-----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, CSrnvqSax3jQQvequtypIrwnOQGZU3tfICTd9Ha83HdOzyg8aW+hpJCeeUhFfFAV 8yw4rKCRoap3cj2OuhM4eg== 0000891554-01-500967.txt : 20080626 0000891554-01-500967.hdr.sgml : 20080626 20010214171000 ACCESSION NUMBER: 0000891554-01-500967 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 DATE AS OF CHANGE: 20080620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERITRANS CAPITAL CORP CENTRAL INDEX KEY: 0001064015 IRS NUMBER: 522102424 STATE OF INCORPORATION: DE FISCAL YEAR END: 0607 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 814-00193 FILM NUMBER: 01545811 BUSINESS ADDRESS: STREET 1: 747 THIRD AVENUE STREET 2: 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2123552449 MAIL ADDRESS: STREET 1: 747 THIRD AVENUE STREET 2: 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 d24617_10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period 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 0-22153 ---------- AMERITRANS CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 52-2102424 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 747 Third Avenue Fourth Floor New York, New York 10017 (Address of Registrant's (Zip Code) principal executive office) Registrant's telephone number, including area code: (800) 214-1047 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 [ ] The number of shares of Common Stock, par value $.0001 per share, outstanding as of February 13, 2001: 1,745,600 AMERITRANS CAPITAL CORPORATION FORM 10-Q Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 2000 (unaudited) and June 30, 2000 ................................. 1 Consolidated Statements of Operations -- For the Three and Six Month periods Ended December 31, 2000 and 1999 (unaudited) .... 3 Consolidated Statements of Cash Flows -- For the Six Months Ended December 31, 2000 and 1999 (unaudited) ........... 4 Notes to Consolidated Financial Statements ...................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 14 PART II. OTHER INFORMATION Item 5 Other Information ................................................. 15 Item 6. Exhibits and Reports on Form 8-K .................................. 15 Signatures ........................................................ 16 -ii- PART I FINANCIAL INFORMATION AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 (Unaudited) and June 30, 2000 ASSETS
December 31, 2000 June 30, 2000 ------------------ ------------- Loans receivable ................................... $ 56,159,543 $ 56,806,579 Less: allowance for loan losses .................... (572,000) (380,000) ------------ ------------ 55,587,543 56,426,579 Cash and cash equivalents .......................... 614,986 376,507 Accrued interest receivable ........................ 903,864 928,765 Assets acquired in satisfaction of loans ........... 932,814 609,106 Receivables from debtors on sales of assets acquired in satisfaction of loans ....................... 431,282 743,954 Equity securities .................................. 560,172 631,974 Furniture, fixtures and leasehold improvements, net 94,075 110,019 Prepaid expenses and other assets .................. 760,379 467,720 ------------ ------------ TOTAL ASSETS ................... $ 59,885,115 $ 60,294,624 ============ ============
The accompanying notes are an integral part of these financial statements. -1- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 (Unaudited) and June 30, 2000 LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 2000 June 30, 2000 ------------------ ------------- LIABILITIES Debentures payable to SBA .......................... $ 8,880,000 $ 8,880,000 Notes payable, banks ............................... 37,000,000 37,800,000 Accrued expenses and other liabilities ............. 425,382 365,328 Accrued interest payable ........................... 293,711 365,270 Dividends Payable................................... 331,664 ----------- ----------- TOTAL LIABILITIES ............................. 46,930,757 47,410,598 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY Common stock, $.0001 par value: 5,000,000 shares authorized; 1,745,600 shares issued and outstanding, 175 175 Additional paid-in-capital ......................... 13,471,474 13,471,474 Accumulated deficit ................................ (654,725) (725,057) Accumulated other comprehensive income ............. 137,434 137,434 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY .................... 12,954,358 12,884,026 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $59,885,115 $60,294,624 =========== ===========
The accompanying notes are an integral part of these financial statements. -2- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months and Six Months Ended December 31, 2000 and 1999
Three Months Ended Three Months Ended Six Months Ended Six Months Ended December 31, 2000 December 31, 1999 December 31, 2000 December 31, 1999 ----------------- ----------------- ----------------- ----------------- INVESTMENT INCOME Interest on loans receivable $ 1,492,157 $ 1,502,653 $ 3,040,502 $ 2,906,923 Fees and other income 106,053 176,755 182,036 291,316 Gain on sale of equity security 12,130 76,169 12,130 76,169 ----------- ----------- ----------- ----------- TOTAL INVESTMENT INCOME 1,610,340 1,755,577 3,234,668 3,274,408 ----------- ----------- ----------- ----------- OPERATING EXPENSES Interest 782,271 818,863 1,744,770 1,546,047 Salaries and employee benefits 168,110 136,119 309,604 281,128 Legal fees 41,746 142,581 80,037 237,549 Miscellaneous administrative expenses 262,964 241,241 441,254 437,917 Loss on assets acquired in satisfaction of loans, net 36,405 1,876 55,769 1,935 Directors' fee (750) 5,250 (500) 20,250 Bad debt expense -0- 81,050 194,298 81,050 Recapitalization costs 345,941 345,941 ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 1,290,746 1,772,921 2,825,232 2,951,817 ----------- ----------- ----------- ----------- OPERATING INCOME 319,594 (17,344) 409,436 322,591 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 319,594 (17,344) 409,436 322,591 INCOME TAXES (BENEFIT) 5,349 8,772 7,440 11,983 ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 314,245 $ (26,116) $ 401,996 $ 310,608 =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING - - Basic 1,745,600 1,745,600 1,745,600 1,745,600 =========== =========== =========== =========== - - Diluted 1,745,600 1,746,572 1,745,600 1,746,572 =========== =========== =========== =========== NET INCOME (LOSS) PER COMMON SHARE - - Basic $ .1800 $ (.0150) $ .2303 $ .1779 =========== =========== =========== =========== - - Diluted $ .1800 $ (.0150) $ .2303 $ .1778 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. -3- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended December 31, 2000 and 1999
December 31, 2000 December 31, 1999 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 401,996 $ 310,608 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,891 24,985 Increase (Decrease) in accrued interest receivable 24,901 (143,413) Increase in prepaid expenses and other assets (292,659) (46,036) Increase in accrued expenses and other liabilities 60,054 38,671 Increase (decrease) in accrued interest payable (71,559) 59,630 ----------- ----------- TOTAL ADJUSTMENTS (260,372) (66,163) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 141,624 244,445 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Net change in loans receivable, assets acquired in satisfaction of loans and receivables from debtors on sales of assets acquired in satisfaction of loans 828,000 (6,910,242) (Purchases) sales of equity securities 71,802 (34,760) Acquisition of furniture, fixtures and leasehold improvements (2,947) (46,211) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES 896,855 (6,991,213) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment from proceeds of notes payable, banks, net (800,000) 7,600,000 Dividends paid (628,416) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ (800,000) $6,971,584 ----------- -----------
The accompanying notes are an integral part of these financial statements. -4- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), Continued For the Six Months Ended December 31, 2000 and 1999 December 31, 2000 December 31, 1999 ----------------- ----------------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 238,479 $ 224,816 CASH AND CASH EQUIVALENTS - Beginning 376,507 542,290 ----------- ----------- CASH AND CASH EQUIVALENTS - Ending $614,986 $ 767,106 =========== =========== The accompanying notes are an integral part of these financial statements. -5- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- Organization and Summary of Significant Accounting Policies Financial Statements The consolidated balance sheet of Ameritrans Capital Corporation (the "Company") as of December 31, 2000, the related statements of operations, and cash flows for the six months ended December 31, 2000 and December 31, 1999 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting of normal, recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. The results of operations for the six months ended December 31, 2000 are not necessarily indicative of the results of operations for the full year or any other interim period. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 as filed with the Commission. Organization and Principal Business Activity Ameritrans Capital Corporation ("Ameritrans"), a Delaware corporation acquired all of the outstanding shares of Elk Associats Funding Corporation ("Elk") on December 16, 1999 in a share for share exchange. Prior to the acquisition, Elk had been operating independently and Ameritrans had no operations. The historical financial statements prior to December 16, 1999 were those of Elk. Elk, a New York corporation, is licensed by the Small Business Administration ("SBA") to operate as a small Business Investment Company ("SBIC") under the Small Business Investment Act of 1958, as amended. Elk has also registered as an investment company under the Investment Company Act of 1940 to make business loans. Ameritrans is a specialty finance company that through its subsidiary, Elk makes loans to taxi owners, to finance the acquisition and operation of the medallion taxi businesses and related assets, and to other small businesses in the New York City, Chicago, Miami, and Boston markets. Basis of Consolidation The consolidated financial statements include the accounts of Ameritrans, Elk and EAF Holding Corporation ("EAF"), a wholly owned subsidiary of Elk, collectively referred to as the "Company". All significant inter-company transactions have been eliminated in consolidation. EAF was formed in June 1992 and began operations in December 1993. The purpose of EAF is to own and operate certain real estate assets acquired in satisfaction of loans by Elk. Ameritrans organized another subsidiary on June 8, 1998, Elk Capital Corporation ("Elk Capital"), which may engage in similar lending and investment activities. Since inception, Elk Capital had no operations and activities. Loans and the Allowance for Loans Losses Loans are stated at cost, net of participation with other lenders, less an allowance for possible losses. This amount represents the fair value of such loans as determined in good faith by the Board of Directors. The allowance for loan losses is maintained at a level that, in the Board of Directors' judgement, is adequate to absorb losses inherent in the portfolio. The allowance for loan losses is reviewed and adjusted periodically by the Board of Directors on the basis of available information, including the fair value of the collateral held, existing risk of individual credits, past loss experience, the volume, composition and growth of the portfolio, and current and projected economic conditions. Because of the inherent uncertainty in the estimation process, the estimated fair values of the loans may differ significantly from the values that would have been used had a ready market existed for such loans and the differences could be material. As of December 31, 2000 and June 30, 2000 approximately 78% of all loans are collateralized by New York City, Boston, Chicago, and Miami taxicab medallions. Accounting Standard for Impairment of Loans Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 114 as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosure", a loan is determined to be impaired if it is probable that the contractual amounts due will not be collected in accordance with the terms of the loan. The SFAS generally requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. As all of the Company's loans are collateral dependent, impairment is measured based on the fair value of the collateral. If the fair value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net of deferred loan fees or costs, and unamortized premium or discount) the Company recognized an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses. The Company individually evaluates all loans for impairment. 6 Loans Receivable Loans are placed on nonaccrual status once they become 180 days past due as to principle or interest. In addition, loans that are not fully collateralized and in the process of collection are placed on nonaccrual status when, in the judgement of management, the ultimate collectibility of interest and principal is doubtful. Cash and Cash Equivalents For the purposes of the statement of cash flows, the Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. The Company has cash balances in banks in excess of the maximum amount insured by the FDIC as of December 31, 2000 and June 30, 2000. Income Taxes The Company has elected to be taxed as a Regulated Investment Company under the Internal Revenue Code. A Regulated Investment Company will generally not be taxed at the corporate level to the extent its income is distributed to its stockholders. In order to be taxed as a Regulated Investment Company, the Company must pay at least 90 percent of its net investment company taxable income to its stockholders as well as meet other requirements under the Code. In order to preserve this election for fiscal 2001, the Company intends to make the required distributions to its stockholders in accordance with applicable tax rules. Depreciation and Amortization Depreciation and amortization of furniture, fixtures and leasehold improvements is computed on the straight-line method at rates adequate to allocate the cost of applicable assets over their expected useful lives. Net Income per Share During the year ended June 30, 1999, the Company adopted the provision of Statements of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 eliminates the presentation of primary and fully dilutive earnings per share ("EPS") and requires presentation of basic and diluted EPS. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock and common stock equivalents outstanding at year end. At December 31, 2000 and June 30, 2000 the Company has 133,336 options outstanding which resulted in common stock equivalents of nil and 5,084 shares, respectively. Loan Costs Loan costs are included in prepaid expenses and other assets. Amortization of loan costs is computed on the straight-line method over ten (10) years. At December 31, 2000 and June 30, 2000, loan costs amounted to $92,649 and $104,877, respectively, net of accumulated amortization of $151,332 and $139,104, respectively. Amortization expense for the periods ended December 31, 2000 and June 30, 2000 was $12,228 and $24,455, respectively. 7 Assets Acquired in Satisfaction of Loans Assets acquired in satisfaction of loans are carried at estimated fair value less selling costs. Losses incurred at the time of foreclosure are charged to the allowance for loan losses. Subsequent reductions in estimated net realizable value are recorded as losses on assets acquired in satisfaction of loans. Use of Estimates in the Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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. Estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses and the fair value of financial instruments. Comprehensive Income During the year ended June 30, 1999, the Company adopted SFAS No. 130 "Reporting Comprehensive Income". SFAS 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Stock-Based Compensation In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was issued. SFAS 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company intends to continue to account for its stock based compensation plans in accordance with the provisions of APB 25. Business Segment During the year ended June 30, 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", which supersedes SFAS No. 14, "Financial Reporting for Segments of A Business Enterprise". SFAS No. 131 establishes standards for the way the public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has determined that under SFAS No. 131, it operates in one segment of financing services. The Company's customers and operations are within the United States. 8 Loan Sales and Servicing Fee Receivable SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued in June 1996. SFAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This statement also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. It requires that liabilities and derivatives incurred or obtained by transferors as part of a transfer of finanical assets be initially measured at fair value. SFAS 125 also requires that servicing assets be measured by allocating the carrying amount between the assets sold and retained interest based on their relative fair values at the date of transfer. Additionally, this statement requires that the servicing assets and liabilities be subsequently measured by (a) amortization in proportion to and over the period of estimated net servicing income or loss and (b) assessment for asset impairment or increased obligation based on their fair values. SFAS 125 also requires the Company's excess servicing rights be measured at fair market value and reclassified as interest only receivables and accounted for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As required by SFAS 125, the Company adopted in the new requirements effective January 1, 1997. Implementation of SFAS 125 did not have any material impact on the financial statements of the Company. New Accounting Pronouncements In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities" was issued. This SOP provides guidance on the financial reporting of start-up costs and organization costs. It requires the costs of start-up activities and organization costs to be expensed as incurred. The SOP is effective for financial statements for fiscal year beginning after December 15, 1998. The Company does not expect that the adoption of SOP No. 98-5 will have a material impact on its financial statements. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued and is required to be adopted in years beginning after June 15, 1999, which has been deferred to June 30, 2000. Management does not anticipate that the adoption of the new statement will have a significant effect on results of operations or the financial position of the Company. 9 NOTE 2 -- Debentures Payable to SBA At December 31, 2000 and June 30, 2000 debentures payable to the SBA consist of subordinated debentures with interest payable semiannually, as follows: Current Effective Principal Issue Date Due Date Interest Rate Amount ---------- -------- ------------- ------ September 1993 September 2003 6.12 $1,500,000 September 1993 September 2003 6.12 2,220,000 September 1994 September 2004 8.20 2,690,000 December 1995 December 2005 6.54 1,020,000 June 1996 June 2006 7.71 1,020,000 March 1997 March 2007 7.38(1) 430,000 ---------- $8,880,000 ========== - ---------- (1) The Company is also required to pay an additional annual user fee of 1% on this debenture Under the terms of the subordinated debentures, the Company may not repurchase or retire any of its capital stock or make any distributions to its stockholders other than dividends out of retained earnings (as computed in accordance with SBA regulations) without the prior written approval of the SBA. NOTE 3 -- Notes Payable to Banks At December 31, 2000 and June 30, 2000, the Company had loan agreements with three (3) banks for lines of credit aggregating $40,000,000 and $40,000,000, respectively. At December 31, 2000 and June 30, 2000, the Company had $37,000,000 and $37,800,000, respectively, outstanding under these lines. The loans, which mature through January 2001 bear interest based on the Company's choice of the lower of either the reserve adjusted LIBOR rate plus 150 basis points or the bank's prime rates including certain fees which make the effective rates approximately prime minus 1 1/4%. Upon maturity, the Company anticipates extending the lines of credit for another year, as has been the practice in previous years. Pursuant to the terms of the agreements the Company is required to comply with certain terms, covenants and conditions. The Company pledged its loans receivable and other assets as collateral for the above lines of credit. NOTE 4 -- Preferred Stock Pursuant to a preferred stock repurchase agreement dated November 10, 1994, the Company repurchased all cumulative preferred stock from the SBA for $3.50 per share, or an aggregate $1,915,449. As a condition precedent to the repurchase, the Company granted the SBA a liquidating interest in a newly established restricted capital surplus account. The surplus account is equal to the amount of the net repurchase discount. The initial value of the liquidating interest was $3,557,261, which was amortized over a 60-month period on a straight- line basis. Should the Company be in default under the repurchase agreement at any time, the liquidating interest will become fixed at the level immediately preceding the event of default and will not decline further until such time as the default is cured or waived. The liquidating interest shall expire on (i) sixty months from the date of the repurchase agreement, or (ii) if any event of default has occurred and such default has been cured or waived, such later date on which the liquidating interest is fully amortized. Should the Company voluntarily or 10 involuntarily liquidate prior to the amortization of the liquidating interest, any assets which are available, after the payment of all debts of the Company, shall be distributed first to the SBA until the fair market value of such assets is equal to the amount of the liquidating interest. Such payment, if any, would be prior in right to any payments made to the Company's stockholders. The amount restricted under this agreement at December 31, 2000 and June 30, 2000 was $-0-. NOTE 5 -- Common Stock Ameritrans has 5,000,000 authorized common shares, $0.0001 par value, of which 1,745,600 shares are issued and outstanding. Ameritrans also has 1,000,000 shares of "blank check" preferred stock, none of which are issued and outstanding. On January 10, 2001, the Company declared a cash dividend of $0.19 per common share, for a total of $331,664, which was paid on January 31, 2001. NOTE 6 -- Income Taxes The provision for income taxes for the periods ended December 31, 2000 and June 30, 2000, consists of the following: December 31, 2000 June 30, 2000 ----------------- ------------- Federal $2,562 $ 986 State and city 4,878 12,585 -------- -------- $7,440 $13,571 ======== ======== The above provision represents income taxes incurred on undistributed income for the respective years. NOTE 7 -- Commitments and Contingencies Interest Rate Swap On June 8, 1998, the Company entered into a $10,000,000 interest rate Swap transaction with a bank expiring on June 8, 2001. On October 13, 1999, the Company entered into an additional interest rate swap transaction with the same bank for $5,000,000 expiring on October 8, 2001. On January 12, 2000, the Company entered into another interest rate swap transaction for $10,000,000 with this bank expiring January 8, 2001. These Swap transactions were entered into to protect the Company from an upward movement in interest rates relating to outstanding bank debt. These Swap transactions call for a fixed rate of 5.86%, 4.95% and 6.57% (plus 150 basis points for each swap), respectively for the Company and if the floating one month LIBOR rate is below the fixed rate then the Company is obligated to pay the bank for the difference in rates. When the one-month LIBOR rate is above the fixed rate then the bank is obligated to pay the Company for the differences in rates. 11 Loan commitments At December 31, 2000 and June 30, 2000, the Company had commitments to make loans totaling approximately $1,290,500 and $2,070,000, at interest rates ranging from 8.25% to 18%. NOTE 8 -- Fair Value of Financial Instruments The following disclosures represent the Company's best estimate of the fair value of financial instruments, determined on a basis consistent with requirements of Statement of Financial Accounting Standards, "SFAS" No. 107, "Disclosure about Fair Value of Financial Instruments". The estimated fair values of the Company's financial instruments are derived using estimation techniques based on various subjective factors including discount rates. Such estimates may not necessarily be indicative of the net realizable or liquidation values of these instruments. Fair values typically fluctuate in response to changes in market or credit conditions. Additionally, valuations are presented as of a specific point in time and may not be relevant in relation to the future earnings potential of the Company. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company will realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Loans Receivable -- The fair value of loans is estimated at cost net of the allowance for loan losses. The Company believes that the rates of these loans approximate current market rates. Equity Securities -- The Company's equity securities as of December 31, 2000 consist of investments in corporations who own and operate Chicago Taxicab Medallions (11%), a dry cleaner (2%), Miami Taxicab Medallions (26%), a telecommunications company (57%) and a biotech research company (4%). Debentures Payable to Small Business Administration -- The fair value of debentures as of December 31, 2000 and June 30, 2000 was approximately $9,320,869 and $9,941,000, respectively, and were estimated by discounting the expected future cash flows using the current rate at which the SBA has extended similar debentures to the Company. The fair value of financial instruments that are short-term or reprice frequently and have a history of negligible credit losses is considered to approximate their carrying value. Those instruments include balances recorded in the following captions: ASSETS LIABILITIES Cash Notes payable, banks Accrued interest receivable Accrued interest payable Assets acquired in satisfaction of loans receivables from debtors on sales of assets acquired in satisfaction of loans 12 NOTE 9 -- Subsequent Event On January 31, 2001, the company terminated an Agreement and Plan of Merger with Medallion Financial Corporation ("Medallion"). This termination will result in a charge of approximately $425,000 in the quarter ended March 31, 2001. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in this section should be used in conjunction with the Consolidated Financial Statements and Notes therewith appearing in this report Form 10Q and the Company's Annual Report on Forms 10 KSB for the year ended June 30, 2000. General Ameritrans acquired Elk on December 16, 1999 in a share-for-share exchange. As of December 31, 2000 Ameritrans had no separate operations. Elk is licensed by the Small Business Administration (SBA) to operate as a Small Business Investment Company (SBIC) under the Small Business Investment Act of 1958, as amended. The Company has also registered as an investment company under the Investment Company Act of 1940. The Company primarily makes loans and investments to persons who qualify under SBA Regulations as socially or economically disadvantaged and loans and investments to entities which are at least 50% owned by such persons. The Company also makes loans and investments to persons who qualify under SBA regulations as "non-disadvantaged". The Company's primary lending activity is to originate and service loans collateralized by New York City, Boston, Chicago, and Miami Taxicab Medallions. The Company also makes loans and investments in other diversified businesses. Results of Operations For the Six Months Ended December 31, 2000 and 1999 Total Investment Income The Company's investment income for the six months ended December 31, 2000, decreased to $3,234,668 from $3,274,408, or 1.2% as compared with the six months ended December 31, 1999. This decrease was mainly due to leveling of the portfolio as a result of the potential Medallion Transaction. The portfolio was $58,029,360 at December 31, 1999 vs $56,159,543 at December 31, 2000. The gain on sale of equity securities for the six months ended December 31, 2000 was $12,130 as compared to $76,169 for the similar period ended December 31, 1999. Operating Expenses Interest expenses for the six month period ended December 31, 2000 increased $198,723 to $1,744,770 when compared with the six months ended December 31, 1999. This increase was due to higher borrowings in the period combined with higher interest rates paid during the period. Other operating expenses decreased $92,615 mainly due to lower legal fees incurred in Chicago due to a decrease in new loan activity. Bad debt expenses for the six month period ended December 31, 2000 was $194,298 vs $81,050 in the similar period ended December 31, 1999. In the six month period ended December 31, 1999 the Company incurred $345,941 of recapitalization costs, which was a one time nonrecurring charge. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont.) Results of Operations For the Three Months ended December 31, 2000 and 1999 Total Investment Income The Company's investment income for the three months ended December 31, 2000 decreased to $1,610,340 from $1,755,577 or by $145,237 or (8.3%) for the three month period ended December 31, 2000 and December 31, 1999. This decrease was mainly due to a decrease in other fees ($70,702) and decrease in gains on sale of equity securities ($64,039) during the three month period, which reflects a slow down of new investments in the Chicago Medallion Market. Operating Expenses Interest expense for the three month period ended December 31, 2000 decreased $36,592 ($782,271 from $818,863) over the similar period ended December 31, 1999. This decrease was mainly due to decreased bank borrowings as compared with the prior period. Other operating expenses decreased $18,592 when compared with the similar three month period ended December 31, 1999. This decrease was mainly due to a decrease in non-related legal fees incurred consistent with the decrease of new investments in the Chicago Medallion Market, as discussed above. In addition, bad debts decreased $81,050 when compared with the similar period. In the three month period ended December 31, 1999 the Company incurred $345,941 of recapitalization costs, which was a one time nonrecurring charge. Balance Sheet and Reserves Total assets decreased $409,509 as of December 31, 2000 when compared with total assets as of June 30, 2000. This decrease was due to management's decision to maintain the portfolio at its current level in anticipation of the Medallion Transaction. Bank debt during the period was reduced by $800,000. On January 31, 2001 the Company terminated the Agreement and Plan of Merger with Medallion Financial Corp. The termination will result in a charge of approximately $425,000 in the quarter ended March 31, 2001. PART II. OTHER INFORMATION ITEM 5 -- Other Information On January 31, 2001 the proposed Agreement and Plan of Merger (the "Merger Agreement") between the Company, and Medallion Financial Corp. was terminated by the Company because the parties were unable to reach mutually agreeable terms for an extension of the closing date. ITEM 6 -- Exhibits and Reports on Form 8-K (a) Exhibits. 10.1 Promissory Note dated December 15, 2000 between the Company and Bank Leumi USA and letter of extension between the aforementioned parties. (b) Reports on Form 8-K. On November 16, 2000 the Company filed a current report on Form 8-K reporting under Item V (Other Events) that on October 31, 2000 Amendment No. 9 to the Merger Agreement was executed, pursuant to which the parties agreed (i) that the average closing sale price per share of Medallion's common stock on the NASDAQ Market during the Determination Period (as defined in the Merger Agreement) at which either party shall have the right to terminate the Merger Agreement shall be reduced from $15.00 to $14.00 per share; (ii) that the purchase price (i.e., number of Medallion shares) to be paid to the Company's shareholders if the average price per share of Medallion common stock during the Determination Period is between $14.00 and $14.99 shall be calculated by dividing $8.01 by such average closing price of the Medallion common stock; (iii) to the modification of certain representations by the Company; (iv) that the date by which Medallion shall have obtained either approval of the Company's lenders to the merger or shall have obtained financing satisfactory to it shall be extended from November 1, 2000, to November 30, 2000; and (v) the date by which the merger must be completed shall be extended from December 31, 2000, to January 31, 2001, unless the only condition remaining to be satisfied under the Agreement is obtaining SBA approval, in which event, such outside date shall be February 23, 2001. The Company also reported that it was in discussions with Medallion regarding a further extension of the date by which Medallion shall have obtained either the consent of the Company's lenders or financing satisfactory to Medallion. On November 29, 2000 the Company filed a current report on Form 8-K reporting under Item V (Other Events) that on November 29, 2000 Amendment No. 10 to the Merger Agreement was executed, pursuant to which the parties agreed to an extension of the date by which Medallion shall have obtained either the consent of Ameritrans' lenders to the Merger Agreement or comparable financing satisfactory to Medallion to January 23, 2001. On February 6, 2001, subsequent to the period covered by this report, the Company filed a current report on Form 8-K reporting under Item V (Other Events) that the Company issued a press release announcing that the proposed Merger Agreement by and between the Company, Medallion Financial Corp. and AMTC Merger Corp. was terminated. 15 AMERITRANS CAPITAL CORPORATION SIGNATURES Pursuant to the requirements 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. AMERITRANS CAPITAL CORPORATION Date: February 14, 2001 By: /s/ Gary C. Granoff ------------------- Gary C. Granoff Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) 16 EX-10.1 2 d24617_ex10-1.txt EXHIBIT 10.1 bank leumi USA December 15, 2000 Elk Associates Funding Corporation ("Borrower) 747 Third Avenue New York, NY 10017 Attn: Mr. Gary Granoff, President Dear Mr. Granoff: Reference is made to promissory note dated December 15, 2000 in the principal amount of $8,000,000. You have agreed that for good and valuable consideration including, but not limited to the extension and increase of credit accommodations to Borrower, in the amount of $8,000,000, that letter agreement dated January 20, 1998 shall continue to be in full force and effect with respect to credit accommodations now or in the future outstanding to Borrower. You have agreed that the first paragraph of such letter is modified to provide as follows: "In order to induce you to make and/or continue loans for the account of the undersigned pursuant to Promissory Note (Grid) dated December 15, 2000, as such note is hereafter modified, extended, renewed or replaced with other notes, the Borrower will, and will cause each affiliate and subsidiary (to the extent applicable) to:". 562 Fifth Avenue, New York, NY 10036 Commercial Banking o Private Banking o International Banking o A Member of the Worldwide Bank Leumi le-Israel Group Elk Associates Funding Corporation Page 2 December 15, 2000 Please confirm you agreement to the foregoing by signing and returning a copy of this letter to the undersigned. Very truly yours, BANK LEUMI USA By: /s/ Iris Schechter ------------------------------------ Iris Schechter, Vice President By: /s/ Fran Davis ------------------------------------ Fran Davis, Vice President Consented and Agreed to: ELK ASSOCIATES FUNDING CORPORATION By: /s/ Sylvia M. Mullens, V.P. -------------------------------------- Sylvia M. Mullens, Vice President By: /s/ Margaret Chance -------------------------------------- Margaret Chance, Secretary "THIS NOTE SUPERSEDES AND REPLACES THAT CERTAIN PROMISSORY NOTE (GRID) DATED OCTOBER 10, 2000 IN THE ORIGINAL PRINCIPAL AMOUNT OF $8,000,000.00." PROMISSORY NOTE (GRID) New York, N.Y. DECEMBER 15, 2000 $8,000,000 For Value Received, ELK ASSOCIATES FUNDING CORP. promises to pay to the order of BANK LEUMI USA (the "Bank"), at its offices at 579 Fifth Avenue, New York, New York, the principal sum of Eight Million Dollars ("Maximum Principal Amount") or, if less, the aggregate unpaid principal sum of all loans made by the Bank, in its sole discretion, to the maker of this Note from time to time. The principal sum of each such loan shall be payable February 1, 2001. Within the limits of the Maximum Principal Amount, the maker may borrow, prepay, and reborrow in the manner provided herein. Each loan shall bear interest (from the date of such loan), at the option of the maker, at a rate per annum which shall be equal to (a) the rate of interest designated by the Bank, and in effect from time to time, as its "Reference Rate" minus 1/2% per annum, adjusted when said Reference Rate changes (the maker acknowledges that the Reference Rate may not necessarily represent the lowest rate of interest charged by the Bank to customers) or (b) 1 1/2% per annum above the Libor Rate (Reserve Adjusted)* for a one, two or three month term, as elected by the maker and calculated by the Bank, in the manner hereinafter provided, but in no event in excess - -------- * "Libor Rate" means, relative to any Interest Period (hereinafter defined) for loans made pursuant to this Note and which bear interest at the "Libor Rate (Reserve Adjusted)", the rate of interest per annum determined by the Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum at which dollar deposits in the approximate amount of the amount of the loan to be made or continued hereunder by the Bank and having a maturity comparable to such Interest Period would be offered to the Bank in the London Interbank market at its request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. "Libor Reserve Percentage" means, relative to any Interest Period for loans hereunder, the percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to the Bank) under the regulations issued from time to time by the Federal Reserve System Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as a "Eurocurrency Liabilities" in Regulation D of the Federal Reserve System Board). "Libor Rate (Reserve Adjusted)" means, relative to any loan to be made or continued hereunder for any Interest Period, the rate of interest per annum (rounded upwards to the next 1/16th of 1%) determined by the Bank as follows: Libor Rate = Libor Rate ------------------------------ (Reserve Adjusted) 1.00 - Libor Reserve Percentage of the maximum rate permitted by applicable law; provided, that in the event the Bank shall have determined that by reason of circumstances affecting the Libor Rate (Reserve Adjusted) adequate and reasonable means do not exist for ascertaining the Libor Rate (Reserve Adjusted) for any Interest Period, the applicable rate of interest during such Interest Period shall be equal to its Reference Rate minus 1/2% per annum adjusted when said Reference Rate changes, but in no event in excess of the maximum rate permitted by law; further provided that if, at the end of any Interest Period, the maker has failed to timely notify the Bank of its election of the choice of interest rate for or length of the next Interest Period, then the interest rate in effect thereafter shall be at the Libor Rate (Reserve Adjusted) plus 1 1/2% per annum for an Interest Period the length of which shall be the same length as the immediately preceding Interest Period unless such Interest Period would end after the stated maturity date of this Note, in which case the Interest Period shall be of a duration equal to the next longest Interest Period which would end prior to such scheduled maturity date, provided further that no Libor Rate (Reserve Adjusted)-based loan shall be made less than one month before the stated maturity date of this Note, or after the occurrence and continuance of an Event of Default or an event which, upon notice, passage of time or both would constitute an Event of Default. Interest hereunder shall be payable on the last day of each Interest Period and at maturity (whether by acceleration or otherwise). The term "Interest Period" as used in this Note shall mean a period of one, two or three month(s), as elected by the maker by written or facsimile notice to the Bank given not later than 12:00 noon three Business Days prior to the commencement of an Interest Period. No Interest Period shall extend beyond the stated maturity date of this Note. The initial Interest Period for this Note shall begin on the day of the initial draw down under the Note, and each subsequent Interest Period shall begin on the last day of the immediately preceding Interest Period. The Bank shall give notice to the maker of the interest rate determined for each Interest Period as provided herein, and such notice shall be conclusive and binding upon the maker for all purposes absent manifest error. The maker shall pay to the Bank to compensate it for any loss, cost or expense that the Bank determines is attributable to any prepayment of a loan made by the Bank to the maker using the Libor Rate (Reserve Adjusted). Such compensation shall include an amount equal to the excess (if any) of (i) the amount of interest that otherwise would have accrued on the principal amount so prepaid for the period from the date of such prepayment to the last day of the then current Interest Period for such loan at the applicable rate of interest for such loan provided herein over (ii) the amount of interest that otherwise would have accrued to such principal amount at a rate per annum equal to the interest component of the amount the Bank would have bid in The London Interbank market for dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by the Bank). The term "Business Day" shall mean any day of the year on which the Bank is open for business (as required or permitted by law or otherwise) and on which dealings in the U.S. dollar deposits are carried on in London, England. If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for the Bank to make Libor Rate (Reserve Adjusted)-based loans, or to maintain interest rates based on Libor, then in the former event, any obligation of the Bank contained herein or in any agreement of the Bank to make available such unlawful Libor Rate -2- (Reserve Adjusted)-based loans shall immediately be cancelled, and in the latter event, any such unlawful Libor Rate (Reserve Adjusted)-based loans then outstanding shall be converted, at the Bank's option, so that interest on the outstanding principal balance subject hereto is determined in relation to the Reference Rate as hereinabove provided; provided however, that if any such Change in Law shall permit any Libor Rate (Reserve Adjusted)-based loans to remain in effect until the expiration of the Interest Period applicable thereto, then such permitted Libor Rate (Reserve Adjusted)-based loans shall continue in effect until the expiration of such Interest Period. Upon the occurrence of any of the foregoing events, maker shall pay to the Bank immediately upon demand such amounts as may be necessary to compensate the Bank for any fines, fees, charges, penalties or other costs incurred or payable by the Bank as a result thereof and which are attributable to any Libor Rate (Reserve Adjusted) options made available to maker hereunder, and any reasonable allocation made by the Bank among its operations shall be conclusive and binding upon maker. If any Change in Law or compliance by the Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject the Bank to any tax, duty or other charge with respect to any Libor Rate (Reserve Adjusted) options, or change the basis of taxation of payments to the Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of the Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of the Bank; or (C) impose on the Bank any other condition; and the result of any of the foregoing is to increase the cost to the Bank of making, renewing or maintaining any Libor Rate (Reserve Adjusted)-based loan hereunder and/or to reduce any amount receivable by the Bank in connection therewith, then in any such case, maker shall pay to the Bank immediately upon demand such amounts as may be necessary to compensate the Bank for any additional costs incurred by the Bank and/or reductions received by the Bank which are attributable to such Libor Rate (Reserve Adjusted)-based loan. In determining which costs incurred by the Bank and/or reductions in amounts received by the Bank are attributable to any Libor Rate (Reserve Adjusted)-based loan made to maker hereunder, any reasonable allocation made by the Bank among its operations shall be conclusive and binding upon maker. The Bank is hereby authorized to enter on the schedule attached hereto the amount of each loan and each payment of principal thereon, without any further authorization on the part of the maker or any endorser or guarantor of this Note, but the Bank's failure to make such entry shall not limit or otherwise affect the obligations of the maker or any endorser or guarantor of this Note. In the event that any Liabilities (as hereinafter defined) of maker to the Bank are due at -3- any time that the Bank receives a payment from maker on account of this Note or any such other Liabilities of maker, the Bank may apply such payments to amounts due under this Note or any such other Liabilities in such manner as the Bank, in its discretion, elects, regardless of any instructions from maker to the contrary. The maker and each endorser and guarantor of this Note acknowledge and agree that the use of this form of Note is for their convenience, and there is no obligation on the part of the Bank to make loans to the maker whatsoever. Interest shall be computed on the basis of a 360-day year. Each maker or endorser authorizes (but shall not require) the Bank to debit any account maintained by the maker or endorser with the Bank, at any date on which the payment of principal or of interest on any of the Liabilities is due, in an amount equal to any unpaid portion of such payment. If the time for payment of principal of or interest on any of the Liabilities or any other money payable hereunder or with respect to any of the Liabilities becomes due on a day on which the Bank's offices are closed (as required or permitted by law or otherwise), such payment shall be made on the next succeeding business day, and such extension shall be included in computing interest in connection with such payment. All payments by any maker or endorser of this Note on account of principal, interest or fees hereunder shall be made in lawful money of the United States of America, in immediately available funds. All Property (as hereinafter defined) held by the Bank shall be subject to a security interest in favor of the Bank or holder hereof as security for any and all Liabilities. The term "Property" shall mean the balance of every deposit account of the maker with the Bank or any of the Bank's nominees or agents and all other obligations of the Bank or any of its nominees or agents to the maker, whether now existing or hereafter arising, and all other personal property of the maker (including without limitation all money, accounts, general intangibles, goods, instruments, documents and chattel paper) which, or evidence of which, are now or at any time in the future shall come into the possession or under the control of or be in transit to the Bank or any of its nominees or agents for any purpose, whether or not accepted for the purposes for which it was delivered. The term "Liabilities" shall mean the indebtedness evidenced by this Note and all other indebtedness, liabilities and obligations of any kind of the maker (or any partnership or other group of which the maker is a member) to (a) the Bank, (b) any group of which the Bank is a member, or (c) any other person if the Bank has a participation or other interest in such indebtedness, liabilities or obligations, whether (i) for the Bank's own account or as agent for others, (ii) acquired directly or indirectly by the Bank from the maker or others, (iii) absolute or contingent, joint or several, secured or unsecured, liquidated or unliquidated, due or not due, contractual or tortious, now existing or hereafter arising, or (iv) incurred by the maker as principal, surety, endorser, guarantor or otherwise, and including without limitation all expenses, including attorneys' fees, incurred by the Bank in connection with any indebtedness, liabilities or obligations or any of the Property (including any sale or other disposition of the Property). -4- Upon the happening, with respect to any maker, endorser or guarantor of this Note or any assets of any such maker, endorser or guarantor, of any of the following events (each an "Event of Default"): death of the maker, endorser or guarantor or any member of the maker, endorser or guarantor (if a partnership); the failure to furnish the Bank with any requested information or failing to permit inspection of books or records by the Bank or any of its agents; the making of any misrepresentation to the Bank in obtaining credit for any of them; dissolution (if a corporation or partnership); the making of a mortgage or pledge; the commencement of a foreclosure proceeding; default in the payment of principal or interest on this Note or in the payment of any other obligation of any said maker, endorser or guarantor held by the Bank or holder hereof or in the performance or observance of any covenant or agreement contained in the instrument evidencing such obligation; default in the payment of principal of or interest on any indebtedness for borrowed money owed to any other person or entity (including any such indebtedness in the nature of a lease) or default in the performance or observance of the terms of any instrument pursuant to which such indebtedness was created or is secured, the effect of which default is to cause or permit any hoder of any such indebtedness to cause the same to become due prior to its stated maturity (and whether or not such default is waived by the holder thereof); a change in the financial condition or affairs of any of them which in the opinion of the Bank or subsequent holder hereof materially reduces his, their or its ability to pay all of his their or its obligations; the suspension of business; the making of an assignment for the benefit of creditors, or appointment of a trustee, receiver or liquidator for the maker, endorser or guarantor or for any of his, its or their property, or the commencement of any proceedings by the maker, endorser or guarantor under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute (including, if the maker, endorser or guarantor is a partnership, its dissolution pursuant to any agreement or statute), or the commencement of any such proceedings without the consent of the maker, endorser or guarantor, as the case may be, and such proceedings shall continue undischarged for a period of 30 days; the sending of notice of an intended bulk sale; the entry of judgments or any attachment, levy or execution against any of his, their or its properties shall not be released, discharged dismissed, stayed or fully bonded for a period of 30 days or more after its entry, issue or levy, as the case may be; or the issuance of a warrant of distraint or assertion of a lien for unpaid taxes, this Note, if not then due or payable on demand, shall become due and payable immediately without demand or notice and all other debts or obligations of the makers and endorsers hereof to the Bank or holder hereof, whether due or not due and whether direct or contingent and however evidenced, shall, at the option of the Bank or holder hereof, also become due and payable immediately without demand or notice. After this Note becomes due, at stated maturity or on acceleration, any unpaid balance hereof shall bear interest from the date it becomes due until paid at a rate per annum 3% above the rate borne by this Note when it becomes due or, if such rate shall not be lawful with respect to the undersigned, then at the highest lawful rate. The liability of any party to commercial paper held by the Bank or holder hereof, other than the makers and endorsers hereof, shall remain unaffected hereby and such parties shall remain liable thereon in accordance with the original tenor thereof. Each maker and endorser agrees that if an attorney is retained to enforce or collect this Note or any other obligations by reason of non-payment of this Note when due or made due hereunder, a reasonable attorneys' fee shall be paid in addition, which fees shall be computed as follows: -5- 15% of the principal, interest and all other sums due and owing to the payee or holder or the reasonable value of the attorneys' services, whichever is greater. This Note shall be governed by the laws of the State of New York and shall be binding upon the maker and each endorser and the maker's and each endorser's heirs, administrators, successors and assigns. The maker and each endorser hereby irrevocably consent to the jurisdiction of any New York State or Federal court located in New York City over any action or proceeding arising out of any dispute between the maker and each endorser and the Bank, and the maker further irrevocably consents to the service of process in any such action or proceeding by the mailing of a copy of such process to the maker at the address set forth below. In the event of litigation between the Bank and the maker over any matter connected with this Note or resulting from the transactions hereunder, the right to a trial by jury is hereby waived by the Bank and the maker. The maker also waives the right to interpose any set-off or counterclaim of any nature. The Bank or any holder may accept late payments, or partial payments, even though marked "payment in full" or containing words of similar import or other conditions, without waiving any of its rights. No amendment, modification or waiver of any provision of this Note nor consent to any departure by maker therefrom shall be effective, irrespective of any course of dealing, unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights and remedies of the Bank provided for hereunder (including but not limited to the right to accelerate Liabilities of maker and to realize on any security for any such Liabilities) are cumulative with the rights and remedies of the Bank available under any other instrument or agreement or under applicable law. The undersigned, if more than one, shall be jointly and severally liable hereunder. ELK ASSOCIATES FUNDING CORPORATION By: /s/ Sylvia M. Mullens, V.P. ------------------------------------- Sylvia M. Mullens, Vice President By: /s/ Margaret Chance ------------------------------------- Margaret Chance, Secretary (Address) 747 Third Avenue New York, New York 10017 VALUE RECEIVED -6- bank leumi USA October 10, 2000 Elk Associates Funding Corporation ("Borrower) 747 Third Avenue New York, NY 10017 Attn: Mr. Gary Granoff, President Dear Mr. Granoff: Reference is made to promissory note dated October 10, 2000 in the principal amount of $8,000,000. You have agreed that for good and valuable consideration including, but not limited to the extension and increase of credit accommodations to Borrower, in the amount of $8,000,000, that letter agreement dated January 20, 1998 shall continue to be in full force and effect with respect to credit accommodations now or in the future outstanding to Borrower. You have agreed that the first paragraph of such letter is modified to provide as follows: "In order to induce you to make and/or continue loans for the account of the undersigned pursuant to Promissory Note (Grid) dated October 10, 2000, as such note is hereafter modified, extended, renewed or replaced with other notes, the Borrower will, and will cause each affiliate and subsidiary (to the extent applicable) to:". 562 Fifth Avenue, New York, NY 10036 Commercial Banking o Private Banking o International Bankingo A Member of the Worldwide Bank Leumi le-Israel Group Elk Associates Funding Corporation Page 2 October 10, 2000 Please confirm you agreement to the foregoing by signing and returning a copy of this letter to the undersigned. Very truly yours, BANK LEUMI USA By: /s/ Iris Schechter -------------------------------- Iris Schechter, Vice President By: /s/ Fran Davis -------------------------------- Fran Davis, Vice President Consented and Agreed to: ELK ASSOCIATES FUNDING CORPORATION By: /s/ Gary Granoff ---------------------------- Gary Granoff, President By: /s/ Margaret Chance ---------------------------- Margaret Chance, Secretary "THIS NOTE SUPERSEDES AND REPLACES THAT CERTAIN PROMISSORY NOTE (GRID) DATED MAY 8, 2000 IN THE ORIGINAL PRINCIPAL AMOUNT OF $8,000,000.00." PROMISSORY NOTE (GRID) New York, N.Y. OCTOBER 10, 2000 $8,000,000 For Value Received, ELK ASSOCIATES FUNDING CORP. promises to pay to the order of BANK LEUMI USA (the "Bank"), at its offices at 579 Fifth Avenue, New York, New York, the principal sum of Eight Million Dollars ("Maximum Principal Amount") or, if less, the aggregate unpaid principal sum of all loans made by the Bank, in its sole discretion, to the maker of this Note from time to time. The principal sum of each such loan shall be payable February 1, 2001. Within the limits of the Maximum Principal Amount, the maker may borrow, prepay, and reborrow in the manner provided herein. Each loan shall bear interest (from the date of such loan), at the option of the maker, at a rate per annum which shall be equal to (a) the rate of interest designated by the Bank, and in effect from time to time, as its "Reference Rate" minus 1/2% per annum, adjusted when said Reference Rate changes (the maker acknowledges that the Reference Rate may not necessarily represent the lowest rate of interest charged by the Bank to customers) or (b) 1 1/2% per annum above the Libor Rate (Reserve Adjusted)** for a one, two or three month term, as elected by the maker and calculated by the Bank, in the manner hereinafter provided, but in no event in excess - -------- ** "Libor Rate" means, relative to any Interest Period (hereinafter defined) for loans made pursuant to this Note and which bear interest at the "Libor Rate (Reserve Adjusted)", the rate of interest per annum determined by the Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum at which dollar deposits in the approximate amount of the amount of the loan to be made or continued hereunder by the Bank and having a maturity comparable to such Interest Period would be offered to the Bank in the London Interbank market at its request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. "Libor Reserve Percentage" means, relative to any Interest Period for loans hereunder, the percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to the Bank) under the regulations issued from time to time by the Federal Reserve System Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as a "Eurocurrency Liabilities" in Regulation D of the Federal Reserve System Board). "Libor Rate (Reserve Adjusted)" means, relative to any loan to be made or continued hereunder for any Interest Period, the rate of interest per annum (rounded upwards to the next 1/16th of 1%) determined by the Bank as follows: Libor Rate = Libor Rate ------------------------------ (Reserve Adjusted) 1.00 - Libor Reserve Percentage of the maximum rate permitted by applicable law; provided, that in the event the Bank shall have determined that by reason of circumstances affecting the Libor Rate (Reserve Adjusted) adequate and reasonable means do not exist for ascertaining the Libor Rate (Reserve Adjusted) for any Interest Period, the applicable rate of interest during such Interest Period shall be equal to its Reference Rate minus 1/2% per annum adjusted when said Reference Rate changes, but in no event in excess of the maximum rate permitted by law; further provided that if, at the end of any Interest Period, the maker has failed to timely notify the Bank of its election of the choice of interest rate for or length of the next Interest Period, then the interest rate in effect thereafter shall be at the Libor Rate (Reserve Adjusted) plus 1 1/2% per annum for an Interest Period the length of which shall be the same length as the immediately preceding Interest Period unless such Interest Period would end after the stated maturity date of this Note, in which case the Interest Period shall be of a duration equal to the next longest Interest Period which would end prior to such scheduled maturity date, provided further that no Libor Rate (Reserve Adjusted)-based loan shall be made less than one month before the stated maturity date of this Note, or after the occurrence and continuance of an Event of Default or an event which, upon notice, passage of time or both would constitute an Event of Default. Interest hereunder shall be payable on the last day of each Interest Period and at maturity (whether by acceleration or otherwise). The term "Interest Period" as used in this Note shall mean a period of one, two or three month(s), as elected by the maker by written or facsimile notice to the Bank given not later than 12:00 noon three Business Days prior to the commencement of an Interest Period. No Interest Period shall extend beyond the stated maturity date of this Note. The initial Interest Period for this Note shall begin on the day of the initial draw down under the Note, and each subsequent Interest Period shall begin on the last day of the immediately preceding Interest Period. The Bank shall give notice to the maker of the interest rate determined for each Interest Period as provided herein, and such notice shall be conclusive and binding upon the maker for all purposes absent manifest error. The maker shall pay to the Bank to compensate it for any loss, cost or expense that the Bank determines is attributable to any prepayment of a loan made by the Bank to the maker using the Libor Rate (Reserve Adjusted). Such compensation shall include an amount equal to the excess (if any) of (i) the amount of interest that otherwise would have accrued on the principal amount so prepaid for the period from the date of such prepayment to the last day of the then current Interest Period for such loan at the applicable rate of interest for such loan provided herein over (ii) the amount of interest that otherwise would have accrued to such principal amount at a rate per annum equal to the interest component of the amount the Bank would have bid in The London Interbank market for dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by the Bank). The term "Business Day" shall mean any day of the year on which the Bank is open for business (as required or permitted by law or otherwise) and on which dealings in the U.S. dollar deposits are carried on in London, England. If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for the Bank to make Libor Rate (Reserve Adjusted)-based loans, or to maintain interest rates based on Libor, then in the former event, any obligation of the Bank contained herein or in any agreement of the Bank to make available such unlawful Libor Rate -2- (Reserve Adjusted)-based loans shall immediately be cancelled, and in the latter event, any such unlawful Libor Rate (Reserve Adjusted)-based loans then outstanding shall be converted, at the Bank's option, so that interest on the outstanding principal balance subject hereto is determined in relation to the Reference Rate as hereinabove provided; provided however, that if any such Change in Law shall permit any Libor Rate (Reserve Adjusted)-based loans to remain in effect until the expiration of the Interest Period applicable thereto, then such permitted Libor Rate (Reserve Adjusted)-based loans shall continue in effect until the expiration of such Interest Period. Upon the occurrence of any of the foregoing events, maker shall pay to the Bank immediately upon demand such amounts as may be necessary to compensate the Bank for any fines, fees, charges, penalties or other costs incurred or payable by the Bank as a result thereof and which are attributable to any Libor Rate (Reserve Adjusted) options made available to maker hereunder, and any reasonable allocation made by the Bank among its operations shall be conclusive and binding upon maker. If any Change in Law or compliance by the Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject the Bank to any tax, duty or other charge with respect to any Libor Rate (Reserve Adjusted) options, or change the basis of taxation of payments to the Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of the Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of the Bank; or (C) impose on the Bank any other condition; and the result of any of the foregoing is to increase the cost to the Bank of making, renewing or maintaining any Libor Rate (Reserve Adjusted)-based loan hereunder and/or to reduce any amount receivable by the Bank in connection therewith, then in any such case, maker shall pay to the Bank immediately upon demand such amounts as may be necessary to compensate the Bank for any additional costs incurred by the Bank and/or reductions received by the Bank which are attributable to such Libor Rate (Reserve Adjusted)-based loan. In determining which costs incurred by the Bank and/or reductions in amounts received by the Bank are attributable to any Libor Rate (Reserve Adjusted)-based loan made to maker hereunder, any reasonable allocation made by the Bank among its operations shall be conclusive and binding upon maker. The Bank is hereby authorized to enter on the schedule attached hereto the amount of each loan and each payment of principal thereon, without any further authorization on the part of the maker or any endorser or guarantor of this Note, but the Bank's failure to make such entry shall not limit or otherwise affect the obligations of the maker or any endorser or guarantor of this Note. In the event that any Liabilities (as hereinafter defined) of maker to the Bank are due at -3- any time that the Bank receives a payment from maker on account of this Note or any such other Liabilities of maker, the Bank may apply such payments to amounts due under this Note or any such other Liabilities in such manner as the Bank, in its discretion, elects, regardless of any instructions from maker to the contrary. The maker and each endorser and guarantor of this Note acknowledge and agree that the use of this form of Note is for their convenience, and there is no obligation on the part of the Bank to make loans to the maker whatsoever. Interest shall be computed on the basis of a 360-day year. Each maker or endorser authorizes (but shall not require) the Bank to debit any account maintained by the maker or endorser with the Bank, at any date on which the payment of principal or of interest on any of the Liabilities is due, in an amount equal to any unpaid portion of such payment. If the time for payment of principal of or interest on any of the Liabilities or any other money payable hereunder or with respect to any of the Liabilities becomes due on a day on which the Bank's offices are closed (as required or permitted by law or otherwise), such payment shall be made on the next succeeding business day, and such extension shall be included in computing interest in connection with such payment. All payments by any maker or endorser of this Note on account of principal, interest or fees hereunder shall be made in lawful money of the United States of America, in immediately available funds. All Property (as hereinafter defined) held by the Bank shall be subject to a security interest in favor of the Bank or holder hereof as security for any and all Liabilities. The term "Property" shall mean the balance of every deposit account of the maker with the Bank or any of the Bank's nominees or agents and all other obligations of the Bank or any of its nominees or agents to the maker, whether now existing or hereafter arising, and all other personal property of the maker (including without limitation all money, accounts, general intangibles, goods, instruments, documents and chattel paper) which, or evidence of which, are now or at any time in the future shall come into the possession or under the control of or be in transit to the Bank or any of its nominees or agents for any purpose, whether or not accepted for the purposes for which it was delivered. The term "Liabilities" shall mean the indebtedness evidenced by this Note and all other indebtedness, liabilities and obligations of any kind of the maker (or any partnership or other group of which the maker is a member) to (a) the Bank, (b) any group of which the Bank is a member, or (c) any other person if the Bank has a participation or other interest in such indebtedness, liabilities or obligations, whether (i) for the Bank's own account or as agent for others, (ii) acquired directly or indirectly by the Bank from the maker or others, (iii) absolute or contingent, joint or several, secured or unsecured, liquidated or unliquidated, due or not due, contractual or tortious, now existing or hereafter arising, or (iv) incurred by the maker as principal, surety, endorser, guarantor or otherwise, and including without limitation all expenses, including attorneys' fees, incurred by the Bank in connection with any indebtedness, liabilities or obligations or any of the Property (including any sale or other disposition of the Property). -4- Upon the happening, with respect to any maker, endorser or guarantor of this Note or any assets of any such maker, endorser or guarantor, of any of the following events (each an "Event of Default"): death of the maker, endorser or guarantor or any member of the maker, endorser or guarantor (if a partnership); the failure to furnish the Bank with any requested information or failing to permit inspection of books or records by the Bank or any of its agents; the making of any misrepresentation to the Bank in obtaining credit for any of them; dissolution (if a corporation or partnership); the making of a mortgage or pledge; the commencement of a foreclosure proceeding; default in the payment of principal or interest on this Note or in the payment of any other obligation of any said maker, endorser or guarantor held by the Bank or holder hereof or in the performance or observance of any covenant or agreement contained in the instrument evidencing such obligation; default in the payment of principal of or interest on any indebtedness for borrowed money owed to any other person or entity (including any such indebtedness in the nature of a lease) or default in the performance or observance of the terms of any instrument pursuant to which such indebtedness was created or is secured, the effect of which default is to cause or permit any hoder of any such indebtedness to cause the same to become due prior to its stated maturity (and whether or not such default is waived by the holder thereof); a change in the financial condition or affairs of any of them which in the opinion of the Bank or subsequent holder hereof materially reduces his, their or its ability to pay all of his their or its obligations; the suspension of business; the making of an assignment for the benefit of creditors, or appointment of a trustee, receiver or liquidator for the maker, endorser or guarantor or for any of his, its or their property, or the commencement of any proceedings by the maker, endorser or guarantor under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute (including, if the maker, endorser or guarantor is a partnership, its dissolution pursuant to any agreement or statute), or the commencement of any such proceedings without the consent of the maker, endorser or guarantor, as the case may be, and such proceedings shall continue undischarged for a period of 30 days; the sending of notice of an intended bulk sale; the entry of judgments or any attachment, levy or execution against any of his, their or its properties shall not be released, discharged dismissed, stayed or fully bonded for a period of 30 days or more after its entry, issue or levy, as the case may be; or the issuance of a warrant of distraint or assertion of a lien for unpaid taxes, this Note, if not then due or payable on demand, shall become due and payable immediately without demand or notice and all other debts or obligations of the makers and endorsers hereof to the Bank or holder hereof, whether due or not due and whether direct or contingent and however evidenced, shall, at the option of the Bank or holder hereof, also become due and payable immediately without demand or notice. After this Note becomes due, at stated maturity or on acceleration, any unpaid balance hereof shall bear interest from the date it becomes due until paid at a rate per annum 3% above the rate borne by this Note when it becomes due or, if such rate shall not be lawful with respect to the undersigned, then at the highest lawful rate. The liability of any party to commercial paper held by the Bank or holder hereof, other than the makers and endorsers hereof, shall remain unaffected hereby and such parties shall remain liable thereon in accordance with the original tenor thereof. Each maker and endorser agrees that if an attorney is retained to enforce or collect this Note or any other obligations by reason of non-payment of this Note when due or made due hereunder, a reasonable attorneys' fee shall be paid in addition, which fees shall be computed as follows: -5- 15% of the principal, interest and all other sums due and owing to the payee or holder or the reasonable value of the attorneys' services, whichever is greater. This Note shall be governed by the laws of the State of New York and shall be binding upon the maker and each endorser and the maker's and each endorser's heirs, administrators, successors and assigns. The maker and each endorser hereby irrevocably consent to the jurisdiction of any New York State or Federal court located in New York City over any action or proceeding arising out of any dispute between the maker and each endorser and the Bank, and the maker further irrevocably consents to the service of process in any such action or proceeding by the mailing of a copy of such process to the maker at the address set forth below. In the event of litigation between the Bank and the maker over any matter connected with this Note or resulting from the transactions hereunder, the right to a trial by jury is hereby waived by the Bank and the maker. The maker also waives the right to interpose any set-off or counterclaim of any nature. The Bank or any holder may accept late payments, or partial payments, even though marked "payment in full" or containing words of similar import or other conditions, without waiving any of its rights. No amendment, modification or waiver of any provision of this Note nor consent to any departure by maker therefrom shall be effective, irrespective of any course of dealing, unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights and remedies of the Bank provided for hereunder (including but not limited to the right to accelerate Liabilities of maker and to realize on any security for any such Liabilities) are cumulative with the rights and remedies of the Bank available under any other instrument or agreement or under applicable law. The undersigned, if more than one, shall be jointly and severally liable hereunder. ELK ASSOCIATES FUNDING CORPORATION By: /s/ Gary Granoff ---------------------------------- Gary Granoff, President By: /s/ Margaret Chance ---------------------------------- Margaret Chance, Secretary (Address) 747 Third Avenue New York, New York 10017 VALUE RECEIVED -6- -----END PRIVACY-ENHANCED MESSAGE-----