doubtful Accounts on Radio Loans........... (20,000) ----------- $44,490,149 ===========
EDWARDS CAPITAL COMPANY ======================== (A LIMITED PARTNERSHIP) SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS DECEMBER 31, 1995 The distribution of loans at December 31, 1995 by rate of interest is as follows:
NUMBER BALANCE INTEREST ------ ------------ --------- OF LOANS OUTSTANDING RATE -------- ------------ --------- 1 $ 570,207 7.820% 17 1,132,000 8.250 6 239,000 8.300 8 392,000 8.375 7 515,461 8.440 4 200,000 8.490 14 475,750 8.500 4 161,200 8.600 2 368,000 8.750 1 605,265 8.780 9 507,500 8.875 49 2,729,873 9.000 12 746,361 9.125 15 1,957,713 9.250 2 280,012 9.385 65 6,982,190 9.500 6 447,920 9.600 3 793,091 9.625 52 7,336,160 9.750 2 168,256 9.800 15 1,858,397 9.900 49 6,225,055 10.000 41 5,241,320 10.250 5 600,951 10.375 10 862,401 10.500 2 122,266 10.750 12 862,662 11.000 3 191,531 11.250 2 297,291 11.500 4 256,300 11.750 6 373,899 12.000 1 4,110 12.500 2 125,942 13.250 1 36,910 13.500 1 58,196 13.550 1 14,831 14.000 2 11,874 14.500 2 46,896 15.000 --- ----------- ------ 438 $43,798,791 9.695% === Less Allowance for Doubtful Accounts on Radio Loans........... (20,000) ----------- $43,778,791 ===========
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Tri-Magna Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Tri-Magna Corporation (a Delaware corporation) and subsidiaries (collectively referred to as the Company) as of May 29, 1996 and December 31, 1995, including the consolidated schedules of investments as of May 29, 1996 and December 31, 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the five-month period ended May 29, 1996 and each of the two years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As explained in Note 2, the consolidated financial statements include loans receivable valued at $95,621,617 (97% of total assets) and at $96,046,416 (96% of total assets) as of May 29, 1996 and December 31, 1995, respectively, whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the loans existed, and the differences could be material. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tri-Magna Corporation and subsidiaries as of May 29, 1996 and December 31, 1995, and the results of their operations and their cash flows for the five-month period ended May 29, 1996 and each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Boston, Massachusetts March 26, 1997 TRI-MAGNA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MAY 29, ------------- ------------- 1995 1996 ------------- ------------- ASSETS Investments (Note 2).................... $96,956,416 $96,531,617 Less unrealized depreciation on investments (Note 6).................. (910,000) (910,000) ----------- ----------- 96,046,416 95,621,617 Investment in unconsolidated subsidiary (Note 2).................... 145,335 92,313 Cash.................................... 1,177,166 624,617 Accrued interest receivable............. 844,350 870,073 Furniture and fixtures, net............. 87,925 79,124 Other assets............................ 1,486,974 1,316,933 ----------- ----------- Total Assets............................ $99,788,166 $98,604,677 =========== =========== LIABILITIES Notes payable to banks and demand notes (Note 3)......................... $80,294,900 $79,394,900 Accounts payable and accrued expenses... 1,290,267 1,360,570 Dividends payable....................... - 542,012 Accrued interest payable................ 889,147 818,560 ----------- ----------- Total Liabilities....................... 82,474,314 82,116,042 ----------- ----------- Commitments and Contingencies (Note 9) Shareholders' Equity (Notes 4 and 5) Common stock (1,000,000 shares of $.01 par value stock authorized, 668,900 shares outstanding at December 31, 1995 and May 29, 1996)... 6,689 6,689 Capital in excess of par value.......... 10,594,241 10,567,267 Accumulated undistributed income (loss). 710,822 (87,421) ----------- ----------- 11,311,752 10,486,535 Restricted capital surplus.............. 6,002,100 6,002,100 ----------- ----------- Total Shareholders' Equity.............. 17,313,852 16,488,635 ----------- ----------- Total Liabilities and Shareholders' Equity................................. $99,788,166 $98,604,677
=========== =========== The accompanying notes are an integral part of these consolidated financial statements. TRI-MAGNA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED PERIOD ENDED -------------------------- ------------- DECEMBER 31, MAY 29, -------------------------- ------------- 1994 1995 1996 ------------ ------------ ------------- Investment Income Interest on investments................. $8,820,273 $9,802,560 $4,423,396 ---------- ---------- ---------- Total Investment Income................ 8,820,273 9,802,560 4,423,396 ---------- ---------- ---------- Interest Expense Interest on SBA debentures.............. 974,105 780,254 - Interest on bank debt (Note 3).......... 3,781,910 5,253,924 2,516,914 ---------- ---------- ---------- Total Interest Expense................. 4,756,015 6,034,178 2,516,914 ---------- ---------- ---------- Net Interest Income..................... 4,064,258 3,768,382 1,906,482 ---------- ---------- ---------- Non-Interest Income Equity in earnings(losses) of unconsolidated subsidiary (Note 2)..... 18,379 125,956 (53,022) Other income............................ 519,030 446,209 148,125 ---------- ---------- ---------- Total Non-Interest Income.............. 537,409 572,165 95,103 ---------- ---------- ---------- Expenses Administration and advisory fees........ 33,905 13,149 3,671 Legal and accounting fees............... 367,484 344,311 144,562 Directors' fee (Note 8)................. 76,500 46,000 15,022 Officers' and employees' salaries....... 1,028,627 1,086,569 501,063 Employee benefit plans (Note 7)......... 136,000 70,008 44,000 Merger related costs (Note 5)........... - - 584,000 Other operating expenses................ 1,057,797 1,054,757 524,242 ---------- ---------- ---------- Total Expenses......................... 2,700,313 2,614,794 1,816,560 ---------- ---------- ---------- Dividends paid on minority interest..... 277,020 207,774 - ---------- ---------- ---------- Net Investment Income................... 1,624,334 1,517,979 185,025 ---------- ---------- ---------- Realized and Unrealized Gain (Loss) on Investments Realized gain (loss) on investments (Note 6)............................... (21,938) 61,194 - Change in unrealized depreciation (Note 6)............................... 58,000 (140,000) - ---------- ---------- ---------- Net Realized and Unrealized Gain (Loss) on Investments.................. 36,062 (78,806) - ---------- ---------- ---------- Net Increase in Net Assets resulting from Operations......................... $1,660,396 $1,439,173 $ 185,025 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. TRI-MAGNA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SHARES OF CAPITAL ACCUMULATED RESTRICTED ------------ -------------- ------------- -------------- ----------- COMMON STOCK COMMON STOCK IN EXCESS UNDISTRIBUTED CAPITAL ------------ -------------- ------------- -------------- ----------- OUTSTANDING $.01 PAR VALUE OF PAR VALUE INCOME (LOSS) SURPLUS ------------ -------------- ------------- -------------- ----------- Balance at December 31, 1993....... 665,900 $6,659 $11,227,341 $ (399,918) $ -- Dividends paid, common........... -- -- -- (1,668,050) -- Distributable net income.......... -- -- -- 1,602,396 -- Sale of common stock.............. 3,000 30 49,470 -- -- Change in unrealized depreciation..................... -- -- -- 58,000 -- -------- ------ ----------- ----------- ---------- Balance at December 31, 1994....... 668,900 $6,689 $11,276,811 $ (407,572) $ -- ------- ------ ----------- ----------- ---------- Dividends declared, common .......................... -- -- -- (1,003,349) -- Distributable net income.......... -- -- -- 1,579,173 -- SOP 93-2 Cumulative reclassification (Note 5)......................... -- -- (682,570) 682,570 -- Gain on minority interest buyback (Note 4)................. -- -- -- -- 6,002,100 Change in unrealized depreciation..................... -- -- -- (140,000) -- ------- ------ ----------- ----------- ---------- Balance at December 31, 1995....... 668,900 $6,689 $10,594,241 $ 710,822 $6,002,100 ------- ------ ----------- ----------- ---------- Dividends declared, common (Note 5).................. -- -- -- (1,010,242) -- Distributable net income........................... -- -- -- 185,025 -- SOP 93-2 reclassification (Note 5)......................... -- -- (26,974) 26,974 -- Change in unrealized depreciation..................... -- -- -- -- -- ------- ------ ----------- ----------- ---------- Balance at May 29, 1996............ 668,900 $6,689 $10,567,267 $ (87,421) $6,002,100 ======= ====== =========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. TRI-MAGNA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED PERIOD ENDED ---------------------------- ------------- DECEMBER 31, MAY 29, ---------------------------- ------------- 1994 1995 1996 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Increase in Net Assets resulting from Operations ...................... $ 1,660,396 $ 1,439,173 $ 185,025 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......... 64,848 43,594 19,929 Change in unrealized depreciation...... (58,000) 140,000 - Realized loss (gain) on investments.... 21,938 (61,194) - (Increase) decrease in investment in unconsolidated subsidiary............. (19,379) (125,956) 53,022 (Increase) decrease in accrued interest receivable............................ (64,697) (66,252) (25,723) Decrease (increase) in other assets.... (99,434) (794,721) 165,111 Increase (decrease) in accounts payable and accrued expenses.......... (90,565) 1,036,580 70,303 Increase (decrease) in dividends payable minority interest............. (69,255) (69,255) - Increase (decrease) in accrued interest payable...................... 143,725 257,330 (70,587) ------------ ------------ ------------ Net cash provided by operating activities........................... 1,489,577 1,799,299 397,080 Cash Flows from Investing Activities: Increase in investments................ (33,103,213) (30,667,520) (7,252,488) Proceeds from investment maturities and terminations...................... 24,753,080 24,114,690 7,677,287 Proceeds from liquidation of other assets................................ 414,884 144,100 - Capital expenditures................... (6,991) (16,378) (6,198) ------------ ------------ ------------ Net cash provide by (used for) investing activities................. (7,942,240) (6,425,108) 418,601 Cash Flows from Financing Activities: Proceeds from (payments of) notes payable to banks...................... 8,325,000 21,269,900 (900,000) Payments of SBA debentures............. - (12,500,000) - Buyback of minority interest........... - (3,231,900) - Sale of common stock................... 49,500 - - Dividends paid on common stock......... (1,668,050) (1,003,349) (468,230) ------------ ------------ ------------ Net cash provided by (used for) financing activities................. 6,706,450 4,534,651 (1,368,230) ------------ ------------ ------------ Net Increase (Decrease) in Cash......... 253,787 (91,158) (552,549) Cash, beginning of period............... 1,014,537 1,268,324 1,177,166 ------------ ------------ ------------ Cash, end of period..................... $ 1,268,324 $ 1,177,166 $ 624,617 ============ ============ ============ Supplemental Information: Cash paid during the period for interest (Includes dividends paid on minority interest) ................ $ 4,958,565 $ 6,053,877 $ 2,587,501
The accompanying notes are an integral part of these consolidated financial statements. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 29, 1996 (1) ORGANIZATION On February 3, 1989, Tri-Magna Corporation, a newly formed Delaware corporation, (referred to as Tri-Magna or the Parent Company) and its subsidiary, Medallion Funding Corp. (Medallion) entered into an Agreement and Plan of Share Exchange (the Share Exchange). Tri-Magna and its wholly-owned subsidiaries Medallion, F.A.P. Holding Corp. (FAP) and Medallion Taxi Media, Inc. (Media) are collectively referred to as the Company. Under the Share Exchange, 100 shares of common stock of the Parent Company were exchanged for each of the outstanding shares of common stock of Medallion. On May 18, 1989, the shareholders of Medallion voted in favor of the Share Exchange Plan. This transaction was accounted for as a pooling of interests. The Parent Company was formed in January 1989 for the purpose of acquiring all of the outstanding shares of Medallion common stock pursuant to the Share Exchange. The Parent Company is a closed-end, diversified management investment company registered under the Investment Company Act of 1940 (the 1940 Act), and has elected to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended. Medallion was formed in 1979 for the purpose of operating as a Specialized Small Business Investment Company (SSBIC), licensed, regulated and financed in part by the U.S. Small Business Administration (SBA). Medallion was granted a license to operate as a SSBIC by the SBA on June 23, 1980. On February 2, 1982, Medallion registered as a closed-end, nondiversified investment company under the 1940 Act. On June 22, 1992, Medallion established a wholly-owned subsidiary, FAP. This subsidiary was established for the purpose of acquiring and managing property purchased in foreclosure from Medallion. On August 23, 1994, Media, a New York corporation was formed. Media is engaged in the outdoor media advertising business and is a wholly-owned subsidiary of Tri-Magna. On May 29, 1996, Tri-Magna was acquired by Medallion Financial Corp., pursuant to a merger agreement dated December 21, 1995. Under the merger agreement, all of the Company's outstanding shares of capital stock was canceled in exchange for $20.00 per share. The accompanying consolidated financial statements include the accounts of Tri-Magna and Medallion after elimination of all intercompany amounts. (See Note 2) The consolidated balance sheet as of May 29, 1996 and consolidated statements of operations, shareholders' equity and cash flows for the period ended May 29, 1996 include the accounts of Tri-Magna and Medallion prior to the consummation of the merger with Medallion Financial Corp. on May 29, 1996. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies of the Company, which conform with generally accepted accounting policies and accounting principles and procedures generally accepted in the investment company industry, include the following: Investments Medallion's investments consist primarily of long-term loans to persons defined by SBA regulations as being socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 68% of Medallion's loan portfolio at December 31, 1995, and May 29, 1996 have arisen in connection with the financing of taxicab medallions, taxicabs and related assets, substantially all in the metropolitan New York area. These loans are secured by the medallions, taxicabs and related assets and are personally guaranteed by the borrowers, or in the case of corporations, personally guaranteed by the owners. The remaining portion of Medallion's portfolio represents loans to various commercial enterprises, including dry cleaners, garages, gas stations and laundromats. These loans are secured by various equipment and/or real estate and are generally guaranteed by the owners, and in certain cases, by the equipment dealers. These loans are made primarily in the metropolitan New York City area. Tri-Magna began funding loans in March, 1995. As of December 31, 1995 and May 29, 1996, Tri-Magna has funded 50 loans totaling $4,272,212 and 51 loans totaling $4,752,212, respectively. Of these amounts, Tri-Magna participated out a total of $2,538,721 and $2,922,721, respectively. Under the 1940 Act, the Company's long-term loans are considered investments and are recorded at their fair value. Since no ready market exists for these loans, fair value is determined by the Board of Directors in good faith. In determining fair value, the directors take into consideration the financial condition of the borrower, the adequacy of the collateral, and the relationships between market rates and portfolio rates. Loans were valued at cost, less unrealized depreciation of $910,000 at December 31, 1995 and May 29, 1996. The directors have determined that this valuation approximates fair value. The principal portion of loans serviced for others by the Company at December 31, 1995 and May 29, 1996 amounted to approximately $15,799,777 and $20,793,093, respectively. The Company offsets loan origination fees against related direct loan origination costs. The net amount is deferred and amortized over the life of the loan. At December 31, 1995 and May 29, 1996, the net deferred asset totaled $293,400 and $324,438, respectively. Amortization expense was $22,117, $84,684 and $83,229 for the years ended December 31, 1994 and 1995, and period ended May 29, 1996, respectively. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investment in Unconsolidated Subsidiary Tri-Magna owns 100% of the outstanding stock of Media. Tri-Magna's investment in Media is accounted for under the equity method because as a non-investment company, Media, cannot be consolidated with an investment company, Tri-Magna. Financial information for Media is summarized as follows: DECEMBER 31, MAY 29, ------------ ------------- BALANCE SHEET 1995 1996 ------------- ------------ ------------- Cash $ -- $110,182 Accounts receivable 214,238 285,696 Equipment, net 559,786 526,846 Other 55,720 36,504 ---------- -------- Total Assets $ 829,744 $959,228 ========== ======== Notes payable $ 275,000 275,000 Notes payable to parent - 443,651 Accrued expenses 409,409 148,264 ---------- -------- Total Liabilities 684,409 866,915 ---------- -------- Common stock 1,000 1,000 Retained earnings 144,335 91,313 ---------- -------- Total equity 145,335 92,313 ---------- -------- Total Liabilities and Shareholders equity $ 829,744 $959,228 ========== ======== PERIOD ENDED YEAR ENDED PERIOD ENDED ------------ ------------ ------------ STATEMENT OF OPERATIONS DECEMBER 31, DECEMBER 31, MAY 29, ----------------------- ------------ ------------ ------------ 1994 1995 1996 -------- ---------- -------- Advertising revenue $227,756 $1,542,013 $671,148 Cost of services 83,341 483,721 283,891 -------- ---------- -------- Gross margin 144,415 1,058,292 387,257 Other operating expenses 126,036 829,293 455,278 -------- ---------- -------- Income (loss) before taxes 18,379 228,999 (68,021) Income taxes ---- 103,043 (14,999) -------- ---------- -------- Net income (loss) $ 18,379 $ 125,956 $(53,022) ======== ========== ======== On March 8, 1995, Tri-Magna guaranteed a demand loan for Media. At December 31, 1995 and May 29, 1996, $275,000 was outstanding at an interest rate of 2.00% over prime or (10.50%) and (10.25%) interest rate, respectively. The loan matured in June 1996 and was paid in full. Federal Income Taxes It is the Company's policy to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies, which require the Company to distribute at least 90% of its investment company taxable income to its shareholders. Therefore, no provision for federal income tax has been made. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAP and Media have elected to be taxed as regular corporations and, for the year ended December 31, 1995, recorded a provision for income taxes totaling approximately $103,000. For the period ended May 29, 1996 both entities incurred operating losses and required no provision for income taxes. The provision (benefit) for income taxes are reflected in equity in earnings of unconsolidated subsidiary on the accompanying consolidated statement of operations. Income Recognition When, in the judgment of management, collection of any portion of the interest or principal amount of a receivable is in doubt, accrual of interest income is discontinued, and interest is recorded when received. At December 31, 1995 and May 29 , 1996, nonaccrual loans totaled approximately $1,299,357 and $1,903,843, respectively, and the related foregone interest income amounted to approximately $218,853 and $106,856, respectively. Additionally, at December 31, 1995 and May 29, 1996, restructured loans totaled approximately $380,002 of which $0 was included in nonaccrual loans, respectively. Other income on the accompanying consolidated statements of operations consists of late fees, prepayment penalties and fee income. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (3) NOTES PAYABLE TO BANKS At December 31, 1995 and May 29, 1996, the Company had outstanding bank borrowings under the following agreements:
DECEMBER 31, MAY 29, ------------ ------------ DESCRIPTION 1995 1996 ----------- ------------ ------------ Revolving Credit Agreement $73,150,000 72,250,000 Term Loan Agreements 5,231,900 5,231,900 Short-Term Note 1,913,000 1,913,000 ----------- ----------- Total $80,294,900 $79,394,900 =========== ===========
Borrowings under these agreements are secured by all assets of the Company. Revolving Credit Agreement On March 27, 1992 (and as subsequently amended), the Company entered into a committed revolving credit agreement (the Revolver) with a group of banks. The Company extended the Revolver until June 30, 1997 at an aggregate credit commitment amount of $78,000,000 pursuant to the Renewal and Extension Agreement dated March 29, 1996. The Revolver may be extended annually thereafter upon the option of the participating banks and acceptance by the Company. Should any participating bank not extend its committed amount, the Revolver agreement provides that each bank shall extend a term loan equal to its share of the principal amount outstanding of the revolving credit note. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (3) NOTES PAYABLE TO BANKS (CONTINUED) Maturity of the term note shall be the earlier of two years or any other date on which it becomes payable in accordance with the Revolver. Interest and principal payments are to be made monthly. Interest is calculated monthly at either the bank's prime rate or a rate based on the adjusted London Interbank Offered Rate of interest (LIBOR) at the option of the Company. Substantially all promissory notes evidencing the Company's investments are held by a bank, as collateral agent under the agreement. Outstanding borrowings under the Revolver were $73,150,000 and $72,250,000, at December 31, 1995 and May 29, 1996, at an average interest rate of 7.40% and 6.87%, respectively. During the year ended December 31, 1995 and for the period ended May 29, 1996, the Company's weighted average borrowings were approximately $62,203,800 and $73,180,000 and the maximum outstanding borrowings were $73,150,000 and $74,150,000, respectively. The weighted average interest rates on the weighted average borrowings were 7.64% and 7.44% during the year ended December 31, 1995 and the period ended May 29, 1996, respectively. The Company is required to pay an annual facility fee of 1/4% effective prospectively as of March 28, 1995 on the Revolver aggregate commitment. For the year ended December 31, 1994 and up through March 27, 1995, the Company was required to pay an annual facility fee of 3/8%. Additionally, effective prospectively as of September 29, 1995, the Company is required to pay an additional annual fee of $62,500. Term Loan Agreements At December 31, 1995 and May 29, 1996, the Company had borrowed a total of $2,000,000 under a term loan agreement (Term Loan) with a bank. The $2,000,000 was outstanding at December 31, 1995 and May 29, 1996. During 1995, the fixed interest rate of 5.88% was increased to 7.5%. Interest payments are due quarterly. The weighted average interest rate paid on such borrowings was 6.68% and 7.50%, during the year ended December 31, 1995 and period ended May 29, 1996, respectively. The total term borrowings outstanding at May 29, 1996 under this agreement are due in July 1997. On September 29, 1995, Tri-Magna entered into a $3,231,900 term loan with a certain bank maturing on May 31, 1996. Interest is paid monthly at the prime rate. The loan is secured by all assets of Tri-Magna. The proceeds of this loan were invested in Medallion as a capital contribution to facilitate the repurchase of its preferred stock from the SBA. (See Notes 4 and 10) Short-Term Note On December 19, 1994, Tri-Magna entered into a demand promissory note (Demand Note) with a certain bank. On September 1, 1995, the Demand Note was converted into a $2,000,000 short-term secured note (Short-Term Note) which matures on August 31, 1996. Interest is calculated monthly at either the bank's prime rate or a rate based upon adjusted LIBOR at the option of the Company. Substantially all promissory notes evidencing Tri-Magna's investments are pledged to the bank as collateral. The Company is required to pay an annual facility fee of 1/4% effective prospectively as of September 29, 1995 on the aggregate amount of the note. Outstanding borrowings under the Short-Term Note were $1,913,000 at December 31, 1995 and May 29, 1996, at an average interest rate of 7.59% and 6.84%, respectively. During the year ended December 31, 1995 and period ended May 29, 1996, Tri-Magna's weighted average borrowings were approximately $1,025,500 and $1,902,820 and the maximum outstanding borrowings were $1,913,000. The weighted average interest rate on such borrowings was 8.49% and 8.45% during the year ended December 31, 1995 and period ended May 29, 1996, respectively. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (3) NOTES PAYABLE TO BANKS (CONTINUED) Interest Rate Cap Agreements On April 7, 1995, the Company entered into three interest rate cap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. These agreements limit the Company's maximum LIBOR exposure on $20,000,000 of its revolving credit facility to 7.5%. The premiums paid under these agreements were $46,875, $31,000 and $46,687, respectively. The premiums have been capitalized and are being amortized over the two-year term of the agreements, which expires on April 7, 1997. The Company is exposed to credit loss in the event of nonperformance by the counterparties on these interest rate cap agreements. The Company does not anticipate nonperformance by any of these parties. On November 16, 1995, the Company entered into three additional interest rate cap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. These agreements limit the Company's maximum LIBOR exposure on an additional $20,000,000 of its revolving credit facility to 7.0%. The premiums paid under these agreements were $13,000, $25,000 and $12,500, respectively. The premiums have been capitalized and are being amortized over the two-year terms of the agreements, which expire on November 16, 1997. The Company is exposed to credit loss in the event of nonperformance by the counterparties on these interest rate cap agreements. The Company does not anticipate nonperformance by any of these parties. (4) MINORITY INTEREST On September 29, 1995, Medallion repurchased and retired all of its 3% preferred stock owned by the SBA at a discount of 65%, under an SBA preferred stock repurchase agreement. The effective date of the buyback was August 12, 1994. The purchase price of the preferred stock was $3,231,900. The amount of the discount, $6,002,100, was recorded as an increase in capital in an account separate from other paid-in capital accounts, as restricted capital surplus account. Under the repurchase agreement, the SBA retains a liquidating interest in the amount of the discount on the repurchase, which expires on a straight line basis over five years or on a later date if an event of default, as defined in the agreement, has occurred and such default has not been cured or waived. Upon the occurrence of any event of default, the SBA's liquidating interest will become fixed at the level immediately preceding the event of default and will not accrete further until the default is cured or waived. While the liquidating interest expires over a five-year period, the balance in the restricted capital surplus account remains unchanged in accordance with the SBA requirements. The SBA requires this treatment because the additional equity obtained as a result of the repurchase transaction is subject to certain restrictions that remain even after the liquidated interest has been eliminated. In the event of Medallion's liquidation, the unexpired portion of the liquidating interest becomes immediately payable to the SBA. At December 31, 1995 and May 29, 1996, the unaccreted amount of the SBA's liquidating interest in the restricted capital surplus was $4,351,523 and $3,851,348, respectively. (5) SHAREHOLDERS' EQUITY As discussed in Note (4), under the terms of the preferred stock repurchase agreement with the SBA, a change in ownership of the Company could result in the unexpired portion of the liquidating interest becoming payable to the SBA. This provision was waived and the merger transaction with Medallion Financial Corp. was approved by the SBA. Direct costs associated with the merger agreement with Medallion Financial Corp., previously deferred by the Company, were expensed on May 29, 1996. Total direct costs charged to results of operations were $584,000. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (5) SHAREHOLDERS' EQUITY (CONTINUED) On May 29, 1996, the Company declared an additional and liquidation dividend of $0.81 per share totaling $542,012, payable on May 29, 1996 to the shareholders at record as of such date. In accordance with Statement of Position 93-2, ''Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies,'' a cumulative amount of $709,544 has been reclassified from capital in excess of par value to accumulated undistributed income on the accompanying consolidated balance sheets. This reclassification has no impact on the Company's total shareholders' equity and is designed to present the Company's capital accounts on a tax basis. (6) REALIZED LOSSES (GAINS) AND UNREALIZED DEPRECIATION ON INVESTMENTS A summary of realized losses and unrealized depreciation on investments for the period ended May 29, 1996 and the years ended December 31, 1995 and 1994 is as follows:
PERIOD ENDED ------------ MAY 29, YEAR ENDED DECEMBER 31, ---------- ------------------------- UNREALIZED DEPRECIATION 1996 1995 1994 ----------------------- ---------- ---------- ------------- Balance at Beginning of Period $(910,000) $(770,000) $(828,000) Change in Unrealized Depreciation -- (140,000) 58,000 --------- --------- --------- Balance at End of Period $(910,000) $(910,000) $(770,000) ========= ========= =========
For the period ended May 29, 1996 and the years ended December 31, 1995 and 1994, realized losses and (gains) were $0, $(61,194), and $21,938, respectively. (7) EMPLOYEE BENEFIT PLANS The Company maintains a defined contribution employee benefit plan, the Medallion Funding Corp. Profit-Sharing Retirement Plan (the Profit-Sharing Plan), under which substantially all Tri-Magna and Medallion employees and officers are covered. In addition, prior to March 31, 1996, the Company also maintained a defined contribution employee pension plan, the Medallion Funding Corp. Pension Plan, (the Pension Plan). The Company's management acts as trustee of both Plans. Under the Profit- Sharing Plan, voluntary employee as well as Company contributions are allowed. Under the Pension Plan, the Company contributed up to 10% of each participants annual compensation. Total employer contributions to both Plans is limited to the lesser of 10% of each participant's compensation or $10,000, annually. On March 31, 1996, the Pension Plan was terminated by the Board of Directors. The Company contributions, at participants' option were transferred to other plans. The expense for employee benefit plans was approximately $70,000, $136,000 and $44,000 for the years ended December 31, 1995 and 1994 and the period ended May 29, 1996, respectively. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (8) TRANSACTIONS WITH RELATED PARTIES Certain officers and directors of Medallion are also shareholders of Tri- Magna. Officers' salaries are set by the Board of Directors. Directors who are not officers receive a fee of $1,000 per meeting. Directors who are members of committees receive $500 for each meeting attended. Directors who are members of the independent committee receive $1,000 for each meeting attended. One loan receivable has been guaranteed by a related party. (9) COMMITMENTS AND CONTINGENCIES At December 31, 1995, and May 29, 1996, the Company's unfunded commitments were approximately $2,447,800 for 35 loans and $2,958,900 for 29 loans, respectively, that bear interest at rates ranging from 9.0% to 16.0% and 9.3% to 15.0%, respectively. The Company has operating lease agreements for its executive and general offices, expiring in December 1997, as amended. The leases call for an aggregate annual rental of approximately $235,000, subject to certain escalation clauses. During the years ended December 31, 1995 and 1994, and period ended May 29, 1996, rental expenses totaled $194,279, $195,777 and $94,422, respectively, and are included in other operating expenses. The Company is a party to various legal proceedings arising from the normal course of business, none of which, in management's opinion, is expected to have a material adverse impact on the Company's financial position or results of operations. (10) SUBSEQUENT EVENTS On June 28, 1996 and January 28, 1997, Medallion increased the amount available under the Revolver by $7,000,000 and $20,000,000, respectively. The aggregate commitments under the Revolver was $85,000,000 and $105,000,000 at such dates, respectively. Subsequent to the merger of Tri-Magna into Medallion Financial Corp. on May 29, 1996 the Term Loan of $3,231,900 was paid in full. The $2,000,000 Short-Term Note was assumed by Medallion Financial Corp. and was converted into a $5,000,000 revolving credit agreement on December 1, 1996. As a result of the merger of Tri-Magna into Medallion Financial Corp., Medallion became a wholly-owned subsidiary of Medallion Financial Corp. On February 11, 1997 the SBA approved an amendment to the charters of Medallion and another wholly-owned subsidiary, Transportation Capital Corp. (TCC), converting these subsidiaries from SSBICs to SBICs. The conversion eliminates the restriction for Medallion and TCC to lend only to individuals as being socially or economically disadvantaged, or to small business concerns that are at least 50% owned by such persons, as defined in the SBIA, subject to certain restrictions. Effective January 1, 1997, Medallion Financial Corp. decided to merge all of the assets and liabilities of TCC into Medallion, subject to the approval of the SBA. This is expected to occur by the end of the second quarter of 1997. TRI-MAGNA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (11) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, ''Disclosures About Fair Value of Financial Instruments,'' requires disclosure of fair value information about certain financial instruments, whether assets, liabilities or off-balance sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Fair value estimates which were derived from broker quotes cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. In addition, SFAS 107 excludes certain financial instruments and all non- financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. Investments - As described in Note 2, the carrying amount of investments is the estimated fair value of such investments. Notes payable to banks and demand notes - Due to the short-term nature of these instruments, the carrying amount approximates fair value. Commitments to Extend Credit - The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels of interest rates and the committed rates. At May 29, 1996, the estimated fair value of these off-balance sheet instruments was not material. Interest Rate Cap Agreements - The fair value is estimated based on market prices or dealer quotes. At May 29, 1996, estimated fair value of these off- balance sheet instruments was not material.
DECEMBER 31, 1995 MAY 29, 1996 ---------------------------- ----------------------------- CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE --------------- ----------- --------------- ------------ Financial assets: Investments $96,046,416 $96,046,416 $95,621,617 $95,621,617 Financial liabilities: Notes payable to banks and demand notes $80,294,900 $80,294,900 $79,394,900 $79,394,900
TRI-MAGNA CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS MAY 29, 1996 BALANCE INTEREST ------------- ------------ NUMBER OF LOANS OUTSTANDING RATE --------------- ------------- ------------ 2 $ 92,529 5.00%-7.00% 16 3,625,886 8.00 3 287,797 8.25 18 2,783,824 8.50 10 901,136 8.63 12 981,255 8.75 55 6,751,204 9.00 99 8,133,949 9.25 122 14,125,122 9.50 2 114,819 9.63 32 3,825,894 9.75 119 10,989,259 10.00 30 3,236,713 10.25 40 3,994,604 10.50 29 2,628,392 10.75 1 59,382 10.90 43 3,983,410 11.00 6 356,496 11.25-11.50 2 146,961 11.75 53 3,878,890 12.00 7 448,314 12.50 3 369,083 12.75-12.95 99 5,177,644 13.00 2 372,799 13.25 22 1,165,954 13.50 3 46,411 13.75-13.87 97 4,612,518 14.00 4 105,443 14.05-14.30 19 1,163,039 14.50 7 213,388 14.75-14.84 224 9,955,553 15.00 8 687,574 15.20 7 208,929 15.25 5 88,044 15.50 1 100,239 15.75 11 325,999 16.00 5 193,989 16.50-18.00 2 74,737 19.00 ----- ----------- Total: 1,220 $96,207,179 10.92% ===== Plus: Loan Origination Costs, Net..... 324,438 ----------- Total Investments at Cost............ $96,531,617 Less: Unrealized depreciation on investments (910,000) ----------- Total Investments at directors' $95,621,617 valuation =========== TRI-MAGNA CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTS DECEMBER 31, 1995 BALANCE INTEREST ------------- ------------ OUTSTANDING RATE NUMBER OF LOANS ------------- ------------ --------------- 2 $ 101,632 5.00-7.00% 18 3,715,031 8.00 3 298,833 8.25 21 3,279,235 8.50 9 1,331,792 8.75 56 8,152,656 9.00 70 7,111,900 9.25 116 13,814,980 9.50 2 120,696 9.63 24 2,677,911 9.75 150 12,175,743 10.00 33 3,207,015 10.25 1 130,055 10.38 41 4,181,332 10.50 31 2,959,616 10.75 1 65,064 10.90 41 3,930,343 11.00 9 614.874 11.25-11.75 58 4,260,742 12.00 9 490,107 12.50 4 406,362 12.75-12.95 96 5,426,944 13.00 3 630,453 13.25 20 1,114,053 13.50 3 60,526 13.75-13.87 86 4,316,872 14.00 1 41,995 14.05 1 47,046 14.20 1 8,181 14.25 1 16,166 14.30 15 1,000,341 14.50 7 227,427 14.75-14.84 206 9,123,581 15.00 8 723,762 15.20 8 250,164 15.25 7 134,764 15.50 2 101,658 15.63-15.75 8 289,662 16.00 6 123,502 16.25-18.00 ----- ----------- Total: 1,178 $96,663,016 10.88% ===== Plus: Loan Origination Costs, Net........................... 293,400 ----------- Total Investments at Cost... 96,956,416 Less: Unrealized depreciation on investments................ (910,000) ----------- Total Investments at directors' valuation $96,046,416 =========== REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Transportation Capital Corp.: We have audited the accompanying balance sheets of Transportation Capital Corp. (a New York corporation) as of December 31, 1995, and May 29, 1996, including the schedule of investments other than investments in affiliates and schedule of loans as of December 31, 1995 and May 29, 1996, the related statements of operations, changes in shareholders' equity and cash flows for the year ended December 31, 1995 and the five month period ended May 29, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As explained in Note 1, the financial statements include loans receivable valued at $9,154,139 (53% of total assets) as of December 31, 1995 and at $9,312,331 (56% of total assets) as of May 29, 1996, whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the loans existed, and the differences could be material. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Transportation Capital Corp. as of December 31, 1995 and May 29, 1996, and the results of its operations and its cash flows for the year ended December 31, 1995 and the five month period ended May 29, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Boston, Massachusetts March 26, 1997 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Transportation Capital Corp.: We have audited the accompanying Statement of Operations of Transportation Capital Corp. (a New York corporation), and the related statements of shareholders' equity and cash flows for of the year ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of its operations and cash flows for Transportation Capital Corp. for the year ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand LLP New York, New York October 24, 1995 TRANSPORTATION CAPITAL CORP. BALANCE SHEETS
DECEMBER 31, MAY 29, ------------- ------------ 1995 1996 ------------- ------------ ASSETS Loans Receivable........................ $ 9,796,728 $ 9,924,748 Allowance for Loan Losses............... (642,589) (612,417) ----------- ----------- Loans receivable, at fair value........ 9,154,139 9,312,331 Cash and Cash Equivalents............... 7,780,717 6,797,183 Accrued Interest Receivable............. 133,722 118,384 Furniture, Fixtures and Leasehold Improvements, at cost, less accumulated depreciation $12,256 and $14,122....... 16,253 14,387 Other Assets............................ 72,877 62,394 Deferred Income Taxes................... 257,900 246,365 ----------- ----------- Total Assets............................ $17,415,608 $16,551,044 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Debentures payable to the Small Business Administration.............. $ 6,730,000 $ 5,640,000 Accrued interest payable............... 35,071 139,068 Accrued dividend payable............... -- 116,725 Accrued expenses....................... 171,888 111,960 ----------- ----------- Total Liabilities....................... 6,936,959 6,007,753 ----------- ----------- Commitments and Contingencies Shareholders' Equity: 3% Cumulative preferred stock, $1,000 par value -- Authorized -- 9,000 shares Issued and outstanding -- none......... -- -- Common stock, $.125 par value -- Authorized -- 5,000,000 shares Issued and outstanding -- 100 shares... 13 13 Additional paid-in capital.............. 7,749,456 7,749,456 Restricted contributed capital surplus.. 2,199,166 2,199,166 Accumulated undistributed net investment income...................... 5,060,597 5,104,110 Accumulated net realized loan losses.... (4,144,594) (4,141,637) Net unrealized depreciation on loans.... (385,989) (367,817) ----------- ----------- Total Shareholders' Equity.............. 10,478,649 10,543,291 ----------- ----------- Total Liabilities and Shareholders' Equity................................. $17,415,608 $16,551,044
=========== =========== The accompanying notes are an integral part of these financial statements. TRANSPORTATION CAPITAL CORP. STATEMENTS OF OPERATIONS
PERIOD ENDED ------------ YEAR ENDED DECEMBER 31, MAY 29, ------------------------------- ------------- 1994 1995 1996 --------------- -------------- ------------- Investment Income: Interest from small business concerns (net of interest to participants)............................. $2,001,527 $1,411,116 $ 525,883 Interest from treasury bills............... 215,353 425,318 156,243 ---------- ---------- --------- 2,216,880 1,836,434 682,126 ---------- ---------- --------- Expenses: Interest................................... 708,695 450,071 148,362 Salaries................................... 246,874 227,343 79,899 Legal and other professional fees.......... 356,162 350,178 131,226 Rent expense............................... 58,046 23,999 10,865 General and administrative................. 50,533 158,810 37,430 ---------- ---------- --------- 1,420,310 1,210,401 407,782 ---------- ---------- --------- Investment Income Before Income Taxes....... 796,570 626,033 274,344 Income Tax Provision........................ (342,948) (269,723) (114,106) ---------- ---------- --------- Net Investment Income...................... 453,622 356,310 160,238 ---------- ---------- --------- Realized Loan (Losses) Gains Before Income Taxes............................... (144,058) (50,055) 5,247 Income Tax Benefit (Provision).............. 59,748 22,399 (2,290) ---------- ---------- --------- Net Realized Loan (Losses) Gains........... (84,310) (27,656) 2,957 ---------- ---------- --------- Change in Unrealized Depreciation on Loans Before Income Taxes...................................... 790,283 335,261 30,172 Deferred Income Tax Provision............... (369,700) (133,900) (12,000) ---------- ---------- --------- Net Change in Unrealized Depreciation on Loans................................... 420,583 201,361 18,172 ---------- ---------- --------- Increase in Net Assets from Operations..... $ 789,895 $ 530,015 $ 181,367 ========== ========== =========
The accompanying notes are an integral part of these financial statements. TRANSPORTATION CAPITAL CORP. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
RESTRICTED ----------- PREFERRED STOCK COMMON STOCK ADDITIONAL CONTRIBUTED --------------- ------------ ---------- ----------- SHARES SHARES PAID-IN CAPITAL ------ ------ ------- ------- OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL SURPLUS ------------ ------ ------------ ------ ------- ------- Balance, December 31, 1993 3,3831/3 $ 3,383,333 2,486,804 $ 310,851 $6,250,529 $ -- Merger of TCC Purchase Co. -- -- (2,486,704) (310,838) 314,760 -- Net investment income -- -- -- -- -- -- Net realized loan losses -- -- -- -- -- -- Net change in unrealized depreciation on loans -- -- -- -- -- -- ---------- ----------- ---------- --------- ---------- ---------- Balance, December 31, 1994 3,3831/3 $ 3,383,333 100 $ 13 $6,565,289 $ -- ========== =========== ========== ========= ========== ========== Net investment income -- -- -- -- -- -- Net realized loan losses -- -- -- -- -- -- Net change in unrealized depreciation on loans -- -- -- -- -- -- Capital contribution -- -- -- -- 310,818 -- Capitalization of accumulated undistributed net investment income -- -- -- -- 873,349 -- Repurchase of 3% preferred stock (3,383 1/3) (3,383,333) -- -- -- 2,199,166 ---------- ----------- ---------- --------- ---------- ---------- Balance, December 31, 1995 -- $ -- 100 $ 13 $7,749,456 $2,199,166 ========== =========== ========== ========= ========== ========== Net investment income -- -- -- -- -- -- Net realized loan gains -- -- -- -- -- -- Preferred dividends declared.................. Net change in unrealized depreciation on loans -- -- -- -- -- -- ---------- ----------- ---------- --------- ---------- ---------- Balance, May 29, 1996 -- $ -- 100 $ 13 $7,749,456 $2,199,166 ========== =========== ========== ========= ========== ========== ACCUMULATED ----------- UNDISTRIBUTED ACCUMULATED NET ------------- ----------- --- NET NET UNREALIZED TOTAL --- --- ---------- ----- INVESTMENT REALIZED DEPRECIATION SHAREHOLDERS' ---------- -------- ------------ ------------- INCOME LOAN LOSSES ON LOANS EQUITY ------ ----------- -------- ------ Balance, December 31, 1993..... $5,124,014 $(4,032,628) $(1,007,933) $10,028,166 Merger of TCC Purchase Co...... -- -- -- 3,922 Net investment income.......... 453,622 -- -- 453,622 Net realized loan losses....... -- (84,310) -- (84,310) Net change in unrealized depreciation on loans......... -- -- 420,583 420,583 ---------- ----------- ----------- ----------- Balance, December 31, 1994..... $5,577,636 $(4,116,938) $ (587,350) $10,821,983 ========== =========== =========== =========== Net investment income.......... 356,310 -- -- 356,310 Net realized loan losses....... -- (27,656) -- (27,656) Net change in unrealized depreciation on loans......... -- 201,361 201,361 Capital contribution........... -- -- -- 310,818 Capitalization of accumulated undistributed net investment income............. (873,349) -- -- -- Repurchase of 3% preferred stock......................... -- -- -- (1,184,167) ---------- ----------- ----------- ----------- Balance, December 31, 1995..... $5,060,597 $(4,144,594) $ (385,989) $10,478,649 ========== =========== =========== =========== Net investment income.......... 160,238 -- -- 160,238 Net realized loan gains........ -- 2,957 -- 2,957 Preferred dividends declared...................... (116,725) (116,725) Net change in unrealized depreciation on loans......... -- -- 18,172 18,172 ---------- ----------- ----------- ----------- Balance, May 29, 1996.......... $5,104,110 $(4,141,637) $ (367,817) $10,543,291 ========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. TRANSPORTATION CAPITAL CORP. STATEMENTS OF CASH FLOWS
PERIOD ENDED ------------ YEAR ENDED DECEMBER 31, MAY 29, ------------------------------ -------------- 1994 1995 1996 -------------- -------------- -------------- Cash Flows from Operating Activities: Increase in net assets from operations.. $ 789,895 $ 530,015 $ 181,367 Adjustments to reconcile increase in net assets from operations to net cash provided by (used for) operating activities -- Change in unrealized depreciation on loans................................. (790,283) (335,261) (30,172) Provision for deferred taxes........... 549,800 138,300 11,535 Depreciation and amortization.......... 14,199 14,570 1,866 Realized loan losses................... 144,058 50,055 (5,247) Net change in -- Accrued interest receivable........... 141,191 14,216 15,338 Other assets.......................... (102,185) 116,687 10,483 Accrued interest payable.............. (148,943) (38,317) 103,997 Accrued expenses...................... (462,757) 46,377 (59,928) ------------ ------------ ----------- Net cash provided by operating activities............................. 134,975 536,642 229,239 ------------ ------------ ----------- Cash Flows from Investing Activities: Principal collected on loans............ 19,628,701 14,820,116 6,510,178 Advances on loans....................... (12,682,418) (13,697,563) (6,632,951) Furniture, fixtures and office equipment.............................. 3,500 (4,339) -- ------------ ------------ ----------- Net cash provided by (used for) investing activities................... 6,949,783 1,118,214 (122,773) ------------ ------------ ----------- Cash Flows from Financing Activities: Repurchase of preferred stock from SBA.. -- (1,184,167) -- Repayment of debentures payable to SBA.. (2,800,000) (1,200,000) (1,090,000) Capital contribution.................... -- 310,818 -- Merger of TCC Purchase Co............... 3,922 -- -- ------------ ------------ ----------- Net cash used for financing activities.. (2,796,078) (2,073,349) (1,090,000) ------------ ------------ ----------- Net Increase (Decrease) in Cash and Cash Equivalents........................ 4,288,680 (418,493) (983,534) Cash and Cash Equivalents, Beginning of Period.................................. 3,910,530 8,199,210 7,780,717 Cash and Cash Equivalents, End of........ ------------ ------------ ----------- Period.................................. $ 8,199,210 $ 7,780,717 $ 6,797,183 ============ ============ =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for -- Interest............................... $ 857,638 $ 488,388 $ 44,365 ============ ============ =========== Net income tax payments................ $ 132,852 $ 205,322 $ 152,260 ============ ============ ===========
The accompanying notes are an integral part of these financial statements. TRANSPORTATION CAPITAL CORP. NOTES TO FINANCIAL STATEMENTS MAY 29, 1996 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Transportation Capital Corp. (the Company), a New York corporation, was an indirect wholly owned subsidiary of Leucadia National Corporation (Leucadia) and is licensed by the Small Business Administration (SBA) to operate as a specialized small business investment company (SSBIC) under the Small Business Investment Act of 1958, as amended. Effective on May 29, 1996, the Company was acquired by Medallion Financial Corp. and registered as a closed-end management investment under the Investment Company Act of 1940, as amended (the 1940 Act). The balance sheet as of May 29, 1996 and statements of operations, changes in shareholders' equity and cash flows for the period ended May 29, 1996 included the accounts of the Company prior to the consummation of the acquisition by Medallion Financial Corp. on May 29, 1996. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Loans and the Allowance for Loan Losses Loans, net of participation sold to other lenders and an allowance for possible losses, are stated at fair value. The fair value of such loans is determined in good faith by the Board of Directors. The allowance for loan losses is maintained at a level that, in the Board of Director's judgment, is adequate to absorb losses inherent in the portfolio. The allowance is reviewed and adjusted periodically by the Board of Directors on the basis of available information, including the fair value of the underlying collateral; individual credit risks; past loss experience; the volume, composition and growth of the portfolio; and current and projected economic conditions. Assets acquired in satisfaction of loans are carried at estimated net realizable value. A fully collateralized loan is placed on nonearning status once it becomes 180 days past due as to principal and interest. Loans that are not fully collateralized are placed on nonearning status when they are 90 days past due as to principal or interest. Interest on nonearning loans is recognized as income when collected. Realized Loan Losses Realized loan losses consist of write-offs of loans or assets acquired in satisfaction of loans, net of recoveries. Unrealized Depreciation on Loans All unrealized changes in the value of loans, including the provision for losses, are included in the caption net change in unrealized depreciation on loans, which is net of income tax effect. Net unrealized depreciation on loans at December 31, 1995 and May 29, 1996 is net of deferred income taxes of $256,600 and $244,600, respectively. TRANSPORTATION CAPITAL CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Depreciation and Amortization Depreciation and amortization of furniture, fixtures, office equipment and leasehold improvements is computed using straight-line and accelerated methods at rates adequate to allocate the cost of applicable assets over their estimated useful lives or, if less, the term of the lease. Depreciation and amortization amounted to $4,296, $3,925 and $1,866 for the years ended December 31, 1995 and 1994 and period ended May 29, 1996, respectively. Income Taxes For the period ended May 29, 1996, the Company's results of operations was reported in the consolidated federal income tax return filed by Leucadia. The Company and Leucadia were operating under a tax sharing agreement pursuant to which the Company made payments to (or receives payments from) Leucadia consisting of the tax liability that the Company would incur if it filed a separate federal income tax return. The Company provided for income taxes using the liability method under Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under the liability method, deferred income taxes are provided at the statutory rates for differences between the tax and accounting bases of substantially all assets and liabilities and for carryforwards. A valuation allowance is provided if deferred tax assets are not considered more likely than not to be realized. Cash and Cash Equivalents Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and loan receivables. The Company considers short-term instruments with original maturities of three months or less, measured from their acquisition date, to be cash equivalents. Cash and cash equivalents consist of cash in banks and U.S. Treasury bills at market value. Noncash Investing Activities During the years ended 1995 and 1994 and period ended May 29, 1996, the Company refinanced loans amounting to $740,826, $1,041,933 and $1,696,715, respectively. TRANSPORTATION CAPITAL CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (2) LOANS RECEIVABLE Nonearning and reduced rate loans outstanding were approximately $88,200 and $86,800 at December 31, 1995 and May 29, 1996, respectively. At December 31, 1995 and May 29, 1996, there were no commitments to loan additional funds to borrowers whose loans were classified as nonearning or reduced rate. Transactions in the allowance for loan losses are summarized as follows:
YEAR ENDED PERIOD ENDED ----------------------- ------------- DECEMBER 31, MAY 29, ----------------------- ------------- 1994 1995 1996 ----------- ---------- ------------- Balance, beginning.................... $1,768,133 $ 977,850 $642,589 Charge-offs........................... (176,975) (61,672) -- Recoveries............................ 32,917 11,617 5,247 Interest income deferred (received)... (289,430) -- -- Reduction in allowance................ (356,795) (285,206) (35,419) ---------- --------- -------- Balance, ending....................... $ 977,850 $ 642,589 $612,417 ========== ========= ========
(3) DEBENTURES PAYABLE TO THE SMALL BUSINESS ADMINISTRATION Debentures payable to the SBA at December 31, 1995 and May 29, 1996 consisted of subordinated debentures with the following maturities and interest rates (interest is payable semi-annually):
PRINCIPAL AMOUNT AT ---------------------- DECEMBER 31, MAY 29, 1995 1996 DUE DATE INTEREST RATE ---------- ---------- -------- ---------------- $1,090,000 $ -- 05/07/96 7.375% per annum 5,640,000 5,640,000 06/01/02 5.000% per annum ---------- ---------- through 5/31/97, 8% thereafter $6,730,000 $5,640,000 ========== ==========
Under the terms of the subordinated debentures, the Company may not repurchase or retire any of its capital stock, make any distributions to its shareholders other than dividends out of accumulated undistributed net investment income (as computed in accordance with SBA regulations) or increase salaries under certain conditions without the prior written approval of the SBA. TRANSPORTATION CAPITAL CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (4) SHAREHOLDERS' EQUITY The Company had an Employee Incentive Stock Option Plan (the Plan), that expired on February 18, 1996. On August 14, 1995, the Company repurchased and retired all of its 3% preferred stock owned by the SBA at a discount of 65% under an SBA 3% preferred stock repurchase agreement dated March 22, 1995. The purchase price of the preferred stock was $1,184,167. The funds paid to the SBA were obtained from a $310,818 capital contribution from the Company's sole shareholder, LNC Investments, Inc., and a $873,349 capitalization of accumulated undistributed net investment income, in accordance with Appendix I to Part 107 of the SBA rules and regulations. As a result, the accumulated undistributed net investment income was reduced, and the additional paid-in capital was increased by $873,349; the net effect was the same as if the Company had made a distribution to its shareholders, who then reinvested the same amount in the Company. The amount of the discount was recorded as an increase in capital in an account separate from additional paid-in capital, as restricted contributed capital surplus account. Under the repurchase agreement, the SBA retains a liquidating interest in the amount of the discount on the repurchase, which expires on a straight-line basis over five years or on a later date if an event of default, as defined in the repurchase agreement, has occurred and such default has not been cured or waived. Upon the occurrence of any event of default, the SBA's liquidating interest will become fixed at the level immediately preceding the event of default and will not amortize further until the default is cured or waived. While the liquidating interest expires over a five-year period, the balance in the restricted contributed capital surplus account remains unchanged in accordance with the SBA requirements. The SBA requires this treatment because the additional equity obtained as a result of the repurchase transaction is subject to certain restrictions that remain even after the liquidating interest has been eliminated. In the event of the Company's liquidation, the unexpired portion of the liquidating interest becomes immediately payable to the SBA. In addition, the SBA retains a residual interest in the preferred dividends in arrears at March 22, 1995 in the amount of $152,250, which also expires on a straight-line basis over five years. On May 29, 1996, all of the outstanding shares of capital stock of the Company was acquired by Medallion Financial Corp. (Medallion Financial) pursuant to the stock purchase agreement dated February 12, 1996, for a purchase price of approximately $10,546,000. The acquisition of the Company by Medallion Financial was approved by the SBA. Under the terms of the preferred stock repurchase agreement with the SBA, the change in ownership of the Company resulted in the unexpired portion of the preferred dividends becoming payable to the SBA in the amount of $116,725. At December 31, 1995 and May 29, 1996, the unamortized amount of the SBA's liquidating interest in the restricted contributed capital surplus was $1,869,291 and $1,686,028, respectively. There are 9,000 shares of redeemable preferred stock authorized, of which none has been issued. Such shares, which may be issued only to the SBA, would have a par value of $1,000 per share, bear cumulative annual dividends of 4% and would be required to be redeemed 15 years after issuance. TRANSPORTATION CAPITAL CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (5) INCOME TAXES The provisions (benefits) for income taxes are as follows:
YEAR ENDED DECEMBER 31, PERIOD ENDED ---------------------------- MAY 29, 1994 1995 1996 ------------- ------------- ------------- Net investment income -- Current -- Federal.................................. $110,233 $181,347 $ 83,029 State.................................... 52,615 83,976 31,577 -------- -------- -------- $162,848 $265,323 $114,606 -------- -------- -------- Deferred -- Federal.................................. $142,500 3,400 (400) State.................................... 37,600 1,000 (100) -------- -------- -------- 180,100 4,400 (500) -------- -------- -------- $342,948 $269,723 $114,106 ======== ======== ======== Net realized loan (losses) gains -- Current -- Federal.................................. $(43,433) $(14,247) $ 1,431 State.................................... (16,315) (8,152) 859 -------- -------- -------- $(59,748) $(22,399) $ 2,290 ======== ======== ======== Net change in unrealized depreciation on loans -- Deferred -- Federal.................................. $298,600 $103,700 $ 9,300 State.................................... 71,100 30,200 2,700 -------- -------- -------- $369,700 $133,900 $ 12,000 ======== ======== ========
The following is a reconciliation of income taxes at the expected statutory federal income tax to the actual income tax provision (benefit):
YEAR ENDED DECEMBER 31, PERIOD ENDED ------------------------ MAY 29, 1994 1995 1996 ----------- ----------- ----------- Net investment income -- Expected federal income tax............. $270,834 $212,851 $ 93,277 State income taxes, net of federal...... 59,542 56,084 21,913 income tax benefit Other................................... 12,572 788 (1,084) -------- -------- -------- $342,948 $269,723 $114,106 ======== ======== ========
TRANSPORTATION CAPITAL CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (5) INCOME TAXES (CONTINUED)
PERIOD ENDED ------------ YEAR ENDED DECEMBER 31, MAY 29, ------------------------ ------- 1994 1995 1996 -------- -------- ------- Net realized loan (losses)gains -- Expected federal income tax................. $(48,980) $(17,019) $ 1,784 State income taxes, net of federal.......... (10,768) (5,380) 567 income tax benefit Other....................................... -- -- (61) -------- -------- ------- $(59,748) $(22,399) $ 2,290 ======== ======== ======= Net change in unrealized depreciation on loans -- Expected federal income tax................. $268,696 $113,989 $10,258 State income taxes, net of federal.......... 46,926 19,932 1,792 income tax benefit Other....................................... 54,078 (21) (50) -------- -------- ------- $369,700 $133,900 $12,000 ======== ======== =======
The principal components of the deferred tax asset at December 31, 1995 and May 29, 1996 are as follows:
DECEMBER 31, 1995 MAY 29, 1996 --------------------------------- --------------------------------- FEDERAL STATE TOTAL FEDERAL STATE TOTAL ---------- --------- ---------- ---------- --------- ---------- Allowance for loan losses...... $198,800 $57,800 $256,600 $189,480 $55,120 $244,600 Interest....................... 2,300 600 2,900 2,450 710 3,160 Depreciation................... (1,300) (300) (1,600) (1,080) (315) (1,395) -------- ------- -------- -------- ------- -------- $199,800 $58,100 $257,900 $190,850 $55,515 $246,365 ======== ======= ======== ======== ======= ========
The Company believes it is more likely than not that the recorded deferred tax asset will be realized; such realization is expected to result principally from taxable income generated by profitable operations. (6) TRANSACTIONS WITH AFFILIATES In May 1994, the Company entered into a one-year management agreement with a subsidiary of Leucadia pursuant to which the subsidiary agreed to perform certain general, administrative and accounting functions for an annual fee of $180,000 with subsequent annual increases to be determined according to increases in the consumer price index. This agreement continued in full force and effect after the initial one-year term upon approval on an annual basis by the Company's Board of Directors. This agreement was terminated by both parties, without payment of any penalty, on May 29, 1996. Amounts charged to results of operations under this arrangement were $182,815 and $180,000 during the years ended December 31, 1995 and 1994 and $76,760 during the period ended May 29, 1996. TRANSPORTATION CAPITAL CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (7) DIRECTORS' AND OFFICERS' COMPENSATION Directors' Compensation amounted to $3,000, $6,900, and $1,300 and Officers' compensation amounted to $182,709, $159,466 and $58,170, during the years ended December 31, 1995 and 1994 and period ended May 29, 1996, respectively. (8) PENSION PLAN The Company provided pension benefits to its employees through Leucadia's defined benefit pension plan, as a result of the merger of the Company's defined benefit plan into Leucadia's plan effective on December 31, 1994. The merger of the defined benefit plans resulted in a reduction in pension expense for the Company in 1994. During the year ended December 31, 1995 and period ended May 29, 1996, the Company made contributions to Leucadia's plan based on its allocable share of expenses in the amounts of $10,676 and $3,750, respectively. (9) COMMITMENTS AND CONTINGENCIES In the normal course of business, there are outstanding commitments and contingent liabilities that are not reflected in the financial statements. At December 31, 1995 and May 29, 1996, the Company had outstanding loan commitments of $403,000 and $395,300, respectively, which bear interest at rates ranging from 12% to 14%. Management does not expect any material losses to result from these matters. At December 31, 1995 and May 29, 1996, the Company had operating leases for office space expiring in August 1996 and future minimum annual rental commitments were $19,800 and $2,000, respectively. In addition, the Company was subject to additional rent based upon increases in the Consumer Price Index. There are various lawsuits pending against the Company. In the opinion of management, after consultation with counsel, it is remote that losses, if any, arising from such claims will be material to the financial position or results of operations of the Company. (10) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of fair value information about certain financial instruments, whether or not recognized on the balance sheet. Where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In addition, SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Therefore, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of the Company. TRANSPORTATION CAPITAL CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996 (10) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The methods and assumptions used to estimate the fair value of each class of the financial instruments are described below: Loans Receivable -- As described in Note 1, the carrying amount of loans receivable is the estimated fair value of such loans. Cash and Cash Equivalents -- For short-term investments, the carrying amount approximates fair value. Debentures Payable to SBA -- The fair value of the debentures payable to SBA is estimated based upon current market interest rates for similar debt. The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
DECEMBER 31, 1995 MAY 29, 1996 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR ---------- ---------- ---------- ---------- AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- Financial assets -- Loans receivable............. $9,154,139 $9,154,139 $9,312,331 $9,312,331 Cash and cash equivalents.... 7,780,717 7,780,717 6,797,183 6,797,183 Financial liabilities -- Debentures payable to SBA.... 6,730,000 7,189,000 5,640,000 5,954,000
(11) SUBSEQUENT EVENTS On February 11, 1997, the SBA approved an amendment to the charter of the Company, converting the Company from a SSBIC to a SBIC. The conversion eliminates the restriction for the Company to lend only to individuals as being socially or economically disadvantaged, or to small business concerns that are at least 50% owned by such persons, as defined in the SBIA subject to certain restrictions. Effective January 1, 1997, Medallion Financial Corp. decided to merge all of the assets and liabilities of the Company into Medallion Funding Corp., a wholly owned subsidiary of Medallion Financial Corp., subject to the approval of the SBA. Medallion Financial Corp. expects to complete the merger by the end of the second quarter of 1997. TRANSPORTATION CAPITAL CORP. SCHEDULE OF INVESTMENTS OTHER THAN INVESTMENTS IN AFFILIATES
DECEMBER 31, 1995 MAY 29, 1996 ----------------------------------------------- ------------------------------------------------ NUMBER NUMBER ------ PRINCIPAL ------ PRINCIPAL OF --------- OF --------- LOANS BY COLLATERAL TYPE LOANS BALANCE FAIR VALUE BOOK VALUE LOANS BALANCE FAIR VALUE BOOK VALUE - --------------------------- ----- ------- ---------- ---------- ----- ------- ---------- ---------- MEDALLIONS: New York..................... 17 $ 797,932 $ 797,932 $ 797,932 12 618,280 618,280 618,280 Boston....................... 80 3,400,557 3,400,557 3,400,557 75 3,131,238 3,131,238 3,131,238 Cambridge.................... 45 1,984,198 1,971,598 1,971,598 48 2,291,251 2,287,851 2,287,851 Chicago...................... 87 1,647,561 1,647,561 1,647,561 94 2,029,924 2,023,624 2,023,624 Newark....................... 12 158,157 156,836 156,836 8 91,342 91,342 91,342 --- ---------- ---------- ---------- --- ---------- ---------- ---------- Total medallions............ 241 7,988,405 7,974,484 7,974,484 237 8,162,035 8,152,335 8,152,335 NEW YORK RADIO CARS........... 35 599,694 238,198 238,198 32 535,696 201,605 201,605 MINUTEMAN RECEIVABLES......... 3 1,217,371 950,199 950,199 2 1,231,012 962,386 962,386 OTHERS........................ -- -- -- -- -- -- -- -- --- ---------- ---------- ---------- --- ---------- ---------- ---------- Subtotal.................... 279 9,805,470 9,162,881 9,162,881 271 9,928,743 9,316,326 9,316,326 RECEIVABLE FOR FORECLOSURE EXPENSES......... -- 10,144 10,144 10,144 -- 8,766 8,766 8,766 UNAPPLIED COLLECTIONS......... -- (18,886) (18,886) (18,886) -- (12,761) (12,761) (12,761) --- ---------- ---------- ---------- --- ---------- ---------- ---------- Total loans receivable, net........................ 279 $9,796,728 $9,154,139 $9,154,139 271 $9,924,748 $9,312,331 $9,312,331 === ========== ========== ========== === ========== ========== ==========
The accompanying notes are an integral part of these financial statement. TRANSPORTATION CAPITAL CORP. SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS MAY 29, 1996 It is the Company's policy to make loans to persons who qualify under Small Business Administration regulations as socially or economically disadvantaged and to entities which are at least 50%-owned by such persons. Substantially all of the Company's loans are for the purpose of financing the purchase of New York City, Boston, Cambridge, Chicago and Newark taxi medallions, taxi cabs, car radio rights, radio cars and related assets (the Collateral). It is the Company's policy that these loans are collateralized by a first priority perfected security interest in the collateral. The distribution of loans at May 29, 1996 by rate of interest is as follows:
NUMBER BALANCE INTEREST ------ ------------ --------- OF LOANS OUTSTANDING RATE -------- ------------ --------- 2 $ 106,941 9.50% 3 119,292 10.00 2 288,838 10.50 28 1,326,481 11.00 38 667,453 12.00 2 52,028 12.50 66 1,793,509 13.00 2 6,978 13.25 47 1,768,645 13.50 3 88,268 13.75 41 1,942,791 14.00 11 157,874 14.25 5 1,265,835 14.50 1 54,236 14.75 13 166,207 15.00 3 19,576 15.75 1 10,609 16.00 2 57,670 16.50 1 35,512 16.75 --- ---------- 271 9,928,743 13.08% === ========== ===== RECEIVABLES FOR FORECLOSURE EXPENSES.................... 8,766 UNAPPLIED COLLECTIONS....... (12,761) ---------- $9,924,748 ==========
The accompanying notes are an integral part of these financial statements. TRANSPORTATION CAPITAL CORP. SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS --(CONTINUED) MAY 29, 1996 COMPOSITION OF LOAN PORTFOLIO: BALANCE OUTSTANDING PERCENT ------------------- -------- New York medallions...................... 618,280 6.22% New York radios and others............... 535,696 5.40 New York minuteman receivables........... 1,231,012 12.40 Newark medallions........................ 91,342 0.92 Boston medallions........................ 3,131,238 31.54 Cambridge medallions..................... 2,291,251 23.08 Chicago medallions....................... 2,029,924 20.44 ---------- ------ Total composition of loan portfolio .... $9,928,743 100.00% ========== ====== The accompanying notes are an integral part of these financial statements. SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS DECEMBER 31, 1995 The distribution of loans at December 31, 1995 by rate of interest is as follows:
NUMBER BALANCE INTEREST ------ ------------ --------- OF LOANS OUTSTANDING RATE -------- ------------ --------- 2 $ 115,650 9.50% 3 125,384 10.00 10 361,560 11.00 51 1,231,411 12.00 2 64,923 12.50 48 1,234,511 13.00 4 22,065 13.25 50 1,740,372 13.50 5 210,120 13.75 50 2,516,760 14.00 18 393,213 14.25 6 1,254,777 14.50 1 55,707 14.75 16 217,328 15.00 2 65,072 15.50 4 27,918 15.75 1 13,296 16.00 2 61,934 16.50 3 88,006 16.75 1 5,463 17.00 --- ---------- 279 9,805,470 13.46 === RECEIVABLES FOR FORECLOSURE EXPENSES......................... 10,144 UNAPPLIED COLLECTIONS............. (18,886) ---------- $9,796,728 ========== PERCENT -------- COMPOSITION OF LOAN PORTFOLIO: New York medallions.................. $ 797,932 8.14 New York radios and others........... 599,694 6.12 New York minuteman receivables....... 1,217,371 12.41 Newark medallions.................... 158,157 1.61 Boston medallions.................... 3,400,557 34.68 Cambridge medallions................. 1,984,198 20.24 Chicago medallions................... 1,647,561 16.80 ---------- ------ Total composition of loan portfolio......................... $9,805,470 100.00% ========== ======
The accompanying notes are an integral part of these financial statements. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MEDALLION FINANCIAL CORP. April 9, 1997 By: /s/ Daniel F. Baker ------------------- Daniel F. Baker Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 3.1 Medallion Financial Corp. Restated Certificate of Incorporation. Filed herewith. 3.2 Medallion Financial Corp. Restated By-Laws. Filed as Exhibit b to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 4.1 Debenture due April 1, 1997 in the amount of $1,500,000 issued by Edwards Capital Company and payable to Chemical Bank as Trustee under the Trust Agreement dated January 15, 1987 among the Trustee, the U.S. Small Business Administration and SBIC Funding Corporation (the "Trust Agreement"). Filed as Exhibit f.2 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 4.2 Debenture due June 1, 1998 in the amount of $3,000,000 issued by Edwards Capital Company and payable to Chemical Bank under the Trust Agreement. Filed as Exhibit f.3 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 4.3 Debenture due September 1, 2002 in the amount of $3,500,000 issued by Edwards Capital Company and payable to Chemical Bank as Trustee under the Amended and Restated Trust Agreement dated March 1, 1990 among the Trustee, the U.S. Small Business Administration and SBIC Funding Corporation (the "Amended Trust Agreement"). Filed as Exhibit f.4 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 4.4 Debenture due September 1, 2002 in the amount of $6,050,000 issued by Edwards Capital Company and payable to Chemical Bank under the Amended Trust Agreement. Filed as Exhibit f.5 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 4.5 Debenture due June 1, 2004 in the amount of $4,600,000 issued by Edwards Capital Company and payable to Chemical Bank under the Amended Trust Agreement. Filed as Exhibit f.6 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 4.6 Debenture due September 1, 2004 in the amount of $5,100,000 issued by Edwards Capital Company and payable to Chemical Bank under the Amended Trust Agreement. Filed as Exhibit f.7 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 4.7 Letter Agreement, dated September 8, 1992, between the U.S. Small Business Administration and Edwards Capital Company regarding limit on incurrence of senior indebtedness, as amended on January 17, 1996. Filed as Exhibit f.8 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. Letter dated September 19, 1996 from the U.S. Small Business Administration to Edwards Capital Corp. amending such Letter Agreement is filed herewith. 4.8 Debenture due June 1, 2002 in the amount of $5,640,000 issued by Transportation Capital Corp. and payable to Chemical Bank under the Amended Trust Agreement. Filed as Exhibit f.10 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.1 Continuing General Security Agreement between NatWest Bank N.A. (formerly National Westminster Bank USA) and Edwards Capital Company dated June 17, 1987. Filed as Exhibit k.12 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.2 Term Note in the principal amount of $2,000,000 dated July 16, 1990 as amended March 27, 1992, July 16, 1993 and July 16, 1995 from Medallion Funding Corp. payable to NatWest Bank N.A. (formerly National Westminster Bank USA). Filed as Exhibit k.18 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.3 General Loan and Security Agreement between Sterling National Bank & Trust of New York and Edwards Capital Company dated May 1, 1991. Filed as Exhibit k.13 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.4 General Security Agreement between Israel Discount Bank of New York and Edwards Capital Company dated May 2, 1991. Filed as Exhibit k.14 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.5 Inter-Creditor Agreement among and between Edwards Capital Company and Bank Hapoalim B.M., Chemical Bank, Israel Discount Bank of New York, NatWest Bank N.A. (formerly National Westminster Bank USA), Marine Midland Bank and Sterling National Bank & Trust Company of New York dated as of May 14, 1991. Filed as Exhibit k.10 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.6 Loan Agreement dated as of March 27, 1992 among Medallion Funding Corp., the banks signatory thereto and NatWest Bank N.A. (formerly National Westminster Bank USA), as amended March 31, 1993, September 29, 1993, March 31, 1994, September 29, 1995 and March 28, 1996. Filed as Exhibit k.19 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. Amendment Five dated January 28, 1997 amending such Loan Agreement is filed herewith. 10.7 Security Agreement between Medallion Funding Corp. and NatWest Bank N.A. (formerly National Westminster Bank USA) dated as of March 27, 1992 for the benefit of the banks signatory to the Loan Agreement dated as of March 27, 1992, among Medallion Funding Corp., the banks signatory thereto and NatWest Bank N.A. (formerly National Westminster Bank USA). Filed as Exhibit k.20 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.8 Committed Line of Credit Agreement in the principal amount of $3,000,000 dated as of July 29, 1993, as amended May 31, 1994, October 31, 1994 and September 30, 1995 between Edwards Capital Company and Bank Hapoalim B.M. Filed as Exhibit k.9 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.9 Promissory Note dated July 31, 1993 in the principal amount of $5,000,000 from Edwards Capital Company payable to NatWest Bank N.A. (formerly National Westminster Bank USA) as endorsed by Endorsement No. 1 dated July 31, 1994 and Endorsement No. 2 dated July 31, 1995. Filed as Exhibit k.8 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.10 Specialized Small Business Investment Company 3% Preferred Stock Repurchase Agreement dated as of August 12, 1994 between Medallion Funding Corp. and the U.S. Small Business Administration. Filed as Exhibit k.28 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.11 Specialized Small Business Investment Company 3% Preferred Stock Repurchase Agreement dated as March 22, 1995 between Transportation Capital Corp. and the U.S. Small Business Administration as amended by letter agreement dated June 1, 1995. Filed as Exhibit k.29 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.12 Agreement of Merger between Medallion Financial Corp. and Tri- Magna Corporation, dated December 21, 1995, as amended on February 22, 1996. Filed as Exhibit k.3(i) to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.13 Stock Purchase Agreement among Medallion Financial Corp., Transportation Capital Corp., LNC Investments, Inc., Leucadia, Inc. and Leucadia National Corporation, dated February 12, 1996*. Filed as Exhibit k.1 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.14 Asset Purchase Agreement between Medallion Financial Corp., and Edwards Capital Company, dated February 21, 1996. Filed as Exhibit k.2 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.15 Amendment Number 2 to Agreement of Merger between Medallion Financial Corp. and Tri-Magna Corporation, dated April 26, 1996. Filed as Exhibit k.3(ii) to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.16 Amendment Number 1 to Stock Purchase Agreement among Medallion Financial Corp. Transportation Capital Corp., LNC Investments, Inc., Leucadia, Inc. and Leucadia National Corporation dated April 30, 1996. Filed as Exhibit k.1(i) to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.17 Amendment Number 1 to Asset Purchase Agreement between Medallion Financial Corp. and Edwards Capital Company dated April 30, 1996. Filed as Exhibit k.2(i) to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.18 Sub-Advisory Agreement between Medallion Financial Corp. and FMC Advisers, Inc. dated May 29, 1996. Filed herewith. 10.19 Employment Agreement between Medallion Financial Corp. and Alvin Murstein dated May 29, 1996. Filed herewith. 10.20 Employment Agreement between Medallion Financial Corp. and Andrew Murstein dated May 29, 1996. Filed herewith. 10.21 Agreement between Medallion Taxi Media, Inc., See-Level Advertising, Inc. and See-Level Management, Inc. dated July 25, 1996. Filed as Exhibit 10.1 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996 and incorporated herein by reference. 10.22 Agreement between Medallion Taxi Media, Inc. and Glenn Grumman dated July 25, 1996. Filed as Exhibit 10.2 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996 and incorporated herein by reference. 10.23 Security Agreement dated October 31, 1996 between First Bank of the Americas and Edwards Capital Corp. Filed herewith. 10.24 Master Grid Note (Secured Revolving Line of Credit) dated October 31, 1996 in the amount of $3,000,000 from Edwards Capital Corp. payable to First Bank of the Americas. Filed herewith. 10.25 Letter Agreement dated December 1, 1996 between Fleet Bank, N.A. and Medallion Financial Corp., as amended February 10, 1997. Filed herewith. 10.26 Revolving Credit Note dated December 1, 1996 in the amount of $6,000,000 from Medallion Financial Corp. payable to Fleet Bank, N.A., endorsed by Endorsement No. 1 dated February 10, 1997. Filed herewith. 10.27 Security Agreement dated December 1, 1996 between Fleet Bank, N.A. and Medallion Financial Corp. Filed herewith. 10.28 Revolving Credit Note dated January 28, 1997 in the amount of $25,000,000 from Medallion Funding Corp. payable to Fleet Bank, N.A. Filed herewith. 10.29 Revolving Credit Note dated January 28, 1997 in the amount of $22,500,000 from Medallion Funding Corp. payable to The First National Bank of Boston. Filed herewith. 10.30 Revolving Credit Note dated January 28, 1997 in the amount of $15,000,000 from Medallion Funding Corp. payable to Harris Trust and Savings Bank. Filed herewith. 10.31 Revolving Credit Note dated January 28, 1997 in the amount of $12,500,000 from Medallion Funding Corp. payable to Bank of Tokyo-Mitsubishi Trust Company. Filed herewith. 10.32 Revolving Credit Note dated January 28, 1997 in the amount of $10,000,000 from Medallion Funding Corp. payable to Israel Discount Bank of New York. Filed herewith. 10.33 Revolving Credit Note dated January 28, 1997 in the amount of $10,000,000 from Medallion Funding Corp. payable to European American Bank. Filed herewith. 10.34 Revolving Credit Note dated January 28, 1997 in the amount of $10,000,000 from Medallion Funding Corp. payable to Bank Leumi Trust Company of New York. Filed herewith. 10.35 Letter Agreement, dated February 21, 1997, between Medallion Funding Corp. and the U.S. Small Business Administration regarding the conversion of Medallion Funding Corp. from a specialized small business investment company to a small business investment company. Filed herewith. 10.36 Letter Agreement, dated February 21, 1997, between Transportation Capital Corp. and the U.S. Small Business Administration regarding the conversion of Transportation Capital Corp. from a specialized small business investment company to a small business investment company. Filed herewith. 10.37 Agreement between Medallion Taxi Media, Inc. and Metropolitan Taxicab Board of Trade, Inc. dated March 6, 1997. Filed herewith. 10.38 Promissory Note from Edwards Capital Company payable to Israel Discount Bank of New York. Filed as Exhibit k.4 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.39 Schedule of Promissory Notes from Edwards Capital Company payable to Israel Discount Bank of New York. Filed as Exhibit k.5 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.40 Secured Note from Edwards Capital Company payable to Sterling National Bank & Trust Company of New York. Filed as Exhibit k.6 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.41 Schedule of Secured Notes from Edwards Capital Company payable to Sterling National Bank & Trust Company of New York. Filed as Exhibit k.7 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.42. Medallion Financial Corp. Dividend Reinvestment Plan. Filed as Exhibit e to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.43 Medallion Financial Corp. 1996 Stock Option Plan. Filed as Exhibit i.1 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.44 Medallion Financial Corp. 1996 Non-Employee Directors Stock Option Plan. Filed herewith. 23.1 Consent of Arthur Andersen LLP relating to its report concerning Medallion Financial Corp. dated February 19, 1997. Filed herewith. 23.2 Consent of Arthur Andersen LLP relating to its report concerning Edwards Capital Company dated March 26, 1997. Filed herewith. 23.3 Consent of Arthur Andersen LLP relating to its report concerning Transportation Capital Corp. dated March 26, 1997. Filed herewith. 23.4 Consent of Arthur Andersen LLP relating to its report concerning Tri-Magna Corporation dated March 26, 1997. Filed herewith. 23.5 Consent of Friedman, Alpren & Green LLP relating to its report concerning Edwards Capital Company dated January 28, 1995. Filed herewith. 27 Medallion Financial Corp. Financial Data Schedule. Filed herewith. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF MEDALLION FINANCIAL CORP. MEDALLION FINANCIAL CORP. (the "Corporation"), a corporation organized and ----------- existing under and by virtue of the Delaware General Corporation Law, does hereby certify that the Board of Directors of the Corporation, by a resolution adopted at a meeting of the Board of Directors of the Corporation on May 22, 1996, and by a written consent of the stockholders of the Corporation dated May 22, 1996, approved and adopted, pursuant to Section 242 of the Delaware General Corporation Law, this Restated Certificate of Incorporation, which restates, integrates and amends the Certificate of Incorporation in its entirety pursuant to Section 245 of the Delaware General Corporation Law. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of Delaware on October 20, 1995. The full text of the Restated Certificate of Incorporation is set forth below: FIRST: The name of the Corporation is Medallion Financial Corp. SECOND: The registered office of the Corporation in the State of Delaware is located at 1013 Centre Road, City of Wilmington, County of Newcastle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. FOURTH: The aggregate number of shares of all classes of stock which the Corporation is authorized to issue is sixteen million (16,000,000) shares of which one million (1,000,000) shall be shares of Preferred Stock, par value $.01 per share, (the "Preferred Stock") and fifteen million (15,000,000) shall be --------------- shares of Common Stock, par value $.01 per share (the "Common Stock"). ------------ Any action required or permitted to be taken by the holders of any class or series of stock of the Corporation may be taken by written consent or consents but only if such consent or consents are signed by all holders of the class or series of stock entitled to vote on such action. Section 1. Common Stock. ------------ The powers, preferences, rights, qualifications, limitations and restrictions relating to the Common Stock are as follows: a. The Common Stock is junior to the Preferred Stock and is subject to all the powers, rights, privileges, preferences and priorities of the Preferred Stock designated herein or in any resolution or resolutions adopted by the Board of Directors pursuant to authority expressly vested in it by the provisions of Section 2 of this Article FOURTH. b. The Common Stock shall have voting rights for the election of directors and for all other purposes (subject to the powers, rights, privileges, preferences and priorities of the Preferred Stock as provided above), each holder of Common Stock being entitled to one vote for each share thereof held by such holder, except as otherwise required by law. Section 2. Preferred Stock. --------------- The Board of Directors is expressly authorized to provide for the issuance of all or any part of the shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited or fractional, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors in its sole discretion providing for the issuance of such class or series and as may be permitted by the Delaware General Corporation Law including, without limitation, (i) whether such shares shall be redeemable, and, if so, the terms and conditions of such redemption, whether for cash, property or rights, including securities of any other corporation, and whether at the option of either the Corporation or the holder or both, including the date or dates or the event or events upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (ii) whether such shares shall be entitled to receive dividends (which may be cumulative or noncumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) the rights of such shares in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of such shares; (iv) whether such shares shall be convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, whether at the option of either the Corporation or the holder or both, and, if so, the terms and conditions of such conversion, including provisions for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) whether the class or series shall have a sinking fund for the redemption or purchase of such shares, and, if so, the terms and amount of such sinking fund; or (vi) provisions as to any other voting, optional, and/or special or relative rights, preferences, limitations, or restrictions; and (vii) the number of shares and designation of such class or series. Section 3. Shares Entitled to More or Less Than One Vote. --------------------------------------------- If any class or series of the Corporation's capital stock shall be entitled to more or less than one vote per share, on any matter, every reference in this Restated Certificate of Incorporation or in any resolution or resolutions adopted by the Board of Directors pursuant to authority expressly vested in it by the provisions of Section 2 of this Article FOURTH - 2 - with respect to the Preferred Stock or in any relevant provision of law or in any rule or regulation, to a majority or other proportion of stock shall be deemed to refer to such majority or other proportion of the votes of such stock. FIFTH: In furtherance of, and not in limitation of, the powers conferred by statute, the Board of Directors is expressly authorized and empowered a. to manage, or direct the management of, the business and affairs of the Corporation and to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation subject, nevertheless, to the provisions of the Delaware General Corporation Law, this Restated Certificate of Incorporation and the By-Laws of the Corporation, and b. from time to time to determine to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open to inspection by stockholders, and no stockholder shall have any right to inspect any account, book or document of the Corporation except as conferred by applicable law. The Corporation may in its By-Laws confer powers upon the Board of Directors in addition to the foregoing and in addition to the powers and authorities expressly conferred upon the Board of Directors by applicable law. SIXTH: Subject to the rights of the holders of any class or series of stock having a preference expressly vested in it by the provisions of Section 2 of Article FOURTH with respect to the Preferred Stock: a. any action required or permitted to be taken by the stockholders of the Corporation must be effected only at a duly called annual or special meeting of stockholders of the Corporation and may not, after the effective date of this Restated Certificate of Incorporation, be effected by any consent in writing of such stockholders; b. special meetings of the stockholders of the Corporation may be called only (i) by the Chairman of the Board of Directors, (ii) pursuant to a resolution approved by a majority of the Whole Board (as hereinafter defined), or (iii) pursuant to a written request of the holders of not less than twenty percent (20%) of the voting power of the Voting Stock; and c. the business permitted to be conducted at any special meeting of the stockholders is limited to the business brought before the meeting (i) by the Chairman of the Board of Directors, or (ii) at the request of a majority of the Whole Board, or (iii) as specified in the written request of the holders of not less than twenty percent (20%) of the voting power of the Voting Stock. Advance notice of the business to be brought by stockholders before an annual meeting shall be given by such stockholders in the manner provided in the By-Laws of the Corporation. -3- SEVENTH: Section 1. Number, Election and Terms of Directors. --------------------------------------- Subject to the rights of the holders of any class or series of stock having a preference expressly vested in it by the provisions of Section 2 of Article FOURTH with respect to the Preferred Stock, the number of Directors of the Corporation shall be fixed by the By-Laws of the Corporation and may be increased or decreased from time to time in such a manner as may be prescribed by the By-Laws, but in no case shall the number be less than three nor more than fifteen. The Directors shall be divided into three classes, as nearly equal in number as possible. One class of Directors ("Class I") has been initially elected for a term expiring at the annual meeting of stockholders to be held in 1997, another class ("Class II") has been initially elected for a term expiring at the annual meeting of stockholders to be held in 1998, and another class ("Class III") has been initially elected for a term expiring at the annual meeting of stockholders to be held in 1999 with members of each class to hold office until their successors are elected and qualified. At each succeeding annual meeting of the stockholders of the Corporation, the successors of the class of Directors whose term expires at that meeting shall be elected by plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Section 2. Stockholder Nomination of Director Candidates. --------------------------------------------- Advance notice of stockholder nominations for the election of Directors shall be given by such stockholders in the manner provided in the By-Laws of the Corporation. Section 3. Newly Created Directorships and Vacancies. ----------------------------------------- Subject to the rights of the holders of any class or series of stock having a preference expressly vested in it by the provisions of Section 2 of Article FOURTH with respect to the Preferred Stock, newly created directorships resulting from any increase in the number of directors and any vacancy on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining Director. Any Director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director's successor shall have been elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of an incumbent Director. Section 4. Removal of Directors. -------------------- Subject to the rights of the holders of any class or series of stock having a preference expressly vested in it by the provisions of Section 2 of Article FOURTH with respect to the Preferred Stock, any Director may be removed from office only by the stockholders in the manner provided in this Section 4 of Article SEVENTH. At any annual meeting of the stockholders of the Corporation or at any special meeting of the stockholders of the -4- Corporation, the notice of which shall state that the removal of a Director or Directors is among the purposes of the meeting, the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of the Voting Stock, voting together as a single class, may remove such Director or Directors. In any vote required by or provided for in this Article SEVENTH, each share of Voting Stock shall have the number of votes granted to it generally in the election of Directors. EIGHTH: A director shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that the elimination or limitation of liability is not permitted under the Delaware General Corporation Law as in effect when such liability is determined. No amendment or repeal of this provision shall deprive a director of the benefits hereof with respect to any act or omission occurring prior to such amendment or repeal. NINTH: The Board of Directors of the Corporation, in determining whether the interests of the Corporation, its subsidiaries and its stockholders will be served by any offer of another person to (i) make a tender or exchange offer for any equity security of the Corporation or any subsidiary of the Corporation, (ii) merge or consolidate the Corporation or any of its subsidiaries with or into another corporation, or (iii) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation or any of its subsidiaries, may take into account factors in addition to potential economic benefits to stockholders. Such factors may include, without limitation, (a) comparison of the proposed consideration to be received by stockholders, in relation to the then current market price of the capital stock, to the estimated current value of the Corporation or any of its subsidiaries in a freely negotiated transaction, and to the estimated future value of the Corporation or any of its subsidiaries as an independent entity; (b) the impact of such a transaction on the customers and employees of the Corporation or any of its subsidiaries, and its effect on the communities in which the Corporation or any of its subsidiaries operate; and (c) the ability of the Corporation or any of its subsidiaries to fulfill its objectives and obligations under applicable statutes and regulations. The term "offer" as used in this Article NINTH includes every offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tender of, a security or interest in a security for value. TENTH: The Corporation may not purchase any shares of its stock from any person, entity or group that beneficially owns five percent (5%) or more of the voting power of the Voting Stock at a price exceeding the average closing price for the twenty trading business days prior to the purchase date, unless a majority of the Corporation's Disinterested Stockholders (as hereinafter defined) approves the transaction. The restrictions on purchases by the Corporation set forth in this Article TENTH do not apply (i) to any offer to purchase shares of any class of the Corporation's stock which is made on the same terms and conditions to all holders of that class of stock, or (ii) to any purchase of stock owned by such a 5% stockholder occurring more than two years after such stockholder's last acquisition of the Corporation's stock, or (iii) to any purchase of the Corporation's stock in accordance with the terms of any stock option or employee benefit plan, or (iv) to any purchase at prevailing market prices pursuant to a stock purchase program. -5- For purposes of this Article TENTH, the term "Disinterested Stockholders" means those holders each of whom owns less than five percent (5%) of the voting power of the Voting Stock. ELEVENTH: Any vote or votes authorizing liquidation of the Corporation or proceedings for its dissolution may provide, subject to the rights of creditors and the rights expressly provided for particular classes or series of stock, for the distribution pro rata among the stockholders of the Corporation of the assets of the Corporation, wholly or in part in kind, whether such assets be in cash or other property, and may authorize the Board of Directors of the Corporation to determine the valuation of the different assets of the Corporation for the purpose of such liquidation and may divide or authorize the Board of Directors to divide such assets or any part thereof among the stockholders of the Corporation, in such manner that every stockholder will receive a proportionate amount in value (determined as aforesaid) of cash or property of the Corporation upon such liquidation or dissolution even though each stockholder may not receive a strictly proportionate part of each such asset. TWELFTH: Business Combinations. --------------------- Section 1. Higher Vote for Business Combinations. ------------------------------------- In addition to any affirmative vote required by law or by this Restated Certificate of Incorporation, unless a Business Combination (as defined below) shall have been approved by the affirmative vote of not less than a majority of the Whole Board, any Business Combination shall require the affirmative vote of the holders of record of outstanding shares representing at least seventy-five percent (75%) of the voting power of the Voting Stock, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. Section 2. No Effect on Fiduciary Obligations. ---------------------------------- Nothing contained in this provision shall be construed to relieve the members of the Board of Directors from any fiduciary obligations imposed by law. Section 3. Definition. ---------- For purposes of this Article TWELFTH "Business Combination" means: a. any merger or consolidation of the Corporation or any subsidiary; or b. any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of all or more than ten percent (10%) of the total assets of the Corporation or any subsidiary, as of the end of such corporation's recent fiscal year ending prior to the time the determination is made; or -6- c. the issuance or transfer by the Corporation or any subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any subsidiary; or d. the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or any spin-off or split-up of any kind of the Corporation or any subsidiary; or e. any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any subsidiary or any other transaction which has the effect, directly or indirectly; of increasing the percentage of the outstanding shares of (i) any class of equity securities of the Corporation or any subsidiary, or (ii) any class of securities of the Corporation or any subsidiary convertible into equity securities of the Corporation or any subsidiary; or f. any agreement, contract or other arrangement providing for any one or more of the actions specified in clauses (a) through (e) of Section 3 of this Article TWELFTH. Section 4. Section 203 of the Delaware General Corporation Law. --------------------------------------------------- Nothing in this Article TWELFTH or elsewhere in this Restated Certificate of Incorporation shall be construed as a waiver of any rights of the Corporation to the provisions of Section 203 of the Delaware General Corporation Law dealing with business combinations with interested stockholders; and the Corporation hereby claims the full benefit of all such provisions or any other similar provisions heretofore or hereafter enacted as part of the Delaware General Corporation Law to the fullest extent in addition to the provisions of this Article TWELFTH. THIRTEENTH: The By-Laws of the Corporation may be amended, altered, changed or repealed, and a provision or provisions inconsistent with the provisions of the By-Laws as they exist from time to time may be adopted, only by the majority vote of the Whole Board or by the affirmative vote of the holders of at least seventy-five percent (75%) of the Voting Stock, voting together as a single class. FOURTEENTH: The provisions of Section 2 of Article FOURTH and the provisions of Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH, TENTH, TWELFTH, THIRTEENTH, and this Article FOURTEENTH shall not be amended, altered, changed or repealed, and no provision inconsistent with any of them shall be adopted, except by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of the Voting Stock, voting together as a single class. The Corporation reserves the right to amend, alter, change, or repeal any other provision contained in this Restated Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders are granted subject to this reservation. - 7 - For the purposes of this Restated Certificate of Incorporation, "Voting Stock" shall mean the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors. For the purposes of this Restated Certificate of Incorporation, "Whole Board" shall mean the total number of Directors which the Corporation would have if there were no vacancies. This Restated Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 242, 245 and 228 of the Delaware General Corporation Law. - 8 - IN WITNESS WHEREOF, Medallion Financial Corp. has caused this Certificate to be signed by Andrew Murstein, its President this 23rd day of May, 1996. MEDALLION FINANCIAL CORP. By: /s/ Andrew Murstein ------------------- Name: Andrew Murstein Title: President - 9 - EX-4.7 3 S.B.A. LETTER TO EDWARDS CAPITAL CORP., 19-SEP-96 Exhibit 4.7 U.S. SMALL BUSINESS ADMINISTRATION WASHINGTON, D.C. 20416 License No. 02/02-0366 September 19, 1996 Michael J. Kowalsky President Edwards Capital Corp. 205 E. 42nd Street, Suite 2020 New York, New York 10017 Dear Mr. Kowalsky: The Office of SBIC Operations (Operations) has reviewed the Licensee's letter dated August 2, 1996 requesting a $1.2 million increase in the limit of its senior secured bank indebtedness (indebtedness). The request was submitted as a result of SBA's current practice of not providing new SBIC leverage for the purposes of financing New York City taxi medallions, for which the Licensee was prepared to submit a leverage application for a total of $1.2 million. Currently, the Licensee's third party secured indebtedness is limited to the lesser of $11.5 million or twice its leveragable capital, per letter agreement (Agreement) entered into and dated September 8, 1992 and revised by letter dated January 17, 1996. The Agreement provided for SBA's consent for the Licensee to obtain financing from other sources on a secured basis should SBA decline to fund a leverage application submitted by the Licensee. Operations is hereby granting conditional approval for an increase in the limit of the Licensee's indebtedness of $1.2 million pending future review of the Agreement and the 3rd party debt issue as it relates to medallion licensees generally. As a result, the Licensee's limit of its indebtedness is limited to the lesser of $12.7 million or twice its leveragable capital. SBA's review of 3rd party debt could result in a reduction in the amount of 3rd party debt that is finally approved for the Licensee. Operations has noted that the Licensee has indicated that its intention is to build a commercially diversified portfolio, at a minimum, equal in amount to the $1.5 million debenture that matures on April 1, 1997. Other Matters By letter dated May 17, 1996, addressed to Mr. Alvin Murstein, Operations directed the Licensee to submit, within 30 days of the closing of the change of control transactions, a Statement of Financial Condition (Statement) on SBA Form 468 as of the closing date with appropriate notes concerning any adjustments to the previously reported capital accounts of the Licensee. To date, Operations has not received the requested Statement. The Licensee is directed to submit this previously requested information within 10 days of the date of this letter. This information should be submitted under cover of a complete SBA Form 415C amendment to the Management and Control item of its License application. Operations acknowledges receipt of the Licensee's letter dated August 19, 1996, relating to the completed refinance of corporations owned by Izhak Wanounou and Deborah Wanounou (aka Rosener). Operations considers the Licensee's response to be responsive to the overline violation and considers this matter resolved. If there are any questions, please call Fonda Stephens-Kelly at (202) 205-7596. Sincerely, /s/ Ronald C. Cibolski Ronald C. Cibolski Director Office of SBIC Operations EX-10.6 4 LOAN AGREEMENT #5 28-JAN-97 Exhibit 10.6 AMENDMENT NUMBER FIVE TO LOAN AGREEMENT AMENDMENT, dated as of January 28, 1997, to the Loan Agreement, dated as of March 27, 1992 (as amended, modified, or supplemented from time to time, the "Agreement"), among Medallion Funding Corp. ("Borrower"), the banks signatory thereto (the "Banks"), and Fleet Bank, NA (formerly National Westminster Bank USA) as agent for the Banks and as a Bank. Terms used herein and not otherwise defined shall have the meaning ascribed to them in the Agreement. WHEREAS, some of the Banks wish to increase their respective Revolving Credit Commitments; NOW, THEREFORE, in consideration of the foregoing premises and intending to be legally bound effective as of the date first above written, the parties hereto hereby agree as follows: 1. AMENDMENT OF EXHIBIT A. Upon the effective date of this Amendment, each Bank agrees to increase or maintain its Revolving Credit Commitment to be as set forth in Exhibit A attached hereto. Exhibit A to the Agreement is --------- --------- amended and replaced with Exhibit A attached hereto. --------- 2. AMENDMENT OF SECTION 10.4. Section 10.4 of the Agreement is hereby amended to substitute for the address of the Agent the following: "to Fleet at its address set forth on Exhibit A". 3. DELIVERY OF NEW NOTES AND RETURN OF OLD NOTES. On or before the effective date of this Amendment, the Borrower will deliver to each Bank a replacement Revolving Credit Note reflecting such Bank's increased Revolving Credit Commitment in replacement of such Bank's existing Revolving Credit Note (the "Old Note"). Promptly after the effective date of this Amendment, each Bank will return to the Borrower such Bank's Old Note marked "canceled". 4. EFFECTIVENESS OF THIS AMENDMENT. This Amendment shall be effective as of the date first above written provided that the Borrower shall have received counterparts of (i) this Amendment duly signed by the Borrower and each of the Banks. Promptly after the effective date of this Amendment, the Borrower shall deliver fully executed counterparts of this Amendment to each of the Banks, and the Agreement shall consist of the Agreement as previously amended, modified and supplemented and as amended by this Amendment. 5. NO OTHER AMENDMENTS. Except as expressly provided in this Amendment, all of the terms and conditions of the Agreement and the other Loan Documents shall remain in full force and effect. 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Amendment, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers duly authorized as of the day and year first above written. MEDALLION FUNDING CORP. By: /s/ Alvin Murstein ------------------ Alvin Murstein, Chief Executive Officer By: /s/ Daniel F. Baker ------------------- Daniel F. Baker, Treasurer and Chief Financial Officer FLEET BANK, N.A. By: /s/ Michael B. Moschetta ------------------------ Title: Assistant Vice President THE FIRST NATIONAL BANK OF BOSTON By: /s/ Matt A. Ross ---------------- Title: Director HARRIS TRUST AND SAVINGS BANK By: /s/ [signature illegible] ------------------------- Title: Vice President BANK OF TOKYO - MITSUBISHI TRUST COMPANY By: /s/ Amanda Ryan --------------- Title: Vice President BANK LEUMI TRUST COMPANY OF NEW YORK By: /s/ Paul Tine ------------- Title: Vice President By: /s/ [signature illegible] ------------------------- Title: EUROPEAN AMERICAN BANK By: /s/ [signature illegible] ------------------------- Title: Vice President ISRAEL DISCOUNT BANK OF NEW YORK By: /s/ Robert J. Fainelli ---------------------- Title: Vice President By: /s/ Robert E. Stark ------------------- Title: Senior Vice President SCHEDULE I (as amended January 28, 1997)
Revolving Credit Name and Address of Bank Facility Available Percentage - ----------------------------------------------------------------------- Fleet Bank N.A.* 595 Fifth Ave New York, New York 10036 $ 25,000,000 250/1050 The First National Bank of Boston 100 Federal Street Boston, Massachusetts 02110 $ 22,500,000 225/1050 Harris Trust and Savings Bank 111 West Monroe Chicago, IL 60690 $ 15,000,000 150/1050 Bank Tokyo - Mitsubishi Trust Company 1251 Ave of the Americas New York, New York 10016 $ 12,500,000 125/1050 Israel Discount Bank of New York 511 Fifth Avenue New York, New York 10022 $ 10,000,000 100/1050 European American Bank 335 Madison Avenue New York, New York 10017 $ 10,000,000 100/1050 Bank Leumi Trust Company of NY 562 Fifth Ave New York, NY 10036 $ 10,000,000 100/1050 ------------ TOTAL FACILITIES $105,000,000 ============
*In addition, NatWest has $2,000,000 outstanding in Fleet Bank Existing Term Note, which matures in 7/97. This agreement is secured by a perfected security interest in all of the Licensee's assets. Fleet Bank NA acts as collateral agent on behalf of the entire banking group. Medallion Funding Corp. does not have any other outstanding liens. EX-10.18 5 MEDALLION FIN. CORP. & FM C ADV. AGRMNT 29-MAY-96 EXHIBIT 10.18 Exhibit A --------- ADVISORY AGREEMENT ------------------ THIS ADVISORY AGREEMENT (this "Agreement") is entered into as of May 29, --------- 1996, by MEDALLION FINANCIAL CORP., a Delaware corporation (the "Company") and ------- FMC ADVISERS, INC., a Delaware corporation (the "Adviser"). ------- W I T N E S S E T H : WHEREAS, the Company is engaged in business as a non-diversified closed-end management investment company and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the "1940 Act"); - --------- WHEREAS, the Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, (the "Advisers Act") and hereby ------------ undertakes to provide investment advisory services to the Company on the terms and conditions set forth in this Agreement; and WHEREAS, the Company desires to retain the Adviser to furnish investment advisory services on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows: ARTICLE 1. Duties of the Adviser. The Adviser, subject to the control, --------------------- direction and supervision of the Board of Directors and management of the Company, shall provide the Company on an ongoing basis with its analysis of the Company's operations and the medallion finance and commercial installment finance industries with a view to assisting the Company in managing its loan portfolio and originating loans. Specifically, but without limitation, senior personnel of the Adviser shall regularly consult with management of the Company with respect to strategic decisions concerning originations, credit quality assurance, development of financial products, leverage, funding, geographic and product diversification, the repurchase of participations, acquisitions, regulatory compliance and marketing. In addition, the Adviser will advise the Company on general market, economic, financial and political matters. The Adviser shall, upon the Company's specific request, offer personal consultation with senior personnel of the Adviser regarding any of the foregoing matters identified by the Company, and shall provide any other investment advisory services to the Company as may be mutually agreed to by the Company and the Adviser. ARTICLE 2. Expenses. The Company shall pay or reimburse the Adviser for -------- reasonable travel expenses, if any, incurred by the Adviser in connection with the Adviser's performance of services under this Agreement. All other costs and expenses incurred by Adviser in connection with such services shall be the sole responsibility of Adviser. ARTICLE 3. Compensation of the Adviser. For the services to be rendered --------------------------- as provided herein, the Company shall pay to the Adviser a monthly fee of $18,750. For the first 48 months of service, fees shall be paid in advance in one payment in the amount of $900,000 payable on the date hereof. In the event of termination or non-renewal of this Agreement during the aforementioned 48 month period, prepaid fees for services not yet performed, if any, must be repaid to the Company. ARTICLE 4. Limitation of Liability of the Adviser. The Adviser shall not -------------------------------------- be liable for any error of judgment or mistake of law or for any loss arising out of any loan or for any act or omission in the performance of its duties hereunder, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this Article 4, the term "Adviser" shall include directors, officers and employees of the Adviser when acting in such capacity as well as that corporation itself. ARTICLE 5. Activities of the Adviser. The services provided by the ------------------------- Adviser to the Company hereunder are not exclusive; accordingly, the Adviser is free to render such services to others. ARTICLE 6. Records. The Adviser agrees to preserve the records required ------- by Rule 204-2 under the Advisers Act, for the period specified therein. ARTICLE 7. Duration and Termination of this Agreement. This Agreement ------------------------------------------ shall become effective as of the date first above written and shall remain in force until May 29, 1998 and from year to year thereafter if approved annually by (i) a majority of the non-interested directors of the Company and (ii) the board of directors of the Company, or by a majority of the outstanding voting securities of the Company. This Agreement may be terminated without penalty on 60 days' written notice by either party or by vote of a majority of the outstanding voting securities of the Company and will terminate if assigned. ARTICLE 8. Amendments of this Agreement. This Agreement may be amended by ---------------------------- the parties only if such amendment is specifically approved by the board of directors of the Company including a majority of the non-interested directors of the Company and by a majority of the outstanding voting securities of the Company. ARTICLE 9. Agency Relationship. Nothing herein shall be construed as ------------------- constituting the Adviser as an agent of the Company. ARTICLE 10. Severability. If any term or condition of this Agreement ------------ shall be found to be invalid or unenforceable to any extent or in any application, then the remainder of this Agreement and such term or condition, except to the extent or in such application such term or condition is held invalid or unenforceable, shall not be affected thereby, and each and every term and condition of this Agreement shall be valid and enforceable to the fullest extent and in the broadest application permitted by law. -2- ARTICLE 11. Captions. The captions of this Agreement are included for -------- convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. ARTICLE 12. Definitions of Certain Terms. For purposes of this Agreement, ---------------------------- the terms "majority of the outstanding voting securities," "assignment" and "interested person" shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject, however, to such exemptions as may be granted to either the Adviser or the Company by the Securities and Exchange Commission or its staff, under the 1940 Act and the Advisers Act. ARTICLE 13. Notices. All notices required or permitted to be sent under ------- this Agreement shall be sent, if to the Company, to Medallion Financial Corp., Attention: Andrew Murstein, President, 205 East 42nd Street, Suite 2020, New York, NY 10017 and if to the Adviser to FMC Advisers, Inc., Attention Myron Cohen, Secretary, c/o Cohen, Pontani & Lieberman, 551 Fifth Avenue, New York, NY 10176, with a copy of notices to either party to Steven N. Farber, Esq., Palmer & Dodge, One Beacon Street, Boston, MA 02108, or such other name or address as may be given by any of the above in writing to the other party. Any notice shall be deemed to be given or received on the fifth day after deposit in the United States mail with certified postage prepaid or when actually received, whichever is earlier. ARTICLE 14. Entire Agreement. This Agreement contains the entire ---------------- agreement of the parties with respect to the matters referred to herein and supersedes all prior agreements, negotiations, commitments or understandings. ARTICLE 15. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which when so executed and delivered shall be taken to be an original and together shall constitute one and the same document. ARTICLE 16. Governing Law. This Agreement shall be construed in ------------- accordance with the laws of the state of Delaware and the applicable provisions of the 1940 Act. -3- IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. MEDALLION FINANCIAL CORP. By /s/ Andrew Murstein ------------------------------------- Name: Andrew Murstein Title: President FMC ADVISERS, INC. By /s/ Michael A. Miller ------------------------------------- Name: Michael A. Miller Title: President -4- EX-10.19 6 EMPLOYMENT AGREEMENT W/ALVIN MURSTEIN 29-MAY-96 EXHIBIT 10.19 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT dated May 29, 1996, is between Medallion Financial Corp., a Delaware corporation with its principal place of business at 205 East 42nd Street, Suite 2020, New York, NY 10017 (the "Company"), and Alvin ------- Murstein residing at 6 Sandpiper Court, Old Westbury, NY 11568 (the "Executive"). --------- WHEREAS, the Executive is presently employed by the Company as the Chief Executive Officer of the Company; WHEREAS, the Board of Directors of the Company (the "Board") desires to ----- provide for the continued employment of the Executive, which the Board believes is in the best interests of the Company and its shareholders, and the Executive is willing to commit himself to serve the Company, on the terms and conditions herein provided; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: The Company agrees to employ the Executive, and the Executive agrees to serve the Company, on the terms and conditions set forth herein. 1. Title; Capacity. The Executive shall serve as Chief Executive Officer --------------- of the Company and shall be based at the Company's headquarters in New York City. The Executive hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Board or its designee shall from time to time reasonably assign to him. The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. The Company further agrees to use its best efforts to cause the Executive to be nominated as a member of the Board and a member of the Executive Committee (if such a committee is created). 2. Term of Employment. The Company agrees to employ the Executive, and ------------------ the Executive agrees to serve the Company for a period commencing on May 29, 1996 (the "Commencement Date") and continuing for five years thereafter (such ----------------- period, including all extensions thereto, to be collectively referred to as the "Employment Period"), unless otherwise terminated pursuant to the terms hereof. ----------------- The Employment Period shall automatically renew annually for a new five-year term unless prior to the end of the first year of each five-year term, either the Company or the Executive provides notice to the other party to this Agreement of its intention not to extend the Employment Period beyond the then current five-year term. Any notice given pursuant to this Section shall be provided in accordance with the terms of Section 8.1 hereof and shall be provided not later than 30 days prior to the end of such one-year period. 3. Compensation and Benefits. ------------------------- 3.1 Salary. The Company shall pay the Executive, in monthly ------ installments, an annual base salary of $250,000 for the one-year period commencing on the Commencement Date. Such salary shall be subject to adjustment thereafter as determined by mutual agreement between the Board and the Executive. 3.2 Bonus and Fringe Benefits. The Executive shall be entitled to ------------------------- participate in all bonus and benefit programs or plans that the Company establishes -2- and makes available to its employees to the extent that the Executive's position, tenure, salary, and other qualifications make him eligible to participate. 3.3 Reimbursement of Expenses. The Company shall reimburse the ------------------------- Executive for all reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other supporting information as the Company may reasonably request, provided, however, that the amount -------- ------- available for such travel, entertainment and other expenses may be fixed in advance by the Board. 3.4 Insurance. The Executive shall be entitled to health insurance --------- coverage, term life insurance and long term disability insurance to the extent that the Executive's position, tenure, salary, age, health and other qualifications make him eligible to participate. 3.5 Vacation. The Executive shall be entitled to six weeks paid -------- vacation per year. 4. Employment Termination. The employment of the Executive by the ---------------------- Company pursuant to this Agreement may be terminated under the following circumstances: 4.1 Expiration of Term. Expiration of the Employment Period in ------------------ accordance with Section 2. 4.2 Death. Upon the death of the Executive. ----- 4.3 Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall have failed to perform the services contemplated under this Agreement for a period of 270 consecutive days, or a total of at least 300 -3- calendar days during any 365-day period, or a determination of disability shall have been made by a physician satisfactory to both the Executive and the Company, provided that if the Executive and the Company do not agree on a physician, the Executive and the Company shall each select a physician and these two together shall select a third physician whose determination as to disability shall be binding on both parties. 4.4 Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder in the ----- event: (i) the Executive shall have willfully failed and continued to fail substantially to perform the duties (other than any failure resulting from the Executive's incapacity due to physical or mental illness or any actual or anticipated failure after the issuance by him of a Notice of Termination, as defined in Section 4.6), for 30 days after a written demand for performance is delivered to the Executive on behalf of the Company which specifically identifies the manner in which it is alleged that the Executive has not substantially performed his duties; provided that the Company's economic performance or -------- failure to meet any specific projection shall not, in and of itself, constitute "Cause"; or ----- (ii) the Executive shall have engaged in (A) any material misappropriation of funds, properties or assets of the Company, it being understood that "material" for these purposes shall take into -------- account both the amount of funds, properties or assets misappropriated and the circumstances thereof (including the intent of the Executive in connection therewith) or (B) -4- any malicious damage or destruction of any property or assets of the Company, whether resulting from the Executive's wilful actions or omissions or the Executive's gross negligence; or (iii) the Executive shall (A) have been convicted of a crime involving moral turpitude or constituting a felony or (B) entered a plea of nolo contendere to any such crime, either of which has had a material adverse effect upon the business of the Company; or (iv) the Executive shall have (A) materially breached his obligations under Section 6 hereof or (B) breached any of the other material provisions of this Agreement and such breach shall remain uncured by the Executive within 30 days following receipt of notice from the Company specifying such breach. 4.5 Termination by the Executive. The Executive may terminate his ---------------------------- employment hereunder (i) upon 90 days written notice or (ii) for Good Reason (as defined below). For purposes of this Agreement, "Good Reason" shall exist if there is ----------- a Change in Control (as defined below) of the Company and one or more of the following events shall have occurred (without the Executive's express written consent): (a) the assignment to the Executive of any duties inconsistent with his status as Chief Executive Officer of the Company, his removal from the position of Chief Executive Officer of the Company, or a substantial alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change in Control; -5- (b) a reduction by the Company of the Executive's annual base salary in effect on the date immediately prior to the Change in Control; (c) the relocation of the Company's principal executive offices to a location outside mid-town New York City or a requirement that the Executive shall be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with his business travel obligations prior to the Change in Control; (d) the failure by the Company to continue in effect any bonus plan in which the Executive was participating immediately prior to the Change in Control; or (e) the failure by the Company to continue to provide the Executive with benefits at least as favorable as those enjoyed by him under any of the Company's pension, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which he was participating at the time of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive him of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which he was entitled at the time of the Change in Control. -6- For purposes of this Agreement, a "Change in Control" of the Company ----------------- shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended. 4.6 Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than termination pursuant to Section 4.2) shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of --------- Termination" shall mean a written notice which shall indicate the specific ----------- termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances which provide a basis for termination of the Executive's employment under the provision so indicated. 4.7 Date of Termination. "Date of Termination" shall mean (i) if the ------------------- ------------------- Executive's employment is terminated pursuant to Section 4.1, the date on which the Employment Period expires pursuant to Section 2, (ii) if the Executive's employment is terminated pursuant to Section 4.2, the date of the Executive's death, (iii) if the Executive's employment is terminated pursuant to Section 4.3, 30 days after the Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such 30 day period), (iv) if the Executive's employment is terminated pursuant to Section 4.4 or subsection (i) of Section 4.5, the date specified in the Notice of Termination, provided that in the case of a Section 4.4 termination it is at least 30 days subsequent to the date of the issuance of such Notice of Termination and in the case of a subsection (i) of Section 4.5 termination it is at least 90 days subsequent to the date of the issuance of such -7- Notice of Termination, (v) if the Executive's employment is terminated pursuant to subsection (ii) of Section 4.5, the date specified in such Notice of Termination, and (vi) if the Executive's employment is terminated other than as provided herein, the date specified in the Notice of Termination, provided that it is at least 30 days subsequent to the date of the issuance of such Notice of Termination. 5. Compensation Upon Termination. ----------------------------- 5.1 If the Executive's employment is terminated under the provisions of Sections 4.1, 4.4 or subsection (i) of Section 4.5, the Company shall pay to the Executive his full salary, bonus and benefits through the Date of Termination. 5.2 If the Executive's employment is terminated by the Executive's death under the provisions of Section 4.2, the Company shall pay to the Executive's estate the Executive's full salary, bonus and benefits to the Executive through the Date of Termination. 5.3 If the Executive's employment is terminated under the provisions of Section 4.3, the Company shall pay to the Executive his full salary, bonus and benefits through the Date of Termination. During any period that the Executive fails to perform his duties hereunder as a result of disability (as defined in Section 4.3), the Executive shall continue to receive his full salary, bonus and benefits through the Date of Termination. 5.4 If the Company shall terminate the Executive's employment other than as provided herein or the Executive shall terminate his employment pursuant to subsection (ii) of Section 4.5, then: (i) The Company shall pay the Executive his full salary, bonus and benefits through the Date of Termination. -8- (ii) Subject to subsection (iv) of this Section 5.4, in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay as severance pay to the Executive an amount equal to the remainder of the salary, bonus and value of the fringe benefits which the Executive would be entitled to receive for the balance of the Employment Period. (iii) The Company shall pay all other damages to which the Executive may be entitled as a result of such termination, including damages for any and all legal fees and expenses incurred by him as a result of such termination. (iv) In the event that (A) any payment or benefit received or to be received by the Executive in connection with a Change in Control of the Company or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company) (collectively referred to herein as "Severance Payments") would not be deductible (in whole or part) as a ------------------- result of section 280G of the Internal Revenue Code of 1986, as amended, (the "Code") by the Company, an affiliate or other person ---- making such payment or providing such benefit and (B) it shall be determined that the net amount retained by the Executive, after deduction of the excise tax imposed by section 4999 of the Code and any federal, state and local income and employment taxes on the Severance Payments, does not exceed 110% of the net amount retained by the Executive after applying the limitations of this subsection (iv) of Section 5.4 and after deduction of any federal, state and local income and employment taxes on the -9- Severance Payments as so reduced, the Severance Payments shall be reduced until no portion of the Severance Payments is not deductible, or the Severance Payments are reduced to zero. For purposes of this limitation (i) no portion of the Severance Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the date of payment of the Severance Payments shall be taken into account, (ii) no portion of the Severance Payments shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Executive does not constitute a "parachute payment" within the meaning of ----------------- section 280G(b)(2) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Severance Payments (other than those referred to in clauses (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the tax counsel referred to in clause (ii); and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Severance Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the income taxes on the Severance Payments, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Severance Payments are to be made and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence -10- on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. 6. Proprietary Information and Developments. ---------------------------------------- 6.1 Proprietary Information. ----------------------- (i) The Executive agrees that all information and know how, whether or not in writing, of a private, secret or confidential nature concerning the Company's business or financial affairs (collectively, "Proprietary Information") is and shall be the exclusive property of ----------------------- the Company. By way of illustration, but not limitation, Proprietary Information may include inventions, products, processes, methods, techniques, projects, developments, plans, research data, financial data, personnel data, and lists of borrowers, advertisers, fleet and taxi owners. The Executive will not disclose any Proprietary Information to others outside the Company or use the same for any unauthorized purposes without written approval by the Board, either during or after his employment, unless and until such Proprietary Information has become public knowledge without fault by the Executive. (ii) The Executive agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, or other written, photographic, or other tangible material containing Proprietary Information, whether created by the Executive or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company to be used by the Executive only in the performance of his duties for the Company. (iii) The Executive agrees that his obligation not to disclose or use information, know-how and records of the types set forth in subsection (i) and -11- (ii) above, also extends to such types of information, know-how, records and tangible property of borrowers, advertisers, fleet and taxi owners or other third parties who may have disclosed or entrusted the same to the Company or to the Executive in the course of the Company's business. 6.2 Other Agreements. The Executive hereby represents that he is not ---------------- bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. The Executive further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. 7. Non-Competition, Non-Solicitation. --------------------------------- 7.1 Non-solicitation of Employees. The Executive agrees that during ----------------------------- the term of the Executive's employment with the Company, the Executive shall not directly recruit, solicit or otherwise induce or attempt to induce any employees of the Company to leave the employment of the Company. 7.2 Non-competition. The Executive agrees that during the term of --------------- the Executive's employment with the Company, the Executive shall not directly or indirectly, except as a passive investor in publicly held companies and except for investments held at the date hereof, engage in competition with the Company or any of its subsidiaries, or own or control any interest in, or act as director, officer or employee of, or consultant to, any firm, corporation or institution directly engaged in -12- competition with the Company or any of its subsidiaries; provided the Company or one of its subsidiaries are actively engaged in such business at the time the Executive's employment by the Company is terminated. 8. Miscellaneous. ------------- 8.1 Notices. All notices required or permitted under this Agreement ------- shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 8.1. 8.2 Pronouns. Whenever the context may require, any pronouns used in -------- this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 8.3 Entire Agreement. This Agreement constitutes the entire ---------------- agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 8.4 Amendment. This Agreement may be amended or modified only by a --------- written instrument executed by both the Company and the Executive. 8.5 Governing Law. This Agreement shall be construed, interpreted ------------- and enforced in accordance with the laws of the State of Delaware. 8.6 Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided, however, that the obligations of the Executive are personal and shall not be assigned by him. -13- 8.7 Waivers. No delay or omission by the Company in exercising any ------- right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 8.8 Captions. The captions of the sections of this Agreement are for -------- convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 8.9 Severability. In case any provision of this Agreement shall be ------------ invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. -14- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. MEDALLION FINANCIAL CORP. By: /s/ Andrew Murstein --------------------------------- Title: President ------------------------------ EXECUTIVE /s/ Alvin Murstein -------------------------------------- Alvin Murstein -15- EX-10.20 7 EMPLOYMENT AGREEMENT W/ANDREW MURSTEIN 29-MAY-96 EXHIBIT 10.20 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT dated May 29, 1996, is between Medallion Financial Corp., a Delaware corporation with its principal place of business at 205 East 42nd Street, Suite 2020, New York, NY 10017 (the "Company"), and Andrew ------- Murstein residing at 920 Park Avenue, Apt 15D, New York, NY 10028 (the "Executive"). --------- WHEREAS, the Executive is presently employed by the Company as the President of the Company; WHEREAS, the Board of Directors of the Company (the "Board") desires to ----- provide for the continued employment of the Executive, which the Board believes is in the best interests of the Company and its shareholders, and the Executive is willing to commit himself to serve the Company, on the terms and conditions herein provided; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: The Company agrees to employ the Executive, and the Executive agrees to serve the Company, on the terms and conditions set forth herein. 1. Title; Capacity. The Executive shall serve as President and Chief --------------- Operating Officer of the Company and shall be based at the Company's headquarters in New York City. The Executive hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Board or its designee shall from time to time reasonably assign to him. The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. The Company further agrees to use its best efforts to cause the Executive to be nominated as a member of the Board and a member of the Executive Committee (if such a committee is created). 2. Term of Employment. The Company agrees to employ the Executive, and ------------------ the Executive agrees to serve the Company for a period commencing on May 29, 1996 (the "Commencement Date") and continuing for five years thereafter (such ----------------- period, including all extensions thereto, to be collectively referred to as the "Employment Period"), unless otherwise terminated pursuant to the terms hereof. ----------------- The Employment Period shall automatically renew annually for a new five-year term unless prior to the end of the first year of each five-year term, either the Company or the Executive provides notice to the other party to this Agreement of its intention not to extend the Employment Period beyond the then current five-year term. Any notice given pursuant to this Section shall be provided in accordance with the terms of Section 8.1 hereof and shall be provided not later than 30 days prior to the end of such one-year period. 3. Compensation and Benefits. ------------------------- 3.1 Salary. The Company shall pay the Executive, in monthly ------ installments, an annual base salary of $155,000 for the one-year period commencing on the Commencement Date. Such salary shall be subject to adjustment thereafter as determined by mutual agreement between the Board and the Executive. 3.2 Bonus and Fringe Benefits. The Executive shall be entitled to ------------------------- participate in all bonus and benefit programs or plans that the Company establishes -2- and makes available to its employees to the extent that the Executive's position, tenure, salary, and other qualifications make him eligible to participate. 3.3 Reimbursement of Expenses. The Company shall reimburse the ------------------------- Executive for all reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other supporting information as the Company may reasonably request, provided, however, that the amount -------- ------- available for such travel, entertainment and other expenses may be fixed in advance by the Board. 3.4 Insurance. The Executive shall be entitled to health insurance --------- coverage, term life insurance and long term disability insurance to the extent that the Executive's position, tenure, salary, age, health and other qualifications make him eligible to participate. 3.5 Vacation. The Executive shall be entitled to six weeks paid -------- vacation per year. 4. Employment Termination. The employment of the Executive by the ---------------------- Company pursuant to this Agreement may be terminated under the following circumstances: 4.1 Expiration of Term. Expiration of the Employment Period in ------------------ accordance with Section 2. 4.2 Death. Upon the death of the Executive. ----- 4.3 Disability. If, as a result of the Executive's incapacity due to ---------- physical or mental illness, the Executive shall have failed to perform the services contemplated under this Agreement for a period of 270 consecutive days, or a total of at least 300 -3- calendar days during any 365-day period, or a determination of disability shall have been made by a physician satisfactory to both the Executive and the Company, provided that if the Executive and the Company do not agree on a physician, the Executive and the Company shall each select a physician and these two together shall select a third physician whose determination as to disability shall be binding on both parties. 4.4 Cause. The Company may terminate the Executive's employment ----- hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder in the ----- event: (i) the Executive shall have willfully failed and continued to fail substantially to perform the duties (other than any failure resulting from the Executive's incapacity due to physical or mental illness or any actual or anticipated failure after the issuance by him of a Notice of Termination, as defined in Section 4.6), for 30 days after a written demand for performance is delivered to the Executive on behalf of the Company which specifically identifies the manner in which it is alleged that the Executive has not substantially performed his duties; provided that the Company's economic performance or -------- failure to meet any specific projection shall not, in and of itself, constitute "Cause"; or ----- (ii) the Executive shall have engaged in (A) any material misappropriation of funds, properties or assets of the Company, it being understood that "material" for these purposes shall take into -------- account both the amount of funds, properties or assets misappropriated and the circumstances thereof (including the intent of the Executive in connection therewith) or (B) - 4 - any malicious damage or destruction of any property or assets of the Company, whether resulting from the Executive's wilful actions or omissions or the Executive's gross negligence; or (iii) the Executive shall (A) have been convicted of a crime involving moral turpitude or constituting a felony or (B) entered a plea of nolo contendere to any such crime, either of which has had a material adverse effect upon the business of the Company; or (iv) the Executive shall have (A) materially breached his obligations under Section 6 hereof or (B) breached any of the other material provisions of this Agreement and such breach shall remain uncured by the Executive within 30 days following receipt of notice from the Company specifying such breach. 4.5 Termination by the Executive. The Executive may terminate his ---------------------------- employment hereunder (i) upon 90 days written notice or (ii) for Good Reason (as defined below). For purposes of this Agreement, "Good Reason" shall exist if there is ----------- a Change in Control (as defined below) of the Company and one or more of the following events shall have occurred (without the Executive's express written consent): (a) the assignment to the Executive of any duties inconsistent with his status as President or Chief Operating Officer of the Company, his removal from the position of President or Chief Operating Officer of the Company, or a substantial alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change in Control; (b) a reduction by the Company of the Executive's annual base salary in effect on the date immediately prior to the Change in Control; (c) the relocation of the Company's principal executive offices to a location outside mid-town New York City or a requirement that the Executive shall be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with his business travel obligations prior to the Change in Control; (d) the failure by the Company to continue in effect any bonus plan in which the Executive was participating immediately prior to the Change in Control; or (e) the failure by the Company to continue to provide the Executive with benefits at least as favorable as those enjoyed by him under any of the Company's pension, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which he was participating at the time of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive him of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which he was entitled at the time of the Change in Control. -6- For purposes of this Agreement, a "Change in Control" of the Company ----------------- shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended. 4.6 Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than termination pursuant to Section 4.2) shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of --------- Termination" shall mean a written notice which shall indicate the specific ----------- termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances which provide a basis for termination of the Executive's employment under the provision so indicated. 4.7 Date of Termination. "Date of Termination" shall mean (i) if the ------------------- ------------------- Executive's employment is terminated pursuant to Section 4.1, the date on which the Employment Period expires pursuant to Section 2, (ii) if the Executive's employment is terminated pursuant to Section 4.2, the date of the Executive's death, (iii) if the Executive's employment is terminated pursuant to Section 4.3, 30 days after the Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such 30 day period), (iv) if the Executive's employment is terminated pursuant to Section 4.4 or subsection (i) of Section 4.5, the date specified in the Notice of Termination, provided that in the case of a Section 4.4 termination it is at least 30 days subsequent to the date of the issuance of such Notice of Termination and in the case of a subsection (i) of Section 4.5 termination it is at least 90 days subsequent to the date of the issuance of such -7- Notice of Termination, (v) if the Executive's employment is terminated pursuant to subsection (ii) of Section 4.5, the date specified in such Notice of Termination, and (vi) if the Executive's employment is terminated other than as provided herein, the date specified in the Notice of Termination, provided that it is at least 30 days subsequent to the date of the issuance of such Notice of Termination. 5. Compensation Upon Termination. ----------------------------- 5.1 If the Executive's employment is terminated under the provisions of Sections 4.1, 4.4 or subsection (i) of Section 4.5, the Company shall pay to the Executive his full salary, bonus and benefits through the Date of Termination. 5.2 If the Executive's employment is terminated by the Executive's death under the provisions of Section 4.2, the Company shall pay to the Executive's estate the Executive's full salary, bonus and benefits to the Executive through the Date of Termination. 5.3 If the Executive's employment is terminated under the provisions of Section 4.3, the Company shall pay to the Executive his full salary, bonus and benefits through the Date of Termination. During any period that the Executive fails to perform his duties hereunder as a result of disability (as defined in Section 4.3), the Executive shall continue to receive his full salary, bonus and benefits through the Date of Termination. 5.4 If the Company shall terminate the Executive's employment other than as provided herein or the Executive shall terminate his employment pursuant to subsection (ii) of Section 4.5, then: (i) The Company shall pay the Executive his full salary, bonus and benefits through the Date of Termination. -8- (ii) Subject to subsection (iv) of this Section 5.4, in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay as severance pay to the Executive an amount equal to the remainder of the salary, bonus and value of the fringe benefits which the Executive would be entitled to receive for the balance of the Employment Period. (iii) The Company shall pay all other damages to which the Executive may be entitled as a result of such termination, including damages for any and all legal fees and expenses incurred by him as a result of such termination. (iv) In the event that (A) any payment or benefit received or to be received by the Executive in connection with a Change in Control of the Company or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company) (collectively referred to herein as "Severance Payments") would not be deductible (in whole or part) as a ------------------- result of section 280G of the Internal Revenue Code of 1986, as amended, (the "Code") by the Company, an affiliate or other person ---- making such payment or providing such benefit and (B) it shall be determined that the net amount retained by the Executive, after deduction of the excise tax imposed by section 4999 of the Code and any federal, state and local income and employment taxes on the Severance Payments, does not exceed 110% of the net amount retained by the Executive after applying the limitations of this subsection (iv) of Section 5.4 and after deduction of any federal, state and local income and employment taxes on the -9- Severance Payments as so reduced, the Severance Payments shall be reduced until no portion of the Severance Payments is not deductible, or the Severance Payments are reduced to zero. For purposes of this limitation (i) no portion of the Severance Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the date of payment of the Severance Payments shall be taken into account, (ii) no portion of the Severance Payments shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Executive does not constitute a "parachute payment" within the meaning of ----------------- section 280G(b)(2) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Severance Payments (other than those referred to in clauses (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the tax counsel referred to in clause (ii); and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Severance Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the income taxes on the Severance Payments, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Severance Payments are to be made and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence -10- on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. 6. Proprietary Information and Developments. ---------------------------------------- 6.1 Proprietary Information. ----------------------- (i) The Executive agrees that all information and know how, whether or not in writing, of a private, secret or confidential nature concerning the Company's business or financial affairs (collectively, "Proprietary Information") is and shall be the exclusive property of ----------------------- the Company. By way of illustration, but not limitation, Proprietary Information may include inventions, products, processes, methods, techniques, projects, developments, plans, research data, financial data, personnel data, and lists of borrowers, advertisers, fleet and taxi owners. The Executive will not disclose any Proprietary Information to others outside the Company or use the same for any unauthorized purposes without written approval by the Board, either during or after his employment, unless and until such Proprietary Information has become public knowledge without fault by the Executive. (ii) The Executive agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, or other written, photographic, or other tangible material containing Proprietary Information, whether created by the Executive or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company to be used by the Executive only in the performance of his duties for the Company. (iii) The Executive agrees that his obligation not to disclose or use information, know-how and records of the types set forth in subsection (i) and -11- (ii) above, also extends to such types of information, know-how, records and tangible property of borrowers, advertisers, fleet and taxi owners or other third parties who may have disclosed or entrusted the same to the Company or to the Executive in the course of the Company's business. 6.2 Other Agreements. The Executive hereby represents that he is not ---------------- bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. The Executive further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. 7. Non-Competition, Non-Solicitation. --------------------------------- 7.1 Non-solicitation of Employees. The Executive agrees that during ----------------------------- the term of the Executive's employment with the Company and for a period of one year after the termination of the Executive's employment with the Company for any reason, the Executive shall not directly recruit, solicit or otherwise induce or attempt to induce any employees of the Company to leave the employment of the Company. 7.2 Non-competition. The Executive agrees that during the term of --------------- the Executive's employment with the Company and for a period of one year after the termination of the Executive's employment with the Company for any reason, the Executive shall not directly or indirectly, except as a passive investor in publicly held companies and except for investments held at the date hereof, engage in competition -12- with the Company or any of its subsidiaries, or own or control any interest in, or act as director, officer or employee of, or consultant to, any firm, corporation or institution directly engaged in competition with the Company or any of its subsidiaries; provided the Company or one of its subsidiaries are actively engaged in such business at the time the Executive's employment by the Company is terminated. 8. Miscellaneous. ------------- 8.1 Notices. All notices required or permitted under this Agreement ------- shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 8.1. 8.2 Pronouns. Whenever the context may require, any pronouns used in -------- this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 8.3 Entire Agreement. This Agreement constitutes the entire ---------------- agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 8.4 Amendment. This Agreement may be amended or modified only by a --------- written instrument executed by both the Company and the Executive. 8.5 Governing Law. This Agreement shall be construed, interpreted ------------- and enforced in accordance with the laws of the State of Delaware. 8.6 Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to -13- its assets or business, provided, however, that the obligations of the Executive are personal and shall not be assigned by him. 8.7 Waivers. No delay or omission by the Company in exercising any ------- right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 8.8 Captions. The captions of the sections of this Agreement are for -------- convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 8.9 Severability. In case any provision of this Agreement shall be ------------ invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. -14- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. MEDALLION FINANCIAL CORP. By: /s/ Alvin Murstein --------------------------------------- Title: Chairman and Chief Executive Officer -------------------------------------- EXECUTIVE /s/ Andrew Murstein -------------------------------------------- Andrew Murstein -15- EX-10.23 8 SECURITY AGREEMENT 1ST BANK & EDWARDS Exhibit 10.23 SECURITY AGREEMENT FOR OWN OBLIGATIONS DATE: OCTOBER 31, 1996 -------------------------- The undersigned Edwards Capital Corp. --------------------------------------------------- (Name) ("Obligor") in - ----------------------------------------------- consideration of financial accommodations given or to be given or continued by FIRST BANK OF THE AMERICAS ("Bank") to Obligor, hereby agrees with ("Bank") as follows: I. GRANT OF SECURITY INTEREST A. Collateral. As collateral security ("Collateral") for the payment ---------- when due of all Obligations, as defined below, Obligor hereby pledges, assigns and transfers to Bank and grants to Bank a continuing lien upon and security interest in all of Obligor's right, title and interest now owned and hereafter acquired in: (1) the following property ("Assets") described on the line(s) marked with an "X" below (if no line is marked, "Assets" shall mean the property described in the paragraph titled "ALL"): X ALL. All Equipment, Accounts, Inventory, Securities, Deposit Accounts ---- --- and Other Property described herein (whether or not the line opposite any such definition is marked, such definitions being herein incorporated by reference) and in any separate schedules at any time delivered by Obligor to Bank; SCHEDULED ASSETS. All of the assets described below or in any ---- ---------------- schedule hereto and in any separate schedule at any time delivered from Obligor to Bank: ---------------------------------------------------------------------- ---------------------------------------------------------------------- X ALL ACCOUNTS. All accounts, instruments, chattel paper, contracts, ---- ------------ contract rights, accounts receivable, tax refunds, notes, notes receivable, drafts, acceptances, documents, general intangibles, and other choses in action (not including wages or salary), including but not limited to proceeds on inventory and returned goods and proceeds from the sale of goods and services, and all rights, liens, securities, guaranties, remedies and privileges related thereto, including the right of stoppage in transit and rights and property of any kind forming the subject matter of any of the accounts ("Accounts"); DEPOSIT ACCOUNTS. ---------------- SAVINGS ACCOUNT #: _________________ DEMAND ACCOUNT #: _________________ CERTIFICATE OF DEPOSIT ACCOUNT #: _________________ OTHER #: _________________ deposited with or payable by Bank in the names of Obligor or in which Obligor has an interest, including all sums now or at any time hereafter on deposit to said account(s), and any renewals, extensions or replacements thereof and all other property which may from time to time be acquired directly or indirectly using the proceeds of such account(s) ("Deposit Accounts"); X ALL EQUIPMENT. All machinery, equipment, furniture, fixtures ---- ------------- (whether or not attached to real property), supplies and the other personal property of Obligor (other than inventory), including any leasehold interest therein and all replacement parts and annexations thereto and any maintenance agreements applicable thereto ("Equipment"); X ALL INVENTORY. All inventory of every type or description, ---- ------------- wherever located, including but not limited to all raw materials, parts, containers, work in process, finished goods, wares and merchandise, and goods returned for credit, repossessed, reclaimed or otherwise acquired by Obligor and all products and proceeds thereof including but not limited to sales proceeds of any kind ("Inventory"); X ALL SECURITIES. All stocks, bonds, and other securities, and all ---- -------------- dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange, substitution or addition to any such securities or any of such additional securities and all certificates, cash and property arising out of any stock dividend declared or any stock split made, or cash or other property distributed in connection with any partial or total liquidation or dissolution or in connection with a reduction in capital, capital surplus or paid-in surplus of property other than cash and distributed as a dividend ("Securities"); X ALL OTHER PROPERTY. All property, other than real property, ---- ------------------ Equipment, Accounts, Inventory, Securities and Deposit Accounts, including, without limitation, leases, rents, chattels, leasehold improvements, installment purchase and/or sales contracts, advances, deposits, trademarks, tradenames, licenses, patents, insurance proceeds and cash value, and all intellectual - 2 - property, choses in action and other general intangibles ("Other Property"); and (2) all proceeds (including insurance proceeds) and products of Assets: and (3) all liabilities or claims from Obligor to Bank; and (4) all accounts, property, securities, monies or other property of any description which may at any time be assigned or delivered or come into possession of Bank for any purpose for the account of Obligor, or as to which Obligor may have any right or power, and property in the possession or custody of or in transit to anyone for the account of Bank, as well as all proceeds and products thereof, and (5) all of the books and records and documents of title pertaining to any of the Assets. B. Obligations. "Obligations" means all present and future loans, ----------- advances, debt, liabilities, extensions of credit, covenants, duties, Indemnities and other obligations to Obligor or owing by Obligor to Bank, whether direct, indirect (by way of endorsement, guaranty, pledge or otherwise), liquidated, unliquidated, fixed, contingent, or howsoever arising (including, without limitation, any participation by Bank in any obligation owing from Obligor to any third party, whether now existing or hereafter incurred to or otherwise acquired by Bank, whether or not evidenced by any document, and whether held for Obligor's account or for another or others, and all obligations of Obligor hereunder or under any other agreement with Bank related hereto, including, without limitation all interest, charges, expenses, fees, indemnities, attorneys' fees and other amounts chargeable to or payable by Obligor hereunder or thereunder. The Obligations shall include new and additional credit facilities for Obligor, whether or not such facilities are presently contemplated. C. Other Terms. Terms used and not otherwise defined herein shall have ----------- the meaning ascribed to such terms by the Uniform Commercial Code. II. REPRESENTATIONS AND WARRANTIES Obligor represents and warrants that, except as previously expressly disclosed in writing from Obligor to Bank: A. Authority. Obligor is duly organized (and, if a corporation --------- incorporated in the jurisdiction of its incorporation) and qualified to do business in all places where its activities or its ownership of property, or both, require such qualification and Obligor will supply opinions to counsel to such effect if requested by Bank. None of the terms and conditions hereof, or of any other agreement executed by Obligor and Bank, is in violation of the charter or by- - 3 - laws of Obligor, or any contractual obligation Obligor may have with Bank or any third party; the execution and delivery of this Agreement have been duly authorized by appropriate corporate, partnership, governmental or other action. All approvals of and registrations with all governmental entities appropriate in connection with the execution, performance and enforcement hereof have been obtained or made. Obligor will deliver to Bank a written opinion of counsel as to the legal property of such action, if requested by Bank. B. Subsidiaries. The Obligor has no subsidiaries (meaning corporations ------------ of which Obligor directly or indirectly owns or controls more than 50% of any class of the capital stock or of the voting rights in any class thereof). C. Litigation. No litigation or other proceeding before any court or ---------- administrative agency is pending or, to the knowledge of Obligor, threatened against Obligor, the outcome of which could materially impair Obligor's financial condition or its ability to carry on its business. Obligor is not the subject of any bankruptcy, insolvency, reorganization, custodial, receivership or similar proceedings nor subject to the continuing jurisdiction of any court as the result of any such proceeding. D. Financing Statements. No financing statements, other than in favor of -------------------- Bank, relating to any of the Collateral is on file in any place. E. Assurance of Title. Obligor is and will remain the owner of all of ------------------ the Collateral, or if proceeds of any financial accommodation secured hereby are being used to purchase the Collateral. Obligor will be the owner thereof, free and clear of all claims, encumbrances, charges and liens, except as herein provided. F. Addresses. The chief executive office, principal place of business of --------- Obligor, the books and records relating to the Collateral, and the Collateral are located at the address(es) set forth in this Agreement. G. ERISA. Obligor has no funding deficiency, undisclosed liability or ----- lien, and no "reportable event" has occurred, under or as defined in or granted by the Employee Retirement Security Act of 1974, as amended, nor has any benefit or pension plan subject to such act been terminated. H. Tax Liens. There are no unpaid Federal, State, City, County, or other --------- tax liens presently filed against Obligor and there are no outstanding personal property taxes of any kind. III. COVENANTS Obligor covenants and agrees that: - 4 - A. Recording and Legal Costs. Obligor will pay all recordation costs and ------------------------- taxes incident to filing of financing statements and continuation statements in respect hereof, and all other expenses, including attorneys' fees, incident to the Obligations and to perfecting Bank's security interests in the Collateral. B. Further Documents and Actions. Obligor will endorse, execute and ------------------------------ deliver to Bank all instruments or documents, including but not limited to mortgages, loss payment endorsements for insurance policies, assignments of insurance policies and proceeds, remittances, invoices, assignments, notices to debtors, bills of lading, storage receipts, notices to suppliers, checks, instruments of payment and all related documentation of any kind, and do all things necessary or convenient in the sole discretion of Bank to carry into effect the provisions of this Agreement or to create, preserve or perfect any interest granted hereby or to enable or assist Bank to exercise and enforce its rights hereunder or in connection herewith or with the Obligations and to facilitate collection of Collateral. Obligor authorizes Bank to file any financing statement or continuation statement in such form, with or without Obligor's name signed thereon, and in such places as may be appropriate. Obligor agrees that filed photocopies of financing statements and continuation statements shall be sufficient to perfect Bank's security interests hereunder. C. Taxes. Obligor will pay and discharge, when due, all taxes, levies, ----- liens, and other charges on its assets and on the Collateral, and will pay promptly when due all other taxes, including withholding taxes. Obligor authorizes Bank to pay for the account of Obligor, any taxes, levies, or other charges affecting Obligor's assets which Obligor fails to pay, and any such payment shall constitute an Obligation. D. Laws. Obligor will comply at all times with all laws, ordinances, ---- rules and regulations of any Federal, State, municipal or other public authorities having jurisdiction of Obligor or any of its assets. E. Name and Location. Obligor will immediately advise Bank in writing of ----------------- the opening of any new executive office or place of business or the closing of any such office or place, and of any change in Obligor's name or the places where the Collateral, or books and records pertaining to the Collateral, are kept. F. Records. Obligor will maintain such records with respect to ------- Collateral and the conduct and operation of its business as is usual or as Bank may request and will furnish Bank all information with respect to the Collateral, account debtors, and the conduct and operation of its business including but not limited to, balance sheets, operating statements and other financial information, as Bank may request. G. Inspection. Bank or any of its representatives may from time to time ---------- inspect, check, make copies of or extracts from the books, records and files of - 5 - Obligor, and inspect any of the Collateral wherever located. Obligor will cooperate at any time for such purposes. H. Insurance. Obligor will have and maintain insurance on the Collateral --------- at all times and against hazards with companies, in amounts and in form acceptable to Bank but without any responsibility of the Bank for the adequacy thereof, with the insurance policies endorsed to make same payable first to Bank, as its interest may appear, as lender loss payee or other additional insured (as Bank may select), and will deliver such policies to Bank. If any insurance losses are paid by check, draft or other instruments payable to Obligor and Bank jointly, Bank may endorse the name of Obligor thereon and do such other things as it may deem desirable in order to reduce the same to cash. All loss recoveries received by Bank upon any insurance may be applied and credited by Bank at its discretion to the Obligations. I. Bank's Duty of Care. Except as herein provided in this Section III ------------------- (I), Bank's sole duty with respect to the Collateral shall be to use reasonable care in the custody, use, operation and physical preservation of Collateral in its possession, and Obligor shall, as an Obligation, reimburse the Bank for all costs and expenses, including insurance costs, taxes and other charges, incurred in connection with the custody, use, operation, care or physical preservation of the Collateral. In the event that Bank takes possession of the Collateral, Bank may, but shall be under no obligation to, take such actions as it may deem appropriate to protect Collateral by insurance or otherwise. Bank shall incur no liability to Obligor for any act of government, act of God, robbery, vandalism, war, insurrection, riot, civil unrest, fire, flood or other destruction in whole or part or negligence or wrongful act of custodians or agents, or its failure to provide adequate protection or insurance of Collateral. Bank shall have no obligation to take any action to preserve any rights in any of the Collateral against prior parties, and Obligor hereby agrees to take such action. Obligor shall defend the Collateral against all such claims and demands of all persons, at all times, as are adverse to Bank. Bank shall have no obligation to realize upon any Collateral as authorized herein or by law. Obligor hereby waives the defense of unjustifiable impairment of Collateral. J. Collateral Account. If Bank so requests, all proceeds of Collateral ------------------ shall be delivered to Bank (or any other bank designated by Bank) in an account designated as "FIRST BANK OF THE AMERICAS, (name of Obligor), Collateral Account" or other designation requested by Bank. Obligor will receive all proceeds of Collateral as agent of and in trust for Bank and will transmit to Bank, on the day thereof, or at other mutually agreed upon intervals, all cash, original checks, drafts, acceptance, notes and other evidence of payment received in payment of or on account of Accounts. Until delivery, Obligor shall keep all such proceeds separate and apart from Obligor's own funds, capable of indemnification as the property of Bank, and shall hold the same in trust for Bank. All proceeds shall be accompanied by a report in such form as Bank shall require. Obligor's name appears for - 6 - identification purposes only. Funds in the Collateral Account shall not be subject to withdrawal by Obligor, but shall at all times be subject to the control of Bank. All funds held in the Collateral Account may be applied against Obligations at the sole discretion of Bank. K. Equipment. With respect to any security interest hereunder in --------- Equipment, as defined in Section I (A) whether or not the line opposite such definition is marked: (1) Repair. Obligor will keep and maintain the Equipment in working ------ condition, good order and repair. (2) Personalty. The Equipment shall be and shall remain personal ---------- property and nothing shall affect the character of the same or cause the same to become realty, or prevent Bank in its option from removing same from premises on which Equipment may become attached. (3) Paydown. Without the prior written consent of Bank, Obligor will ------- not sell or otherwise dispose of any of the Equipment without paying to Bank, in reduction of the Obligations, an amount equal to the greatest of book value, appraised value or sales price of the Equipment sold or disposed of. L. Accounts. With respect to any security interest hereunder in -------- Accounts, as defined in Section 1 (A) whether or not the line opposite such definition is marked: (1) Payment. Each Account will be paid in full on or before its due ------- date, and if not so paid and if requested by Bank, Obligor shall pay to Bank on or to the Collateral Account an amount equal to the past-due amount. (2) Credits. If any allowance or credit on any Account is given by ------- Obligor, then Obligor will, if requested by Bank, pay the same immediately to Bank or to the Collateral Account. (3) Returns. If any property evidenced by an Account should be ------- returned by Obligor, the Obligor will hold the same in trust as security for and subject to the orders of Bank (including to sell or otherwise dispose thereof) and Obligor will, if requested by Bank, pay the amount represented to be owing on the rebated Account immediately to Bank or to the Collateral Account. (4) Bona Fide. Each and every Account will be bona fide, be for a --------- certain undisputed claim or demand for the amount Obligor represented to be owing thereon, represent a sale and delivery of personal property sold or leased or for services rendered, and not be subject to any setoff, - 7 - counterclaim, or contingent liability upon the fulfillment of any contract or condition whatsoever. (5) Books. Obligor will keep accurate records of Accounts and ----- cooperate with any inspection thereof requested by Bank, and shall deliver such books and all papers relating to the Accounts to Bank on request. If requested, Obligor will make proper entries in its books disclosing the interest of Bank in the Accounts. (6) Mail. If Bank requests, Obligor will open all mail only in the ---- presence of Bank, who may take therefrom any remittance on Accounts. Obligor grants Bank the power of attorney to have mail delivered to Bank, and not to Obligor, and to open all mail and take therefrom any remittance on any Accounts. If Bank requests for such purpose, Obligor will provide Bank with access to any postal boxes or area in which mail is received. (7) Collections. Bank authorizes and permits Obligor to collect ----------- Accounts from debtors. This privilege may be terminated by Bank at any time without notice of Obligor before or after default hereunder, and Bank may notify any debtor or debtors of the assignment of Accounts and collect the same. Obligor will at any time requested by Bank, notify any or all Account debtors to make payment of their Accounts directly to Bank or for deposit to the Collateral Account. M. Inventory. With respect to any security interest hereunder in --------- Inventory, as defined in Section I (A) whether or not the line opposite such definition is marked: (1) Audit. Bank business, but shall or its representative may from ----- time to time verify Inventory, through actual count or otherwise, and Obligor. (2) Sale. So long as no Event of Default has occurred hereunder, ---- Inventory may be sold in the ordinary course of business, but shall not otherwise be taken or removed from Obligor's premises. N. Securities. With respect to any security interest hereunder in ---------- Securities, as defined in Section I (A) whether or not the line opposite such definition is marked: (1) Transfers. All certificates or instruments representing or --------- evidencing such securities (or, if any such securities are uncertificated, transfer and pledge instructions and notifications) shall be delivered to Bank and shall be in suitable form and quantity and otherwise in form and substance satisfactory to Bank; Bank is hereby authorized, at its option and without any obligation to do so, to deliver to the issuer of any such securities or any other party and to pledge and/or transfer instructions - 8 - and notifications with respect thereto, and to transfer to or register in the name of itself or its nominee(s) all or any part of such securities, and to do so before or after any Event of Default hereunder or the maturity of the Obligations secured hereby, with or without notice to Obligor; Bank shall have the right at any time to exchange certificates or instruments representing or evidencing such securities for certificates or instruments of smaller or larger denominations. (2) Dividends. In the event that a stock or cash dividend is --------- declared, or any stock split-up made, with respect to any security pledged hereunder, or cash or other property is distributed in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, all the certificates (or, if uncertificated, transfer and pledge instructions and notifications) for the shares representing such stock dividend or stock split-up and all of such cash and other property, will be delivered duly endorsed to Bank as Collateral hereunder. O. Additional Collateral. Obligor will upon request of Bank deliver to --------------------- Bank and will at all times maintain with Bank Collateral in an amount and of a character satisfactory to Bank. For such purposes the value of any Collateral shall be determined by Bank in its sole discretion. P. Further Covenants. Without the prior written consent of Bank, Obligor ----------------- will not: (1) pledge or grant any Collateral to anyone except Bank, nor permit any financing statement (except Bank's financing statement) to be on file in any public office with respect thereto; (2) permit or suffer any lien, levy or other encumbrance to attach to any of the Collateral; (3) permit a material change in any Account or account arising out of a contract right, or a material change in the terms of any such contract; (4) make any agreement, compromise, settlement, bulk sale, lease or transfer of assets other than in the normal course of business; (5) assume, guarantee, endorse or otherwise become liable in connection with the obligations of any person, firm or corporation, except by endorsement of instruments for deposit or collection or similar transactions in the ordinary course of business; or (6) enter into any merger or consolidation, or sell or lease substantially all of its assets. IV. EVENTS OF DEFAULT The following shall constitute Events of Default hereunder: A. Nonperformance. Default in the payment or performance when due of, or -------------- breach of warranty in, this Agreement, any Obligation, or any note or other agreement evidencing Obligations or any other agreement of Obligor with Bank or with any other lending institution, whether or not such agreement exists presently; - 9 - B. Termination of Interest. Lapse or termination of Obligor's interest ----------------------- in any of the Collateral other than through sales of Inventory or other use of Collateral in the ordinary course of business; C. Extraordinary Events. The sale, dissolution, merger, consolidation, -------------------- liquidation, death, incompetence, insolvency or reorganization of Obligor (or any endorser, guarantor or co-maker of any Collateral or Obligations); D. Legal Action, etc. Any proceeding is commenced for the enforcement of ------------------ any judgment against Obligor or its property or any judgment is obtained against Obligor which, in the sole opinion of Bank, might have material adverse effect on the financial condition or continued operations of Obligor or which remains unsatisfied for thirty days; or any petition is filed by or against Obligor (or any endorser, guarantor or co-maker of any Collateral or Obligations) (1) under any chapter of the Bankruptcy Code as amended, or any other bankruptcy, insolvency or similar law, or (2) for the appointment of a receiver or custodian of any of Obligor's property; or any assignment is made by Obligor for the benefit of creditors; or any attachment or tax lien is filed against any property of Obligor (or any endorser, guarantor or co-maker of any Collateral or Obligations), such lien or attachment not being promptly discharged, stayed or indemnified against to Bank's satisfaction; E. Additional Collateral. Failure of Obligor to furnish additional --------------------- Collateral as Bank may request; and F. Financial Condition: Insecurity. Any adverse charge, determined by -------------------------------- Bank in good faith, in financial condition or insolvency, suspension of business, or business failure of Obligor (or any endorser, guarantor or co-maker of any Collateral or Obligations); or Bank in its sole discretion deems itself insecure, whether or not by decline in value of Collateral or the anticipation thereof and whether or not by reason of circumstances existing prior to the creation of any Obligation or any other time. V. CERTAIN RIGHTS; EFFECT OF EVENT OF DEFAULT A. Obligations Due; Commitments Terminated - If an Event of Default shall --------------------------------------- occur, then, notwithstanding any other agreement now or hereafter existing, all Obligations shall become immediately due and payable without notice, presentation, demand for payment or protest, which are hereby expressly waived, and all commitments, if any, of Bank to extend additional financial accommodations shall terminate immediately. B. Costs Reimbursed. If an Event of Default hereunder shall occur, ---------------- Obligor shall pay to Bank attorneys' and paralegal fees equal to 15% of the unpaid balance of the Obligations at the time of default (but not exceeding the amount permitted by applicable law), plus Court costs and other expenses which may be incurred by Bank in the administration hereof during the continuance of any - 10 - Event of Default or the enforcement or attempted enforcement of its rights hereunder, whether against any third party or Obligor (or any endorser, guarantor or co-maker of any Collateral or Obligations). Obligor shall reimburse Bank for all costs of collection including salaries, out-of-pocket, travel and living expenses and the hiring of agents, consultants and accountants. All sums of money thus expended, and all other monies expended by Bank to protect its interests in the Collateral (including insurance taxes or repairs) shall be Obligations payable on demand. C. Action Regarding Collateral. Bank at any time and in its discretion, --------------------------- may remove Collateral to such place as Bank may deem advisable, or require Obligor to assemble and make all Collateral available to such place as Bank may direct, and upon any Event of Default, may sell, re- sell, assign, transfer, lease and deliver or otherwise deal or decline to deal with all or any part of the Collateral, in each case without advertisement, in one or more sales, or such price or prices, and upon such commercially reasonable terms (such as requiring any purchaser of any stock to represent that such purchase is for investment purposes only) either for cash or credit or future delivery as Bank may elect. Obligor authorizes Bank to grant extensions or modifications of terms to or adjust claims of, or make compromise with debtors, guarantors or any other parties with respect to Accounts or any securities, guaranties or insurance or other obligations compromising Collateral without notice to or consent of Obligor, without affecting the Obligations and without liability of the Bank to account. Obligor waives notices of non-payment, protest and all other notices to which Obligor might otherwise be entitled. The proceeds of any such liquidation less all costs and expenses incurred in connection therewith, and, at the option of the Bank, less any prior lien claims, shall be applied against the Obligations in the order that Bank in its sole discretion shall decide. Obligor shall remain liable to Bank for any deficiency. D. Bank Appointment Attorney-In-Fact. Obligor hereby appoints Bank the --------------------------------- attorney-in-fact of Obligor with full power in the name and on behalf of Obligor to take any action and to execute and deliver any agreement or instrument (including financing statements) which the Bank may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. All acts of said attorney are hereby ratified and approved and said attorney and its designees shall not be liable, and Obligor shall hold same harmless from liability for, any acts or failure to act, or for any error of judgment or mistake of law or fact. E. Set-Off. Obligor authorizes Bank to charge and apply against any or ------- all of the Obligations at any time or times, without notice and at its option, the balance of any demand or depository accounts which Obligor, or its affiliates, may have with Bank, all without impairing Obligor's liability for any deficiency. VI. GENERAL PROVISIONS - 11 - A. Continuity and Termination. This Agreement shall become effective -------------------------- immediately, shall be continuing and remain in effect notwithstanding any intermittent absence of Obligations. This Agreement may be terminated by Obligor upon actual delivery of written notice to Bank and payment in full of all then existing Obligations; provided, however, that such notice and payment shall in no way affect, and this Agreement shall remain fully operative with respect to, any Obligations, or any Obligations which may thereafter arise in connection with any commitments of the Bank to extend financial accommodations to Obligor entered into between Obligor and Bank prior to receipt of such notice or payment, whichever is later. The indemnities of Obligor to Bank hereunder shall survive any termination hereof. B. Other Documents. All Obligations and all notes, guaranties, or other --------------- documents evidencing Obligations are separate agreements and may be negotiated, executed, modified, cancelled or released by Bank without releasing Obligor or Collateral (or any endorser, guarantor or co- maker of any Collateral or Obligations). Obligor consents to any extension of time of payment of any Obligations and all actions or inactions with respect thereto or to any Collateral, guaranties or other security therefor. If there is more than one Obligor, endorser, guarantor or co-maker of this Agreement or of the notes or other agreement secured hereby, the obligation of all shall be primary, joint and several. C. Remedies Cumulative. All rights, remedies and powers of Bank ------------------- hereunder and in connection herewith are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all other rights, remedies and powers of Bank whether under law, equity or agreement. D. Consideration: No Commitment. Obligor has entered into this ----------------------------- Agreement to induce Bank to extend or continue financial accommodation to Obligor, which shall be deemed to have been expended or continued in reliance on this Agreement. Nothing contained herein shall be construed as obligating Bank to extend or continue any financial accommodation to Obligor, and Obligor is not relying upon Bank to extend or continue any financial accommodation, which shall, unless otherwise expressly agreed, remain within the discretion of Bank. E. No Waiver. No waiver or amendment of or forbearance to enforce any of --------- Bank's rights hereunder shall be effective unless expressly granted in writing and shall be limited to the extent expressed therein. No delay on the part of Bank in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Bank of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. Bank may from time to time, whether before or after any of the Obligations shall become due and payable, without notice to or demand of, and without any reservation of rights against, all of which the Obligor (and any endorser, guarantor or co-maker) hereby acknowledged to be reserved, at the expense of Obligor, take all or any of the following actions (a) retain or obtain a security - 12 - interest in any property, in addition to the Collateral, to secure any of the Obligations; (b) retain or obtain the primary or secondary liability of any party or parties, in addition to the Obligor, with respect to any of the Obligations; (c) renew, extend, accelerate, modify, compromise, settle, release or surrender any Obligation or any obligations of any other party primarily or secondarily liable for all or any part of the Obligations with respect to any or all of the Obligations; (d) renew, extend, accelerate, modify, compromise, settle, release or surrender all or any part of any property, in addition to the Collateral, securing any of the Obligations or any obligations of any nature of any party with respect to any such property; (e) resort to the Collateral for payment of any of the Obligations whether or not it shall have resorted to any other property securing the Obligations or shall have proceeded or exhausted its remedies against any other party primarily or secondarily liable on any of the Obligations; or (f) release or substitute any of the undersigned or any other party primarily or secondarily liable for all or any part of the Obligations. F. Governing Law; Severability. This Agreement shall be governed by and --------------------------- construed in accordance with the laws of the State of New York. Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. G. Litigation. Notwithstanding any termination hereof, Obligor hereby ---------- irrevocably agrees that any action or proceeding in connection herewith may be brought in any state or federal court in the State of New York and irrevocably submits to the non-exclusive jurisdiction of such courts in such actions Obligor waives trial by jury. Obligor consents to service of process by mail in any such action and to the removal to any such courts by Bank of any action brought in any court other than one selected by Bank, in its sole discretion, as the venue of such action. Obligor waives and agrees not to raise any present or future counterclaim or any claim it may have that any such court is not a convenient forum. H. Construction. The captions in this Agreement are for convenience only ------------ and shall not affect the construction or interpretation hereof. I. Assignment. This Agreement shall enure to and be binding upon the ---------- heirs, personal representatives, successors, and assigns of Obligor and Bank and the terms "Obligor" and "Bank" shall include and mean, respectively, the successors and assigns of Obligor and Bank. Obligor shall have no right to assign this Agreement without the prior written consent of Bank. Bank may assign its rights hereunder in full or in part. - 13 - J. Reasonable Notice. Five (5) business days notice shall be ----------------- conclusively deemed reasonable notice. Notice shall be deemed given when delivery deposited in the U.S. mail with first class postage. VII. ADDRESSES Address of Chief 205 East 42nd Street --------------------------- Executive Office New York (212) 682-3300 ---------------------------- --------------------- (Telephone) Address of Location of ---------------------- Books and Records ---------------------------- --------------------- (Telephone) Other Address(es) of ---------------------- Location of Collateral ---------------------------- --------------------- (Telephone) IN WITNESS WHEREOF, Obligor has duly executed this Agreement as of the day and year first above written. WITNESS/ATTEST: IF OBLIGOR IS A BUSINESS, SIGN BELOW: Edwards Capital Corp. ------------------------------------------ (Name of Obligor) By: /s/ M. J. Kowalsky ---------------------------------------- (Authorized Signature) M. J. Kowalsky, President ------------------------------------------ (Print Name and Title) WITNESS: /s/ Marie Russo By: /s/ Daniel Baker ----------------------------------------- (Authorized Signature) Daniel Baker, Treasurer ------------------------------------------ - 14 - WITNESS: /s/ Alvin Murstein IF OBLIGOR IS AN INDIVIDUAL, SIGN BELOW: ------------------------------------ (Signature of Obligor) ------------------------------------ (Print Name) ------------------------------------ (Street Address) ------------------------------------ (City/State) (Telephone) - 15 - EX-10.24 9 MASTER GRID NOTE 31-OCT-96 Exhibit 10.24 MASTER GRID NOTE (SECURED REVOLVING LINE OF CREDIT) $ 3,000,000.00 October 31, 1996 ------------- FOR VALUE RECEIVED, the undersigned, Edwards Capital Corp., DOES HEREBY PROMISE TO PAY on or before June 30 , 1997 to the order of FIRST BANK OF THE AMERICAS (the "Bank"), at its office at 375 Park Avenue, New York, New York 10152, in lawful money of the United States and in immediately available funds, the principal amount of THREE MILLION DOLLARS ($ 3,000,000.00) or, if less, the aggregate unpaid principal amount of all advances (the "Advances") made to the undersigned by the Bank. The undersigned promises to pay interest on the aggregate unpaid principal amount of this Note from the date of the initial Advance until such aggregate principal amount is paid in full, in like money, at said office at a rate per annum equal to, at the option of the undersigned, one and one quarter percent (1.25%) above LIBOR or zero percent (0.0%) above the prime rate set forth by First Bank of The Americas (the "Prime Rate"), on a floating rate basis, such interest to be payable on the first day of each month during the term hereof and on the date of payment in full of this Note. Any amount of principal hereof which is not paid when due, whether after demand or an Event of Default, shall bear interest from the date when due until said principal amount is paid in full, at a rate per annum equal to five percent (5%) above the Rate then in effect. Any change in the interest rate resulting from a change in the Prime Rate shall be effective as of the beginning of the day on which such change in the Prime Rate becomes effective. The undersigned hereby authorizes the Bank to endorse on the grid annexed to this Note all Advances made to the undersigned and all payments of principal and interest in respect to such Advances, which endorsements shall, in the absence of manifest error, be conclusive as to the outstanding principal amount of all Advances; provided, however, that the failure to make such notation with respect to any Advance or payment shall not limit or otherwise affect the obligations of the undersigned under this Note or any other agreement or document delivered in connection therewith. Payments and Computations - ------------------------- The undersigned shall have the right, without penalty, at any time to prepay this Note in whole or, from time to time, in part. The undersigned hereby authorizes the Bank to charge, from time to time, any or all of the undersigned's accounts with the Bank any amounts, which have not been paid when due. Page 1 of 5 If the Bank elects not to extend this line of credit beyond June 30, 1997 the Bank will notify the undersigned in writing and the payment of all Advances under this Note will be extended one time only and shall be due and payable on or before August 31, 1997 provided that there are no events of default under the line or under any other credit facilities extended by the Bank. All computations of interest shall be made by the Bank on the basis of a year of 360 days for the actual number of days occurring in the period for which such interest is payable. Whenever any payment to be made hereunder shall be stated to be due, on a day other than a business day, such payment shall be made on the next succeeding business day, and such extension of time shall in such case be included in the computation of interest. Events of Default - ----------------- Upon the occurrence and continuation of any of the following events (each an "Event of Default"): (i) if any of the Liabilities of the Undersigned (as hereinafter defined) shall not be paid when due, or (ii) if it appears, in the Bank's good faith opinion, at any time that any representation in any agreement or financial or other statement of any Obligor (as hereinafter defined) delivered to the Bank by or on behalf of any Obligor is untrue in any material respect or omits any material fact, or (iii) if a material adverse change, in the Bank's good faith opinion, shall occur in the financial condition of any Obligor, or (iv) if any Obligor shall die or be dissolved, or shall become insolvent (however evidenced), or (v) upon the suspension of business of any Obligor, or (vi) upon the commencement of any proceeding under (or the use of any of the provisions of) Article 52 of the New York Civil Practice Law and Rules by any judgment creditor against any Obligor which has not been stayed or dismissed within 60 days, or with respect to any property of any Obligor, or (vii) upon an assignment for the benefit of creditors by any Obligor, or (viii) upon a trustee or receiver being appointed for any Obligor or for any substantial part of the property thereof, or (ix) upon any proceedings being commenced by or against any Obligor under bankruptcy, reorganization, arrangement of debt, insolvency, receivership, liquidation or dissolution law or statute and, if commenced against any Obligor, such proceedings shall not have been stayed or dismissed within 60 days, or (x) if any governmental authority or any court at the instance thereof shall take possession of any substantial part of the property, or assume control over the affairs or operations of, any Obligor, or (xi) if any indebtedness of any Obligor for borrowed money in an amount in excess of $10,000 shall become due and payable by acceleration or maturity thereof, or (xii) if the undersigned shall be party to any merger or consolidation without the written consent of the Bank, or (xiii) if the undersigned without the written consent of the Bank, shall grant or permit to exist any security interest, pledge, mortgage or lien whatsoever (other than liens which are not material in amount) in or on any of its property or shall file or authorize or permit to be filed in any jurisdiction any financing statement under the Uniform Commercial Code or like document under applicable law other than in the ordinary course of business, or (xiv) if the ratio of Senior Debt + Unsecured Debt/(Subordinated Debt + Tangible Net Worth) for the undersigned shall exceed 1.25, or (xv) if the current ratio of the undersigned shall be less than 3.25, or (xv) if tangible net worth of the undersigned shall be less than $8,750,000 THEN AND Page 2 of 5 IN ANY SUCH EVENT, all Liabilities of the Undersigned shall become at once due and payable, without notice, presentment or demand for payment, all of which are hereby expressly waived. The term "Liabilities of the Undersigned" shall mean the obligations of the undersigned under this Note and any other agreement delivered to the Bank. The term "Obligor" shall include the undersigned and each endorser, guarantor and surety on this Note. Other - ----- The undersigned shall pay all costs and expenses of every kind incurred in connection with the enforcement of any Liabilities of the Undersigned, including reasonable attorney's fees. The undersigned hereby agrees that any legal action or proceeding against it for enforcement of this Note and any other Liabilities of the Undersigned, or any judgment with respect thereto may be brought in the courts of the State of New York, or elsewhere, as the Bank may elect, and the undersigned hereby irrevocably submits to the nonexclusive jurisdiction of each of said courts. The undersigned irrevocably consents to service of process by mail in such action and to the removal to any of such courts by the Bank of any action brought by the undersigned in any court other than the one selected by the Bank in its sole discretion, as the venue of such action. The undersigned waives trial by jury and agrees not to raise any present or future claim it may have against the Bank in any action brought by the Bank to enforce or collect this Note. Any Advance under this Note shall be subject to no material adverse change in the undersigned's financial condition or that of the Obligors in Bank's sole judgment. Until all of the Liabilities of the Undersigned are paid in full, the undersigned hereby agrees to: (i) keep true and complete books, records and accounts; (ii) keep its properties in good repair and maintain adequate insurance against fire, theft and other such risks as is customary with other comparable entities; promptly pay all taxes, unless contested in good faith, as well as all lawful claims for labor, materials and supplies which, if unpaid might become a lien or charge on its properties; (iii) furnish to Bank (a) within 90 days after the end of each fiscal year financial statements audited (certified) by an independent public accounting firm acceptable to Bank, and (b) within 60 days after the close of each fiscal quarter, similar statements certified by the undersigned's Chief Executive Officer, and (c) within 90 days of the close of each fiscal year 10K reports for Medallion Financial Corp., and (d) within 45 days of the close of each fiscal quarter 10Q reports for Medallion Financial Corp.; and execute and deliver such further instruments and documents and perform such further acts as may be necessary or proper, in our opinion, to effectuate the provisions and purposes of the Note and all related Agreements. The undersigned hereby represents and warrants, as of the date of the execution of this Note, that: (i) the undersigned's financial statements submitted to Bank are true and correct and Page 3 of 5 fairly reflect its financial condition as of the date of such statements and no material change has occurred since such date; (ii) the undersigned has filed all tax returns which are required to be filed and has paid all taxes which have become due pursuant to such returns or pursuant to any assessment; (iii) the Note and all related documents have been or will be duly authorized, executed and delivered and constitute valid, legally binding and enforceable Obligations in accordance with their terms; (iv) except for the Bank's security interest, all accounts receivable, inventory and the proceeds and products thereof are free and clear of any liens or encumbrances. This Note is secured by a Security Agreement dated October 31, 1996 by the undersigned to the Bank, reference to which is hereby made for a description of the collateral provided for thereunder and the rights of the Bank with respect to such collateral. No delay on the part of the Bank in exercising any of its options, powers or rights, or partial or single exercise thereof, shall constitute a waiver thereof. The options, powers and rights of the Bank specified herein are in addition to those otherwise created. This Note and the rights and obligations of the Bank and of the undersigned hereunder shall be governed by and construed in accordance with the law of the State of New York. Edwards Capital Corp. By: /s/ Michael Kowalsky --------------------------- Title: President --------------------------- By: /s/ Daniel F. Baker ------------------------------ Title: Treasurer --------------------------- Page 4 of 5
SCHEDULE OF LOANS AND PAYMENTS DATE AMOUNT OF LOAN AMOUNT OF PRINCIPAL PAID BALANCE REMAINING UNPAID NOTATION MADE BY ======================================================================================================
LOAN NO._____________________ Page 5 of 5 EX-10.25 10 AGRMNT BET. FLEET, N.A. & MEDALLION 10-FEB-97 Exhibit 10.25 Fleet Fleet Bank ----- as of December 1, 1996 Medallion Financial Corporation 205 East 42nd Street New York, New York 10017 Att: Daniel Baker, Treasurer and CFO Gentlemen: We are pleased to advise you that Fleet Bank, N.A. (formerly NatWest Bank N.A.) (the "Bank") has approved for the use of Medallion Financial Corporation (the "Borrower") a revolving line of credit in the amount of $5,000,000 evidenced by a certain Revolving Credit Note of even date herewith made by the Borrower to the Bank in the form attached hereto as Exhibit A (as it may be amended from time to time, the "Note"; unless otherwise defined herein, capitalized terms shall be used as defined in the Note), upon the following terms and conditions: 1. Borrowing Base Limitation. (a) The revolving line of credit (the ------------------------- "Line") shall consist of short-term loans ("Loans"). The aggregate principal amount of Loans at any time outstanding under the Line shall not exceed the lesser of $5,000,000 or the Borrowing Base Amount (hereinafter defined). The "Borrowing Base" shall be the sum of (1) 100% of the aggregate outstanding principal amount of the Borrower Loans, less (2) 100% of the aggregate outstanding principal amount of any Borrower Loans that are secured in whole or in part by real property or fixtures, less (and without double counting) (3) 100% of the aggregate outstanding principal amount of any Borrower Loans that are made to an ongoing business concern for the purchase or finance of equipment or fixtures to which the Borrower also retains a mortgage interest in real property, less (4) the portion, if any, of the remaining Borrower Loans which are more than 60 days past due. 2. Documentation. There shall be no extension of credit hereunder and ------------- under the Note until there shall have been executed documentation acceptable to the Bank, including without limitation the Note, a Security Agreement, and appropriate UCC-1 financing statements. 3. Expenses. The Borrower will promptly pay all reasonable costs of the -------- Bank in preparing this Line Letter, the Note, the Security Agreement and all documents delivered in connection herewith and therewith including, without limitation, the fees and expenses of counsel to the Bank in connection with the preparation, execution and delivery, administration, interpretation and enforcement hereof and thereof, and any amendments, consents and waivers delivered or requested in connection herewith or therewith. 4. Governing Law. This letter agreement and each extension of credit ------------- hereunder and under the Note shall be governed by and construed in accordance with the laws of the State of New York and the Borrower hereby submits to the jurisdiction of the United States federal courts and the courts of the State of New York located in the Southern District of New York. 5. Acceptance. If the foregoing is acceptable, please have the enclosed ---------- copy of this letter, together with the Note, the Security Agreement and enclosed UCC financing statements, signed by a duly authorized officer of the Borrower in the spaces provided and returned to the Bank on or before December 11, 1996. This letter shall be of no force or effect and shall be unenforceable against the Bank unless signed and returned to the Bank together with such other documents by such date. Very truly yours, FLEET BANK, N.A. By: /s/ Michael B. Moschetta ------------------------- (title) Accepted and Agreed: MEDALLION FINANCIAL CORPORATION By: /s/ Daniel Baker, Treasurer --------------------------- (title) Exhibit A FLEET BANK, N.A. REVOLVING CREDIT NOTE Office 175 Water Street $5,000,000 Address: New York, NY 10038 as of December 1, 1996 FOR VALUE RECEIVED, MEDALLION FINANCIAL CORPORATION (the "Borrower") promises to pay to the order of FLEET BANK, N.A. (formerly NATWEST BANK N.A.) (the "Bank") on December 1, 1997 (the "Maturity Date") at the office of the Bank located at the place first above stated or such other place as the holder hereof may from time to time appoint in writing, in lawful money of the United States of America in immediately available funds, the principal sum of FIVE MILLION DOLLARS ($5,000,000) or such lesser amount as may then be the aggregate unpaid principal balance of all loans made by the Bank to the Borrower hereunder and under that certain Letter Agreement of even date herewith between the Bank and the Borrower (as it may be amended from time to time, the "Letter Agreement") as indicated on the schedule annexed hereto (each a "Loan" and collectively the "Loans"). The Borrower also promises to pay interest (computed on the basis of a 360 day year for actual days elapsed) at said office in like money on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity at the rate set forth in Section 1(d) below. In consideration of the granting of the Loans evidenced by this Note, the Borrower hereby agrees as follows: 1. Revolving Credit Commitment. ---------------------------- (a) The loans evidenced by this Note may be procured in one or more advances (each a "Loan" and collectively the "Loans") during the period (the "Credit Period") which commences on the date hereof and ends on December 1, 1997 (the "Termination Date") in an aggregate principal amount up to, but not exceeding at any time outstanding, the said principal sum of $5,000,000 (the "Commitment"). During the Credit Period the Borrower may use the Commitment by borrowing, prepaying in whole or in part and reborrowing, on a revolving basis, all in accordance with the terms and conditions hereof provided, however, that each such Loan or prepayment be in an amount not less than $50,000. Interest shall be paid on the unpaid principal amount of each Loan from time to time outstanding at a rate per annum, to be elected by the Borrower at the time each Loan is made, which shall be either (i) a fluctuating rate equal to the Prime Rate (the rate established from time to time by the Bank as its "prime rate") which interest rate shall change when and as the Prime Rate changes (Loans bearing interest at such fluctuating rate are hereinafter specifically called "Prime Rate Loans"), (ii) a fixed rate of 1.30% plus the Eurodollar Rate for an Interest Period of 1, 2, 3 or 6 months (a Loan bearing interest at this rate is sometimes hereinafter 2 called a "Eurodollar Loan"), or (iii) such other fixed rate as may be agreed upon between the Borrower and the Bank for an Interest Period which is also then agreed upon (a Loan bearing interest at this rate is sometimes hereinafter called an "Agreed Rate Loan" - Agreed Rate Loans and Eurodollar Loans are sometimes collectively referred to as "Fixed Rate Loans"); provided, however, that no interest period with respect to a Fixed Rate Loan shall extend beyond the Maturity Date; and provided, further, that if prior to the end of any such interest period the Borrower and the Bank fail to agree upon a new interest period therefor so as to maintain such Loan as a Eurodollar Loan or an Agreed Rate Loan within the pertinent time set forth in Section l(c)(i) hereof, such Fixed Rate Loan shall automatically be converted into a Prime Rate Loan at the end of such interest period and shall be maintained as such until a new Fixed Rate and a new interest period therefor are agreed upon. Interest on each Loan shall be payable monthly on the first day of each month commencing the first such day to occur after a Loan is made hereunder and, together with principal, on the maturity thereof. Interest on Fixed Rate Loans shall also be payable on the last day of each Interest Period applicable thereto, and in the case of any Interest Period exceeding three months, on each three month anniversary thereof. (b) The date and amount of each Loan and of each prepayment of principal shall be recorded by the Bank at the time of each Loan or prepayment on the schedule annexed hereto. All such notations shall be presumed to be correct and the aggregate net unpaid amount of Loans set forth in such schedule shall be presumed to be the principal balance hereof. (c) Each request for a Loan shall be subject to the satisfaction of the following conditions precedent: (i) Loan Requests. Requests for Eurodollar Loans, and for Interest ------------- Periods subsequent to the initial Interest Period applicable thereto, shall be made not less than three Business Days prior to the first day of each Interest Period for each such Loan. Requests for Agreed Rate Loans and Prime Loans may be made up until 1 p.m. on the date the Loan is to be made. Any request for a Loan may be written or oral, but if oral, written confirmation thereof must be received by the Bank within 3 Business Days thereafter. (ii) No Event of Default, or event which would be an Event of Default but for the giving of notice or the passage of time or both, has occurred and is continuing; and all of the representations and warranties made by the Borrower in Section 4 hereof shall be true and correct on and as of the date of such request as if made on and as of such date. (d) If any payment of principal and interest becomes due on a day on which the banks in New York, New York, are required or permitted by law to remain closed, such payment may be made on the next succeeding day on which such banks are open, and such extensions shall be included in computing interest in connection with such payment; provided, however, that if the result of any such extension would be to extend the maturity date of any Eurodollar Loan into another calendar month the payment shall be made on the 3 immediately preceding Business Day. The Borrower further agrees that after the stated or any accelerated maturity of the Loans, Prime Rate Loans shall bear interest (computed daily) at a rate of 2% per annum in excess of the rate hereinbefore provided for Prime Rate Loans and Fixed Rate Loans shall bear interest (computed daily) at a rate which shall be the greater of 2% per annum in excess of the rate for Prime Rate Loans hereinbefore provided for or 2% per annum in excess of the applicable Fixed Rate in effect at the time of such maturity. In no event shall interest payable hereunder be in excess of the maximum rate of interest permitted under applicable law. (e) After the occurrence and during the continuation of any Event of Default, no outstanding Loan may be converted into, or continued as, a Fixed Rate Loan; accordingly, during such period, any outstanding Fixed Rate Loan shall be automatically converted at the end of the Interest Period in effect for such Fixed Rate Loan into a Prime Rate Loan. 2. Prepayment: Subject to the indemnity set forth in Section 3 hereof ----------- with respect to Fixed Rate Loans, the Borrower may prepay any Loan at any time in whole or in part without premium or penalty. Each prepayment shall be made together with interest accrued thereon to and including the date of prepayment. 3. Indemnity and Yield Protection. The Borrower hereby agrees to ------------------------------ indemnify the Bank against any loss or expense which the Bank may sustain or incur as a consequence of any of the following: (a) the failure of the Borrower to borrow a Fixed Rate Loan after agreement shall have been reached on the amount, interest rate and Interest Period thereof; (b) the receipt or recovery by the Bank, whether by voluntary prepayment, acceleration or otherwise, of all or any part of a Fixed Rate Loan prior to the last day of an Interest Period applicable thereto; or (c) the conversion, prior to the last day of an applicable Interest Period, of one type of Fixed Rate Loan into another type of Fixed Rate Loan or into a Prime Loan. Without limiting the effect of the foregoing, the amount to be paid by the Borrower to the Bank in order to so indemnify the Bank for any loss occasioned by any of the events described in the preceding paragraph, and as liquidated damages therefor, shall be equal to the excess,discounted to its present value as of the date paid to the Bank, of (i) the amount of interest which otherwise would have accrued on the principal amount so received, recovered, converted or not borrowed during the period (the "Indemnity Period") commencing with the date of such receipt, recovery, conversion, or failure to borrow to the last day of the applicable Interest Period for such Fixed Rate Loan at the rate of interest applicable to such Loan (or the rate of interest agreed to in the case of a failure to borrow) provided for herein (prior to default) over (ii) the amount of interest which would be earned by the Bank during the Indemnity Period if it invested the principal amount so received, recovered, converted or 4 not borrowed at the rate per annum determined by the Bank as the rate it would bid in the London interbank market for a deposit of Eurodollars in an amount approximately equal to such principal amount for a period of time comparable to the Indemnity Period. A certificate as to any additional amounts payable pursuant to this Section 3 setting forth the basis and method of determining such amounts shall be conclusive, absent manifest error, as to the determination by the Bank set forth therein if made reasonably and in good faith. The Borrower shall pay any amounts so certified to it by the Bank within 10 days of receipt of any such certificate. For purposes of this Section 3, all references to the "Bank" shall be deemed to include any participant in the Commitment and/or Loans. The indemnities set forth herein shall survive payment in full of all Fixed Rate Loans and all other Loans made pursuant to this Note and the Letter Agreement (as defined below). 4. Increased Costs. If the Bank determines that the effect of any --------------- applicable law or government regulation, guideline or order or the interpretation thereof by any governmental authority charged with the administration thereof (such as, for example, a change in official reserve requirements which the Bank is required to maintain in respect of loans or deposits or other funds procured for funding such loans) is to increase the cost to the Bank of making or continuing Fixed Rate Loans hereunder or to reduce the amount of any payment of principal or interest receivable by the Bank thereon, then the Borrower will pay to the Bank on demand such additional amounts as the Bank may determine to be required to compensate the Bank for such additional costs or reduction. Any additional payment under this section will be computed from the effective date at which such additional costs have to be borne by the Bank. A certificate as to any additional amounts payable pursuant to this Section 4 setting forth the basis and method of determining such amounts shall be conclusive, absent manifest error, as to the determination by the Bank set forth therein if made reasonably and in good faith. The Borrower shall pay any amounts so certified to it by the Bank within 10 days of receipt of any such certificate. 5. Alternate Rate of Interest. In the event, and on each occasion, that -------------------------- on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Loan, the Bank shall have determined (a) that dollar deposits in the amount of the requested principal amount of such Eurodollar Loan are not generally available in the London interbank market, (b) that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Bank of making or maintaining such Eurodollar Loan during such Interest Period, or (c) that reasonable means do not exist for ascertaining the Eurodollar Rate, the Bank shall, as soon as practicable thereafter, give written or telex notice of such determination to the Borrower. In the event of any such determination, until the circumstances giving rise to such notice no longer exist, no Eurodollar Loans will be made hereunder. Each determination by the Bank hereunder shall be conclusive absent manifest error. 5 6. Change in Legality. ------------------- (a) Notwithstanding anything to the contrary herein contained, if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make it unlawful for the Bank to make or maintain any Eurodollar Loan, then, by written notice to the Borrower, the Bank may: (i) declare that Eurodollar Loans will not thereafter be made by the Bank hereunder, whereupon the Borrower shall be prohibited from requesting Eurodollar Loans from the Bank hereunder unless such declaration is subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be converted to Prime Loans, in which event (x) all such Eurodollar Loans shall be automatically converted to Prime Loans as of the effective date of such notice as provided in paragraph (b) below and (y) all payments and prepayments of principal which would otherwise have been applied to repay the converted Eurodollar Loans shall instead be applied to repay the Prime Loans resulting from the conversion of such Eurodollar Loans. (b) For purposes of this Section 6, a notice to the Borrower by the Bank pursuant to paragraph (a) above shall be effective, if lawful, on the last day of the then current Interest Period; in all other cases, such notice shall be effective on the day of receipt by the Borrower. 7. Facility Fee. As additional compensation for providing the Loans ------------ described herein, the Borrower agrees to pay to the Bank a non-refundable facility fee in an amount equal to 1/4 of 1% of the Commitment, payable quarterly in arrears. 8. Representations And Warranties. The Borrower hereby represents and ------------------------------ warrants to the Bank that: (a) The Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation and is qualified to do business and in good standing under the laws of each state where its failure to so qualify would have a material adverse effect on the business, operations, property or other condition of the Borrower. The Borrower is a closed-end management investment company duly registered under the Investment Company Act of 1940, as amended, and is duly licensed as a small business investment company established under and operating in compliance with Title III of the Small Business Investment Act of 1958, as amended, ( 15 U.S.C. 681 et seq.), and the -- --- regulations promulgated thereunder. (b) This Note has been duly authorized, executed and delivered and constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms. 6 (c) The execution and delivery of this Note, and performance hereunder, will not violate any provision of law. (d) There are no actions or proceedings pending before any court or governmental authority, bureau or agency, with respect to or threatened against or affecting the Borrower, which if determined adversely would have a material adverse effect on the business, the assets or the financial condition of the Borrower. (e) The Borrower is not in default under, or in violation of, any term of any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or by which any of the properties or assets owned by it or used in the conduct of its business is affected, which default or violation may have a material adverse effect on the business, the assets or the financial condition of the Borrower. The operations of the Borrower comply in all respects with all laws, ordinances and regulations applicable to it. (f) The Borrower is not a party to or bound by, nor are any of the properties or assets owned by it or used in the conduct of its business affected by, any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment, or subject to any charter or other corporate restriction, which materially and adversely affects the business, assets or financial condition of the Borrower. (g) All balance sheets, profit and loss statements and other financial information heretofore furnished to the Bank are true, correct and complete and present fairly the financial condition of the Borrower as at the dates thereof and for the periods covered thereby, including contingent liabilities of every kind, which financial condition has not materially adversely changed since the date of the most recently dated balance sheet of the Borrower heretofore furnished to the Bank. (h) No part of the proceeds of the Loans will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of indebtedness which was incurred for the purpose of purchasing or carrying, any margin stock as such term is defined in Sec. 221.2 of Regulation U of the Board of Governors of the Federal Reserve System. (i) The Borrower and its Subsidiaries are in compliance in all material respects with the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and all rules and regulations thereunder. Neither the Borrower nor any of its Subsidiaries has any unfunded vested liability under any type of plan described in Section 4021(a) of ERISA ("Plan") and no reportable event, as set forth in Section 4043(c) of ERISA, has occurred or is continuing with respect to any Plan. (j) None of the real property owned or leased by the Borrower or any of its Subsidiaries that is a location of collateral pledged to the Bank (the "Real Property") 7 contains, or to the best knowledge of the Borrower has previously contained, any hazardous or toxic waste or substances or underground storage tanks in violation of any applicable environmental law; the Real Property is in compliance with all applicable environmental law; the Real Property is in compliance with all applicable federal, state and local environmental standards and requirements affecting such Real Property, and there are no environmental conditions which could interfere with the continued use of the Real Property; the Borrower has not received any notices of violations or advisory action by regulatory agencies regarding environmental control matters or permit compliance; hazardous waste has not been transferred from any of the Real Property to any other locations which is not in compliance with all applicable environmental laws, regulations or permit requirements; and with respect to the Real Property, there are no proceedings, governmental administrative actions or judicial proceedings pending or, to the best knowledge of the Borrower, contemplated under any federal, state or local law regulating the discharge of hazardous or toxic materials or substances into the environment, to which the Borrower is named as a party. 9. Financial Statements. The Borrower shall deliver to the Bank: -------------------- (a) Annually, as soon as available, but in any event within 95 days after the last day of each of its fiscal years, a copy of the Borrower's annual consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at such last day of the fiscal year, and consolidated and consolidating statements of income and retained earnings and cash flows, for such fiscal year, each prepared on a consolidating and consolidated basis in accordance with generally accepted accounting principles consistently applied and certified without qualification by a firm of independent certified public accountants satisfactory to the Bank; (b) At the same time as it delivers the certified financial statements required by Section 5(a), the Borrower shall use its best efforts to deliver, a certificate of the independent certified public accountants of the Borrower addressed specifically to both the Borrower and the Bank to the effect that during the course of their audit of the operations of the Borrower and its condition as of the end of the fiscal year, nothing has come to their attention which would indicate that an Event of Default hereunder, or an event with the giving of notice or the lapse of time or both would constitute such an Event of Default, has occurred or that there was any violation of the covenants of the Borrower contained in this Note or the Letter Agreement, or, if such cannot be so certified, specifying in reasonable detail the exceptions, if any, to such statement, and stating that it is aware that the Bank is relying on such financial statements; (c) Promptly upon receipt thereof, copies of all other reports submitted to the Borrower by its independent accountants in connection with any annual or interim audit or review off the books of the Borrower made by such accountants; (d) As soon as available but in any event within 50 days of the close of each fiscal quarter of the Borrower, the consolidated and consolidating balance sheets of the Borrower 8 as of the last day of such quarter, and consolidated and consolidating statements of income and retained earnings and cash flows of the Borrower as of the last day of and for such quarter and for the portion of the fiscal year then elapsed, each such statement to be certified by the chief financial or accounting officer of the Borrower, in each case as having been prepared in accordance with generally accepted accounting principles consistently applied; (e) copies of all notices, filings and other communications as and when distributed to shareholders of the Borrower; and (f) registration statements and any amendments and supplements thereto, and any regular and periodic reports filed by the Borrower or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any or all of the functions of the said Commission; (g) monthly, and not later than the 15th day of each month, (i) an aging of -- the accounts receivable of the Borrower displayed on a 30/60/90 day basis, and (ii) a borrowing base certificate (in a format satisfactory to the Bank) for the Borrower with a breakout indicating what percentage of aggregate Borrower Loans (as defined below) constitute Medallion Loans and.what percentage constitutes Commercial Loans (as such terms are defined below), each as of the last day of the immediately preceding month. To the extent that any such document reveals that, or at any time the Borrower has knowledge that, the aggregate obligations then outstanding under this Note and the Letter Agreement are in excess of the borrowing limitations set forth in Paragraph 1 of the Letter Agreement, the Borrower shall then pay such excess to the Bank to be applied against its obligations then outstanding to the Bank in such manner as the Bank in its sole discretion may determine; (h) such other statements and reports as shall be reasonably requested by the Bank; (i) At the same time as it delivers the financial statements required under the provisions of Subsections 6(a) and 6(b), a certificate signed by the president and the chief financial, or accounting, officer of the Borrower, to the effect that no Event of Default hereunder or under any other agreement to which the Borrower is a party or by which it is bound, or by which any of its properties or assets may be affected, and no event which, with the giving of notice or the lapse of time, or both, would constitute such an Event of Default, has occurred. 10. Affirmative Covenants. So long as the Commitment remains in effect or --------------------- there are any Obligations (as defined below) owing to the Bank, the Borrower will: (a) with respect to its properties, assets and business, maintain insurance against loss or damage, to the extent that property, assets and businesses of similar character are usually so insured by companies similarly situated and operating like properties, assets or businesses with insurance companies believed by the Borrower to be responsible; 9 (b) duly pay and discharge all taxes or other claims which might become a lien upon any of its property except to the extent that such items are being in good faith appropriately contested; (c) maintain, preserve and keep its properties in good repair, working order and condition, and make all reasonable repairs, replacements, additions, betterments and improvements thereto; (d) conduct its business in substantially the same manner and in substantially the same fields as such business is now carried on and conducted; it being expressly understood that the Borrower will deliver 60 days advance written notice to the Bank of any material change to the conduct of the Borrower's business, and the Bank shall, as a result of such impending change, have the right, in its sole discretion, to make unilateral adjustments to the calculation of the Borrowing Base Amount (as defined in the Letter Agreement) without further notice to, or the consent of, the Borrower; (e) comply with all statutes, rules and regulations and maintain its corporate existence; (f) permit the Bank to make or cause to be made (by a third party), at the Borrower's sole cost and expense, (i) field audits of the Borrower on an annual basis, and (ii) inspections and audits of any books, records and papers of the Borrower and to make extracts therefrom at all such reasonable times and as often as the Bank may reasonably require; (g) use the proceeds of the Loans for the following purposes and for no other purpose: for working capital purposes, including without limitation, for the Borrower to make Medallion Loans and Commercial Loans (as such terms are defined below); (h) maintain at all times a ratio of the total Borrowing Base Amount (as defined in the Letter Agreement) to outstanding debt of not less than 1.5 to 1.0; (i) with respect to the Real Property, (1) indemnify the Bank against any liability, loss, cost, damage, or expense (including, without limitation, reasonable attorney's fees) arising from (i) the imposition or recording of a lien by any local, state, or federal government or governmental agency or authority pursuant to any federal, state or local statute or regulation relating to hazardous or toxic wastes or substances or the removal thereof (an "Environmental Law"); (ii) claims of any private parties regarding violations of any Environmental Law; and (iii) costs and expenses (including, without limitation, reasonable attorneys fees and fees incidental to the securing of repayment of such costs and expenses) incurred by Borrower or any of its Subsidiaries or the Bank in connection with compliance by Borrower or any of its Subsidiaries or the Bank with any statute, regulation or order issues pursuant to any Environmental Law by any local, state or federal government or governmental agency or authority, (2) at any time the Borrower has knowledge that it has 10 violated, has incurred liability under, or any of the Real Property has any lien or exposure of lien under, any federal, state or local environmental law, the Borrower shall furnish to the Bank a certificate as to the action the Borrower is taking or proposes to take with respect thereto and (3) at the request of the Bank, which request will not be made on more than one occasion during any twelve month period, the Borrower shall undertake, at its sole expense, any environmental investigation and examination of the Real Property which the Bank may require, including, without limitation, an environmental investigation and examination of the Real Property by a consultant satisfactory to the Bank; and (j) immediately give notice to the Bank that an Event of Default has occurred or that an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and specifying the action which the Borrower has taken and proposes to take with respect thereto. 11. Negative Covenants. So long as the Commitment remains in effect or ------------------ there are any Obligations (as defined below) owing to the Bank, the Borrower will not: (a) consummate any merger or consolidation or liquidate, windup or dissolve itself or sell, transfer or lease or otherwise dispose of all or any substantial part of its assets (other than sales in the ordinary course of business); except that any Subsidiary which is wholly-owned by the Borrower may merge with or consolidate into the Borrower provided that the Borrower is the surviving corporation; (b) except for Obligations owing to the Bank, not assume, endorse, be or become liable for or guarantee the obligations of any corporation, partnership, limited liability company, individual or other entity that is a Subsidiary or affiliate, whether now existing or hereafter created; (c) create, assume or permit to exist, any mortgage, pledge, lien or encumbrance of or upon or security interest in, any of its property or assets now owned or hereafter acquired except (i) mortgages, liens, pledges and security interests in favor of the Bank; (ii) liens in existence on the date hereof; (iii) other liens, charges and encumbrances incidental to the conduct of its business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit and which do not materially impair the use thereof in the operation of its business; and (iv) liens for taxes or other governmental charges which are not delinquent or which are being contested in good faith and for which a reserve shall have been established in accordance with generally accepted accounting principles; and (d)(i) terminate any Plan so as to result in any material liability to The Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (the"PBGC"), (ii) engage in or permit any person to engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended) involving any Plan which would subject the Borrower to any material tax, 11 penalty or other liability, (iii) incur or suffer to exist any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, involving any Plan, or (iv) allow or suffer to exist any event or condition, which presents a material risk of incurring a material liability to the PBGC by reason of termination of any Plan. 12. Collateral Security. ------------------- (a) As collateral security for the payment of any and all sums owing under this Note and the Letter Agreement and all other obligations, direct or contingent, joint, several or independent, of the Borrower and each endorser or guarantor hereof now or hereafter existing, due or to become due to, or held, or to be held by, the Bank (including without limitation obligations to the Bank in connection with the Borrower's exposure to the Bank under any now existing or hereafter arising interest rate hedging agreement), whether created directly or acquired by assignment or otherwise (all of such obligations, including this Note, are hereinafter called the "Obligations"), the Borrower hereby grants to the Bank a lien on and security interest in any and all deposits or other sums at any time credited by or due from the Bank to the Borrower, whether in regular or special depository accounts or otherwise, and any and all monies, securities and other property of the Borrower, and the proceeds thereof, now or hereafter held or received by or in transit to the Bank from or for the Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and any such deposits, sums, monies, securities and other property, may at any time after the occurrence of any Event of Default be set-off, appropriated and applied by the Bank against any of the Obligations whether or not such Obligations are then due or are secured by any collateral, or, if they are so secured, whether or not such collateral held by the Bank is considered to be adequate and with respect to all collateral security the Bank shall have all the rights and remedies available to it under the Uniform Commercial Code of New York and other applicable law. (b) In addition to the collateral described in Section 9(a) hereof, payment of the Obligations is also secured by a first priority security interest in all personal property and fixtures of the Borrower wherever located and whether now owned or hereafter acquired, and including without limitation the notes, instruments and documents evidencing the Borrower Loans, and all property and rights, including without limitation Underlying Collateral, which now or hereafter secure Borrower Loans and all rights and remedies of Borrower with respect thereto, all as described in one or more security agreements (the "Security Agreement") executed by the Borrower in favor of the Bank. 13. Events of Default. If any one or more of the following events ----------------- ("Events of Default") shall occur, the entire unpaid balance of the principal of and interest on the Obligations shall immediately become due and payable: (a) Failure to make any payment of principal or interest in respect of any of the Obligations when due; or, 12 (b) Failure to observe any of the agreements of the Borrower contained in Sections 10 or 11 hereof or under the Letter Agreement; or, (c) Failure by the Borrower to perform any other term, condition or covenant of this Note or the Letter Agreement, the Security Agreement, or any other agreement, instrument or document delivered pursuant hereto or in connection herewith or therewith, which shall remain unremedied for a period of 15 days after notice thereof shall have been given by the Bank to the Borrower; or, (d) (i) Failure to perform any term, condition or covenant of any bond, note, debenture, loan agreement, indenture, guaranty, trust agreement, mortgage or other instrument or agreement in connection with the borrowing of money or the obtaining of advances or credit to which the Borrower is a party or by which it is bound, or by which any of its properties or assets may be affected (a "Debt Instrument"), so that, as a result of any such failure to perform (regardless of the satisfaction of any requirement for the giving of appropriate notice thereof or the lapse of time), the indebtedness included therein or secured or covered thereby may be declared due and payable prior to the date on which such indebtedness would otherwise become due and payable; or, (ii) any event or condition referred to in any Debt Instrument shall occur or fail to occur, so that, as a result thereof (regardless of the satisfaction of any requirement for the giving of appropriate notice thereof or the lapse of time), the indebtedness included therein or secured or covered thereby may be declared due and payable prior to the date on which such indebtedness would otherwise become due and payable; or, (iii) any indebtedness included in any Debt Instrument or secured or covered thereby is not paid when due; or (e) Any representation or warranty made in writing to the Bank in this Note, the Letter Agreement, or the Security Agreement or in connection with the making of the loan evidenced hereby or any certificate, statement or report made in compliance with this Note or such other agreement, shall have been false in any material respect when made; or (f) An order for relief under the Federal Bankruptcy Code as now or hereafter in effect, shall be entered against the Borrower, or any Subsidiary; or the Borrower, or any Subsidiary shall become insolvent, generally fail to pay its debts as they become due, make an assignment for the benefit of creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt, petition or apply to any tribunal for the appointment of a receiver or any trustee for it or a substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against it, which remains undismissed for a period of thirty days or more; or the Borrower, or any Subsidiary or endorser or guarantor hereof by any act or omission shall 13 indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or the appointment of a receiver of or any trustee for it or any substantial part of any of its properties, or shall suffer any such receivership or trusteeship to continue undischarged for a period of thirty days or more; or, (g) Any judgment against the Borrower, or any Subsidiary or any attachment, levy or execution against any of its properties for any amount shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of sixty days or more; or, (h) The Bank shall have determined, in its sole discretion, that one or more conditions exist or events have occurred which may result in a material adverse change in the business, properties or financial condition of the Borrower. 14. Payments. All payments by the Borrower on account of principal, -------- interest, or any other sum due hereunder, shall be made in lawful money of the United States of America in immediately available funds. The Bank may charge any account of the Borrower maintained at any office of the Bank for any such amount due hereunder. If any payment of principal or interest becomes due on a day on which the banks in New York, New York, are required or permitted by law to remain closed, such payment may be made on the next succeeding business day on which such banks are open, and such extensions shall be included in computing interest in connection with such payment. 15. Notices. All notices, requests and other communications pursuant to ------- this Note shall be in writing, either by letter (delivered by hand or sent by certified mail, return receipt requested) or telegram, addressed as follows: (a) if to the Borrower: Medallion Financial Corporation 205 East 42nd Street New York, New York 10017 Attn: Daniel Baker, Treasurer and CFO and, (b) if to the Bank: Fleet Bank, N.A. 175 Water Street New York, New York 10036 Attn: Michael Moschetta, Assistant Vice President 14 Any notice, request or communication hereunder shall be deemed to have been given when deposited in the mails, postage prepaid, or in the case of telegraphic notice, when delivered to the telegraph Borrower, addressed as aforesaid. Any party may change the person or address to whom or which the notices are to be given hereunder, but any such notice shall be effective only when actually received by the party to whom it is addressed. 16. Governing Law; Severability. This Note and the rights and obligations --------------------------- of the parties shall be construed and interpreted in accordance with the laws of the State of New York and the Borrower consents to the jurisdiction of the courts of New York in any action brought to enforce any rights of the Bank under this Note. The provisions of this Note are severable and if any clause or provision shall be held invalid or unenforceable in whole or in part in any Jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Note in any jurisdiction. 17. Definitions. As used herein: ----------- "Borrower Loan" shall mean any loan or advance made in the ordinary course ------------- of business by Borrower to or for the account of any client or customer of Borrower resident in the United States of America. Any loan, advance or extension of credit made at a different point in time than another loan, advance or extension of credit shall be deemed to be separate and distinct Borrower Loans. "Business Day" means any day other than a day on which the Banks in New ------------ York, New York are required or permitted by law to remain closed. "Commercial Loans" shall mean Borrower Loans that are secured in whole or ---------------- in part by real property and that are not Medallion Loans. "Eurodollar Rate" means with respect to any Eurodollar Loan Interest --------------- Period, the rate per annum determined by the Bank to be the rate at which deposits in U.S. dollars are offered by a Reference Bank (selected by the Bank) in the London interbank market at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Loan to which such Interest Period is to apply and for a period of time comparable to such Interest Period divided by one minus the Eurodollar Reserve Percentage. ----- "Eurodollar Reserve Percentage" means for any day that percentage ----------------------------- (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest 15 rate on Eurodollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of the Bank to United States residents). The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Fixed Rate" means either the Eurodollar Rate or the Agreed Rate plus the ---------- applicable margin. "Interest Period" means that period selected by the Borrower, within the --------------- limitations of the first paragraph of this Note, during which a Fixed Rate Loan may bear interest at the applicable Fixed Rate. "Medallion" shall mean the metal plate which displays the license number of --------- a licensed Taxicab on the outside of the vehicle and which is issued by the New York City Taxi and Limousine Commission, or by any other similar governmental authority for a jurisdiction other than New York City charged with the authority to issue licenses for the operation of Taxicabs. "Medallion Loans" shall mean Borrower Loans secured in whole or in part by --------------- Medallion Rights. "Medallion Rights" shall mean all license, operating and/or subscription ---------------- rights to Taxicab Medallion(s), and all license, operating and/or subscription rights evidenced by such Medallions, and all renewals thereof, in which a perfected security interest has been obtained by Borrower to secure the Borrower Loan made by Borrower to such Person, and assigned to the Bank, pursuant to the Security Agreement. "Reference Banks" means banks appearing in the display designated as page --------------- "LIBOR" on the Reuters' Monitor Money Rates Service (or such other page as may replace the LIBOR page on that service for the purpose of displaying London Interbank Offered Rates of major banks); provided that if no such offered rate shall appear on such display, "Reference Banks" shall mean one or more major banks in the London interbank market as selected by the Bank. "Subsidiary" or "Subsidiaries" means any corporation or corporations of ---------------------------- which the Borrower, alone, or the Borrower and/or one or more of its Subsidiaries, owns, directly or indirectly, at least a majority of the securities having ordinary voting power for the election of directors. "Taxicab" shall mean a motor vehicle carrying passengers for hire, duly ------- licensed as a taxicab by the Taxi and Limousine Commission, or any other Governmental Authority for a jurisdiction other than New York City, and permitted to accept hails from passengers in the street. 16 "Underlying Collateral" shall mean all of Borrower's rights with respect --------------------- to, or interest in, any and all present and future Medallion Rights, equipment, Real Property, fixtures, machinery, future accounts, accounts receivable, receivables, contracts, contract rights, general intangibles, books, desks, notes, bills, drafts, acceptances, choses in action, chattel paper, instruments, documents and other forms of obligations and property, real, personal or mixed, tangible or intangible, at any item owing to or owned by any Person to whom borrower has made a Borrower Loan, or any guarantor of such Person. 18. Miscellaneous. ------------- (a) All agreements, representations and warranties made herein shall survive the delivery of this Note. The Borrower waives trial by jury, set-off and counterclaim of any nature or description in any litigation in any court with respect to, in connection with, or arising out of, this Note or any instrument or document delivered pursuant hereto or the validity, protection, interpretation, collection or enforcement hereof. (b) No modification or waiver of or with respect to any provision of this Note, or consent to any departure by the Borrower from any of the terms or conditions hereof, shall in any event be effective unless it shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrower in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. (c) Each and every right granted to the Bank hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Bank or the holder of this Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. (d) In the event that this Note is placed in the hands of an attorney for collection by reason of any default hereunder, the Borrower agrees to pay reasonable attorney's fees so incurred. The Borrower promises to pay all expenses of any nature as soon as incurred whether in or out of court and whether incurred before or after this Note shall become due at its maturity date or otherwise and costs which the Bank may deem necessary or proper in connection with the satisfaction of the indebtedness or the administration, supervision, preservation, protection (including but not limited to maintenance of adequate insurance) of or the realization upon the collateral. (e) The Borrower hereby waives presentment, demand for payment, protest, notice of protest, notice of dishonor, and any or all other notices or demands except as otherwise expressly provided for herein. 17 (f) All accounting terms not otherwise defined in this Note shall have the meanings ascribed thereto under generally accepted accounting principles. (g) This Note, the Letter Agreement, the Security Agreement and any other agreements, documents and instruments executed and delivered pursuant to or in connection with the Obligations contain the entire agreement between the parties relating to the subject matter hereof and thereof. The undersigned expressly acknowledges that the Bank has not made and the undersigned is not relying on any oral representations, agreements or commitments of the Bank or of any officer, employee, agent or representative thereof. To the extent there is any inconsistency between the terms of this Note and the Letter Agreement, the terms of this Note shall control. (h) This Note shall supersede and replace that certain $2,000,000 Note of Tri-Magna Corporation dated as of September 1, 1995, as amended, and all outstanding indebtedness under such prior note shall be deemed to be evidenced by this Note. MEDALLION FINANCIAL CORPORATION By ------------------------------ (Title) LOAN AND REPAYMENT SCHEDULE PROMISSORY NOTE DATED as of December 1, 1996 MEDALLION FINANCIAL CORPORATION ------------------------------- to FLEET BANK, N.A. Last Day Amount of Unpaid Amount Rate of of Interest Principal Principal Notation Date of Loan Interest Period Repayment Repayment Made By - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Fleet Fleet Bank 1133 Avenue of the Americas New York, NY 10036 as of February 10, 1997 Medallion Financial Corporation 205 East 42nd Street New York, New York 10017 Att: Daniel Baker, Treasurer and CFO Re: Letter Agreement dated as of December 1, 1996 (the "Letter Agreement") from Fleet Bank, N.A. (the "Bank") to Medallion Financial Corp. (the "Borrower") Gentlemen: We are pleased to confirm that we have agreed to increase the amount of the revolving line of credit available to the Borrower under the captioned Letter Agreement and the Revolving Credit Note dated as of December 1, 1996 (the "Revolving Credit Note") delivered in connection therewith from $5,000,000 to $6,000,000. Accordingly, the Bank hereby agrees to amend the Letter Agreement to substitute the amount of $6,000,000 in place of $5,000,000 as it appears in the opening paragraph and in Section 1 thereof. All other terms and conditions as set forth in the Letter Agreement shall remain in full force and effect. This amendment shall be effective upon our receipt of the enclosed copy of this letter signed by the Borrower and receipt of the enclosed Endorsement No. 1 to Revolving Credit Note, duly executed by the Borrower. Very truly yours, FLEET BANK, N.A. By: /s/ Michael B. Moschetta ------------------------ Name: Michael B. Moschetta Title: Assistant Vice President Accepted and Agreed: MEDALLION FINANCIAL CORPORATION By: /s/ Daniel Baker ---------------- Name: Daniel Baker Title: Treasurer EX-10.26 11 REVOLVING CREDIT NOTE 01-DEC-96 $6,000,000 Exhibit 10.26 FLEET BANK, N.A. REVOLVING CREDIT NOTE Office 175 Water Street $5,000,000 Address: New York, NY 10038 as of December 1, 1996 FOR VALUE RECEIVED, MEDALLION FINANCIAL CORPORATION (the "Borrower") promises to pay to the order of FLEET BANK, N.A. (formerly NATWEST BANK N.A.) (the "Bank") on December 1, 1997 (the "Maturity Date") at the office of the Bank located at the place first above stated or such other place as the holder hereof may from time to time appoint in writing, in lawful money of the United States of America in immediately available funds, the principal sum of FIVE MILLION DOLLARS ($5,000,000) or such lesser amount as may then be the aggregate unpaid principal balance of all loans made by the Bank to the Borrower hereunder and under that certain Letter Agreement of even date herewith between the Bank and the Borrower (as it may be amended from time to time, the "Letter Agreement") as indicated on the schedule annexed hereto (each a "Loan" and collectively the "Loans"). The Borrower also promises to pay interest (computed on the basis of a 360 day year for actual days elapsed) at said office in like money on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity at the rate set forth in Section 1(d) below. In consideration of the granting of the Loans evidenced by this Note, the Borrower hereby agrees as follows: 1. Revolving Credit Commitment. ---------------------------- (a) The loans evidenced by this Note may be procured in one or more advances (each a "Loan" and collectively the "Loans") during the period (the "Credit Period") which commences on the date hereof and ends on December 1, 1997 (the "Termination Date") in an aggregate principal amount up to, but not exceeding at any time outstanding, the said principal sum of $5,000,000 (the "Commitment"). During the Credit Period the Borrower may use the Commitment by borrowing, prepaying in whole or in part and reborrowing, on a revolving basis, all in accordance with the terms and conditions hereof provided, however, that each such Loan or prepayment be in an amount not less than $50,000. Interest shall be paid on the unpaid principal amount of each Loan from time to time outstanding at a rate per annum, to be elected by the Borrower at the time each Loan is made, which shall be either (i) a fluctuating rate equal to the Prime Rate (the rate established from time to time by the Bank as its "prime rate") which interest rate shall change when and as the Prime Rate changes (Loans bearing interest at such fluctuating rate are hereinafter specifically called "Prime Rate Loans"), (ii) a fixed rate of 1.30% plus the Eurodollar Rate for an Interest Period of 1, 2, 3 or 6 months (a Loan bearing interest at this rate is sometimes hereinafter 2 called a "Eurodollar Loan"), or (iii) such other fixed rate as may be agreed upon between the Borrower and the Bank for an Interest Period which is also then agreed upon (a Loan bearing interest at this rate is sometimes hereinafter called an "Agreed Rate Loan" - Agreed Rate Loans and Eurodollar Loans are sometimes collectively referred to as "Fixed Rate Loans"); provided, however, that no interest period with respect to a Fixed Rate Loan shall extend beyond the Maturity Date; and provided, further, that if prior to the end of any such interest period the Borrower and the Bank fail to agree upon a new interest period therefor so as to maintain such Loan as a Eurodollar Loan or an Agreed Rate Loan within the pertinent time set forth in Section l(c)(i) hereof, such Fixed Rate Loan shall automatically be converted into a Prime Rate Loan at the end of such interest period and shall be maintained as such until a new Fixed Rate and a new interest period therefor are agreed upon. Interest on each Loan shall be payable monthly on the first day of each month commencing the first such day to occur after a Loan is made hereunder and, together with principal, on the maturity thereof. Interest on Fixed Rate Loans shall also be payable on the last day of each Interest Period applicable thereto, and in the case of any Interest Period exceeding three months, on each three month anniversary thereof. (b) The date and amount of each Loan and of each prepayment of principal shall be recorded by the Bank at the time of each Loan or prepayment on the schedule annexed hereto. All such notations shall be presumed to be correct and the aggregate net unpaid amount of Loans set forth in such schedule shall be presumed to be the principal balance hereof. (c) Each request for a Loan shall be subject to the satisfaction of the following conditions precedent: (i) Loan Requests. Requests for Eurodollar Loans, and for Interest ------------- Periods subsequent to the initial Interest Period applicable thereto, shall be made not less than three Business Days prior to the first day of each Interest Period for each such Loan. Requests for Agreed Rate Loans and Prime Loans may be made up until 1 p.m. on the date the Loan is to be made. Any request for a Loan may be written or oral, but if oral, written confirmation thereof must be received by the Bank within 3 Business Days thereafter. (ii) No Event of Default, or event which would be an Event of Default but for the giving of notice or the passage of time or both, has occurred and is continuing; and all of the representations and warranties made by the Borrower in Section 4 hereof shall be true and correct on and as of the date of such request as if made on and as of such date. (d) If any payment of principal and interest becomes due on a day on which the banks in New York, New York, are required or permitted by law to remain closed, such payment may be made on the next succeeding day on which such banks are open, and such extensions shall be included in computing interest in connection with such payment; provided, however, that if the result of any such extension would be to extend the maturity date of any Eurodollar Loan into another calendar month the payment shall be made on the 3 immediately preceding Business Day. The Borrower further agrees that after the stated or any accelerated maturity of the Loans, Prime Rate Loans shall bear interest (computed daily) at a rate of 2% per annum in excess of the rate hereinbefore provided for Prime Rate Loans and Fixed Rate Loans shall bear interest (computed daily) at a rate which shall be the greater of 2% per annum in excess of the rate for Prime Rate Loans hereinbefore provided for or 2% per annum in excess of the applicable Fixed Rate in effect at the time of such maturity. In no event shall interest payable hereunder be in excess of the maximum rate of interest permitted under applicable law. (e) After the occurrence and during the continuation of any Event of Default, no outstanding Loan may be converted into, or continued as, a Fixed Rate Loan; accordingly, during such period, any outstanding Fixed Rate Loan shall be automatically converted at the end of the Interest Period in effect for such Fixed Rate Loan into a Prime Rate Loan. 2. Prepayment: Subject to the indemnity set forth in Section 3 hereof ----------- with respect to Fixed Rate Loans, the Borrower may prepay any Loan at any time in whole or in part without premium or penalty. Each prepayment shall be made together with interest accrued thereon to and including the date of prepayment. 3. Indemnity and Yield Protection. The Borrower hereby agrees to ------------------------------ indemnify the Bank against any loss or expense which the Bank may sustain or incur as a consequence of any of the following: (a) the failure of the Borrower to borrow a Fixed Rate Loan after agreement shall have been reached on the amount, interest rate and Interest Period thereof; (b) the receipt or recovery by the Bank, whether by voluntary prepayment, acceleration or otherwise, of all or any part of a Fixed Rate Loan prior to the last day of an Interest Period applicable thereto; or (c) the conversion, prior to the last day of an applicable Interest Period, of one type of Fixed Rate Loan into another type of Fixed Rate Loan or into a Prime Loan. Without limiting the effect of the foregoing, the amount to be paid by the Borrower to the Bank in order to so indemnify the Bank for any loss occasioned by any of the events described in the preceding paragraph, and as liquidated damages therefor, shall be equal to the excess,discounted to its present value as of the date paid to the Bank, of (i) the amount of interest which otherwise would have accrued on the principal amount so received, recovered, converted or not borrowed during the period (the "Indemnity Period") commencing with the date of such receipt, recovery, conversion, or failure to borrow to the last day of the applicable Interest Period for such Fixed Rate Loan at the rate of interest applicable to such Loan (or the rate of interest agreed to in the case of a failure to borrow) provided for herein (prior to default) over (ii) the amount of interest which would be earned by the Bank during the Indemnity Period if it invested the principal amount so received, recovered, converted or 4 not borrowed at the rate per annum determined by the Bank as the rate it would bid in the London interbank market for a deposit of Eurodollars in an amount approximately equal to such principal amount for a period of time comparable to the Indemnity Period. A certificate as to any additional amounts payable pursuant to this Section 3 setting forth the basis and method of determining such amounts shall be conclusive, absent manifest error, as to the determination by the Bank set forth therein if made reasonably and in good faith. The Borrower shall pay any amounts so certified to it by the Bank within 10 days of receipt of any such certificate. For purposes of this Section 3, all references to the "Bank" shall be deemed to include any participant in the Commitment and/or Loans. The indemnities set forth herein shall survive payment in full of all Fixed Rate Loans and all other Loans made pursuant to this Note and the Letter Agreement (as defined below). 4. Increased Costs. If the Bank determines that the effect of any --------------- applicable law or government regulation, guideline or order or the interpretation thereof by any governmental authority charged with the administration thereof (such as, for example, a change in official reserve requirements which the Bank is required to maintain in respect of loans or deposits or other funds procured for funding such loans) is to increase the cost to the Bank of making or continuing Fixed Rate Loans hereunder or to reduce the amount of any payment of principal or interest receivable by the Bank thereon, then the Borrower will pay to the Bank on demand such additional amounts as the Bank may determine to be required to compensate the Bank for such additional costs or reduction. Any additional payment under this section will be computed from the effective date at which such additional costs have to be borne by the Bank. A certificate as to any additional amounts payable pursuant to this Section 4 setting forth the basis and method of determining such amounts shall be conclusive, absent manifest error, as to the determination by the Bank set forth therein if made reasonably and in good faith. The Borrower shall pay any amounts so certified to it by the Bank within 10 days of receipt of any such certificate. 5. Alternate Rate of Interest. In the event, and on each occasion, that -------------------------- on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Loan, the Bank shall have determined (a) that dollar deposits in the amount of the requested principal amount of such Eurodollar Loan are not generally available in the London interbank market, (b) that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Bank of making or maintaining such Eurodollar Loan during such Interest Period, or (c) that reasonable means do not exist for ascertaining the Eurodollar Rate, the Bank shall, as soon as practicable thereafter, give written or telex notice of such determination to the Borrower. In the event of any such determination, until the circumstances giving rise to such notice no longer exist, no Eurodollar Loans will be made hereunder. Each determination by the Bank hereunder shall be conclusive absent manifest error. 5 6. Change in Legality. ------------------- (a) Notwithstanding anything to the contrary herein contained, if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make it unlawful for the Bank to make or maintain any Eurodollar Loan, then, by written notice to the Borrower, the Bank may: (i) declare that Eurodollar Loans will not thereafter be made by the Bank hereunder, whereupon the Borrower shall be prohibited from requesting Eurodollar Loans from the Bank hereunder unless such declaration is subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be converted to Prime Loans, in which event (x) all such Eurodollar Loans shall be automatically converted to Prime Loans as of the effective date of such notice as provided in paragraph (b) below and (y) all payments and prepayments of principal which would otherwise have been applied to repay the converted Eurodollar Loans shall instead be applied to repay the Prime Loans resulting from the conversion of such Eurodollar Loans. (b) For purposes of this Section 6, a notice to the Borrower by the Bank pursuant to paragraph (a) above shall be effective, if lawful, on the last day of the then current Interest Period; in all other cases, such notice shall be effective on the day of receipt by the Borrower. 7. Facility Fee. As additional compensation for providing the Loans ------------ described herein, the Borrower agrees to pay to the Bank a non-refundable facility fee in an amount equal to 1/4 of 1% of the Commitment, payable quarterly in arrears. 8. Representations And Warranties. The Borrower hereby represents and ------------------------------ warrants to the Bank that: (a) The Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation and is qualified to do business and in good standing under the laws of each state where its failure to so qualify would have a material adverse effect on the business, operations, property or other condition of the Borrower. The Borrower is a closed-end management investment company duly registered under the Investment Company Act of 1940, as amended, and is duly licensed as a small business investment company established under and operating in compliance with Title III of the Small Business Investment Act of 1958, as amended, ( 15 U.S.C. 681 et seq.), and the -- --- regulations promulgated thereunder. (b) This Note has been duly authorized, executed and delivered and constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms. 6 (c) The execution and delivery of this Note, and performance hereunder, will not violate any provision of law. (d) There are no actions or proceedings pending before any court or governmental authority, bureau or agency, with respect to or threatened against or affecting the Borrower, which if determined adversely would have a material adverse effect on the business, the assets or the financial condition of the Borrower. (e) The Borrower is not in default under, or in violation of, any term of any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or by which any of the properties or assets owned by it or used in the conduct of its business is affected, which default or violation may have a material adverse effect on the business, the assets or the financial condition of the Borrower. The operations of the Borrower comply in all respects with all laws, ordinances and regulations applicable to it. (f) The Borrower is not a party to or bound by, nor are any of the properties or assets owned by it or used in the conduct of its business affected by, any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment, or subject to any charter or other corporate restriction, which materially and adversely affects the business, assets or financial condition of the Borrower. (g) All balance sheets, profit and loss statements and other financial information heretofore furnished to the Bank are true, correct and complete and present fairly the financial condition of the Borrower as at the dates thereof and for the periods covered thereby, including contingent liabilities of every kind, which financial condition has not materially adversely changed since the date of the most recently dated balance sheet of the Borrower heretofore furnished to the Bank. (h) No part of the proceeds of the Loans will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of indebtedness which was incurred for the purpose of purchasing or carrying, any margin stock as such term is defined in Sec. 221.2 of Regulation U of the Board of Governors of the Federal Reserve System. (i) The Borrower and its Subsidiaries are in compliance in all material respects with the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and all rules and regulations thereunder. Neither the Borrower nor any of its Subsidiaries has any unfunded vested liability under any type of plan described in Section 4021(a) of ERISA ("Plan") and no reportable event, as set forth in Section 4043(c) of ERISA, has occurred or is continuing with respect to any Plan. (j) None of the real property owned or leased by the Borrower or any of its Subsidiaries that is a location of collateral pledged to the Bank (the "Real Property") 7 contains, or to the best knowledge of the Borrower has previously contained, any hazardous or toxic waste or substances or underground storage tanks in violation of any applicable environmental law; the Real Property is in compliance with all applicable environmental law; the Real Property is in compliance with all applicable federal, state and local environmental standards and requirements affecting such Real Property, and there are no environmental conditions which could interfere with the continued use of the Real Property; the Borrower has not received any notices of violations or advisory action by regulatory agencies regarding environmental control matters or permit compliance; hazardous waste has not been transferred from any of the Real Property to any other locations which is not in compliance with all applicable environmental laws, regulations or permit requirements; and with respect to the Real Property, there are no proceedings, governmental administrative actions or judicial proceedings pending or, to the best knowledge of the Borrower, contemplated under any federal, state or local law regulating the discharge of hazardous or toxic materials or substances into the environment, to which the Borrower is named as a party. 9. Financial Statements. The Borrower shall deliver to the Bank: -------------------- (a) Annually, as soon as available, but in any event within 95 days after the last day of each of its fiscal years, a copy of the Borrower's annual consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at such last day of the fiscal year, and consolidated and consolidating statements of income and retained earnings and cash flows, for such fiscal year, each prepared on a consolidating and consolidated basis in accordance with generally accepted accounting principles consistently applied and certified without qualification by a firm of independent certified public accountants satisfactory to the Bank; (b) At the same time as it delivers the certified financial statements required by Section 5(a), the Borrower shall use its best efforts to deliver, a certificate of the independent certified public accountants of the Borrower addressed specifically to both the Borrower and the Bank to the effect that during the course of their audit of the operations of the Borrower and its condition as of the end of the fiscal year, nothing has come to their attention which would indicate that an Event of Default hereunder, or an event with the giving of notice or the lapse of time or both would constitute such an Event of Default, has occurred or that there was any violation of the covenants of the Borrower contained in this Note or the Letter Agreement, or, if such cannot be so certified, specifying in reasonable detail the exceptions, if any, to such statement, and stating that it is aware that the Bank is relying on such financial statements; (c) Promptly upon receipt thereof, copies of all other reports submitted to the Borrower by its independent accountants in connection with any annual or interim audit or review off the books of the Borrower made by such accountants; (d) As soon as available but in any event within 50 days of the close of each fiscal quarter of the Borrower, the consolidated and consolidating balance sheets of the Borrower 8 as of the last day of such quarter, and consolidated and consolidating statements of income and retained earnings and cash flows of the Borrower as of the last day of and for such quarter and for the portion of the fiscal year then elapsed, each such statement to be certified by the chief financial or accounting officer of the Borrower, in each case as having been prepared in accordance with generally accepted accounting principles consistently applied; (e) copies of all notices, filings and other communications as and when distributed to shareholders of the Borrower; and (f) registration statements and any amendments and supplements thereto, and any regular and periodic reports filed by the Borrower or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any or all of the functions of the said Commission; (g) monthly, and not later than the 15th day of each month, (i) an aging of -- the accounts receivable of the Borrower displayed on a 30/60/90 day basis, and (ii) a borrowing base certificate (in a format satisfactory to the Bank) for the Borrower with a breakout indicating what percentage of aggregate Borrower Loans (as defined below) constitute Medallion Loans and.what percentage constitutes Commercial Loans (as such terms are defined below), each as of the last day of the immediately preceding month. To the extent that any such document reveals that, or at any time the Borrower has knowledge that, the aggregate obligations then outstanding under this Note and the Letter Agreement are in excess of the borrowing limitations set forth in Paragraph 1 of the Letter Agreement, the Borrower shall then pay such excess to the Bank to be applied against its obligations then outstanding to the Bank in such manner as the Bank in its sole discretion may determine; (h) such other statements and reports as shall be reasonably requested by the Bank; (i) At the same time as it delivers the financial statements required under the provisions of Subsections 6(a) and 6(b), a certificate signed by the president and the chief financial, or accounting, officer of the Borrower, to the effect that no Event of Default hereunder or under any other agreement to which the Borrower is a party or by which it is bound, or by which any of its properties or assets may be affected, and no event which, with the giving of notice or the lapse of time, or both, would constitute such an Event of Default, has occurred. 10. Affirmative Covenants. So long as the Commitment remains in effect or --------------------- there are any Obligations (as defined below) owing to the Bank, the Borrower will: (a) with respect to its properties, assets and business, maintain insurance against loss or damage, to the extent that property, assets and businesses of similar character are usually so insured by companies similarly situated and operating like properties, assets or businesses with insurance companies believed by the Borrower to be responsible; 9 (b) duly pay and discharge all taxes or other claims which might become a lien upon any of its property except to the extent that such items are being in good faith appropriately contested; (c) maintain, preserve and keep its properties in good repair, working order and condition, and make all reasonable repairs, replacements, additions, betterments and improvements thereto; (d) conduct its business in substantially the same manner and in substantially the same fields as such business is now carried on and conducted; it being expressly understood that the Borrower will deliver 60 days advance written notice to the Bank of any material change to the conduct of the Borrower's business, and the Bank shall, as a result of such impending change, have the right, in its sole discretion, to make unilateral adjustments to the calculation of the Borrowing Base Amount (as defined in the Letter Agreement) without further notice to, or the consent of, the Borrower; (e) comply with all statutes, rules and regulations and maintain its corporate existence; (f) permit the Bank to make or cause to be made (by a third party), at the Borrower's sole cost and expense, (i) field audits of the Borrower on an annual basis, and (ii) inspections and audits of any books, records and papers of the Borrower and to make extracts therefrom at all such reasonable times and as often as the Bank may reasonably require; (g) use the proceeds of the Loans for the following purposes and for no other purpose: for working capital purposes, including without limitation, for the Borrower to make Medallion Loans and Commercial Loans (as such terms are defined below); (h) maintain at all times a ratio of the total Borrowing Base Amount (as defined in the Letter Agreement) to outstanding debt of not less than 1.5 to 1.0; (i) with respect to the Real Property, (1) indemnify the Bank against any liability, loss, cost, damage, or expense (including, without limitation, reasonable attorney's fees) arising from (i) the imposition or recording of a lien by any local, state, or federal government or governmental agency or authority pursuant to any federal, state or local statute or regulation relating to hazardous or toxic wastes or substances or the removal thereof (an "Environmental Law"); (ii) claims of any private parties regarding violations of any Environmental Law; and (iii) costs and expenses (including, without limitation, reasonable attorneys fees and fees incidental to the securing of repayment of such costs and expenses) incurred by Borrower or any of its Subsidiaries or the Bank in connection with compliance by Borrower or any of its Subsidiaries or the Bank with any statute, regulation or order issues pursuant to any Environmental Law by any local, state or federal government or governmental agency or authority, (2) at any time the Borrower has knowledge that it has 10 violated, has incurred liability under, or any of the Real Property has any lien or exposure of lien under, any federal, state or local environmental law, the Borrower shall furnish to the Bank a certificate as to the action the Borrower is taking or proposes to take with respect thereto and (3) at the request of the Bank, which request will not be made on more than one occasion during any twelve month period, the Borrower shall undertake, at its sole expense, any environmental investigation and examination of the Real Property which the Bank may require, including, without limitation, an environmental investigation and examination of the Real Property by a consultant satisfactory to the Bank; and (j) immediately give notice to the Bank that an Event of Default has occurred or that an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and specifying the action which the Borrower has taken and proposes to take with respect thereto. 11. Negative Covenants. So long as the Commitment remains in effect or ------------------ there are any Obligations (as defined below) owing to the Bank, the Borrower will not: (a) consummate any merger or consolidation or liquidate, windup or dissolve itself or sell, transfer or lease or otherwise dispose of all or any substantial part of its assets (other than sales in the ordinary course of business); except that any Subsidiary which is wholly-owned by the Borrower may merge with or consolidate into the Borrower provided that the Borrower is the surviving corporation; (b) except for Obligations owing to the Bank, not assume, endorse, be or become liable for or guarantee the obligations of any corporation, partnership, limited liability company, individual or other entity that is a Subsidiary or affiliate, whether now existing or hereafter created; (c) create, assume or permit to exist, any mortgage, pledge, lien or encumbrance of or upon or security interest in, any of its property or assets now owned or hereafter acquired except (i) mortgages, liens, pledges and security interests in favor of the Bank; (ii) liens in existence on the date hereof; (iii) other liens, charges and encumbrances incidental to the conduct of its business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit and which do not materially impair the use thereof in the operation of its business; and (iv) liens for taxes or other governmental charges which are not delinquent or which are being contested in good faith and for which a reserve shall have been established in accordance with generally accepted accounting principles; and (d)(i) terminate any Plan so as to result in any material liability to The Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (the"PBGC"), (ii) engage in or permit any person to engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended) involving any Plan which would subject the Borrower to any material tax, 11 penalty or other liability, (iii) incur or suffer to exist any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, involving any Plan, or (iv) allow or suffer to exist any event or condition, which presents a material risk of incurring a material liability to the PBGC by reason of termination of any Plan. 12. Collateral Security. ------------------- (a) As collateral security for the payment of any and all sums owing under this Note and the Letter Agreement and all other obligations, direct or contingent, joint, several or independent, of the Borrower and each endorser or guarantor hereof now or hereafter existing, due or to become due to, or held, or to be held by, the Bank (including without limitation obligations to the Bank in connection with the Borrower's exposure to the Bank under any now existing or hereafter arising interest rate hedging agreement), whether created directly or acquired by assignment or otherwise (all of such obligations, including this Note, are hereinafter called the "Obligations"), the Borrower hereby grants to the Bank a lien on and security interest in any and all deposits or other sums at any time credited by or due from the Bank to the Borrower, whether in regular or special depository accounts or otherwise, and any and all monies, securities and other property of the Borrower, and the proceeds thereof, now or hereafter held or received by or in transit to the Bank from or for the Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and any such deposits, sums, monies, securities and other property, may at any time after the occurrence of any Event of Default be set-off, appropriated and applied by the Bank against any of the Obligations whether or not such Obligations are then due or are secured by any collateral, or, if they are so secured, whether or not such collateral held by the Bank is considered to be adequate and with respect to all collateral security the Bank shall have all the rights and remedies available to it under the Uniform Commercial Code of New York and other applicable law. (b) In addition to the collateral described in Section 9(a) hereof, payment of the Obligations is also secured by a first priority security interest in all personal property and fixtures of the Borrower wherever located and whether now owned or hereafter acquired, and including without limitation the notes, instruments and documents evidencing the Borrower Loans, and all property and rights, including without limitation Underlying Collateral, which now or hereafter secure Borrower Loans and all rights and remedies of Borrower with respect thereto, all as described in one or more security agreements (the "Security Agreement") executed by the Borrower in favor of the Bank. 13. Events of Default. If any one or more of the following events ----------------- ("Events of Default") shall occur, the entire unpaid balance of the principal of and interest on the Obligations shall immediately become due and payable: (a) Failure to make any payment of principal or interest in respect of any of the Obligations when due; or, 12 (b) Failure to observe any of the agreements of the Borrower contained in Sections 10 or 11 hereof or under the Letter Agreement; or, (c) Failure by the Borrower to perform any other term, condition or covenant of this Note or the Letter Agreement, the Security Agreement, or any other agreement, instrument or document delivered pursuant hereto or in connection herewith or therewith, which shall remain unremedied for a period of 15 days after notice thereof shall have been given by the Bank to the Borrower; or, (d) (i) Failure to perform any term, condition or covenant of any bond, note, debenture, loan agreement, indenture, guaranty, trust agreement, mortgage or other instrument or agreement in connection with the borrowing of money or the obtaining of advances or credit to which the Borrower is a party or by which it is bound, or by which any of its properties or assets may be affected (a "Debt Instrument"), so that, as a result of any such failure to perform (regardless of the satisfaction of any requirement for the giving of appropriate notice thereof or the lapse of time), the indebtedness included therein or secured or covered thereby may be declared due and payable prior to the date on which such indebtedness would otherwise become due and payable; or, (ii) any event or condition referred to in any Debt Instrument shall occur or fail to occur, so that, as a result thereof (regardless of the satisfaction of any requirement for the giving of appropriate notice thereof or the lapse of time), the indebtedness included therein or secured or covered thereby may be declared due and payable prior to the date on which such indebtedness would otherwise become due and payable; or, (iii) any indebtedness included in any Debt Instrument or secured or covered thereby is not paid when due; or (e) Any representation or warranty made in writing to the Bank in this Note, the Letter Agreement, or the Security Agreement or in connection with the making of the loan evidenced hereby or any certificate, statement or report made in compliance with this Note or such other agreement, shall have been false in any material respect when made; or (f) An order for relief under the Federal Bankruptcy Code as now or hereafter in effect, shall be entered against the Borrower, or any Subsidiary; or the Borrower, or any Subsidiary shall become insolvent, generally fail to pay its debts as they become due, make an assignment for the benefit of creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt, petition or apply to any tribunal for the appointment of a receiver or any trustee for it or a substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against it, which remains undismissed for a period of thirty days or more; or the Borrower, or any Subsidiary or endorser or guarantor hereof by any act or omission shall 13 indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or the appointment of a receiver of or any trustee for it or any substantial part of any of its properties, or shall suffer any such receivership or trusteeship to continue undischarged for a period of thirty days or more; or, (g) Any judgment against the Borrower, or any Subsidiary or any attachment, levy or execution against any of its properties for any amount shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of sixty days or more; or, (h) The Bank shall have determined, in its sole discretion, that one or more conditions exist or events have occurred which may result in a material adverse change in the business, properties or financial condition of the Borrower. 14. Payments. All payments by the Borrower on account of principal, -------- interest, or any other sum due hereunder, shall be made in lawful money of the United States of America in immediately available funds. The Bank may charge any account of the Borrower maintained at any office of the Bank for any such amount due hereunder. If any payment of principal or interest becomes due on a day on which the banks in New York, New York, are required or permitted by law to remain closed, such payment may be made on the next succeeding business day on which such banks are open, and such extensions shall be included in computing interest in connection with such payment. 15. Notices. All notices, requests and other communications pursuant to ------- this Note shall be in writing, either by letter (delivered by hand or sent by certified mail, return receipt requested) or telegram, addressed as follows: (a) if to the Borrower: Medallion Financial Corporation 205 East 42nd Street New York, New York 10017 Attn: Daniel Baker, Treasurer and CFO and, (b) if to the Bank: Fleet Bank, N.A. 175 Water Street New York, New York 10036 Attn: Michael Moschetta, Assistant Vice President 14 Any notice, request or communication hereunder shall be deemed to have been given when deposited in the mails, postage prepaid, or in the case of telegraphic notice, when delivered to the telegraph Borrower, addressed as aforesaid. Any party may change the person or address to whom or which the notices are to be given hereunder, but any such notice shall be effective only when actually received by the party to whom it is addressed. 16. Governing Law; Severability. This Note and the rights and obligations --------------------------- of the parties shall be construed and interpreted in accordance with the laws of the State of New York and the Borrower consents to the jurisdiction of the courts of New York in any action brought to enforce any rights of the Bank under this Note. The provisions of this Note are severable and if any clause or provision shall be held invalid or unenforceable in whole or in part in any Jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Note in any jurisdiction. 17. Definitions. As used herein: ----------- "Borrower Loan" shall mean any loan or advance made in the ordinary course ------------- of business by Borrower to or for the account of any client or customer of Borrower resident in the United States of America. Any loan, advance or extension of credit made at a different point in time than another loan, advance or extension of credit shall be deemed to be separate and distinct Borrower Loans. "Business Day" means any day other than a day on which the Banks in New ------------ York, New York are required or permitted by law to remain closed. "Commercial Loans" shall mean Borrower Loans that are secured in whole or ---------------- in part by real property and that are not Medallion Loans. "Eurodollar Rate" means with respect to any Eurodollar Loan Interest --------------- Period, the rate per annum determined by the Bank to be the rate at which deposits in U.S. dollars are offered by a Reference Bank (selected by the Bank) in the London interbank market at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Loan to which such Interest Period is to apply and for a period of time comparable to such Interest Period divided by one minus the Eurodollar Reserve Percentage. ----- "Eurodollar Reserve Percentage" means for any day that percentage ----------------------------- (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest 15 rate on Eurodollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of the Bank to United States residents). The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Fixed Rate" means either the Eurodollar Rate or the Agreed Rate plus the ---------- applicable margin. "Interest Period" means that period selected by the Borrower, within the --------------- limitations of the first paragraph of this Note, during which a Fixed Rate Loan may bear interest at the applicable Fixed Rate. "Medallion" shall mean the metal plate which displays the license number of --------- a licensed Taxicab on the outside of the vehicle and which is issued by the New York City Taxi and Limousine Commission, or by any other similar governmental authority for a jurisdiction other than New York City charged with the authority to issue licenses for the operation of Taxicabs. "Medallion Loans" shall mean Borrower Loans secured in whole or in part by --------------- Medallion Rights. "Medallion Rights" shall mean all license, operating and/or subscription ---------------- rights to Taxicab Medallion(s), and all license, operating and/or subscription rights evidenced by such Medallions, and all renewals thereof, in which a perfected security interest has been obtained by Borrower to secure the Borrower Loan made by Borrower to such Person, and assigned to the Bank, pursuant to the Security Agreement. "Reference Banks" means banks appearing in the display designated as page --------------- "LIBOR" on the Reuters' Monitor Money Rates Service (or such other page as may replace the LIBOR page on that service for the purpose of displaying London Interbank Offered Rates of major banks); provided that if no such offered rate shall appear on such display, "Reference Banks" shall mean one or more major banks in the London interbank market as selected by the Bank. "Subsidiary" or "Subsidiaries" means any corporation or corporations of ---------------------------- which the Borrower, alone, or the Borrower and/or one or more of its Subsidiaries, owns, directly or indirectly, at least a majority of the securities having ordinary voting power for the election of directors. "Taxicab" shall mean a motor vehicle carrying passengers for hire, duly ------- licensed as a taxicab by the Taxi and Limousine Commission, or any other Governmental Authority for a jurisdiction other than New York City, and permitted to accept hails from passengers in the street. 16 "Underlying Collateral" shall mean all of Borrower's rights with respect --------------------- to, or interest in, any and all present and future Medallion Rights, equipment, Real Property, fixtures, machinery, future accounts, accounts receivable, receivables, contracts, contract rights, general intangibles, books, desks, notes, bills, drafts, acceptances, choses in action, chattel paper, instruments, documents and other forms of obligations and property, real, personal or mixed, tangible or intangible, at any item owing to or owned by any Person to whom borrower has made a Borrower Loan, or any guarantor of such Person. 18. Miscellaneous. ------------- (a) All agreements, representations and warranties made herein shall survive the delivery of this Note. The Borrower waives trial by jury, set-off and counterclaim of any nature or description in any litigation in any court with respect to, in connection with, or arising out of, this Note or any instrument or document delivered pursuant hereto or the validity, protection, interpretation, collection or enforcement hereof. (b) No modification or waiver of or with respect to any provision of this Note, or consent to any departure by the Borrower from any of the terms or conditions hereof, shall in any event be effective unless it shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrower in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. (c) Each and every right granted to the Bank hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Bank or the holder of this Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. (d) In the event that this Note is placed in the hands of an attorney for collection by reason of any default hereunder, the Borrower agrees to pay reasonable attorney's fees so incurred. The Borrower promises to pay all expenses of any nature as soon as incurred whether in or out of court and whether incurred before or after this Note shall become due at its maturity date or otherwise and costs which the Bank may deem necessary or proper in connection with the satisfaction of the indebtedness or the administration, supervision, preservation, protection (including but not limited to maintenance of adequate insurance) of or the realization upon the collateral. (e) The Borrower hereby waives presentment, demand for payment, protest, notice of protest, notice of dishonor, and any or all other notices or demands except as otherwise expressly provided for herein. 17 (f) All accounting terms not otherwise defined in this Note shall have the meanings ascribed thereto under generally accepted accounting principles. (g) This Note, the Letter Agreement, the Security Agreement and any other agreements, documents and instruments executed and delivered pursuant to or in connection with the Obligations contain the entire agreement between the parties relating to the subject matter hereof and thereof. The undersigned expressly acknowledges that the Bank has not made and the undersigned is not relying on any oral representations, agreements or commitments of the Bank or of any officer, employee, agent or representative thereof. To the extent there is any inconsistency between the terms of this Note and the Letter Agreement, the terms of this Note shall control. (h) This Note shall supersede and replace that certain $2,000,000 Note of Tri-Magna Corporation dated as of September 1, 1995, as amended, and all outstanding indebtedness under such prior note shall be deemed to be evidenced by this Note. MEDALLION FINANCIAL CORPORATION By /s/ Daniel F. Baker, Treasurer ------------------------------ (Title) 18 LOAN AND REPAYMENT SCHEDULE PROMISSORY NOTE DATED as of December 1, 1996 MEDALLION FINANCIAL CORPORATION ------------------------------- to FLEET BANK, N.A.
Last Day Amount of Unpaid Amount Rate of of Interest Principal Principal Notation Date of Loan Interest Period Repayment Repayment Made By - -----------------------------------------------------------------------
19 ENDORSEMENT NO. 1 TO REVOLVING CREDIT NOTE The undersigned, MEDALLION FINANCIAL CORPORATION (the "Borrower") and FLEET BANK, N.A. (the "Bank") hereby agree that the $5,000,000 Revolving Credit Note of the Borrower in favor of the Bank dated as of December 1, 1996 (the "Note"), to which this Endorsement is attached, is hereby amended as follows: All references in the Note to the amount "$5,000,000" or "FIVE MILLION DOLLARS ($5,000,000)" are hereby amended to read "$6,000,000" or "SIX MILLION DOLLARS ($6,000,000)". Except as expressly amended by this Endorsement all the terms and conditions of the Note to which this Endorsement is attached shall continue in full force and effect. This Endorsement shall be as of February 10, 1997. MEDALLION FINANCIAL CORPORATION By: /s/ Daniel Baker ---------------- Daniel Baker, CFO and Treasurer FLEET BANK, N.A. By: /s/ Michael B. Moschetta ------------------------ Michael B. Mochetta, AVP EX-10.27 12 SECURITY AGREEMENT 01-DEC-96 Exhibit 10.27 CONTINUING GENERAL SECURITY AGREEMENT In consideration of financial accommodations (arising from loan, advance, letter of credit, acceptance, interest rate hedging arrangements and/or other credit transactions) given or to be given or to be continued to the undersigned (the "Debtor") or to any other party(ies) at the request, or for the benefit, or upon the undertaking, of the Debtor by Fleet Bank, National Association, its successors or assigns (together with its affiliates and subsidiaries, herein called the "Bank"), the Debtor hereby agrees with the Bank that, whenever the Debtor shall be at any time or times directly or contingently indebted, liable or obligated to the Bank in any manner whatsoever, the Bank shall have the following rights and the Debtor shall have the following obligations: 1. As security for the due and punctual payment of any and all of the present and future Obligations of the Debtor (as defined in Section 2 below), the Debtor hereby assigns, mortgages, pledges, hypothecates, transfers, sets over and grants to the Bank a first lien on and security interest in (a) all of the Collateral (as defined in Section 3 below), whether now or hereafter existing or acquired, and (b) all present and future products and proceeds of the Collateral. 2. As used herein, the term "Obligations" means all liabilities, absolute or contingent, joint, several or independent, of the Debtor now or hereafter existing, due or to become due to, or held or to be held by, the Bank for its own account or as agent for another or others, whether created directly or acquired by assignment or otherwise and howsoever evidenced. 3. As used herein, the term "Collateral" means the property described opposite the box(es) checked below together with the property described in Section 4 below: [ ] A. ALL PERSONAL PROPERTY. All of the personal property and fixtures of the Debtor wherever located and whether now owned or in existence or hereafter acquired or created, of every kind and description, tangible or intangible, including without limitation all inventory, goods, equipment, farm products, instruments, documents, chattel paper, accounts, contract rights and general intangibles, such terms having the meaning ascribed by the Uniform Commercial Code, and including without limitation the * (See Rider A hereto). [ ] B. EQUIPMENT. Equipment (of any nature and description), now owned or hereafter acquired and wherever located, employed in the operation of the Debtor's business, and all proceeds thereof and products of such equipment in any form whatsoever. As used herein, the term "equipment" shall also mean and include all spare parts therefor, all present and future additions, attachments and accessions thereto, all substitutions therefor and replacements therefor and replacements thereof. Nothing herein shall be construed as giving a right to the Debtor to sell any equipment which is the subject of this Agreement. [ ] C. INVENTORY. All of the inventory of the Debtor, of very type or description, now owned or hereafter acquired and wherever located, whether raw, in process or finished, all goods usable in processing the same and all documents of title covering any inventory, and all proceeds thereof and products of such inventory in any form whatsoever, including but not limited to accounts and chattel paper. [ ] D. ACCOUNT AND CHATTEL PAPER. All of the Debtor's present and future accounts, contract rights, general intangibles and chattel paper and all other rights to the payment of money arising out of the sale (or lease) of goods or services (hereinafter referred to in the plural as "Accounts" and in the singular as "Account"), all proceeds thereof and all liens, securities, guarantees, remedies, and privileges pertaining thereto, together with all rights and liens of the Debtor in and to such goods, including returned or repossessed goods, and all rights and property of any kind forming the subject matter of any of the Accounts, including the right of stoppage in transit. [ ] E. OTHER. If no box is checked, Clause A (All Personal Property) shall be deemed applicable for all purposes of this Agreement. If the Clause A box is checked, checking also the Clause B and/or Clause C and/or Clause D and/or Clause E box(es) is not intended, and shall not be construed, to limit the generality or legal effect of the description contained in Clause A. In the event that (i) in addition to this Continuing General Security Agreement the Debtor is a party to one or more other security, pledge or similar agreements providing for a security interest in personal property in favor of the Bank (collectively the "Other Collateral Agreements"), and (ii) the collateral described in this Agreement and the Other Collateral Agreements is not the same, then, in such event, this Agreement and the Other Collateral Agreements shall be read together as one agreement such that the Obligations shall be deemed secured by the collateral described in each of such agreements. 4. Any and all deposits or other sums at anytime credited by or due from the Bank to the Debtor; and any and all monies, securities and other property of the Debtor, and the proceeds thereof now or hereafter held or received by or in transit to the Bank from or for the Debtor, whether for safekeeping, custody, pledge, transmission, collection or otherwise, shall at all times constitute security for any and all Obligations. - 2 - 5. The Debtor represents and warrants that: (a) no Financing Statement (other than any which may have been filed on behalf of the Bank) relating to any of the Collateral is on file in any public office; and (b) the Chief Executive Office (or Major Executive Office) of Debtor (if any), and the Collateral are respectively located at the address(es) set forth at the end of this Agreement and Debtor will not change such location without prior written notice to and consent of the Bank; and (c) Debtor has not created and is not aware of any security interest, lien or encumbrance on or affecting the Collateral other than related hereby. 6. The Debtor assumes all liability and responsibility in connection with all Collateral acquired by Debtor; and the obligation of the Debtor to pay all Obligations shall in no way be affected or diminished by reason of the fact that any such Collateral may be lost, destroyed, stolen. 7. As long as this Agreement shall remain in effect, the Debtor agrees: (a) that if the Bank so demands in writing at any time (i) all proceeds of the Collateral shall be delivered to the Bank promptly upon their receipt in a form satisfactory to the Bank, and (ii) all chattel paper, instruments and documents pertaining to the Collateral shall be delivered to the Bank at the time and place and in the manner in which specified in the Bank's demand; (b) in order to enable the Bank to comply with the law of any jurisdiction, including state, federal, and foreign, applicable to any security interest granted hereby or to the Collateral, to execute and deliver upon request, in form acceptable to the Bank, any Financing Statement, notice, statement, instrument, document, agreement or other paper and/or to perform any act requested by the Bank which may be necessary to create, perfect, preserve, validate or otherwise protect such security interest or to enable the Bank to exercise and enforce the Bank's rights hereunder or with respect to such security interest; (c) promptly to pay any filing fees or other costs in connection with (i) the filing or recordation of such Financing Statements or any other papers described above and (ii) such searches of the public records as the Bank in its sole discretion shall require; (d) that the Bank is authorized to file or record any such Financing Statements or other papers without the signature of the Debtor if permitted by applicable law; (e) the Bank may file a photographic or other reproduction of this Agreement in lieu of a Financing Statement in any filing office where it is permissible to do so; (f) except for the security interest granted hereby, the Debtor shall keep the Collateral and proceeds and products thereof free and clear of any security interest, liens or encumbrances of any kind, the Debtor shall promptly pay, when due, all taxes and transportation, storage and warehousing charges and fees affecting or arising out of the Collateral and shall defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein adverse to the Bank; - 3 - (g) at all times to keep all insurable Collateral insured at the expense of the Debtor to the Bank's satisfaction against loss by fire, theft and any other risk to which the Collateral may be subject; all policies shall be endorsed in favor of the Bank and, if the Bank so requests, shall be deposited with the Bank; and in any event, such policies will provide that each insurer will give the Bank not less than 30 days' notice in writing prior to the exercise of any right of cancellation; in the event the Debtor fails to maintain any insurance, the Bank may (but shall not be obligated to) place such insurance and pay the premium therefor, in which event the Debtor will pay the Bank such premium with interest; the Bank may apply any proceeds of such insurance which may be received by it toward payment of the Obligations, whether or not due, in such order of application as the Bank may determine; (h) that the Bank's duty with respect to the Collateral shall be solely to use reasonable care in the custody and preservation of collateral in its possession; the Bank shall not be obligated to take any steps necessary to preserve any rights in any of the Collateral against prior parties, and the Debtor hereby agrees to take such steps; the Debtor shall pay to the Bank all costs and expenses, including filing and reasonable attorney's fees, incurred by the Bank in connection with the custody, care, preservation or collection of the Collateral; the Bank, may, but is not obligated to, exercise any and all rights of conversion or exchange or similar rights, privileges and options relating to the Collateral; the Bank shall have no obligation to sell or otherwise realize upon any of the Collateral as herein authorized and shall not be responsible for any failure to do so or for any delay in so doing; IN THE EVENT OF ANY LITIGATION, WITH RESPECT TO ANY MATTER CONNECTION WITH THIS AGREEMENT, THE OBLIGATIONS, THE COLLATERAL, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT APPLICABLE HERETO OR TO ANY ONE OR MORE OF THEM IN ANY RESPECT, DEBTOR HEREBY WAIVES THE RIGHT TO A TRIAL BY JURY AND DEBTOR WAIVES ALL DEFENSES, RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS OF ANY NATURE; (i) to provide the Bank with such information as the Bank may from time to time request with respect to the location of the Collateral and any of its places of business; (j) that the Bank will be notified promptly in writing of any change in any office as set forth below; (k) that the Debtor will permit the Bank, by its officers and agents, to have access to and examine at all reasonable times the properties, minute books and other corporate records, and books of account and financial records of the Debtor; (l) that the Debtor will promptly notify the Bank upon the occurrence of any default, as provided in this Agreement, of which the Debtor has knowledge. (m) that the Debtor will not sell, transfer, lease or otherwise dispose of any of the Collateral, or any interest therein, or offer to do so or permit anything to be done to impair the value of the Collateral or the security interest granted to the Bank, provided, however, the Debtor may sell Inventory -------- ------- in the ordinary course of its business to unaffiliated third parties. The Bank shall have the right, by written notice to the Debtor, to terminate the - 4 - Debtor's authority to sell, lease, otherwise transfer, manufacture, process or assemble, or furnish under contracts of service, any or all of the Inventory. 8. If the Clause A and/or D box(es) in Section 3 (All Personal Property and/or Accounts and Chattel Paper, respectively) (is) (are) checked, the following provisions shall also be applicable. A. Upon the occurrence of an Event of Default as defined in Section 9 hereof, the Debtor agrees as follows: (i) the Debtor will not, without first obtaining the written consent of the Bank, renew or extend the time of payment of any Account; (ii) the Debtor will promptly notify the Bank in writing of any compromise, settlement or adjustment with respect to an Account and will forthwith account therefor to the Bank in cash for the amount thereof without demand or notice; (iii) the Debtor will stamp, in form and manner satisfactory to the Bank, its accounts receivable ledger and other books and records pertaining to the Accounts, with an appropriate reference to the security interest of the Bank in the Accounts; (iv) upon request, the Debtor will furnish the Bank original or other papers relating to the sale of merchandise or the performance of labor or services which created any Account; (v) the Debtor may collect the Accounts, subject to the discretion and control of the Bank, but the Bank may, without cause or notice, curtail or terminate such authority at any time; (vi) the proceeds of the Accounts, when collected by the Debtor, whether consisting of cash, checks, notes, drafts, money orders, commercial paper of any kind whatsoever, or other documents, received in payment of the Accounts shall be promptly remitted by the Debtor to the Bank, in precisely the form received, except for endorsement by the Debtor when required; (vii) such proceeds until remitted to the Bank, as aforesaid, shall be held in trust by the Debtor for, and as the property of, the Bank and shall not be commingled with other funds, money or property; (viii) proceeds of the Accounts will be received by the Bank subject to final collection and receipt of proceeds in cash or by unconditional credit to and acceptance by the Bank; (ix) the Bank shall apply in its absolute discretion, all collections received by it on the Accounts, toward the payment of any of the Obligations whether due or not due; (x) the Debtor will promptly notify the Bank in writing of the return or rejection of any merchandise represented by the Accounts and the Debtor shall forthwith account therefor to the Bank in cash without demand or notice and until such payment has been received by the Bank, the Debtor will receive and hold all such merchandise separate and apart, in trust for and subject to the security interest in favor of the Bank; (xi) the Bank is authorized to sell, for the Debtor's account and sole risk, all or any part of such merchandise in the manner and under the terms and conditions hereinafter set forth. B. The Debtor represents and warrants to the Bank that the Debtor is the sole owner of the Accounts and no one has or claims to have an interest of any kind therein or thereto; each of the debtors named in every such Account is indebted to the Debtor in the amount and on the terms indicated in the invoice and schedule of Accounts; each Account is bona fide and arises out of the performance of labor or services or the sale and delivery or lease of merchandise or both; and none of the accounts is now, nor will at any time in the future become, contingent upon the fulfillment of any contract or conditions whatsoever, nor subject to any defense, offset or counterclaim. - 5 - C. The Debtor will maintain accurate and complete records of the Accounts and will make the same available to the Bank at any time upon demand. The Bank is entitled, at any time in its sole discretion, to notify the account debtors of the Debtor to make payment upon the Accounts directly to the Bank. 9. Upon non-payment when due of any of the Obligations, or upon the failure of the Debtor to perform any agreement on its part to be performed hereunder, or by the terms of any other related agreement covering the Obligations, or in case the Bank deems itself insecure, or it appears at any time that any representation in any financial or other statement of the Debtor (delivered to the Bank by or on behalf of the Debtor) is untrue or omits any material fact, or if a material adverse change shall occur in the financial condition of the Debtor, or if the Debtor (or any endorser, guarantor or surety of or upon any of the Obligations) shall die or (being a partnership, limited liability company or corporation) shall be dissolved or shall become insolvent (however evidenced), or upon the suspension of the Debtor, or upon the issuance of any warrant, process, or order of attachment, garnishment or lien and/or the filing of a lien as a result thereof against any of the property of the Debtor (or any endorser, guarantor or surety of or upon any of the Obligations), or upon the making by the Debtor (or any endorser, guarantor or surety) of an assignment for the benefit of creditors under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, composition, receivership, liquidation or dissolution law or statute of any jurisdiction, then in any such event (each an "Event of Default"), (a) all Obligations shall become at once due and payable, without notice, presentment, demand for payment or protest, which are hereby expressly waived; (b) the Bank is authorized to take possession of the Collateral and, for that purpose may enter, with the aid and assistance of any person or persons, any premises where the Collateral, or any part thereof is, or may be, placed and remove same; (c) the Bank may proceed to apply to the Obligations, any and all deposits or other sums described in Section 4 hereof; (d) the Bank may require the Debtor to assemble the Collateral and to make it available to the Bank at a place designated by the Bank which is reasonably convenient to the Bank and the Debtor; (e) the Bank shall have the right from time to time to sell, resell, assign, transfer and deliver all or any part of the Collateral, at any broker's board or exchange, or at public or private sale or otherwise, at the option of the Bank, for cash or on credit for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Bank may deem proper, and in connection therewith may grant options and may impose reasonable conditions such as requiring any purchaser to represent that any stock constituting part of the Collateral is being purchased for investment purposes only, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon the Debtor or right of redemption to the Debtor, which are hereby expressly waived; unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Bank will give the Debtor reasonable notice of the time and place of any such public sale or of the time after which any private sale or any other intended disposition thereof is to be made and Debtor agrees that five (5) days prior notice shall be deemed reasonable notice; (f) upon each such sale, the Bank may, unless prohibited by applicable statute which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, rights of redemption and equities of the Debtor, which are hereby waived and released; (g) the Bank shall, upon mailing notice to the Debtor that it so elects, have from the date of such mailing the right from time to time to - 6 - vote any shares of stock securing any of the Obligations; provided, however, the Bank at any time, before or after the occurrence of any Event of Default, may, but shall not be obligated to, transfer into or out of its own name or that of its nominee all or any of the Collateral which is instruments, stocks, bonds, and other securities, and the Bank or its nominee may demand, sue for, collect, receive and hold as like Collateral any or all interest, dividends and income thereon and if any securities are held in the name of the Bank or its nominee, the Bank may, after the occurrence of any such events, exercise all voting and other rights pertaining thereto as if the Bank were the absolute owner thereof; but the Bank shall not be obligated to demand payment of, protest, or take any steps necessary to preserve any rights in any such Collateral against prior parties, or take any action whatsoever in regard to any such Collateral, all of which the Debtor assumes and agrees to do. Without limiting the generality of the foregoing, the Bank shall not be obligated to take any action in connection with any conversion, call, redemption, retirement or any other event relating to any of such Collateral, unless the Debtor gives written notice to the Bank that such action shall be taken not more than thirty (30) days prior to the time such action may first be taken and not less than ten (10) days prior to the expiration of the time during which such action may be taken; (h) the Bank's obligations, if any, to give additional (or to continue) financial accommodations of any kind to the Debtor shall immediately terminate; and (i) in addition to the rights and remedies given to the Bank hereunder or otherwise, the Bank shall have all of the rights and remedies of a secured party under the Uniform Commercial Code of the Governing State. As used in this Agreement, Governing State shall mean the state indicated as such below; provided, that, if no such state is so indicated then Governing State shall mean the state where the Bank's office that originated the Obligations is located. 10. In the case of each such sale or of any proceedings to collect any of the Obligations, the Debtor shall pay all costs and expenses of every kind for collection, sale or delivery, including reasonable attorneys fees, and after deducting such costs and expenses from the proceeds of sale or collection, the Bank may apply any residue to pay any of the Obligations and the Debtor will continue to be liable to the Bank for any deficiency with interest. 11. The Bank may, but is not obligated to, (a) demand, sue for, collect or receive any money or property at any time due, payable or receivable on account of or in exchange for any obligations securing any of the Obligations; (b) compromise and settle with any person liable on such obligation, and/or (c) extend the time of payment of or otherwise change the terms thereof, as to any party liable thereon; all without incurring responsibility to the undersigned or affecting any of the Obligations. 12. In order to effectuate the terms and provisions hereof, the Debtor hereof designates and appoints the Bank and its designees or agents as attorney- in-fact of the Debtor, irrevocably and with power of substitution, with authority to receive, open and dispose of all mail addressed to the Debtor, to notify the Post Office authorities to change the address for delivery of mail addressed to the Debtor or such address as the Bank may designate, to endorse the name of the Debtor on any notes, acceptances, checks, drafts, money orders, in instruments or other evidence of payment or proceeds of the Collateral that may come into the Bank's possession to sign the name of the Debtor on any invoices, documents, drafts against and notice (which also may direct among other things that payment - 7 - be made directly to the Bank) to Account debtors or obligors of the Debtor, assignments and requests for verification of accounts; to execute proofs of claim and loss; to execute any endorsements, assignments, or other instruments of conveyance or transfer, to adjust and compromise any claims under insurance policies; to execute releases, and to do all other acts and things necessary and advisable in the sole discretion of the Bank to carry out and enforce this Agreement. All acts of said attorney or designee are hereby ratified and approved and said attorney or designee shall not be liable for any acts of commission or omission, nor or any error of judgment or mistake of fact or law. This power of attorney being coupled with an interest is irrevocable while any of the Obligations shall remain unpaid. 13. All options, powers and rights granted to the Bank hereunder or under any promissory note, instrument, document or other writing delivered to the Bank shall be cumulative and shall be in addition to any other options, powers or rights which the Bank may now or hereafter have as a secured party under the Uniform Commercial Code of the Governing State or under any other applicable law or otherwise. 14. No delay on the part of the Bank in exercising any of its options, powers, or rights, or partial or single exercise thereof, shall constitute a waiver thereof. Neither this Agreement nor any provision hereof may be modified, changed, waived, discharged or terminated orally, but only by an instrument in writing, signed by the party against whom enforcement of the modification, change, waiver, discharge or termination is sought. The Bank shall have the right, for and in the name, place and stead of the Debtor, to execute endorsements, assignments or other instruments of conveyance or transfer with respect to any of the Collateral. 15. Notice of acceptance of this Agreement by the Bank is hereby waived. This Agreement shall be immediately binding upon the Debtor and its successors and assigns, whether or not the Bank signs this Agreement. 16. It is the intention of the parties (a) that this Agreement shall constitute a continuing agreement applying to any and all future, as well as existing transactions between the Debtor and the Bank; and (b) that the security interest provided for herein shall attach to after-acquired as well as existing Collateral, and the Obligations covered by this Agreement shall include future advances and other value, as well as existing advances and other value, whether or not similar to prior or existing advances or other value, and whether or not the advances or value are or shall be given pursuant to commitment, all to the maximum extent permitted by the Uniform Commercial Code of the Governing State. 17. Unless the context otherwise requires, all terms used herein which are defined in the Uniform Commercial Code of the Governing State shall have the meanings therein stated. 18. If this Agreement is signed by two or more parties as Debtors, they shall be jointly and severally liable hereunder, and the term "Debtor" wherever used in this Agreement shall mean the parties who have signed this Agreement and each of them. - 8 - 19. Mailing Address of Debtor. For the purpose of Section 9.402(1) of the Uniform Commercial Code, the address of the Debtor specified below under the caption "Chief Executive Office" (or "Major Executive Office" address whenever the Chief Executive Office is located outside of the United States) may be designated as the Debtor's mailing address. 20. This Agreement shall be construed in accordance with and be governed by the law of the Governing State. 21. Governing State: New York. IN WITNESS WHEREOF, the Debtor has executed this Agreement or has caused these presents to be executed and delivered by its proper corporate officer or officers and caused its proper corporate seal to be hereto affixed, as of the 1st day of December, 1996. (Check One) [ ] Chief Executive Office [ ] Major Executive Office MEDALLION FINANCIAL CORPORATION By: /s/ Daniel F. Baker, Treasurer --------------------------------- Address: - ----------------------------------- - ----------------------------------- - ----------------------------------- Other Business Addresses and/or Location of Collateral (if none, state "None") - ----------------------------------- - ----------------------------------- - ----------------------------------- - 9 - Rider A to Continuing General Security Agreement Delivered By Medallion Financial Corporation to Fleet Bank, N.A. ------------------- The following is added at the end of Section 3.A. of the Continuing General Security Agreement: "the notes, instruments and documents evidencing the Borrower Loans, and all property and rights, including without limitation Underlying Collateral, which now or hereafter secure Borrower Loans and all rights and remedies of Debtor with respect thereto; and any and all additions and accessions to the foregoing Collateral, all substitutions and replacements therefor and all products and proceeds thereof and proceeds of insurance thereon. Definitions. As used herein: - ----------- "Borrower Loan" shall mean any loan or advance made in the ordinary course ------------- of business by Debtor to or for the account of any client or customer of Debtor [resident in the United States of America]. Any loan, advance or extension of credit made at a different point in time than another loan, advance or extension of credit shall be deemed to be separate and distinct Borrower Loans. "Medallion" shall mean the metal plate which displays the license number of --------- a licensed Taxicab on the outside of the vehicle and which is issued by the New York City Taxi and Limousine Commission, or by any other similar governmental authority for a jurisdiction other than New York City charged with the authority to issue licenses for the operation of Taxicabs. "Medallion Loans" shall mean Borrower Loans secured in whole or in part by --------------- Medallion Rights. "Medallion Rights" shall mean all license, operating and/or subscription ---------------- rights to Taxicab Medallion(s), and all license, operating and/or subscription rights evidenced by such Medallions, and all renewals thereof, in which a perfected security interest has been obtained by Debtor to secure the Borrower Loan made by Debtor to such person, and assigned to the Bank, pursuant to this Security Agreement. "Taxicab" shall mean a motor vehicle carrying passengers for hire, duly ------- licensed as a taxicab by the Taxi and Limousine Commission, or any other Governmental Authority for a jurisdiction other than New York City, and permitted to accept hails from passengers in the street. - 10 - "Underlying Collateral" shall mean all of Debtor's rights with respect to, --------------------- or interest in, any and all present and future Medallion Rights, equipment, real property, fixtures, machinery, future accounts, accounts receivable, receivables, contracts, contract rights, general intangibles, books, desks, notes, bills, drafts, acceptances, choses in action, chattel paper, instruments, documents and other forms of obligations and property, real, personal or mixed, tangible or intangible, at any item owing to or owned by any person to whom Debtor has made a Borrower Loan, or any guarantor of such person." MEDALLION FINANCIAL CORPORATION By: /s/ Daniel F. Baker, Treasurer --------------------------------- (Title) - 11 - EX-10.28 13 REVOLVING CREDIT NOTE 28-JAN-97 $25,000,000 Exhibit 10.28 REVOLVING CREDIT NOTE $25,000,000 No. 32 January 28, 1997 FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New York corporation (the "Borrower"), hereby unconditionally promises to pay on the date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or on such earlier date as may be required under the Loan Agreement, to the order of Fleet Bank, N.A. (the "Bank") at the office of such Bank, currently located at 592 Fifth Ave New York, New York, 10036, in lawful money of the United States of America and in immediately available funds, an amount equal to the lesser of (a) TWENTY FIVE MILLION DOLLARS ($25,000,000) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to the Loan Agreement, dated as of March 27, 1992, as ammended, among the Borrower, the banks that from time to time are signatories thereto, and Fleet Bank NA as Agent (as amended, modified or supplemented from time to time in accordance with its terms, the "Loan Agreement"). The Borrower further promises to pay interest (computed on the basis of a 360-day year for the actual number of days elapsed) in like money on the unpaid principal balance of this Note from time to time outstanding at such rates and times as provided in the Loan Agreement. All Revolving Credit Loans made by the Bank pursuant to the Loan Agreement and all payments of the principal thereof shall be endorsed by the holder of this Note on the schedule annexed hereto (including any additional pages such holder may add to such schedule), which endorsement shall constitute prima facie ----------- evidence of the accuracy of the information so endorsed; provided, however, that ----------------- the failure of the holder of this Note to insert any date or amount or other information on such schedule shall not in any manner affect the obligation of the Borrower to repay any Revolving Credit Loans in accordance with the terms of the Loan Agreement. On and after the stated or any accelerated maturity hereof, and until paid in full (whether before or after the occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), (a) the outstanding principal amount of this Note which at such time is a Prime Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and (b) the outstanding principal amount of this Note which is a LIBO Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate applicable to such LIBO Rate Loan then in effect, in each case payable on demand, but in no event shall such rate of interest (the "Default Rate") be in excess of the maximum rate of interest permitted under applicable law. The Default Rate shall be computed on the basis of a 360-day year for the actual number of days elapsed. If the Default Rate is to be based on the Prime Rate, the Prime Rate to be charged shall change when and as the Prime Rate is changed, and any such change in the Prime Rate shall become effective at the opening of business on the day on which such Revolving Credit Note Page 2 change is adopted. At the end of the applicable Interest Period for a LIBO Rate Loan on which the Default Rate is being charged, such LIBO Rate Loan shall be automatically converted to a Prime Rate Loan, and the Default Rate to be charged in respect of such Loan shall be computed based on the Prime Rate. This Note is one of the Revolving Credit Notes referred to in the Loan Agreement, is secured as provided therein, is entitled to the benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower shall make when due any and all payments and prepayments on this Revolving Credit Note required under the Loan Agreement. Reference is herein made to the Loan Agreement for the rights of the holder to accelerate the unpaid balance hereof prior to maturity. Borrower hereby waives diligence, demand, presentment, protest and notice of any kind, release, surrender or substitution of security, or forbearance or other indulgence, without notice. Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Loan Agreement. This Note may not be changed, modified, or terminated orally, but only by an agreement in writing signed by the party to be charged. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS- CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or provision of this Revolving Credit Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions herein shall in no way be affected thereby. Revolving Credit Note Page 3 IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the date first above written. MEDALLION FUNDING CORP., a New York Corporation By: /s/ Alvin Murstein ------------------ Alvin Murstein CEO By: /s/ Daniel F. Baker ------------------- Daniel F. Baker Treasurer & CFO President EX-10.29 14 REVOLVING CREDIT NOTE 28-JAN-97 $22,500,000 Exhibit 10.29 REVOLVING CREDIT NOTE $22,500,000 No. 33 January 28, 1997 FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New York corporation (the "Borrower"), hereby unconditionally promises to pay on the date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or on such earlier date as may be required under the Loan Agreement, to the order of The First National Bank of Boston (the "Bank") at the office of such Bank, currently located at 592 Fifth Ave New York, New York, 10036, in lawful money of the United States of America and in immediately available funds, an amount equal to the lesser of (a) TWENTY-TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($22,500,000) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to the Loan Agreement, dated as of March 27, 1992, as amended, among the Borrower, the banks that from time to time are signatories thereto, and Fleet Bank NA as Agent (as amended, modified or supplemented from time to time in accordance with its terms, the "Loan Agreement"). The Borrower further promises to pay interest (computed on the basis of a 360-day year for the actual number of days elapsed) in like money on the unpaid principal balance of this Note from time to time outstanding at such rates and times as provided in the Loan Agreement. All Revolving Credit Loans made by the Bank pursuant to the Loan Agreement and all payments of the principal thereof shall be endorsed by the holder of this Note on the schedule annexed hereto (including any additional pages such holder may add to such schedule), which endorsement shall constitute prima facie ----------- evidence of the accuracy of the information so endorsed; provided, however, that ----------------- the failure of the holder of this Note to insert any date or amount or other information on such schedule shall not in any manner affect the obligation of the Borrower to repay any Revolving Credit Loans in accordance with the terms of the Loan Agreement. On and after the stated or any accelerated maturity hereof, and until paid in full (whether before or after the occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), (a) the outstanding principal amount of this Note which at such time is a Prime Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and (b) the outstanding principal amount of this Note which is a LIBO Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate applicable to such LIBO Rate Loan then in effect, in each case payable on demand, but in no event shall such rate of interest (the "Default Rate") be in excess of the maximum rate of interest permitted under applicable law. The Default Rate shall be computed on the basis of a 360-day year for the actual number of days elapsed. If the Default Rate is to be based on the Prime Rate, the Prime Rate to be charged shall change when and as the Prime Rate is changed, and any such change in the Prime Rate shall become effective at the opening of business on the day on which such Revolving Credit Note Page 2 change is adopted. At the end of the applicable Interest Period for a LIBO Rate Loan on which the Default Rate is being charged, such LIBO Rate Loan shall be automatically converted to a Prime Rate Loan, and the Default Rate to be charged in respect of such Loan shall be computed based on the Prime Rate. This Note is one of the Revolving Credit Notes referred to in the Loan Agreement, is secured as provided therein, is entitled to the benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower shall make when due any and all payments and prepayments on this Revolving Credit Note required under the Loan Agreement. Reference is herein made to the Loan Agreement for the rights of the holder to accelerate the unpaid balance hereof prior to maturity. Borrower hereby waives diligence, demand, presentment, protest and notice of any kind, release, surrender or substitution of security, or forbearance or other indulgence, without notice. Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Loan Agreement. This Note may not be changed, modified, or terminated orally, but only by an agreement in writing signed by the party to be charged. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS- CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or provision of this Revolving Credit Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions herein shall in no way be affected thereby. Revolving Credit Note Page 3 IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the date first above written. MEDALLION FUNDING CORP., a New York Corporation By: /s/ Alvin Murstein ------------------ Alvin Murstein CEO By: /s/ Daniel F. Baker ------------------- Daniel F. Baker Treasurer & CFO President EX-10.30 15 REVOLVING CREDIT NOTE 28-JAN-97 Exhibit 10.30 REVOLVING CREDIT NOTE $15,000,000 No. 34 January 28, 1997 FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New York corporation (the "Borrower"), hereby unconditionally promises to pay on the date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or on such earlier date as may be required under the Loan Agreement, to the order of Horning Trust and Savings Bank (the "Bank") at the office of such Bank, currently located at 592 Fifth Ave New York, New York, 10036, in lawful money of the United States of America and in immediately available funds, an amount equal to the lesser of (a) FIFTEEN MILLION DOLLARS ($15,000,000) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to the Loan Agreement, dated as of March 27, 1992, as amended, among the Borrower, the banks that from time to time are signatories thereto, and Fleet Bank NA as Agent (as amended, modified or supplemented from time to time in accordance with its terms, the "Loan Agreement"). The Borrower further promises to pay interest (computed on the basis of a 360-day year for the actual number of days elapsed) in like money on the unpaid principal balance of this Note from time to time outstanding at such rates and times as provided in the Loan Agreement. All Revolving Credit Loans made by the Bank pursuant to the Loan Agreement and all payments of the principal thereof shall be endorsed by the holder of this Note on the schedule annexed hereto (including any additional pages such holder may add to such schedule), which endorsement shall constitute prima facie ----------- evidence of the accuracy of the information so endorsed; provided, however, that ----------------- the failure of the holder of this Note to insert any date or amount or other information on such schedule shall not in any manner affect the obligation of the Borrower to repay any Revolving Credit Loans in accordance with the terms of the Loan Agreement. On and after the stated or any accelerated maturity hereof, and until paid in full (whether before or after the occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), (a) the outstanding principal amount of this Note which at such time is a Prime Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and (b) the outstanding principal amount of this Note which is a LIBO Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate applicable to such LIBO Rate Loan then in effect, in each case payable on demand, but in no event shall such rate of interest (the "Default Rate") be in excess of the maximum rate of interest permitted under applicable law. The Default Rate shall be computed on the basis of a 360-day year for the actual number of days elapsed. If the Default Rate is to be based on the Prime Rate, the Prime Rate to be charged shall change when and as the Prime Rate is changed, and any such change in the Prime Rate shall become effective at the opening of business on the day on which such Revolving Credit Note Page 2 change is adopted. At the end of the applicable Interest Period for a LIBO Rate Loan on which the Default Rate is being charged, such LIBO Rate Loan shall be automatically converted to a Prime Rate Loan, and the Default Rate to be charged in respect of such Loan shall be computed based on the Prime Rate. This Note is one of the Revolving Credit Notes referred to in the Loan Agreement, is secured as provided therein, is entitled to the benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower shall make when due any and all payments and prepayments on this Revolving Credit Note required under the Loan Agreement. Reference is herein made to the Loan Agreement for the rights of the holder to accelerate the unpaid balance hereof prior to maturity. Borrower hereby waives diligence, demand, presentment, protest and notice of any kind, release, surrender or substitution of security, or forbearance or other indulgence, without notice. Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Loan Agreement. This Note may not be changed, modified, or terminated orally, but only by an agreement in writing signed by the party to be charged. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS- CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or provision of this Revolving Credit Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions herein shall in no way be affected thereby. Revolving Credit Note Page 3 IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the date first above written. MEDALLION FUNDING CORP., a New York Corporation By: /s/ Alvin Murstein ------------------ Alvin Murstein CEO By: /s/ Daniel F. Baker ------------------- Daniel F. Baker Treasurer & CFO President EX-10.31 16 REVOLVING CREDIT NOTE 28-JAN-97 $12,500,000 Exhibit 10.31 REVOLVING CREDIT NOTE $12,500,000 No. 35 January 28, 1997 FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New York corporation (the "Borrower"), hereby unconditionally promises to pay on the date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or on such earlier date as may be required under the Loan Agreement, to the order of Bank of Tokyo - Mitsubishi Trust Company (the "Bank") at the office of such Bank, currently located at 592 Fifth Ave New York, New York, 10036, in lawful money of the United States of America and in immediately available funds, an amount equal to the lesser of (a) TWELVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($12,500,000) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to the Loan Agreement, dated as of March 27, 1992, as amended, among the Borrower, the banks that from time to time are signatories thereto, and Fleet Bank NA as Agent (as amended, modified or supplemented from time to time in accordance with its terms, the "Loan Agreement"). The Borrower further promises to pay interest (computed on the basis of a 360-day year for the actual number of days elapsed) in like money on the unpaid principal balance of this Note from time to time outstanding at such rates and times as provided in the Loan Agreement. All Revolving Credit Loans made by the Bank pursuant to the Loan Agreement and all payments of the principal thereof shall be endorsed by the holder of this Note on the schedule annexed hereto (including any additional pages such holder may add to such schedule), which endorsement shall constitute prima facie ----------- evidence of the accuracy of the information so endorsed; provided, however, that ----------------- the failure of the holder of this Note to insert any date or amount or other information on such schedule shall not in any manner affect the obligation of the Borrower to repay any Revolving Credit Loans in accordance with the terms of the Loan Agreement. On and after the stated or any accelerated maturity hereof, and until paid in full (whether before or after the occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), (a) the outstanding principal amount of this Note which at such time is a Prime Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and (b) the outstanding principal amount of this Note which is a LIBO Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate applicable to such LIBO Rate Loan then in effect, in each case payable on demand, but in no event shall such rate of interest (the "Default Rate") be in excess of the maximum rate of interest permitted under applicable law. The Default Rate shall be computed on the basis of a 360-day year for the actual number of days elapsed. If the Default Rate is to be based on the Prime Rate, the Prime Rate to be charged shall change when and as the Prime Rate is changed, and any such change in the Prime Rate shall become effective at the opening of business on the day on which such Revolving Credit Note Page 2 change is adopted. At the end of the applicable Interest Period for a LIBO Rate Loan on which the Default Rate is being charged, such LIBO Rate Loan shall be automatically converted to a Prime Rate Loan, and the Default Rate to be charged in respect of such Loan shall be computed based on the Prime Rate. This Note is one of the Revolving Credit Notes referred to in the Loan Agreement, is secured as provided therein, is entitled to the benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower shall make when due any and all payments and prepayments on this Revolving Credit Note required under the Loan Agreement. Reference is herein made to the Loan Agreement for the rights of the holder to accelerate the unpaid balance hereof prior to maturity. Borrower hereby waives diligence, demand, presentment, protest and notice of any kind, release, surrender or substitution of security, or forbearance or other indulgence, without notice. Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Loan Agreement. This Note may not be changed, modified, or terminated orally, but only by an agreement in writing signed by the party to be charged. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS- CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or provision of this Revolving Credit Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions herein shall in no way be affected thereby. Revolving Credit Note Page 3 IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the date first above written. MEDALLION FUNDING CORP., a New York Corporation By: /s/ Alvin Murstein ------------------ Alvin Murstein CEO By: /s/ Daniel F. Baker -------------------- Daniel F. Baker Treasurer & CFO President EX-10.32 17 REVOLVING CREDIT NOTE 28-JAN-97 $10,000,000 Exhibit 10.32 REVOLVING CREDIT NOTE $10,000,000 No. 36 January 28, 1997 FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New York corporation (the "Borrower"), hereby unconditionally promises to pay on the date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or on such earlier date as may be required under the Loan Agreement, to the order of Israel Discount Bank (the "Bank") at the office of such Bank, currently located at 592 Fifth Ave New York, New York, 10036, in lawful money of the United States of America and in immediately available funds, an amount equal to the lesser of (a) TEN MILLION DOLLARS ($10,000,000) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to the Loan Agreement, dated as of March 27, 1992, as amended, among the Borrower, the banks that from time to time are signatories thereto, and Fleet Bank NA as Agent (as amended, modified or supplemented from time to time in accordance with its terms, the "Loan Agreement"). The Borrower further promises to pay interest (computed on the basis of a 360-day year for the actual number of days elapsed) in like money on the unpaid principal balance of this Note from time to time outstanding at such rates and times as provided in the Loan Agreement. All Revolving Credit Loans made by the Bank pursuant to the Loan Agreement and all payments of the principal thereof shall be endorsed by the holder of this Note on the schedule annexed hereto (including any additional pages such holder may add to such schedule), which endorsement shall constitute prima facie ----------- evidence of the accuracy of the information so endorsed; provided, however, that ----------------- the failure of the holder of this Note to insert any date or amount or other information on such schedule shall not in any manner affect the obligation of the Borrower to repay any Revolving Credit Loans in accordance with the terms of the Loan Agreement. On and after the stated or any accelerated maturity hereof, and until paid in full (whether before or after the occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), (a) the outstanding principal amount of this Note which at such time is a Prime Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and (b) the outstanding principal amount of this Note which is a LIBO Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate applicable to such LIBO Rate Loan then in effect, in each case payable on demand, but in no event shall such rate of interest (the "Default Rate") be in excess of the maximum rate of interest permitted under applicable law. The Default Rate shall be computed on the basis of a 360-day year for the actual number of days elapsed. If the Default Rate is to be based on the Prime Rate, the Prime Rate to be charged shall change when and as the Prime Rate is changed, and any such change in the Prime Rate shall become effective at the opening of business on the day on which such Revolving Credit Note Page 2 change is adopted. At the end of the applicable Interest Period for a LIBO Rate Loan on which the Default Rate is being charged, such LIBO Rate Loan shall be automatically converted to a Prime Rate Loan, and the Default Rate to be charged in respect of such Loan shall be computed based on the Prime Rate. This Note is one of the Revolving Credit Notes referred to in the Loan Agreement, is secured as provided therein, is entitled to the benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower shall make when due any and all payments and prepayments on this Revolving Credit Note required under the Loan Agreement. Reference is herein made to the Loan Agreement for the rights of the holder to accelerate the unpaid balance hereof prior to maturity. Borrower hereby waives diligence, demand, presentment, protest and notice of any kind, release, surrender or substitution of security, or forbearance or other indulgence, without notice. Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Loan Agreement. This Note may not be changed, modified, or terminated orally, but only by an agreement in writing signed by the party to be charged. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS- CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or provision of this Revolving Credit Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions herein shall in no way be affected thereby. Revolving Credit Note Page 3 IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the date first above written. MEDALLION FUNDING CORP., a New York Corporation By: /s/ Alvin Murstein ------------------ Alvin Murstein CEO By: /s/ Daniel F. Baker ------------------- Daniel F. Baker Treasurer & CFO President EX-10.33 18 REV. CRDT. NT. 28-JAN-97 $10,000,000 E.A. BANK Exhibit 10.33 REVOLVING CREDIT NOTE $10,000,000 No. 37 January 28, 1997 FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New York corporation (the "Borrower"), hereby unconditionally promises to pay on the date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or on such earlier date as may be required under the Loan Agreement, to the order of European American Bank (the "Bank") at the office of such Bank, currently located at 592 Fifth Ave New York, New York, 10036, in lawful money of the United States of America and in immediately available funds, an amount equal to the lesser of (a) TEN MILLION DOLLARS ($10,000,000) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to the Loan Agreement, dated as of March 27, 1992, as amended, among the Borrower, the banks that from time to time are signatories thereto, and Fleet Bank NA as Agent (as amended, modified or supplemented from time to time in accordance with its terms, the "Loan Agreement"). The Borrower further promises to pay interest (computed on the basis of a 360-day year for the actual number of days elapsed) in like money on the unpaid principal balance of this Note from time to time outstanding at such rates and times as provided in the Loan Agreement. All Revolving Credit Loans made by the Bank pursuant to the Loan Agreement and all payments of the principal thereof shall be endorsed by the holder of this Note on the schedule annexed hereto (including any additional pages such holder may add to such schedule), which endorsement shall constitute prima facie ----------- evidence of the accuracy of the information so endorsed; provided, however, that ----------------- the failure of the holder of this Note to insert any date or amount or other information on such schedule shall not in any manner affect the obligation of the Borrower to repay any Revolving Credit Loans in accordance with the terms of the Loan Agreement. On and after the stated or any accelerated maturity hereof, and until paid in full (whether before or after the occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), (a) the outstanding principal amount of this Note which at such time is a Prime Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and (b) the outstanding principal amount of this Note which is a LIBO Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate applicable to such LIBO Rate Loan then in effect, in each case payable on demand, but in no event shall such rate of interest (the "Default Rate") be in excess of the maximum rate of interest permitted under applicable law. The Default Rate shall be computed on the basis of a 360-day year for the actual number of days elapsed. If the Default Rate is to be based on the Prime Rate, the Prime Rate to be charged shall change when and as the Prime Rate is changed, and any such change in the Prime Rate shall become effective at the opening of business on the day on which such Revolving Credit Note Page 2 change is adopted. At the end of the applicable Interest Period for a LIBO Rate Loan on which the Default Rate is being charged, such LIBO Rate Loan shall be automatically converted to a Prime Rate Loan, and the Default Rate to be charged in respect of such Loan shall be computed based on the Prime Rate. This Note is one of the Revolving Credit Notes referred to in the Loan Agreement, is secured as provided therein, is entitled to the benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower shall make when due any and all payments and prepayments on this Revolving Credit Note required under the Loan Agreement. Reference is herein made to the Loan Agreement for the rights of the holder to accelerate the unpaid balance hereof prior to maturity. Borrower hereby waives diligence, demand, presentment, protest and notice of any kind, release, surrender or substitution of security, or forbearance or other indulgence, without notice. Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Loan Agreement. This Note may not be changed, modified, or terminated orally, but only by an agreement in writing signed by the party to be charged. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS- CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or provision of this Revolving Credit Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions herein shall in no way be affected thereby. Revolving Credit Note Page 3 IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the date first above written. MEDALLION FUNDING CORP., a New York Corporation By: /s/ Alvin Murstein ------------------ Alvin Murstein CEO By: /s/ Daniel F. Baker ------------------- Daniel F. Baker Treasurer & CFO President EX-10.34 19 REV. CRDT. NT. 28-JAN-97 B.L.T. CO. Exhibit 10.34 REVOLVING CREDIT NOTE $10,000,000 No. 38 January 28, 1997 FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New York corporation (the "Borrower"), hereby unconditionally promises to pay on the date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or on such earlier date as may be required under the Loan Agreement, to the order of Bank Leumi Trust Company of New York (the "Bank") at the office of such Bank, currently located at 592 Fifth Ave New York, New York, 10036, in lawful money of the United States of America and in immediately available funds, an amount equal to the lesser of (a) TEN MILLION DOLLARS ($10,000,000) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant to the Loan Agreement, dated as of March 27, 1992, as amended, among the Borrower, the banks that from time to time are signatories thereto, and Fleet Bank NA as Agent (as amended, modified or supplemented from time to time in accordance with its terms, the "Loan Agreement"). The Borrower further promises to pay interest (computed on the basis of a 360-day year for the actual number of days elapsed) in like money on the unpaid principal balance of this Note from time to time outstanding at such rates and times as provided in the Loan Agreement. All Revolving Credit Loans made by the Bank pursuant to the Loan Agreement and all payments of the principal thereof shall be endorsed by the holder of this Note on the schedule annexed hereto (including any additional pages such holder may add to such schedule), which endorsement shall constitute prima facie ----------- evidence of the accuracy of the information so endorsed; provided, however, that ----------------- the failure of the holder of this Note to insert any date or amount or other information on such schedule shall not in any manner affect the obligation of the Borrower to repay any Revolving Credit Loans in accordance with the terms of the Loan Agreement. On and after the stated or any accelerated maturity hereof, and until paid in full (whether before or after the occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), (a) the outstanding principal amount of this Note which at such time is a Prime Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and (b) the outstanding principal amount of this Note which is a LIBO Rate Loan (including, to the extent permitted by law, unpaid interest thereon) shall bear interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate applicable to such LIBO Rate Loan then in effect, in each case payable on demand, but in no event shall such rate of interest (the "Default Rate") be in excess of the maximum rate of interest permitted under applicable law. The Default Rate shall be computed on the basis of a 360-day year for the actual number of days elapsed. If the Default Rate is to be based on the Prime Rate, the Prime Rate to be charged shall change when and as the Prime Rate is changed, and any such change in the Prime Rate shall become effective at the opening of business on the day on which such Revolving Credit Note Page 2 change is adopted. At the end of the applicable Interest Period for a LIBO Rate Loan on which the Default Rate is being charged, such LIBO Rate Loan shall be automatically converted to a Prime Rate Loan, and the Default Rate to be charged in respect of such Loan shall be computed based on the Prime Rate. This Note is one of the Revolving Credit Notes referred to in the Loan Agreement, is secured as provided therein, is entitled to the benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower shall make when due any and all payments and prepayments on this Revolving Credit Note required under the Loan Agreement. Reference is herein made to the Loan Agreement for the rights of the holder to accelerate the unpaid balance hereof prior to maturity. Borrower hereby waives diligence, demand, presentment, protest and notice of any kind, release, surrender or substitution of security, or forbearance or other indulgence, without notice. Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to them in the Loan Agreement. This Note may not be changed, modified, or terminated orally, but only by an agreement in writing signed by the party to be charged. IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS- CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or provision of this Revolving Credit Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions herein shall in no way be affected thereby. Revolving Credit Note Page 3 IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the date first above written. MEDALLION FUNDING CORP., a New York Corporation By: /s/ Alvin Murstein ------------------ Alvin Murstein CEO By: /s/ Daniel F. Baker ------------------- Daniel F. Baker Treasurer & CFO President EX-10.35 20 LETTER AGREEMENT SBA & MEDALLION 21-FEB-97 EXHIBIT 10.35 U.S. SMALL BUSINESS ADMINISTRATION WASHINGTON, D.C. 20416 License No. 02/02-5393 Alvin Murstein Chairman of Board of Directors and Chief Executive Officer Medallion Funding Corp. 205 East 42nd Street, Suite 2020 New York, New York 10017 Dear Mr. Murstein: We have reviewed the request recently submitted, by facsimile, by William A. Kirk of Reid & Priest, LLP on behalf of Medallion Funding Corp. ("Licensee") for approval to amend Licensee's Articles of Incorporation. The amendment would allow the Licensee to invest in small businesses other than Disadvantaged Businesses (as defined in 13 CFR (S)107.50). It has been determined that the amendment, as presented, is acceptable. Prior to the filing of this amendment, with the Secretary of State's Office in New York, the licensee is required to agree and accept the following terms and conditions of SBA's approval of Licensee's request. By countersigning this letter, Licensee hereby agrees to each such term and condition. All capitalized terms used but not defined herein shall have the meanings assigned to such terms in 13 CFR Part 107. 1. Immediately prior to making any investment in a small business other than a Disadvantaged Business (a "Non-Disadvantaged Business Financing"), Licensee must have, in its portfolio, investments in Disadvantaged Businesses with an aggregate cost basis at least equal to the value of SBA's remaining Liquidating Interest (as defined in Licensee's 3% Preferred Stock Repurchase Agreement with SBA) measured at the time of the Non-Disadvantaged Business Financing. 2. For each Non-Disadvantaged Business Financing, Licensee must prepare and maintain in the portfolio concern financing files, a supplemental worksheet demonstrating Licensee's compliance with Item #1 above. This letter agreement, if countersigned by Licensee, will constitute a written agreement with SBA and any failure to comply with any of the terms hereof will constitute nonperformance of this agreement under 13 CFR (S) 107.507(a). Once executed by Licensee and SBA, this letter agreement shall be in full force and effect until such time as both parties agree in writing to its termination or modification. Please indicate your approval and acceptance of this letter agreement by having an authorized officer execute both copies of this letter, affix the corporate seal, and return both copies to SBA. A signed copy will be returned to you. Upon receipt of the signed copy, Licensee may file the amendment with the appropriate State office and may begin making Non-Disadvantaged Business Financings in accordance with this letter agreement. Licensee should submit a certified copy of the filed amendment to SBA. Sincerely, /s/ Don A. Christensen Don A. Christensen Associate Administrator for Investment Enclosure Approved and accepted this 21 day of February, 1997. Medallion Funding Corp. By: /s/ Alvin Murstein ---------------------- Name: Alvin Murstein Title: Chairman Corporate Seal Attested /s/ Marie Russo ----------------- Secretary cc: Daniel F. Baker Treasurer and Chief Financial Officer Medallion Funding Corp. EX-10.36 21 LETTER AGREEMENT TRANS. CAP. & SBA 21-FEB-97 EXHIBIT 10.36 U.S. SMALL BUSINESS ADMINISTRATION WASHINGTON, D.C. 20416 License No. 02/02-5388 Alvin Murstein Chairman of Board of Directors and Chief Executive Officer Transportation Capital Corp. 205 East 42nd Street, Suite 2020 New York, New York 10017 Dear Mr. Murstein: We have reviewed the request recently submitted, by facsimile, by William A. Kirk of Reid & Priest, LLP on behalf of Transportation Capital Corp. ("Licensee") for approval to amend Licensee's Articles of Incorporation. The amendment would allow the Licensee to invest in small businesses other than Disadvantaged Businesses (as defined in 13 CFR (S)107.50). It has been determined that the amendment, as presented, is acceptable. Prior to the filing of this amendment, with the Secretary of State's Office in New York, the licensee is required to agree and accept the following terms and conditions of SBA's approval of Licensee's request. By countersigning this letter, Licensee hereby agrees to each such term and condition. All capitalized terms used but not defined herein shall have the meanings assigned to such terms in 13 CFR Part 107. 1. Immediately prior to making any investment in a small business other than a Disadvantaged Business (a "Non-Disadvantaged Business Financing"), Licensee must have, in its portfolio, investments in Disadvantaged Businesses with an aggregate cost basis at least equal to the sum of the following, each measured at the time of the Non- Disadvantaged Business Financing: (i) the principal amount of Licensee's outstanding debentures on which SBA is still paying a portion of the interest, (ii) the value of SBA's remaining Liquidating Interest (as defined in Licensee's 3% Preferred Stock Repurchase Agreement with SBA), and (iii) the amount of any 3% preferred stock dividends not yet "amortized" under Licensee's 3% Preferred Stock Repurchase Agreement. 2. For each Non-Disadvantaged Business Financing, Licensee must prepare and maintain in the portfolio concern financing files, a supplemental worksheet demonstrating Licensee's compliance with Item #1 above. 2 3. Each Non-Disadvantaged Business Financing by Licensee will be subject to the 20% overline limitation applicable to financings by Section 301 (c) Licensees (as set forth in 13 CFR (S) 107.740 (a)(1)). Each financing of a Disadvantaged Business by Licensee will be subject to the 30% overline limitation applicable to financings by Section 301 (d) Licensees (as set forth in 13 CFR (S) 107.740 (a)(2)). 4. Licensee's maximum permitted capital impairment percentage will continue to be 75% until Licensee issues new Leverage or "rolls over" existing Leverage. For purposes of the new or rollover Leverage only, Licensee's maximum permitted capital impairment percentage will be the relevant percentage applicable to a Section 301 (c) Licensee under 13 CFR (S) 107.1830 (c) (2). 5. Licensee may continue to treat the amount in its Restricted Contributed Capital Surplus Account as Regulatory Capital for purposes of computing its overline limitation under 13 CFR (S) 107.740 and its capital impairment under 13 CFR (S) 107.1840. This letter agreement, if countersigned by Licensee, will constitute a written agreement with SBA and any failure to comply with any of the terms hereof will constitute nonperformance of this agreement under 13 CFR (S) 107.507(a). Once executed by Licensee and SBA, this letter agreement shall be in full force and effect until such time as both parties agree in writing to its termination or modification. Please indicate your approval and acceptance of this letter agreement by having an authorized officer execute both copies of this letter, affix the corporate seal, and return both copies to SBA. A signed copy will be returned to you. Upon receipt of the signed copy, Licensee may file the amendment with the appropriate State office and may begin making Non-Disadvantaged Business Financings in accordance with this letter agreement. Licensee should submit a certified copy of the filed amendment to SBA. Sincerely, /s/ Don A. Christensen Don A. Christensen Associate Administrator for Investment Enclosure 3 Approved and accepted this 21 day of February, 1997. Transportation Capital Corp. By: /s/ Alvin Murstein ---------------------- Name: Alvin Murstein Title: Chairman Corporate Seal Attested /s/ Marie Russo ------------------ Secretary cc: Daniel F. Baker Treasurer and Chief Financial Officer EX-10.37 22 AGREEMENT BETWEEN MEDALLION & M.T.B.T. 06-MAR-97 EXHIBIT 10.37 AGREEMENT AGREEMENT made this 6th day of March, 1997 by and between MEDALLION TAXI MEDIA, INC. (the "Agency") and the taxicab corporations whose names are listed on Schedule "A" annexed hereto and made a part hereof, or their designees (collectively, the "Corporations"). WITNESSETH WHEREAS, The Agency is engaged in the taxi top advertising display business; and WHEREAS, the Corporations wish to utilize the services of the Agency to provide exterior taxicab advertising for taxicabs owned, operated or controlled by the Corporations; and WHEREAS, the Metropolitan Taxicab Board of Trade, Inc. ("MTBOT") has been designated as the agent of the Corporations in connection with the execution and implementation of this Agreement. NOW, THEREFORE, it is mutually agreed as follows: 1. EXCLUSIVE DESIGNATION OF AGENCY: AUTHORITY OF MTBOT --------------------------------------------------- The Corporations grant to Agency the sole and exclusive right and privilege for the five (5) year period from the Commencement Date (as hereinafter defined) to sell, obtain, and place advertising (hereinafter sometimes referred to as the "Advertising") for display on the rooftops of taxicabs owned, operated or controlled by the Corporations during such period (the "Taxicabs"), provided, however, that with respect to Taxicabs in excess of the Minimum Number (as hereinafter defined), if the Agency shall not have advised the Corporations that it wishes to place Advertising on any such Taxicabs, within sixty (60) days after receiving written notice that certain Taxicabs in excess of the Minimum Number are available therefor, then such Taxicabs referred to in the notice shall not be subject to Agency's exclusive right hereunder and advertising from other sources may be placed on such Taxicabs. If the Agency shall have elected to place Advertising on such Taxicabs in excess of the Minimum Number, then the Agency shall have sixty (60) days to actually place Advertising on such Taxicabs and to commence making the required payments to MTBOT for such Taxicabs. MTBOT represents and warrants to the Agency that: (a) it is duly authorized by the Corporations as their agent and attorney-in-fact to act on behalf of the Corporations and bind each of the Corporations to the terms of this Agreement and (b) it has the legal authority to enter into this Agreement and that doing so will not violate any other agreement to which it or any of the Corporations is a party. The "Taxicabs" are those taxicabs operated by the Corporations, which have been made available to the Agency for the installation of the frames or devices for the display of the Advertising (the "Displays"). 2. PREFERRED STATUS OF CORPORATIONS; PAYMENTS ------------------------------------------- (a) The Agency agrees to-use its best reasonable efforts to solicit the Advertising for display on Taxicabs during the term of this Agreement. Commencing after the expiration of the first two years of the term of this Agreement and then only upon the occurrence of the Tobacco Termination (as hereinafter defined), Agency agrees that the Taxicabs shall be given preference with respect to all advertising obtained by Agency for placement on - 2 - taxicabs in New York City and, to the extent that the Agency has not obtained sufficient advertising for all taxicabs covered by agreements with Agency, Agency agrees that available advertising shall first be placed on the Taxicabs. (b) In consideration for the rights and privileges granted herein, the Agency agrees to pay MTBOT, as agent for the Corporations, or to such other agent or representative as the Corporations may, from time to time, designate by written notice to the Agency, the following sums: (i) during the first twelve (12) month period after the Commencement Date, the sum of $52.00 per month per Taxicab for those taxicabs made available to the Agency for the display of the Advertising, provided, however, that the Agency shall not be required to pay such $52.00 monthly sum for more than the Minimum Number of Taxicabs unless the Agency has actually placed or, as set forth in Section 1, Committed to place Advertising on more than the Minimum Number of Taxicabs; (ii) during the second twelve (12) month period after the Commencement Date, the sum of $52.00 per month per Taxicab for those Taxicabs made available to the Agency for the display of the Advertising, provided, however, that the Agency shall not be required to pay such $52.00 monthly sum for more than the Minimum Number of Taxicabs, unless the Agency has actually placed or, as set forth in Section 1, committed to place Advertising on more than the Minimum Number of Taxicabs; (iii) during the third twelve (12) month period after the Commencement Date, subject to the provisions of Section 10, the sum of $53.00 per month per Taxicab for those Taxicabs made - 3 - available to the Agency for the display of the Advertising, provided, however, that the Agency shall not be required to pay such $53.00 monthly sum for more than the Minimum Number of Taxicabs, unless the Agency has actually placed or, as set forth in Section 1, committed to place Advertising on more than the Minimum Number of Taxicabs; (iv) during the fourth twelve (12) month period after the Commencement Date, subject to the provisions of Paragraph 10, the sum of $55.00 per month per Taxicab for those Taxicabs made available to the Agency for the display of the Advertising, provided, however, that the Agency shall not be required to pay such $55.00 monthly sum for more than the Minimum Number of Taxicabs, unless the Agency has actually placed or, as set forth in Section 1, committed to place Advertising on more than the Minimum Number of Taxicabs; (v) during the fifth twelve (12) month period after the Commencement Date, subject to the provisions of Paragraph 10, the sum of $57.00 per month per Taxicab for those Taxicabs made available to the Agency for the display of the Advertising, provided, however, that the Agency shall not be required to pay such $57.00 monthly sum for more than the Minimum Number of Taxicabs, unless the Agency has actually placed or, as set forth in Section 1, committed to place Advertising on more than the Minimum Number of Taxicabs. (c) For purposes of this Agreement, the "Minimum Number of Taxicabs" shall be equal to the lesser of (a) the number of Taxicabs made available to the Agency for the display of the Advertising or (b) 1,600 prior to expiration of the Susan - 4 - Agreement (as defined below) and 1,760 thereafter. (d) The monthly sums referred to in subsection (b) of this Paragraph shall be paid to MTBOT during the term of this Agreement, whether or not the Agency has obtained Advertising for such Taxicabs, except as otherwise provided in this Agreement. (e) The monthly payments to be made to MTBOT on behalf of the Corporations shall be paid monthly, no later than the last day of the calendar month following the calendar month in which the Advertising is displayed, e.g., ---- payments for March must be received by MTBOT no later than April 30. In the event that any such payment to MTBOT is not timely made as aforesaid, Agency shall be required to pay to MTBOT a late fee calculated on a per annum basis at the rate of the prime lending rate of Citibank, N.A., as in effect from time to time, plus five percent, applied to each such late payment for the period during which such payment is late. In addition, and notwithstanding the foregoing, any failure to make a timely payment to MTBOT shall constitute a breach of this Agreement by the Agency, authorizing MTBOT, if it so elects, to terminate this Agreement in which event MTBOT shall be entitled to seek damages from Agency (and the Guarantor, as hereinafter provided). The election by MTBOT to terminate this Agreement may be made only after written notice to Agency, by facsimile transmission and certified mail, with a copy of such notice to Agency's counsel, also by facsimile transmission, as set forth in Section 13, and the expiration of a four business day cure period for Agency to make the payment in question. (f) In the event a Taxicab is added or subtracted from the pool of Taxicabs made available to the Agency for the display of - 5 - Advertising, the monthly payment provided for hereunder shall be adjusted, pro rata, on the basis of the number of days in the month during which such Taxicab was available to the Agency for the display of Advertising. 3. SIGNING BONUS PAYMENT --------------------- Agency agrees to pay to MTBOT, on behalf of the Corporations, the sum of $250,000 (the "Signing Bonus") upon the execution of this Agreement by the parties hereto. At the time of such execution of this Agreement, MTBOT agrees to deliver to the Agency a list of the Taxicabs to be made available to the Agency for the display of the Advertising, by medallion number and associated Corporation. Such list shall identify no less than 1600 Taxicabs and the requirement of at least 1600 Taxicabs on such list shall be a condition precedent to the Agency's obligation to pay the Signing Bonus, which shall be paid by bank or certified check, made payable to MTBOT, or by wire transfer. 4. NUMBER OF TAXICABS ------------------ (a) In the event that the number of Taxicabs, during the term of this Agreement, declines so that 1500 or fewer Taxicabs are made available to the Agency for the display of the Advertising, the Agency shall be entitled to a credit against the Signing Bonus, pro rated on the basis of the number of Taxicabs made available to the Agency, as compared to the required minimum of 1600 on the basis of the remaining term of the Agreement. The credit shall be calculated by taking into account decreases in increments of 100 Taxicabs. Thus, for example, if the number of Taxicabs made available to the Agency for Advertising decreases to 1435 Taxicabs on the second anniversary of the Commencement - 6 - Date of this Agreement, the credit due to the Agency would be as follows: 100 3 - ---- - 1600 X 5 (Remaining Term of Agreement) X $250,000 = $9,375 This credit would be subject to further upward or downward adjustment, if the available Taxicabs thereafter increase to 1600 or more, or decrease to less than 1400, during the term of this Agreement, provided, however, the aggregate of the upward adjustments may not exceed the aggregate amount of prior downward adjustments. (b) In the event that the number of Taxicabs, during the term of this Agreement, declines so that fewer than 1200 taxicabs are made available to the Agency for the display of the Advertising, the Agency may elect to terminate this Agreement on 60 days advance written notice to MTBOT. Alternatively, if the Agency does not elect to terminate this Agreement, as aforesaid, the Agency shall be entitled to receive a credit against the Bonus Payment, as such credit is computed under the provisions of Sub-paragraph (a) above, and the parties will otherwise continue to operate under the terms of this Agreement. (c) In the event that the Corporations, either at the outset of this Agreement or during its term, make available to the Agency for the display of the Advertising more than the Minimum Number of Taxicabs, the Agency's written consent shall be required at such time in order for this Agreement to be applicable to Taxicabs in excess thereof. (d) Subject to the other provisions of this Section 4, the Corporations shall be free, from time to time, to increase or - 7 - decrease the number of Taxicabs made available to the Agency for the display of the Advertising and Corporations who become new members of MTBOT shall become a party to this Agreement by an assumption in writing of the obligations of the Corporations hereunder and the execution of appropriate documentation designating MTBOT as its agent and attorney-in-fact with respect to this Agreement. (e) Corporations who, during the term of this Agreement, elect to terminate their membership in and association with MTBOT, shall continue to be bound to the terms of this Agreement. (f) The parties hereto acknowledge that Susan Maintenance, Inc. ("Susan") is currently a party to an agreement with the Agency for the display of advertising (the "Susan Agreement"). After the termination of the Susan Agreement, Taxicabs operated by Susan and made available to the Agency for the display of the Advertising shall be included in the number of Taxicabs made available to the Agency by the Corporations for the display of the Advertising, including the required minimum of 1600 Taxicab for the payment of the Signing Bonus and for purposes of any credit to the Agency with respect to the Signing Bonus. During the term of the Susan Agreement, Agency's Obligations to Susan, including its obligation to make any payment with respect to Advertising on Displays on Taxicabs operated by Susan, shall be governed solely by the Susan Agreement. Immediately upon the expiration of the current term of the Susan Agreement, the Susan Taxicabs shall be subject to the terms of this Agreement. 5. DISPLAYS; INSURANCE ------------------- - 8 - (a) Subject to the provisions of subsection 5(h), Agency, at its sole expense, shall provide each Corporation with the necessary Displays to contain the advertising material by September 22, 1997, and such Displays shall at all times remain the property of Agency, except as hereinafter set forth. Agency may install up to 300 of said Displays at the Corporations' garages at their request, at mutually convenient times, which shall be on or prior to October 10, 1997, on Taxicabs made available to the Agency by the Corporations and any replacements thereof and additions thereto. Except as provided above, Corporations shall install all Displays in accordance with specifications furnished by Agency, for a fee of $30.00 per Taxicab installation which Agency agrees to pay to the Corporations. Such installation shall be completed by October 15, 1997 (the "Commencement Date") and, if any of the Corporations have elected to make such installations, but have failed to do so by October 15, 1997, or if the Corporations that have not elected to make such installations shall not have made any such Taxicabs available to the Agency for installation by October 10, 1997, the payments provided for in Section 2(b) (i) will not commence for any Taxicabs for which Corporations have failed to make or have failed to have made timely installations until the installations are so made and the Agency is so notified. If at least one-half of the Displays have been installed, whether by Agency or the Corporations by October 1, 1997, then, notwithstanding the October 15, 1997 Commencement Date under this Agreement, the payments by Agency provided for in Section 2(b)(i) shall commence, pro rata, as of October 1, 1997. - 9 - The $30.00 installation fee shall be applicable only for the initial installation of Displays and not to subsequent replacement installations. The Corporations shall provide reasonable care for such Displays and keep them reasonably clean. Agency agrees to service such Displays, as required, and to provide, at its expense, the necessary parts, including, but not limited to, fluorescent lights, to keep and maintain such Displays in the same condition as when installed, less ordinary wear and tear. (b) Upon termination of this Agreement, Agency, if not in material default hereunder, shall have the right to remove the Displays at its expense and, at mutually convenient times, Corporations shall make its Taxicabs available at their garages for such purpose. In the event of such a material default, Agency shall be entitled to written notice thereof and a thirty day period to cure any such default, unless such default is with respect to any sums due to MTBOT hereunder in which event the period to cure such default shall be four business days. Upon removal of any Displays, whether upon termination of this Agreement or otherwise, Agency shall not be required to perform or pay for any of the following: repair of holes in roofs of the taxicabs, making of electrical connections, installation of substitute roof lights or fixtures. (c) Agency acknowledges that Corporations are relying on Agency's skill and judgment in selecting and furnishing the Displays, and Agency represents and warrants that such Displays (including the advertising material attached to such Displays) will be fit for the purpose intended and will comply with all - 10 - pertinent governmental and other relevant regulations. Corporations agree to supply the necessary wiring for transmission of electrical current to the roof of the taxicabs at the Corporations' own cost and expense. Corporations agree that the bulbs used in the signs for "Taxi" and "Off Duty", as well as the directional signals and the medallion number are the sole responsibility of the Corporations. (d) Agency agrees to reimburse Corporations for all cost and damage incurred by Corporations arising from the installation, maintenance, use and removal of the Displays and/or signs, provided, however, such reimbursement and expense shall be limited to the following matters: (i) insurance protection for the benefit of Corporations required to be maintained by Agency pursuant to this Agreement, (ii) actual damage to the vehicles or any part thereof on which the Displays and/or signs are attached, even if not covered by insurance, but excluding lost revenues to the Corporations as a result of any vehicle not being in an operating condition. In the event a sign is damaged, requiring replacement and which also is the primary cause of a Taxicab becoming non- operational, Agency will supply a replacement sign within twenty-four (24) hours after receipt of written notice of such required replacement. In the event of the failure of Agency to supply such replacement sign within twenty-four (24) hours after written notice as set forth above, Agency will be liable to the Corporations for lost revenues to the Corporations as a result of the vehicle not being in an operating condition, except that the first 24-hour period shall not be included in the period for which Agency shall be liable for such lost revenues. - 11 - Corporations agree to give Agency written notice promptly of any demand, summons or notice asserting a claim, demand or action relating to the indemnification provided herein. Agency shall have no obligations as to any such matters until receipt by Agency of such notice. (e) Agency shall, throughout the term hereof and at Agency's own expense, provide for the benefit of the Corporations a liability insurance policy, providing $500,000/$1,000,000 in coverage as to personal injuries or death, and $50,000 in coverage as to property damage resulting from or related to the Displays and advertising as described herein. The original insurance policy or a certificate of insurance, and all renewal policies or certificates evidencing such insurance, together with proof of payment of all premiums payable thereon, shall be deposited by Agency with MTBOT, with each renewal policy to be deposited with MTBOT at least ten days prior to the expiration of the insurance which it is to replace or renew. The policy or policies provided for in this subparagraph may be for the benefit of both the Corporations and Agency. (f) The Corporations shall not be responsible for any loss of Displays or damage thereto due to accident, theft or breakage, unless any such accident, theft or breakage is caused primarily by the gross negligence or wilful misconduct of the Corporations. (g) In the event that the Corporations, pursuant to their current agreement with Vango Media, Inc. ("Vango") have purchased from Vango the Displays currently installed on the Taxicabs, and have so advised the Agency, in writing, by March 21, 1997, then - 12 - the Agency agrees to purchase such currently installed Displays at a purchase price of $150 per Display. All such Displays shall be conveyed by the Corporations free and clear of all liens, encumbrances and claims. Agency shall pay to MTBOT on behalf of the Corporations such purchase price for the Displays within thirty days of the Commencement Date. In such event, Agency shall not be required to provide each Corporation with Displays as contemplated by Section 5(a) and the Commencement Date for all purposes shall be September 22, 1997. 6. ADVERTISING COPY ----------------- (a) The Corporations shall permit Agency to change the advertising copy on each of its Taxicabs as required by the advertisers at Agency's expense. The Corporations shall, at mutually convenient times, make the taxicabs available at their garages for such purpose. It is contemplated that advertising copy on Taxicabs will be changed on a rotating basis, so as to minimize the frequency with which any particular Taxicab must be taken out of service for such a change. In the event that any Taxicab is not available to Agency's employees for a copy change after one visit at a mutually agreed time, then Corporations shall be responsible, at their sole expense, for changing the advertising copy within five (5) days of receipt of ad copy from Agency, at no charge to Agency. (b) Agency agrees that any of the Corporations shall have the option to change the advertising copy with Corporations' own personnel for a fee of $5.00 per copy change per Taxicab. The option must be exercised, in writing, by the individual Corporation. The copy must be changed within ten (10) days of - 13 - receipt of the ad copy by the Corporation. The continuation of this ad copy change option shall be subject to reasonable performance standards of the Agency and may be canceled by Agency, in writing, at Agency's sole discretion. (c) Each change of advertising copy by a Corporation's own personnel shall require that each such Corporation send to Agency, on forms supplied to the Corporations by Agency, written notice of the date of the change of advertising copy, the identity of the advertiser and the medallion number of the Taxicab carrying such Advertising (e.g., 3/15/98; Kool; 2 N 32). In the event that an ---- advertiser requests a photograph of its new advertising copy, as carried on a Corporation's Displays, the Corporation shall either (i) provide to the Agency a Polaroid picture of such mounted ad copy, in which case the Agency will pay to the Corporation $1.00 for each such photograph; or (ii) if the Corporation elects not to provide such photographs, it shall immediately so advise the Agency, in which case the Agency will change the ad copy itself and the Corporation will not be entitled to the fee of $5.00 per copy change, as referred to in subsection 6(b), with respect to those ad changes for which pictures are required. (d) Corporations will not mark, deface, or damage the Displays or posters in any way (e.a., stencils, paint, stickers, etc.). If advertising copy shall not have been changed in the time frames provided for in this Section 6, then, and in such event, until such advertising copy is so changed, a Taxicab shall not be deemed to have been available to the Agency for the display of Advertising and the payments provided for in Section 2 - 14 - shall not be paid with respect to such Taxicab during such period. 7. COMMENCEMENT DATE; TERM ----------------------- (a) The term of this Agreement shall commence on the Commencement Date and shall continue in effect (unless earlier terminated pursuant to the provisions hereof) for a period of five years from the Commencement Date. (b) The Agency shall have a right of first refusal (the "Renewal Right") to enter into a renewal agreement with the Corporations after the expiration of the full term of this Agreement and provided that this Agreement was not terminated by the Corporations, pursuant to the provisions hereof, prior to the expiration of the full five-year term of this Agreement. The Agency's Renewal Right shall, subject to the other provisions of this subsection, entitle it to enter into a renewal agreement with the Corporations, provided that it agrees to terms that are at least as favorable to the Corporations as those offered in writing by any other party proposing to entering into such an agreement with the Corporations. 8. PUBLIC SERVICE OR OTHER ADVERTISING ----------------------------------- In the event that Agency is unable or elects not to place Advertising, whether paid or, prior to the Tobacco Termination, unpaid, on all of the Displays installed on the Taxicabs, the Corporations may place either their own corporate or fleet message on such unused Displays or non-paying public service advertisements. Except as otherwise provided in this Agreement, Agency shall be required to make the monthly payments to MTBOT for the Minimum Number of Taxicabs, even if Displays on such - 15 - Taxicabs carry such alternative advertising or if they carry no advertising at all, because Agency has been unable to obtain Advertising for such Displays. All costs and expenses for such alternative advertising shall be borne by the Corporations and is subject to the unavailability of paid advertising obtained by Agency. 9. TRANSFER OF MEDALLIONS ---------------------- In the event any Corporation intends to sell or otherwise transfer medallions carried by Taxicabs with Displays in transactions whereby the transferee will not assume the benefits any obligations of this Agreement, MTBOT or Corporations shall give Agency ten days advance notice of such intended transfer, except where such a notice is not practical under the circumstances, in which case notice will be given as promptly as is reasonably practical, but in no event less than three business days prior to such intended transfer. During such notice period, Agency or, upon Agency's and the Corporation's mutual agreement and the payment to the Corporation by Agency of a $30.00 fee, the Corporation shall remove all Displays and advertising material from the Taxicabs to be sold or otherwise transferred. Upon removal of any Displays, whether upon termination of this Agreement or otherwise Agency shall not be required to perform or pay for any of the following: repair of holes in roofs of Taxicabs, making of electrical connections, or installation of substitute roof lights or fixtures. If Agency does not receive any such removed Display within thirty days of such removal, the Corporation shall pay to Agency the fair market value of any such Display. MTBOT and any transferring Corporation will, where - 16 - practicable, advise the transferee of the terms of this Agreement and seek to have the transferee assume the benefits and obligations of this Agreement unless such transferee already is a party to a contract with Agency. If so assumed, the medallions covered by such assumption shall continue to be included in the number of Taxicabs referred to in Section 4. 10. TOBACCO ADVERTISING ------------------- (a) The parties hereto acknowledge that the advertising of tobacco products has heretofore constituted a substantial portion of the advertising obtained by Agency for display on taxicabs. Agency has advised the Corporations that the discontinuance of such advertising, whether as a result of legal restrictions placed on such advertising or self-imposed restrictions by tobacco product manufacturers or advertisers, could significantly adversely affect Agency's ability to obtain Advertising for placement on the Displays. (b) As a result of the foregoing, the parties hereto agree as follows: (i) During the first two years of the term of this Agreement, Agency shall be unconditionally required to make the payments to MTBOT on behalf of the Corporations referred to in Paragraph 2 of this Agreement, regardless of whether or not tobacco advertising continues or is reduced or terminated; (ii) Commencing with the third year of the term of this Agreement and for the balance of such term, in the event (and only in such event) that tobacco product advertising on Taxicabs is terminated (the "Tobacco Termination") by any of Phillip Morris, R.J. Reynolds, or Brown and Williamson (a) as a - 17 - result of legal restrictions placed on such advertising or (b) at the sole discretion of such advertiser other than as a result of any business dispute or disagreement between Agency and any such advertiser, then Agency shall be required to pay to MTBOT on behalf of-the Corporations the monthly payments referred to in Paragraph 2 only for those Taxicabs actually carrying paid advertising obtained by Agency or, as set forth in Section 1, for which Agency has committed to place Advertising. 11. RIGHT OF TERMINATION -------------------- This Agreement may be terminated by Agency by written notice to MTBOT at least ninety days prior to the effective date of such termination, which termination shall not become effective prior to the expiration of the initial two years of the term of this Agreement. Such written notice of termination to MTBOT shall, in order to be effective, be accompanied by a payment (the "Cancellation payment'), by bank or certified check, payable to MTBOT, in an amount computed as follows: the sum of $175,000 multiplied by a fraction, the numerator of which is the number of full or partial months after the effective date of the termination of this Agreement that would have remained in the full five- year term of this Agreement and the denominator of which is thirty-six. 12. MEDALLION FINANCIAL GUARANTY ---------------------------- (a) Agency's corporate parent, Medallion Financial Corp. (the "Guarantor"), hereby agrees to guarantee to MTBOT on behalf of the Corporations the payment to MTBOT by Agency, when due, of the following: - 18 - (i) the signing Bonus; (ii) the monthly payments of $52.00 per Taxicab for the initial twenty-four (24) months of the term of this Agreement as referred to in Paragraph 2(b) of this Agreement; (iii) the purchase price of the installed Displays, if the Corporations have purchased such Displays from Vango and have timely advised Agency of their availability, as referred to in Paragraph 5(g); and (iv) the Cancellation Payment, as referred to in Paragraph 11 of this Agreement. (b) Neither MTBOT nor the Corporations shall have an obligation to commence any legal action against Agency or to otherwise exhaust any legal remedies or otherwise seek to collect from Agency any of the foregoing sums in order to invoke Guarantor's guarantee agreement hereunder, which shall be unconditional and not subject to any set-off or affirmative defense except for any set-off or affirmative defense that would be available to Agency, provided that Agency has not timely made any of the above payments to MTBOT, as called for in this Agreement. MTBOT shall be entitled to demand payment directly from Guarantor, and Guarantor shall be bound to pay to MTBOT, any of the aforesaid sums within ten days of Guarantor's receipt of a written demand for payment from MTBOT, which demand shall state the amount due, the date when such payment was due, the fact that Agency has failed to make such payment, and the provision of this Agreement which provides for such payment by Agency. Guarantor's agreement to guarantee to MTBOT the payment of certain obligations of Agency hereunder shall survive the termination of - 19 - this Agreement and the bankruptcy or insolvency of Agency. 13. NOTICES ------- All notices under this Agreement shall be in writing and transmitted by facsimile transmission and by certified mail, return receipt requested, or hand delivered, to the following addresses: (a) If to MTBOT or the Corporations (or any of them), to: Ronald Stoppelmann, President Metropolitan Taxicab Board of Trade, Inc. 24-16 Bridge Plaza Long Island City, New York Fax: 718-784-1329 with a copy to: Merril A. Mironer, Esq. Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 Fax: 212-940-8563 (b) If to Agency, to: Medallion Taxi Media Inc. 205 East 42nd Street New York, New York 10017 Att: Berton Miller Fax: 212-983-0351 with a copy to: George Lander, Esq. Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, New York 10022 Fax: 212-838-9190 (c) If to Guarantor, to: Medallion Financial Corp. 205 East 42nd Street New York, New York 10017 Att: Andrew Murstein Fax: 212-983-0351 - 20 - with a copy to: George Lander, Esq. Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, New York 10022 Fax: 212-838-9190 Any party desiring changes in the place or parties to which notices are to be mailed or delivered shall notify the other parties to this Agreement pursuant to the procedure set forth in this paragraph. In the event that MTBOT ceases to represent the Corporations under this Agreement, Corporations shall promptly select a successor so that Agency may deal with a representative of Corporations at all times. Agency shall not be obligated to deal with such representative until Agency shall have received written notice as to same. The requirement that a copy of any notice hereunder be sent to counsel for the Corporations and/or MTBOT or Agency and/or the Guarantor, as noted above, shall be strictly adhered to and any failure to send such a copy to counsel shall render any such notice void and ineffective. 14. ARBITRATION ----------- Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the commercial rules then obtaining of the American Arbitration Association or by such other method of arbitration as shall be mutually agreed to by Agency and the Corporations. 15. ADVERTISING PERMITS ------------------- Agency shall have the sole and continuing obligation to obtain all necessary rights, approvals, privileges, and/or - 21 - consents from the New York City Taxi & Limousine Commission and any other governmental agency or body whose consent may be required in order to carry out the provisions of this Agreement. Agency will pay all necessary permit fees, license fees and other governmental fees of any kind or nature pertaining to the installation, display and maintenance of the advertising material, Displays and signs provided for in this Agreement. Agency will pay all such fees directly and in the first instance to the applicable governmental agency without the need for the Corporations to first advance the payment of such fees. 16. REPRESENTATIONS AND WARRANTIES BY AGENCY AND GUARANTOR ------------------------------------------------------ Each of Agency and Guarantor hereby represents and warrants to MTBOT and the Corporations that: (a) each of such parties is duly incorporated and in good standing under the laws of the State of New York and has the corporate power to enter into this Agreement; (b) this Agreement has been duly authorized by each of such parties and that all necessary corporate action has been taken in order to make this a binding and legally enforceable agreement against each of such parties; and (c) the execution and delivery of this Agreement to MTBOT by each of such parties will not violate any other agreement to which they, or either of them, are parties. 17. APPLICABLE LAW; COUNTERPARTS ---------------------------- (a) This Agreement shall be construed and interpreted according to the internal laws of the State of New York without giving effect to the conflicts of laws provisions thereof, and the rights and obligations of all parties interested or claiming - 22 - hereunder shall, at all times, be governed by the internal laws of the State of New York. (b) This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument. 18. FORCE MAJEURE ------------- None of the parties hereunder shall be liable for any loss, damage or liability resulting from an inability to perform hereunder arising by reason of strikes or other labor troubles, fire or other casualty, lack of, or inability to obtain raw materials, labor, fuel or supplies or any other cases, contingencies or circumstances beyond the control of such party, including, specifically, changes in applicable laws or regulations or the withdrawal or suspension of any required governmental permits, consents or the like. 19. WRITTEN AMENDMENT; ACTION BY CORPORATIONS ----------------------------------------- This Agreement may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. It is agreed for the purposes hereof that the Corporations shall act by vote of the Corporations owning or operating a majority of the Taxicabs under this Agreement. The execution by MTBOT of any amendment to this Agreement shall be conclusive evidence that the Corporations owning or operating a majority of the Taxicabs covered by this Agreement shall have voted to approve such amendment. 20. ASSUMPTION OF AGREEMENT; ASSIGNABILITY -------------------------------------- (a) The parties hereto agree that any corporation which - 23 - hereafter becomes a member of MTBOT shall become a party to this Agreement by executing and delivering to MTBOT and to Agency an assumption in writing of the obligations of the Corporations hereunder. (b) This Agreement is not assignable by Agency without the prior written consent of the Corporations, which consent will not be unreasonably withheld. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the 6th day of March, 1997. MEDALLION TAXI MEDIA, INC. By: /s/ Andrew Murstein ------------------------------ President METROPOLITAN TAXICAB BOARD OF TRADE, INC. as attorney-in-fact and agent for the Corporations By: /s/ Ronald Stoppelmann ------------------------------ President FOR PURPOSES OF SECTIONS 12 AND 14: MEDALLION FINANCIAL CORP. By: /s/ Andrew Murstein ------------------------------ President - 24 - EX-10.44 23 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN Exhibit 10.44 This Plan was approved by the Board of Directors on May 22, 1996. This Plan was approved by the Stockholders on May 22, 1996. This Plan was approved by the Securities and Exchange Commission on December 23, 1996. MEDALLION FINANCIAL CORP. Non-Employee Director Stock Option Plan This Non-Employee Director Stock Option Plan dated December 23, 1996 (the "Plan") governs options to purchase Common Stock, $0.01 par value (the "Common - ----- ------ Stock"), of Medallion Financial Corp. (the "Company") granted on or after the - ----- ------- date hereof by the Company to members of the Board of Directors (the "Board") of ----- the Company who are not also employees, officers or interested persons (as defined in Section 2 below) of the Company. The purpose of the Plan is to attract and retain qualified persons to serve as Directors of the Company and to encourage ownership of stock of the Company by such Directors so as to provide additional incentives to promote the success of the Company. 1. Administration of the Plan. -------------------------- Grants of stock options (individually referred to herein as an "Option" ------ and collectively as "Options") under the Plan shall be automatic as provided in ------- Section 6 hereof. However, all questions of interpretation with respect to the Plan and Options granted under it shall be determined by a committee (the "Committee") consisting of the Directors of the Company who are not eligible to --------- participate in the Plan, and such determination shall be final and binding upon all persons having an interest in the Plan. 2. Persons Eligible to Participate in the Plan. ------------------------------------------- Members of the Board who are not also employees, officers or interested persons (as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the "1940 Act")) of the Company shall be eligible to participate in -------- the Plan ("Eligible Directors"). ------------------ 3. Shares Subject to the Plan. -------------------------- (a) Number of Shares. The aggregate number of shares of Common Stock ---------------- of the Company which may be optioned under this Plan is 100,000 shares. In the event of a stock dividend, split-up, combination or reclassification of shares, recapitalization or other similar capital change relating to the Common Stock, the maximum aggregate number and kind of shares or securities of the Company as to which Options may be granted under this Plan and as to which Options then outstanding shall be exercisable, and the exercise price of such Options, shall be appropriately adjusted by the Committee (whose determination shall be conclusive) so as to preserve the value of the Option. (b) Effect of Certain Transactions. In order to preserve an Eligible ------------------------------ Director's rights under an Option in the event of a change in control of the Company, the Committee in its discretion may, on the Date of Grant (as defined in Section 6(b) below) or at any time thereafter, take one or more of the following actions: (i) provide for the acceleration of any time period relating to the exercise or payment of the Option, (ii) provide for payment to the Eligible Director of cash or other property with a fair market value equal to the amount that would have been received upon the exercise or payment of the Option had the Option been exercised or paid upon the change in control, (iii) adjust the terms of the Option in a manner determined by the Committee to reflect the change in control, (iv) cause the Option to be assumed, or new rights substituted therefor, by another entity, or (v) make such other provision as the Committee may consider equitable to the Eligible Director and in the best interests of the Company. (c) Restoration of Shares. If any Option expires or is terminated --------------------- unexercised or is forfeited for any reason, the shares subject to such Option, to the extent of such expiration, termination or forfeiture, shall again be available for granting pursuant to Options under the Plan. (d) Reservation of Shares. The Company shall at all times while the --------------------- Plan is in force reserve such number of shares of Common Stock as will be sufficient to satisfy the requirements of the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. 4. Types of Options. ---------------- All Options granted under this Plan shall be non-statutory options not entitled to special tax treatment under Section 422 of the Internal Revenue Code of l986, as amended. 2 5. Form of Options. --------------- Options granted hereunder shall be evidenced by a writing delivered to the optionee specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or comply with applicable tax and regulatory laws and accounting principles. 6. Grant of Options and Option Terms. --------------------------------- (a) Initial Grant of Options. On the date of the approval of the Plan ------------------------ (the "Approval Date") by the Securities and Exchange Commission in accordance ------------- with the 1940 Act, each of the following Directors shall automatically be granted Options to purchase the number of shares of Common Stock determined by dividing $100,000 by the Current Market Value (as defined in Section 6(c) below) multiplied by the fraction indicated opposite each Director's name (the "Initial ------- Grants") provided each such Director is serving on the Company's Board as an - ------ Eligible Director on the Approval Date:
Name of Director Fraction ---------------- -------- Stanley Kreitman 1/3 David L. Rudnick 1/3 Mario M. Cuomo 2/3 Benjamin Ward 1
(b) Automatic Grant of Options. At each annual meeting of the -------------------------- stockholders of the Company after the Approval Date, each Eligible Director elected or re-elected at such meeting to a three year term shall automatically be granted upon such election an Option to purchase the number of shares of Common Stock determined by dividing $100,000 by the Current Market Value of the Common Stock on the date of such election. In addition, upon the election of an Eligible Director other than at an annual meeting of stockholders (whether by the Board or the stockholders and whether to fill a vacancy or otherwise), each such Eligible Director shall automatically be granted an Option to purchase that number of shares that is determined by (A) dividing $100,000 by the Current Market Value of the Common Stock on the date of election and (B) multiplying the resulting quotient by a fraction, the numerator of which shall equal the number of whole months remaining in the newly elected Director's term and the denominator of which shall be 36. For example, if an Eligible Director is elected to an 18 month term of office and an Eligible Director elected to a full three year term of office would have received an Option to 3 purchase 10,000 shares of Common Stock, then the Eligible Director elected to the 18 month term would receive an Option to purchase 5,000 shares of Common Stock. After the Initial Grants have been made, all subsequent grants of Options to Eligible Directors upon their election to the Board shall be referred to as "Automatic Grants". The "Date of Grant" for the Initial Grants shall be ---------------- ------------- the Approval Date and the Date of Grant for the Automatic Grants shall be the date of election or re-election as an Eligible Director, as the case may be. No Options shall be granted hereunder after ten years from the date on which this Plan was initially approved and adopted by the Board. (c) Exercise Price. The price at which shares may from time to time -------------- be optioned shall be determined by the Committee, provided that such price shall not be less than the current market value (the "Current Market Value") of the -------------------- Common Stock on the date of grant, or if no such market value exists, then the current net asset value of the Common Stock as determined in good faith by the Committee. To the extent permitted by law, the Committee may in its discretion permit the option price to be paid in whole or in part by a note or in installments or with shares of Common Stock of the Company or such other lawful consideration as the Committee may determine. (d) Term of Option. The term of each Option granted under this Plan -------------- shall be five years from the Date of Grant. (e) Period of Exercise. Options granted under this Plan shall become ------------------ exercisable at each annual meeting of stockholders with respect to that number of shares that is determined by multiplying the number of shares covered by such Option by a fraction, the numerator of which shall equal the number of whole months elapsed since the most recent to have occurred of either (i) the Date of Grant or (ii) the last annual meeting of stockholders and the denominator shall be the number of whole months for which such Director was elected. For example, in the example in Section 6(b) above, 1,667 of such Director's Options would become exercisable at the first annual stockholders meeting following the Date of Grant and the remaining 3,333 Options would become exercisable at the second annual stockholders meeting following the Date of Grant. Notwithstanding the foregoing, in the event that the Company holds an annual meeting of stockholders in 1996, such meeting shall not cause any Options under the Plan to become exercisable. Directors holding exercisable Options under this Plan who cease to be Eligible Directors for any reason, other than death, may exercise the rights they had under such Options at the time they ceased being an Eligible Director for three months following the date on which such Director ceased to be an Eligible Director, provided, however, no additional Options held by such Directors shall become exercisable thereafter. Upon the death of a Director, those entitled to do so under the Director's will or the laws of descent and distribution shall have the right, at any time within 4 twelve months after the date of death, to exercise in whole or in part any rights which were available to the Director at the time of his or her death. Options granted under the Plan shall terminate, and no rights thereunder may be exercised, after the expiration of five years from their Date of Grant. (f) Method of Exercise and Payment. Options may be exercised only by ------------------------------ written notice to the Company at its executive offices accompanied by payment of the full exercise price for the shares of Common Stock as to which they are exercised. The exercise price shall be paid in cash or by check or by the surrender of unrestricted shares of Common Stock or by any combination of the foregoing. Upon receipt of such notice and payment, the Company shall promptly issue and deliver to the optionee (or other person entitled to exercise the Option) a certificate or certificates for the number of shares as to which the exercise is made. (g) Non-transferability. Options granted under this Plan shall not be ------------------- transferable by the holder thereof otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the holder's lifetime, only by him or her. 7. Limitation of Rights. -------------------- (a) No Right to Continue as a Director. Neither the Plan, nor the ---------------------------------- granting of an Option or any other action taken pursuant to the Plan, shall constitute an agreement or understanding, express or implied, that the Company will retain an optionee as a Director for any period of time or at any particular rate of compensation. (b) No Stockholders' Rights for Options. No Director shall have any ----------------------------------- rights as a stockholder with respect to the shares covered by his or her Option until the date he or she exercises such Option and pays the Option price to the Company, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such Option is exercised and paid for. 8. Amendment or Termination. ------------------------ The Board may amend, suspend or terminate the Plan or any portion thereof at any time, subject to any shareholder approval that the Board determines to be necessary or advisable, provided that the Participant's consent will be required for any amendment, suspension or termination that would adversely affect the rights of the Participant under any outstanding Options. 5 9. No Fractional Shares. All grants of Options shall be rounded to the -------------------- nearest whole share and no Options representing fractional shares shall be issued. 10. Governing Law. ------------- The provisions of the Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware. 6 EX-23.1 24 CONSENT OF ARTHUR ANDERSEN LLP RE. MEDALLION CORP. Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Form 10-K of our report dated February 19, 1997. It should be noted that we have not audited any financial statements of Medallion Financial Corp. subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Boston Massachusetts March 27, 1997 EX-23.2 25 CONSENT OF ARTHUR ANDERSEN LLP RE. EDWARDS CAPITAL Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Form 10-K our our report dated March 26, 1997 for our audits of the financial statements of Edwards Capital Company for the five month period ended May 29, 1996 and the year ended December 31, 1995. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Boston, Massachusetts March 27, 1997 EX-23.3 26 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Form 10-K of our report dated March 26, 1997 for our audits of the financial statements of Transportation Capital Corp. for the five month period ended May 29, 1996 and the year ended December 31, 1995. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Boston Massachusetts March 27, 1997 EX-23.4 27 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Form 10-K of our report dated March 26, 1997 for our audits of the financial statements of Tri-Magna Corporation for the five month period ended May 29, 1996 and each of the two years ended December 31, 1995. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Boston Massachusetts March 27, 1997 EX-23.5 28 CONSENT OF FRIEDMAN, ALPREN & GREEN LLP Exhibit 23.5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Form 10-K of our report dated January 28, 1995, on our audit of the financial statements of Edwards Capital Company for the year ended December 31, 1994. /s/ Friedman Alpren & Green LLP Friedman Alpren & Green LLP New York, New York March 28, 1997 EX-27 29 FINANCIAL DATA SCHEDULE
6 7-MOS DEC-31-1996 MAY-30-1996 DEC-31-1996 177430888 177430888 1696584 2491974 8005054 189624500 0 0 133137221 133137221 82500 56359555 8250000 2500000 45224 0 0 0 0 56487279 0 10411841 769426 2490198 3682576 84447 46300 3720723 0 0 0 0 5750000 0 0 56485279 0 0 0 0 131250 5008493 7498691 0 0 0 0 0 0 0 0 0 0 0
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