-----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, DNYE6l2ErRTu5WsEgCNLZqXakEXqLCwSAc/s+dz0QXO7fc6Js9eYdMoS9tkkwqQD y5lwom9RpIwJMPdJVF/wFg== 0000950130-01-500469.txt : 20010409 0000950130-01-500469.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950130-01-500469 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDALLION FINANCIAL CORP CENTRAL INDEX KEY: 0001000209 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 043291176 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 814-00188 FILM NUMBER: 1592041 BUSINESS ADDRESS: STREET 1: 205 E 42ND ST STREET 2: STE 2020 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126823300 MAIL ADDRESS: STREET 1: 205 E 42ND ST STREET 2: STE 2020 CITY: NEW YORK STATE: NY ZIP: 10017 10-K 1 d10k.txt FORM 10-K ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2000 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 04-3291176 (State of Incorporation) (IRS Employer Identification No.) 437 MADISON AVENUE, NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip Code) (212) 328-2100 (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, par value $.01 per share (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 YES |_| NO |X|. The approximate aggregate market value of common equity held by non-affiliates of the Registrant as of March 30, 2001 was approximately $148 million based on the average bid and ask prices of the Registrant's Common Stock on the Nasdaq National Market as of the close of business on March 30, 2001. There were 14,602,846 shares of the Registrant's Common Stock outstanding as of March 30, 2001. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Definitive Proxy Statement for its 2000 Annual Meeting of Shareholders, 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, 2000, are incorporated by reference into Part III of this Form 10-K. MEDALLION FINANCIAL CORP. 2000 FORM 10-K ANNUAL REPORT Table of Contents PAGE PART I .................................................................. 2 ITEM 1. BUSINESS OF THE COMPANY ........................................ 2 ITEM 2. PROPERTIES ..................................................... 13 ITEM 3. LEGAL PROCEEDINGS .............................................. 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............ 13 PART II ................................................................. 13 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ............................................ 13 ITEM 6. SELECTED FINANCIAL DATA ........................................ 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............................ 16 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........................................................... 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................... 30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES ........................... 30 PART III................................................................. 30 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............. 30 ITEM 11. EXECUTIVE COMPENSATION ......................................... 30 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ..................................................... 30 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 31 PART IV ................................................................. 31 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .................................................... 31 1 THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT MEDALLION AND OUR INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. MEDALLION'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. MEDALLION UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE. PART I ITEM 1. BUSINESS OF THE COMPANY GENERAL We are a specialty finance company that originates and services loans that finance taxicab medallions and various types of commercial loans. We have a leading position in taxicab medallion financing. Since 1996, we have increased our medallion loan portfolio at a compound annual growth rate of 19% and our commercial loan portfolio at a compound annual growth rate of 38%. Our total assets under our management was approximately $720 million and has grown from $215 million at the end of 1996, a compound annual growth rate of 35%. As an adjunct to our medallion loan business, we also operate one of the largest taxicab rooftop advertising businesses in the nation. Currently, we provide advertising space in 34 metropolitan areas across the United States. Since 1996, we have increased the number of our taxicab rooftop displays from 1,550 to approximately 10,000 at December 31, 2000, at a compound annual growth rate of 59%. Our goal is to provide our stockholders with a stock that pays a high dividend yield and has strong growth potential. During 2000, we declared dividends totaling $1.19 per share, which equates to a dividend yield of approximately 11.7% based upon our stock price of $10.13 as of March 30, 2001. Alvin Murstein, our Chairman and Chief Executive Officer, has over 40 years of experience in the ownership, management and financing of taxicab medallions. Andrew Murstein, our President, is the third generation in his family to be active in the business. We are a closed-end, non-diversified management investment company under the Investment Company Act of 1940, as amended (1940 Act). Our investment objectives are to provide a high level of distributable income, consistent with the preservation of capital, as well as long-term growth of net asset value. We have elected to be treated as a business development company registered under the 1940 Act. In addition, we have elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended (the Code). As a RIC, we 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 we distribute to our stockholders if at least 90% of our investment company taxable income for that taxable year is distributed. We intend to pay quarterly cash dividends to comply with this requirement. Stockholders can elect to reinvest distributions. OUR MEDALLION LOANS Medallion loans of $299 million comprised 58% of our $512 million total loan portfolio as of December 31, 2000. Since 1979, we have originated, on a combined basis, approximately $800 million in medallion loans in New York City, Chicago, Boston, Newark, Cambridge and other cities within the United States. Our medallion loan portfolio consists of mostly fixed-rate loans, collateralized by first security interests in taxicab medallions and related assets. As of December 31, 2000, approximately 77%, in principal amount, of our medallion loans were in New York City. Although some of our medallion loans have from time to time been in arrears or in default, to date we have never experienced a loss of principal on any of our medallion loans. We estimate that the average loan-to-value ratio of all of our medallion loans is approximately 75%. In addition, we have recourse against a vast majority of the owners of the taxicab medallions and related assets through personal guarantees. The New York City Taxi and Limousine Commission, or TLC, estimates that the total value of all of New York City taxicab medallions and related assets exceeds $3 billion. We estimate that the total value of all taxicab medallions and related assets in the United States exceeds $5 billion. We believe that we will continue to develop growth opportunities by further penetrating the highly fragmented medallion financing markets. Additionally, in the future, the Company may enhance its portfolio growth rate with selective acquisitions of medallion financing businesses and their related portfolios. Since our initial public offering, we have acquired several additional medallion loan portfolios. On October 2, 2000, we completed a merger with Freshstart Venture Capital Corporation, or Freshstart, a specialty finance company. Freshstart operates as a Specialized Small Business Investment Company (SSBIC), and is regulated and financed in part by the Small Business Administration (SBA). Freshstart is regulated as a business development company under the 1940 Act and has elected to be treated as a RIC for federal income tax purposes. As an SSBIC, Freshstart's business is to provide loan financing to 2 small and medium-sized businesses that qualify under Small Business Administration (SBA) regulations as socially or economically disadvantaged. Freshstart makes a substantial portion of its loans to finance taxicab medallions, taxicabs, and related assets, with the balance of the loans being made to other small business concerns. Portfolio Characteristics Medallion loans generally require equal monthly payments covering accrued interest and amortization of principal over a ten to fifteen year schedule subject to a balloon payment of all outstanding principal after four or five years. More recently, we have begun to originate loans with one to four year maturities where interest rates are adjusted and a new maturity period set. Borrowers may prepay medallion loans upon payment of a fee ranging from 30 to 90 days interest. We believe that the likelihood of prepayment is a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rate payable on their loan is high relative to prevailing interest rates. We believe they are less likely to prepay in a rising interest rate environment. We generally retain the medallion loans we originate. At December 31, 2000, all of our medallion loans were secured by first security interests in taxicab medallions and related assets. We originate medallion loans at an approximate average loan-to-value ratio of 75%. In addition, we have recourse against the vast majority of direct and indirect owners of the medallions who personally guarantee the loans. 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. We believe that our 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. In instances where a borrower has defaulted on a loan, we have seized the medallion collateralizing that loan. If the loan was not brought current, we were able to sell the medallion in the active market at prices at or in excess of the amounts due. Although some of our medallion loans have from time to time been in arrears or in default, to date we have never experienced a loss of principal on any of our medallion loans. Market Position We have originated and serviced medallion loans since 1979 and have established a leading position in the industry. Management has a long history of owning, managing, and financing taxicab fleets, taxicab medallions and corporate car services, dating back to 1956. Medallion loans collateralized by New York City taxicab medallions and related assets comprised 77% of the value of our medallion loan portfolio at December 31, 2000. The balance consisted of medallion loans collateralized by taxicab medallions in Chicago, Boston, Newark, Cambridge, Philadelphia, Baltimore, and Hartford. We believe that there are significant growth opportunities in these and other metropolitan markets nationwide. The following table displays information regarding medallion loans outstanding in each of our major markets at December 31, 2000:
================================================================================================== % of % of Total Medallion Loan Loan Average # Of Portfolio Portfolio Interest Principal Loans (1) (1) Rate Balance - -------------------------------------------------------------------------------------------------- Medallion Loans New York 1,899 44.1% 76.5% 8.69% $228,457,313 Chicago 362 6.3 10.9 10.47 32,620,950 Boston 150 3.3 5.8 11.21 17,279,259 Newark 110 2.1 3.7 11.59 11,091,809 Cambridge 20 0.2 0.3 10.58 927,484 Other 68 1.6 2.8 11.16 8,230,256 ---------------------------------- ---------------- Gross Medallion Loans 2,609 57.6% 100.0% 9.22 298,607,071 ============================================= Deferred loan acquisition costs 695,477 ---------------- Total Medallion Loans $299,302,548 ==================================================================================================
(1) Based on principal balance outstanding. The New York City Market. A New York City taxicab medallion represents the only permitted license to operate a taxicab and accept street hails in New York City. As reported by the TLC, individual (owner-driver) medallions sold for approximately $202,000 and corporate medallions sold for approximately $223,000 at December 31, 2000. The number of taxicab medallions is limited by law, and as a result of the limited supply of medallions, an active market for medallions has developed. The law limiting the number of medallions also stipulates that the ownership for the 12,053 medallions outstanding at December 31, 2000 shall remain divided into 5,086 individual medallions and 6,967 fleet or corporate medallions. Corporate medallions are more valuable because they can be aggregated by businesses and leased to drivers and operated for more than one shift. 3 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 letter from the seller's insurer stating that there are no outstanding claims for personal injuries in excess of insurance coverage. After the transfer is approved, the owner's taxicab is subject to quarterly TLC inspections. Most New York City medallion transfers are handled through approximately 32 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 Chicago Market. We estimate that Chicago medallions currently sell for approximately $68,000. Pursuant to a municipal ordinance, the number of outstanding medallions is currently capped at 6,700, which includes an additional 150 and 200 medallions that were auctioned and placed into service in July 1999 and December 2000, respectively. We estimate that the total value of all Chicago medallions and related assets is over $450 million. The Boston Market. We estimate that Boston medallions currently sell for approximately $185,000. 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, including 40 additional medallions which are restricted to "wheelchair accessible" taxicabs. In January 1999, 75 additional medallions were auctioned and put into service. An additional 57 medallions were auctioned in June 2000. We estimate that the total value of all Boston medallions and related assets is over $300 million. The Newark Market. We estimate that Newark medallions currently sell for approximately $220,000. The number of Newark medallions currently has been limited to 600 since 1950 by local law. We estimate that the total value of all Newark medallions and related assets is over $130 million. The Cambridge Market. We estimate that Cambridge medallions currently sell for approximately $175,000. The number of Cambridge medallions has been limited to 248 since 1945 by a Cambridge city ordinance. We estimate that the total value of all Cambridge medallions and related assets is over $40 million. Our Commercial Loans Commercial loans of $213 million comprised 42% of our $512 million total loan portfolio as of December 31, 2000. From the inception of our commercial loan business in 1987 through December 31, 2000, we have originated more than 10,000 commercial loans in an aggregate principal amount of more than $425 million. We estimate that the average loan-to-value ratio of our commercial loans was approximately 70% on December 31, 2000. Our commercial loan portfolio consists of floating-rate, adjustable, and fixed-rate loans. We have increased our commercial loan activity in recent years primarily because of the attractive higher yielding, floating rate nature of most of this business. The outstanding balances of commercial loans grew 28% in 2000 compared to 1999, and in 1999 grew 49% compared to 1998. This increase has been primarily driven by internal growth through the origination of additional commercial loans. We plan to continue to expand our commercial loan activities to develop a more diverse borrower base, a wider geographic area of coverage, and to expand our targeted industries. Our commercial loans generally are secured by equipment, accounts receivable, real estate, and other assets, and have interest rates averaging 200 basis points over the prevailing prime rate. As with medallion loans, we require the vast majority of the principals of borrowers to personally guarantee commercial loans. Our aggregate realized loss of principal on commercial loans has averaged less than 1/2 of 1% per annum for each of the last five years. SBA Section 7 (a) loans The Company originates loans under the Section 7(a) program of the SBA through its Business Lenders LLC (BLL) subsidiary. Up to 75% of the amount of these loans (up to $750,000) are guaranteed by the U.S. government. These loans are secured by fixed assets and or real estate throughout the New England and the New York areas, and comprise approximately 30% of our commercial loan portfolio. BLL has achieved "preferred lender" status from the SBA in 25 districts in which it originates loans, enabling us to obtain expedited loan approval and closing from the SBA. These loans are typically secured by assets or real estate, and have floating interest rates tied to a spread over the prime rate. Additionally, a liquid market exists for the sale of the guaranteed portion of these loans. We regularly sell the guaranteed portion of our Section 7(a) loans in the secondary market and recognize a gain on these sales. This gain is accounted for in accordance with Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement No.125." We believe that the floating-rate nature of these loans is beneficial for our interest rate exposure management. 4 Asset Based Loans The Company originates asset-based loans to small businesses for working capital through its Medallion Business Credit, (MBC) subsidiary. These loans are primarily secured by accounts receivable of small businesses that require credit facilities ranging from $250,000 to $3,500,000, a market which we believe is underserved, and which represent approximately 20% of our commercial loan portfolio. We had successfully established 45 credit lines at December 31, 2000. Security on these facilities is principally the borrower's accounts receivable, but may also include inventory, machinery, or equipment. Currently, our customer base is concentrated in the New York metropolitan area and includes manufacturers, distributors and service organizations. These loans are generally priced at approximately 300 basis points over the prevailing prime rate on our credit facilities. Other Commercial Secured Loans The Company originates other commercial loans that are not concentrated in any particular industry. These loans, which are generally fixed-rate loans, represent approximately 50% of our commercial loan portfolio. Our customer base includes food service, real estate, dry cleaners, laundromats, laser eyes surgery clinics, and radio and television broadcast industries. We often accept equity warrants as partial consideration in its lending transactions, thus, enabling us to share in future growth of our borrowers. The following table displays the different types of loans in our commercial loan portfolio at December 31, 2000.
================================================================================================ % of % of Total Commercial Loan Loan Average # of Portfolio Portfolio Interest Principal Loans (1) (1) Rate Balance - ------------------------------------------------------------------------------------------------ Commercial Loans SBA Section 7(a) loans 765 12.8% 30.2% 11.50% $66,057,818 Asset-based loans 45 8.3 19.7 12.98 43,120,496 Other commercial secured loans 603 21.2 50.1 12.74 109,424,624 ------------------------------------------------------------- Gross Commercial Loans 1,413 42.3% 100.0% 12.41 218,602,938 ============================================= Deferred loan acquisition costs 1,107,225 Unrealized depreciation on loans (6,988,790) -------------- Total Commercial Loans $212,721,373 - ------------------------------------------------------------------------------------------------
(1) Based on principal balance outstanding. Portfolio Characteristics Commercial 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. We have originated commercial loans in principal amounts ranging from $5,000 to approximately $5,300,000. These loans are generally retained and typically have maturities ranging from one to ten years and require equal monthly payments covering accrued interest and amortization of principal over a four to five year term. Substantially all loans generally may be prepaid with a fee ranging from 30 to 120 days' interest. The term of, and interest rate charged on, our 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 us from charging the maximum rate of interest permitted under SBA regulations, we are able to charge the maximum rate on certain commercial loans. We believe that the increased yield on commercial loans compensates for their higher risk relative to medallion loans and further illustrates the benefits of diversification. We generally originate commercial loans at an average loan-to-value ratio of 70 to 75%. Substantially all of our commercial loans are collateralized by security interests in the assets being financed by the borrower. In addition, we have recourse against the vast majority of the principals of borrowers who personally guarantee the loans. 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. In certain cases, equipment vendors may provide full and partial recourse guarantees on loans. Delinquency And Loan Loss Experience We generally follow a practice of discontinuing the accrual of interest income on our commercial loans that are in arrears as to interest payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances. At December 31, 2000, we had an aggregate principal balance of $28.9 million or 5.6% of the portfolio which was delinquent for 90 days or more, compared to an aggregate principal balance of $30.4 million or 6.1% and $28.4 million or 5.8% of the portfolio at September 30, 2000 and December 31, 1999. We consider a loan to be delinquent if the borrower fails to make payments for 90 days or more; however, we may agree to modify the payment terms of the loan with a borrower that cannot make payments in accordance with the original loan agreement. In such case, the loan will only be returned to accrual status if all past due payments are brought fully current. Based upon our assessment of our collateral position, we anticipate that a substantial portion of the principal amount of 5 our delinquent loans would be collected upon foreclosure of such loans, if necessary. There can be no assurance, however, that the collateral securing these loans will be adequate in the event of foreclosure. We monitor delinquent loans for possible exposure to loss. In our analysis, we review various factors, including the value of the collateral securing the loan and the borrower's prior payment history. Under the 1940 Act, our loan portfolio must be recorded at fair value or "marked to market." Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, we adjust the valuation of our portfolio quarterly to reflect our estimate of the current realizable value of our loan portfolio. Since no ready market exists for this portfolio, fair value is subject to the good faith determination of our management and the approval of our Board of Directors. Because of the subjectivity of these estimates, there can be no assurance that in the event of a foreclosure or the sale of portfolio loans we would be able to recover the amounts reflected on our balance sheet. In determining the value of our portfolio, management and the board of directors may take into consideration various factors such as the financial condition of the borrower and the adequacy of the collateral. For example, in a period of sustained increases in market rates of interest, management and the Board of Directors could decrease its valuation of the portfolio if the portfolio consists primarily of fixed-rate loans. Our valuation procedures are designed to generate values which approximate the value that would have been established by market forces and are therefore subject to uncertainties and variations from reported results. Based upon these factors, we determine net unrealized depreciation of investments or the amount by which our estimate of the current realizable value of our portfolio is below our cost basis. The following table sets forth the changes in Medallion's unrealized appreciation (depreciation) of investments for the periods indicated:
========================================================================================================================= Equity Loans Investments Total - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $ (2,824,218) $ 3,132,650 $ 308,432 Increase in unrealized: Appreciation on investments 409,943 3,347,178 3,757,121 Depreciation on investments (675,883) (458,489) (1,134,372) Unrealized depreciation of acquired subsidiary (200,000) -- (200,000) Reversals of unrealized appreciation (depreciation) related to realized: Gains on investments -- (1,167,363) (1,167,363) Losses on investments 1,125,866 -- 1,125,866 - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 (2,164,292) 4,853,976 2,689,684 Increase in unrealized: Appreciation on investments -- 12,966,343 12,966,343 Depreciation on investments (7,208,586) (208,853) (7,417,439) Reversals of unrealized appreciation (depreciation) related to realized: Gains on investments -- (18,197,295) (18,197,295) Losses on investments 388,825 -- 388,825 - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 (8,984,053) (585,829) (9,569,882) Increase in unrealized: Appreciation on investments 412,807 200,000 612,807 Depreciation on investments (636,367) (20,767) (657,134) Reversals of unrealized appreciation (depreciation) related to realized: Gains on investments (2,573) (15,981) (18,554) Losses on investments 2,221,396 -- 2,221,396 - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 $ (6,988,790) $ (422,577) $ (7,411,367) =========================================================================================================================
6 The following table presents credit-related information for the investment portfolios as of December 31:
=========================================================================================== 2000 1999 1998 - ------------------------------------------------------------------------------------------- Total loans Medallion loans $ 299,302,548 $ 321,900,869 $ 286,231,532 Commercial loans 212,721,373 165,653,933 110,837,114 ----------------------------------------------------- Total loans 512,023,921 487,554,802 397,068,646 Equity investments (1) 2,129,685 2,012,394 11,579,329 ----------------------------------------------------- Total loans and equity investments $ 514,153,606 $ 489,567,196 $ 408,647,975 - ------------------------------------------------------------------------------------------- Realized losses on loans (2) $ 2,221,396 $ 394,268 $ 1,125,866 - ------------------------------------------------------------------------------------------- Net unrealized depreciation (appreciation) on investments Loans $ 6,988,790 $ 8,984,053 $ (2,164,292) Equity investments 422,577 585,829 4,853,980 ----------------------------------------------------- Total $ 7,411,367 $ 9,569,882 $ 2,689,688 - ------------------------------------------------------------------------------------------- Realized losses as a % of total loans 0.43% 0.08% 0.28% Realized losses as a % of total loans and equity investments (2) 0.43% 0.08% 0.28% Realized losses as a % of commercial loans 1.04% 0.24% 1.06% Realized losses as a % of commercial loans and equity investments (2) 1.03% 0.24% 0.96% - ------------------------------------------------------------------------------------------- Net unrealized depreciation (loans only) as a % of total loans 1.36% 1.84% (0.55%) Total unrealized depreciation (appreciation) as a % of total loans and equity investments 1.44% 1.95% 0.66% Net unrealized depreciation (appreciation) (loans only) as a % of commercial loans 3.29% 5.42% (1.95%) Net unrealized depreciation (appreciation) as a % of commercial loans and equity investments 3.45% 5.71% 2.20% ===========================================================================================
(1) Represents common stock and warrants held as investments. (2) Includes $178,199 of realized losses on equity investments for the year 2000, and $0 for 1999 and 1998. (3) All realized losses relate to the commercial loan portfolio. There were no realized losses on medallion loans for the years ending December 31, 2000, 1999, and 1998. - -------------------------------------------------------------------------------- Investment Activity The following table sets forth the components of investment activity in the investment portfolios in the periods indicated:
================================================================================ Year Ended December 31, - -------------------------------------------------------------------------------- (Dollars in thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- Net investments at beginning of period $489,567 $408,208 $334,141 Investments originated 197,512 303,335 257,737 Repayments of investments (170,084) (231,290) (202,934) Increase in unrealized appreciation (depreciation), net 2,159 (12,260) 2,581 Realized gains (losses), net (3,884) 22,545 1,291 Amortization of origination costs (1,116) (971) (1,353) Acquisitions -- -- 16,745 ---------------------------------------- Net increase in investments 24,587 81,359 74,067 ---------------------------------------- Net investments at end of period $514,154 $489,567 $408,208 ================================================================================
Investment Strategy Our core philosophy has been "In niches there are riches." We try to identify markets that are profitable and where we can be the industry leader. Our core lending areas include medallion lending, automobile lending (taxicabs and limousines only), SBA 7(a) guaranteed loans through an extensive network of preferred lending offices, and asset-based financing. Additionally, we lend to small 7 businesses that meet our overall credit criteria of strong collateral values and personal ability to repay the debt. In all of our lending divisions, we look to focus on making secured loans to achieve favorable yield to risk profiles and below average losses. In addition to increasing market share in existing lending markets and identifying new niches, we have sought to acquire specialty finance companies that make secured loans to small businesses which have experienced historically low loan losses similar to our own. Since our initial public offering in May 1996, we have acquired eight specialty finance companies, three loan portfolios, and three taxicab roof top advertising companies. Marketing, Origination and Loan Approval Process We employ 32 loan originators that originate medallion loans and commercial loans. 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, personal inspection of the premises, and approval from the TLC, SBA, or other regulatory body, if applicable. We also require each applicant to provide personal and corporate tax returns, premises leases, and/or property deeds. Our senior management establishes loan origination criteria. Loans that conform to such criteria may be processed by a loan officer with the proper credit authority, and non-conforming loans must be approved by the Chief Executive Officer or the Chief Credit Officer. Additionally, both medallion and commercial loans are sourced from brokers with extensive networks of applicants, and commercial loans are also referred by our contacts with banks, attorneys, and accounting firms. TAXICAB ROOFTOP ADVERTISING Medallion Taxi Media, Inc (Media) provides taxicab rooftop advertising, which is a relatively undeveloped segment of the out-of-home advertising industry. Out-of-home advertising includes: o traditional outdoor advertising, such as billboards and posters; o Transit advertising, such as taxicabs, buses, bus shelters, subway, commuter train and airport advertising; and o In-store point of sale advertising. We currently provide taxicab rooftop advertising in over 30 major cities and have the leading market share in New York, Los Angeles, Philadelphia, Dallas and Baltimore/Washington D.C. Our goal is to become the leading national provider of taxicab rooftop advertising by establishing a presence in additional major U.S. metropolitan markets. As of December 31, 2000, we had approximately 10,000 installed displays. We entered this business in November 1994 with the organization of Media, and since that time the business has grown rapidly. Generally, we enter into agreements with taxicab associations, fleets or individuals to lease taxicab rooftop space for five-year terms. We have added an additional 1,700 displays to the number under contract in New York City. On September 1, 1998, we acquired the assets of Taxi Ads, LLC which had 855 displays in service in New Orleans, Philadelphia, and San Diego. On February 2, 1999, Media purchased all of the common stock of Transit Advertising Displays, Inc., which operates installed displays in the Baltimore and Washington, D.C. areas. On September 30, 1999, Media entered into an agreement with Yellow Cab Service Corp. to sell advertising space on a commission basis on its 3,000 taxicab trunk signs located throughout the Southeast. On August 7, 2000, we entered into an agreement with Yellow Cab Service Corp., the taxi division of Coach U.S.A., to place advertising on more than 2,300 taxis in ten additional cities. On August 30, 2000, Media purchased all the assets of Out There Media L.L.C. ("Out There"), a privately held company headquartered in Cleveland. Out There has the right to place an advertisement on top of more than 250 taxis in Cleveland, Columbus and Toledo and has contracts with some of the largest taxi fleets in each of their respective cities. We attach each display to the rooftop of a taxicab and perform all ongoing display maintenance and repair. The display remains our property. 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. 8 We market the displays to advertising agencies and outdoor advertising buying agencies. Advertising contracts generally vary from 30 days to one year and provide for monthly payments by the advertiser. The following is a sample of Media's advertising accounts in 2000: o Armani Exchange o Versace o Fleet Bank N.A. o Continental Airlines o M&M Mars o Kellogg's o Old Navy o Banana Republic o Disney's The Lion King on Broadway o Hot Jobs.com o Alta Vista o Hard Rock Cafe o California Pizza Kitchen o Fox Family Channel o Sony o Fossil o Kate Spade We believe that there are growth opportunities within our existing markets because only approximately 40% of New York City taxicabs, and less than 10% of taxicabs nationwide, have rooftop advertising. In addition, we believe that our growth will be facilitated by our reputation and relationship within the taxicab industry and because our arrangement with the taxicab owners provides them with incremental income. On September 14, 2000, through a joint venture with Yahoo!, Inc., we introduced 10 Internet enabled taxicabs in New York. These taxicabs are equipped with Palm Inc.'s Palm Pilot VII handheld computers, allowing passengers to access the Internet while in transit. On February 8, 2001, we announced that Media entered into an agreement to acquire Taxi Media Network, the largest taxicab advertising company in Japan, which holds the rights to provide advertising on 7,000 taxis in Japan. The transaction is subject to due diligence reviews and other customary closing conditions. SOURCES OF FUNDS Overview We fund our lending operations primarily through credit facilities with bank syndicates and, to a lesser degree, secured commercial paper and through fixed-rate, senior secured notes and long-term subordinated debentures issued to or guaranteed by the SBA. The determination of funding sources is established by our management, based upon an analysis of the respective financial and other costs and burdens associated with funding sources. Currently, Medallion has fully drawn down its existing bank lines of credit. The table below summarizes our borrowings as of December 31, 2000: ================================================================================ (Dollars in thousands) Total - -------------------------------------------------------------------------------- Cash $15,653 Revolving lines of credit (1) 333,500 Amounts available 3,734 Amounts outstanding 305,700 Average interest rate 7.83% Maturity 6/01 - 9/01 Commercial paper 24,066 Average interest rate 7.10% Maturity 6/01 SBA debentures 21,360 Average interest rate 7.28% Maturity 12/02 - 9/07 Senior secured notes 45,000 Average interest rate 7.20% Maturity 6/04 - 9/04 Total cash and amounts available under credit facilities $19,387 ================================================================================ Total debt outstanding $396,126 ================================================================================ (1) Commercial paper outstanding is deducted from revolving credit lines available as the line of credit acts as a liquidity facility for the commercial paper. - -------------------------------------------------------------------------------- 9 We fund our fixed-rate loans with variable-rate bank debt and fixed-rate senior secured notes and SBA debentures. The mismatch between maturities and interest-rate sensitivities of these balance sheet items results in interest rate risk. We seek to manage our exposure to increases in market rates of interest to an acceptable level by: o Originating adjustable rate loans; o Incurring fixed-rate debt; and o Purchasing interest rate caps to hedge a portion of our variable-rate debt against increases in interest rate. Nevertheless, we accept varying degrees of interest rate risk depending on market conditions. For additional discussions of our funding sources and asset and liability management strategy, see Asset/Liability Management on page 23. OUR OPERATION AS A RIC We have elected to be taxed as a RIC under Sections 851 through 855 of the Code. Now and in the future, we plan to operate in a manner that satisfies the requirements for taxation as a RIC under the Code. However, we cannot give assurances that we will remain qualified. The sections of the Code relating to qualification and operation as a RIC are highly technical and complex. The following discussion summarizes material aspects of the sections of the Code that govern the federal income tax treatment of a RIC and the treatment of stockholders. This summary is qualified in its entirety by the applicable Code provisions, rules and regulations developed under the Code and the rules, and administrative and judicial interpretations of these provisions, rules and regulations. In general, if certain detailed conditions of the Code are met, business development companies, like us, are generally not taxed, at the corporate level, on "investment company taxable income" that is distributed to stockholders. The income of a non-RIC corporation is generally subject to corporate tax. In addition, stockholders who receive income from non-RIC corporations are also taxed on the income they receive. Thus, the income of a non-RIC corporation is subject to "double taxation" (i.e., taxation at both the corporate and stockholder levels). RIC treatment substantially eliminates this "double taxation." A RIC is, however, generally subject to federal income tax, at regular corporate rates, on undistributed investment company taxable income. To avoid a 4% nondeductible federal excise tax on undistributed income and capital gains, we must distribute (or be deemed to have distributed) by December 31st of each year: 1) at least 98% of our ordinary income for such year; 2) at least 98% of our capital gain net income (which is the excess of our capital gain over our capital loss and is generally computed on the basis of the one-year period ending on October 31st of such year); and 3) any amounts that were not distributed in the previous calendar year and on which no income tax has been paid. If we fail to qualify as a RIC in any year, we will be subject to federal income tax as if we were a domestic corporation, and our stockholders will be taxed in the same manner as stockholders of ordinary corporations. If this were to occur, we could be subject to potentially significant tax liabilities and the amount of cash available for distribution to our stockholders could be reduced. The Code's definition of the term "RIC" includes a domestic corporation that has elected to be treated as a business development company under the 1940 Act and meets certain requirements. These requirements are: (a) The company derives 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; and (b) 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. These diversification requirements could restrict the expansion of our taxicab rooftop advertising business and our medallion collateral appreciation loan business. In addition, to qualify as a RIC under the Code, in 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. 10 If we satisfy these requirements, neither the investment company taxable income we distribute to stockholders nor any net capital gain distributed to our stockholders should be subject to federal income tax. Investment company taxable income and/or net capital gains retained by us should be subject to federal income tax at regular corporate income tax rates. However, we may designate retained net long-term capital gains as "deemed distributions" and pay a tax on this for the benefit of our stockholders. We currently intend to continue distributing income to our stockholders for each of our taxable years substantially all of our investment company taxable income and may or may not distribute any capital gains. If we acquire debt obligations that were originally issued at a discount, or 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, we will be required to include, as interest income, in 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 we will be obligated to make distributions accordingly. If this were to occur, we may borrow funds or sell assets to meet the distribution requirements. However, the 1940 Act prohibits us from making distributions to stockholders while senior securities are outstanding unless we meet certain asset coverage requirements. If we are unable to make the required distributions, we may be subject to the nondeductible 4% excise tax or we may fail to qualify as a RIC. In addition, the SBA restricts the amount of distributions to the amount of undistributed net realized earnings less the allowance for unrealized loan losses (which in our case includes unrealized depreciation). If we qualify as a RIC, distributions made to our taxable domestic stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be considered ordinary income to them. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed our 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 we make 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). Distributions in excess of the stockholder's tax basis are taxable as capital gains (if the common stock is held as a capital asset). In addition, any dividends declared by us 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 us and received by the stockholder on December 31st of such year, provided that the dividend is actually paid by us during January of the following calendar year. Stockholders may not include in their individual income tax returns any net operating losses or capital losses by us. If we choose to retain and pay tax on any net capital gain rather than distribute such gain to our stockholders, we will designate such deemed distribution in a written notice to stockholders within 60 days after the close of the taxable year. Each stockholder would then be treated, for federal income tax purposes, as if we 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 us and the stockholder had paid its pro rata share of the taxes paid by us and reinvested the remainder in us. In general, any loss upon a sale or exchange of common stock by a stockholder who has held the stock for six months or less (after applying certain holding period rules) will be treated as long-term capital loss, to the extent that distributions from us are required to be treated by the stockholder as long-term capital gains. OUR OPERATION AS A BUSINESS DEVELOPMENT COMPANY (BDC) As a BDC, we are 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 we may not change the nature of our business in a way which would cause us to lose our status as a BDC or withdraw our election as a BDC, unless we are authorized by a vote of a "majority of the Company's outstanding voting securities," as defined under the 1940 Act. We are 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 asset coverage of the indebtedness and all senior securities is at least 200% immediately after the issuance. Subordinated SBA debentures guaranteed by or issued to the SBA by our RIC subsidiaries are not subject to this asset coverage test. In addition, while senior securities are outstanding, provisions must be made to prohibit the declaration of any dividend or other distribution to stockholders (except stock dividends) or the repurchase of securities or shares unless we meet 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 our business 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: 11 (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) The issuer does not have a class of securities with respect to which a broker or dealer may extend margin credit; or (ii) The issuer is controlled by a BDC and the BDC has an affiliated person serving as a director of issuer; (iii) The issuer has total assets of not more than $4 million and capital and surplus (shareholders' equity less retained earnings) of not less than $2 million, or such other amounts as the Securities and Exchange 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; and (4) Cash. In addition, a BDC's cash items, government securities, or high quality debt securities maturing in one year or less from the time of investment 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. To count securities as Qualifying Assets for the purpose of the 70% test, a 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 a 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. We believe that the common stock of MFC and Media are Qualifying Assets. REGULATION BY THE SBA MFC, Medallion Capital, and Freshstart each operate as a Small Business Investment Company (SBIC). The Small Business Investment Act of 1958 (SBIA) authorizes the organization of SBICs as vehicles for providing equity capital, long term financing and management assistance to small business concerns. The SBIA and the SBA Regulations define a "small business concern" as a business that is independently owned and operated, which does not dominate its field of operation and which (i) has a net worth, together with any affiliates, of $18.0 million or less and 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) satisfies 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. In addition, at the end of each year, at least 20% of the total amount of loans made after April 25, 1994 must be made in "smaller businesses" which have a net worth of $6.0 million or less and average net income after federal income taxes for the preceding two years of $2.0 million or less. SBA Regulations also prohibit an SBIC from providing funds to a small business concern for certain purposes, such as relending and reinvestment. MFC is authorized to make loans to borrowers other than Disadvantaged Businesses (that is, businesses that are at least 50% owned, and controlled and managed, on a day to day basis, by a person or persons whose participation in the free enterprise system is hampered because of social or economic disadvantage) if, at the time of the loan, MFC has in its portfolio, outstanding loans to Disadvantaged Businesses 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. Under current SBA Regulations, the maximum rate of interest that MFC may charge may not exceed the higher of (i) 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 SBA debenture rate, plus (b) 11%, rounded to the next lower eighth of one percent. At December 31, 2000, the maximum rate of interest permitted on loans originated by the RIC Subsidiaries was 19%. At December 31, 2000, our outstanding medallion loans had a weighted average rate of interest of 9.22% and outstanding commercial loans had a weighted average rate of interest of 12.41%. Current SBA Regulations also require that each loan originated by an SBIC have a term of between 5 years and 20 years; loans to Disadvantaged Businesses may be for a minimum of four years. However, recent legislation enacted by the U.S. Congress and signed into law by the President on December 21, 2000, Public Law 106-554, amended the SBIA to define "long term" financing as "any period of time not less than one year." The effect of this statutory change is to eviscerate SBA's regulatory authority to require a minimum period of financing for a period of time longer than one year. 12 The SBA restricts the ability of SBICs to repurchase their capital stock, to retire their 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 Regulatory Capital, as defined, however, under the terms of the respective conversion agreements with the SBA, MFC is authorized to make loans to Disadvantaged Borrowers in amounts not exceeding 30% of their respective Regulatory 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 invested in this manner depends 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 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 loans. Finance subsidiaries of equipment manufacturers also compete with the Company in originating commercial loans. 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. There can be no assurance that the Company will continue to compete with these businesses successfully. EMPLOYEES As of December 31, 2000, the Company employed a total of 172 persons. The Company believes that its relations with all of its employees are good. ITEM 2. PROPERTIES The Company leases approximately 17,000 square feet of office space in New York City for its corporate headquarters under a lease expiring in June 2006. The Company also leases office space for loan origination offices in Boston, MA, Chicago, IL, Hartford, CT, Southbury, CT, Clifton, NJ, Providence, RI, Rochester, NY, Phoenix, AZ, Wellesley, MA, Somers Point, NJ, Towson, MD, and Minneapolis, MN. Media leases space for sales and maintenance in New York, NY, New Orleans, LA, Washington, DC, Boston, MA and Los Angeles, CA. The Company does not own any real property. The Company believes that its leased properties, taken as a whole, are in good operating condition and are suitable for the Company's current business operations. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries have been named as defendants in various legal proceedings incident to the ordinary course of its business. The Company intends to vigorously defend these outstanding claims. In the opinion of the Company's management and 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 effect on the Company's results of operations or financial condition. 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 Company's 2000 fiscal year. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our common stock is quoted on the Nasdaq National Market under the symbol "TAXI." Our common stock commenced trading on May 23, 1996. As of March 30, 2001, there were approximately 198 holders of record of Medallion's common stock. 13 On March 30, 2001, the last reported sale price of our common stock was $10.13 per share. The following table sets forth the range of high and low closing prices of the common stock as reported on the Nasdaq National Market for the periods indicated. Our common stock has historically traded at a premium to net asset value per share. There can be no assurance, however, that such premium will be maintained. The following table sets forth for the periods indicated the range of high and low closing prices for Medallion's common stock on the Nasdaq National Market: ================================================================================ 2000 HIGH LOW - -------------------------------------------------------------------------------- First Quarter $ 19 $15-3/4 Second Quarter 17-15/16 14-1/6 Third Quarter 17-3/4 15-1/4 Fourth Quarter 17-1/8 11-1/2 1999 HIGH LOW - -------------------------------------------------------------------------------- First Quarter $ 21-1/4 $ 14 Second Quarter 19-5/8 15-1/8 Third Quarter 21-3/4 18-1/8 Fourth Quarter 21-9/16 17-1/4 ================================================================================ We have distributed and currently intend to continue to distribute 90% of our investment company taxable income to our stockholders. Distributions of our income are generally required to be made within the calendar year the income was earned to maintain our RIC status; however, in certain circumstances distributions can be made up to a full calendar year after the income has been earned. Our Investment Company taxable income includes, among other things, dividends and interest reduced by deductible expenses. Our ability to make dividend payments is restricted by certain asset coverage requirements under the Investment Company Act and is dependent upon maintenance of our status as a RIC under the Code. Our ability to make dividend payments is further restricted by certain financial covenants contained in our credit agreements, by SBA regulations and under the terms of the SBA debentures. We have adopted a dividend reinvestment plan pursuant to which stockholders can have distributions reinvested in additional shares of common stock. There can be no assurances; however, that we will have sufficient earnings to pay such dividends in the future. 14 ITEM 6. SELECTED FINANCIAL DATA Summary consolidated financial data You should read the consolidated financial information below with the Consolidated Financial Statements and Notes thereto for the years ended December 31, 2000, 1999, and 1998. Financial information for the years ended December 31, 1997 and 1996, has been derived from audited financial statements. Prior year amounts have been restated to reflect the pooling of interests with FreshStart.
========================================================================================================================== Year Ended December 31, ------------------------------------------------------------------------ (Dollars in thousands, except per share data) 2000 1999 1998 1997 1996 (13) - -------------------------------------------------------------------------------------------------------------------------- Statement of Operations Data Investment income $55,356 $44,076 $37,854 $27,658 $12,292 Interest expense 28,944 20,988 16,967 10,864 5,328 ------------------------------------------------------------------------ Net interest income 26,412 23,088 20,887 16,794 6,964 Equity in earnings (losses) of unconsolidated subsidiary (1) (421) (214) 1,200 203 (63) Other income 3,378 2,247 1,663 1,087 411 Gain on sale of loans 2,814 3,014 2,316 336 -- Accretion of negative goodwill 351 722 722 722 421 Operating expenses 22,909 17,470 13,696 6,590 3,042 Amortization of goodwill 540 530 506 368 259 Dividends on minority interest -- -- -- -- (116) Income tax provision (benefit) (181) 49 (152) (930) 436 ------------------------------------------------------------------------ Net investment income 9,266 10,808 12,738 11,254 3,880 Realized gain (loss) on investments, net (3,884) 22,545 1,291 78 558 Change in unrealized appreciation (depreciation) of investments (2) 2,159 (12,259) 2,581 1,929 758 ------------------------------------------------------------------------ Net increase in net assets $7,541 $21,094 $16,610 $13,261 $5,196 resulting from operations (3) - -------------------------------------------------------------------------------------------------------------------------- Net investment income per diluted share $0.64 $0.74 $0.87 $0.88 $0.65 Net investment income per diluted share adjusted for acquisition and other non-recurring charges (4) 0.84 0.74 0.98 0.88 0.65 Net increase in net assets resulting from operations per diluted share 0.52 1.44 1.14 1.04 0.87 Dividends declared per share (5) 1.19 1.27 1.16 0.88 0.34 - -------------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding Basic 14,536,942 14,515,660 14,461,276 12,621,301 5,839,094 Diluted 14,576,183 14,620,437 14,591,045 12,769,394 5,983,352 ========================================================================================================================== Balance Sheet Data Investments, net of unrealized depreciation on investments $514,154 $489,567 $408,208 $334,141 $197,104 Total assets 560,715 533,924 448,037 362,168 215,277 Notes payable 305,700 195,450 120,600 138,750 96,450 Commercial paper 24,066 93,984 103,082 -- -- Senior secured notes 45,000 45,000 -- -- -- Subordinated SBA debentures 21,360 22,770 55,360 53,540 38,806 Total liabilities 412,982 376,263 292,490 206,306 140,205 Negative goodwill -- 351 1,073 1,795 258 Total shareholders' equity 147,733 157,310 154,474 154,067 74,814 ==========================================================================================================================
15
============================================================================================================================ Year Ended December 31, ---------------------------------------------------------------- 2000 1999 1998 1997 1996(13) ============================================================================================================================ Selected Financial Ratios And Other Data - ---------------------------------------------------------------------------------------------------------------------------- Return on average assets (6) Net investment income 1.69% 2.20% 3.14% 3.81% 3.32% Net increase in net assets resulting from operations 1.38 4.30 4.10 4.49 4.39 Net increase in net assets resulting from operations 1.95 4.30 4.47 4.49 4.39 adjusted for acquisition and other non-recurring charges (4) Return on average equity (7) Net investment income 6.27 6.87 8.25 7.30 5.45 Net increase in net assets resulting from operations 4.94 13.53 10.77 11.28 7.16 Net increase in net assets resulting from operations 7.00 13.53 11.74 11.28 7.16 adjusted for acquisition and other non-recurring charges (4) - ---------------------------------------------------------------------------------------------------------------------------- Weighted average yield, end of period (8) 10.56 9.91 9.92 10.20(13) 10.98 Weighted average cost of funds, end of period (9) 7.69 7.12 6.49 7.15(13) 7.15 Net interest spread, end of period (10) 2.87 2.79 3.43 3.05(13) 3.83 Other income ratio (11) 0.66 0.46 0.41 0.33 0.21 Operating expense ratio (12) 4.09 3.27 3.06 1.82 1.41 - ---------------------------------------------------------------------------------------------------------------------------- Medallion loans as a percentage of total investment 58.21 65.75 70.1 (13) 72.13(13) 68.30 portfolio Commercial loans as a percentage of total investment portfolio 41.37 33.84 27.10(13) 25.48(13) 30.52 Equity investments as a percentage of total investment portfolio 0.41 0.41 2.80 2.24 1.20 - ---------------------------------------------------------------------------------------------------------------------------- Investments to assets (14) 91.70 91.69 91.11 92.26 91.56 Equity to assets (15) 26.35 29.46 34.48 42.54 33.70 Debt to equity (16) 268.14 227.07 180.64 124.81 186.42 ============================================================================================================================
(1) Equity in earnings (losses) of unconsolidated subsidiary represents the net income (loss) for the period indicated from Medallion's investment in Media. (2) Change in unrealized appreciation (depreciation) of investments represents the increase (decrease) for the period in the fair value of Medallion's investments. (3) Net increase in net assets resulting from operations is the sum of net investment income, realized gains or losses on investments and change in unrealized appreciation (depreciation) on investments. (4) The Company considers net investment income before acquisition and other non-recurring charges to be a more appropriate measure of operating performance; consequently, this calculation represents net investment income plus acquisition-related and other non-recurring charges of $3,140,000 in 2000, and $1,494,000 in 1998, divided by weighted average diluted common shares outstanding. (5) Includes $0.36 per share declared on November 17, 2000 and paid on January 12, 2001 to shareholders of record as of December 8, 2000. (6) Return on average assets represents the net investment income or net increase in net assets resulting from operations, for the period indicated, divided by average total assets. (7) Return on average equity represents the net investment income or net increase in net assets resulting from operations, for the period indicated, divided by shareholders' equity. (8) Weighted average yield, end of period represents the end of the year weighted average interest rate on investments at the date indicated. (9) Weighted average cost of funds, end of period represents the end of the year weighted average interest rate on debt at the date indicated. (10) Net interest spread, end of period represents weighted average yield, end of period less weighted average cost of funds, end of period. (11) Other income ratio represents other income, for the year indicated, divided by investments. (12) Operating expense ratio represents operating expenses, for the year indicated, divided by total assets. (13) Does not include financial information for Freshstart. (14) Represents total investments divided by total assets as of December 31. (15) Represents total shareholders equity divided by total assets as of December 31. (16) Represents total debt (commercial paper, notes payable to banks, senior secured notes, and SBA debentures payable) divided by total shareholders equity as of December 31. 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 Consolidated Financial Statements and Notes thereto for the years ended December 31, 2000, 1999, and 1998. In addition, this section 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 We are a specialty finance company that originates and services loans that finance taxicab medallions and various types of commercial loans. We have a leading position in taxicab medallion financing. Since 1996, we have increased our medallion loan portfolio at a compound annual growth rate of 19% and our commercial loan portfolio at a compound annual growth rate of 38%. Our 16 total assets under our management was approximately $745 million and has grown from $215 million at the end of 1996, a compound annual growth rate of 35%. Medallion's loan related earnings depend primarily on its level of net interest income. Net interest income is the difference between the total yield on Medallion's loan portfolio and the average cost of funds. Medallion funds its operations through a wide variety of interest-bearing sources, such as revolving bank facilities, secured commercial paper, senior secured notes and debentures issued to and guaranteed by the SBA. Net interest income fluctuates with changes in the yield on Medallion's loan portfolio and changes in the cost of funds, as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by Medallion. Net interest income is also affected by economic, regulatory and competitive factors that influence interest rates, loan demand and the availability of funding to finance Medallion's lending activities. Medallion, 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. Medallion originates loans under the Section 7(a) loan program of the SBA through its wholly owned subsidiary BLL. Up to 75% of the amount of these loans (up to $750,000) are guaranteed by the SBA. Medallion regularly sells the guaranteed portion of these loans in the secondary market and holds the non-guaranteed portion until maturity. Medallion also invests in small businesses in selected industries through its subsidiary Medallion Capital. Medallion Capital's investments are typically in the form of secured debt instruments with fixed interest rates accompanied by warrants to purchase an equity interest for a nominal exercise price (such warrants are included in "Equity Investments"). Interest income is earned on the debt investments. Realized gains or losses on investments are recognized when the investments are sold or written-off. The realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets, if any, and the cost of such portfolio assets. In addition, changes in unrealized appreciation or depreciation of investments are recorded and represent the net change in the estimated fair values of the portfolio assets at the end of the period as compared with their estimated fair values at the beginning of the period. Generally, "realized gains (losses) on investments" and "changes in unrealized appreciation (depreciation) of investments" are inversely related. When an appreciated asset is sold to realize a gain, a decrease in the previously recorded unrealized appreciation occurs. Conversely, when a loss previously recorded as an unrealized loss is realized by the sale or other disposition of a depreciated portfolio asset, the reclassification of the loss from "unrealized" to "realized" causes an increase in net unrealized appreciation and an increase in realized loss. Medallion's income from the taxicab rooftop advertising business, operated by Media, is reflected on Medallion's books as earnings from an unconsolidated subsidiary. Medallion continues to explore other opportunities in the taxicab and lending industries, including possible strategies to participate directly and/or indirectly in the appreciation of taxicab medallions. Trend in Loan Portfolio Medallion's investment income is driven by the principal amount of and yields on its loan portfolio. To identify trends in the yields, the portfolio is grouped by medallion loans, commercial loans, and equity investments. Since December 31, 1998, medallion loans, while still making up a significant portion of the total portfolio, have decreased in relation to the total portfolio composition and commercial loans have increased. The following table illustrates Medallion's investments at fair value and the weighted average portfolio yields calculated using the contractual interest rates of the loans at the dates indicated:
==================================================================================================================================== December 31, 1998 December 31, 1999 December 31, 2000 ==================================================================================================================================== Contractual Contractual Contractual Weighted Percentage Weighted Percentage Weighted Percentage Average Principal of Total Average Principal of Total Average Principal of Total (In thousands) Yield Amount Portfolio Yield Amount Portfolio Yield Amount Portfolio - ------------------------------------------------------------------------------------------------------------------------------------ Medallion loan portfolio 9.03% $286,232 70.1% 8.91% $321,901 65.8% 9.22% $299,303 58.2% Commercial loan portfolio 12.16 110,837 27.1 11.69 165,654 33.8 12.41 212,721 41.4 Equity investments -- 11,579 2.8 -- 2,012 0.4 -- 2,130 0.4 -------------------- --------------------- ------------------------ Total portfolio 9.92 $408,648 100.0% 9.91 $489,567 100.0% 10.56 $514,154 100.0% ====================================================================================================================================
Portfolio Summary Total Portfolio Yield The weighted average yield of the total portfolio at December 31, 2000 was 10.56%, which is an increase of 65 basis points from 9.91% at December 31, 1999. The increase in the total portfolio yield was due to the increased yield of the commercial loan 17 portfolio and the shift in the composition of the portfolio to an increased percentage of commercial loans. The total weighted average portfolio yield decreased 1 basis point to 9.91% at December 31, 1999 from 9.92% at December 31, 1998. This slight decline resulted from the decrease in the yields of the medallion and commercial loan portfolios, but was offset by an increased percentage of commercial loans in Medallion's portfolio. Medallion expects to try to continue increasing both the percentage of commercial loans in the total portfolio and the origination of floating and adjustable-rate loans and non-New York medallion loans. Medallion Loan Portfolio Medallion loans comprised 58% of the total portfolio of $514 million at December 31, 2000, compared to 66% of the total portfolio of $490 million at December 31, 1999 and 70% of the total portfolio of $409 million at December 31, 1998. The medallion loan portfolio decreased by $22.6 million or 7% in 2000, reflecting a decrease in medallion loan originations, principally in New York City, and Medallion's execution of participation agreements with third parties for $26.1 million of low yielding New York medallion loans. Medallion retains a portion of these participating loans and earns a fee for servicing the loans for the third parties. The decrease was partially offset by increased originations of Chicago and Boston medallion loans. The weighted average yield of the medallion loan portfolio at December 31, 2000 was 9.22%, an increase of 31 basis points from 8.91% at December 31, 1999, which was down 12 basis points from 9.03% at December 31, 1998. The increased yield in 2000 primarily reflects Medallion's expansion into markets outside of New York, which produce yields 100 to 300 basis points higher than loans originated in the New York medallion market, offset by the effects of continuing competition in the New York medallion market. At December 31, 2000, 23% of the medallion loan portfolio represented loans outside New York compared to 16% and 11% at year-end 1999 and 1998, respectively. Medallion continues to focus its efforts on originating higher yielding medallion loans outside the New York market. Collateral Appreciation Participation Loans During the 2000 first half, we originated collateral appreciation participation loans collateralized by Chicago taxi medallions of $30 million, of which $21 million was syndicated to other financial institutions. In consideration for modifications from our normal taxi medallion lending terms, we offered loans at higher loan-to-value ratios and we are entitled to earn additional interest income based upon any increase in the value of all $30 million of the collateral. The fair value of the collateral appreciation participation loan portfolio at December 31, 2000 was $12.1 million, which represented 2% of the total loan portfolio. Additional interest income totaled approximately $3.1 million for 2000, and is included in investment income on the consolidated statements of operations and in accrued interest receivable on the consolidated balance sheets. We believe that the additional interest income recorded is fully realizable through operation of the collateral or orderly sales in the market. As a regulated investment company, Medallion is required to mark-to-market these investments on a quarterly basis, just as it does on all of its other investments. Medallion feels that it has adequately calculated the fair market value on these investments and relies upon information such as recent and historical medallion sale prices. If there is a decrease in the value of taxicab medallions, the reduction in the value of the investments will be reversed against investment income. The additional interest income is not reflected in the yield calculations shown in the table above. Commercial Loan Portfolio Since 1997, Medallion has continued to shift the total portfolio mix toward a higher percentage of commercial loans, which historically have had higher yields than its medallion loans. Commercial loans were 41% of the total portfolio at December 31, 2000 compared to 34% and 27% at December 31, 1999 and 1998, respectively. The increase in the commercial loan portfolio was due to strong growth in the SBA Section 7(a) loan program and in the asset-based lending portfolio. The weighted average yield of the commercial loan portfolio at December 31, 2000 was 12.41%, an increase of 72 basis points from 11.69% at December 31, 1999,which was down 47 basis points from 12.16% at December 31, 1998. The increase in 2000 and the decrease in 1999 primarily reflected a shift in the mix within the commercial portfolio from fixed-rate loans to floating-rate or adjustable-rate loans tied to the prime rate, and the corresponding sensitivity of the yield to movements in the prime rate. Medallion continues to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate its interest rate risk in a rising interest rate environment. At December 31, 2000, floating-rate loans represented approximately 69% of the commercial portfolio compared to 52% and 28% at December 31, 1999 and 1998. Although this strategy initially produces a lower yield, we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources. Equity Investments Equity Investments were 0.4%, 0.4%, and 2.8% of Medallion's total portfolio at December 31, 2000, 1999, and 1998. Equity investments are comprised of common stock and warrants. Trend in Interest Expense Medallion's interest expense is driven by the interest rate payable on its LIBOR-based short-term credit facilities with bank syndicates, long-term notes payable and, to a lesser degree, secured commercial paper and fixed-rate, long-term debentures issued to or guaranteed by the SBA. 18 The following table provides the interest rates and interest expense of Medallion's major credit facilities for the years ended December 31, 2000, 1999, and1998: ================================================================================ Percentage Actual of Total Interest Interest Average Cost of Funds Expense Expense - -------------------------------------------------------------------------------- December 31, 2000 Notes payable to banks 7.77% $14,034,234 48.5% Commercial paper 7.25 9,827,886 34.0 Senior secured notes 7.31 3,287,459 11.4 SBA debentures 7.99 1,794,081 6.1 ====================================================== Total 7.54 $28,943,660 100.0% - -------------------------------------------------------------------------------- December 31, 1999 Notes payable to banks 6.97% $ 9,143,232 43.6% Commercial paper 5.82 7,171,459 34.2 Senior secured notes 7.95 1,512,684 7.2 SBA debentures 7.44 3,160,314 15.0 ====================================================== Total 6.64 $20,987,689 100.0% - -------------------------------------------------------------------------------- December 31, 1998 Notes payable to banks 7.15% $ 9,297,673 54.8% Commercial paper 6.21 3,555,769 21.0 SBA debentures 8.14 4,113,515 24.2 ====================================================== Total 7.13 $16,966,957 100.0% ================================================================================ In recent years, Medallion has reduced its reliance on SBA financing in favor of bank debt and other funding sources. Medallion will continue to seek SBA funding, however to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. Accordingly, Medallion plans to limit its use of SBA funding to the subsidiary level to fund loans that qualify under the SBIA and SBA regulations. Further, Medallion believes that its transition to financing operations primarily with short-term LIBOR-based secured bank debt and secured commercial paper has generally decreased its interest expense, but has also increased Medallion's exposure to the risk of increases in market interest rates, which Medallion attempts to mitigate with certain hedging strategies. At December 31, 2000 and December 31, 1999, short-term LIBOR-based debt including commercial paper constituted 83.2% and 81.0% of total debt, respectively. Medallion's cost of funds is primarily driven by the rates paid on its various debt instruments and their relative mix and changes in the levels of average borrowings outstanding. Medallion incurs LIBOR-based debt for terms generally ranging from 1 to 180 days. Medallion's debentures issued to or guaranteed by the SBA typically have initial terms of ten years. Medallion's cost of funds reflects changes in LIBOR to a greater degree than in the past because LIBOR-based debt represents a greater proportion of Medallion's debt. Medallion 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. Medallion analyzes its cost of funds in relation to the average of the 90- and 180-day LIBOR (the "LIBOR Benchmark"). Medallion's average cost of funds for 2000 was 7.54%, up from 6.64% in 1999, reflecting the higher rate environment resulting from the series of rate increases initiated by the Federal Reserve Board. During December 2000, Medallion's outstanding commercial paper began to mature and was replaced by draws on the notes payable to banks at a cost of approximately 7.83%, as compared to a cost of 7.10% under the commercial paper program. The commercial paper was not renewed as a result of the loss of a credit rating due to the merger of the two rating agencies providing credit ratings to Medallion and due to the remaining rating agency placing Medallion's rating on negative credit watch. Taxicab Advertising In addition to its finance business, Medallion 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, currently showing advertisements, and the rate charged customers for those displays. At December 31, 2000, Media had approximately 10,000 installed displays. Medallion expects that Media will continue to expand its operations by entering new markets on its own or through acquisition of existing taxicab rooftop advertising companies. Although Media is a wholly-owned subsidiary of Medallion, its results of operations are not consolidated with Medallion's operations because the Securities and Exchange Commission regulations prohibit the consolidation of non-investment companies with investment companies. On August 7, 2000, Media entered into an agreement for up to ten years with Yellow Cab Service Corp., the taxi division of Coach USA, the leading taxi and bus charter company in the U.S., to sell advertising space on the top of over 2,300 taxicabs 19 throughout the United States. Going forward, as Coach USA acquires taxi companies around the U.S., Media will have the right to place advertisements on top of those taxis as well. On August 30, 2000, Media purchased all the assets of Out There Media L.L.C. ("Out There"), a privately held company headquartered in Cleveland. Out There has the right to place an advertisement on top of more than 250 taxis in Cleveland, Columbus, and Toledo, and has contracts with some of the largest taxi fleets in these cities. On February 8, 2001, we announced that Media entered into an agreement to acquire Taxi Media Network, the largest taxicab advertising company in Japan, which holds the rights to provide advertising on 7,000 taxis in Japan. The transaction is subject to due diligence reviews and other customary closing conditions. Factors Affecting Net Assets Factors that affect Medallion's net assets include, net realized gain or loss on investments and change in net unrealized appreciation or depreciation of investments. Net realized gain or loss on investments is the difference between the proceeds derived upon sale or foreclosure of a loan or an equity investment and the cost basis of such loan or equity investment. Change in net unrealized appreciation or depreciation of investments is the amount, if any, by which Medallion's estimate of the fair value of its investment portfolio is above/below the previously established fair value or the cost basis of the portfolio. Under the 1940 Act and the SBIA, Medallion's loan portfolio and other investments must be recorded at fair value. Unlike certain lending institutions, Medallion is not permitted to establish reserves for loan losses, but adjusts quarterly the valuation of our loan portfolio to reflect Medallion's estimate of the current value of the total loan portfolio. Since no ready market exists for Medallion's loans, fair value is subject to the good faith determination of Medallion. In determining such fair value, Medallion and its Board of Directors takes into consideration factors such as the financial condition of its borrowers and the adequacy of its collateral. Any change in the fair value of portfolio loans or other investments as determined by Medallion is reflected in net unrealized depreciation or appreciation of investments and affects net increase in net assets resulting from operations but has no impact on net investment income or distributable income. Consolidated Results of Operations For the Years Ended December 31, 2000 and 1999. The 2000 year was a year of maturity for the Company as cumulative growing pains from prior years were addressed and the Company began a new commitment to operational and financial excellence. Steps taken included the resolution of the material weaknesses identified from the 1999 financial audit, the hiring of a strong new cadre of senior management, the initiating of a dialogue with the Company's lending syndicates as to borrowing conditions, and the reassessment of strategic initiatives both underway and anticipated in the future. As a result of this process, the Company recorded adjustments against net investment income of $3.1 million reflecting a number of one-time adjustments relating to acquisition-related matters ($1.8 million), the termination of certain capital markets activities ($0.8 million), and the costs of amending our borrowing agreements with our bank group ($0.5 million). As reported, net increase in net assets resulting from operations was $7.5 million or $0.52 per share in 2000, a decrease of $13.6 million or 64% from $21.1 million or $1.44 per share in 1999, primarily reflecting the one-time adjustments described above and the impact of the Radio One, Inc. investment gain of $17.8 million recorded in 1999 as a result of Radio One's initial public offering completed during the three months ended June 30, 1999. Adjusting for the effects of these unusual items, net increase in net assets resulting from operations was $10.7 million or $0.73 per share in 2000, compared to $3.3 million or $0.23 per share in 1999, an increase of $7.4 million or 224%, reflecting increased net interest and non-interest income, complemented by a sharp reduction in net unrealized depreciation on investments, partially offset by an increase in operating expenses. Return on average assets and return on average equity for 2000 were 1.38% and 4.94% (1.95% and 7.00% adjusted for the unusual items), respectively, compared to 4.30% and 13.53% (0.68% and 2.14% adjusted for the Radio One investment gain) for 1999. Investment income was $55.4 million in the year, up $11.3 million or 26% from $44.1 million in 1999. The increase compared to 1999 reflected both the higher level of interest rates in the economy during 2000 and the increased level of loans, coupled with additional interest income recorded on the collateral appreciation participation loans. Net investments grew $24.6 or 5% to $514.2 million in 2000 from $489.6 million in 1999. The yield on the total portfolio at December 31, 2000 was 10.56%, an increase of 65 basis points compared with a yield of 9.91% a year-ago. The increase primarily reflects the series of rate hikes initiated by the Federal Reserve bank during late 1999 and continuing through most of 2000. The impact of the higher yield increased investment income by approximately $3.3 million in 2000. Also impacting the improvement in investment income was the continuing movement of portfolio composition towards higher-yielding commercial loans from lower-yielding medallion loans. Yields on medallion loans at year-end were 9.22% (up from 8.91% in 1999), and the yields on commercial loans were 12.41% at year-end (up from 11.69% in 1999). As rates began to rise, management made a conscious effort to sell or not renew these typically fixed, lower-rate medallion loans and replace them with floating, higher-rate commercial loans. 20 Medallion loans were $299.3 million at December 31, 2000, down $22.6 million or 7% from $321.9 million in 1999, primarily reflecting a reduction in New York City medallion loans, partly offset by increased medallion loans in other markets, especially in Chicago and Boston. The commercial loan portfolio was $212.7 million at year-end, compared to $165.7 million a year earlier, an increase of $47.1 million or 28%. The increases were in most commercial lending categories, including $13.6 million in the asset-based lending business and $8.6 million in the SBA 7(a) lending program. The balance of the commercial loan increase was spread amongst many generic commercial lending categories, including restaurants, real estate, mezzanine financing, and other small business pursuits. During the 2000 first half, we originated collateral appreciation participation loans collateralized by Chicago taxi medallions of $30.0 million, of which $21.0 million was syndicated to other financial institutions. In consideration for modifications from our normal taxi medallion lending terms, we offered loans at higher loan-to-value ratios, and we are entitled to earn additional interest income based upon any increase in the value of the taxi medallion collateral on the entire $30.0 million portfolio. The value of Chicago taxi medallions increased during 2000, and accordingly, additional interest of $3.1 million was recorded as investment income for 2000. Interest expense was $28.9 million in 2000, up $8.0 million or 38% compared to 1999, primarily reflecting increased borrowing levels, coupled with the impact of an increased interest rate environment. During 2000, Medallion completed the leveraging of its equity base by essentially fully drawing down the existing bank lines of credit, resulting in an increase in debt outstanding of $39.0 million or 11% to $396.1 million. The increase in average debt outstanding was $67.8 million, a 21% increase compared to 1999. In addition to the higher borrowing levels, Medallion's debt is primarily tied to floating rate indexes, which rose during most of 2000. As a result, the average cost of funds was 7.54% in 2000, compared to 6.64% in 1999, a 14% increase of 90 basis points. Approximately 83% of Medallion's debt is short-term and floating rate, up slightly from 81% in 1999. Net interest income was $26.4 million for 2000, up $3.3 million or 14% from 1999, primarily reflecting the additional interest recorded on the collateral appreciation participation loans. Excluding those amounts, net interest income was up $0.2 million or 1%, reflecting the relatively greater increase in the level of debt outstanding compared to the growth in the loan portfolio, coupled with a reduction in the net interest spread from the increase in borrowing costs which outpaced the increase in yield on the loan portfolio. Medallion had gains on the sale of the guaranteed portion of SBA 7(a) loans of $2.8 million in 2000, down $0.2 million or 7% from $3.0 million in 1999. During 2000, $51.1 million of loans were sold under the SBA program compared to $53.8 million during 1999. The decline in gains on sale reflected a decrease in loans sold of $2.7 million or 5%, along with a decrease in the level of market-determined premiums received on the sales. Equity in earnings (losses) of unconsolidated subsidiary reflects the operations of the Media division of Medallion. The losses of $0.4 million in 2000 increased $0.2 million from losses of $0.2 million in 1999, and reflected the greater costs associated with the rapid increase in tops under contract and cities serviced, which outpaced the $1.3 million or 13% increase in revenue. During 2000, vehicles under contract increased 3,500 or 55% to 9,900 from 6,400 in 1999. Negative goodwill was fully accreted during 2000, and accordingly, accretion of $0.4 million in 2000 declined from $0.7 million in 1999. Other income of $3.4 million increased $1.2 million from $2.2 million in 1999, primarily reflecting an increase of $0.6 million in servicing fee income, as well as increases in prepayment fees, late charges, and other miscellaneous income. Non-interest expense was $23.4 million, up $5.4 million or 30%, from $18.0 million in 1999. Included in the amounts for 2000 were $1.1 million of costs related to the Freshstart acquisition, and write-offs of $0.9 million for costs related to acquisitions that were terminated during the year, $0.5 million of other costs associated with capital markets activities, $0.3 million related to a spin-off of an operating division that was terminated, and $0.3 million related to a postponed asset securitization. Excluding these amounts, non-interest expense was $20.3 million, up $2.3 million or 13% from 1999. Salaries and benefits expense of $10.5 million was up $0.9 million or 9%, reflecting normal salary increases and the impact of new senior management hires. Professional fees of $2.6 million were up $0.7 million or 40% from $1.9 million in 1999 (up $0.2 million or 13% excluding the write-offs of certain of the costs described above), reflecting higher audit costs in 2000, and consultation on systems development and a variety of business development initiatives. Merger-related expense of $1.8 million in 2000 reflects the costs associated with the Freshstart merger and the write-off of costs capitalized in connection with two acquisitions that were contracted in 2000, but which were subsequently terminated. Amortization of goodwill was $0.5 million in 2000, essentially unchanged from 1999. Administration and advisory fees were $0.1 million in 2000, down $0.1 million or 54% from $0.2 million in 1999, reflecting the completion of the advisory services contract. Other operating expenses of $7.9 million were up $2.2 million or 38% (up $1.3 million or 23% excluding the write-offs of certain of the costs described above) from $5.7 million in 1999. The increase was generally spread among many operating areas of the Company, and included write-offs related to a general cleanup of operations, increased rent, and higher depreciation, advertising, bank charges, and miscellaneous other operating expenses. As reported, net investment income after taxes in 2000 was $9.3 million, down $1.5 million or 14% from net investment income of $10.8 million in 1999, reflecting the results of operations described above. Excluding the impact of the unusual items previously mentioned, net investment income after taxes was $12.4 million, up $1.6 million or 15% from 1999. 21 Net unrealized appreciation on investments was $2.2 million in 2000, compared to net unrealized depreciation of $12.3 million in 1999, an increase of $14.4 million. Unrealized appreciation/(depreciation) arises when Medallion makes valuation adjustments to the investment portfolio. When investments are sold or written-off, any resulting realized gain/(loss) is grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The increase in 2000 activity primarily resulted from the reversal of unrealized depreciation related to realized losses of $2.3 million compared to 1999 activity which included the reversal of unrealized appreciation related to the Radio One gain in 2000 of $5.4 million, along with a net increase in unrealized depreciation of $6.9 million in 1999. Net realized loss on investments in 2000 was $3.9 million, compared to a net gain of $22.4 million in 1999, a decrease of $26.4 million. Most of the decrease related to the 1999 sale of Medallion's Radio One equity investment, which resulted in a realized gain of $23.1 million. Aside from Radio One, Medallion sold another equity investment in 2000, which resulted in a loss of $1.3 million. The balance of the increase in 2000 of $2.0 million represented the write-off of various commercial loans that had previously been fully written down through the quarterly valuation adjustment process Medallion's net realized/unrealized loss on investments in 2000 was $1.7 million, which primarily reflected losses on commercial loans, compared to a net realized/unrealized loss in 1999 of $7.5 million (excluding the Radio One transaction) which primarily represented increased valuation allowances for commercial loans. For the Years ended December 31, 1999 and 1998 For the year ended December 31, 1999, net increase in net assets resulting from operations was positively impacted by growth in the loan portfolio and an increase in realized gains from the sale of common and preferred stock warrants, offset by an increase in interest and operating expenses. Investment income increased $6.2 million or 16% in 1999 compared to 1998. The Company's investment income reflects the positive impact of portfolio growth during the year. Total portfolio growth was $81 million or 20% from $409 million at December 31, 1998 to $490 million at December 31, 1999. The overall increase in investment income of $6.2 million was primarily the result of higher outstanding loan levels with a higher percentage of loans in the commercial installment-lending portfolio, which generated higher yields than medallion loans. The lower yield on the medallion portfolio partially offset the increase in the investment income Total loan originations, net of participations, increased by $45.6 million or 17.7% to $303.3 million in 1999, compared to $257.7 million in 1998. The weighted average end of period yield of the entire portfolio was essentially unchanged at 9.91% at December 31, 1999 compared to 9.92% at December 31, 1998. The medallion loan portfolio yield at year end was 8.91%, compared to 9.03% in 1998, a decrease of 12 basis points caused by a reduction in yields due to increased competition and refinancing by borrowers at lower rates. The commercial portfolio yield declined 47 basis points to 11.69% from 12.16% in 1998 reflecting a shift in the number of loans tied to prime (at lower yields) as a percentage of the commercial portfolio, compared to the older higher yielding fixed rate loans. In addition, the current interest rate environment was such that the Company shortened maturity dates on new loans. Shorter maturity loans typically have lower rates than longer maturity loans, however, the shorter maturity dates helps reduce the Company's interest rate risk exposure. The Company's 1999 interest expense was $21 million, an increase of $4.0 million or 24% from 1998. The Company's end of period average cost of funds increased 63 basis points to 7.12% from 6.49% at December 31, 1998. The increase was caused by an 80 basis point increase in the LIBOR Benchmark. Also contributing to the increase in cost of funds end of period was an increase in the Company's issuance of LIBOR based bank debt, in place of commercial paper, which was generally priced approximately 40-50 basis points higher than the Company's commercial paper. Average total borrowings increased $78 million or 33% to $316 million in 1999, producing interest expense of $21 million at a weighted average interest rate of 6.64% compared to $238 million in 1998, which produced interest expense of $17 million at a weighted average interest rate of 7.13%. The weighted average interest rates include commitment fees and amortization of premiums on existing interest rate cap agreements. The percentage of the Company's short-term LIBOR based secured indebtedness including secured commercial paper increased slightly as a percentage of total indebtedness to 81.0% at December 31, 1999 from 80.2% at December 31, 1998. The increase in the net interest income was primarily the result of the net increase in the principal outstanding in both the medallion and commercial loan portfolios in 1999 over 1998 of $36 million and $55 million respectively. In 1999, Media generated net income of $258,000, which included approximately $473,000 of revenue from taxi top advertising sales to the Company, compared to $1.2 million in 1998. The decline is primarily the result of higher cost of goods sold and operating expenses. Advertising revenue increased $2.4 million or 31.2% to $9.9 million in 1999 up from $7.5 million in 1998. Display rental costs increased $1.9 million or 76.6% to $4.3 million in 1999 from $2.4 million in 1998. This resulted in a gross margin in 1999 of approximately $5.6 million or 56.9% of advertising revenue compared to $5.1 million or 67.9% in 1998. The increase in advertising revenue and display rental cost is directly related to the increase in the number of Displays owned by Media. The number 22 of Displays owned by Media increased 1,200 or 23% to approximately 6,400 at December 31, 1999. The $2.4 million increase in revenue was partially offset by the shortfall in revenue resulting from the elimination of higher priced tobacco advertising with initially lower priced replacement contracts and a related lower average display occupancy in 1999 of 81.4% down from 100% in 1998. Total operating expense increased by $2.1 million in 1999 primarily due to increases in the following expense categories: salary and benefits of $700,000, commission of $209,000, office supplies of $63,000, travel and entertainment of $312,000. These increases reflect the growth and expansion of the business. The Company experienced a gain on the sale of the guaranteed portion of SBA 7(a) loans in the amount of $3.0 million on loans sold for the year ended December 31, 1999 compared to $2.3 million for the year ended December 31, 1998. The increase in the gain is the result of the increase in the sale of loans during the year of $53.8 million for 1999 compared to $23.0 million for 1998, offset by a reduction in the premiums received for the sales. The Company's other income increased $583,000 or 35% to $2.2 million in 1999. Other income was primarily derived from servicing fee income, late charges, prepayment fees and miscellaneous income. Approximately $320,000 of the increase is due to growth in servicing fee income on the guaranteed portion of SBA loans sold in the secondary market. Prepayment fees are heavily influenced by the level and volatility of interest rates and competition. Accretion of negative goodwill was $722,000 in 1999 and 1998. The Company's non-interest expenses increased $3.8 million or 27% to $18 million in 1999. Salary and benefits increased $3.8 million or 66%, other operating expenses totaled $5.7 million for an increase of $692,000 or 14% and professional fees increased $775,000 or 71% to $1.9 million. The increase in salary and benefits of $3.8 million relates to: the full year impact of 1998 staff changes, higher commissions, salary adjustments, changes which lower the recording of deferred loan origination costs, the full year impact of the Medallion Business Credit operation which was partially in operation during 1998, higher accruals related to special bonus payouts, and one time severance expense related to the Chief Operating Officer's departure. Other operating expenses increase of $692,000 was primarily the result of $250,000 expense related to expenses incurred in reviewing the conversion of the Company's loan system. The increase in professional fees related to expenses incurred in reviewing potential acquisition candidates. The operating expense ratio increased to 3.3% for 1999 from 3.1% for 1998. The operating expense ratio is computed as non-interest expenses divided by total assets. The amortization of goodwill was $530,000 in 1999, compared to $506,000 in 1998, and primarily related to acquisitions in connection with the initial public offering in 1996. Net investment income was $10.8 million in 1999, a decrease of $1.9 million or 15% from $12.7 million in 1998. The decrease was attributable to the $4.0 million increase in interest expense due to a higher cost of funds in 1999, higher non-interest expenses of $3.8 million, offset by an increase in investment income and non interest income of $6.2 million and $133,000 respectively. The change in net unrealized depreciation in 1999 was $12.3 million as compared to a change in net unrealized appreciation of $2.6 million in 1998. This change results from approximately $5.4 million of net unrealized depreciation that was recognized when Radio One stock owned by the Company was sold which offset the previously recognized unrealized appreciation, and approximately $6.5 million of net unrealized depreciation from additional loan loss reserves recorded. The Company had an increase in realized net gain on investments of $21.3 million from $1.3 million in 1998 to $22.6 million in 1999. The increase in realized gains was the result of the sale of Radio One stock held by the Company. Net increase in net assets resulting from operations was $21.1 million in 1999, an increase of 4.5 million or 27% over the $16.6 million earned in 1998. The increase was attributable to the positive impact of portfolio growth, an increase in realized gains offset by an increase in operating expenses and an increase in unrealized depreciation. Return on assets and return on equity for the year ended December 31, 1999, were 4.3% and 13.53%, respectively, compared to 4.1% and 10.77% for the year ended December 31, 1998. ASSET/LIABILITY MANAGEMENT Interest Rate Sensitivity Medallion, like other financial institutions, is subject to interest rate risk to the extent its interest-earning assets (consisting of medallion loans and commercial loans) reprice on a different basis over time in comparison to its interest-bearing liabilities (consisting primarily of credit facilities with bank syndicates, secured commercial paper, senior secured notes and subordinated SBA debentures). A relative measure of interest rate risk can be derived from Medallion'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 repriceable liabilities exceed repriceable assets. 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. 23 Medallion's interest rate sensitive assets were $532.9 million and interest rate sensitive liabilities were $396.1 million at December 31, 2000. The one-year cumulative interest rate gap was negative $136.8 million, or 25.7% of interest rate sensitive assets. 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. Abrupt increases in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans at the higher prevailing 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. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in interest rate risk. The effect of changes in interest rates is mitigated by regular turnover of the portfolio. Based on past experience, Medallion anticipates that approximately 40% of the portfolio will mature or be prepaid each year. Medallion believes that the average life of its loan portfolio varies to some extent as a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment because the interest rate payable on the borrower's loan is high relative to prevailing interest rates. Conversely, borrowers are less likely to prepay in a rising interest rate environment. The following schedule of principal payments sets forth at December 31, 2000 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 loans are assigned to the time frames in which such principal amounts are contractually obligated to be paid. Medallion has not reflected an assumed annual prepayment rate for medallion loans or commercial loans in this table.
=================================================================================================================================== More Than More Than More Than More Than 1 and 2 and 3 and 5 and Less Than Less Than Less Than Less Than Less Than (Dollars in thousands) 1 Year 2 Years 3 Years 5 Years 6 Years Thereafter Total =================================================================================================================================== Earnings Assets Medallion and commercial fixed-rate loans $25,513 $71,760 $73,451 $162,408 $4,882 $27,408 $365,422 Variable-rate loans 151,789 -- -- -- -- -- 151,789 Cash 15,653 -- -- -- -- -- 15,653 - ----------------------------------------------------------------------------------------------------------------------------------- Total earning assets 192,955 71,760 73,451 162,408 4,882 27,408 532,864 - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities Revolving line of credit 305,700 -- -- -- -- -- 305,700 Commercial paper 24,066 -- -- -- -- -- 24,066 SBA debentures -- 1,300 -- 1,040 7,750 11,270 21,360 Senior secured notes -- -- -- 45,000 -- -- 45,000 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 329,766 1,300 -- 46,040 7,750 11,270 396,126 - ----------------------------------------------------------------------------------------------------------------------------------- Interest rate gap (136,811) 70,460 73,451 116,368 (2,868) 16,138 $136,738 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative interest rate gap $(136,811) $(66,351) $7,100 $123,468 $120,600 $136,738 -- ===================================================================================================================================
Interest Rate Cap Agreements Medallion seeks to manage the exposure 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. 24 We entered into an interest rate cap agreements limiting our maximum LIBOR exposure on our revolving credit facility in accordance with the terms shown in the following table: ============================================================================== Libor Effective Maturity Amount Rate Date Date - ------------------------------------------------------------------------------ $20,000,000 7.0% 4/7/98 3/30/01 10,000,000 6.5 7/6/99 7/6/01 10,000,000 6.5 7/6/99 7/6/01 10,000,000 7.25 6/22/00 6/24/02 ============================================================================== Total premiums paid under the interest rate cap agreements are being amortized over the respective terms of the agreements. Medallion will seek to manage interest rate risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating and purchasing, if appropriate, additional derivatives, and by revising, if appropriate, its overall level of asset and liability matching. In addition, Medallion manages its exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as five year senior secured notes and subordinated SBA debentures. Medallion currently has outstanding $45 million of senior secured notes maturing June 1, 2004, at a fixed interest rate of 7.20% and SBA debentures in the principal amount of $21.4 million with a weighted average interest rate of 7.28%. At December 31, 2000, these notes and debentures constituted 11.4% and 5.4% of Medallion's total indebtedness respectively. Liquidity and Capital Resources Our sources of liquidity are credit facilities with bank syndicates, senior secured notes, long-term SBA debentures that are issued to or guaranteed by the SBA, our secured commercial paper program and loan amortization and prepayments. As a RIC, we distribute at least 90% of our investment company taxable income; consequently, we primarily rely upon external sources of funds to finance growth. At December 31, 2000, our $396.1 million of outstanding debt was comprised as follows: 77.2% bank debt, substantially all of which was at variable effective interest rates with an weighted average interest rate of 7.83%, 6.1% secured commercial paper with an annual weighted average interest rate of 7.10%, 11.4% long-term senior secured notes fixed at an interest rate of 7.20%, and 5.4% subordinated SBA debentures, with fixed-rates of interest with an annual weighted average rate of 7.28%. Medallion is eligible to seek SBA funding and will seek such funding when the rates presented are advantageous In March 2001, we applied for $72.0 million of additional funding with the SBA ($108.0 million to be committed by the SBA, subject to our raising of additional equity capital.) This application is currently under review, although no assurance can be given that such funding will be obtained. Since SBA financing subjects its recipients to certain regulations, Medallion will seek funding at the subsidiary level to maximize its benefits. Currently, Medallion has fully drawn down its existing bank lines of credit. Medallion 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. Additionally, Medallion's lead member in the lending syndicate has approximately doubled its exposure to Medallion and MFC to $95 million as a result of a merger between such lead member and another bank in the lending syndicate in September 2000. This bank has asked Medallion to find an additional participant to reduce its exposure. Medallion is actively seeking new members for the lending syndicate. As a result, Medallion is currently unable to expand its borrowing lines until new banks join the lending syndicate or a debt offering is completed. This has limited Medallion's ability to fund its originally planned level of loan originations. Medallion's bank and commercial paper facilities are subject to periodic reviews by the lending syndicate funding the borrowings and are also subject to certain covenants and restrictions. As of December 31, 2000, we were in negotiations with both the Bank group and the lenders of our senior secured notes on amendments to our existing loan agreements. These amendments, which were finalized on March 30, 2001, granted Medallion a waiver of compliance with certain provisions, clarified and revised certain provisions of the agreements related to business activities and financial covenants at Medallion and MFC, and adjusted the rate of interest paid on the notes. As of the effective date of the amendments, Medallion believes it and MFC are in compliance with the requirements of the credit facilities, as amended, and expect to remain in compliance with the amended credit facilities for the forseeable future. Medallion, MFC, and their lenders have initiated discussions as to the next renewal of the existing bank loans which mature in June and September, 2001. Although, there can be no assurances, the Company expects a satisfactory result from these discussions. On November 22, 2000, Fitch IBCA placed Medallion's "BBB" senior secured debt rating and "F2" secured commercial paper rating on negative watch. In addition, in December 2000, Medallion's other rating agency, Thompson's Bankwatch, was acquired by Fitch IBCA, leaving it with only one commercial paper rating. Primarily as a result of these factors, a substantial portion of Medallion's commercial paper did not rollover and has subsequently been replaced by Medallion's bank facility. On January 18, 2001, Fitch IBCA lowered our senior secured debt rating and secured commercial paper rating to "BB+" and "B", respectively, and removed them from negative watch. Medallion believes that its bank credit facilities and cash flow from operations (after distributions to stockholders) will be adequate to fund the continuing operations of Medallion's loan portfolio and advertising business. Nevertheless, Medallion continues to explore additional options, which may increase available funds for Medallion's growth and expansion strategy. In addition, to the application for SBA funding described above, these financing options would provide additional sources of funds for both external 25 expansion and continuation of internal growth. We are working with investment banking firms to investigate the viability of a number of other financing options which include an equity offering of securities, the sale or spin-off of certain assets or divisions, and the development of a securitization conduit program. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth. If none of these financing options occur, management believes liquidity would still be adequate to fund the continuing operations of Medallion's loan portfolio and advertising business. Deferred costs related to these financing options was approximately $173,000 as of December 31, 2000 and were included in other assets on Medallion's consolidated balance sheets. The following table illustrates sources of available funds for Medallion and each of the subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rate at December 31, 2000:
================================================================================================================================== Medallion (Dollars in thousands) Financial MFC BLL MCC MBC FSVC Total - ---------------------------------------------------------------------------------------------------------------------------------- Cash $4,903 $4,584 $1,155 $1,890 $2,375 $746 $15,653 Revolving lines of credit(1) 110,000 220,000 -- -- -- 3,500 333,500 Amounts available 3,500 234 -- -- -- -- 3,734 Amounts outstanding 106,500 195,700 -- -- -- 3,500 305,700 Average interest rate 8.09% 7.68% -- -- -- 8.38% 7.83% Maturity 9/01 6/01 -- -- -- Demand 6/01 - 9/01 Commercial paper -- 24,066 -- -- -- -- 24,066 Average interest rate -- 7.10% -- -- -- -- 7.10% Maturity -- 6/01 -- -- -- -- 6/01 SBA debentures -- -- -- 10,500 -- 10,860 21,360 Average interest rate -- -- -- 7.08% -- 7.47% 7.28% Maturity -- -- -- 3/06 - 6/07 -- 12/02 - 9/07 12/02 - 9/07 Senior secured notes -- 45,000 -- -- -- -- 45,000 Average interest rate -- 7.20% -- -- -- -- 7.20% Maturity -- 6/04 - 9/04 -- -- -- -- 6/04 - 9/04 ----------------------------------------------------------------------------------------------- Total cash and amounts available under credit facilities $8,403 $4,818 $1,155 $1,890 $2,375 $746 $19,387 ================================================================================================================================== Total debt outstanding $106,500 $264,766 $-- $10,500 $-- $14,360 $396,126 ==================================================================================================================================
(1) Commercial paper outstanding is deducted from revolving credit lines available as the line of credit acts as a liquidity facility for the commercial paper. - -------------------------------------------------------------------------------- Loan amortization, prepayments, and sales also provide a source of funding for Medallion. 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 medallion loans, which are refinanced with Medallion rather than through other sources of financing. Loan sales are a major focus of the SBA Section 7(a) loan program conducted by BLL, which is primarily set up to originate and sell loans. Increases in SBA 7(a) loan balances in any given period generally reflect timing differences in selling and closing transactions. On June 1, 1999, MFC issued $22.5 million of Series A senior secured notes that mature on June 1, 2004, and on September 1, 1999, MFC issued $22.5 million of Series B senior secured notes that mature on September 1, 2004 (together, the Notes). The Notes bear a fixed rate of interest of 7.2% and interest is paid quarterly in arrears. The Notes rank pari passu with the revolvers and commercial paper through inter-creditor agreements The proceeds of the Notes were used to prepay certain of the Company's outstanding SBA debentures. See also description of amendments referred to above. Media funds its operations through internal cash flow and inter-company debt. Media is not a RIC and, therefore, is able to retain earnings to finance growth. INVESTMENT CONSIDERATIONS Interest rate fluctuations may adversely affect the interest rate spread we receive on our taxicab medallion and commercial loans. Because we borrow money to finance the origination of loans, our income is dependent upon the difference between the rate at which we borrow funds and the rate at which we loan funds. While the loans in our portfolio in most cases bear interest at fixed-rates or adjustable-rates, we finance a substantial portion of such loans by incurring indebtedness with floating interest rates. As short- 26 term interest rates rise, our interest costs increase, decreasing the net interest rate spread we receive and thereby adversely affect our profitability. Although we intend to continue to manage our interest rate risk through asset and liability management, including the use of interest rate caps, general rises in interest rates will tend to reduce our interest rate spread in the short term. In addition, we rely on our counterparties to perform their obligations under such interest rate caps. A decrease in prevailing interest rates may lead to more loan prepayments, which could adversely affect our business. A borrower is likely to exercise prepayment rights at a time when the interest rate payable on the borrower's loan is high relative to prevailing interest rates. In a lower interest rate environment, we will have difficulty re-lending prepaid funds at comparable rates, which may reduce the net interest spread we receive. Lending to small businesses involves a high degree of risk and is highly speculative. Our commercial loan activity has increased in recent years. Lending to small businesses involves a high degree of business and financial risk, which can result in substantial losses and should be considered speculative. Our borrower base consists primarily of small business owners that have limited resources and that are generally unable to achieve financing from traditional sources. There is generally no publicly available information about these small business owners, and we must rely on the diligence of our employees and agents to obtain information in connection with our credit decisions. In addition, these small businesses often do not have audited financial statements. Some smaller businesses have narrower product lines and market shares than their competition. Therefore, they may be more vulnerable to customer preferences, market conditions or economic downturns, which may adversely affect the return on, or the recovery of, our investment in these businesses. Our borrowers may default on their loans. We primarily invest in and lend to companies that may have limited financial resources. Numerous factors may affect a borrower's ability to repay its loan, including: o the failure to meet its business plan; o a downturn in its industry or negative economic conditions; o the death, disability or resignation of one or more of the key members of management; or o the inability to obtain additional financing from traditional sources. Deterioration in a borrower's financial condition and prospects may be accompanied by deterioration in the collateral for the loan. Expansion of our portfolio and increases in the proportion of our portfolio consisting of commercial loans could have an adverse impact on the credit quality of the portfolio. Because we must distribute our income, we have a continuing need for capital. We have a continuing need for capital to finance our lending activities. Our current sources of liquidity are the following: o bank credit facilities; o senior secured notes; o sales of participations in loans; o fixed-rate, long-term SBA debentures that are issued to or guaranteed by the SBA; o a secured commercial paper program; and o loan amortization and prepayments. As a RIC, we distribute at least 90% of our investment company taxable income. Consequently, we primarily rely upon external sources of funds to finance growth. At December 31, 2000, we had fully drawn all capacity available under our $334 million bank credit facilities at variable effective rates of interest averaging below the prime rate. We minimize 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 the credit facilities only when necessary to fund portfolio growth. In addition, we are eligible to seek SBA funding. In the event that we seek SBA funding, no assurance can be given that the funding will be obtained. 27 We may have difficulty raising capital to finance our planned level of lending operations. We may have difficulty raising the capital necessary to finance our planned level of lending operations. During December 2000, our outstanding commercial paper began to mature and was replaced by draws on the notes payable to our bank facility. The commercial paper was not renewed as a result of the loss of a credit rating due to the merger of our rating agencies and due to the remaining rating agency lowering our rating. In addition, we are currently unable to expand our borrowing lines until new banks join the lending syndicate or a debt offering is completed. The lead bank in our lending syndicate has recently approximately doubled its exposure to Medallion and MFC to $95 million as a result of a merger between the lead bank and another member of the lending syndicate. In September 2000, this bank asked us to find an additional participant to reduce its exposure. We are actively seeking new members for the lending syndicate. If we are unable to continue to diversify geographically, our business may be adversely affected if the New York taxicab industry experiences an economic downturn. Although we are diversifying from the New York City area, a significant portion of our taxicab advertising and loan revenue is derived from New York City taxicabs and medallion loans collateralized by New York City taxicab medallions. An economic downturn in the New York City taxicab industry could lead to an increase in defaults on our medallion loans and may also adversely affect the operation of our taxicab rooftop advertising business. In addition, an economic downturn could impact the value of our medallion collateral. There can be no assurance that we will be able to sufficiently diversify our operations geographically. If there is an economic downturn, our commercial loan customers may experience difficulty in servicing their debt with us and the level of our delinquencies and loan losses may increase. An economic downturn could result in certain of our commercial loan customers experiencing declines in business activities, which could lead to difficulties in their servicing of their loans with us. If this were to happen, the level of delinquencies, defaults, and loan losses in commercial loan portfolio could increase. The loss of certain key members of our senior management could adversely affect us. Our success is largely dependent upon the efforts of senior management. The death, incapacity or loss of the services of certain of these individuals could have an adverse effect on our operation and financial results. There can be no assurance that other qualified officers could be hired. Acquisitions may lead to difficulties that could adversely affect our operations. By their nature, corporate acquisitions entail certain risks, including those relating to undisclosed liabilities, the entry into new markets and personnel matters. Difficulties could also arise integrating the acquired operations or managing problems due to sudden increases in the size of our loan portfolio. In such instances, we might be required to modify our operating systems and procedures, hire additional staff, obtain and integrate new equipment and complete other tasks appropriate for the assimilation of new and increased business activities. There can be no assurance that we would be successful, if and when necessary, in minimizing these inherent risks or in establishing systems and procedures which will enable us to effectively achieve our desired results in respect of any of these or any future acquisitions. Competition from entities with greater resources and less regulatory restrictions may decrease our profitability. We compete with banks, credit unions and other finance companies, some of which are Small Business Investment Companies, or SBICs, in the origination of taxicab medallion loans and commercial loans. We also compete with finance subsidiaries of equipment manufacturers. Many of these competitors have greater resources than Medallion and certain competitors are subject to less restrictive regulations than Medallion. As a result, there can be no assurance that we will be able to continue to identify and complete financing transactions that will permit us to continue to compete successfully. Our taxicab rooftop advertising business competes with other taxicab rooftop advertisers as well as with all segments of the out-of-home advertising industry. We also compete with other types of advertising media, including cable and network television, radio, newspapers, magazines and direct mail marketing. Certain of these competitors have also entered into the rooftop advertising business. Many of these competitors have greater financial resources than Medallion and offer several forms of advertising as well as production facilities. There can be no assurance that we will continue to compete with these businesses successfully. The valuation of our loan portfolio is subjective and we may not be able to recover our estimated value in the event of a foreclosure. Under the 1940 Act, our loan portfolio must be recorded at fair value or "marked to market." Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, we adjust quarterly the valuation of our portfolio to reflect our estimate of the current realizable value of our loan portfolio. Since no ready market exists for this portfolio, fair value is subject to the good faith determination of our management and the approval of our Board of Directors. Because of the subjectivity of 28 these estimates, there can be no assurance that in the event of a foreclosure or the sale of portfolio loans we would be able to recover the amounts reflected on our balance sheet. In determining the value of our portfolio, management and the board of directors may take into consideration various factors such as the financial condition of the borrower and the adequacy of the collateral. For example, in a period of sustained increases in market rates of interest, management and the Board of Directors could decrease its valuation of the portfolio if the portfolio consists primarily of fixed-rate loans. Our valuation procedures are designed to generate values which approximate the value that would have been established by market forces and are therefore subject to uncertainties and variations from reported results. Considering these factors, we have determined that the fair value of our portfolio is below its cost basis. At December 31, 2000, our net unrealized depreciation on investments was approximately $7.4 million. Based upon current market conditions and current loan-to-value ratios, our Board of Directors believes that the net unrealized depreciation of investments is adequate to reflect the fair value of the portfolio. Changes in taxicab industry regulations that result in the issuance of additional medallions could lead to a decrease in the value of our medallion loan collateral. Every city in which we originate medallion loans, and most other major cities in the United States, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. As a result, the value of the collateral securing our then outstanding medallion loans in that market could be adversely affected. We are unable to forecast with any degree of certainty whether any potential increases in the supply of medallions will occur. In New York City, Chicago and Boston, and in other markets where we originate medallion loans, taxicab fares are generally set by government agencies. Expenses associated with operating taxicabs are largely unregulated. As a result, the ability of taxicab operators to recoup increases in expenses is limited in the short term. Escalating expenses can render taxicab operations less profitable, and could cause borrowers to default on loans from Medallion, and could potentially adversely affect the value of Medallion's collateral. A significant portion of our taxicab advertising and loan revenue is derived from loans collateralized by New York City taxicab medallions. According to New York City Taxi and Limousine Commission data, over the past 20 years New York City taxicab medallions have appreciated in value an average of 10.2% each year. However, for sustained periods during that time, taxicab medallions have declined in value. Over the past year, the value of New York City taxicab medallions has declined by approximately 9%. Our failure to maintain our Subchapter M status could lead to a substantial reduction in the amount of income distributed to our shareholders. We, along with some of our subsidiaries, have qualified as regulated investment companies under Subchapter M of the Internal Revenue Code. Thus, we will not be subject to federal income tax on investment company taxable income (which includes, among other things, dividends and interest reduced by deductible expenses) distributed to our shareholders. If our subsidiaries or we were to fail to maintain Subchapter M status for any reason, our respective incomes would become fully taxable and a substantial reduction in the amount of income available for distribution to us and to our shareholders would result. To qualify under Subchapter M, we must meet certain income, distribution and diversification requirements. However, because we use leverage, we are subject to certain asset coverage ratio requirements set forth in the 1940 Act. These asset coverage requirements could, under certain circumstances, prohibit us from making distributions that are necessary to maintain our Subchapter M status or require that we reduce our leverage. In addition, the asset coverage and distribution requirements impose significant cash flow management restrictions on us and limit our ability to retain earnings to cover periods of loss, provide for future growth and pay for extraordinary items. Qualification as a regulated investment company under Subchapter M is made on an annual basis and, although we and some of our subsidiaries are qualified as regulated investment companies, no assurance can be given that we will each continue to qualify for such treatment. Our SBIC subsidiaries may be unable to meet the investment company requirements, which could result in the imposition of an entity-level tax. The Small Business Investment Act of 1958 regulates some of our subsidiaries. The Small Business Investment Act restricts distributions by an SBIC. Our SBIC subsidiaries that are also regulated investment companies could be prohibited by SBA regulations from making the distributions necessary to qualify as a regulated investment company. Each year, in order to comply with the SBA regulations and the regulated investment company distribution requirements, we must request and receive a waiver of the SBA's restrictions. While the current policy of the SBA's Office of SBIC Operations is to grant such waivers if the SBIC makes certain offsetting adjustments to its paid-in capital and surplus accounts, there can be no assurance that this will continue to be the SBA's policy or that our subsidiaries will have adequate capital to make the required adjustments. If our subsidiaries are unable to 29 obtain a waiver, compliance with the SBA regulations may result in loss of regulated investment company status and a consequent imposition of an entity-level tax. The Internal Revenue Code's diversification requirements may limit our ability to expand our taxicab rooftop advertising business and our medallion collateral appreciation participation loan business. We intend to continue to pursue an expansion strategy in our taxicab rooftop advertising business. We believe that there are growth opportunities in this market. However, the asset diversification requirements under the Internal Revenue Code could restrict such expansion. These requirements provide that, as a RIC, not more than 25% of the value of our total assets may be invested in the securities (other than U.S. Government securities or securities of other regulated investment companies) of any one issuer. While our investments in our regulated investment company subsidiaries are not subject to this diversification test so long as these subsidiaries are regulated investment companies, our investment in Media is subject to this test. At the time of the commencement of our operations in May 1996, Media represented less than 25% of our assets and the diversification test was satisfied. Presently, Media represents approximately 1% of our assets. The subsequent growth in the value of Media by itself will not re-trigger the test even if Media represents in excess of 25% of our assets. However, under the Internal Revenue Code, the test must be reapplied in the event that we make a subsequent investment in Media, lend to it or acquire another taxicab rooftop advertising business. If we were to fail a subsequent test, we would lose our regulated investment company status. As a result, our maintenance of regulated investment company status could limit our ability to expand our taxicab rooftop advertising business. It will be our policy to expand our advertising business through internally generated growth. We will only consider an acquisition in this area if we will be able to meet the Internal Revenue Code's diversification requirements. The fair value of the collateral appreciation participation loan portfolio at December 31, 2000 was $12.1 million, which represented 2% of the total loan portfolio. We will continue to monitor the levels of these asset types in conjunction with the diversification tests. We depend on cash flow from our subsidiaries to make dividend payments and other distributions to our shareholders. We are a holding company and we derive most of our operating income and cash flow from our subsidiaries. As a result, we rely heavily upon distributions from our subsidiaries to generate the funds necessary to make dividend payments and other distributions to our shareholders. Funds are provided to us by our subsidiaries through dividends and payments on intercompany indebtedness, but there can be no assurance that our subsidiaries will be in a position to continue to make these dividend or debt payments. We operate in a highly regulated environment. We are regulated by the Securities Exchange Commission and the SBA. In addition, changes in the laws or regulations that govern business development companies, RIC's or SBIC's may significantly affect our business. Laws and regulations may be changed from time to time, and the interpretations of the relevant laws and regulations also are subject to change. Any change in the laws or regulations that govern our business could have a material impact on our operations or us. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Pursuant to the General Instructions to Rule 305 of Regulation S-K, the quantitative and qualitative disclosures called for by this Item 7A and by Rule 305 of Regulation S-K are inapplicable to the Company at this time. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the financial statements set forth under Item 14(A)(1) in this Annual Report on Form 10-K, which financial statements are incorporated herein by reference in response to this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference from the Company's Definitive Proxy Statement to be filed by April 30, 2001 for its fiscal year 2001 Annual Meeting of Shareholders under the caption Directors and Officers of the Registrant". ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the Company's Definitive Proxy Statement to be filed by April 30, 2001 for its fiscal year 2001 Annual Meeting of Shareholders under the caption "Compensation of Directors and Executive Officers". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Company's Definitive Proxy Statement to be filed by April 30, 2001 for its fiscal year 2001 Annual Meeting of Shareholders under the caption "Stock Ownership of Certain Beneficial Owners and Management". 30 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the Company's Definitive Proxy Statement to be filed by April 30, 2001 for its fiscal year 2001 Annual Meeting of Shareholders under the caption "Certain Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The consolidated financial statements of Medallion Financial Corp. and the Report of the Independent Public Accountants thereon are included as set forth on the Index to Financial Statements on F-1. 2. FINANCIAL STATEMENT SCHEDULES See Index to Financial Statements on F-1. (B) REPORTS ON FORM 8-K None. (C) EXHIBITS Number Description 3.1a The Company's Restated Certificate of Incorporation. Filed as Exhibit 2a to the Company's Registration Statement on Form N-2 (File No.333-1670) and incorporated by reference herein. 3.1b Certificate of Amendment to Medallion Financial Corp. Restated Certificate of Incorporation. Filed as Exhibit 3.1.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (Filed No. 814-00188) and incorporated by reference herein. 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. 10.1 Agreement of Merger between Medallion Financial Corp. and Tri-Magna Corporation, dated December 21, 1995, as amended on February 22, 1996. Filed as Exhibit K3(i) to the Company's Registration Statement on Form N-2 (file No. 333-1670) and incorporated by reference herein. 10.2 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 K1 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.3 Asset Purchase Agreement between Medallion Financial Corp., and Edwards Capital Company, dated February 21, 1996. Filed as Exhibit K2 to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.4 Amendment Number 2 to Agreement of Merger between Medallion Financial Corp. and Tri-Magna Corporation, dated April 26, 1996. Filed as Exhibit K3(ii) to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.5 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(i) to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 10.6 Amendment Number 1 to Asset Purchase Agreement between Medallion Financial Corp. and Edwards Capital Company dated April 30, 1996. Filed as Exhibit K2(i) to the Company's Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein. 31 10.7 First Amended and Restated Employment Agreement between Medallion Financial Corp. and Alvin Murstein dated May 29, 1998. Filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 814-00188) and incorporated by referenced herein. 10.8 First Amended and Restated Employment Agreement between Medallion Financial Corp. and Andrew Murstein dated May 29, 1998. Filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 814-00188) and incorporated by referenced herein. 10.9 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 (File No. 814-00188) and incorporated herein by reference. 10.10 Agreement between Medallion Taxi Media, Inc. and Metropolitan Taxicab Board of Trade, Inc. dated March 6, 1997. Filed as Exhibit 10.37 to the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996 (File No. 000-27812) and incorporated by reference herein. 10.11 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. 10.12 Medallion Financial Corp. Amended and Restated 1996 Stock Option Plan. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending June 30, 1998 (File No. 000-27812) and incorporated by reference herein. 10.13 Medallion Financial Corp., Amended and Restated 1996 Non-Employee Directors Stock Option Plan. Filed as Exhibit A to the Company's Request Form on Amendment and the Order by the Commission approving the plan as of April 3, 2000 (File No. 812-11800). 10.14 Medallion Funding Corp. 401k Savings Plan. Filed as Exhibit 21.2 to the Company's Registration Statement on Form N-2/A (File No. 333-1670). 10.15 Letter Agreement dated April 18, 1997 between MFC and The Chase Manhattan Bank relating to an interest rate cap transaction in the amount of $10,000,000. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending June 30, 1997 (File No. 814-09744) and incorporated by reference herein. 10.16 Letter Agreement dated May 9, 1997 between MFC and Fleet National Bank ("Fleet") relating to an interest rate cap transaction in the amount of $10,000,000. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 814-09744) and incorporated by reference herein. 10.17 Letter Agreement dated May 12, 1997 between MFC and Fleet relating to an interest rate cap transaction in the amount of $10,000,000. Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 and incorporated by reference herein. 10.18 Asset Purchase Agreement dated as of August 20, 1997 among the Company, BLI Acquisition Co., LLC, Business Lenders, Inc., Thomas Kellogg, Gary Mullin, Penn Ritter and TriumphConnecticut, Limited Partnership (including all exhibits thereto - schedules omitted). Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997 (File No. 000-27812) and incorporated by reference herein. 10.19 Amended and Restated Loan Agreement, dated as of December 24, 1997, by and among Medallion Funding Corp., the lenders party thereto Fleet Bank, National Association as Swing Line Lender, Administrative Agent and Collateral Agent and The Bank of New York as Documentation Agent with Fleet Bank, National Association as Arranger. Filed as Exhibit 10.50 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 32 10.20 Revolving Credit Note dated December 24, 1997 in the amount of $30,000,000 from Medallion Funding Corp. payable to Fleet Bank, National Association. Filed as Exhibit 10.51 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-0974) and incorporated by reference herein. 10.21 Revolving Credit Note dated December 24, 1997 in the amount of $30,000,000 from Medallion Funding Corp. payable to The Bank of New York. Filed as Exhibit 10.52 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.22 Revolving Credit Note dated December 24, 1997 in the amount of $30,000,000 from Medallion Funding Corp. payable to BankBoston, N.A. Filed as Exhibit 10.53 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.23 Revolving Credit Note dated December 24, 1997 in the amount of $20,000,000 from Medallion Funding Corp. payable to Harris Trust and Savings Bank. Filed as Exhibit 10.54 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.24 Revolving Credit Note dated December 24, 1997 in the amount of $20,000,000 from Medallion Funding Corp. payable to Bank Tokyo - Mitsubishi Trust Company. Filed as Exhibit 10.55 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.25 Revolving Credit Note dated December 24, 1997 in the amount of $15,000,000 from Medallion Funding Corp. payable to Israel Discount Bank of New York. Filed as Exhibit 10.56 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.26 Revolving Credit Note dated December 24, 1997 in the amount of $15,000,000 from Medallion Funding Corp. payable to European American Bank. Filed as Exhibit 10.57 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.27 Revolving Credit Note dated December 24, 1997 in the amount of $15,000,000 from Medallion Funding Corp. payable to Bank Leumi USA. Filed as Exhibit 10.58 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.28 Revolving Credit Note dated December 24, 1997 in the amount of $20,000,000 from Medallion Funding Corp. payable to The Chase Manhattan Bank. Filed as Exhibit 10.59 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.29 Revolving Credit Note dated December 24, 1997 in the amount of $5,000,000 from Medallion Funding Corp. payable to Fleet Bank, National Association. Filed as Exhibit 10.60 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.30 Amended and Restated Security Agreement, dated as of December 24, 1997, between Medallion Funding Corp., as Debtor and Fleet Bank, N.A., as Agent and Secured Party for the benefit of the Banks and Swing Line Lender signatory to the Amended and restated Loan Agreement, dated as of December 24, 1997, among Medallion Funding Corp., the banks signatory thereto, the Swing Line Lender, The Bank of New York as Documentation Agent and Fleet Bank, N.A. as Arranger and Agent and the Holders of Commercial Paper issued by Medallion Funding Corp. Filed as Exhibit 10.61 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.31 First Amendment, dated as of February 5, 1998, to Amended and Restated Loan Agreement, dated as of December 24, 1997, by and among Medallion Funding Corp., the lenders party thereto, Fleet Bank, National Association as Swing Line Lender, Administrative Agent and Collateral Agent and The Bank of New York as Documentation Agent with Fleet Bank, National Association as Arranger. Filed as Exhibit 10.62 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 33 10.32 Amendment No. 1, dated as of March 12, 1998, to Amended and Restated Security Agreement, dated as of December 24, 1997, between Medallion Funding Corp., ad Debtor and Fleet Bank, N.A., as Agent and Secured Party for the benefit of the Banks and Swing Line Lender signatory to the Amended and Restated Loan Agreement, dated as of December 24, 1997, among Medallion Funding Corp., the banks signatory thereto, the Swing Line Lender, The Bank of New York as documentation Agent and Fleet Bank, N.A. as Arranger and Agent and the Holders of Commercial Paper issued by Medallion Funding Corp. Filed as Exhibit 10.63 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated by reference herein. 10.33 Indenture of Lease, dated October 31, 1997, by and between Sage Realty Corporation, as Agent and Landlord, and Medallion Financial Corp., as Tenant. Filed as Exhibit 10.64 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein. 10.34 Third Amendment, dated December 22, 1997, to Letter Agreement, dated as of December 1, 1996. Between Medallion Financial Corp. and Fleet Bank, National Association. Filed as Exhibit 10.65 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 812-09744) and incorporated by reference herein 10.35 Endorsement No. 3, dated December 22, 1997, to Revolving Credit Note dated December 1, 1996 in the amount of $6,000,000 from Medallion Financial Corp., payable to Fleet Bank, N.A. Filed as Exhibit 10.66 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (file No. 812-09744) and incorporated by reference herein. 10.36 (CE) Commercial Paper Dealer Agreement [4 (2) Program] between Medallion Funding Corp., as issuer, and Smith Barney Inc., as dealer, dated as of March 13, 1998. Filed as Exhibit 10.1 to the Company's Quarterly report on Form 10-Q for the fiscal quarter ended March 31, 1998 (File No. 000-27812) and incorporated by reference herein. 10.37 Agency Agreement, by and between Medallion Funding Corp. and Bank of Montreal Trust Company, dated as of March 13, 1998. Filed as Exhibit 10.2 to the Company's quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998 (File No. 000-27812 and incorporated by reference herein. 10.38 Loan Agreement, dated as of July 31, 1998, by and among Medallion Financial Corp., the Lenders Party thereto, Fleet Bank, National Association as Agent and Swing Line Lender and Fleet Bank, National Association as Arranger (Exhibits included). Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998 (File No. 814-00188) and incorporated by reference herein. 10.39 Amended and Restated Loan Agreement by and among Medallion Financial Corp., Medallion Business Credit, LLC, the Lenders Party Hereto, Fleet Bank, National Association as Agent and Swing Line Lender and Fleet Bank, National Association as Arranger, dated June 29, 1999. Filed as Exhibit 10.1 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.40 Medallion Funding Corp. $22,500,000 7.20% Senior Secured Notes, Series A Due June 1, 2004 Note Purchase Agreement, dated as of June 1, 1999. Filed as Exhibit 10.2 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.41 Security Agreement between Medallion Funding Corp., as debtor, and Fleet Bank, N.A., as Agent and secured party, for the benefit of the Travelers Insurance Company, the First Citicorp Life Insurance Company, Citicorp Life Insurance Company, United of Omaha Life Insurance Company and Companion Life Insurance Company dated June 1, 1999. Filed as Exhibit 10.3 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 34 10.42 Security Agreement between Medallion Business Credit, LLC, as debtor and Fleet Bank, N.A., as Agent and secured party, for the benefit of The Banks and Swing Line Lender Signatory to the Amended and Restated Loan Agreement, dated as of June 29, 1999, among Medallion Financial Corp., Medallion Business Credit LLC, the Banks Signatory thereto, the Swing Line Lender and Fleet Bank, N.A., as Arranger and Agent, dated as of June 29, 1999. Filed as Exhibit 10.4 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.43 Intercreditor Agreement, dated June 1, 1999, among Fleet Bank, N.A., as agent for and on behalf of the Banks, the Banks, the Senior Noteholders, Fleet, acting as collateral agent to the Senior Noteholders and Fleet as intercreditor collateral agent for the Senior Creditors. Filed as Exhibit 10.5 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.44 $5,000,000 Swing Line Note, dated June 29, 1999. Filed as Exhibit 10.6 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.45 $20,000,000 Revolving Credit Note No. 1, dated June 29, 1999. Filed as Exhibit 10.7 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.46 $15,000,000 Revolving Credit Note No. 2, dated June 29, 1999. Filed as Exhibit 10.8 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.47 $10,000,000 Revolving Credit Note No. 3, dated June 29, 1999. Filed as Exhibit 10.9 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.48 $10,000,000 Revolving Credit Note No. 4, dated June 29, 1999. Filed as Exhibit 10.10 on Form 10-Q for the fiscal quarter period ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.49 $10,000,000 Revolving Credit Note No. 5, dated June 29, 1999. Filed as Exhibit 10.11 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.50 $5,000,000 Revolving Credit Note No. 6, dated June 29, 1999. Filed as Exhibit 10.12 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.51 $10,000,000 Revolving Credit Note No. 7, dated June 29, 1999. Filed as Exhibit 10.13 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.52 $10,000,000 Revolving Credit Note No. 8, dated June 29, 1999. Filed as Exhibit 10.14 on Form 10-Q for the fiscal quarter ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.53 $10,000,000 Revolving Credit Note No. 9, dated June 29, 1999. Filed as Exhibit 10.15 on Form 10-Q for the fiscal quarter period ended June 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.54 Commercial Paper Dealing Agreement, dated as of July 30, 1999 between Medallion Financial Corp., and U.S. Bancorp Investments, Inc. Filed as Exhibit 10.1 on Form 10-Q for the fiscal quarter period ended September 30, 1999 (File No. 814-00188) and incorporated by reference herein. 10.55 Amendment No. 1 to Second Amended and Restated Loan Agreement and Limited Waiver dated as of March 30, 2001, by and among Medallion Financial Corp., Medallion Business Credit, LLC, the lending institutions listed thereto, Fleet National Bank, as a Bank, as Swing Line Lender, and as Agent for the Banks. Filed herewith. 10.56 Amendment No. 4 to Amended and Restated Loan Agreement and Limited Waiver, dated as of March 30, 2001, by and among Medallion Funding Corp., LLC, the lending institutions listed thereto, Fleet National Bank, as a Bank, as Swing Line Lender, and as Agent for the Banks. Filed herewith. 10.57 First Amendment Agreement, dated March 30, 2001 to Note Purchase Agreement, dated as of June 1, 1999, between Medallion Funding Corp. and each of the Purchasers named on the Schedule thereto. Filed herewith. 35 21.1 List of Subsidiaries of Medallion Financial Corp. Filed herewith. 23.1 Consent of Arthur Andersen LLP relating to its report concerning Medallion Financial Corp., dated April 2, 2001. Filed herewith. IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. In connection with certain forward-looking statements contained in this Form 10-K and those that may be made in the future by or on behalf of the Company, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-K were prepared by management and are qualified by, and subject to, significant business, economic, competitive, regulatory and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of the Company. Accordingly, there can be no assurance that the forward-looking statements contained in this Form 10-K will be realized or that actual results will not be significantly higher or lower. The statements have not been audited by, examined by, compiled by or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-K should consider these facts in evaluating the information contained herein. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-K. The inclusion of the forward-looking statements contained in this Form 10-K should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this form 10-K will be achieved. In light of the foregoing, readers of this Form 10-K are cautioned not to place undue reliance on the forward-looking statements contained herein. These risks and others that are detailed in this Form 10-K and other documents that the Company files from time to time with the Securities and Exchange Commission, including quarterly reports on Form 10-Q and any current reports on Form 8-K must be considered by any investor or potential investor in the Company. 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. By: /s/ Larry D. Hall Larry D. Hall Corporate Controller and Assistant Treasurer Date: April 2, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date - -------------------------------------------------------------------------------- /s/ Alvin Murstein Chairman of the Board of Directors April 2, 2001 - ----------------------- and Chief Executive Officer Alvin Murstein /s/ Andrew M. Murstein President and Director April 2, 2001 - ----------------------- Andrew M. Murstein - ---------------------- 36 /s/ Stanley Kreitman Director April 2, 2001 - ----------------------- Stanley Kreitman - ----------------------- /s/ David L. Rudnick Director April 2, 2001 - ----------------------- David L. Rudnick - ----------------------- /s/ Benjamin Ward Director April 2, 2001 - ----------------------- Benjamin Ward - ----------------------- /s/ Frederick S. Hammer Director April 2, 2001 - ----------------------- Frederick S. Hammer 37 MEDALLION FINANCIAL CORP. INDEX TO FINANCIAL STATEMENTS Page ================================================================================ Report of Independent Public Accountants................................. F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999............. F-3 Consolidated Statements of Operations for the Years ended December 31, 2000, 1999, and 1998................................................... F-4 Consolidated Statements of Changes in Shareholders' Equity for the Years ended December 31, 2000, 1999 and 1998................... F-5 Consolidated Statements of Cash Flows for the Years ended December 31, 2000, 1999, and 1998................................................... F-6 Notes to Consolidated Financial Statements............................... F-7 Consolidated Schedule of Investments as of December 31, 2000 and 1999 F-22 ================================================================================ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Medallion Financial Corp.: We have audited the accompanying consolidated balance sheets of Medallion Financial Corp. (a Delaware corporation) and its subsidiaries (the "Company") as of December 31, 2000 and 1999, including the consolidated schedules of investments as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. 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, investments consist of loans and investments in equity securities valued at $ 514,153,606 (91.7% of total assets) and $489,567,196 (91.7% of total assets) as of December 31, 2000 and 1999, 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, the Board of Directors' estimate of values may differ significantly from the values that would have been used had a ready market for the investments 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 Medallion Financial Corp. and its subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP New York, New York April 2, 2001 F-2 MEDALLION FINANCIAL CORP. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999
============================================================================================ 2000 1999 ============================================================================================ Assets Investments: Medallion loans $299,302,548 $321,900,869 Commercial loans 212,721,373 165,653,933 Equity investments 2,129,685 2,012,394 ---------------------------------- Net investments 514,153,606 489,567,196 Investment in and loans to unconsolidated subsidiary 1,856,421 4,349,651 ---------------------------------- Total investments 516,010,027 493,916,847 Cash 15,652,878 7,459,284 Accrued interest receivable 8,701,981 5,271,365 Receivable from sale of loans -- 10,563,503 Servicing fee receivable 6,632,516 4,878,783 Fixed assets, net 2,050,808 2,397,649 Goodwill, net 5,650,045 6,180,151 Other assets, net 6,016,747 3,256,233 ---------------------------------- Total assets $560,715,002 $533,923,815 ============================================================================================ Liabilities Accounts payable and accrued expenses $7,723,812 $9,468,239 Dividends payable 5,244,281 5,609,773 Accrued interest payable 3,887,589 3,981,658 Commercial paper 24,066,269 93,983,792 Notes payable to banks 305,700,000 195,450,000 Senior secured notes 45,000,000 45,000,000 SBA debentures payable 21,360,000 22,770,000 ---------------------------------- Total liabilities 412,981,951 376,263,462 ---------------------------------- Negative goodwill, net -- 350,516 ---------------------------------- Commitments and contingencies (Note 10) -- -- Shareholders' Equity Preferred Stock (1,000,000 shares of $0.01 par value stock authorized - none outstanding) -- -- Common stock (50,000,000 shares of $0.01 par value stock authorized) 145,467 145,221 Capital in excess of par value 146,379,377 146,636,096 Accumulated undistributed net investment income 1,208,207 10,528,520 ---------------------------------- Total shareholders' equity 147,733,051 157,309,837 ---------------------------------- Total liabilities and shareholders' equity $560,715,002 $533,923,815 ============================================================================================ Number of common shares outstanding 14,546,637 14,522,044 Net asset value per share $10.16 $10.83 ============================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-3 MEDALLION FINANCIAL CORP. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
============================================================================================================= 2000 1999 1998 ============================================================================================================= Investment income Interest income on investments $55,014,780 $43,756,156 $37,500,693 Interest income on short-term investments 341,245 319,972 353,702 --------------------------------------------------- Total investment income 55,356,025 44,076,128 37,854,395 - ------------------------------------------------------------------------------------------------------------- Interest expense Notes payable to bank 14,034,234 9,143,232 9,297,673 Commercial paper 9,827,886 7,171,459 3,555,769 Senior secured notes 3,287,459 1,512,684 -- SBA debentures 1,794,081 3,160,314 4,113,515 --------------------------------------------------- Total interest expense 28,943,660 20,987,689 16,966,957 --------------------------------------------------- Net interest income 26,412,365 23,088,439 20,887,438 - ------------------------------------------------------------------------------------------------------------- Non-interest income Gain on sale of loans 2,813,900 3,014,478 2,316,245 Equity in earnings (losses) of unconsolidated subsidiary (421,155) (214,314) 1,200,389 Accretion of negative goodwill 350,516 722,400 722,400 Other income 3,377,829 2,245,766 1,662,629 --------------------------------------------------- Total non-interest income 6,121,090 5,768,330 5,901,663 - ------------------------------------------------------------------------------------------------------------- Non-interest expense Salaries and benefits 10,511,506 9,638,679 5,806,363 Professional fees 2,604,456 1,860,734 1,086,197 Merger related expense 1,804,403 -- 1,494,491 Amortization of goodwill 540,380 530,097 505,641 Administration and advisory fees 111,841 245,332 277,808 Other operating expense 7,876,229 5,724,832 5,032,939 --------------------------------------------------- Total non-interest expense 23,448,815 17,999,674 14,203,439 - ------------------------------------------------------------------------------------------------------------- Net investment income before income taxes 9,084,640 10,857,095 12,585,662 Income tax (benefit) provision (181,373) 48,839 (152,171) --------------------------------------------------- Net investment income after income taxes 9,266,013 10,808,256 12,737,833 Increase in net unrealized appreciation (depreciation) on investments 2,158,515 (12,259,566) 2,581,252 Net realized (loss) gain on investments (3,883,840) 22,545,017 1,290,743 --------------------------------------------------- Net increase in net assets resulting from operations $7,540,688 $21,093,707 $16,609,828 ============================================================================================================= Net increase in net assets resulting from operations per common share Basic $0.52 $1.45 $1.15 Diluted 0.52 1.44 1.14 ============================================================================================================= Dividends declared per share $1.19 $1.27 $1.16 Weighted average common shares outstanding Basic Average Shares 14,536,942 14,515,660 14,461,276 Diluted Average Shares 14,576,183 14,620,437 14,591,045 =============================================================================================================
The accompanying notes are an internal part of these consolidated financial statements. F-4 MEDALLION FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- ---------------------------------------------------------------------------------------------------------------------------- Accumulated Common Stock Undistributed ------------------------ Capital in Excess Net Investment # of Shares Amount Of Par Value Income - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 14,406,527 $144,065 $147,685,871 $6,236,889 Exercise of stock options 104,852 1,049 568,498 -- Net increase in net assets resulting from operations 16,609,828 Dividends declared on common stock ($1.16 per share) -- -- -- (16,772,240) SOP 93-2 cumulative reclassification -- -- (2,258,080) 2,258,080 - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 14,511,379 145,114 145,996,289 8,332,557 Exercise of stock options 10,665 107 110,518 Net increase in net assets resulting from operations -- -- -- 21,093,707 Dividends declared on common stock ($1.27 per share) -- -- -- (18,368,455) SOP 93-2 cumulative reclassification -- -- 529,289 (529,289) - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 14,522,044 145,221 146,636,096 10,528,520 Exercise of stock options 19,001 190 185,805 -- Issuance of common stock 5,592 56 91,944 -- Net increase in net assets resulting from operations -- -- -- 7,540,688 Dividends declared on common stock ($1.19 per share) -- -- -- (17,395,469) SOP 93-2 cumulative reclassification -- -- (534,468) 534,468 - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 14,546,637 $145,467 $146,379,377 $1,208,207 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 MEDALLION FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
=========================================================================================================================== 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES =========================================================================================================================== Net increase in net assets resulting from operations $7,540,688 $21,093,707 $16,609,828 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Depreciation and amortization 1,249,010 685,097 403,001 Amortization of goodwill 540,380 530,097 505,641 Amortization of origination costs 1,116,223 971,091 1,352,962 Accretion of negative goodwill (350,516) (722,400) (722,400) Increase in net unrealized depreciation (appreciation) (2,158,515) 12,259,566 (2,581,252) Net realized gain on investments 3,883,840 (22,545,017) (1,290,743) Equity in losses (earnings) of unconsolidated subsidiary 421,155 214,314 (1,200,389) Increase in accrued interest receivable (3,430,616) (1,307,617) (489,328) (Increase) decrease in receivable from sale of loans 10,563,503 (993,514) (6,707,008) Increase in servicing fee receivable (1,753,733) (2,588,480) (618,888) Decrease (increase) in other assets, net (3,046,788) (3,318) (263,007) Increase (decrease) in accounts payable and accrued expenses (1,744,426) 3,301,974 (5,498,541) Increase (decrease) in accrued interest payable (94,069) 1,374,721 1,484,907 ------------------------------------------------------ Net cash provided by operating activities 12,736,136 12,270,221 984,783 =========================================================================================================================== CASH FLOWS FROM INVESTING ACTIVITIES Originations of investments (197,512,295) (303,335,260) (257,736,605) Proceeds from sales and maturities of investments 170,084,338 231,290,694 202,933,494 Investments in and loans to unconsolidated subsidiary, net 2,072,075 559,696 (1,137,211) Payment for purchase of VG Group -- (11,963,072) Capital expenditures (626,169) (1,117,474) (1,995,658) ------------------------------------------------------ Net cash used for investing activities (25,982,051) (72,602,344) (69,899,052) =========================================================================================================================== CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of (repayment of) notes payable to banks 110,250,000 74,850,000 (18,150,000) Proceeds from issuance of senior secured notes 45,000,000 -- Proceeds from issuance of (repayment of) commercial paper, net (69,917,523) (9,097,993) 103,081,785 Repayment of notes payable to SBA (1,410,000) (32,590,000) (1,820,000) Proceeds from exercise of stock options 185,995 110,625 569,547 Payment of declared dividends to current shareholders (17,760,963) (17,523,363) (15,601,961) Proceeds from issuance of common stock 92,000 -- -- ------------------------------------------------------ Net cash provided by financing activities 21,439,509 60,749,269 68,079,371 =========================================================================================================================== NET INCREASE (DECREASE) IN CASH 8,193,594 417,146 (834,898) CASH, beginning of year 7,459,284 7,042,138 7,877,036 ------------------------------------------------------ CASH, end of year $15,652,878 $7,459,284 $7,042,138 =========================================================================================================================== SUPPLEMENTAL INFORMATION =========================================================================================================================== Cash paid during the year for interest $29,037,729 $19,609,865 $15,390,222 Cash paid during the year for income taxes -- 43,877 (1,367) ===========================================================================================================================
2000 1999 1998 VG Group =========================================================================================================================== Fair value of goodwill and assets acquired, other than cash $-- $-- $18,455,155 Cash paid, net -- -- 11,963,072 Liabilities assumed -- -- 6,492,083 ===========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-6 MEDALLION FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES Medallion Financial Corp. (the Company) is a closed-end management investment company organized as a Delaware corporation. The Company has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC). As an adjunct to the Company's taxicab medallion finance business, the Company operates a taxicab rooftop advertising business, Medallion Taxi Media, Inc. (Media). The Company also conducts its business through Business Lenders, LLC (BLL), licensed under the Small Business Administration (SBA) section 7(a) program, Medallion Business Credit LLC (MBC), an originator of loans to small businesses for the purpose of financing inventory and receivables, Medallion Capital, Inc. (Medallion Capital) which conducts a mezzanine financing business, and Freshstart Venture Capital Corp. (Freshstart), a Specialized Small Business Investment Company (SSBIC) which also originates and services medallion and commercial loans. (Note 3) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The accounting and reporting policies of the Company conform with generally accepted accounting principles and general practices in the investment company industry. The preparation of financial statements in conformity with generally accepted accounting principles requires 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 reporting period. Actual results could differ from those estimates. Principles of Consolidation and Use of the Equity Method The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, except for Media. All significant intercompany transactions, balances, and profits have been eliminated in consolidation. The consolidated statements give retroactive effect to the mergers with Medallion Capital and Freshstart, both retroactively combined with the Company's financial statements as if the mergers had occurred at the beginning of the earliest period presented. The Company's investment in Media is accounted for under the equity method. All significant intercompany transactions, balances and profits have been eliminated in the use of 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. Investment Valuation The Company's loans, net of participations and any unearned discount, 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. Investments in equity securities and stock warrants are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation, respectively. The fair value of investments that have no ready market, are determined by the Board of Directors based upon assets and revenues of the underlying investee company as well as general market trends for businesses in the same industry. Included in equity investments at December 31, 2000 are marketable and non-marketable securities of approximately $1,490,000 and $640,000, respectively. At December 31,1999, the respective balances were approximately $1,896,000 and $440,000. Because of the inherent uncertainty of valuations, the Board of Directors' estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed and the differences could be material. The Company's investments consist primarily of long-term loans to persons defined by Small Business Administration (SBA) regulations as socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 58% and 65% of the Company's loan portfolio at December 31, 2000 and 1999, respectively, had arisen in connection with the financing of taxicab medallions, taxicabs, and related assets, of which 77% and 83%, respectively, are in New York City. 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. A portion of the Company's portfolio represents loans to various commercial enterprises, including dry F-7 cleaners, laundromats, restaurants, garages, and gas stations. 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. The remaining portion of the Company's portfolio is from the origination of loans guaranteed by the SBA under its Section 7(a) program, less the sale of the guaranteed portion of those loans. Funding for the Section 7(a) program depends on annual appropriations by the U.S. Congress. Collateral Appreciation Participation Loans During the 2000 first half, the Company originated collateral appreciation participation loans collateralized by Chicago taxi medallions of $30 million, of which $21 million was syndicated to other financial institutions. In consideration for modifications from our normal taxi medallion lending terms, the Company offered loans at higher loan-to-value ratios and is entitled to earn additional interest income based upon any increase in the value of all $30 million of the collateral. The fair value of the collateral appreciation participation loan portfolio at December 31, 2000 was $12.1 million, which represented 2% of the total loan portfolio. Additional interest income totaled approximately $3.1 million for 2000, and is included in investment income on the consolidated statements of operations and in accrued interest receivable on the consolidated balance sheets. We believe that the additional interest income recorded is fully realizable through operation of the collateral or orderly sales in the market. As a regulated investment company, the Company is required to mark-to-market these investments on a quarterly basis, just as it does on all of its other investments. The Company feels that it has adequately calculated the fair market value on these investments and relies upon information such as recent and historical medallion sale prices. If there is a decrease in the value of taxicab medallions, the reduction in the value of the investments will be reversed against investment income. Investment Transactions and Income Recognition Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment to the yield of the related loans. At December 31, 2000 and 1999, net origination costs totaled approximately $2,460,000 and $2,561,000. Amortization expense for the years ended December 31, 2000, 1999 and 1998 was approximately $1,116,000, $971,000, and $1,353,000. Interest income is recorded on the accrual basis. Loans are placed on non-accrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectibility of interest or principal or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on non-accrual loans is recognized when cash is received. At December 31, 2000 and 1999 total non-accrual loans were approximately $13,197,000 and $12,961,000. For the years ended December 31, 2000, 1999 and 1998 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 approximately $1,716,000, $1,791,000, and $793,000. Loan Sales and Servicing Fee Receivable In September 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a Replacement of FASB Statement No.125." Certain disclosure provisions required by SFAS 140 were effective immediately and are included in these consolidated financial statements. Additional requirements related to SFAS No.140 are effective March 31, 2001. The Company currently does not expect that these additional requirements will have a material effect on the Company's consolidated financial position or results of operations. The Company currently accounts for its sales of loans in accordance with Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125). SFAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. These standards are based on consistent application of a financial components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, de-recognizes financial assets when control has been surrendered, and de-recognizes liabilities when extinguished. SFAS 125 also provides for consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The principal portion of loans serviced for others by the Company at December 31, 2000 and 1999 amounted to approximately $231,000,000 and $163,000,000. Receivables from loans sold and gain or losses on loan sales are primarily attributable to the sale of commercial loans which have been at least partially guaranteed by the SBA. The Company recognizes gains or losses from the sale of the SBA-guaranteed portion of a loan at the date of the sales agreement when control of the future economic benefits embodied in the loan is surrendered. The gains are calculated in accordance with SFAS 125, which requires that the gain on the sale of a portion of a loan be based on the relative fair values of the loan sold and the loan retained. The gain on loan sales is due to the differential between the carrying amount of the portion of loans sold and the sum of the cash received and the servicing fee receivable. The servicing fee receivable represents the present value of the difference between the servicing fee received by the Company (generally 100 to 200 basis points) and the Company's servicing costs and normal profit, after considering the estimated effects of prepayments and defaults over the life of the servicing agreement. In connection with calculating the servicing fee receivable, the Company must make certain assumptions F-8 including the cost of servicing a loan including a normal profit, the estimated life of the underlying loan that will be serviced, and the discount rate used in the present value calculation. The Company considers 40 basis points to be its cost plus a normal profit and uses the note rate, which is generally the prime rate plus 2.75%, as the discount rate. The servicing fee receivable is amortized as a charge to loan servicing fee income over the estimated lives of the underlying loans using the effective interest rate method. The Company reviews the carrying amount of the servicing fee receivable for possible impairment by stratifying the receivables based on one or more of the predominant risk characteristics of the underlying financial assets. If the estimated present value of the future servicing income is less than the carrying amount, the Company recognizes an impairment loss and adjusts future amortization accordingly. If the fair value exceeds the carrying value, the Company may reduce future amortization. The servicing fee receivable is carried at the lower of amortized cost or fair value. The carrying amount of the servicing fee receivable, net of reserves, at December 31, 2000 and 1999 was approximately $6,633,000 and $4,879,000. During the year ended December 31, 2000, the Company recognized a servicing fee receivable totaling $3.2 million and had $1.2 million of servicing fee receivable amortization. The estimated net servicing income is based, in part, on management's estimate of prepayment speeds, including default rates, and accordingly, there can be no assurance of the accuracy of these estimates. If the prepayment speeds occur at a faster rate than anticipated, the amortization of the servicing assets will be accelerated and it's value will decline; and as a result, servicing income during that and subsequent periods would decline. If prepayments occur slower than anticipated, cash flows would exceed estimated amounts and servicing income would increase. The constant prepayment rates utilized by the Company in estimating the lives of the loans depend on the original term of the loan, industry trends, and the Company's historical data. During 2000 and 1999, the Company used an estimated constant prepayment rate of 15%. The prepayment rate of loans may be affected by a variety of economic and other factors, including prevailing interest rates and the availability of alternative financing to borrowers. At December 31, 2000, the Company determined the fair value of its servicing fee receivable to be $6.6 million using a present value of expected cash flows methodology. The Company has stratified its servicing fee receivable into pools by period of creation, generally one year, and the term of the loan underlying the servicing fee receivable. For purposes of determining the fair value, the Company uses a prepayment/default rate of 15% for all pools except for the servicing fee receivable pools created in 1998, where a prepayment/default rate of 17% was used. The higher prepayment/default rate is considered appropriate, as the 1998 pools have demonstrated a trend of greater prepayment/default activity than the other servicing fee receivable pools. At December 31, 2000, the discount rate used in the determination of fair value is 100 basis points above the note rate of the underlying loans for servicing fee receivable pools where the maturity of the underlying loans is ten years or less. For servicing fee receivable pools where the maturity of the underlying loans is greater than ten years, the discount rate is 200 basis points above the note rate of the underlying loans. The activity in the reserve for servicing fee receivable follows: ----------------------------------- Year Ended December 31, ----------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Beginning Balance $ -- $-- $-- Additions charged to operations 205,000 -- -- Direct write downs -- -- -- - -------------------------------------------------------------------------------- Ending Balance $205,000 $-- $-- ================================================================================ The Company also has the option to sell the unguaranteed portions of loans to third party investors. The gain or loss on such sales will be calculated in accordance with SFAS No. 125. The discount related to unguaranteed portions sold would be reversed and the Company would recognize a servicing fee receivable or liability based on servicing fees retained by the Company. The Company is required to retain at least 5% of the unguaranteed portion of SBA guaranteed loans. The Company had sales of un-guaranteed portions of loans to third party investors of $2.5 million and $0 for the years ended December 31, 2000 and 1999. F-9 Unrealized Appreciation/(Depreciation) and Realized Gains/(Losses) on Investments The change in unrealized appreciation/(depreciation) of investments is the amount by which the fair value estimated by the Company is greater/(less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and write-offs of loans or assets acquired in satisfaction of loans, net of recoveries. An analysis of the unrealized appreciation /(depreciation) and realized (gains) losses on investments for the years ended December 31, 2000 and 1999 is as follows:
- -------------------------------------------------------------------------------------------------------------- Equity Loans Investments Total ============================================================================================================== Balance, December 31, 1998 ($2,164,292) $4,853,976 $2,689,684 Change in unrealized: Appreciation on investments -- 12,966,343 12,966,343 Depreciation on investments (7,208,586) (208,853) (7,417,439) Realized: Gains on investments -- (18,197,295) (18,197,295) Losses on investments 388,825 -- 388,825 ============================================================================================================== Balance, December 31, 1999 (8,984,053) (585,829) (9,569,882) Change in unrealized: Appreciation on investments 412,807 200,000 612,807 Depreciation on investments (636,367) (20,767) (657,134) Realized: Gains on investments (2,573) (15,981) (18,554) Losses on investments 2,221,396 -- 2,221,396 ============================================================================================================== Balance, December 31, 2000 ($ 6,988,790) ($422,577) ($7,411,367) ==============================================================================================================
For the years ended December 31, 2000, 1999 and 1998, gross unrealized appreciation/(depreciation) and gross realized gains/(losses) were as follows:
- -------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ============================================================================================================== Increase in net unrealized appreciation (depreciation) on investments Unrealized appreciation $612,807 $12,966,343 $3,757,121 Unrealized depreciation (657,134) (7,417,439) (1,134,372) Realized gain (18,554) (18,197,295) (1,167,363) Realized loss 2,221,396 388,825 1,125,866 - -------------------------------------------------------------------------------------------------------------- Total $2,158,515 $(12,259,566) $2,581,252 ============================================================================================================== Net realized gain (loss) on investments: Realized gain $273,676 $23,133,859 $2,416,609 Realized loss (4,157,516) (588,842) (1,125,866) - -------------------------------------------------------------------------------------------------------------- Total $(3,883,840) $22,545,017 $1,290,743 ==============================================================================================================
Goodwill Cost of purchased businesses in excess of the fair value of net assets acquired (goodwill) is amortized on a straight-line basis over fifteen years. The excess of fair value of net assets over cost of business acquired (negative goodwill) was accreted on a straight-line basis over approximately four years. The Company reviews its 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. Fixed Assets Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 5 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense for the years ended December 31, 2000, 1999, and 1998 was $855,893, $444,441, and $227,456. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" which requires computer software costs associated with internal use software to be expensed as incurred unless certain capitalization criteria are met. Effective January 1, F-10 1999, the Company capitalized eligible costs on a prospective basis and is amortizing these costs on a straight-line basis over the expected useful life of 3 to 5 years. Deferred Financing Costs Deferred financing costs, included in other assets, represents costs associated with obtaining the Company's borrowing facilities, and is amortized over the lives of the related financing agreements. Amortization expense for the years ended December 31, 2000, 1999 and 1998 was approximately $276,000, $176,000, and $81,000. Federal Income Taxes The Company has elected to be treated for tax purposes as a regulated investment company (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. It is the Company's policy to comply with the provisions of the Code applicable to regulated investment companies. Media, as a non-investment company, has elected to be taxed as a regular corporation. Net Increase in Net Assets Resulting from Operations per Share (EPS) Basic earnings per share is computed by dividing net increase in net assets resulting from operations available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised and has been computed after giving consideration to the weighted average dilutive effect of the Company's common stock and stock options. Basic and diluted EPS for the years ended December 31, 2000, 1999, and 1998 are as follows:
- ----------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amount) 2000 1999 1998 ================================================================================================================= Net increase in net assets resulting from operations available to common shareholders $7,541 $21,094 $16,610 - ----------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding applicable to basic EPS 14,536,942 14,515,660 14,461,276 Effect of dilutive stock options 39,241 104,777 12,769 -------------------------------------------- Adjusted weighted average common shares outstanding applicable to diluted EPS 14,576,183 14,620,437 14,591,045 - ----------------------------------------------------------------------------------------------------------------- Basic earnings per share $0.52 $1.45 $1.15 Diluted earnings per share 0.52 1.44 1.14 =================================================================================================================
Stock-Based Compensation The Company has adopted the provisions of SFAS No.123 " Accounting for Stock Based Compensation (SFAS No.123), which established a fair value-based method of accounting for stock options. The Company measures compensation cost for stock options using the current intrinsic value-based method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under SFAS No.123, 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. Derivatives The Company is party to certain interest rate cap agreements. These contracts were entered into as part of the Company's management of interest rate exposure and effectively limit the amount of interest rate risk that may be taken on a portion of the Company's outstanding debt. All interest rate caps are designated as hedges of certain liabilities. Premiums paid on the interest rate caps are amortized over the lives of the cap agreements and amortization of these costs is recorded as an adjustment to interest expense. Interest rate settlements, if any, are recorded as a reduction of interest expense over the lives of the agreements. In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards regarding accounting and reporting requirements for derivative instruments and hedging activities. In June 1999, the Board issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." The new standard defers the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. The Company adopted SFAS 133 beginning January 1, 2001 and believes it will not have a material affect on its consolidated financial position or results of operations. F-11 Reclassifications Certain reclassifications have been made to prior year balances to conform with the current year presentation. (3) BUSINESS COMBINATIONS Freshstart On October 2, 2000, the Company completed the merger with Freshstart. The Company issued 0.23865 shares of its common stock for each outstanding share of Freshstart, for a total of 518,449 shares of the Company's common stock. The transaction was accounted for as a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended, and was treated under the pooling-of-interests method of accounting for financial reporting purposes. The following table sets forth the results of operations of Freshstart and the Company for the nine months ended September 30, 2000 and the years ended December 31, 1999 and 1998.
====================================================================================================== (Dollars in thousands) The Company Freshstart Combined ====================================================================================================== For the nine months ended September 30, 2000 Total investment income $40,758 $1,864 $42,622 Net increase in net assets from operations 11,173 361 11,534 For the year ended December 31, 1999 Total investment income 41,380 2,696 44,076 Net increase in net assets from operations 20,880(1) 214 21,094 For the year ended December 31, 1998 Total investment income 35,157 2,697 37,854 Net increase in net assets from operations 15,723(1) 887 16,610 ======================================================================================================
(1) "The Company", column includes elimination entries for the intercompany transactions. Capital Dimensions, Inc. (CDI) On June 16, 1998, the Company completed the merger with CDI which was subsequently renamed Medallion Capital. The Company issued 0.59615 shares of its common stock for each outstanding share of CDI, for a total of 1,112,677 shares of the Company's common stock. The transaction was accounted for as a tax-free reorganization under Section 368 of the Internal Revenue Code of 1986, as amended, and was treated under the pooling-of-interests method of accounting for financial reporting purposes. The following tables set forth the results of operations of CDI and the Company for the six months ended June 30, 1998 and is included in the accompanying consolidated statement of operations. ================================================================================ (Dollars in thousands) The Company CDI Combined ================================================================================ For the six months ended June 30, 1998 Total investment income $16,322 $1,288 $17,610 Net increase in net assets from operations 5,692 1,467 7,159 Exercise of stock options 8 91 99 ================================================================================ VG Group On May 27, 1998, the Company completed the acquisition of certain assets and assumption of certain liabilities of VGI, VGII, and VOC, SBIC lenders headquartered in New York, (VG Group), for an aggregate purchase price of $18.5 million which included the assumption of $6.5 million in liabilities. The purchase price was allocated to certain assets based on their estimated fair values and approximately $16.7 million was allocated to investments. The excess of the purchase price over the fair value of the net assets acquired (goodwill) was $1.2 million and is being amortized on a straight-line basis over 15 years. The pro forma effect of the VG Group on the Company's results of operations for the year ended December 31, 1998 would not have been material; therefore, no pro forma information has been presented. F-12 (4) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY The balance sheets at December 31, 2000 and 1999 for Media are as follows: ================================================================================ December 31, ----------------------------- 2000 1999 ================================================================================ Cash $5,259 $189,480 Accounts receivable 2,652,055 3,582,642 Equipment, net 3,281,011 1,683,756 Goodwill 1,659,624 1,666,091 Prepaid signing bonuses 1,521,253 421,061 Other 2,882,750 1,726,473 Due from parent 321,723 -- ----------------------------- Total assets $12,323,675 $9,269,503 - -------------------------------------------------------------------------------- Accounts payable and accrued expenses $683,369 $461,196 Note payable-bank 3,900,000 -- Notes payable-parent -- 1,750,351 Deferred revenue 5,453,550 3,847,772 Other liabilities and income taxes payable -- 502,265 ----------------------------- Total liabilities 10,036,919 6,561,584 - -------------------------------------------------------------------------------- Equity 1,001,000 1,001,000 Retained Earnings 1,285,756 1,706,919 ----------------------------- Total equity 2,286,756 2,707,919 ----------------------------- Total liabilities and equity $12,323,675 $9,269,503 ================================================================================ The statements of operations of Media for the years ended December 31, 2000, 1999, and 1998 are as follows: ================================================================================ December 31, ----------------------------------------------- 2000 1999 1998 ================================================================================ Advertising revenue $11,144,349 $9,878,117 $7,526,569 Cost of fleet services 5,750,203 4,261,673 2,413,089 ----------------------------------------------- Gross profit 5,394,146 5,616,444 5,113,480 Other operating expenses 6,056,576 5,223,833 3,163,091 ----------------------------------------------- Income (loss) before taxes (662,430) 392,611 1,950,389 Income tax provision (benefit) (241,275) 134,125 750,000 ----------------------------------------------- Net income (loss) ($ 421,155) $258,486 $1,200,389 ================================================================================ Periodically the Company purchases taxicab rooftop advertising from its wholly owned subsidiary, Media, at average market rates per top. Total purchased advertising was $-0- and $472,800 for the years ended December 31, 2000 and 1999. On August 30, 2000, the Company purchased for stock all of the assets of Out There Media L.L.C., a privately held company headquartered in Cleveland, Ohio, which had the rights to top more than 250 taxis in Cleveland, Columbus, and Toledo, and which also had contracts with some of the largest taxi fleets in these cities. This acquisition was accounted for under the purchase method of accounting and was immaterial to the Company's financial positions and results of operations. On February 2, 1999, Media purchased 100% of the common stock of Transit Advertising Displays, Inc. (TAD) for approximately $849,000. TAD is a taxicab rooftop advertising company headquartered in Washington, D.C. operating 1,300 installed displays in the Baltimore, MD and Washington, D.C. areas. The purchase was accounted for under the purchase method of accounting. Included in the purchase price were certain premiums paid totaling approximately $770,000, which represented goodwill, which is being amortized over 15 years. On September 1, 1998, the Company purchased for cash, substantially all the operations and assets of New Orleans-based Taxi Ads, LLC (consisting of 855 taxicab rooftop advertising display units and certain contacts for advertising and fleet rental) for an aggregate purchase price of $1,200,000. This acquisition was accounted for under the purchase method of accounting. Included in the purchase price were certain premiums paid totaling approximately $1,002,000, which represented goodwill which is being amortized over 15 years. F-13 On February 8, 2001, we announced that Media entered into an agreement to acquire Taxi Media Network, the largest taxicab advertising company in Japan, which holds the rights to provide advertising on 7,000 taxis in Japan. The transaction is subject to due diligence reviews and other customary closing conditions. On December 28, 2000, Media entered into an agreement with a bank to borrow $3.9 million for working capital purposes at a rate of prime plus 0.5%. The note is secured by the assets of Media and matured on March 30, 2001, at which time it was renewed for an additional three month term. (5) COMMERCIAL PAPER, NOTES PAYABLE TO BANKS AND SENIOR SECURED NOTES Borrowings under the commercial paper, revolving credit, and senior note agreements are secured by the assets of the Company. The outstanding balances were as follows as of December 31, 2000 and 1999. ================================================================================ Description 2000 1999 ================================================================================ Commercial paper $24,066,269 $93,983,792 Revolving credit agreements 305,700,000 195,450,000 Senior secured notes 45,000,000 45,000,000 - -------------------------------------------------------------------------------- Total $374,766,269 $334,433,792 ================================================================================ (a) Commercial Paper On March 13, 1998, MFC entered into a commercial paper agreement with Salomon Smith Barney to sell up to an aggregate principal amount of $195 million in secured commercial paper through private placements pursuant to Section 4(2) of the Securities Act of 1933. Subsequently, MFC entered into a commercial paper dealer agreement with US Bancorp and Credit Suisse First Boston to sell commercial paper under the same program as Salomon Smith Barney, and coincident with the extension and expansion of the Revolving Credit Agreement (the Revolver), the commercial paper line was expanded to $220,000,000. Amounts outstanding at any time under the program are limited by certain covenants, including a requirement that MFC retain an investment grade rating from at least two of the four nationally recognized rating agencies, and borrowing base calculations as set forth in the Revolver. The commercial paper program ranks on a pari passu basis with the Revolver. The commercial paper program has a specified maturity date of June 30, 2001, which represents the maturity date of MFC's Revolver, but may be terminated by the Company at anytime. During December 2000, MFC'S outstanding commercial paper began to mature and was replaced by draws on the Revolver at a cost of 7.83%, compared to a cost of 7.10%. On November 22, 2000, Fitch IBCA placed Medallion's "BBB" senior secured debt rating and "F2" secured commercial paper rating on negative watch. In addition, in December 2000, Medallion's other rating agency, Thompson's Bankwatch, was acquired by Fitch IBCA, leaving it with only one commercial paper rating. Primarily as a result of these factors, a substantial portion of Medallion's commercial paper did not rollover and has subsequently been replaced by Medallion's bank facility. On January 18, 2001, Fitch IBCA lowered our senior secured debt rating and secured commercial paper rating to "BB+" and "B", respectively, and removed them from negative watch. At December 31, 2000 and 1999, MFC had approximately $24,066,000 and $93,984,000 outstanding at a weighted average interest rate of 7.10% and 6.60%. For the year ended December 31, 2000 and 1999, MFC's weighted average borrowings related to commercial paper were $135,568,000 and $123,143,000 with a weighted average interest rate of 7.25% and 5.82%. Commercial paper outstandings are deducted from the Revolver as the Revolver acts as a liquidity facility for the commercial paper. (b) Revolving Credit Agreements On March 27, 1992 (and as subsequently amended), MFC entered into the Revolver with a group of banks. Effective on February 10, 2000, MFC extended the Revolver until June 30, 2001 at an aggregate credit commitment amount of $220,000,000, an increase from $195,000,000 previously, pursuant to the Loan Agreement dated December 24, 1997. Amounts available under the Revolver are reduced by amounts outstanding under the commercial paper program as the Revolver acts as a liquidity facility for the commercial paper program. As of December 31, 2000 and 1999, amounts available under the Revolver were $0 and $1.8 million. The Revolver may be extended annually after June 30, 2001 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 agreement. 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. At December 31, 2000, MFC is required to pay an annual facility fee of 20 basis points on the unused portion of the Revolver's aggregate commitment. Commitment fee expense for the years ended December 31, 2000, 1999, and 1998 was approximately $386,000, $388,000 and $243,000. Outstanding borrowings under the Revolver were $195,700,000 and $99,250,000 at weighted average interest rates of 7.68% and 7.20% at December 31, 2000 and 1999. MFC is required under the Revolver to maintain minimum tangible net assets of $65,000,000 and certain financial ratios, as defined therein. The Revolver agreement contains other restrictive covenants, including a limitation of $500,000 for capital expenditures. On July 31, 1998, (and as subsequently amended) the Company closed its existing $25,000,000 revolving credit line and entered into a committed revolving credit agreement (the Loan Agreement) with a group of banks. The aggregate credit commitment F-14 amount was $100,000,000 maturing on June 28, 2000 and was extended on September 22, 2000 to September 21, 2001 at an increased commitment level of $110,000,000. The Loan Agreement 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 Loan 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 Loan 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 LIBOR rate 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 Loan Agreement. The Company is required to pay an annual facility fee of 15 basis points on the amount of the aggregate commitment. Commitment fee expenses for the years ended December 31, 2000, 1999 and 1998 were approximately $257,000, $108,000, and $72,000. Outstanding borrowings under the Loan Agreement were $106,500,000 and $91,200,000 at a weighted average interest rate of 8.09% and 7.44% at December 31, 2000 and 1999. The Company is required under the Revolver to maintain certain levels of medallion loans and certain financial ratios, as defined therein. The Loan Agreement contains other restrictive covenants, including a limitation of $1,000,000 for capital expenditures per annum. On March 6, 1997, Freshstart established a $5,000,000 line of credit with a bank at a rate of LIBOR plus 1.75%. Pursuant to the terms of the line of credit, the Company is required to comply with certain terms, covenants, and conditions, including maintaining minumum balances with the bank. The line of credit is unsecured. In connection with the Freshstart merger, the line was reduced to $3,500,000 with no specific maturity. The weighted average interest rate for the Company's consolidated outstanding revolver borrowings at December 31, 2000 and 1999 was 7.83% and 7.31%. During the years ended December 31, 2000 and 1999, the Company's weighted average borrowings were $180,712,000 and $131,219,000 with a weighted average interest rate of 7.77% and 6.97%, respectively. As of December 31, 2000, we were in negotiations with both the Bank group and the lenders of our senior secured notes on amendments to our existing loan agreements. These amendments, which were finalized on March 30, 2001, granted Medallion a waiver of compliance with certain provisions, clarified and revised certain provisions of the agreements related to business activities and financial covenants at Medallion and MFC, and adjusted the rate of interest paid on the notes. As of the effective date of the amendments, Medallion believes it and MFC are in compliance with the requirements of the credit facilities for the foreseeable future. Medallion, MFC, and their lenders have initiated discussions as to the next renewal of the existing bank loans which mature in June and September, 2001, Although, there can be no assurances, the Company expects a satisfactory result from these discussions. (c) Senior Secured Notes On June 1, 1999, MFC issued $22.5 million of Series A senior secured notes that mature on June 1, 2004, and on September 1, 1999, MFC issued $22.5 million of Series B senior secured notes that mature on September 1, 2004 (together, the Notes). The Notes bear a fixed rate of interest of 7.2% and interest is paid quarterly in arrears. The Notes rank pari passu with the revolvers and commercial paper through inter-creditor agreements The proceeds of the Notes were used to prepay certain of the Company's outstanding SBA debentures (Note 6). See also description of amendments referred to in Note 5(b). (d) Interest Rate Cap Agreements On June 22, 2000, MFC entered into an interest cap agreement limiting the Company's maximum LIBOR exposure on $10,000,000 of MFC's revolving credit facility to 7.25% until June 24, 2002. On July 6, 1999, MFC entered into two interest rate cap agreements limiting the Company's maximum LIBOR exposure on a total of $20,000,000 of MFC's revolving credit facility to 6.5% until July 6, 2001. On April 7, 1998, MFC entered into an interest rate cap agreement limiting the Company's maximum LIBOR exposure on $20,000,000 of MFC's revolving credit facility to 6.5% until September 30, 1999 and 7.0% until March 30, 2001. Total premiums of approximately $156,000 paid under the agreements are being amortized over the respective terms of the agreements. The Company is exposed to credit loss in the event of nonperformance by the counterparties on the interest rate cap agreements. The Company does not anticipate nonperformance by any of these parties. F-15 (6) SBA DEBENTURES PAYABLE Outstanding SBA debentures are as follows at December 31, 2000 and 1999. - -------------------------------------------------------------------------------- Due Date 2000 1999 Interest Rate ================================================================================ December 1, 2006 $5,500,000 $5,500,000 7.08% March 1, 2007 4,210,000 4,210,000 7.38 September 1, 2007 4,060,000 4,060,000 7.76 June 1, 2007 3,000,000 3,000,000 7.07 March 1, 2006 2,000,000 2,000,000 7.08 December 16, 2002 1,300,000 1,300,000 4.51 June 1, 2005 520,000 520,000 6.69 December 1, 2005 520,000 520,000 6.54 June 1, 2006 250,000 250,000 7.71 SBA Preferred Stock -- 1,410,000 4.00 ------------------------------------------------- $21,360,000 $22,770,000 ================================================================================ On September 30, 2000, the Company redeemed the 4% cumulative 15 year redeemable preferred stock at par value. On June 1, 1999 and September 1, 1999, the Company prepaid outstanding debentures totaling $31,090,000. The Company also paid approximately $165,000 in prepayment penalties as a one-time charge that was included in interest expense. The SBA imposes certain restrictions on the Company, which include, among others, transfers of stock and payments of dividends by its licensees. (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 shareholders on May 22, 1996, provides for the issuance of a maximum of 750,000 shares of common stock of the Company. On June 11, 1998, the Board of Directors and shareholders approved certain amendments to the Company's 1996 Stock Option Plan, including increasing the number of shares reserved for issuance from 750,000 to 1,500,000. At December 31, 2000, 174,458 shares of the Company's common stock remained available for future grants. The 1996 Stock Option 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 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 shareholders on May 22, 1996. On February 24, 1999, the Board of Directors amended and restated the Director Plan in order to adjust the calculation of the number of shares of the Company's Common Stock issuable under options ("Options") to be granted to a Non-employee Director upon his or her re-election. Under the prior plan the number of options granted was obtained by dividing $100,000 into the current market price for the Common Stock. The Amended Plan calls for the grant of options to acquire 9,000 shares of Common Stock upon election of a non-employee director. It provides for an automatic grant of options to purchase 9,000 shares of the Company's Common Stock to an Eligible Director upon election to the Board, with an adjustment for directors who are elected to serve less than a full term. A total of 100,000 shares of the Company's Common Stock are issuable under the Amended Plan. At December 31, 2000, 54,091 shares of the Company's common stock remained available for future grants. 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 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. F-16 The Company records stock compensation in accordance with APB Opinion No. 25. Had compensation cost for stock options been determined based on the fair value at the date of grant, consistent with the provisions of SFAS 123, the Company's net increase in net assets resulting from operations would have been reduced to the pro forma amounts indicated below:
================================================================================================= December 31, ----------------------------------------- 2000 1999 1998 ================================================================================================= Net increase in net assets resulting from operations As reported $7,540,688 $21,093,707 $16,609,828 Pro forma 6,552,531 20,710,412 15,801,775 Per share diluted As reported $0.52 1.44 1.14 Pro forma 0.45 1.42 1.08 =================================================================================================
The weighted average fair value of options granted during the years ended December 31, 2000, 1999, and 1998 was $3.98, $4.32, and $7.26 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. However, management believes that such a model may or may not be applicable to a company regulated under the 1940 Act. The following weighted average assumptions were used for grants in 2000, 1999 and 1998: ================================================================================ Year ended December 31, ------------------------------------------- 2000 1999 1998 ================================================================================ Risk free interest rate 6.3% 5.7% 5.4% Expected dividend yield 8.0% 7.1% 6.0% Expected life of option in years 7.0 7.0 8.6 Expected volatility 44% 44% 49% ================================================================================ The following table presents the activity for the stock option program under the 1996 Stock Option Plan and the Director Plan for the years ended December 31, 2000, 1999, and 1998: ================================================================================ Weighted Number of Exercise Price Per Average Options Share Exercise Price ================================================================================ Outstanding at December 31, 1997 443,572 $0.28-$26.00 $13.36 Granted 379,603 13.75-29.25 23.67 Cancelled (21,943) 20.63-29.25 27.75 Exercised (104,888) 0.28-16.77 5.46 ================================================================================ Outstanding at December 31, 1998 696,344 6.71-29.25 19.72 Granted 397,884 14.25-20.06 17.52 Cancelled (42,700) 14.25-28.87 21.84 Exercised (10,665) 6.71-14.38 10.37 ================================================================================ Outstanding at December 31, 1999 1,040,863 6.71-29.25 18.88 Granted 93,164 14.50-20.63 17.36 Cancelled (25,750) 14.25-29.25 19.85 Exercised (19,001) 6.71-11.00 9.79 - -------------------------------------------------------------------------------- Outstanding at December 31, 2000 1,089,276 $6.71-29.25 $18.88 ================================================================================ Options exercisable at December 31, 1998 123,798 $6.71-$22.38 $14.13 December 31, 1999 254,751 6.71-29.25 16.37 December 31, 2000 494,712 6.71-29.25 17.68 ================================================================================ F-17 The following table summarizes information regarding options outstanding and options exercisable at December 31, 2000 under the 1996 Stock Option Plan and the Director Plan:
=============================================================================================================== Options Outstanding Options Exercisable ----------------------------------------------------------------------------------------------- Weighted average Weighted average =============================================================================================================== Shares Remaining Shares Remaining Range of At December contractual At December contractual Exercise Prices 31, 2000 life in years Exercise price 31, 2000 life in years Exercise price =============================================================================================================== $6.71-$14.38 188,210 5.49 $12.60 162,721 5.12 $12.00 14.50-17.38 431,632 6.27 17.01 106,893 4.62 17.18 18.75-22.38 246,127 7.21 19.48 152,141 6.24 19.65 26.06-29.25 223,307 7.31 27.53 72,957 7.17 26.96 - --------------------------------------------------------------------------------------------------------------- $6.71-$29.25 1,089,276 6.58 $18.88 494,712 5.66 17.68 ===============================================================================================================
(8) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (2)
============================================================================================================= (In thousands except per share amounts) March 31 June 30 September 30 December 31 ============================================================================================================= 2000 Quarter Ended ============================================================================================================= Investment income $14,531 $13,787 $14,304 $12,734 Net investment income (loss) before taxes 4,366 4,250 3,245 (2,776) Net increase (decrease) in net assets resulting from operations 4,500 4,260 2,774 (3,993) Net increase (decrease) in net assets resulting from operations per common share Basic 0.31 0.29 0.19 (0.27) Diluted 0.31 0.29 0.19 (0.27) 1999 Quarter Ended ============================================================================================================= Investment income (1) $10,097 $11,505 $11,466 $11,008 Net investment income before taxes (1) 3,451 3,304 3,349 753 Net increase in net assets resulting from operations 4,757 5,236 6,208 4,893 Net increase in net assets resulting from operations per common share Basic 0.33 0.36 0.43 0.33 Diluted 0.33 0.36 0.42 0.33 1998 Quarter Ended ============================================================================================================= Investment income $9,368 $9,626 $9,574 $9,286 Net investment income before taxes 4,291 2,171 3,728 2,396 Net increase in net assets resulting from operations 4,466 3,143 4,405 4,596 Net increase in net assets resulting from operations per common share Basic 0.31 0.22 0.30 0.32 Diluted 0.31 0.21 0.30 0.32 =============================================================================================================
(1) Subsequent to the 1999 year-end, the Company identified clerical errors resulting from the Company's system conversion that began in the third quarter of 1999. The effect of these items has been reflected in the results for the fourth quarter ended December 31, 1999. Certain of these errors resulted in a decrease to Investment Income and Net Investment Income of approximately $1.2 million in the third quarter and an increase of approximately $1.2 million in the fourth quarter. The clerical errors, in total, did not have an overall material impact on net increase in net assets resulting from operations for either quarter. (2) The 2000 March, June, and September quarters, as well as all the quarters of 1999 and 1998 have been restated to reflect the merger with Freshstart. (9) SEGMENT REPORTING The Company has two reportable business segments, lending and taxicab rooftop advertising. The lending segment originates and services secured commercial loans. The taxicab roof top advertising segment sells advertising space to advertising agencies and companies in several major markets across the United States. The segment is reported as an unconsolidated subsidiary, Medallion Taxi Media, Inc. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The lending segment is presented in the consolidated financial statements of the Company. Financial information relating to the taxicab rooftop-advertising segment is presented in Note 4, and represents an immaterial part of total Company revenues, expenses, income, assets, and liabilities. For taxicab advertising, the increase in net assets resulting from operations represents the Company's equity in net income from Media. Segment assets for taxicab advertising represents the Company's investment in and loans to Media. F-18 (10) COMMITMENTS AND CONTINGENCIES (a) Sub-Advisory Agreement In May 1996, the Company entered into a sub-advisory agreement (Agreement) with FMC Advisers, Inc. (FMC) in which FMC provided advisory services to the Company. Under the Agreement, the Company paid FMC a monthly fee for services rendered of $18,750. On February 24, 1999, the Agreement was extended until May 2000 at which point it was allowed to expire. Advisory fees incurred during the years ended December 31, 2000, 1999, and 1998 were $93,750, 225,000, and $225,000. (b) Employment Agreements The Company has employment agreements with certain key officers for either a three or five-year term. Annually, the contracts with a five-year term 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. (c) Other Commitments The Company had loan commitments outstanding at December 31, 2000 to various prospective qualified small businesses totaling approximately $46.0 million. A commitment to extend credit is a binding agreement to make a loan to a customer in the future if certain conditions are met and is subject to the same risk, credit review and approval process as a loan. These commitments are made in the ordinary course of the Company's business and in management's opinion, are generally on the same terms as those to existing borrowers. Commitments generally have fixed expiration dates. Of these commitments, approximately 45% will be sold pursuant to SBA guaranteed sales. Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In addition, the Company had approximately $16.7 million of undisbursed funds relating to revolving credit facilities. These amounts may be drawn upon at the customer's request if they meet certain credit requirements. Commitments for leased premises expire at various dates through June 30, 2006. At December 31, 2000, minimum rental commitments for non-cancelable leases are as follows: ======================================================== 2001 $818,583 2002 757,747 2003 691,910 2004 666,269 2005 and thereafter 999,403 -------------------------------------------------------- Total $3,933,912 ======================================================== Rent expense for the years ended December 31, 2000, 1999, and 1998 was approximately $1,029,000, 853,000, and $919,000. (d) Litigation The Company and its subsidiaries become defendants to various legal proceedings arising from the normal course of business. In the opinion of management, based on 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. (11) RELATED PARTY TRANSACTIONS Certain directors, officers and shareholders of the Company, are also directors of its wholly owned subsidiaries, MFC, BLL, Medallion Capital, MBC, Freshstart, and Media. Officer salaries are set by the Board of Directors. Media engaged in transactions to sell roof top advertising space to a company represented by a relative of a Media officer. All transactions were made under market conditions and pricing. During 2000, 1999, and 1998, a member of the Board of Directors of the Company was also a partner in the Company's primary law firm. (12) SHAREHOLDERS' EQUITY 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," $534,468 was reclassified from capital in excess of par F-19 value to accumulated undistributed net investment income at December 2000 in the accompanying consolidated balance sheets. Further, ($529,289) and $2,258,080 were reclassified from capital in excess of par value to accumulated undistributed net investment income at December 31, 1999 and 1998, respectively, in the accompanying consolidated balance sheets. These reclassifications had no impact on the Company's total shareholders' equity and were designed to present the Company's capital accounts on a tax basis. (13) OTHER OPERATING EXPENSES AND OTHER INCOME The major components of other operating expenses for the years ended December 31, 2000, 1999, and 1998 were as follows: 2000 1999 1998 ============================================================================== Rent $1,028,695 $852,884 $919,027 Insurance 285,689 273,036 735,150 Other 6,561,845 4,598,912 3,378,762 ============================================================================== Total $7,876,229 $5,724,832 $5,032,939 - ------------------------------------------------------------------------------ The major components of other income for the years ended December 31, 2000, 1999, and 1998 were as follows: 2000 1999 1998 - ------------------------------------------------------------------------------ Late charges $582,995 $580,727 $537,220 Prepayments 413,133 440,202 382,777 Loan servicing fee income 1,629,057 559,998 240,470 Other 752,644 664,839 502,162 ============================================================================== Total $3,377,829 $2,245,766 $1,662,629 - ------------------------------------------------------------------------------ (14) EMPLOYEE BENEFIT PLANS The Company has a 401(k) Investment Plan (the 401(k) Plan) which covers all full-time 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 Code. Employee contributions are invested in various mutual funds according to the directions of the employee. Beginning September 1, 1998, the Company elected to match employee contributions to the 401(k) Plan in an amount per employee up to one-third of such employee's contribution but in no event greater than 2% of the portion of such employee's annual salary eligible for 401(k) Plan benefits. For the years ended December 31, 2000, 1999, and 1998, the Company committed and expensed approximately $58,000, $67,000, and $8,000 to the 401(k) Plan. (15) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standard No. 107, "Disclosures About Fair Value of Financial Instruments" (SFAS 107) 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 instrument. Fair value estimates that 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. (a) Investments-The Company's investments are recorded at the estimated fair value of such investments. (b) Servicing fee receivable-The fair value of the servicing fee receivable is estimated based upon expected future service fee income cash flows discounted at a rate that approximates that currently offered for instruments with similar prepayment and risk characteristics. (c) Commercial paper, notes payable to banks, and senior secured notes-Due to the short-term nature of these instruments, the carrying amount approximates fair value. (d) 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 counter parties. 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, 2000 and 1999, the estimated fair value of these off-balance-sheet instruments was not material. F-20 (e) Interest rate cap agreements-The fair value is estimated based on market prices or dealer quotes. At December 31, 2000 and December 31, 1999, the estimated fair value of these off-balance-sheet instruments was not material. (f) SBA debentures payable-The fair value of the debentures payable to the SBA is estimated based on current market interest rates for similar debt.
December 31, 2000 December 31, 1999 ===================================================================================== (Dollars in thousands) Carrying Amount Fair Value Carrying Amount Fair Value - ------------------------------------------------------------------------------------- Financial Assets Investments $516,010 $516,010 $493,917 $493,917 Cash 15,653 15,653 7,459 7,459 Servicing fee receivable 6,632 6,632 4,879 4,879 Financial Liabilities Notes payable to banks 305,700 305,700 195,450 195,450 Commercial Paper 24,066 24,066 93,984 93,984 SBA debentures payable 21,360 21,360 22,770 22,770 Senior secured notes 45,000 45,000 45,000 45,000 =====================================================================================
F-21 MEDALLION FINANCIAL CORP. Consolidated Schedule of Investments December 31, 2000
- ---------------------------------------------------------------------------------------------- Number Principal Balance Contractual % Of Loans Outstanding Rate ---------- ------------------------ --------------------- 45 $11,767,129 7.50-7.74 85 27,217,587 7.75-7.99 152 34,278,418 8.00-8.24 174 33,977,262 8.25-8.49 319 37,774,811 8.50-8.74 174 29,215,803 8.75-8.99 251 35,527,944 9.00-9.24 48 7,981,436 9.25-9.49 127 12,986,862 9.50-9.74 57 5,891,982 9.75-9.99 246 11,562,678 10.00-10.24 20 1,051,415 10.25-10.49 145 5,851,637 10.50-10.74 39 11,206,375 10.75-10.99 118 20,814,299 11.00-11.24 74 11,050,517 11.25-11.49 135 32,623,997 11.50-11.74 148 18,435,203 11.75-11.99 466 52,907,902 12.00-12.24 504 32,047,426 12.25-12.49 79 14,793,634 12.50-12.74 13 3,329,520 12.75-12.99 142 28,893,963 13.00-13.24 35 5,815,090 13.25-13.49 31 3,433,838 13.50-13.74 16 1,074,968 13.75-13.99 62 2,249,164 14.00-14.24 4 257,190 14.25-14.49 57 1,999,389 14.50-14.74 9 4,787,792 14.75-14.99 124 4,097,995 15.00-15.24 10 262,907 15.50-15.74 7 1,047,411 15.75-15.99 25 1,349,751 16.00-16.24 6 141,099 16.50-16.74 3 82,971 16.75-16.99 8 2,444,134 17.00-17.24 5 247,535 17.50-17.74 3 4,771,982 17.75-17.99 9 1,663,429 18.00-18.24 10 139,011 19.00-19.24 1 81,704 19.25-19.49 1 64,641 20.50-23.99 1 10,207 24.00-24.24 - ----------------------------------------------------------------------------------------------- Total Loans 3,988 517,210,009 - ----------------------------------------------------------------------------------------------- Equities PMC 1,932,952 Cardinal Health 329,625 Kleener King Satellites 108,696 Micromedics 58,828 Arca 50,000 Other 72,161 ----------------------- Total Equities 9 2,552,262 --------- ----------------------- Total Investments 3,997 519,762,271 --------- Plus: Origination costs, net 1,802,702 ----------------------- Investments, at cost 521,564,973 Less: Unrealized depreciation on investments 7,411,367 - ----------------------------------------------------------------------------------------------- Total investments, at Board of Directors $514,153,606 valuation ===============================================================================================
The accompanying notes are an integral part of this consolidated schedule. F-22 MEDALLION FINANCIAL CORP. Consolidated Schedule of Investments December 31, 1999
- ------------------------------------------------------------------------------------------------ Number of Balance Contractual Loans Outstanding % rate ------------ --------------------------------- ------------------- 1 $ 5,050 5 9 1,519,559 6.88-6.94 1 402,929 7.25 54 9,001,891 7.50-7.63 114 33,550,228 7.75-7.94 245 62,017,538 8.00-8.24 189 37,423,528 8.25-8.49 360 51,239,688 8.50-8.74 257 35,637,965 8.75-8.99 271 25,342,237 9.00-9.24 63 5,700,950 9.25-9.49 132 11,494,056 9.50-9.74 47 6,357,896 9.75-9.99 142 18,714,010 10.00-10.24 31 5,310,674 10.25-10.49 155 17,879,822 10.50-10.74 97 11,801,818 10.75-10.99 213 25,277,728 11.00-11.24 463 30,725,089 11.25-11.49 77 10,819,931 11.50-11.74 63 9,527,922 11.75-11.99 294 25,080,752 12.00-12.24 12 1,460,990 12.25-12.49 31 2,382,881 12.50-12.74 9 1,819,457 12.75-12.99 215 24,780,315 13.00-13.24 28 1,169,729 13.25-13.49 29 2,243,626 13.50-13.74 18 2,600,092 13.75-13.99 102 3,381,115 14.00-14.24 7 597,066 14.25-14.49 58 2,072,177 14.50-14.74 12 396,466 14.75-14.99 217 6,029,543 15.00-15.24 1 653,087 15.25-15.49 14 402,240 15.50-15.74 6 686,161 15.75-15.99 21 708,365 16.00-16.24 2 24,400 16.25-16.49 9 317,398 16.50-16.74 4 107,571 16.75-16.99 8 3,231,554 17.00-17.24 1 23,460 17.25-17.49 2 83,960 17.50-17.74 2 84,379 17.75-17.99 20 3,806,737 18.00-18.24 5 84,238 19.00-19.24 - ------------------------------------------------------------------------------------------------ Total Loans 4,111 493,978,267 - ------------------------------------------------------------------------------------------------ Equities PMC 1,992,022 Cardinal Health 329,625 Kleener King Satellites 108,696 Micromedics 58,828 Arca 50,000 Other 66,718 - ------------------------------------------------------------------------------------------------ Total Equities 11 2,605,889 N/A - ------------------------------------------------------------------------------------------------ Total Investments 4,122 496,584,156 - ------------------------------------------------------------------------------------------------ Plus: Origination costs, net 2,552,922 - ------------------------------------------------------------------------------------------------ Investments, at cost 499,137,078 - ------------------------------------------------------------------------------------------------ Less: Unrealized depreciation on investments 9,569,882 - ------------------------------------------------------------------------------------------------ Total investments, at Board of $489,567,196 Directors valuation ================================================================================================
The accompanying notes are an integral part of this consolidated schedule. F-23 EX-10.55 2 dex1055.txt AMENDMENT #1 TO RESTATED LOAN DATED MARCH 30, 2001 EXHIBIT 10.55 AMENDMENT NO. 1 TO SECOND AMENDED AND ------------------------------------- RESTATED LOAN AGREEMENT AND LIMITED WAIVER ------------------------------------------ AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED LOAN AGREEMENT AND LIMITED WAIVER dated as of March 30, 2001 (this "Amendment"), by and among MEDALLION --------- FINANCIAL CORP., a Delaware corporation ("MFC"), MEDALLION BUSINESS CREDIT, LLC, --- a Delaware limited liability company ("MBC"; MBC and MFC are sometimes --- hereinafter referred to individually as a "Borrower" and together as the -------- "Borrowers"), the lending institutions that are listed on the signature pages - ---------- hereto, FLEET NATIONAL BANK (f/k/a Fleet Bank, National Association), as a Bank ("Fleet"), as Swing Line Lender (the "Swing Line Lender"), as Arranger and as ----- ----------------- Agent for the Banks (including any successor, the "Agent"), amending the Loan Agreement (as defined below). WHEREAS, the Borrowers, the banks and other lending institutions that from time to time are signatories thereto (including Assignees, collectively, the "Banks" and individually, a "Bank"), the Agent and the Swing Line Lender are - ------ ---- parties to a Second Amended and Restated Loan Agreement dated as of September 22, 2000 (as amended and in effect from time to time, the "Loan Agreement", -------------- capitalized terms defined therein having the same meanings herein as therein), pursuant to which the Banks have extended credit to the Borrowers on the terms and subject to the conditions set forth therein; and WHEREAS, the Borrowers have requested an amendment of, and, subject to the terms and conditions set forth herein, the Borrowers, the Banks, the Agent and the Swing Line Lender have agreed to amend, the Loan Agreement as set forth herein; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to amend the Loan Agreement as follows: 1. Amendments to Definitions. Section 1.1 of the Loan Agreement is hereby ------------------------- amended by: (a) deleting the following definitions in their entirety and substituting in lieu thereof the following new definitions: "Applicable LIBOR Margin" means 1.50% in the case of all LIBOR Rate ----------------------- Loans that are also Revolving Credit Loans, and 1.50% in the case of any LIBOR Rate Loan that is a Term Loan. "Loan Documents" shall mean and include this Agreement, the Revolving -------------- Credit Notes, the Term Notes, the Swing Line Notes, the Security Agreement, any Mortgage Assignment, the Borrower Financing Statements, the Borrowing Base Certificates, the Fee Letter, the Guaranty, and the Collateral Agency Agreement and each other document, instrument or agreement executed pursuant to, or in connection with, any Loan Document. -2- "MFC Borrowing Base" shall mean, as determined pursuant to the most ------------------ recently required Borrowing Base Certificate: (i) cash and Short Term Investments shown on MFC's balance sheet as of such date, plus ---- (ii) 83.3% of the aggregate outstanding principal balances of, plus accrued interest on, all of MFC's Eligible Medallion Loans from time to time outstanding that are Retained Loans, plus ---- (iii) 75% of the aggregate outstanding principal balances of, plus accrued interest on, all of MFC's Eligible Commercial Loans other than Section 7a Loans from time to time outstanding that are Retained Loans; plus ---- (iv) 75% of the aggregate outstanding principal balances of, plus accrued interest on, all of MFC's Eligible Section 7a Loans purchased from Business Lenders, LLC from time to time outstanding that are Retained Loans; plus ---- (v) 83.3% of the Eligible Yellow Cab Loan; provided, that, if all or any part of any Loan would be excluded as an -------- ---- Eligible Commercial Loan, Eligible Medallion Loan, Eligible Yellow Cab Loan or Eligible Section 7a Loan under any of the provisions of this Agreement, then the entire outstanding principal amount of, plus accrued interest on, such Loan shall be excluded. (b) inserting, in the places required by alphabetical order, the following new definitions: "Amendment No. 1" shall mean Amendment No. 1 to Second Amended and --------------- Restated Loan Agreement and Limited Waiver dated as of March 30, 2001 among the Borrower, the Agent, the Swing Line Lender and the Banks. "Amendment No. 1 Effective Date" shall mean the "Effective Date", as ------------------------------ defined in Amendment No. 1. "Collateral Agency Agreement" shall mean the Collateral Agency --------------------------- Agreement, by and among the collateral agent named therein, the Agent, the Banks, the Senior Note Holders and the administrative agent and the banks party to the Funding Agreement. "Eligible Yellow Cab Loan" shall mean, with respect to the Yellow Cab ------------------------ Loan, the portion of the outstanding principal balance of, plus accrued interest (excluding deferred interest) on the Yellow Cab Loan owed to MFC and attributable to the portion of the Yellow Cab Loan made by MFC; provided, that, the Yellow Cab Loan shall not be an Eligible Yellow Cab -------- Loan (i) if MFC, in its reasonable business judgment, deems such Eligible Yellow Cab Loan to be uncollectible or subject to classification as non- accruing and for which it has not -3- made appropriate credits to its reserves or (ii) if the outstanding principal amount of the Yellow Cab Loan or interest thereon is more than 60 days past due. "Funding Agreement" shall mean the Amended and Restated Loan Agreement ----------------- dated as of December 24, 1997, by and among Medallion Funding, the lenders party thereto, Fleet National Bank, as swing line lender, administrative agent, arranger and collateral agent and The Bank of New York, as documentation agent, as amended and in effect from time to time. "Guarantor" shall mean Medallion Taxi Media, Inc., a New York --------- corporation. "Guaranty" shall mean the Guaranty from the Guarantor in favor of the -------- Agent and the Banks, guaranteeing the payment and performance of the obligations owing by the Borrowers to the Agent and the Banks pursuant to the Loan Documents. "Yellow Cab Loan" shall mean the Medallion Loan made to Yellow Cab --------------- Management, Inc., secured by Medallion Rights in respect of Chicago Medallions, that (a) satisfies the Eligibility Requirements (other than, with respect to the requirement set forth in subsection (f) thereof, by virtue of the subordination provisions of the Yellow Cab Loan), provided -------- that, with respect to the requirement set forth in subsection (g) thereof, the endorsement on any promissory note evidencing the Yellow Cab Loan explicitly state that any pledge thereof is subject to the requirements of any relevant participation agreement, (b) does not exceed, with respect to the portion thereof owed to MFC and attributable to the portion of the Yellow Cab Loan made by MFC, an aggregate principal amount of $1,190,000, and (c) matures no later than March 1, 2003. 2. Addition of Article 2A to the Loan Agreement. The Loan Agreement is -------------------------------------------- hereby amended by adding the following new Article 2A: "ARTICLE 2A. COLLATERAL SECURITY; GUARANTY. The obligations of the Borrowers under this Agreement shall be secured by a perfected first priority security interest (subject only to Liens permitted hereunder and entitled to priority under applicable law (including Liens in favor of the "Agent" (as defined in the Funding Agreement) under the Funding Agreement to secure the obligations thereunder) and to the Collateral Agency Agreement) in substantially all of the assets of each Borrower, whether now owned or hereafter acquired and wherever located, pursuant to the terms of the Security Agreement, including a pledge by each of the Borrowers of one hundred percent (100%) of the capital stock owned by such Borrower of each of its Subsidiaries, subject to limitations imposed by applicable law with respect to any particular Subsidiary, and to the receipt of consents (including lender consents) as may be required under other loan documents for any particular Subsidiary, provided that the Borrowers -------- -4- shall have used their best efforts to obtain such consents, with the Borrowers acknowledging that the stock of the Guarantor requires no such consent. Following the Borrowers' compliance with the requirements of Section 15 of Amendment No. 1, the obligations of the Borrowers under this Agreement and the other Loan Documents shall also be guaranteed by the Guarantor pursuant to the terms of the Guaranty (subject to the terms of the Collateral Agency Agreement); provided, -------- however, that the Guaranty shall provide that, with the prior written ------- consent of the Agent and the Required Banks, which consent shall not be conditioned on any requirement to repay Indebtedness, such Guaranty shall be released upon any sale, transfer, public offering, merger, consolidation or other similar event involving the change of at least 33% of the legal and beneficial ownership of the Guarantor. 3. Amendment of Section 4.22 of the Loan Agreement. Section 4.22 of the ----------------------------------------------- Loan Agreement is hereby amended deleted in its entirety and the following new Section 4.22 is hereby substituted in lieu thereof: "Section 4.22. Priority; Continued Effectiveness. --------------------------------- Except as otherwise permitted hereunder, the Agent, for the ratable benefit of the Banks and the Swing Line Lender, has or will have, following the Borrowers' compliance with the requirements of Section 15 of Amendment No. 1, a valid and perfected first priority security interest (subject to the terms of the Collateral Agency Agreement) in and to all Collateral, enforceable against each Borrower and all third parties in all relevant jurisdictions and securing the payment of the Revolving Credit Loans, Swing Line Loans and Term Loans and all other sums payable under or in connection with the Loan Documents. The Security Agreement is effective to create in favor of the Agent, for the ratable benefit of the Banks, the Swing Line Lender and the CP Holders, a valid and perfected first priority (subject to the terms of the Collateral Agency Agreement and except as otherwise permitted hereunder) security interest in and to the Collateral described therein securing the payment of the Revolving Credit Loans, Swing Line Loans and Term Loans and all other sums payable under or in connection with the Loan Documents, whether incurred prior to or after the Amendment No. 1 Effective Date. No additional Borrower Financing Statements are required to be filed in order to maintain the perfection and priority of the security interests created pursuant to the Security Agreement. 4. Amendment of Article 6 of the Loan Agreement. Article 6 of the Loan -------------------------------------------- Agreement is hereby amended by adding in proper numerical order therein the following new Sections 6.20, 6.21 and 6.22: "Section 6.20. M.R. Weiser, etc. The Borrowers agree to retain M.R. ---------------- Weiser, Inc. to assist in the preparation of each Borrowing Base Certificate and to provide reporting requested by the Agent with respect thereto and the Borrowers shall assist and fully cooperate with M.R. Weiser, Inc. to provide all necessary or appropriate information promptly following any request therefor. -5- Section 6.21. CFO. Each of the Borrowers shall retain a full-time --- chief financial officer, or an interim chief financial officer (or a firm performing such function), by May 1, 2001. Section 6.22. Effectiveness of Loan Documents. The Borrowers shall ------------------------------- ensure that each of the Loan Documents, including, once executed and delivered, the Guaranty, shall be in full force and effect, and not cancelled, terminated, revoked or rescinded, in each case otherwise than in accordance with the terms thereof or Section 4.5 hereof, or with the express prior written agreement, consent or approval of the Banks, and shall further ensure that no Borrower or any of its Subsidiaries or respective stockholders shall commence any action at law or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents." 5. Amendment of Section 8.3 of the Loan Agreement. Subsections 8.3(c), ---------------------------------------------- (e) and (g) of the Loan Agreement are hereby deleted in their entirety and the following new subsections 8.3(c), (e) and (g), respectively, are hereby substituted in lieu thereof: "(c) Make, or obligate itself to make, any Loan if, after giving effect to such Loan (i) with respect to MFC, the aggregate outstanding principal amount of all Loans made to any one Person together with its Affiliates would exceed 20% of Unconsolidated Tangible Net Worth of MFC, and (ii) with respect to MBC, the aggregate outstanding principal amount of all Loans made to any one Person together with its Affiliates would exceed $3,500,000. (e) Make any Investment (including by way of the acquisition of any Person) in any Subsidiary or Affiliate, or any Person that after taking into account such Investment would become a Subsidiary or Affiliate, other than (i) Investments of MFC in MBC or of MBC in MFC, (ii) Investments existing on the Second Restatement Effective Date and listed on Schedule -------- III hereto, (iii) Investments by MFC in BL of up to $10,000,000 arising --- from the conversion of accounts receivable owed by BL to MFC into an equity contribution into BL, and (iv) Investments by MFC in Freshstart Venture Capital Corp. and Medallion Capital, Inc., which shall not exceed an aggregate amount of $5,000,000 for either such Investment (an aggregate amount of $10,000,000 for both such Investments). (g) Sell, discount or otherwise dispose of Loans or any Collateral; sell, discount or otherwise dispose of other Receivables or obligations owing to a Borrower or any of its Subsidiaries, with or without recourse, otherwise than (i) in connection with the grant of any participation in accordance with and to the extent permitted by Section 2.14 hereof, (ii) for collection in the ordinary course of business, (iii) to the Agent for the benefit of the Banks and, with respect to the pledged shares of the Guarantor and for so long as the Collateral Agency Agreement is in effect, the Collateral Agent, for the benefit of the Banks, the Senior Noteholders and the CP Holders, or (iv) Loans disposed of to Affiliates for cash for a price at least equal to the outstanding principal amount thereof (without discount thereon)." -6- 6. Amendment of Section 8.16 of the Loan Agreement. Section 8.16 of the ----------------------------------------------- Loan Agreement is hereby deleted in its entirety and the following new Section 8.16 is hereby substituted in lieu thereof: "8.16. Portfolio Purchase. Make, or obligate itself to make, any ------------------ Portfolio Purchase." 7. Amendment of Article 8 of the Loan Agreement. Article 8 of the Loan -------------------------------------------- Agreement is hereby amended by adding in proper numerical order therein the following new Section 8.17: "8.17. Amendment of Agreements. The Borrowers will not amend, ----------------------- waive or otherwise modify any provision of the Note Purchase Agreement, without the prior written consent of the Agent and the Required Banks except to the extent that any such amendment, waiver or other modification shall not have a material adverse effect on the interests of the Banks and the Agent." 8. Amendment to Schedules to the Loan Agreement. The Schedules to the -------------------------------------------- Loan Agreement are hereby amended by deleting Schedule III in its entirety and substituting in lieu thereof Schedule III attached hereto. 9. Waiver of Section 7.4 of the Loan Agreement. Each of the Required ------------------------------------------- Banks hereby waives the Borrowers' compliance with the covenant set forth in (S)7.4 of the Loan Agreement for the fiscal quarter ended December 31, 2000; provided, however, that (a) the ratio of (i) the sum of Consolidated EBIT of MFC - -------- ------- for such fiscal quarter plus Consolidated Interest Expense of MFC for such ---- fiscal quarter to (ii) Consolidated Interest Expense of MFC for such fiscal quarter shall not be less than 1.49:1, and (b) the ratio of (i) the sum of Unconsolidated EBIT of MFC for such fiscal quarter plus Unconsolidated Interest ---- Expense of MFC for such fiscal quarter plus Unconsolidated EBIT of MBC for such ---- fiscal quarter plus Unconsolidated Interest Expense of MBC for such fiscal ---- quarter to (ii) the sum of Unconsolidated Interest Expense of MFC for such fiscal quarter plus Unconsolidated Interest Expense of MBC for such fiscal ---- quarter shall not be less than 1.07:1. 10. Waiver of Section 8.3(c) of the Loan Agreement. Each of the Required ---------------------------------------------- Banks hereby waives MBC's compliance with the covenant set forth in (S)8.3(c) of the Loan Agreement for the fiscal quarter ended December 31, 2000; provided, -------- however, that MBC shall not have made, or obligated itself to make, any Loan if, - ------- after giving effect to such Loan the aggregate outstanding principal amount of all Loans made to any one Person together with its Affiliates exceeded $3,500,000. 11. Waiver of Section 9.1(e) of the Funding Agreement. The Funding ------------------------------------------------- Agreement requires Medallion Funding to ensure that the ratio of Net Finance Assets (as defined in the Funding Agreement) to the sum of Senior Debt and SBA Debt (each as defined in the Funding Agreement) is not less than 1.20:1 at all times and to pay down any amount by which Minimum Asset Coverage (as defined in the Funding Agreement) exceeds Net Finance Assets (as defined in the Funding Agreement). Medallion Funding has reported that from January 1, 2000 through the date hereof, it has not complied, and may not comply from the Effective Date until June 30, 2001, -7- with such requirements as a result of the 2000 Forbearance Events and the 2001 Forbearance Events (each as defined in Amendment No. 4 (as defined in the Funding Agreement)) but has instead, for the period from and after January 1, 2001 through the date hereof, complied with, and for the period from and after the date hereof until June 30, 2001, agreed that it will comply with, the covenant set forth in Section 1 of Amendment No. 4 (as defined in the Funding Agreement). Each of the Agent and the Banks hereby waives (without changing the provisions of Section 9.1 of the Loan Agreement or the definition of Event of Default therein) any Default or Event of Default which may have occurred or may occur under Section 9.1(e) or (f) of the Loan Agreement (to the extent that Section 9.1(f) may be deemed to apply to the Funding Agreement) as a result of the occurrence of the 2000 Forbearance Events or the 2001 Forbearance Events (each as defined in Amendment No. 4 (as defined in the Funding Agreement)), for so long as and to the extent that the Banks under the Funding Agreement are required to forbear from the exercise of certain of their rights and remedies under and pursuant to Section 1 of Amendment No. 4 (as defined in the Funding Agreement). 12. Consent to Note Purchase Agreement Amendment. Each of the Required -------------------------------------------- Banks hereby consents to the amendment of the Note Purchase Agreement in form and substance satisfactory to the Agent for purposes of Section 8.10 of the Loan Agreement. 13. Representations and Warranties. Each of the Borrowers hereby ------------------------------ represents and warrants to the Agent and the Banks as of the date hereof, and as of any date on which the conditions set forth in Section 14 below are met, as follows: (a) The execution and delivery by each of the Borrowers of this Amendment and all other instruments and agreements required to be executed and delivered by each of the Borrowers in connection with the transactions contemplated hereby or referred to herein (collectively, the "Amendment --------- Documents"), and the performance by each of the Borrowers of any of its --------- obligations and agreements under the Amendment Documents and the Loan Agreement and the other Loan Documents, as amended hereby, are within the corporate or other authority of each of the Borrowers, as the case may be, have been authorized by all necessary corporate proceedings on behalf of each of the Borrowers, as the case may be, and do not and will not contravene any provision of law or of the Borrowers' charter, other incorporation or organizational papers, by-laws or any stock provision or any amendment thereof or of any indenture, agreement, instrument or undertaking binding upon the Borrowers. (b) Each of the Amendment Documents and the Loan Agreement and other Loan Documents, as amended hereby, to which any of the Borrowers is a party constitutes a legal, valid and binding obligation of such Person, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditors' rights. (c) No approval or consent of, or filing with, any governmental agency or authority is required to make valid and legally binding the execution, delivery or performance by each of the Borrowers of the Amendment Documents or the Loan -8- Agreement or other Loan Documents, as amended hereby, or the consummation by each of the Borrowers of the transactions among the parties contemplated hereby and thereby or referred to herein. (d) The representations and warranties contained in Article 4 of the Loan Agreement and in the other Loan Documents were true and correct at and as of the date made. Except to the extent of changes resulting from transactions contemplated or permitted by the Loan Agreement and the other Loan Documents, changes occurring in the ordinary course of business (which changes, either singly or in the aggregate, have not been materially adverse) and to the extent that such representations and warranties relate expressly to an earlier date and after giving effect to the provisions hereof, such representations and warranties, after giving effect to this Amendment, also are correct at and as of the date hereof. (e) Each of the Borrowers has performed and complied in all material respects with all terms and conditions herein required to be performed or complied with by it prior to or at the time hereof, and as of the date hereof, after giving effect to the provisions of this Amendment and the other Amendment Documents, there exists no Event of Default or Default. (f) Each of the Borrowers acknowledges and agrees that the representations and warranties contained in this Amendment shall constitute representations and warranties referred to in Section 4 of the Loan Agreement, a breach of which shall constitute an Event of Default. 14. Effectiveness. This Amendment shall become effective as of the date ------------- first written above (the "Effective Date") upon the satisfaction of each of the following conditions, in each case in a manner satisfactory in form and substance to the Agent; provided that upon such satisfaction of each of the -------- following conditions, (i) the revision to "Applicable LIBOR Margin" in Section 1(a) hereof shall become effective as of February 1, 2001, and (ii) the revisions to "MFC Borrowing Base" and additions of "Eligible Yellow Cab Loan" and "Yellow Cab Loan" in Sections 1(a) and (b) hereof shall become effective as of the date the Yellow Cab Loan was first included in the MFC Borrowing Base: (a) This Amendment shall have been duly executed and delivered by each of the Borrowers and the Required Banks and shall be in full force and effect. (b) The Agent shall have received evidence of the effectiveness of an amendment of the Funding Agreement, in the form attached hereto as Exhibit A. (c) The Agent shall have received, for the pro rata account of each Bank --- ---- which executes and delivers its signature pages to the Agent, by 5:00 p.m. Boston time on March 30, 2001 in facsimile (to be followed by originals) or original form, an amendment fee equal in the aggregate to 0.05% of each such Bank's Revolving Credit Commitment. -9- (d) Such other items, including legal fees of counsel to the Agent, documents, agreements or actions as the Agent may reasonably request in order to effectuate the transactions contemplated hereby. 15. Post-Closing Matters. Each of the Borrowers agrees to take the -------------------- following actions and deliver the following items to the Agent no later than April 30, 2001: (a) The Borrowers shall deliver to the Agent, from each of the parties thereto, duly executed originals of each of the Guaranty, the Collateral Agency Agreement and, if and to the extent deemed necessary or appropriate by the Agent, an amendment to the Intercreditor Agreement (the "New Security Documents"), each in form and substance satisfactory to the Agent; (b) The Borrowers shall deliver to the Agent, from the Secretary of the Guarantor a copy, certified by such Secretary to be true and complete as of such date, of (i) its charter or other organizational documents as in effect on such date of certification, (ii) its by-laws as in effect on such date, and (iii) the resolutions of its Board of Directors or other management authorizing, to the extent it is a party thereto, the execution, delivery and performance of the New Security Documents; provided, however, that in lieu of providing the items -------- ------- required by subsections (i) and (ii) of this subsection (b), such Secretary may certify, to the extent true and correct, that charter documents and by-laws previously provided to the Agent are true and correct as of such date and have not been amended, rescinded or revoked; (c) The Borrowers shall deliver to the Agent, from the Guarantor, an incumbency certificate, dated as of such date, signed by a duly authorized officer of such Person and giving the name and bearing a specimen signature of each individual who shall be authorized to sign, in the name and on behalf of such Person, the New Security Documents; (d) The Borrowers shall deliver to the Agent, from the Guarantor, good standing certificates for such Person, issued by the Secretary of State of such entity's jurisdiction of incorporation or organization, and evidence that such Person is duly licensed and qualified as a foreign organization in good standing under the laws of each jurisdiction where the failure to qualify as such would have a Material Adverse Effect; (e) The Borrowers shall deliver to the Agent a favorable legal opinion addressed to the Agent and the Banks, dated as of such date, in form and substance satisfactory to the Agent, from counsel to the Guarantor, with respect to such Person concerning corporate or other applicable entity authority matters and the enforceability of each of the Guaranty and the Collateral Agency Agreement and concerning such other matters as the Administrative Agent may request; (f) The Borrowers shall deliver to the Agent, from each of the parties thereto, duly executed originals of each of the Guaranty and the Collateral Agency Agreement, each in form and substance satisfactory to the Agent; -10- (g) The Agent shall have received the results of such UCC filing searches for the Guarantor as the Agent shall have requested. (h) The Collateral Agent shall possess all stock certificates or other certificates evidencing MFC's equity interests in the Guarantor, together wish undated stock powers or other instruments of endorsement duly executed in blank. (i) Such other items, documents, agreements, items or actions as the Agent may reasonably request in order to effectuate the transactions contemplated hereby. Each of the Borrowers acknowledges and agrees that the failure to deliver any of the above-referenced items, or take the above-referenced actions, by April 30, 2001, shall constitute an Event of Default under Section 9.1(b) of the Loan Agreement. 16. Release. In order to induce the Agent and the Banks to enter into ------- this Amendment, each of the Borrowers, on behalf of itself and its Subsidiaries, acknowledges and agrees that: (a) such Person does not have any claim or cause of action against the Agent or any Bank (or any of its respective directors, officers, employees or agents); (b) such Person does not have any offset right, counterclaim or defense of any kind against any of its respective obligations, indebtedness or liabilities to the Agent or any Bank; and (c) each of the Agent and the Banks has heretofore properly performed and satisfied in a timely manner all of its obligations to such Person. Each of the Borrowers, on behalf of itself and its Subsidiaries, wishes to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the Agent's and the Banks' rights, interests, contracts, collateral security or remedies. Therefore, each of the Borrowers, on behalf of itself and its Subsidiaries, unconditionally releases, waives and forever discharges (x) any and all liabilities, obligations, duties, promises or indebtedness of any kind of the Agent or any Bank to such Person, except the obligations to be performed by the Agent or any Bank on or after the date hereof as expressly stated in this Amendment, the Loan Agreement and the other Loan Documents, and (y) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether arising at law or in equity, whether known or unknown, which such Person might otherwise have against the Agent, any Bank or any of its directors, officers, employees or agents, in either case (x) or (y), on account of any past or presently existing condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind. 17. Miscellaneous Provisions. ------------------------ (a) Each of the Borrowers hereby ratifies and confirms all of its obligations to the Agent and the Banks under the Loan Agreement, as amended hereby, and the other Loan Documents, including, without limitation, the Loans, and each of the Borrowers hereby affirms its absolute and unconditional promise to pay to the Banks and the Agent the Revolving Credit Loans, the Term Loans, the Swing Line Loans, reimbursement obligations and all other amounts due or to become due and payable to the Banks and the Agent under the Loan Agreement and the other Loan Documents, as amended hereby. Except as expressly amended hereby, each of the Loan Agreement and the other Loan Documents shall continue in full force and effect. This Amendment and the Loan Agreement shall -11- hereafter be read and construed together as a single document, and all references in the Loan Agreement, any other Loan Document or any agreement or instrument related to the Loan Agreement shall hereafter refer to the Loan Agreement as amended by this Amendment. (b) No consent or waiver herein granted shall extend to or affect any obligations not expressly herein consented to or waived or shall impair any right of the Agent or the Banks consequent thereon. No consent or waiver herein granted shall extend beyond the term expressly set forth herein for such consent or waiver, nor shall anything contained herein be deemed to imply any willingness of the Agent or the Banks to agree to, or otherwise prejudice any rights of the Agent and the Banks with respect to, any similar consents or waivers that may be requested for any future period. (c) Without limiting the expense reimbursement requirements set forth in Section 10.6 of the Loan Agreement, each of the Borrowers agrees to pay on demand all costs and expenses, including reasonable attorneys' fees, of the Agent incurred in connection with this Amendment. (d) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CONFLICT OF LAWS). (e) This Amendment may be executed in any number of counterparts, and all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. -12- IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Amendment to be executed on its behalf by its officer thereunto duly authorized, as of the date first above written. MEDALLION FINANCIAL CORP. By: _________________________________ Name: Alvin Murstein Title: Chief Executive Officer By: _________________________________ Name: Larry D. Hall Title: Corporate Controller MEDALLION BUSINESS CREDIT, LLC By: _________________________________ Name: Alvin Murstein Title: Chief Executive Officer By: _________________________________ Name: Larry D. Hall Title: Corporate Controller FLEET NATIONAL BANK (f/k/a Fleet Bank, National Association), as Agent, as Swing Line Lender and as one of the Banks By: _________________________________ Name: Title: -13- HSBC BANK USA By: _________________________________ Name: Title: CITIZENS BANK By: _________________________________ Name: Title: THE BANK OF NEW YORK By: _________________________________ Name: Title: THE CHASE MANHATTAN BANK By: _________________________________ Name: Title: ISRAEL DISCOUNT BANK OF NEW YORK By: _________________________________ Name: Title: By: _________________________________ Name: Title: -14- EUROPEAN AMERICAN BANK By: _________________________________ Name: Title: BANK LEUMI By: _________________________________ Name: Title: THE BANK OF TOKYO By: _________________________________ Name: Title: -15- Schedule 3 ---------- Medallion Financial Corp. Investment in Subsidiaries December 31, 2000
- ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Investment in Subsidiaries - ------------------------------------------------------------------------------------------------ Equity in Medallion Funding Corp. $ 50,541,390.96 - ------------------------------------------------------------------------------------------------ Equity in Medallion Capital Corp. 17,798,176.72 - ------------------------------------------------------------------------------------------------ Equity in Edwards Capital Corp. 15,439,943.09 - ------------------------------------------------------------------------------------------------ Equity in Transportation Capital Corp. 9,719,481.77 - ------------------------------------------------------------------------------------------------ Equity in Freshstart Venture Capital 6,944,861.23 - ------------------------------------------------------------------------------------------------ Equity in BLLC 6,398,947.64 - ------------------------------------------------------------------------------------------------ Equity in MBC 3,261,858.45 - ------------------------------------------------------------------------------------------------ Equity 2,000.00 - ------------------------------------------------------------------------------------------------ Total Investments in Subsidiaries $110,106,659.86 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Investments in Unconsolidated Subsidiary - ------------------------------------------------------------------------------------------------ Total Investments in Unconsolidated Subsidiary $ 1,856,421.31 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Intercompany Receivables - ------------------------------------------------------------------------------------------------ Intercompany - MBC $ 37,263,991.05 - ------------------------------------------------------------------------------------------------ Loan Receivable - BLI 16,714,478.37 - ------------------------------------------------------------------------------------------------ Interest Receivable - BLI 6,541,171.95 - ------------------------------------------------------------------------------------------------ Interest Receivable - MBC 3,913,165.30 - ------------------------------------------------------------------------------------------------ Intercompany - Medallion Funding 2,583,139.08 - ------------------------------------------------------------------------------------------------ Intercompany - BLI 897,762.57 - ------------------------------------------------------------------------------------------------ Intercompany - Medallion Capital 358,633.97 - ------------------------------------------------------------------------------------------------ Intercompany - Freshstart 116,574.27 - ------------------------------------------------------------------------------------------------ Intercompany - TCC (6,626,033.94) - ------------------------------------------------------------------------------------------------ Intercompany - Edwards (8,358,159.11) - ------------------------------------------------------------------------------------------------ Total Intercompany Receivables $ 53,404,723.51 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Total Investment in Subsidiaries $165,367,804.68 - ------------------------------------------------------------------------------------------------
-16- Exhibit A --------- [Funding Amendment] EX-10.56 3 dex1056.txt AMENDMENT #4 TO AMENDED AND RESTATED LOAN AGREEMENT EXHIBIT 10.56 AMENDMENT NO. 4 TO AMENDED AND ------------------------------ RESTATED LOAN AGREEMENT ----------------------- AND CONSENT ----------- AMENDMENT NO. 4 TO AMENDED AND RESTATED LOAN AGREEMENT AND CONSENT dated as of March 30, 2001 (this "Amendment"), by and among MEDALLION FUNDING CORP., a --------- New York corporation (the "Borrower"), the banks that from time to time are -------- signatories thereto (including Assignees (as hereinafter defined), collectively, the "Banks" and individually, a "Bank"), FLEET NATIONAL BANK (f/k/a Fleet Bank, ----- ---- National Association), as a Bank ("Fleet"), as Swing Line Lender (the "Swing ----- ----- Line Lender"), as Arranger and as Agent for the Banks (including any successor, - ----------- the "Agent"). WHEREAS, the Borrower, the Banks, the Agent and the Swing Line Lender are parties to an Amended and Restated Loan Agreement dated as of December 24, 1997 (as amended and in effect from time to time, the "Loan Agreement," capitalized -------------- terms defined therein having the same meanings herein as therein), pursuant to which the Banks have extended credit to the Borrower on the terms and subject to the conditions set forth therein; WHEREAS, the Loan Agreement requires the Borrower to ensure that the ratio of Net Finance Assets to the sum of Senior Debt and SBA Debt is not less than 1.20:1 at all times and to pay down any amounts by which Minimum Asset Coverage at any time exceeds Net Finance Assets, and the Borrower has failed to comply with such requirements to the extent described below; WHEREAS, the Borrower has requested that the Agent and the Banks (a) forbear from exercising certain of their rights and remedies resulting from such failures to comply with such requirements, and (b) amend the Loan Agreement so as to make certain revisions; WHEREAS, subject to the terms and conditions hereof, certain of the Banks are willing to extend such forbearance and permit such revisions; and WHEREAS, subject to the terms and conditions set forth herein, the Borrower, the Banks, the Agent and the Swing Line Lender have agreed to amend the Loan Agreement as set forth herein; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to forbear and to amend the Loan Agreement as follows: 1. Forbearance. Upon the satisfaction of each of the conditions precedent ----------- set forth in Section 14 hereof, each of the Agent and the Required Banks hereby agrees, for so long as (a) no Default or Event of Default (other than the 2000 Forbearance Events and the 2001 Forbearance Events, each as defined below), has occurred and is continuing and (b) the Borrower complies with the requirements contained in this -2- Section 1, (w) to forbear from enforcing any of its rights and remedies under Section 9.2 of the Loan Agreement or under any of the other Loan Documents arising solely as a result of the occurrence of any of the 2000 Forbearance Events or the 2001 Forbearance Events, (x) the Agent and the Banks will not demand accelerated payment of the obligations under Section 9.1 of the Loan Agreement or otherwise cause any of such obligations to become immediately due and payable, except that the Borrower shall in any event continue to be required to make any and all payments (other than payments required by Section 2.5(c) solely as a result of any of the 2000 Forbearance Events or the 2001 Forbearance Events) that are provided for in the Loan Documents and this Amendment when and as the same are due and payable pursuant to the terms of the Loan Documents and this Amendment, (y) compliance with Sections 5.2 (a) (solely with respect to Section 4.20 of the Loan Agreement as a result of the occurrence of the 2000 Forbearance Events and the 2001 Forbearance Events), (b) and (d) of the Loan Agreement shall be determined without regard to the 2000 Forbearance Events and the 2001 Forbearance Events, and (z) the Agent and the Banks will not terminate the lending and other credit commitments of the Agent and the Banks under the Loan Agreement prior to the scheduled expiration and termination thereof upon the Maturity, except that all such lending and other credit commitments of the Agent and the Banks under the Loan Documents shall in any event terminate and expire when and as the same are scheduled to do so, pursuant to the terms of the Loan Agreement and this Amendment. So long as no Default or Event of Default, other than the 2000 Forbearance Events or 2001 Forbearance Events, has occurred and is continuing, nothing herein shall be deemed to prevent the Borrower from exercising any right or taking any action otherwise permitted by the Loan Agreement or the other Loan Documents, which such right or action is conditioned upon the absence of any Default or Event of Default. The forbearances contained in this Section 1 shall be contingent on the Borrower's compliance with the following requirements: The Borrower shall not permit, at any time following January 1, 2001, Forbearance Net Finance Assets to be less than the sum of Forbearance Senior Debt and SBA Debt, as evidenced by a Borrowing Base Certificate delivered by the Borrower to the Agent in accordance with Section 6.1(i) of the Loan Agreement. The Borrower shall not permit the Excess Amount to exceed (a) as of January 31, 2001, $6,700,000; (b) as of February 28, 2001, $5,700,000; (c) as of March 31, 2001, $5,000,000; and (d) as of April 30, 2001 and thereafter, $0. For purposes hereof, the following terms shall have the following meanings: "2000 Forbearance Events" shall mean any Default or Event of Default ----------------------- which may arise or have arisen under (a) Section 2.5(c) or Section 7.3 of the Loan Agreement as a result of the ratio of Net Finance Assets to the sum of Senior Debt and SBA Debt being less than 1.20:1 at any time during the year 2000, or (b) Section 9.1(f)(iii) as a result of a default under Section 10.6 of the Note Purchase Agreements as a result of the ratio of Net Finance Assets to the sum of Senior Debt and SBA Debt being less than 1.15:1 at any time during the year 2000, but excluding any Default or Event of Default which may arise or -3- have arisen in the event that the ratio of Forbearance Net Finance Assets to Adjusted Minimum Asset Coverage as of December 31, 2000 is less than 0.97:1. "2001 Forbearance Events" shall mean any Default or Event of Default ----------------------- which may arise or have arisen under (a) Section 2.5(c) or Section 7.3 of the Loan Agreement from January 1, 2001 through June 30, 2001, or (b) Section 9.1(f)(iii) as a result of a default under Section 10.6 of the Note Purchase Agreements as a result of the ratio of Net Finance Assets to the sum of Senior Debt and SBA Debt being less than 1.15:1 at any time from January 1, 2001 until June 30, 2001; provided, however, that the Excess -------- ------- Amount does not exceed (w) $6,700,000 as of January 31, 2001, (x) $5,700,000 as of February 28, 2001, (y) $5,000,000 as of March 31, 2001, and (z) $0 as of April 30, 2001. "Adjusted Minimum Asset Coverage" shall mean the sum, without ------------------------------- duplication, of (a) all Indebtedness of the Borrower under the Loan Agreement, plus (b) all CP Debt, plus (c) Senior Note Debt, plus (d) SBA ---- ---- ---- Debt, plus (e) the aggregate amount of other Indebtedness of the Borrower ---- relating to the borrowing of money, including the issuance of notes or bonds and the maximum drawing amount of all letters of credit outstanding, plus (f) Indebtedness of the type referred to in clause (e) of another ---- Person guaranteed by the Borrower. "Adjusted Net Finance Assets" shall mean the sum of the following --------------------------- clauses, in each case based on the clauses set forth in the definition of Forbearance Net Finance Assets: clause (i), plus clause (ii), minus clause ---- ----- (iii), plus clause (iv), plus clause (v), plus clause (vi). ---- ---- ---- "Advance Amounts" shall mean, as of any date of calculation, an amount --------------- equal to the sum of: (i) the aggregate amount of all Eligible Yellow Cab Loans shown on Borrower's balance sheet as of the last day of the most recent month, minus ----- (ii) the portion, if any, of the Eligible Yellow Cab Loans that Borrower, in its reasonable business judgment, deems to be uncollectible or subject to classification as non-accruing, minus ----- (iii) the Eligible Yellow Cab Loans which are more than 60 days past due, provided, that if all or any part of any Eligible Yellow Cab Loan would be -------- excluded under any of the provisions set forth above, then the entire amount of such Eligible Yellow Cab Loan shall be excluded. "Eligible Yellow Cab Loan" shall mean, with respect to any Yellow Cab ------------------------ Loan, the portion of the outstanding principal balance of, plus accrued interest (excluding deferred interest) on such Yellow Cab Loan, in each case owed to the Borrower and attributable to the portion of such Yellow Cab Loan made by the Borrower. -4- "Excess Amount" shall mean the difference of Adjusted Minimum Asset ------------- Coverage minus Adjusted Net Finance Assets; provided that (a) as of January ----- -------- 31, 2001, the Excess Amount shall not be greater than $6,700,000; (b) as of February 28, 2001, the Excess Amount shall not be greater than $5,700,000; (c) as of March 31, 2001 the Excess Amount shall not be greater than $5,000,000; and (d) as of April 30, 2001 and thereafter, the Excess Amount shall be $0. "Forbearance Net Finance Assets" shall mean, as of any date of ------------------------------ calculation, an amount equal to the sum of: (i) cash and Short Term Investments shown on the Borrower's balance sheet as of such date, plus ---- (ii) 83.33% of the sum, without duplication, of (A) the aggregate outstanding principal balances of, plus accrued interest (excluding deferred interest) on, all Eligible Medallion Loans and Eligible Commercial Loans shown on Borrower's balance sheet as of the last day of the most recent month, minus (B) the portion, if any, of the Loans, ----- plus accrued interest (excluding deferred interest) thereon, that Borrower, in its reasonable business judgment, deems to be uncollectible or subject to classification as non-accruing, minus (C) ----- the Eligible Loans, plus accrued interest (excluding deferred interest) thereon, which are more than 60 days past due, minus ----- (iii) 83.33% of the aggregate outstanding principal of, plus accrued interest (excluding deferred interest) on, the SBA Collateral; plus ---- (iv) 83.33% of the amount of 75% of the Eligible Medallion Loans and accrued interest (excluding deferred interest) thereon which are more than 60 days past due, but are less than 91 days past due, plus ---- (v) 83.33% of the amount of 65% of the Eligible Medallion Loans and accrued interest (excluding deferred interest) thereon which are more than 90 days past due, but are less than 121 days past due; plus ---- (vi) 83.33% of the Advance Amounts of Eligible Yellow Cab Loans; plus ---- (vii) the Excess Amount; provided, that if all or any part of any Loan would be excluded under any -------- of the provisions set forth above, then the entire outstanding principal amount of, plus accrued interest (including deferred interest) on, such Loan shall be excluded. "Forbearance Senior Debt" shall mean the sum, without duplication, of ----------------------- (a) all Indebtedness of the Borrower under the Loan Agreement, plus (b) all ---- CP Debt, plus (c) Senior Note Debt, plus (d) the aggregate amount of other ---- ---- Indebtedness of the Borrower relating to the borrowing of money, including the issuance of notes or bonds and the maximum drawing amount of all letters of -5- credit outstanding, plus (e) Indebtedness of the type referred to in clause ---- (d) of another Person guaranteed by the Borrower. Notwithstanding the foregoing, SBA Debt shall not be included in Senior Debt. "Yellow Cab Loan" shall mean any Medallion Loan made to YellowOne LLC --------------- or YellowTwo LLC, secured by Medallion Rights in respect of Chicago Medallions, that (a) satisfies subsections (b) through (f) of the Eligibility Requirements (other than, with respect to the requirement set forth in subsection (e) thereof, by virtue of the subordination provisions of such Yellow Cab Loan), provided that, with respect to the requirement -------- set forth in subsection (f) thereof, the endorsement on any promissory note evidencing such Yellow Cab Loan explicitly state that any pledge is subject to the requirements of any relevant participation agreement, (b) with respect to accrued interest thereon is guaranteed by Yellow Cab Management, Inc., its affiliate, (c) does not exceed, with respect to the portion thereof owed to the Borrower and attributable to the portion of such Yellow Cab Loan made by the Borrower, an aggregate principal amount of $4,000,000, and when aggregated with all other Yellow Cab Loans does not exceed, with respect to the portion thereof owed to the Borrower and attributable to the portion of such Yellow Cab Loan made by the Borrower, an aggregate principal amount of $9,000,000, and (d) matures no later than June 30, 2005. In the event that (a) the foregoing requirements are not met, (b) a Default or Event of Default (other than any of the 2000 Forbearance Events or 2001 Forbearance Events ) shall occur and be continuing, or (c) the forbearance obligations of the Senior Note Holders under the First Amendment Agreement to the Note Purchase Agreement, by and among the Senior Note Holders and the Borrower, shall terminate, the forbearance obligations of the Agent and the Banks under this Amendment shall, at the option of the Agent or the Required Banks, terminate. Upon such termination, the Agent and the Banks shall be relieved of the forbearance obligations set forth in this Section 1 and, accordingly, the Agent and the Banks shall then be free in their sole and absolute discretion (subject to the applicable provisions of the Loan Documents) to declare any and all of the obligations and other amounts owing to the Agent and the Banks under the Loan Documents to be immediately due and payable, with the effect of such declaration as set forth in Section 9.1 of the Loan Agreement (it being understood that, in the case of any Event of Default under Sections 9.1(h) or (i) of the Loan Agreement, all such obligations and other amounts shall become immediately due and payable automatically, without any requirement of notice from the Agent or any Bank), and/or to terminate all lending and other credit commitments of the Agent and the Banks under the Loan Documents, with the effect of such termination as set forth in Section 9.1 of the Loan Agreement (it being understood that, in the case of any Event of Default under Sections 9.1(h) or (i) of the Loan Agreement, all such lending and other credit commitments of the Agent and the Banks shall immediately terminate automatically, without any requirement of notice from the Agent or any Bank); and the Agent and the Banks may, if they so elect, proceed to enforce their rights and remedies under or in respect of the Loan Documents (subject to the applicable provisions thereof) and applicable law. The remedies specified herein are cumulative and not exclusive of any other remedy including, but not limited to, the remedies under the Loan Documents as a result of the existence of Events of Default. The failure or delay of the -6- Agent or any Bank to exercise any right or remedy after any particular Event of Default shall not operate as a waiver of any remedy in that or in any subsequent instance. 2. Amendments to Definitions. Section 1.1 of the Loan Agreement is hereby ------------------------- amended by: (a) deleting the following definitions in their entirety and substituting in lieu thereof the following new definitions: "Applicable LIBO Margin" means (a) 3.75% with respect to such portion ---------------------- of the LIBO Rate Loans that are Revolving Credit Loans as is equal to the then existing Excess Amount (as defined in Section 1 of Amendment No. 4 and whether or not the amount thereof at any time of reference complies with the requirements of the proviso contained in the definition thereof), (b) 1.50% in the case of all other LIBO Rate Loans that are also Revolving Credit Loans, and (c) 1.50% in the case of any LIBO Rate Loan that is a Term Loan. "Borrowing Base Certificate" shall mean a certificate substantially in -------------------------- the form of Exhibit A to Amendment No. 4. --------- "Capital Stock" with respect to any entity, shall mean common stock, ------------- preferred stock, limited or general partnership interests, limited liability company membership interests, and any and all shares or other equivalents (however designated) of any other equity interests, of such entity. "Collateral" shall mean and include the assets, property or interests ---------- in property of whatever nature whatsoever, real, personal or mixed, tangible or intangible, of the Borrower, and the pledge of the Guarantor's stock by the Parent pursuant to the terms of the Parent Pledge Agreement, securing the Revolving Credit Loans, Swing Line Loans and/or Term Loans and all other property and interests in personal property that shall, from time to time, secure the Revolving Credit Loans, Swing Line Loans and/or Term Loans. "Loan Documents" shall mean and include this Agreement, the Revolving -------------- Credit Notes, the Term Notes, the Swing Line Note, the Borrower Security Agreement, any Mortgage Assignment, the Borrowing Base Certificates, the Intercreditor Agreement, the Borrower Financing Statements, the Guaranty, the Parent Pledge Agreement and the Collateral Agency Agreement. "Restricted Payment" shall mean, with respect to the Borrower, any of ------------------ the following: (i) the payment of any dividend on or any distribution in respect of any Capital Stock of the Borrower (other than the payment of Dividends required to be paid in order to avoid the imposition of income taxes pursuant to the Code, or, for so long as such Borrower is a registered investment company under the 1940 Act, the payment of such Dividends as may be required by the 1940 Act), (ii) any defeasance, redemption, repurchase or other acquisition or retirement for value prior to scheduled maturity of any Indebtedness ranked pari passu or subordinate ---------- in right of payment to the Revolving Credit Notes, -7- Swing Line Notes or the Term Notes or of any Indebtedness having a maturity date prior to the maturity of the Revolving Credit Notes, Swing Line Notes or the Term Notes (other than Permitted Debt and Indebtedness permitted by Sections 8.2(b) and (e) hereof), (iii) when paid (or when the proceeds of which are paid) to any Person during the continuance of any Default or Event of Default, any defeasance, redemption, repurchase or other acquisition or retirement for value prior to scheduled maturity of any Indebtedness permitted by Sections 8.2(b) and (e) hereof, (iv) the redemption, repurchase, retirement or other acquisition of any Capital Stock of the Borrower or of any warrants, rights or options to purchase or acquire any Capital Stock of the Borrower (other than pursuant to and in accordance with stock option plans and other benefit plans for management or employees of the Borrower, in an aggregate amount not in excess of $500,000 during any 12-month period, provided that any such redemption, -------- repurchase, retirement or other acquisition of any Capital Stock of the Borrower or of any warrants, rights or options to purchase or acquire any Capital Stock of the Borrower otherwise permitted by this parenthetical clause shall not be permitted following the occurrence and during the continuance of any Default or Event of Default), (v) any expenditure or the incurrence of any liability to make any expenditure for any Restricted Investment not permitted by Section 8.3 hereof, (vi) when incurred during the continuance of any Default or Event of Default any expenditure or the incurrence of any liability to make any expenditure for any Restricted Investment permitted by Section 8.3 hereof (other than Loans made in the ordinary course of business), (vii) the payment of any principal of, interest on, or any amounts due in respect of, any Indebtedness not permitted by Section 8.2 hereof, and (viii) the payment of any principal or interest on, or any other amounts due in respect of, any Subordinated Debt (except to the extent otherwise approved by the Required Banks and the Agent). (b) inserting, in the places required by alphabetical order, the following new definitions: "Amendment No. 4" shall mean the Amendment No. 4 to Amended and --------------- Restated Loan Agreement and Consent dated as of March 30, 2001 among the Borrower, the Agent, the Swing Line Lender and the Banks." "Amendment No. 4 Effective Date" shall mean the "Effective Date", as ------------------------------ defined in Amendment No. 4." "Collateral Agency Agreement" shall mean the Collateral Agency --------------------------- Agreement, by and among the collateral agent named therein, the Agent, the Banks, the Senior Note Holders and the agent and the banks party to the Financial Agreement. "Financial Agreement" shall mean the Second Amended and Restated Loan ------------------- Agreement dated as of September 22, 2000, by and among Medallion Financial Corp., Medallion Business Credit, LLC, Fleet National Bank (f/k/a Fleet Bank, National Association) as agent and the other financial institutions from time to time party thereto, as amended and in effect from time to time. -8- "Guarantor" shall mean Medallion Taxi Media, Inc., a New York --------- corporation. "Guaranty" shall mean the Guaranty from the Guarantor in favor of the -------- Agent and the Banks, guaranteeing the payment and performance of the obligations owing by the Borrower to the Agent and the Banks pursuant to the Loan Documents. "Parent" shall mean Medallion Financial Corp., a Delaware corporation. ------ "Parent Pledge Agreement" shall mean the Stock Pledge Agreement from ----------------------- the Parent in favor of the Agent and the Banks, pledging the stock of the Guarantor as security for the obligations owing by the Borrower to the Agent and the Banks pursuant to the Loan Documents. 3. Addition of Article 2A to the Loan Agreement. The Loan Agreement is -------------------------------------------- hereby amended by adding the following new Article 2A: "ARTICLE 2A. COLLATERAL SECURITY; GUARANTY. The obligations of the Borrower under this Agreement shall be secured by (a) a perfected first priority security interest (subject only to Liens permitted hereunder and entitled to priority under applicable law) in substantially all of the assets of the Borrower, whether now owned or hereafter acquired and wherever located, pursuant to the terms of the Borrower Security Agreement and subject to the Intercreditor Agreement, and (b) following the Borrower's compliance with the requirements of Section 15 of Amendment No. 4, a perfected first priority security interest (subject only to Liens permitted hereunder and entitled to priority under applicable law (including Liens in favor of the "Agent" (as defined in the Financial Agreement) under the Financial Agreement to secure the obligations thereunder) and to the Collateral Agency Agreement) in the capital stock of the Guarantor pursuant to the terms of the Parent Pledge Agreement. Following the Borrower's compliance with the requirements of Section 15 of Amendment No. 4, the obligations of the Borrower under this Agreement and the other Loan Documents shall also be guaranteed by the Guarantor pursuant to the terms of the Guaranty (subject to the terms of the Collateral Agency Agreement); provided, however, that the -------- ------- Guaranty shall provide that, with the prior written consent of the Agent and the Required Banks, which consent shall not be conditioned on any requirement to repay Indebtedness, such Guaranty shall be released upon any sale, transfer, public offering, merger, consolidation or other similar event involving the change of at least 33% of the legal and beneficial ownership of the Guarantor. 4. Amendment of Section 4.22 of the Loan Agreement. Section 4.22 of the ----------------------------------------------- Loan Agreement is hereby amended deleted in its entirety and the following new Section 4.22 is hereby substituted in lieu thereof: -9- "Section 4.22. Priority; Continued Effectiveness. --------------------------------- Except as otherwise permitted hereunder, the Agent, for the ratable benefit of the Banks, the Swing Line Lender and the CP Holders, has or will have, following the Borrower's compliance with the requirements of Section 15 of Amendment No. 4, a valid and perfected first priority security interest (subject to the terms of the Intercreditor Agreement and the Collateral Agency Agreement) in and to all Collateral, enforceable against the Borrower and all third parties in all relevant jurisdictions and securing the payment of the Revolving Credit Loans, Swing Line Loans and Term Loans and all other sums payable under or in connection with the Loan Documents. Each of the Borrower Security Agreement and, after the execution and delivery thereof, the Parent Pledge Agreement is effective to create in favor of the Agent, for the ratable benefit of the Banks, the Swing Line Lender and the CP Holders, a valid and perfected first priority (subject to the terms of the Intercreditor Agreement and the Collateral Agency Agreement and except as otherwise permitted hereunder) security interest in and to the Collateral described therein securing the payment of the Revolving Credit Loans, Swing Line Loans and Term Loans and all other sums payable under or in connection with the Loan Documents, whether incurred prior to or after the Amendment No. 4 Effective Date. No additional Borrower Financing Statements are required to be filed in order to maintain the perfection and priority of the security interests created pursuant to the Borrower Security Agreement and the Parent Pledge Agreement." 5. Amendment of Article 4 of the Loan Agreement. Article 4 of the Loan -------------------------------------------- Agreement is hereby amended by adding in proper numerical order the following new Section 4.23: "Section 4.23. Investment Company Act. ---------------------- The Borrower is a closed-end management investment company registered under the 1940 Act. The Borrower is an "investment company," as such term is defined in the 1940 Act. The Borrower is not a "business development company" as such term is defined in the 1940 Act. The acquisition of the Notes by the Banks, the application of the proceeds and repayment thereof by the Borrower and the performance of the transactions contemplated by this Agreement and the other Loan Documents will not violate any provision of said Act, or any rule, regulation or order issued by the SEC thereunder." 6. Amendment of Article 6 of the Loan Agreement. Article 6 of the Loan -------------------------------------------- Agreement is hereby amended by (a) deleting Section 6.1(i) in its entirety and substituting the following new Section 6.1(i) in lieu thereof: "(i) a Borrowing Base Certificate indicating a computation of the Forbearance Net Finance Assets (as defined in Section 1 of Amendment No. 4) and the ratio of Forbearance Net Finance Assets (as defined in Section 1 of Amendment No. 4) to Adjusted Minimum Asset Coverage (as defined in Section 1 of Amendment No. 4) (i) as of the last day of each month commencing with the month ending March 31, 2001 (to be delivered not later than 15 Business Days -10- after the last day of such month), (ii) as of the last day of February, 2001 (to be delivered no later than April 6, 2001), and (iii) promptly following any other date such a certificate is requested by the Agent;" and (b) adding in proper numerical order therein the following new Sections 6.18, 6.19 and 6.20: "Section 6.18. M.R. Weiser, etc. The Borrower agrees to retain M.R. ---------------- Weiser, Inc. to assist in the preparation of each Borrowing Base Certificate and to provide reporting requested by the Agent with respect thereto and the Borrowers shall assist and fully cooperate with M.R. Weiser, Inc. to provide all necessary or appropriate information promptly following any request therefor. Section 6.19. CFO. The Borrower shall retain a full-time chief --- financial officer, or an interim chief financial officer (or a firm performing such function), by May 1, 2001. Section 6.20. Effectiveness of Loan Documents. The Borrower shall ------------------------------- ensure that each of the Loan Documents, including, once executed and delivered, the Guaranty, shall be in full force and effect, and not cancelled, terminated, revoked or rescinded, in each case otherwise than in accordance with the terms thereof or Section 4.5 hereof or with the express prior written agreement, consent or approval of the Banks, and shall further ensure that neither the Borrower nor any of its Subsidiaries or respective stockholders shall commence any action at law or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents." 7. Amendment of Section 8.2 of the Loan Agreement. Section 8.2 is hereby ---------------------------------------------- amended by (a) deleting the word "and" at the end of subsection (d) thereof; (b) deleting the period at the end of subsection (e) and substituting the following text in lieu thereof "; and"; and (c) adding the following new subsections (f) in proper alphabetical order therein: "(f) Indebtedness to Ameritrans Capital Corporation in an aggregate amount not to exceed $950,000 outstanding at any time and incurred in connection with Yellow Cab Loans (as defined in Section 1 of Amendment No. 4)." 8. Amendment of Section 8.3 of the Loan Agreement. Section 8.3 of the ---------------------------------------------- Loan Agreement is hereby amended by adding in proper alphabetical order therein the following new subsections (e) through (h): "(e) Make any Investment (including by way of the acquisition of any Person) in any Subsidiary or Affiliate, or any Person that after taking into account such Investment would become a Subsidiary or Affiliate, other than (i) Investments in the Parent in an aggregate amount not to exceed $4,200,000, and (ii) Investments existing on the Amendment No. 4 Effective Date and listed on Schedule III hereto. ------------ (f) Sell, discount or otherwise dispose of Loans or any Collateral; sell, discount or otherwise dispose of other Receivables or obligations owing to the -11- Borrower, with or without recourse, otherwise than (i) in connection with the grant of any participation in accordance with and to the extent permitted by Section 2.14 hereof, (ii) for collection in the ordinary course of business, (iii) to the Agent for the benefit of the Banks and, for so long as the Intercreditor Agreement and the Collateral Agency Agreement are in effect, the Collateral Agent, for the benefit of the Banks, the Senior Noteholders, the CP Holders and the Additional Senior Creditors (as defined in the Intercreditor Agreement), or (iv) Loans disposed of to Affiliates for cash for a price at least equal to the outstanding principal amount thereof (without discount thereon). (g) Make, or commit to make, or acquire or commit to acquire, any Loan to or from any Person or any other assets of any Person unless, with respect to any Loan, the Borrower reasonably believes that such Loan constitutes, or upon funding or acquisition will constitute, an Eligible Loan; provided, that, it shall not be a breach of this covenant if any Loan -------- that would otherwise cause the breach is not in a material amount and in any event is not included in Forbearance Net Finance Assets (as defined in Section 1 of Amendment No. 4). (h) Fail to file upon making or acquiring a Loan, all required Borrower Financing Statements and Mortgage Assignments, deliver to the Agent all instruments and chattel paper with respect to such Loans, or take such other actions as may be required in order to assure that the Agent for the benefit of the Banks receives a first priority perfected security interest or mortgage interest therein; provided, that, it shall not be a -------- breach of this covenant if the Loan that would otherwise cause the breach is not in a material amount and in any event is not included in Forbearance Net Finance Assets (as defined in Section 1 of Amendment No. 4)." 9. Amendment of Section 8.16 of the Loan Agreement. Section 8.16 of the ----------------------------------------------- Loan Agreement is hereby deleted in its entirety and the following new Section 8.16 is hereby substituted in lieu thereof: "8.16. Portfolio Purchase. Make, or obligate itself to make, any ------------------ Portfolio Purchase, other than, so long as no Default or Event of Default then exists or would exist as a result thereof, the repurchase of certain Medallion Loans sold to Sterling Bank prior to the Amendment No. 4 Effective Date, provided that the aggregate amount of such repurchase shall -------- not exceed $2,000,000." 10. Amendment of Article 8 of the Loan Agreement. Article 8 of the Loan -------------------------------------------- Agreement is hereby amended by adding in proper numerical order therein the following new Section 8.17: "8.17. Amendment of Agreements. The Borrower will not amend, waive ----------------------- or otherwise modify any provision of the Note Purchase Agreement, without the prior written consent of the Agent and the Required Banks except to the extent that any such amendment, waiver or other modification shall not have a material adverse effect on the interests of the Banks and the Agent." -12- 11. Amendment to Exhibits and Schedules to the Loan Agreement. The --------------------------------------------------------- Schedules to the Loan Agreement are hereby amended by adding in proper numerical order therein Schedule III attached hereto, and the Exhibits to the Loan Agreement are hereby amended by deleting Exhibit I in its entirety and substituting in lieu thereof Exhibit A attached hereto. 12. Consent to Note Purchase Agreement Amendment, etc. Each of the ------------------------------------------------- Required Banks hereby consents (a) to the amendment of the Note Purchase Agreement in form and substance satisfactory to the Agent for purposes of Section 2 of the Intercreditor Agreement and Section 8.17 of the Loan Agreement, and (b) for purposes of Section 8(b) of the Intercreditor Agreement, to the exclusion from the provisions thereof (i) of the credit enhancement contemplated to be provided by the Guaranty, and (ii) with respect to the Collateral covered by the Intercreditor Agreement, of the shares of the Guarantor contemplated to be pledged to the Agent as collateral security pursuant to the Parent Pledge Agreement (as such term is defined in the Loan Agreement, as amended hereby); provided, however, that such consent (solely with respect to clause (b) hereof) - -------- ------- is conditioned upon the parties thereto executing and delivering the Collateral Agency Agreement, in form and substance satisfactory to the Agent. 13. Representations and Warranties. The Borrower hereby represents and ------------------------------ warrants to the Agent and the Banks as of the date hereof, and as of any date on which the conditions set forth in Section 14 below are met, as follows: (a) The execution and delivery by the Borrower of this Amendment and all other instruments and agreements required to be executed and delivered by the Borrower in connection with the transactions contemplated hereby or referred to herein (collectively, the "Amendment Documents"), and the ------------------- performance by the Borrower of any of its obligations and agreements under the Amendment Documents and the Loan Agreement and the other Loan Documents, as amended hereby, are within the corporate or other authority of the Borrower, as the case may be, have been authorized by all necessary corporate proceedings on behalf of the Borrower and do not and will not contravene any provision of law or of the Borrower's charter, other incorporation or organizational papers, by-laws or any stock provision or any amendment thereof or of any indenture, agreement, instrument or undertaking binding upon the Borrower. (b) Each of the Amendment Documents and the Loan Agreement and other Loan Documents, as amended hereby, to which the Borrower is a party constitute legal, valid and binding obligations of such Person, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditors' rights. (c) No approval or consent of, or filing with, any governmental agency or authority is required to make valid and legally binding the execution, delivery or performance by the Borrower of the Amendment Documents or the Loan Agreement or other Loan Documents, as amended hereby, or the consummation by the -13- Borrower of the transactions among the parties contemplated hereby and thereby or referred to herein. (d) The representations and warranties contained in Article 4 of the Loan Agreement and in the other Loan Documents were true and correct at and as of the date made. Except (i) to the extent of changes resulting from transactions contemplated or permitted by the Loan Agreement and the other Loan Documents, changes occurring in the ordinary course of business (which changes, either singly or in the aggregate, have not been materially adverse), (ii) to the extent that such representations and warranties relate expressly to an earlier date, (iii) solely with respect to Section 4.20 of the Loan Agreement, as a result of the occurrence of the 2000 Forbearance Events and the 2001 Forbearance Events, and (iv) after giving effect to the provisions hereof, such representations and warranties, after giving effect to this Amendment, also are correct at and as of the date hereof. (e) The Borrower has performed and complied in all material respects with all terms and conditions herein required to be performed or complied with by it prior to or at the time hereof, and as of the date hereof, after giving effect to the provisions of this Amendment and the other Amendment Documents, there exists no Event of Default or Default (excluding any of the 2000 Forbearance Events or 2001 Forbearance Events). (f) The Borrower acknowledges and agrees that the representations and warranties contained in this Amendment shall constitute representations and warranties referred to in Section 4 of the Loan Agreement, a breach of which shall constitute an Event of Default. 14. Effectiveness. This Amendment shall become effective as of the date ------------- first written above (the "Effective Date") upon the satisfaction of each of the following conditions, in each case in a manner satisfactory in form and substance to the Agent; provided that upon such satisfaction of each of the -------- following conditions, the revision to (i) subsection (a) of "Applicable LIBO Margin" in Section 2(a) hereof shall become effective as of January 1, 2001, and (ii) subsections (b) and (c) of "Applicable LIBO Margin" in Section 2(a) hereof shall become effective as of February 1, 2001: (a) This Amendment shall have been duly executed and delivered by each of the Borrower and the Required Banks and shall be in full force and effect. (b) The Agent shall have received evidence of the amendment of the Note Purchase Agreement and the consent of the Senior Note Holders under the Intercreditor Agreement and the Note Purchase Agreement to this Amendment and the transactions contemplated hereby. (c) The Agent shall have received evidence of the effectiveness of an amendment of the Financial Agreement in the form attached hereto as Exhibit B. (d) The Agent shall have received a Borrowing Base Certificate, certified by the corporate controller of the Borrower, showing the Excess Amount as of January 31, 2001, copies of which shall be distributed to the Banks by the Agent. -14- (e) The Agent shall have received, for the pro rata account of each Bank --- ---- which executes and delivers its signature pages to the Agent, by 5:00 p.m. Boston time on March 30, 2001 in facsimile (to be followed by originals) or original form, an amendment fee equal in the aggregate to 0.10% of each such Bank's Revolving Credit Commitment. (f) Such other items, including legal fees of counsel to the Agent, documents, agreements or actions as the Agent may reasonably request in order to effectuate the transactions contemplated hereby. 15. Post-Closing Matters. The Borrower agrees to take the following -------------------- actions and deliver the following items to the Agent no later than April 30, 2001: (a) The Borrower shall deliver to the Agent, from each of the parties thereto, duly executed originals of each of the Guaranty, the Parent Pledge Agreement, the Collateral Agency Agreement and, if and to the extent deemed necessary or appropriate by the Agent, an amendment to the Intercreditor Agreement (the "New Security Documents"), each in form and substance satisfactory to the Agent; (b) The Borrower shall deliver to the Agent, from the Secretary of each of the Parent and the Guarantor a copy, certified by such Secretary to be true and complete as of such date, of each of (i) its charter or other organizational documents as in effect on such date of certification, (ii) its by-laws as in effect on such date, and (iii) the resolutions of its Board of Directors or other management authorizing, to the extent it is a party thereto, the execution, delivery and performance of the New Security Documents; provided, -------- however, that in lieu of providing the items required by subsections (i) and - ------- (ii) of this subsection (b), such Secretary may certify, to the extent true and correct, that charter documents and by-laws previously provided to the Agent are true and correct as of such date and have not been amended, rescinded or revoked; (c) The Borrower shall deliver to the Agent, from each of the Parent and the Guarantor, an incumbency certificate, dated as of such date, signed by a duly authorized officer of such Person and giving the name and bearing a specimen signature of each individual who shall be authorized to sign, in the name and on behalf of such Person, the New Security Documents; (d) The Borrower shall deliver to the Agent, from the Parent and the Guarantor, good standing certificates for each such Person, issued by the Secretary of State of each such entity's jurisdiction of incorporation or organization, and evidence that such Person is duly licensed and qualified as a foreign organization in good standing under the laws of each jurisdiction where the failure to qualify as such would have a Material Adverse Effect; (e) The Borrower shall deliver to the Agent a favorable legal opinion addressed to the Agent and the Banks, dated as of such date, in form and substance satisfactory to the Agent, from counsel to the Parent and the Guarantor, with respect to each such Person concerning corporate or other applicable entity authority matters and the enforceability of each of the Guaranty, the Parent Pledge Agreement, and the perfection of -15- the security interests granted therein, and concerning such other matters as the Administrative Agent may request; (f) The Borrower shall deliver to the Collateral Agent all stock certificates or other certificates evidencing the Parent's equity interests in the Guarantor, together with undated stock powers or other instruments of endorsement duly executed in blank; (g) The Agent shall have received the results of such UCC filing searches for the Guarantor as the Agent shall have requested. (h) Such other items, documents, agreements, items or actions as the Agent may reasonably request in order to effectuate the transactions contemplated hereby. The Borrower acknowledges and agrees that the failure to deliver any of the above-referenced items, or take the above-referenced actions, by April 30, 2001, shall constitute an Event of Default under Section 9.1(b) of the Loan Agreement. 16. Release. In order to induce the Agent and the Banks to enter into ------- this Amendment, the Borrower, on behalf of itself and its Subsidiaries, acknowledges and agrees that: (a) such Person does not have any claim or cause of action against the Agent or any Bank (or any of its respective directors, officers, employees or agents); (b) such Person does not have any offset right, counterclaim or defense of any kind against any of its respective obligations, indebtedness or liabilities to the Agent or any Bank; and (c) each of the Agent and the Banks has heretofore properly performed and satisfied in a timely manner all of its obligations to such Person. The Borrower, on behalf of itself and its Subsidiaries, wishes to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the Agent's and the Banks' rights, interests, contracts, collateral security or remedies. Therefore, the Borrower, on behalf of itself and its Subsidiaries, unconditionally releases, waives and forever discharges (x) any and all liabilities, obligations, duties, promises or indebtedness of any kind of the Agent or any Bank to such Person, except the obligations to be performed by the Agent or any Bank on or after the date hereof as expressly stated in this Amendment, the Loan Agreement and the other Loan Documents, and (y) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether arising at law or in equity, whether known or unknown, which such Person might otherwise have against the Agent, any Bank or any of its directors, officers, employees or agents, in either case (x) or (y), on account of any past or presently existing condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind. 17. Miscellaneous Provisions. ------------------------ (a) The Borrower hereby ratifies and confirms all of its obligations to the Agent and the Banks under the Loan Agreement, as amended hereby, and the other Loan Documents, including, without limitation, the Loans, and the Borrower hereby affirms its absolute and unconditional promise to pay to the Banks and the Agent the Revolving Credit Loans, the Term Loans, the Swing Line Loans, reimbursement obligations and all other amounts due or to become due and payable to the Banks and the Agent under the Loan -16- Agreement and the other Loan Documents, as amended hereby. Except as expressly amended hereby, each of the Loan Agreement and the other Loan Documents shall continue in full force and effect. This Amendment and the Loan Agreement shall hereafter be read and construed together as a single document, and all references in the Loan Agreement, any other Loan Document or any agreement or instrument related to the Loan Agreement shall hereafter refer to the Loan Agreement as amended by this Amendment. (b) No consent or waiver herein granted shall extend to or affect any obligations not expressly herein consented to or waived or shall impair any right of the Agent or the Banks consequent thereon. No consent or waiver herein granted shall extend beyond the term expressly set forth herein for such consent or waiver, nor shall anything contained herein be deemed to imply any willingness of the Agent or the Banks to agree to, or otherwise prejudice any rights of the Agent and the Banks with respect to, any similar consents or waivers that may be requested for any future period. (c) Without limiting the expense reimbursement requirements set forth in Section 10.6 of the Loan Agreement, the Borrower agrees to pay on demand all costs and expenses, including reasonable attorneys' fees, of the Agent incurred in connection with this Amendment. (d) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CONFLICT OF LAWS). (e) This Amendment may be executed in any number of counterparts, and all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. -17- IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Amendment to be executed on its behalf by its officer thereunto duly authorized, as of the date first above written. MEDALLION FUNDING CORP. By: /s/ Alvin Murstein Name: Alvin Murstein Title: Chief Executive Officer By: /s/ Larry D. Hall Name: Larry D. Hall Title: Corporate Controller FLEET NATIONAL BANK (f/k/a Fleet Bank, National Association), as Agent, as Swing Line Lender and as one of the Banks By: ________________________________ Name: Title: THE BANK OF NEW YORK, as Documentation Agent and as one of the Banks By: ________________________________ Name: Title: HARRIS TRUST AND SAVINGS BANK By: ________________________________ Name: Title: -18- BANK TOKYO-MITSUBISHI TRUST COMPANY By: ________________________________ Name: Title: THE CHASE MANHATTAN BANK By: ________________________________ Name: Title: ISRAEL DISCOUNT BANK OF NEW YORK By: ________________________________ Name: Title: By: ________________________________ Name: Title: EUROPEAN AMERICAN BANK By: ________________________________ Name: Title: BANK LEUMI USA By: ________________________________ Name: Title: -19- HSBC BANK USA By: ________________________________ Name: Title: -20- Schedule III Medallion Funding Corp. Investment in Subsidiaries December 31, 2000 ----------------- NONE ---- -21- Exhibit A --------- Exhibit A - --------- Borrowing Base Certificate -------------------------- Borrowing Base as of _______________ ("Borrowing Base Date") - -------------------------------------------------------------------------------- (1) The aggregate outstanding principal balances $ of all Eligible Medallion Loans and Eligible Commercial Loans shown on Borrower's balance sheet as of the last day of the most recent month - -------------------------------------------------------------------------------- (2) The aggregate accrued interest (excluding $ deferred interest) on all Eligible Medallion Loans and Eligible Commercial Loans shown on Borrower's balance sheet as of the last day of the most recent month - -------------------------------------------------------------------------------- (3) Total of (1) plus (2) $ - -------------------------------------------------------------------------------- (4) The portion, if any, of the Loans, plus $ accrued interest $ (excluding deferred interest) thereon, that Borrower, in its reasonable business judgment, deems to be uncollectible or subject to classification as non-accruing - -------------------------------------------------------------------------------- (5) The Eligible Loans, plus accrued interest $ (excluding deferred interest) thereon, which are more than 60 days past due - -------------------------------------------------------------------------------- (6) Difference of (3) minus the sum of (4) and $ (5), without duplicating amounts in (4) and (5) - -------------------------------------------------------------------------------- (7) 75% of the Eligible Medallion Loans and $ accrued interest (excluding deferred interest) thereon which are more than 60 days past due, but are less than 91 days past due - -------------------------------------------------------------------------------- (8) 65% of the Eligible Medallion Loans and $ accrued interest (excluding deferred interest) thereon which are more than 90 days past due, but are less than 121 days past due - -------------------------------------------------------------------------------- (9) The Advance Amounts of Eligible Yellow Cab $ Loans - -------------------------------------------------------------------------------- -22- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (10) Sum of Lines (6), (7), (8) and (9) $ - -------------------------------------------------------------------------------- (11) Line (10) times .8333 $ - -------------------------------------------------------------------------------- (12) cash and Short Term Investments shown on the $ Borrower's balance sheet as of the Borrowing Base Date - -------------------------------------------------------------------------------- (13) Excess Amount $ - -------------------------------------------------------------------------------- (14) Sum of Lines (11), (12) and (13) (Forbearance $ Net Assets) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Forbearance Senior Debt (a) Indebtedness of Borrower under the Loan $ Agreement; (b) all CP Debt $ (c) Senior Note Debt $ (d) the aggregate amount of other Indebtedness of $ the Borrower relating to the borrowing of money, including the issuance of notes or bonds and the maximum drawing amount of all letters of credit outstanding (e) Indebtedness of the type referred to in $ clause (d) of another Person guaranteed by the Borrower (f) SBA Debt $ (15) Sum of Items (a) -(f) (Total Forbearance $ Debt) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Net Excess (Deficiency) of Net Forbearance Assets $ over Forbearance Debt (Line 14 less Line 15) - -------------------------------------------------------------------------------- -23- Exhibit B --------- [Financial Amendment] EX-10.57 4 dex1057.txt FIRST AMENDMENT AGREEMENT DATED MARCH 30, 2001 EXHIBIT 10.57 ================================================================================ FIRST AMENDMENT AGREEMENT Dated as of March 30, 2001 to Note Purchase Agreements dated as of June 1, 1999 Re: $22,500,000 7.20% Senior Secured Notes, Series A due June 1, 2004 and Re: $22,500,000 7.20% Senior Secured Notes, Series B due September 1, 2004 ================================================================================ TABLE OF CONTENTS
SECTION HEADING PAGE SECTION 1. FORBEARANCE......................................................................2 SECTION 2. AMENDMENTS TO EXISTING NOTE PURCHASE AGREEMENTS AND OUTSTANDING NOTES............6 Section 2.1. Amendment to Section 1.1.........................................................6 Section 2.2. Amendments to Section 1.2(a).....................................................6 Section 2.3. Amendment to Section 10.6........................................................6 Section 2.4. Amendment to Section 10.8........................................................7 Section 2.5. Amendment to Section 10.10.......................................................7 Section 2.6. Amendments to Section 10.........................................................8 Section 2.7. Amendments to Definitions........................................................8 Section 2.8. Addition of Definitions.........................................................10 Section 2.9. Amendment to Schedules to the Existing Note Purchase Agreements.................12 Section 2.10. Amendment of Outstanding Notes..................................................12 SECTION 3. CONSENT TO AMENDMENT OF BANK LOAN AGREEMENT, ETC................................12 SECTION 4. REPRESENTATIONS AND WARRANTIES..................................................12 Section 4.1. Organization; Power and Authority...............................................12 Section 4.2. Authorization, Etc..............................................................13 Section 4.3. Compliance with Laws, Other Instruments, Etc....................................13 Section 4.4. No Default or Event of Default..................................................13 Section 4.5. Compliance......................................................................13 Section 4.6. No Consents.....................................................................13 Section 4.7. Representations in Note Purchase Agreements.....................................14 Section 4.8. Priority; Continued Effectiveness...............................................14 Section 4.9. Investment Company Act..........................................................14 SECTION 5. CONDITIONS PRECEDENT............................................................14 Section 5.1. Execution.......................................................................15 Section 5.2. Representations and Warranties..................................................15 Section 5.3. Related Transactions............................................................15 Section 5.4. Amendment Fee...................................................................15 Section 5.5. Payment of Fees.................................................................15 SECTION 6. POST CLOSING MATTERS............................................................15 Section 6.1. Post Closing Matters............................................................15 SECTION 7. MISCELLANEOUS...................................................................16
-i- Section 7.1. Governing Law...................................................................16 Section 7.2. Counterparts....................................................................17 Section 7.3. Captions........................................................................17 Section 7.4. References to Existing Note Purchase Agreements.................................17 Section 7.5. Expenses........................................................................17 Section 7.6. Ratification....................................................................17 Section 7.7. Exchange of Notes...............................................................17 SECTION 8. RELEASE.........................................................................17 Section 8.1. Release.........................................................................17
ii MEDALLION FUNDING CORP. FIRST AMENDMENT AGREEMENT Re: Note Purchase Agreements dated as of June 1, 1999 and $22,500,000 7.20% Senior Secured Notes, Series A due June 1, 2004 and $22,500,000 7.20% Senior Notes, Series B due September 1, 2004 To each of the institutional investors named on Schedule 1 attached hereto (the "Holders") Ladies and Gentlemen: Reference is made to the separate Note Purchase Agreements each dated as of June 1, 1999 (the "Existing Note Purchase Agreements") between Medallion Funding Corp., a New York corporation (the "Company") and each of the Purchasers named on Schedule A attached thereto, respectively, pursuant to which the Company issued and sold (i) $22,500,000 aggregate principal amount of its 7.20% Senior Secured Notes, Series A, due June 1, 2004 and (ii) $22,500,000 aggregate principal amount of its 7.20% Senior Secured Notes, Series B, due September 1, 2004, all of which are currently outstanding (collectively, the "Outstanding Notes"). The Existing Note Purchase Agreements, as amended hereby, are hereinafter referred to as the "Note Purchase Agreements." The Outstanding Notes, as amended hereby, are hereinafter referred to as the "Notes." RECITALS Whereas, the Company is currently in default under Section 10.6 of each of the Existing Note Purchase Agreements and needs the waiver of the Required Holders with respect thereto and the Company desires to make certain amendments to the Existing Note Purchase Agreements. Capitalized terms not otherwise defined herein shall have the meaning set forth for such terms set forth in the Note Purchase Agreements. For good and valuable consideration, the Company hereby requests the waiver of an outstanding Default and Event of Default and the amendment of certain provisions of the Existing Note Purchase Agreements, as hereinafter provided. Medallion Funding Corp. First Amendment Agreement Upon your acceptance hereof, the acceptance of the Required Holders and satisfaction of the conditions precedent set forth in Section 5 hereof, this Amendment shall constitute a contract between the Company and the Holders, but only in the respects hereinafter set forth: SECTION 1. FORBEARANCE Upon the satisfaction of each of the conditions precedent set forth in Section 5 hereof, the Holders hereby agree, for so long as (a) no Default or Event of Default (other than the 2000 Forbearance Events and the 2001 Forbearance Events, each as defined below), has occurred and is continuing and (b) the Company complies with the requirements contained in this Section 1, (x) to forbear from enforcing any of its rights and remedies under Section 12.2 of the Note Purchase Agreements or under any of the other Note Documents arising solely as a result of the occurrence of any of the 2000 Forbearance Events or the 2001 Forbearance Events and (y) the Holders will not demand accelerated payment of the obligations under Section 12.1 of the Note Purchase Agreements or otherwise cause any of such obligations to become immediately due and payable solely as a result of the occurrence of any of the 2000 Forbearance Events or the 2001 Forbearance Events, except that the Company shall in any event continue to be required to make any and all payments that are provided for in the Note Documents and this Amendment when and as the same are due and payable pursuant to the terms of the Note Documents and this Amendment. So long as no Default or Event of Default, other than the 2000 Forbearance Events or 2001 Forbearance Events, has occurred and is continuing, nothing herein shall be deemed to prevent the Company from exercising any right or taking any action otherwise permitted by the Note Purchase Agreements or the other Note Documents, which such right or action is conditioned upon the absence of any Default or Event of Default. The forbearances contained in this Section 1 shall be contingent on the Company's compliance with the following requirements: The Company shall not permit, at any time following January 1, 2001, Forbearance Net Finance Assets to be less than the sum of Forbearance Senior Debt and SBA Debt, as evidenced by a Borrowing Base Certificate prepared in accordance with Section 6.1(i) of the Bank Loan Agreement and the Company shall not permit the Excess Amount to exceed (a) $6,700,000 from January 1, 2001 through January 31, 2001, (b) $5,700,000 from February 1, 2001 through February 28, 2001, (c) $5,000,000 from March 1, 2001 through March 31, 2001, or (d) $0 as of April 1, 2001 and thereafter. The Company shall deliver a copy of such Borrowing Base Certificate to the Holders substantially concurrently upon delivery thereof to the Banks. For purposes hereof, the following terms shall have the following meanings: "2000 Forbearance Events" shall mean any Default or Event of Default which may arise or have arisen under (a) Section 10.6 of the Note Purchase Agreements as a result of the ratio of Net Finance Assets to the sum of Senior Debt and SBA Debt being less than 1.15:1 at any time during the year 2000 or (b) Section 11(f)(i) as a result of a default under Section 2.5(c) or Section 7.3 of the Bank Loan Agreement as a result of Minimum Asset Coverage exceeding Net -2- Medallion Funding Corp. First Amendment Agreement Finance Assets or the ratio of Net Finance Assets to the sum of Senior Debt and SBA Debt being less than 1.20:1 at any time during the year 2000, but excluding any Default or Event of Default which may arise or have arisen in the event that the ratio of Forbearance Net Finance Assets to Adjusted Minimum Asset Coverage as of December 31, 2000 is less than .97:1. "2001 Forbearance Events" shall mean any Default or Event of Default which may arise or have arisen under (a) Section 10.6 of the Note Purchase Agreements from January 1, 2001 through June 30, 2001 or (b) Section 11(f)(i) as a result of a default under Section 2.5(c) or Section 7.3 of the Bank Loan Agreement as a result of Minimum Asset Coverage exceeding Net Finance Assets or the ratio of Net Finance Assets to the sum of Senior Debt and SBA Debt being less than 1.20:1 at any time from January 1, 2001 through June 30, 2001; provided, however, that the Excess Amount does not exceed (w) $6,700,000 as of January 31, 2001, (x) $5,700,000 as of February 28, 2001, (y) $5,000,000 as of March 31, 2001, and (z) $0 as of April 30, 2001. "Adjusted Minimum Asset Coverage" shall mean the sum, without duplication of (a) all Indebtedness of the Company under the Note Purchase Agreements, plus (b) all CP Debt, plus (c) Indebtedness of the Company under the Bank Loan Agreement, plus (d) SBA Debt, plus (e) the aggregate amount of other Indebtedness of the Company relating to the borrowing of money, including the issuance of notes or bonds and the maximum drawing amount of all letters of credit outstanding, plus (f) Indebtedness of the type referred to in clause (e) of another Person guaranteed by the Company. "Adjusted Net Finance Assets" shall mean the sum of the following clauses, in each case based on the clauses set forth in the definition of Forbearance Net Finance Assets: clause (i), plus clause (ii), minus clause (iii), plus clause (iv), plus clause (v), plus clause (vi). "Advance Amounts" shall mean, as of any date of calculation, an amount equal to the sum of: (i) the aggregate amount of all Eligible Yellow Cab Loans shown on the Company's balance sheet as of the last day of the most recent month, minus (ii) the portion, if any, of the Eligible Yellow Cab Loans that the Company, in its reasonable business judgment, deems to be uncollectible or subject to classification as non-accruing, minus (iii) the Eligible Yellow Cab Loans which are more than 60 days past due, -3- Medallion Funding Corp. First Amendment Agreement provided, that if all or any part of any Eligible Yellow Cab Loan would be excluded under any of the provisions set forth above, then the entire amount of such Eligible Yellow Cab Loan shall be excluded. "Eligible Yellow Cab Loan" shall mean, with respect to any Yellow Cab Loan, the portion of the outstanding principal balance of, plus accrued interest (excluding deferred interest) on such Yellow Cab Loan, in each case owed to the Company and attributable to the portion of such Yellow Cab Loan made by the Company. "Excess Amount" shall mean the difference of Adjusted Minimum Asset Coverage minus Adjusted Net Finance Assets; provided that (a) as of January 31, 2001, the Excess Amount shall not be greater than $6,700,000; (b) as of February 28, 2001, the Excess Amount shall not be greater than $5,700,000; (c) as of March 31, 2001 the Excess Amount shall not be greater than $5,000,000; and (d) as of April 30, 2001 and thereafter, the Excess Amount shall be $0. "Forbearance Net Finance Assets" shall mean, as of any date of calculation, an amount equal to the sum of: (i) cash and Short Term Investments shown on the Company's balance sheet as of such date, plus (ii) 83.33% of the sum, without duplication, of (A) the aggregate outstanding principal balances of, plus accrued interest (excluding deferred interest) on, all Eligible Medallion Loans and Eligible Commercial Loans shown on the Company's balance sheet as of the last day of the most recent month, minus (B) the portion, if any, of the Loans, plus accrued interest (excluding deferred interest) thereon, that the Company, in its reasonable business judgment, deems to be uncollectible or subject to classification as non-accruing, minus (C) the Eligible Loans, plus accrued interest (excluding deferred interest) thereon, which are more than 60 days past due, minus (iii) 83.33% of the aggregate outstanding principal of, plus accrued interest (excluding deferred interest) on, the SBA Collateral; plus (iv) 83.33% of the amount of 75% of the Eligible Medallion Loans and accrued interest (excluding deferred interest) thereon which are more than 60 days past due, but are less than 91 days past due, plus (v) 83.33% of the amount of 65% of the Eligible Medallion Loans and accrued interest (excluding deferred interest) thereon which are more than 90 days past due, but are less than 121 days past due; plus (vi) 83.33% of the Advance Amounts of Eligible Yellow Cab Loans; plus -4- Medallion Funding Corp. First Amendment Agreement (vii) the Excess Amount; provided, that if all or any part of any Loan would be excluded under any of the provisions set forth above, then the entire outstanding principal amount of, plus accrued interest (including deferred interest) on, such Loan shall be excluded. "Forbearance Senior Debt" shall mean the sum, without duplication, of (a) all Indebtedness of the Company under the Note Purchase Agreements, plus (b) all CP Debt, plus (c) Indebtedness of the Company under the Bank Loan Agreement, plus (d) the aggregate amount of other Indebtedness of the Company relating to the borrowing of money, including the issuance of notes or bonds and the maximum drawing amount of all letters of credit outstanding, plus (e) Indebtedness of the type referred to in clause (d) of another Person guaranteed by the Company. Notwithstanding the foregoing, SBA Debt shall not be included in Senior Debt. "Yellow Cab Loan" shall mean any Medallion Loan made to YellowOne LLC or YellowTwo LLC secured by Medallion Rights in respect of Chicago Medallions, that (a) satisfies subsections (b) through (f) of the Eligibility Requirements (other than, with respect to the requirement set forth in subsection (e) thereof, by virtue of the subordination provisions of such Yellow Cab Loan), provided that, with respect to the requirement set forth in subsection (f) thereof, the endorsement on any promissory note evidencing such Yellow Cab Loan explicitly states that any pledge is subject to the requirements of any relevant participation agreement, (b) with respect to accrued interest thereon is guaranteed by Yellow Cab Management, Inc., its Affiliate, (c) does not exceed, with respect to the portion thereof owed to the Company and attributable to the portion of such Yellow Cab Loan made by the Company, an aggregate principal amount of $4,000,000, and when aggregated with all other Yellow Cab Loans does not exceed, with respect to the portion thereof owed to the Company and attributable to the portion of such Yellow Cab Loan made by the Company, an aggregate principal amount of $9,000,000, and (d) matures no later than June 30, 2005. In the event that (i) the foregoing requirements are not met, (ii) a Default or Event of Default (other than any of the 2000 Forbearance Events or 2001 Forbearance Events) shall occur and be continuing or (iii) the forbearance obligations of the Agent and the Banks under Amendment No. 4 to the Bank Loan Agreement shall terminate, the forbearance obligations of the Holders shall, at the option of the Required Holders, terminate. Upon such termination, the Holders shall be relieved of the forbearance obligations set forth in this Section 1 and, accordingly, the Holders shall then be free in their sole and absolute discretion (subject to the applicable provisions of the Note Documents) to declare any and all of the obligations and other amounts owing to the Holders under the Note Documents to be immediately due and payable, with the effect of such declaration as set forth in Section 12.1 of the Note Purchase Agreements (it being understood that, in the case of any Event of Default under Sections 11(g) or (h) of the Note Purchase Agreements, all such obligations and other amounts shall become immediately -5- Medallion Funding Corp. First Amendment Agreement due and payable automatically, without any requirement of notice from any Holder); and the Holders may, if they so elect, proceed to enforce their rights and remedies under or in respect of the Note Documents (subject to the applicable provisions thereof) and applicable law. The remedies specified herein are cumulative and not exclusive of any other remedy including, but not limited to, the remedies under the Note Documents as a result of the existence of Events of Default. The failure or delay of any Holder to exercise any right or remedy after any particular Event of Default shall not operate as a waiver of any remedy in that or in any subsequent instance. SECTION 2. AMENDMENTS TO EXISTING NOTE PURCHASE AGREEMENTS AND OUTSTANDING NOTES. The Existing Note Purchase Agreements and Outstanding Notes are hereby amended as of the Effective Date as follows: Section 2.1. Amendment to Section 1.1. Section 1.1 of each of the Existing Note Purchase Agreements shall be and is hereby amended to add the following paragraph to read as follows: "From and after the First Amendment Effective Date, all references in this Agreement, the Other Agreements and the Notes to "7.20% Senior Secured Notes" are hereby amended to read "7.35% Senior Secured Notes." Section 2.2. Amendments to Section 1.2. Section 1.2 of each of the Existing Note Purchase Agreements shall be and is hereby amended to add the following paragraph to read as follows: "Following the Company's compliance with the requirements of Section 6 of the First Amendment (including Liens in favor of the "Agent" (as defined in the Financial Agreement) under the Financial Agreement to secure the obligations thereunder), the obligations of the Company under this Agreement and the other Note Documents (i) shall also be secured by a perfected first priority security interest (subject only to Liens permitted hereunder and entitled to priority under applicable law and to the Collateral Agency Agreement) in the Capital Stock of the Guarantor pursuant to the terms of the Parent Pledge Agreement and (ii) shall also be guaranteed by the Guarantor pursuant to the terms of the Guaranty (subject to the terms of the Collateral Agency Agreement); provided, however, that the Guaranty shall provide that, with the prior written consent of the Required Holders, which consent shall not be conditioned on any requirement to repay Indebtedness, such Guaranty shall be released upon any sale, transfer, public offering, merger, consolidation or other similar event involving the change of at least 33% of the legal and beneficial ownership of the Guarantor." Section 2.3. Amendment to Section 10.6. The reference to "1.15:1.0" in Section 10.6 of each of the Existing Note Purchase Agreements shall be and is hereby amended to read "1.00:1.0." -6- Medallion Funding Corp. First Amendment Agreement Section 2.4. Amendment to Section 10.8. Section 10.8 of each of the Existing Note Purchase Agreements shall be and is hereby amended (i) to delete the term "or" at the end of clause (c), (ii) to delete the "." at the end of clause (d) and replace it with ";" and (iii) to add the following as new clauses (e) through (h): "(e) make any Investment (including by way of the acquisition of any Person) in any Subsidiary or Affiliate, or any Person that after taking into account such Investment would become a Subsidiary or Affiliate, other than (i) Investments in the Parent in an aggregate amount not to exceed $4,200,000, and (ii) Investments existing on the First Amendment Effective Date and listed on Schedule C hereto; (f) sell, discount or otherwise dispose of Loans or any Collateral; sell, discount or otherwise dispose of other Receivables or obligations owing to the Company, with or without recourse, otherwise than (i) in connection with the grant of any participation in accordance with and to the extent permitted by Section 2.14 of the Bank Loan Agreement, (ii) for collection in the ordinary course of business, (iii) to the Collateral Agent for the benefit of the holders of the Notes and, for so long as the Intercreditor Agreement and the Collateral Agency Agreement are in effect, the Collateral Agent for the benefit of the Banks (as defined in the Intercreditor Agreement), the Senior Noteholders, the CP Holders and the Additional Senior Creditors (as defined in the Intercreditor Agreement), or (iv) Loans disposed of to Affiliates for cash for a price at least equal to the outstanding principal amount thereof (without discount thereon); (g) make, or commit to make, or acquire or commit to acquire, any Loan to or from any Person or any other assets of any Person unless, with respect to any Loan, the Company reasonably believes that such Loan constitutes, or upon funding or acquisition will constitute, an Eligible Loan; provided, that, it shall not be a breach of this covenant if any Loan that would otherwise cause the breach is not in a material amount and in any event is not included in Forbearance Net Finance Assets as defined in Section 1 of the First Amendment; or (h) fail to file upon making or acquiring a Loan, all required Company Financing Statements and Mortgage Assignments, deliver to the Agent all instruments and chattel paper with respect to such Loans, or take such other actions as may be required in order to assure that the Collateral Agent for the benefit of the holders of the Notes receives a first priority perfected security interest or mortgage interest therein; provided, that, it shall not be a breach of this covenant if the Loan that would otherwise cause the breach is not in a material amount and in any event is not included in Forbearance Net Finance Assets as defined in Section 1 of the First Amendment." Section 2.5. Amendment to Section 10.10. Section 10.10 of each of the Existing Note Purchase Agreements shall be and is hereby amended in its entirety to read as follows: "Section 10.10. Portfolio Purchases. The Company will not, and will not permit any Subsidiary to, make, or obligate itself to make, any Portfolio Purchase, other than, so long as no Default or Event of Default then exists or would exist as a result thereof, the repurchase of certain Medallion Loans sold to Sterling Bank prior to the First -7- Medallion Funding Corp. First Amendment Agreement Amendment Effective Date, provided that the aggregate amount of such repurchase shall not exceed $2,000,000." Section 2.6. Amendments to Section 10. Section 10 of each of the Existing Note Purchase Agreements shall be and is hereby amended to add Section 10.13 and Section 10.14 to read as follows: "Section 10.13. CFO. The Company shall retain a full-time chief financial officer, or an interim chief financial officer (or a firm performing such function), by May 1, 2001. Section 10.14. Effectiveness of Note Documents. The Company shall ensure that each of the Note Documents, including, once executed and delivered, the Guaranty, shall be in full force and effect, and not cancelled, terminated, revoked or rescinded, in each case otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the holders of the Notes, and shall further ensure that neither the Company nor any of its Subsidiaries or respective stockholders shall commence any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Note Documents." Section 2.7. Amendments to Definitions . The following definitions of terms set forth in Schedule B to each of the Existing Note Purchase Agreements shall be and are hereby amended and restated in their entirety as follows: "'Capital Stock' with respect to any entity, shall mean common stock, preferred stock, limited or general partnership interests, limited liability company membership interests, and any and all shares or other equivalents (however designated) of any other equity interests, of such entity." "'Collateral' shall mean and include the assets, property or interests in property of whatever nature whatsoever, real, personal or mixed, tangible or intangible, of the Company, and the pledge of the Guarantor's stock by the Parent pursuant to the terms of the Parent Pledge Agreement, securing the Notes and all other property and interests in personal property that shall, from time to time, secure the Notes." "'Default Rate' means that rate of interest that is the greater of (i) 9.35% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced by Citibank, N.A. in New York, New York as its "base" or "prime" rate." "'Net Finance Assets' shall mean, as of any date of calculation, an amount equal to the sum of: (i) cash and Short Term Investments shown on the Company's balance sheet as of such date, plus -8- Medallion Funding Corp. First Amendment Agreement (ii) 83.33% of the sum, without duplication, of (A) the aggregate outstanding principal balances of, plus accrued interest (excluding deferred interest) on, all Eligible Medallion Loans and Eligible Commercial Loans shown on the Company's balance sheet as of the last day of the most recent month, minus (B) the portion, if any, of the Loans, plus accrued interest (excluding deferred interest) thereon, that the Company, in its reasonable business judgment, deems to be uncollectible or subject to classification as non-accruing, minus (C) the Eligible Loans, plus accrued interest (excluding deferred interest) thereon, which are more than 60 days past due, minus (iii) 83.33% of the aggregate outstanding principal of, plus accrued interest (excluding deferred interest) on, the SBA Collateral; plus (iv) 83.33% of the amount of 75% of the Eligible Medallion Loans and accrued interest (excluding deferred interest) thereon which are more than 60 days past due, but are less than 91 days past due, plus (v) 83.33% of the amount of 65% of the Eligible Medallion Loans and accrued interest (excluding deferred interest) thereon which are more than 90 days past due, but are less than 121 days past due; plus (vi) 83.33% of the Advance Amounts of Eligible Yellow Cab Loans; provided, that if all or any part of any Loan would be excluded under any of the provisions set forth above, then the entire outstanding principal amount of, plus accrued interest (including deferred interest) on, such Loan shall be excluded." "'Note Documents' shall mean and include this Agreement, the Other Agreements, the Notes, the Security Documents, any Mortgage Assignment, the Intercreditor Agreement, the Company Financing Statements, the Guaranty, the Parent Pledge Agreement and the Collateral Agency Agreement and all other documents, instruments, certificates and notices at any time delivered in connection with the foregoing, in each case, as amended, modified or restated from time to time." "'Restricted Payment' shall mean, with respect to the Company, any of the following: (i) the payment of any dividend on or any distribution in respect of any Capital Stock of the Company (other than the payment of Dividends required to be paid in order to avoid the imposition of income taxes pursuant to the Code, or, for so long as the Company is a registered investment company under the 1940 Act, the payment of such Dividends as may be required by the 1940 Act), (ii) any defeasance, redemption, repurchase or other acquisition or retirement for value prior to scheduled maturity of any Indebtedness ranked pari passu or subordinate in right of payment to the Notes or of any Indebtedness having a maturity date prior to the maturity of the Notes (other than Permitted Debt), (iii) [intentionally -9- Medallion Funding Corp. First Amendment Agreement omitted], (iv) the redemption, repurchase, retirement or other acquisition of any Capital Stock of the Company or of any warrants, rights or options to purchase or acquire any Capital Stock of the Company (other than pursuant to and in accordance with stock option plans and other benefit plans for management or employees of the Company, in an aggregate amount not in excess of $500,000 during any 12-month period, provided that any such redemption, repurchase, retirement or other acquisition of any Capital Stock of the Company or of any warrants, rights or options to purchase or acquire any Capital Stock of the Company otherwise permitted by this parenthetical clause shall not be permitted following the occurrence and during the continuance of any Default or Event of Default), (v) any expenditure or the incurrence of any liability to make any expenditure for any Restricted Investment not permitted by Section 10.8 hereof, (vi) when incurred during the continuance of any Default or Event of Default any expenditure or the incurrence of any liability to make any expenditure for any Restricted Investment permitted by Section 10.8 hereof (other than Loans made in the ordinary course of business), (vii) the payment of any principal of, interest on, or any amounts due in respect of, any Indebtedness not permitted hereunder and (viii) the payment of any principal or interest on, or any other amounts due in respect of, any Subordinated Debt (except to the extent otherwise approved by the Required Holders)." "'Senior Debt' shall mean the sum, without duplication, of (a) all Indebtedness of the Company under this Agreement, plus (b) all CP Debt, plus (c) Indebtedness of the Company under the Bank Loan Agreement, plus (d) the aggregate amount of other Indebtedness of the Company relating to the borrowing of money, including the issuance of notes or bonds and the maximum drawing amount of all letters of credit outstanding, plus (e) Indebtedness of the type referred to in clause (d) of another Person guaranteed by the Company. Notwithstanding the foregoing, SBA Debt shall not be included in Senior Debt." Section 2.8. Addition of Definitions. The following definitions of terms shall be and are hereby added to Schedule B to each of the Existing Note Purchase Agreements to read as follows "'Advance Amounts' shall mean, as of any date of calculation, an amount equal to the sum of: (i) the aggregate amount of all Eligible Yellow Cab Loans shown on the Company's balance sheet as of the last day of the most recent month, minus (ii) the portion, if any, of the Eligible Yellow Cab Loans that the Company, in its reasonable business judgment, deems to be uncollectible or subject to classification as non-accruing, minus (iii) the Eligible Yellow Cab Loans which are more than 60 days past due, -10- Medallion Funding Corp. First Amendment Agreement provided, that if all or any part of any Eligible Yellow Cab Loan would be excluded under any of the provisions set forth above, then the entire amount of such Eligible Yellow Cab Loan shall be excluded." "'Collateral Agency Agreement' shall mean the Collateral Agency Agreement, by and among the collateral agent named therein, the Agent, the Banks, the holders of the Notes and the agent and the banks party to the Financial Agreement." "'Eligible Yellow Cab Loan' shall mean, with respect to any Yellow Cab Loan, the portion of the outstanding principal balance of, plus accrued interest (excluding deferred interest) on such Yellow Cab Loan, in each case owed to the Company and attributable to the portion of such Yellow Cab Loan made by the Company." "'Financial Agreement' shall mean the Second Amended and Restated Loan Agreement dated as of September 22, 2000, by and among Medallion Financial Corp., Medallion Business Credit, LLC, Fleet National Bank (f/k/a Fleet Bank, National Association) as agent and the other financial institutions from time to time party thereto, as amended and in effect from time to time." "'First Amendment' shall mean the First Amendment Agreement dated as of March 30, 2001 among the Company and the holders of the Notes." "'First Amendment Effective Date' shall mean the "Effective Date," as defined in Section 5 of the First Amendment." "'Guarantor' shall mean Medallion Taxi Media, Inc., a New York corporation." "'Guaranty' shall mean the Guaranty from the Guarantor in favor of the holders of the Notes, guaranteeing the payment and performance of the obligations owing by the Company to the holders of the Notes pursuant to the Note Documents." "'Parent' shall mean Medallion Financial Corp., a Delaware corporation." "'Parent Pledge Agreement' shall mean the Stock Pledge Agreement from the Parent in favor of the Collateral Agent and holders of the Notes, pledging the stock of the Guarantor as security for the obligations owing by the Company to the holders of the Notes pursuant to the Note Documents." "'Yellow Cab Loan' shall mean any Medallion Loan made to YellowOne LLC or YellowTwo LLC secured by Medallion Rights in respect of Chicago Medallions, that (a) satisfies subsections (b) through (f) of the Eligibility Requirements (other than, with respect to the requirement set forth in subsection (e) thereof, by virtue of the subordination provisions of such Yellow -11- Medallion Funding Corp. First Amendment Agreement Cab Loan), provided that, with respect to the requirement set forth in subsection (f) thereof, the endorsement on any promissory note evidencing such Yellow Cab Loan explicitly states that any pledge is subject to the requirements of any relevant participation agreement, (b) with respect to accrued interest thereon is guaranteed by Yellow Cab Management, Inc., its Affiliate, (c) does not exceed, with respect to the portion thereof owed to the Company and attributable to the portion of such Yellow Cab Loan made by the Company, an aggregate principal amount of $4,000,000, and when aggregated with all other Yellow Cab Loans does not exceed, with respect to the portion thereof owed to the Company and attributable to the portion of such Yellow Cab Loan made by the Company, an aggregate principal amount of $9,000,000, and (d) matures no later than June 30, 2005." Section 2.9. Amendment to Schedules to the Existing Note Purchase Agreements. The Schedules to the Existing Note Purchase Agreements shall be and are hereby amended by adding in proper order therein Schedule C attached hereto as Exhibit A. Section 2.10. Amendment of Outstanding Notes. The Outstanding Series A Notes and Exhibit 1(a) to the Existing Note Purchase Agreements shall be and are hereby amended to be in the form of Exhibit B attached hereto. The Outstanding Series B Notes and Exhibit 1(b) to the Existing Note Purchase Agreements shall be and are hereby amended to be in the form of Exhibit C attached hereto. SECTION 3. CONSENT TO AMENDMENT OF BANK LOAN AGREEMENT, ETC. Each of the Holders hereby consents (a) to the amendment of the Bank Loan Agreement in the form and substance satisfactory to the Holders and attached hereto as Exhibit B for purposes of Section 2 of the Intercreditor Agreement and Section 10.11 of the Existing Note Purchase Agreements, and (b) for purposes of Section 8(b) of the Intercreditor Agreement, to the exclusion from the Collateral covered by the Intercreditor Agreement, of the shares of the Guarantor contemplated to be pledged to the Agent as collateral security pursuant to the Parent Pledge Agreement (as such term is defined in the Existing Note Purchase Agreements, as amended hereby) and the Guaranty by the Guarantor (as such terms are defined in the Existing Note Purchase Agreements, as amended hereby); provided however, that with respect to the consent set forth in (b) above, such consent is conditioned upon the shares of the Guarantor and the Guaranty by the Guarantor being subject to an intercreditor agreement (substantially in the form of the Intercreditor Agreement) to be entered into upon terms and conditions satisfactory to the Required Holders. SECTION 4. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Holders as of the date hereof, and as of any date on which the conditions set forth in Section 6 below are met, that: Section 4.1. Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of -12- Medallion Funding Corp. First Amendment Agreement incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and the corporate authority to own or hold under lease the Properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, and to execute, deliver and perform this Amendment and the Note Documents. Section 4.2. Authorization, Etc. The execution and delivery by the Company of this Amendment and all other instruments and agreements required to be executed and delivered by the Company in connection with the transactions contemplated hereby or referred to herein (collectively, the "Amendment Documents"), and the performance by the Company of any of its obligations and agreements under the Amendment Documents and the Note Purchase Agreements and the other Note Documents, as amended hereby, have been duly authorized by all necessary corporate action on the part of the Company, each of the Amendment Documents has been duly executed and delivered by the Company. Each of the Amendment Documents, the Existing Note Purchase Agreements and the other Note Documents, as amended hereby, constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 4.3. Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by the Company of this Amendment and the other Note Documents do not and will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority known to be applicable to the Company or any Subsidiary. Section 4.4. No Default or Event of Default. After giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing excluding any of the 2000 Forbearance Events or 2001 Forbearance Events. Section 4.5. Compliance. The Company has performed and complied in all material respects with all terms and conditions herein required to be performed or complied with by it prior to or at the time hereof. Section 4.6. No Consents. No approval or consent of, or filing with, any Governmental Authority is required to make valid and legally binding the execution, delivery or performance by the Borrower of the Amendment Documents or the Note Purchase Agreements or other Note Documents, as amended hereby, or the consummation by the Company of the transactions among the parties contemplated hereby and thereby or referred to herein. -13- Medallion Funding Corp. First Amendment Agreement Section 4.7. Representations in Note Purchase Agreements. The representations and warranties contained in Section 5 of the Note Purchase Agreements were true and correct at and as of the date made. Except (i) to the extent of changes resulting from transactions contemplated or permitted by the Note Purchase Agreements and the other Note Documents, changes occurring in the ordinary course of business (which changes, either singly or in the aggregate, have not been materially adverse), (ii) to the extent that such representations and warranties relate expressly to an earlier date, (iii) solely with respect to Section 5.8(b) of the Note Purchase Agreements, as a result of the occurrence of the 2000 Forbearance Events and the 2001 Forbearance Events and (iv) after giving effect to the provisions hereof, such representations and warranties, after giving effect to this Amendment, also are correct at and as of the date hereof. The Company acknowledges and agrees that the representations and warranties contained in this Amendment shall constitute representations and warranties referred to in Section 5 of the Note Purchase Agreements, a breach of which shall constitute an Event of Default. Section 4.8. Priority; Continued Effectiveness. Except as otherwise permitted under the Note Purchase Agreements, the Collateral Agent, for the ratable benefit of the holders of the Notes, has or will have, following the Company's compliance with the requirements of Section 6 of this Amendment, a valid and perfected first priority security interest (subject to the terms of the Intercreditor Agreement and the Collateral Agency Agreement) in and to all Collateral, enforceable against the Company and all third parties in all relevant jurisdictions and securing the payment of the Notes and all other sums payable under or in connection with the Note Documents. Each of the Company Security Agreement and, after the execution and delivery thereof, the Parent Pledge Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the holders of the Notes, a valid and perfected first priority security interest (subject to the terms of the Intercreditor Agreement and the Collateral Agency Agreement and except as otherwise permitted hereunder) in and to the Collateral described therein securing the payment of the Notes and all other sums payable under or in connection with the Note Documents, whether incurred prior to or after the Effective Date. No additional Company Financing Statements are required to be filed in order to maintain the perfection and priority of the security interests created pursuant to the Company Security Agreement and the Parent Pledge Agreement. Section 4.9. Investment Company Act. The Company is a closed-end management investment company registered under the 1940 Act. The Company is an "investment company," as such term is defined in the 1940 Act. The Company is not a "business development company," as such term is defined in the 1940 Act. The purchase of the Notes by the holders, the application of the proceeds and repayment thereof by the Company and the performance of the transactions contemplated by this Agreement and the other Note Documents did not and will not violate any provision of said Act, or any rule, regulation or order issued by the SEC thereunder. SECTION 5. CONDITIONS PRECEDENT. This First Amendment Agreement shall be effective when each of the following conditions shall have been satisfied (the "Effective Date"): -14- Medallion Funding Corp. First Amendment Agreement Section 5.1. Execution. Each of the Holders shall have received this Amendment, duly executed by the Company. The Holders shall have consented to this Amendment as evidenced by their execution thereof. Section 5.2. Representations and Warranties. The representations and warranties of the Company set forth in Section 3 hereof are true and correct as of the Effective Date. Section 5.3. Related Transactions. (a) The Holders shall have received an executed copy of the amendment of the Financial Agreement in the form attached hereto as Exhibit D. (b) The Holders shall have received an executed copy of the Amendment No. 4 to the Bank Loan Agreement in the form attached hereto as Exhibit E. Section 5.4. Amendment Fee. The Holders shall have received by wire transfer to each Holder's account specified in Schedule A to the Existing Note Purchase Agreements their pro rata portion of an amendment fee equal to 0.10% of the outstanding principal amount of the Outstanding Notes. Section 5.5. Payment of Fees. The Company shall have paid the fees and disbursements of the Holders' special counsel, Chapman and Cutler, incurred in connection with the negotiation, preparation, execution and delivery of this Amendment. Upon receipt of all of the foregoing, this Amendment shall become effective. SECTION 6. POST CLOSING MATTERS. Section 6.1. Post Closing Matters. The Company agrees to take the following actions and deliver the following items to the Holders no later than April 30, 2001: (a) The Company shall deliver to the Holders, from each of the parties thereto, duly executed originals of each of the Guaranty, the Parent Pledge Agreement, the Collateral Agency Agreement and, if and to the extent deemed necessary or appropriate by the Holders, an amendment to the Intercreditor Agreement (the "New Security Documents"), each in form and substance satisfactory to the Holders; (b) The Company shall deliver to the Holders, from the Secretary of each of the Parent and the Guarantor a copy, certified by such Secretary to be true and complete as of such date, of each of (i) its charter or other organizational documents as in effect on such date of certification, (ii) its by-laws as in effect on such date, and (iii) the resolutions of its Board of Directors or other management authorizing, to the extent it is a party thereto, the execution, delivery and performance of the New Security Documents; provided, however, that in lieu of providing the items required by subsections (i) and (ii) of this subsection (b), such Secretary may certify, to the extent true and correct, that charter documents and by-laws previously provided to the Holders are true and correct as of such date and have not been amended, rescinded or revoked; -15- Medallion Funding Corp. First Amendment Agreement (c) The Company shall deliver to the Holders, from each of the Parent and the Guarantor, an incumbency certificate, dated as of such date, signed by a duly authorized officer of such Person and giving the name and bearing a specimen signature of each individual who shall be authorized to sign, in the name and on behalf of such Person, the New Security Documents; (d) The Company shall deliver to the Holders, from the Parent and the Guarantor, good standing certificates for each such Person, issued by the Secretary of State of each such entity's jurisdiction of incorporation or organization, and evidence that such Person is duly licensed and qualified as a foreign organization in good standing under the laws of each jurisdiction where the failure to qualify as such would have a Material Adverse Effect; (e) The Company shall deliver to the Holders a favorable legal opinion addressed to the Holders, dated as of such date, in form and substance satisfactory to the Holders, from counsel to the Parent and the Guarantor, with respect to each such Person concerning corporate or other applicable entity authority matters and the enforceability of each of the Guaranty, the Parent Pledge Agreement, and the perfection of the security interests granted therein, and concerning such other matters as the Holders may request; (f) The Company shall deliver to the Collateral Agent all stock certificates or other certificates evidencing the Parent's equity interests in the Guarantor, together with undated stock powers or other instruments of endorsement duly executed in blank; (g) The Holders shall have received the results of such UCC filing searches for the Guarantor as the Holders shall have requested; (h) The Company shall deliver to the Collateral Agent UCC-1 financing statements executed by the Guarantor in form and substance satisfactory to the Company, for filing in each jurisdiction deemed necessary or appropriate by the Collateral Agent; and (i) Such other items, documents, agreements, items or actions as the Holders may reasonably request in order to effectuate the transactions contemplated hereby. The Company acknowledges and agrees that the failure to deliver any of the above-referenced items, or take the above-referenced actions, by April 30, 2001, shall constitute an Event of Default under Section 11(c) of the Note Purchase Agreements. SECTION 7. MISCELLANEOUS. Section 7.1. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. -16- Medallion Funding Corp. First Amendment Agreement Section 7.2. Counterparts. This Amendment may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one Amendment. Section 7.3. Captions. The descriptive headings of the various Sections or parts of this Amendment are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. Section 7.4. References to Existing Note Purchase Agreements. Any and all notices, requests, certificates and other instruments executed and delivered concurrently with or after the effectiveness of this Amendment may refer to the Existing Note Purchase Agreements and the Outstanding Notes without making specific reference to this Amendment but nevertheless all such references shall be deemed to include this Amendment unless the context shall otherwise require. Section 7.5. Expenses. Whether or not the transactions herein contemplated shall be consummated, the Company agrees to pay all expenses relating to the subject matter of this Amendment, including but not limited to the reasonable out-of-pocket expenses of the Holders and the reasonable fees and expenses of Chapman and Cutler, special counsel for the Holders. Section 7.6. Ratification. Except to the extent hereby modified or amended, the Existing Note Purchase Agreements are in all respects hereby ratified, confirmed and approved by the parties hereto. Section 7.7. Exchange of Notes. At the request of any holder of Notes, the Company agrees to issue and deliver new Notes in the form of Exhibit B or C hereto (the "Amended Notes"), as the case may be, to the such holder in exchange for its Outstanding Notes and shall be issued in accordance with Section 13 of the Note Purchase Agreements. The Holders agree to surrender their Outstanding Notes to the Company in exchange for the Amended Notes, and the Outstanding Notes shall be canceled by the Company and shall be void. The Company shall pay any stamp tax or governmental charge imposed upon such exchange. The Company agrees and acknowledges that the amendments affected pursuant to this Amendment and the exchange of Notes for Outstanding Notes pursuant to this Amendment, if any, shall not be deemed a prepayment, redemption or repurchase of the Outstanding Notes for any purpose, including Section 8 of the Existing Note Purchase Agreements. SECTION 8. RELEASE. Section 8.1. Release. In order to induce the holders of the Notes to enter into this Amendment, the Company, on behalf of itself and its Subsidiaries, acknowledges and agrees that: (a) such Person does not have any claim or cause of action against any holder of Notes (or any of its respective directors, officers, employees or agents); (b) such Person does not have any offset right, counterclaim or defense of any kind against any of their respective obligations, indebtedness or liabilities to any holder; and (c) each of the holders of the Notes has heretofore properly performed and satisfied in a timely manner all of its obligations to such Person. The Company, on behalf of itself and its Subsidiaries, wishes to eliminate any possibility that any -17- Medallion Funding Corp. First Amendment Agreement past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the holders' rights, interests, contracts, collateral security or remedies. Therefore, the Company, on behalf of itself and its Subsidiaries, unconditionally releases, waives and forever discharges (x) any and all liabilities, obligations, duties, promises or indebtedness of any kind of any holder of Notes to such Person, except the obligations to be performed by any holder on or after the date hereof as expressly stated in this Amendment, the Note Purchase Agreements and the other Note Documents, and (y) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether arising at law or in equity, whether known or unknown, which such Person might otherwise have against any holder of Notes or any of its directors, officers, employees or agents, in either case (x) or (y), on account of any past or presently existing condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind. -18- Medallion Funding Corp. First Amendment Agreement Medallion Funding Corp. By /s/ Alvin Murstein Name: Alvin Murstein Title: Chief Executive Officer By Larry Hall Name: Larry Hall Title: Corporate Controller -19- Medallion Funding Corp. First Amendment Agreement The foregoing First Amendment Agreement is hereby accepted and agreed to as of the date aforesaid, and each of the undersigned hereby confirms that on March 30, 2001 it held Notes of the Company as indicated on Schedule 1 attached hereto and that on the date of actual execution hereof it continues to hold such Notes. THE TRAVELERS INSURANCE COMPANY By A. William Carnduff Name: A. William Carnduff Title: Second Vice President FIRST CITICORP LIFE INSURANCE COMPANY By Travelers Asset Management International Company LLC By A. William Carnduff Name: A. William Carnduff Title: Second Vice President CITICORP LIFE INSURANCE COMPANY By Travelers Asset Management International Company LLC By A. William Carnduff Name: A. William Carnduff Title: Second Vice President UNITED OF OMAHA LIFE INSURANCE COMPANY By Edwin H. Garrison Name: Edwin H. Garrison Title: First Vice-President -20- Medallion Funding Corp. First Amendment Agreement COMPANION LIFE INSURANCE COMPANY By Edwin H. Garrison Name: Edwin H. Garrison Title: First Vice-President -21- SCHEDULE 1 PRINCIPAL AMOUNT AND SERIES OF NAME OF HOLDER OF OUTSTANDING NOTES HELD AS OUTSTANDING NOTES MARCH 30, 2001 THE TRAVELERS INSURANCE COMPANY $10,000,000 Series A $10,000,000 Series B FIRST CITICORP LIFE INSURANCE COMPANY $1,000,000 Series A $1,000,000 Series B CITICORP LIFE INSURANCE COMPANY $1,000,000 Series A $1,000,000 Series B $500,000 Series A $500,000 Series B UNITED OF OMAHA LIFE INSURANCE COMPANY $8,500,000 Series A $8,500,000 Series B COMPANION LIFE INSURANCE COMPANY $1,500,000 Series A $1,500,000 Series B Schedule 1 (to First Amendment Agreement) Exhibit A (to First Amendment Agreement) "EXISTING INVESTMENTS AS OF FIRST AMENDMENT EFFECTIVE DATE NONE SCHEDULE C (To Note Purchase Agreement)" Exhibit B (to First Amendment Agreement) [FORM OF SERIES A NOTE] MEDALLION FUNDING CORP. 7.35% SENIOR SECURED NOTE, SERIES A, DUE JUNE 1, 2004 No. RA-[ ] [Date] $[____________] PPN 58403# AA 5 FOR VALUE RECEIVED, the undersigned, MEDALLION FUNDING CORP. (herein called the "Company"), a corporation organized and existing under the laws of the State of New York, hereby promises to pay to [________________], or registered assigns, the principal sum of [________________] Dollars on June 1, 2004, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of [7.20% per annum from the date hereof to and including March 29, 2001 and]/1/ 7.35% per annum from [March 30, 2001]1 [the date hereof]/2/, payable semiannually, on the first day of June and December in each year, commencing with the June or December next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.35% or (ii) 2% over the rate of interest publicly announced by Citibank, N.A. from time to time in New York, New York as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of Senior Secured Notes, Series A (herein called the "Notes") issued, together with the Company's 7.35% Senior Secured Notes, Series B, due September 1, 2004, pursuant to separate Note Purchase Agreements, dated as of June 1, 1999, (as from time to time amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreements. _______________________ /1/ For Notes dated prior to March 30, 2001 only. /2/ For Notes dated March 30, 2001 or thereafter. EXHIBIT 1(a) (to Note Purchase Agreement) This Note is secured by, and this Note and the holder hereof are also entitled equally and ratably with the holders of all other Notes to the rights and benefits provided pursuant to the terms and provisions of the Security Documents (as such term is defined in the Note Purchase Agreements). Reference is hereby made to each of the foregoing for a statement of the nature and extent of the benefits afforded thereby and the rights of the holders in respect thereof. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. Medallion Funding Corp. By ____________________________________ Its _______________________________ E-1(a)-2 Exhibit C (to First Amendment Agreement) [FORM OF SERIES B NOTE] MEDALLION FUNDING CORP. 7.35% SENIOR SECURED NOTE DUE SEPTEMBER 1, 2004 No. RB-[ ] [Date] $[_________] PPN 58403# AB 3 FOR VALUE RECEIVED, the undersigned, MEDALLION FUNDING CORP. (herein called the "Company"), a corporation organized and existing under the laws of the State of New York hereby promises to pay to [________________], or registered assigns, the principal sum of [________________] Dollars on September 1, 2004, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of [7.20% per annum from the date hereof to and including March 29, 2001 and]/1/ 7.35% per annum from [March 30, 2001]1 [the date hereof]/2/, payable semiannually, on the first day of March and September in each year, commencing with the March or September next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand, at a rate per annum from time to time equal to the greater of (i) 9.35% or (ii) 2% over the rate of interest publicly announced by Citibank, N.A. from time to time in New York, New York as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of Senior Secured Notes, Series B (herein called the "Notes") issued, together with the Company's 7.35% Senior Secured Notes, Series A, due June 1, 2004, pursuant to separate Note Purchase Agreements, dated as of June 1, 1999 (as from time to time amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in ______________________ /1/ For Notes dated prior to March 30, 2001 only. /2/ For Notes dated March 30, 2001 or thereafter. EXHIBIT 1(b) (to Note Purchase Agreement) Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is secured by, and this Note and the holder hereof are also entitled equally and ratably with the holders of all other Notes to the rights and benefits provided pursuant to the terms and provisions of the Security Documents (as such term is defined in the Note Purchase Agreements). Reference is hereby made to each of the foregoing for a statement of the nature and extent of the benefits afforded thereby and the rights of the holders in respect thereof. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. Medallion Funding Corp. By ____ Its E-1(b)(2) FORM OF AMENDMENT TO FINANCIAL AGREEMENT EXHIBIT D (to First Amendment Agreement) FORM OF AMENDMENT TO BANK LOAN AGREEMENT EXHIBIT E (to First Amendment Agreement) EX-21.1 5 dex211.txt LIST OF SUBSIDIARIES OF MEDALLION FINANCIAL CORP. Exhibit 21.1 List of Subsidiaries of Medallion Financial Corp.
Name Jurisdiction of Incorporation or Formation - -------------------------------------------------------------------------------- Medallion Funding Corp. New York Medallion Taxi Media, Inc. Delaware Business Lenders LLC. Delaware Medallion Capital, Inc. Delaware Medallion Business Credit LLC. Delaware Freshstart Venture Capital Corp. New York
EX-23.1 6 dex231.txt CONSENT OF INEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated April 2, 2001, included in this Form 10-K into Medallion Financial Corp.'s previously filed registration statements on Form S-8 (File Nos. 333-19057 and 333-27977). /s/ Arthur Andersen LLP - ----------------------- New York, New York - ------------------ April 2, 2001 - ------------- -----END PRIVACY-ENHANCED MESSAGE-----