-----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, JlGl+cuad6Z2BqM091O70m6lDxv3Y8mTYBZMYghuGm87z5MXinUsgn08VZmmrVvm wiaE4wlYjiVIPslljGaqcw== 0000891554-02-000763.txt : 20020414 0000891554-02-000763.hdr.sgml : 20020414 ACCESSION NUMBER: 0000891554-02-000763 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERITRANS CAPITAL CORP CENTRAL INDEX KEY: 0001064015 IRS NUMBER: 522102424 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26879 FILM NUMBER: 02546273 BUSINESS ADDRESS: STREET 1: 747 THIRD AVENUE STREET 2: 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10117 BUSINESS PHONE: 2123552449 MAIL ADDRESS: STREET 1: 747 THIRD AVENUE STREET 2: 4TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10217 10-Q 1 d27806_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, 2001 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, 2002: 1,745,600 AMERITRANS CAPITAL CORPORATION FORM 10-Q Table of Contents PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2001 (unaudited) and June 30, 2001 ................................. 1 Consolidated Statements of Operations -- For the Three Months and Six Months Ended December 31, 2001 and 2000 (unaudited) ... 3 Consolidated Statements of Cash Flows -- For the Six Months Ended December 31, 2001 and 2000 (unaudited) ........... 4 Notes to Consolidated Financial Statements ...................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 10 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders ............... 11 Item 5. Other Information ................................................. 11 Item 6. Exhibits and Reports on Form 8-K .................................. 11 Signatures ........................................................ 12 -ii- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2001 (Unaudited) and June 30, 2001 ASSETS
December 31, 2001 June 30, 2001 ------------------ ------------- Loans receivable ................................... $ 55,653,678 $ 54,559,970 Less: unrealized depreciation on loans receivable .. (318,500) (318,500) ------------ ------------ 55,335,178 54,241,470 Cash and cash equivalents .......................... 398,492 575,229 Accrued interest receivable ........................ 1,225,529 985,334 Assets acquired in satisfaction of loans ........... 1,000,751 932,814 Receivables from debtors on sales of assets acquired in satisfaction of loans ....................... 367,271 421,823 Equity securities .................................. 486,939 436,914 Furniture, fixtures and leasehold improvements, net 95,463 101,902 Prepaid expenses and other assets .................. 573,413 289,383 ------------ ------------ TOTAL ASSETS ................... $ 59,483,036 $ 57,984,869 ============ ============
The accompanying notes are an integral part of these financial statements. -1- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2001 (Unaudited) and June 30, 2001 LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 2001 June 30, 2001 ------------------ ------------- LIABILITIES Debentures payable to SBA .......................... $ 8,880,000 $ 8,880,000 Notes payable, banks ............................... 36,970,000 35,550,000 Accrued expenses and other liabilities ............. 383,762 456,316 Accrued interest payable ........................... 268,833 291,427 ----------- ----------- TOTAL LIABILITIES ............................. 46,502,595 45,177,743 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' 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 ................................ (505,278) (678,593) Accumulated other comprehensive income ............. 14,070 14,070 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY .................... 12,980,441 12,807,126 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $59,483,036 $57,984,869 =========== ===========
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, 2001 and 2000
Three Months Ended Three Months Ended Six Months Ended Six Months Ended December 31, 2001 December 31, 2000 December 31, 2001 December 31, 2000 ----------------- ----------------- ----------------- ----------------- INVESTMENT INCOME Interest on loans receivable $1,420,029 $ 1,517,066 $2,899,659 $ 3,065,411 Fees and other income 53,772 81,144 92,691 157,127 Gain on sale of equity security -- 12,130 6,782 12,130 ---------- ----------- ---------- ----------- TOTAL INVESTMENT INCOME 1,473,801 1,610,340 2,999,132 3,234,668 ---------- ----------- ---------- ----------- OPERATING EXPENSES Interest 631,643 824,650 1,372,578 1,744,770 Salaries and employee benefits 184,867 155,760 339,449 297,254 Legal fees 52,468 41,746 98,555 80,037 Miscellaneous administrative expenses 224,257 227,434 425,144 453,604 Loss on assets acquired in satisfaction of loans, net 12,720 41,181 50,166 55,769 Directors' fee 8,250 (750) 12,700 (500) Depreciation in value of loans 36,521 -- 54,843 194,298 ---------- ----------- ---------- ----------- TOTAL OPERATING EXPENSES 1,150,726 1,290,021 2,353,435 2,825,232 ---------- ----------- ---------- ----------- OPERATING INCOME 323,075 320,319 645,697 409,436 ---------- ----------- ---------- ----------- INCOME BEFORE INCOME TAXES 323,075 320,319 645,697 409,436 ---------- ----------- ---------- ----------- INCOME TAXES -- 6,074 1,070 7,440 ---------- ----------- ---------- ----------- NET INCOME $ 323,075 $ 314,245 $ 644,627 $ 401,996 ---------- ----------- ---------- ----------- WEIGHTED AVERAGE SHARES OUTSTANDING - - Basic 1,745,600 1,745,600 1,745,600 1,745,600 ========== =========== ========== =========== - - Diluted 1,745,600 1,745,600 1,745,600 1,745,600 ========== =========== ========== =========== NET INCOME PER COMMON SHARE - - Basic $ 0.1851 $ 0.1800 $ 0.3693 $ 0.2303 ========== =========== ========== ----------- - - Diluted $ 0.1851 $ 0.1800 $ 0.3693 $ 0.2303 ========== =========== ========== ===========
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, 2001 and 2000
December 31, 2001 December 31, 2000 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 644,627 $ 401,996 ----------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,574 18,891 Change in operating assets and liabilities Accrued interest receivable (240,195) 24,901 Prepaid Expenses and other assets (284,030) (292,659) Accrued expenses and other liabilities (72,557) 60,054 Accrued Interest payable (22,594) (71,559) ----------- --------- TOTAL ADJUSTMENTS (602,802) (260,372) ----------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 41,825 141,624 ----------- --------- 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 (1,107,090) 828,000 (Purchase) sales of equity securities (50,025) 71,802 Acquisition of furniture, fixtures and leasehold improvements (10,135) (2,947) ----------- --------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,167,250) 896,855 ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds (repayments) from notes payable, banks, net 1,420,000 (800,000) Dividends paid (471,312) -- ----------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ 948,688 $(800,000) ----------- ---------
The accompanying notes are an integral part of these financial statements -4- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended December 31, 2001 and 2000
December 31, 2001 December 31, 2000 ----------------- ----------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (176,737) $ 238,479 CASH AND CASH EQUIVALENTS - Beginning 575,229 376,507 ----------- --------- CASH AND CASH EQUIVALENTS - Ending $ 398,492 $ 614,986 =========== =========
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 ("Ameritrans" or the "Company") as of December 31, 2001, the related statements of operations, and cash flows for the six months ended December 31, 2001 and December 31, 2000 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, 2001 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 Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001 as filed with the Commission. Organization and Principal Business Activity Ameritrans, a Delaware corporation, acquired all of the outstanding shares of Elk Associates 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 Chicago, New York City, 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"). Elk Capital may engage in similar lending and investment activities. Since inception, Elk Capital has had no operations and activities. Reclassifications Certain amounts in the prior financial statements have been reclassified for comparative purposes to conform with the presentation in the financial statements for the three and six months ended December 31, 2001. These reclassifications have no effect on previously reported net income. -6- 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 2002, the Company intends to make the required distributions to its stockholders in accordance with applicable tax rules. 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 during the period. Common Stock equivalents have been excluded from the weighted average shares for the three and six months ended December 31, 2001 and 2000 as inclusion is anti-dilutive. At December 31, 2001 the Company had 127,780 options outstanding. Loans Valuations The Company's loans are recorded at fair value. Since no ready market exists for those 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. To date, fair value of the loans has been determined to approximate cost less unrealized depreciation and no loans have been recorded above cost. The unrealized depreciation has generally been caused by specific events related to credit risk. 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 fair value of financial instruments. New Accounting Pronouncements The Financial Accounting Standards Board ("FASB") has issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" in August 2001. Statement No. 144 changes the accounting for long-lived assets to be held and used by eliminating the requirement to allocate goodwill to long-lived assets to be tested for impairment, by providing a probability weighted cash flow estimation approach to deal with situations in which alternative courses of action to recover the carrying amount of possible future cash flows and by establishing a "primary-asset" approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for long-lived assets to be held and used. Statement No. 144 changes the accounting for long-lived assets to be disposed of other than by sale by requiring that the depreciable life of a long-lived asset to be abandoned be revised to reflect a shortened useful life and by requiring that an impairment loss to be recognized at the date a long-lived asset is exchanged for a similar productive asset or distributed to owners in spin-off if the carrying amount of the asset exceeds its fair value. Statement No. 144 changes the accounting for long-lived assets to be disposed of by sale by requiring that discontinued operations no longer be recognized on a net realizable value basis (but at the lower of carrying amount or fair value less costs to sell), by eliminating the recognition of future operating losses of discontinued components before they occur and by broadening the presentation of discontinued operations in the income statement to include a component of an entity rather than a segment of a business. A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally, and for financial reporting purposes, from the rest of the entity. The effective date for Statement No. 144 is for fiscal years beginning after December 15, 2001. The Company expects that the adoption of the new statement will not have a significant impact on its financial statements. It is not possible to quantify the impact until the newly issued statement has been studied. -7- NOTE 2 -- Debentures Payable to SBA At December 31, 2001 and June 30, 2001 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) $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(2) 430,000 ---------- $8,880,000 ========== - ---------- (1) Interest rate was 3.12% from inception through September 1998. (2) 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, 2001 and June 30, 2001 the Company had loan agreements with three (3) banks for lines of credit aggregating $40,000,000. At December 31, 2001 and June 30, 2001, the Company had $36,970,000 and $35,550,000 respectively, outstanding under these lines. The loans, which mature through June 2002, bear interest based on the Company's choice of the lower of either the reserve adjusted LIBOR rate plus 150 basis points or the banks' prime rates including certain fees which make the effective rates approximately prime minus 1 1/2% as of December 31, 2001. 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. -8- NOTE 4 -- Commitments and Contingencies Interest Rate Swap In October 1998, the Company entered into a $5,000,000 interest rate Swap transaction with a bank expiring on October 8, 2001 and was not renewed. On June 11, 2001, the Company entered into an additional interest rate Swap transaction with the same bank for $10,000,000 expiring on June 11, 2002. On June 11, 2001, the Company entered into another interest rate Swap transaction for $15,000,000 with this bank expiring June 11, 2003. These Swap transactions were entered into to protect the Company from an upward movement in interest rates relating to outstanding bank debt (see Note 3 for terms and effective interest rates). These Swap transactions call for a fixed rate of 4.95%, 4.35% and 4.95%, 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. The effective fixed costs on the outstanding bank debt that was swapped, including the 150 basis points, is 6.45%, 5.85% and 6.45%, respectively. Loan Commitments At December 31, 2001 and June 30, 2001 the Company had commitments to make loans totaling approximately $1,789,924 and $547,000, respectively, at interest rates ranging from 8.25% to 18%. Employment Agreements During November 2001, the Company entered into an employment agreement with an executive effective as of July 1, 2001, whereby the Company would pay a minimum of $240,000 plus a discretionary bonus and annual increases. This employment agreement terminates on July 1, 2006 but will be automatically renewed for an additional five (5) years unless either the Company or the executive gives notice of non-renewal. During November 2001, the Company also entered into a consulting agreement with this executive as of July 1, 2001, whereby based on early termination of the employment agreement the Company would pay a consulting fee for the term of the consulting agreement of a minimum of one-half of the executive's base salary in effect at the termination date of the employment agreement. During November 2001 and January 2002, the Company entered into employment agreements with five executives, whereby the Company would pay a minimum aggregate of $380,900 per annum plus a discretionary bonus and annual increases. These employment agreements terminate through January 1, 2007, but will be automatically renewed for an additional five (5) years unless either the Company or the executives gives notice of non-renewal. NOTE 5 -- Other Matters On December 21, 2001 the Company filed pre-effective amendment No. 2 to its registration statement on Form N-2. The registration statement covers the proposed sale of 325,000 units to the public, which may be increased by the underwriters by 48,750 units to cover over-allotments. Each unit consists of (i) one share of common stock; (ii) one share of 9 3/8% cumulative participating preferred stock (face value $12.00); and (iii) one redeemable warrant exercisable into one share of common stock at an exercise price of $7.00, subject to adjustment, until 2007. The units will be offered for sale at a price between $18.00 and $20.00 per unit. The gross proceeds from the offering should be approximately $6,175,000. However there can be no assurance that the offering will be completed. Prepaid offering costs as of December 31, 2001 were approximately $465,000 which is included in prepaid expenses and other assets. Quarterly Dividend The Company's Board of Directors declared for the quarters ended June 30, 2001 and September 30, 2001 a total dividend of $471,312, or $0.27 per share, on October 11, 2001 to stockholders of record on October 22, 2001, which was paid October 30, 2001. NOTE 6 -- Subsequent Events Quarterly Dividend The Company's Board of Directors declared for the quarter ended December 31, 2001 a dividend of $314,208, or $0.18 per share, on January 9, 2002 to stockholders of record on January 22, 2002, which was paid on January 30, 2002. SBA Commitment During January 2002 the Company and the SBA entered into an agreement whereby the SBA committed to reserve debentures in the amount of $12,000,000 to be issued by the Company on or prior to September 30, 2006. A 2% leverage fee will be deducted pro rata as the commitment proceeds are drawn down, of which a $120,000 non-refundable fee has been paid by the Company. -9- 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 10-Q and the Company's Annual Report on Form 10-K for the year ended June 30, 2001. General Ameritrans acquired Elk on December 16, 1999 in a share-for share exchange. As of December 31, 2001 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 regulation 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 Chicago, 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, 2001 and 2000 Total Investment Income The Company's investment income for the six months ended December 31, 2001 decreased to $2,999,132 from $3,234,668 or 7% as compared with the six months ended December 31, 2000. This decrease was mainly due to leveling of the portfolio due to the economic environment and the fact that the Company was more than 90% drawn on its available bank credit lines. As a result, the Company began to slowdown expansion in its Chicago medallion and diversified loan portfolio. Investment income was also reduced because of lower interest rates. The portfolio was $55,653,678 at December 31, 2001 vs $56,159,543 at December 31, 2000. Operating Expenses Interest expenses for the six month period ended December 31, 2001 decreased $372,192 to $1,372,578 when compared with the six months ended December 31, 2000. This decrease was due to lower interest rates charged during the period. Other operating expenses increased $39,850 mainly due to increase in payroll costs during the current year. Depreciation in value of loans for the six month period ended December 31, 2000 was $194,298 vs $54,843 in the current period ended December 31, 2001. Results of Operations For the Three Months ended December 31, 2001 and 2000 Total investment income The Company's investment income for the three months ended December 31, 2001 decreased to $1,473,801 from $1,610,340 or 8% for the three month period ended December 31, 2000. This decrease was mainly due to a decrease in other fees ($27,372) combined with a decrease in the loan portfolio during the three month period, when compared with the prior year. Operating Expenses Interest expense for the three month period ended December 31, 2001 decreased $193,007 ($631,643 from $824,650) for the similar period ended December 31, 2000. This decrease was mainly due to lower interest rates on non SBA debt. Other operating expenses increased $17,191 when compared with the similar three month period ended December 31, 2000. This increase was mainly due to an increase in payroll costs and legal fees. Depreciation in value of loans increased $36,521 when compared with the similar period in the prior year. Balance Sheet and Reserves Total assets increased $1,498,167 as of December 31, 2001 when compared with total assets as of June 30, 2001. This increase was due to management's decision to increase its loan portfolio in anticipation of the economic recovery and anticipated increase of SBA financing. Non SBA bank borrowings during the period were increased by $1,420,000. On January 31, 2001, the Company terminated the Agreement and Plan of Merger with Medallion Financial Corp. The termination resulted in a charge of approximately $425,000 in the quarter ended March 31, 2001. -10- PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. On January 18, 2002, subsequent to the period covered by this report, the Company held its Annual Meeting of Shareholders. At the meeting the following matters were voted upon by the shareholders: 1. Gary C. Granoff, Ellen M. Walker, Lee A. Forlenza, Marvin Sabesan, Steven Etra, Paul Creditor, Allen Kaplan, John R. Laird and Howard F. Sommer were elected directors to serve until the next Annual Meeting and until their successors are chosen and qualified. The votes received by each are as follows: Votes For Votes Withheld --------- -------------- Gary C. Granoff 1,404,328 300 Ellen M. Walker 1,404,328 300 Lee A. Forlenza 1,404,328 300 Marvin Sabesan 1,404,328 300 Steven Etra 1,404,328 300 Paul Creditor 1,404,328 300 Allen Kaplan 1,404,328 300 John Laird 1,404,328 300 Howard Sommer 1,404,328 300 2. Marcum & Kliegman, LLP was approved as the Company's independent public accountants for the fiscal year ended June 30, 2002. FOR AGAINST ABSTAIN --- ------- ------- 1,401,428 3,200 0 3. The shareholders approved an amendment to the Company's 1999 Employee Stock Option Plan, which increased the number of shares authorized under the plan. FOR AGAINST ABSTAIN NOT VOTED --- ------- ------- --------- 1,228,809 31,352 0 144,467 4. The shareholders approved an amendment to the Company's 1999 Non-Employee Director Stock Option Plan, which increased the number of shares authorized under the plan and established automatic grants of options to directors re-elected to the board of directors. The amendment to the plan is still subject to the approval of the Securities and Exchange Commission. FOR AGAINST ABSTAIN NOT VOTED --- ------- ------- --------- 1,229,809 30,352 0 144,467 5. Both a majority of the shareholders, or 1,210,444 shares, and a majority of the non-affiliate shareholders, or 493,246 shares, approved a proposal authorizing the Company to sell shares of its Common Stock at prices below the stock's current net asset value. The votes received by all shareholders were as follows: FOR AGAINST ABSTAIN NOT VOTED --- ------- ------- --------- 1,210,444 49,717 0 144,467 6. The shareholders approved a proposal authorizing the Company to issue warrants convertible into shares of the Company's Common Stock. FOR AGAINST ABSTAIN NOT VOTED --- ------- ------- --------- 1,241,392 14,269 4,500 144,467 Item 5. Other Information On December 21, 2001 the Company filed pre-effective amendment No. 2 to its registration statement on Form N-2. The registration statement covers the proposed sale of 325,000 units to the public, which may be increased by the underwriters by 48,750 units to cover over-allotments. Each unit consists of (i) one share of common stock; (ii) one share of 9 3/8% cumulative participating preferred stock (face value $12.00); and (iii) one redeemable warrant exercisable into one share of common stock at an exercise price of $7.00, subject to adjustment, until 2007. The units will be offered for sale at a price between $18.00 and $20.00 per unit. ITEM 6 -- Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Employment agreement entered into between the Company, Elk Associates Funding Corporation and Silvia Mullens dated as of January 1, 2002. 10.2 Employment agreement entered into between the Company, Elk Associates Funding Corporation and Margaret Chance dated as of January 1, 2002. (b) Reports on Form 8-K. On November 20, 2001 the Company filed a current report on 8-K reporting under Item V (Other Events) that the Company on or about October 30, 2001 distributed to its shareholders the Company's privacy policy statement. -11- 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, 2002 By: /s/ Gary C. Granoff ------------------- Gary C. Granoff Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) -12- EX-10.1 4 d27806_ex10-1.txt EMPLOYMENT AGREEMENT Exhibit 10.1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is dated as of January 1, 2002, between Silvia Mullens ("Employee"), Ameritrans Capital Corporation ("Ameritrans"), and Elk Associates Funding Corporation ("Elk") (collectively, Ameritrans and Elk are hereinafter referred to as the "Employer"). In consideration of the premises and the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment of Employee. Employer hereby agrees to employ Employee, and Employee hereby agrees to be and remain in the employ of Employer, upon the terms and conditions hereinafter set forth. 2. Employment Period. Subject to the earlier termination as provided in Section 5, the term of Employee's employment under this Agreement shall commence as of the date of execution (the "Effective Date"), and shall continue for a period of five (5) years (the "Initial Employment Period"). Unless Employer gives notice of non-renewal at least four (4) months prior to the expiration of the Initial Employment Period or Employee gives notice of non-renewal at least two (2) months prior to the expiration of the Initial Employment Period, the term of this Agreement shall be extended for an additional five (5) year period beyond the end of the Initial Employment Period on the same terms and conditions in effect under this Agreement at the time of extension (the Initial Employment Period and any extension thereof is hereafter referred to as the "Employment Period"). During the period between the fourth month and the second month prior to the expiration of the Initial Employment Period, Employer and Employee shall negotiate in good faith with respect to any additional terms to the renewed Employment Agreement. 3. Duties and Responsibilities. 3.1. General. During the Employment Period, Employee shall have the title of Vice President of the Employer and shall have duties commensurate with her office and title. Employee shall report directly to and take direction from Gary Granoff. Employee shall devote such of her business time, consistent with past practice, and expend her best efforts, energies, and skills to the Employer. 4. Compensation and Related Matters. 4.1. Base Salary. For each of the twelve-month periods during the Employment Period, commencing with the twelve-month period beginning on the Effective Date (each such period, an "Employment Year"), Employer shall pay to Employee a base salary equal to $95,400 for the first Employment Year, which shall increase by 5% in the second Employment Year and 4% for each subsequent Employment Year (with respect to each Employment Year, the "Base Salary"). The Base Salary for each Employment Year shall be payable in accordance with the normal payroll procedures of Employer. 4.2. Annual Bonus. For each fiscal year during the Employment Period (each, a "Bonus Year"), Employee shall be eligible to receive a bonus based on the achievement of corporate and/or individual performance objectives set by the Board for such Bonus Year at the discretion of the Board (a "Bonus"). Any Bonus earned for any Bonus Year shall be payable promptly following the determination thereof, but in no event later than 45 days after the end of such year. 4.3. Other Benefits. During the Employment Period, subject to, and to the extent Employee is eligible under their respective terms, Employee shall be entitled to receive such benefits as are, or are from time to time hereafter, generally provided by Employer to Employer's senior management employees (including any executive vice president or chief financial officer) (other than those provided under or pursuant to separately negotiated individual employment agreements or arrangements) under any pension or retirement plan (which as of the date hereof is Employer's existing SEP IRA plan), disability plan, or insurance, group life insurance, medical and dental insurance for Employee and her spouse, accidental death and dismemberment insurance, travel accident insurance, or other similar plan or program of Employer. In the event of temporary illness or short-term disability, Employer shall make reasonable accommodation for Employee to perform her duties from home or other location at which Employee resides. 4.4. Expense Reimbursement. Employer shall reimburse Employee for all business expenses reasonably incurred by her in the performance of her duties under this Agreement upon her presentation of signed and itemized accounts of such expenditures, all in accordance with Employer's procedures and policies as adopted and in effect from time to time and applicable to its senior management employees. Included in Employee's reimbursement shall be the Employee's home DSL line. 4.5. Vacations. Employee shall be entitled to 20 business days vacation for the first calendar year during the Employment Period and 25 business days vacation for each subsequent calendar year during the Employment Period, which vacations shall be taken at such time or times as shall not unreasonably interfere with Employee's performance of her duties under this Agreement. Employee shall be entitled to an additional five (5) personal days. 4.6. Stock Options. In order to provide further incentive to Employee and align the interests of Employee with those of the stockholders of Employer, Employer shall grant to Employee, from time to time, options to purchase shares of common stock of Employer, par value per share $.01 (the "Common Stock"), in an amount determined by the Company's board of directors or committee thereof, as the case may be. The options shall be granted pursuant to the Employer's existing Stock Option Plan consistent with the terms and conditions therein. The options shall have such other terms and conditions as set forth in a stock option agreement. Employer shall register the sale of any Common Stock to Employee upon the exercise of any such options pursuant to a Registration Statement on Form S-8, provided that Form S-8 is available to Employer under the Securities Act of 1933 and the rules and regulations of the Securities and Exchange Commission at the time Employee exercises such options. 5. Termination of Employment Period. 5.1. Voluntary Termination by Employee. Employee may, by notice to Employer at any time during the Employment Period, voluntarily resign from Employer and terminate the Employment Period. The effective date of such termination of Employee from Employer shall be the date that is thirty (30) days following the date on which such notice is given. 5.2. By Employer for Cause. Employer may, at any time during the Employment Period, by notice to Employee, terminate the Employment Period for "Cause." As used herein, "Cause" shall mean (i) incompetence, fraud, personal dishonesty, defalcation, or acts of gross negligence or gross misconduct on the part of Employee in the course of her employment, (ii) an intentional breach of this Agreement by Employee that is injurious to Employer, (iii) substantial and continued failure by Employee to perform her duties hereunder, (iv) willful failure by Employee to follow the lawful directions of Gary Granoff or the Board, (v) use of alcohol by Employee or her illegal use of drugs (including narcotics) which in either case is, or could reasonably expected to become, materially injurious to the reputation or business of Employer or which impairs, or could reasonably be expected to impair, the performance of Employee's duties -2- hereunder, (vi) Employee's conviction by a court of competent jurisdiction of, or pleading "guilty" or "no contest" to, (x) a felony, or (y) any other criminal charge (other than minor traffic violations) which has or could reasonably be expected to have a material adverse impact on Employer's reputation and standing in the community, or (vii) Employee's violation of any of the provisions of Section 7 herein. Any notice given by Employer pursuant to Section 5.2(ii), (iii), or (iv), above, shall specify in writing in reasonable detail the nature of Employee's action or inaction that is the cause for giving such notice. Employee will have 30 days to cure, to the reasonable satisfaction of Employer, any action or inaction charged by Employer for Cause under (ii), (iii), or (iv), above. In the event of a termination of the Employment Period for Cause under (i), (v), (vi), or (vii), above, the Employment Period shall terminate immediately upon notice by Employer of termination for Cause. In all other cases of a termination of the Employment Period for Cause, the Employment Period shall terminate 30 days after such notice of termination for Cause, unless Employee has satisfactorily cured such actions or inactions. 5.3. By Employee for Good Reason. (a) Employee may, at any time during the Employment Period by notice to Employer, terminate the Employment Period under this Agreement for "Good Reason" (as defined below). For the purposes hereof, Employee shall have "Good Reason" to terminate employment with Employer on account of any of the following events without Employee's consent: (i) any reduction in the Base Salary; (ii) Employer relocating its principal headquarters outside of a 30 mile radius from Manhattan; (iii) the failure of Employer to provide employee benefits consistent with Section 4.3 herein, or (iv) a "Change in Control" (as defined below); provided, however, that the circumstances set forth in this Section 5.3 shall not be Good Reason if within 30 days of notice by Employee to Employer, Employer cures such circumstances. The effective date of such termination of Employee from Employer shall be the date that is thirty (30) days following the date on which such notice is given. (b) For purposes of this Section 5.3, a "Change in Control" shall be deemed to have taken place if any "Person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of Employer's then outstanding securities eligible to vote for the election of the Board (the "Voting Securities"); provided, however, that the event described in this paragraph (b) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (i) by Employer or any subsidiary of Employer in which Employer owns more than 50% of the combined voting power of such entity (a "Subsidiary"), (ii) by any employee benefit plan (or related trust) sponsored or maintained by Employer or any Subsidiary, (iii) by any underwriter temporarily holding Employer's Voting Securities pursuant to an offering of such Voting Securities, or (iv) pursuant to any acquisition by Employee or any group or persons including Employee (or any entity controlled by Employee or any group of persons including Employee). 5.4. Disability. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Employee shall be unable to perform her duties under this Agreement for (i) a continuous period of at least 120 days, or (ii) periods aggregating at least 180 days during any period of 12 consecutive months (each, a "Disability Period"), and at the end of the Disability Period there is no reasonable probability that Employee can promptly resume her duties hereunder, Employee shall be deemed disabled (the "Disability") and Employer, by notice to Employee, shall have the right to terminate the Employment Period for Disability at, as of, or after the end of the Disability Period. The existence of the Disability shall be determined by a reputable, licensed physician selected by Employer in good faith, whose determination shall be final and binding on the parties; provided, however, Employee shall have the right to select a licensed physician to render a second opinion as to the existence of the Disability. In the event the two physicians have different -3- opinions as to the existence of the Disability, the Employer shall promptly cause its then current healthcare provider to appoint a physician to render an opinion, which opinion shall be final and binding on the parties. Employee shall cooperate in all reasonable respects to enable an examination to be made by such physician. Notwithstanding the foregoing, Employer may conclusively determine Employee to be disabled and terminate the Employment Period on account of Disability at any time after Employee has commenced receiving benefits under Employer's long-term disability insurance policy. 5.5. Death. The Employment Period shall end on the date of Employee's death. 5.6. Any termination under this Section 5 shall act as a notice of non-renewal of this Agreement pursuant to Section 2 herein. 6. Termination Compensation. 6.1. Termination for Good Reason by Employee. If the Employment Period is terminated by Employee for Good Reason pursuant to the provisions of Section 5.3, hereof, Employer will pay to Employee Employee's Base Salary through the date of termination and an amount equal to the sum of the Base Salary multiplied by the number of years (and fractional portions thereof) remaining in the Employment Period (the "Severance Payment"); provided, however, the minimum Severance Payment to be paid to Employee hereunder shall not be less than an amount equal to two-and-one-half years of Employee's Base Salary as in effect at the time this Agreement is terminated as provided herein. Employer shall have no obligation to continue any other benefits provided for in Section 4 past the date of termination. 6.2. Certain Other Terminations. If the Employment Period is terminated by Employer for Cause or on account of Employee's Disability pursuant to the provisions of Sections 5.2 or 5.4, or by death, pursuant to the provisions of Section 5.5, Employer shall pay to Employee, within thirty (30) calendar days of the date of termination, Employee's Base Salary through the date of termination and a pro-rated share of the discretionary bonus if already determined. In the event that the Employment Period is terminated by Employer on account of Disability pursuant to the provisions of Section 5.4 or on account of death pursuant to the provisions of Section 5.5 and provided Employee has been employed for at least six months during the year of termination, Employer shall also pay to Employee a portion of a bonus for the year of termination based upon the bonus paid, if any, for the immediately preceding year prorated through the date of termination. Employer shall have no obligation to continue any other benefits provided for in Section 4 past the date of termination. 6.3. Payment; No Other Termination Compensation. Any payment pursuant to this Section 6 shall be made in a lump sum within ten (10) business days following the date of such termination. Employee shall not, except as set forth in this Section 6, be entitled to any compensation following termination of the Employment Period. 7. Non-Competition, Non-Solicitation. 7.1. Non-solicitation of Employees. The Employee agrees that during the term of the Employee's employment with the Employer and for a period of one year thereafter, the Employee shall not directly recruit, solicit or otherwise induce or attempt to induce any employees of the Employer to leave the employment of the Employer. 7.2. Non-competition. The Employee agrees that during the term of the Employee's employment with the Employer, the Employee shall not directly or indirectly, except as a passive investor in publicly held companies and except for investments held at the date hereof, engage in competition with -4- the Employer or any of its subsidiaries, excluding those activities described in Section 3.1 hereof, or own or control any interest in, or act as director, officer or employee of, or consultant to, any firm, corporation or institution directly engaged in competition with the Employer or any of its subsidiaries. 8. Successors; Binding Agreement. This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee and Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, divisees, and legatees. If Employee should die while any amounts would still be payable to her hereunder if she had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Employee's estate. 9. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 10. Miscellaneous. 10.1. Notices. Any notice, consent, or authorization required or permitted to be given pursuant to this Agreement shall be in writing and sent to the party for or to whom intended, at the address of such party set forth below, by registered or certified mail, postage paid (deemed given five days after deposit in the U.S. mails) or personally delivered or sent by facsimile transmission (deemed given upon receipt), or at such other address as either party shall designate by notice given to the other in the manner provided herein. If to Employer: Ameritrans Capital Corporation 747 Third Avenue, 4th Floor New York, New York 10017 Attn: Gary Granoff, President If to Employee: Ms. Silvia Mullens 38 Risk Avenue Summit, New Jersey 07901 10.2. Taxes. Employer is authorized to withhold (from any compensation or benefits payable hereunder to Employee) such amounts for income tax, social security, unemployment compensation, and other taxes as shall be necessary or appropriate in the reasonable judgment of Employer to comply with applicable laws and regulations. 10.3. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to the principles of conflicts of laws therein. 10.4. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the city in which Employer's main corporate headquarters is then located in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction. -5- 10.5. Headings. All descriptive headings in this Agreement are inserted for convenience only, and shall be disregarded in construing or applying any provision of this Agreement. 10.6. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, together, shall constitute one and the same instrument. 10.7. Severability. If any provision of this Agreement, or any part thereof, is held to be unenforceable, the remainder of such provision and this Agreement, as the case may be, shall nevertheless remain in full force and effect. 10.8. Entire Agreement and Representation. This Agreement contains the entire agreement and understanding between Employer and Employee with respect to the subject matter hereof. No representations or warranties of any kind or nature relating to Employer or its several businesses, or relating to Employer's assets, liabilities, operations, future plans, or prospects have been made by or on behalf of Employer to Employee. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. 10.9. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision or provisions of this Agreement, which shall remain in full force and effect. If any provision of this Agreement is held to be invalid, void, or unenforceable in any jurisdiction, any court or arbitrator so holding shall substitute a valid, enforceable provision that preserves, to the maximum lawful extent, the terms and intent of such provisions of this Agreement. If any of the provisions of, or covenants contained in, this Agreement are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the provisions or the enforceability thereof in any other jurisdiction, which shall be given full force and effect, without regard to the invalidity or unenforceability in such other jurisdiction. Any such holding shall affect such provision of this Agreement, solely as to that jurisdiction, without rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal, or unenforceable because its scope is considered excessive, such covenant will be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal, and enforceable. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AMERITRANS CAPITAL CORPORATION By: /s/ Gary Granoff ------------------------------------ Gary Granoff ELK ASSOCIATES FUNDING CORPORATION By: /s/ Gary Granoff ------------------------------------ Gary Granoff /s/ Silvia Mullens ------------------------------------ Silvia Mullens -6- EX-10.2 5 d27806_ex10-2.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is dated as of January 1, 2002, between Margaret Chance ("Employee"), Ameritrans Capital Corporation ("Ameritrans"), and Elk Associates Funding Corporation ("Elk") (collectively, Ameritrans and Elk are hereinafter referred to as the "Employer"). In consideration of the premises and the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment of Employee. Employer hereby agrees to employ Employee, and Employee hereby agrees to be and remain in the employ of Employer, upon the terms and conditions hereinafter set forth. 2. Employment Period. Subject to the earlier termination as provided in Section 5, the term of Employee's employment under this Agreement shall commence as of the date of execution (the "Effective Date"), and shall continue for a period of five (5) years (the "Initial Employment Period"). Unless Employer gives notice of non-renewal at least four (4) months prior to the expiration of the Initial Employment Period or Employee gives notice of non-renewal at least two (2) months prior to the expiration of the Initial Employment Period, the term of this Agreement shall be extended for an additional five (5) year period beyond the end of the Initial Employment Period on the same terms and conditions in effect under this Agreement at the time of extension (the Initial Employment Period and any extension thereof is hereafter referred to as the "Employment Period"). During the period between the fourth month and the second month prior to the expiration of the Initial Employment Period, Employer and Employee shall negotiate in good faith with respect to any additional terms to the renewed Employment Agreement. 3. Duties and Responsibilities. 3.1. General. During the Employment Period, Employee shall have the title of Vice President and Secretary of the Employer and shall have duties commensurate with her office and title. Employee shall report directly to and take direction from Gary Granoff. Employee shall devote such of her business time, consistent with past practice, and expend her best efforts, energies, and skills to the Employer. 4. Compensation and Related Matters. 4.1. Base Salary. For each of the twelve-month periods during the Employment Period, commencing with the twelve-month period beginning on the Effective Date (each such period, an "Employment Year"), Employer shall pay to Employee a base salary equal to $75,000 for the first Employment Year, which shall increase by 4% for each subsequent Employment Year (with respect to each Employment Year, the "Base Salary"). The Base Salary for each Employment Year shall be payable in accordance with the normal payroll procedures of Employer. 4.2. Annual Bonus. For each fiscal year during the Employment Period (each, a "Bonus Year"), Employee shall be eligible to receive a bonus based on the achievement of corporate and/or individual performance objectives set by the Board for such Bonus Year at the discretion of the Board (a "Bonus"), such Bonus not to be less than $8,500. Any Bonus earned for any Bonus Year shall be payable promptly following the determination thereof, but in no event later than 45 days after the end of such year. 4.3. Other Benefits. During the Employment Period, subject to, and to the extent Employee is eligible under their respective terms, Employee shall be entitled to receive such benefits as are, or are from time to time hereafter, generally provided by Employer to Employer's senior management employees (including any executive vice president or chief financial officer) (other than those provided under or pursuant to separately negotiated individual employment agreements or arrangements) under any pension or retirement plan (which as of the date hereof is Employer's existing SEP IRA plan), disability plan, or insurance, group life insurance, family medical and dental insurance, accidental death and dismemberment insurance, travel accident insurance, or other similar plan or program of Employer. In the event of temporary illness or short-term disability, Employer shall make reasonable accommodation for Employee to perform her duties from home or other location at which Employee resides. 4.4. Expense Reimbursement. Employer shall reimburse Employee for all business expenses reasonably incurred by her in the performance of her duties under this Agreement upon her presentation of signed and itemized accounts of such expenditures, all in accordance with Employer's procedures and policies as adopted and in effect from time to time and applicable to its senior management employees. Included in Employee's reimbursement shall be the Employee's home DSL line. 4.5. Vacations. Employee shall be entitled to thirty (30) business days vacation for each calendar year during the Employment Period, which vacations shall be taken at such time or times as shall not unreasonably interfere with Employee's performance of her duties under this Agreement. Employee shall be entitled to an additional five (5) personal days. 4.6. Stock Options. In order to provide further incentive to Employee and align the interests of Employee with those of the stockholders of Employer, Employer shall grant to Employee, from time to time, options to purchase shares of common stock of Employer, par value per share $.01 (the "Common Stock"), in an amount determined by the Company's board of directors or committee thereof, as the case may be. The options shall be granted pursuant to the Employer's existing Stock Option Plan consistent with the terms and conditions therein. The options shall have such other terms and conditions as set forth in a stock option agreement. Employer shall register the sale of any Common Stock to Employee upon the exercise of any such options pursuant to a Registration Statement on Form S-8, provided that Form S-8 is available to Employer under the Securities Act of 1933 and the rules and regulations of the Securities and Exchange Commission at the time Employee exercises such options. 5. Termination of Employment Period. 5.1. Voluntary Termination by Employee. Employee may, by notice to Employer at any time during the Employment Period, voluntarily resign from Employer and terminate the Employment Period. The effective date of such termination of Employee from Employer shall be the date that is thirty (30) days following the date on which such notice is given. 5.2. By Employer for Cause. Employer may, at any time during the Employment Period, by notice to Employee, terminate the Employment Period for "Cause." As used herein, "Cause" shall mean (i) incompetence, fraud, personal dishonesty, defalcation, or acts of gross negligence or gross misconduct on the part of Employee in the course of her employment, (ii) an intentional breach of this Agreement by Employee that is injurious to Employer, (iii) substantial and continued failure by Employee to perform her duties hereunder, (iv) willful failure by Employee to follow the lawful directions of Gary Granoff or the Board, (v) use of alcohol by Employee or her illegal use of drugs (including narcotics) which in either case is, or could reasonably expected to become, materially injurious to the reputation or business of Employer or which impairs, or could reasonably be expected to impair, the performance of Employee's duties hereunder, (vi) Employee's conviction by a court of competent jurisdiction of, or pleading "guilty" or "no -2- contest" to, (x) a felony, or (y) any other criminal charge (other than minor traffic violations) which has or could reasonably be expected to have a material adverse impact on Employer's reputation and standing in the community, or (vii) Employee's violation of any of the provisions of Section 7 herein. Any notice given by Employer pursuant to Section 5.2(ii), (iii), or (iv), above, shall specify in writing in reasonable detail the nature of Employee's action or inaction that is the cause for giving such notice. Employee will have 30 days to cure, to the reasonable satisfaction of Employer, any action or inaction charged by Employer for Cause under (ii), (iii), or (iv), above. In the event of a termination of the Employment Period for Cause under (i), (v), (vi), or (vii), above, the Employment Period shall terminate immediately upon notice by Employer of termination for Cause. In all other cases of a termination of the Employment Period for Cause, the Employment Period shall terminate 30 days after such notice of termination for Cause, unless Employee has satisfactorily cured such actions or inactions. 5.3. By Employee for Good Reason. (a) Employee may, at any time during the Employment Period by notice to Employer, terminate the Employment Period under this Agreement for "Good Reason" (as defined below). For the purposes hereof, Employee shall have "Good Reason" to terminate employment with Employer on account of any of the following events without Employee's consent: (i) any reduction in the Base Salary; (ii) Employer relocating its principal headquarters outside of a 10 mile radius from Manhattan; (iii) the failure of Employer to provide employee benefits consistent with Section 4.3 herein, or (iv) a "Change in Control" (as defined below); provided, however, that the circumstances set forth in this Section 5.3 shall not be Good Reason if within 30 days of notice by Employee to Employer, Employer cures such circumstances. The effective date of such termination of Employee from Employer shall be the date that is thirty (30) days following the date on which such notice is given. (b) For purposes of this Section 5.3, a "Change in Control" shall be deemed to have taken place if any "Person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of Employer's then outstanding securities eligible to vote for the election of the Board (the "Voting Securities"); provided, however, that the event described in this paragraph (b) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (i) by Employer or any subsidiary of Employer in which Employer owns more than 50% of the combined voting power of such entity (a "Subsidiary"), (ii) by any employee benefit plan (or related trust) sponsored or maintained by Employer or any Subsidiary, (iii) by any underwriter temporarily holding Employer's Voting Securities pursuant to an offering of such Voting Securities, or (iv) pursuant to any acquisition by Employee or any group or persons including Employee (or any entity controlled by Employee or any group of persons including Employee). 5.4. Disability. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Employee shall be unable to perform her duties under this Agreement for (i) a continuous period of at least 120 days, or (ii) periods aggregating at least 180 days during any period of 12 consecutive months (each, a "Disability Period"), and at the end of the Disability Period there is no reasonable probability that Employee can promptly resume her duties hereunder, Employee shall be deemed disabled (the "Disability") and Employer, by notice to Employee, shall have the right to terminate the Employment Period for Disability at, as of, or after the end of the Disability Period. The existence of the Disability shall be determined by a reputable, licensed physician selected by Employer in good faith, whose determination shall be final and binding on the parties; provided, however, Employee shall have the right to select a licensed physician to render a second opinion as to the existence of the Disability. In the event the two physicians have different opinions as to the existence of the Disability, the Employer shall promptly cause its then current healthcare -3- provider to appoint a physician to render an opinion, which opinion shall be final and binding on the parties. Employee shall cooperate in all reasonable respects to enable an examination to be made by such physician. Notwithstanding the foregoing, Employer may conclusively determine Employee to be disabled and terminate the Employment Period on account of Disability at any time after Employee has commenced receiving benefits under Employer's long-term disability insurance policy. 5.5. Death. The Employment Period shall end on the date of Employee's death. 5.6. Any termination under this Section 5 shall act as a notice of non-renewal of this Agreement pursuant to Section 2 herein. 6. Termination Compensation. 6.1. Termination for Good Reason by Employee. If the Employment Period is terminated by Employee for Good Reason pursuant to the provisions of Section 5.3, hereof, Employer will pay to Employee Employee's Base Salary through the date of termination and an amount equal to the sum of the Base Salary multiplied by the number of years (and fractional portions thereof) remaining in the Employment Period (the "Severance Payment"); provided, however, the minimum Severance Payment to be paid to Employee hereunder shall not be less than an amount equal to two-and-one-half years of Employee's Base Salary as in effect at the time this Agreement is terminated as provided herein. Employer shall have no obligation to continue any other benefits provided for in Section 4 past the date of termination. 6.2. Certain Other Terminations. If the Employment Period is terminated by Employer for Cause or on account of Employee's Disability pursuant to the provisions of Sections 5.2 or 5.4, or by death, pursuant to the provisions of Section 5.5, Employer shall pay to Employee, within thirty (30) calendar days of the date of termination, Employee's Base Salary through the date of termination and a pro-rated share of the discretionary bonus if already determined. In the event that the Employment Period is terminated by Employer on account of Disability pursuant to the provisions of Section 5.4 or on account of death pursuant to the provisions of Section 5.5 and provided Employee has been employed for at least six months during the year of termination, Employer shall also pay to Employee a portion of a bonus for the year of termination based upon the bonus paid, if any, for the immediately preceding year prorated through the date of termination. Employer shall have no obligation to continue any other benefits provided for in Section 4 past the date of termination. 6.3. Payment; No Other Termination Compensation. Any payment pursuant to this Section 6 shall be made in a lump sum within ten (10) business days following the date of such termination. Employee shall not, except as set forth in this Section 6, be entitled to any compensation following termination of the Employment Period. 7. Non-Competition, Non-Solicitation. 7.1. Non-solicitation of Employees. The Employee agrees that during the term of the Employee's employment with the Employer and for a period of one year thereafter, the Employee shall not directly recruit, solicit or otherwise induce or attempt to induce any employees of the Employer to leave the employment of the Employer. 7.2. Non-competition. The Employee agrees that during the term of the Employee's employment with the Employer, the Employee shall not directly or indirectly, except as a passive investor in publicly held companies and except for investments held at the date hereof, engage in competition with the Employer or any of its subsidiaries, excluding those activities described in Section 3.1 hereof, or own -4- or control any interest in, or act as director, officer or employee of, or consultant to, any firm, corporation or institution directly engaged in competition with the Employer or any of its subsidiaries. 8. Successors; Binding Agreement. This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee and Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, divisees, and legatees. If Employee should die while any amounts would still be payable to her hereunder if she had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Employee's estate. 9. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 10. Miscellaneous. 10.1. Notices. Any notice, consent, or authorization required or permitted to be given pursuant to this Agreement shall be in writing and sent to the party for or to whom intended, at the address of such party set forth below, by registered or certified mail, postage paid (deemed given five days after deposit in the U.S. mails) or personally delivered or sent by facsimile transmission (deemed given upon receipt), or at such other address as either party shall designate by notice given to the other in the manner provided herein. If to Employer: Ameritrans Capital Corporation 747 Third Avenue, 4th Floor New York, New York 10017 Attn: Gary Granoff, President If to Employee: Ms. Margaret Chance 6154 Gates Avenue Ridgewood, New York 11385 10.2. Taxes. Employer is authorized to withhold (from any compensation or benefits payable hereunder to Employee) such amounts for income tax, social security, unemployment compensation, and other taxes as shall be necessary or appropriate in the reasonable judgment of Employer to comply with applicable laws and regulations. 10.3. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to the principles of conflicts of laws therein. 10.4. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the city in which Employer's main corporate headquarters is then located in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction. 10.5. Headings. All descriptive headings in this Agreement are inserted for convenience only, and shall be disregarded in construing or applying any provision of this Agreement. -5- 10.6. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, together, shall constitute one and the same instrument. 10.7. Severability. If any provision of this Agreement, or any part thereof, is held to be unenforceable, the remainder of such provision and this Agreement, as the case may be, shall nevertheless remain in full force and effect. 10.8. Entire Agreement and Representation. This Agreement contains the entire agreement and understanding between Employer and Employee with respect to the subject matter hereof. No representations or warranties of any kind or nature relating to Employer or its several businesses, or relating to Employer's assets, liabilities, operations, future plans, or prospects have been made by or on behalf of Employer to Employee. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. 10.9. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision or provisions of this Agreement, which shall remain in full force and effect. If any provision of this Agreement is held to be invalid, void, or unenforceable in any jurisdiction, any court or arbitrator so holding shall substitute a valid, enforceable provision that preserves, to the maximum lawful extent, the terms and intent of such provisions of this Agreement. If any of the provisions of, or covenants contained in, this Agreement are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the provisions or the enforceability thereof in any other jurisdiction, which shall be given full force and effect, without regard to the invalidity or unenforceability in such other jurisdiction. Any such holding shall affect such provision of this Agreement, solely as to that jurisdiction, without rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal, or unenforceable because its scope is considered excessive, such covenant will be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal, and enforceable. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AMERITRANS CAPITAL CORPORATION By: /s/ Gary Granoff ------------------------------------- Gary Granoff ELK ASSOCIATES FUNDING CORPORATION By: /s/ Gary Granoff ------------------------------------- Gary Granoff /s/ Margaret Chance ------------------------------------- Margaret Chance -6- -----END PRIVACY-ENHANCED MESSAGE-----