-----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, Sm/1xbWluOxfi6vykJCjS+RonwgH9I8nxuYgcpzyGz56zfBUZaOKQlDFsam14NxE 0lpVtRgevvmO6hh0yB6DNQ== 0001169232-03-001366.txt : 20080626 0001169232-03-001366.hdr.sgml : 20080626 20030214142700 ACCESSION NUMBER: 0001169232-03-001366 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 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: 03566279 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 d53614_10-q.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, 2002 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, 2003: 2,035,600 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, 2002 (unaudited) and June 30, 2002 ................................. 1 Consolidated Statements of Operations -- For the Three Months and Six Months Ended December 31, 2002 and 2001 (unaudited) ... 3 Consolidated Statements of Cash Flows -- For the Six Months Ended December 31, 2002 and 2001 (unaudited) ........... 4 Notes to Consolidated Financial Statements ...................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 11 Item 3. Quantitative and Qualitative Disclosure about Market Risk ......... 14 Item 4. Controls and Procedures ........................................... 14 Part II. OTHER INFORMATION ................................................ 14 Item 6. Exhibits and Reports on Form 8-K .................................. 14 Signatures ........................................................ 15 -ii- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2002 (Unaudited) and June 30, 2002 ASSETS December 31, 2002 June 30, 2002 ----------------- ------------- Loans receivable $ 57,094,341 $ 55,029,831 Less: unrealized depreciation on loans receivable (238,500) (238,500) ------------ ------------ 56,855,841 54,791,331 Cash and cash equivalents 747,947 774,062 Accrued interest receivable, net of unrealized depreciation of $254,089 and $206,272 respectively 1,544,609 1,197,075 Assets acquired in satisfaction of loans 1,083,588 1.108,088 Receivables from debtors on sales of assets acquired in satisfaction of loans 432,537 367,271 Equity securities 590,638 443,327 Furniture, fixtures and leasehold improvements, net 151,482 107,757 Prepaid expenses and other assets 346,974 219,305 ------------ ------------ TOTAL ASSETS $ 61,753,616 $ 59,008,216 ============ ============ The accompanying notes are an integral part of these financial statements. -1- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2002 (Unaudited) and June 30, 2002 LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 2002 June 30, 2002 ----------------- ------------ LIABILITIES Debentures payable to SBA $ 9,200,000 $ 7,860,000 Notes payable, banks 35,030,000 33,720,000 Accrued expenses and other liabilities 465,319 434,339 Accrued interest payable 257,319 258,358 Dividends payable 288,935 68,438 ------------ ------------ TOTAL LIABILITIES 45,241,573 42,341,135 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock 500,000 and 1,000,000 shares authorized respectively, none outstanding -- -- 9 3/8% Cumulative participating preferred stock $.01 par value, $12.00 face value, 500,000 shares authorized; 300,000 shares issued and outstanding 3,600,000 3,600,000 Common stock, $.0001 par value: 5,000,000 shares authorized; 2,045,600 shares issued and 2,035,600 shares outstanding, 205 205 Additional paid-in-capital 13,869,545 13,869,545 Accumulated deficit (858,165) (703,127) Accumulated other comprehensive loss (29,542) (29,542) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 16,582,043 16,737,081 ------------ ------------ Treasury stock, at cost, 10,000 shares common stock (70,000) (70,000) ------------ ------------ NET STOCKHOLDERS' EQUITY 16,512,043 16,667,081 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 61,753,616 $ 59,008,216 ============ ============ 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, 2002 and 2001
Three Months Ended Three Months Ended Six Months Ended Six Months Ended December 31, 2002 December 31, 2001 December 31, 2002 December 31, 2001 ------------------ ------------------ ----------------- ----------------- INVESTMENT INCOME Interest on loans receivable $ 1,543,557 $1,420,029 $ 3,094,557 $2,899,659 Fees and other income 45,312 53,772 102,545 99,473 ----------- ---------- ----------- ---------- TOTAL INVESTMENT INCOME 1,588,869 1,473,801 3,197,102 2,999,132 ----------- ---------- ----------- ---------- OPERATING EXPENSES Interest 526,329 631,643 1,067,015 1,372,578 Salaries and employee benefits 214,135 184,867 434,048 339,449 Legal fees 91,336 52,468 153,263 98,555 Miscellaneous administrative expenses 329,481 224,257 622,586 425,844 Loss on assets acquired in satisfaction of loans, net 4,940 12,720 14,664 50,166 Directors' fee 2,250 8,250 15,500 12,000 Foreclosure expenses 41,985 -- 120,171 -- Write off and depreciation of interest and loans receivable 119,126 36,521 192,354 54,843 ----------- ---------- ----------- ---------- TOTAL OPERATING EXPENSES 1,329,582 1,150,726 2,619,601 2,353,435 ----------- ---------- ----------- ---------- OPERATING INCOME 259,287 323,075 577,501 645,697 ----------- ---------- ----------- ---------- INCOME BEFORE INCOME TAXES 259,287 323,075 577,501 645,697 ----------- ---------- ----------- ---------- INCOME TAXES -- -- 11,483 1,070 ----------- ---------- ----------- ---------- NET INCOME 259,287 323,075 566,018 644,627 ----------- ---------- ----------- ---------- DIVIDENDS ON PREFERRED STOCK (84,375) -- (168,750) -- ----------- ---------- ----------- ---------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 174,912 $ 323,075 $ 397,268 $ 644,627 ----------- ---------- ----------- ---------- WEIGHTED AVERAGE SHARES OUTSTANDING - - Basic 2,035,600 1,745,600 2,035,600 1,745,600 =========== ========== =========== ========== - - Diluted 2,035,600 1,745,600 2,035,600 1,745,600 =========== ========== =========== ========== NET INCOME PER COMMON SHARE - - Basic $ 0.0859 $ 0.1851 $ 0.1952 $ 0.3693 =========== ========== =========== ========== - - Diluted $ 0.0859 $ 0.1851 $ 0.1952 $ 0.3693 =========== ========== =========== ==========
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, 2002 and 2001
December 31, 2002 December 31, 2001 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 566,018 $ 644,627 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,676 16,574 Change in assets and liabilities Accrued interest receivable (347,534) (240,195) Prepaid Expenses and other assets (127,669) (284,030) Accrued expenses and other liabilities 30,980 (72,557) Accrued Interest payable (1,039) (22,594) ----------- ----------- TOTAL ADJUSTMENTS (430,586) (602,802) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 135,432 41,825 ----------- ----------- 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 (2,105,271) (1,107,090) Purchase of equity securities (147,311) (50,025) Acquisition of furniture, fixtures and leasehold improvements (58,401) (10,135) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (2,310,983) (1,167,250) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable, banks, net 1,310,000 1,420,000 Proceeds from notes payable, SBA, net 1,340,000 -- Dividends paid (500,564) (471,312) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,149,436 948,688 ----------- -----------
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, 2002 and 2001 December 31, 2002 December 31, 2001 ----------------- ----------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (26,115) (176,737) CASH AND CASH EQUIVALENTS - Beginning 774,062 575,229 --------- --------- CASH AND CASH EQUIVALENTS - Ending $ 747,947 $ 398,492 ========= ========= Supplemental noncash financing activity: During the six months ended December 31, 2002, the Company accrued a preferred stock cash dividend of $84,375 and a common stock cash dividend of $204,560 based on estimated earnings for the quarter ended December 31, 2002. The accompanying notes are an integral part of these financial statements -5- AMERITRANS CAPITAL CORPORATION AND SUBSIDIARIES 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, 2002, the related statements of operations for the three and six months ended December 31, 2002 and 2001, and cash flows for the six months ended December 31, 2002 and 2001 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission" or the "SEC"). 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, 2002 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, 2002 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. Ameritrans is also registered as a Business Development Company under the Investment Company Act of 1940, and makes other loans and investments permitted under the applicable statutes and SEC Regulations pertaining thereto. From inception through April 2002, Ameritrans' only activities have been the operations of Elk. In May 2002, Ameritrans made its first loans to businesses using the proceeds raised from the Company's public offering completed in April 2002. -6- 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 or other 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 or 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, 2002. These reclassifications have no effect on previously reported net income. 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, 1998, 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, 2002 and 2001 as inclusion is anti- dilutive. At December 31, 2002 the Company had 122,224 options outstanding. -7- Loan 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. 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. SIGNIFICANT ACCOUNTING POLICIES New Accounting Pronouncements On December 31, 2002, the FASB issued SFAS No.148 ("SFAS 148"), Accounting for stock-Based Compensation-Transition and Disclosure. SFAS 148 amends SFAS No. 123 ("SFAS 123"), Accounting for Stock -Based Compensation, to provide an alternative method of transition to SFAS 123's fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting polices of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While the statement does not amend SFAS 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS 123, or the intrinsic value method of APB opinion No. 25. The company will continue to account for stock-based compensation according to APB opinion No. 25, while its adoption of SFAS 148 requires the Company to provide prominent disclosures about the effect of SFAS 123 on reported income and will require the Company to disclose these effects in the interim financial statements as well. The Company does not expect the adoption of SFAS 148 will have a significant impact to the consolidated financial position or results of operations. In November 2002, the FASB issued FASB Interpretation No.45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements related to guarantees and warranties. The initial recognition requirements of FIN 45 are effective for guarantees issued or modified after December 31, 2002. Adoption of the disclosure requirements were effective for interim and annual periods ending after December 15, 2002 and did not have a significant impact on the Company's Consolidated Financial statements. The Company does not expect the adoption of the intial recognition requirements of FIN 45 to have a significant impact on its consolidated financial position or results of operations. In January 2003, the FASB issued FASB Interpretation No. 46 " Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. The provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is currently evaluating the effect that the adoption of FIN 46 will have on its results of operations and financial condition. NOTE 2 -- Debentures Payable to SBA At December 31, 2002 and June 30, 2002 debentures payable to the SBA consist of subordinated debentures with interest payable semiannually, as follows:
Current 12/31/02 6/30/02 Effective Principal Principal Issue Date Due Date Interest Rate Amount Amount ---------- -------- ------------- ------ ------ September 1993 September 2003 6.12(1) $1,500,000 $1,500,000 September 1993 September 2003 6.12 2,220,000 2,220,000 September 1994 September 2004 8.20(4) -- 2,690,000 June 1996 June 2006 7.71(5) -- 1,020,000 March 1997 March 2007 7.38(2) 430,000 430,000 July 2002 September 2012 4.67(3) 2,050,000 -- December 2002 March 2013 1.93(3)(6) 3,000,000 -- ---------- ---------- $9,200,000 $7,860,000 ========== ==========
(1) Interest rate was 3.12% from inception through September 1998. (2) Elk is also required to pay an additional annual user fee of 1% on this debenture. (3) Elk is also required to pay an additional annual user fee of 0.87% on this debenture. (4) The loan was prepaid in full during September 2002. (5) The loan was prepaid in full during December 2002. (6) The interim interest rate assigned for the interim period of December 5, 2002 through March 26, 2003 is 1.927%. The fixed interest rate will be determined by the SBA's next pooling on March 26, 2003. -8- Under the terms of the subordinated debentures, Elk 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. SBA Commitment During January 2002, Elk 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 Elk on or prior to September 30, 2006. A 2.5% leverage fee will be deducted pro rata as the commitment proceeds are drawn down. A $120,000 non-refundable fee was paid by Elk at the time of obtaining the $12,000,000 commitment. During July 2002, a new debenture payable to SBA was drawn from the reserve pool of $12,000,000 in the amount of $2,050,000 with an interim interest rate of 2.351%. The fixed rate of 4.67% was determined on the pooling date of September 25, 2002. In addition to the fixed rate, there is an additional annual SBA user fee of 0.87% per annum that will also be charged making the rate 5.55% before applicable amortization of points and fees. During December 2002, another new debenture payable to SBA was drawn from the reserve pool of $12,000,000 in the amount of $3,000,000 with an interim interest rate of 1.927%. The fixed rate will be determined on the pooling date of March 26, 2003. In addition to the interest rate, there is an additional annual SBA user fee of 0.87% per annum that will also be charged. NOTE 3 -- Notes Payable to Banks At December 31, 2002 and June 30, 2002, Elk had loan agreements with three (3) banks for lines of credit aggregating $40,000,000. At December 31, 2002 and June 30, 2002, the Company had $35,030,000 and $33,720,000 respectively, outstanding under these lines. At December 31, 2002, the banks were reviewing Elk's financial statements and other related documentation to extend lines through November 30, 2003. On February 6, 2003, one bank with a line of $16,000,000 extended the maturity to November 30, 2003. The current maturities of the other bank lines are February 28, 2003 and March 3, 2003. The loans bear interest based on Elk's choice of the lower of either the reserve adjusted LIBOR rate plus 150 basis points or the banks' prime rates minus 1/2% plus certain fees. Upon maturity, Elk anticipates extending the lines of credit for another year, as has been the practice in previous years. Pursuant to the terms of the agreements Elk is required to comply with certain terms, covenants and conditions. Elk pledged its loans receivable and other assets as collateral for the above lines of credit. Ameritrans also guaranteed and pledged its assets for the Elk bank loans. -9- NOTE 4 -- Commitments and Contingencies Interest Rate Swap On January 10, 2000 Elk entered into a $5,000,000 interest rate Swap transaction with a bank which expired on October 8, 2001 and was not renewed. On June 11, 2001, Elk entered into an additional interest rate Swap transaction with the same bank for $10,000,000 which expired on June 11, 2002 and was not renewed. On June 11, 2001, Elk 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, (plus 150 basis points) for Elk and if the floating one month LIBOR rate is below the fixed rate then Elk 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 Elk 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, 2002 and June 30, 2002 the Company had commitments to make loans totaling approximately $4,097,300 and $1,515,297, respectively, at interest rates ranging from 6.9% to 17.5%. Approximately $1,345,500 of the December 31, 2002 commitment is comprised of the refinancing of existing loans in the outstanding portfolio. Employment Agreements During November 2001, the Company entered into an employment agreement with an executive effective as of July 1, 2001, which was subsequently amended by an agreement dated December 31, 2002. The employment agreement provides for a minimum base salary of $255,000, which increases to $296,500 as of July 1, 2003, and thereafter increases yearly, plus an annual bonus. The employment agreement terminates on July 1, 2008 but will be automatically renewed for five (5) years unless either the Company or the executive gives notice of non-renewal. The employment agreement also provides for confidentiality and for non-competition, and non-solicitation during the term of the agreement and for one (1) year thereafter. During November 2001, the Company also entered into a consulting agreement dated July 1, 2001 with the executive discussed above, which was subsequently amended by an agreement dated December 31, 2002. The consulting agreement does not become effective and does not commence unless and until the employment agreement is terminated due to (i) the executive's voluntary resignation from the Company or (ii) a notice of non-renewal of the employment agreement from either the Company or the executive. Upon the effectiveness of the consulting agreement the consultant shall be paid at a rate equal to 1/2 the monthly salary in effect at the time the employment agreement is terminated plus any bonus received for that employment year and other benefits. The agreement also provides for confidentiality and non-competition for the term of the agreement, and non-solicitation during the term of the agreement and for one (1) year thereafter. Additionally, during November 2001, the Company entered into employment agreements with five (5) other executives. The Company subsequently amended two of the employment agreements by agreements dated December 31, 2002. The two amended employment agreements are for an initial term which expires on July 1, 2008 but which shall be automatically renewed for five (5) years unless either the Company or the executive gives notice of non-renewal. The remaining three employment agreements, two of which are dated January 1, 2002 and the third as of October 1, 2001, are for terms of five (5) years but are also automatically renewed for five (5) years unless either the Company or the executive gives notice of non-renewal. In the aggregate, the five employment agreements provide for a minimum salary of $372,800 per annum, which increases to $415,000 per annum as of July 1, 2003, and thereafter increases yearly, plus annual bonuses. The agreements provide for confidentiality and non-competition for the term of the agreement, and non-solicitation during the term of the agreement and for one (1) year thereafter. NOTE 5 -- Other Matters Quarterly Dividend The Company's Board of Directors declared a dividend of $0.28125 per share, or an aggregate of $84,375, on September 20, 2002 on the Company's 9 3/8% Participating Preferred Stock (the "Participating Preferred Stock") for the period July 1, 2002 through September 30, 2002 payable on October 7, 2002 for all holders of the Participating Preferred Stock of record as of September 30, 2002. The Company's Board of Directors declared a dividend of $0.28125 per share, or an aggregate of $84,375, on December 23, 2002 on the Company's 9 3/8% cumulative participating redeemable Preferred Stock for the period October 1, 2002 through December 31, 2002. The dividend was paid on January 28, 2003 to shareholders of record as of December 31, 2002. On September 26, 2002 the Company's Board of Directors declared a dividend of $0.06 per share of Common Stock for the period April 1, 2002 through June 30, 2002, and a dividend based on estimated earnings for the period July 1, 2002 through September 30, 2002 of $0.11 per share of Common Stock for an aggregate of $0.17 per share or $347,752. The dividend was paid on October 16, 2002 to stockholders of record as of October 7, 2002. -10- Quarterly Dividend - cont. The Company's Board of Directors declared a dividend of $0.10 per share of Common Stock, or an aggregate of $204,560, on January 10, 2003 based on estimated earnings for the period October 1, 2002 through December 31, 2002. The dividend was paid on January 28, 2003 to shareholders of record as of January 20, 2003. 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, 2002. General Ameritrans acquired Elk on December 16, 1999 in a share-for share exchange. 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. Both Ameritrans and Elk are registered as an investment company under the Investment Company Act of 1940. Both Ameritrans and Elk are also registered as a Business Development Company under the Investment Company Act of 1940. Elk primarily makes loans and investments to persons who qualify under SBA regulation as socially or economically disadvantaged. Elk also makes loans and investments to persons who qualify under SBA regulations as non-disadvantaged. Elk's primary lending activity is to originate and service loans collateralized by Chicago, New York City, Boston, and Miami Taxicab Medallions. Elk also makes loans and investments in other diversified businesses. At December 31, 2002, 75.39% of Elk's portfolio was invested in loans secured by taxi medallions and 24.61% of Elk's loans were to other diversified businesses. From inception through April 2002, Ameritrans' only activities have been the operations of Elk. In May 2002, Ameritrans made its first loans to businesses using the proceeds raised from the Company's public offering completed in April 2002. Results of Operations For the Six Months Ended December 31, 2002 and 2001 Total Investment Income The Company's investment income for the six months ended December 31, 2002 increased $197,970 or 6.6% as compared with the six months ended December 31, 2001. This increase was mainly due to the Backup Services Fee the Company received ($22,500) as a result of executing an agreement with Medallion Financial Corp and Merrill Lynch to be a standby backup loan servicing agent, combined -11- with income earned by Ameritrans ($65,073) on investments made from the proceeds of the Company's public offering. Also contributing to the increase in investment income was an increased loan portfolio balance of $57,094,341 at December 31, 2002 as compared to $55,653,678 at December 31, 2001. As a back-up servicer, the Company will earn an annual standby fee. If the agreement is activated by Merrill Lynch, the Company will become the primary servicer which will create an additional revenue source. Operating Expenses Operating expenses increased $164,157 for the six month period ended December 31, 2002 when compared with the similar period ended December 31, 2001. This increase was due to an increase in payroll costs of $94,599, legal fees of $54,708, foreclosure expenses of $120,171 and other administrative expenses of $196,742, offset by a decrease in interest costs of $305,563 which reflects lower interest charged on the Company's bank debt combined with the refinancing of its SBA debentures. The foreclosure expenses are incurred by the Company as it satisfies outstanding balances incurred by the default borrowers on the medallions with the City of Chicago so that the Company can repossess and resell the medallions. Write off and depreciation of interest and loans receivable and losses on assets acquired for the six month period ended December 31, 2002 increased $102,009 when compared with the six months ended December 31, 2001. The increase in write off and depreciation of interest and loans receivable is primary due to the increase in the Chicago loan portfolio delinquencies and defaults, which is attributed to the economic slowdown and the effects of September 11, 2001 on the Chicago taxi industry. Activities in connection with the Chicago operations are as follows: a) $38,325 of charge off of principal due to losses on 10 of the 20 completed Chicago medallion foreclosures that occurred in the six months ended December 31, 2002, b) $90,200 of accrued interest on the completed Chicago medallion foreclosures was written off and, c) the Company did not accrue an additional $40,817 of interest on certain foreclosed Chicago medallion loans. In addition, the Company increased its unrealized depreciation on interest receivable for potential losses on the remaining Chicago taxi medallion loans that were in default by an additional net amount of $47,817 for the six months ended December 31, 2002. Results of Operations For the Three Months ended December 31, 2002 and 2001 Total investment income The Company's investment income for the three months ended December 31, 2002 increased to $1,588,869 from $1,473,801, or 7.8%, when compared to the three month period ended December 31, 2001. This increase is mainly due to income earned by Ameritrans of $33,992 on investments made from the proceeds of the Company's public offering completed in April 2002. Also contributing to the increase in investment income was an increased loan portfolio balance of $57,094,341 at December 31, 2002 as compared to $56,219,129 at September 30, 2002. -12- Operating Expenses Operating expenses increased $104,031 for the three month period ended December 31, 2002 when compared with the similar period ended December 31, 2001. This increase was due primarily to an increase in payroll costs of $29,268, legal fees of $38,868, foreclosure expenses of $41,985 and other administrative expenses of $105,224, offset by a decrease in interest costs of $105,314. Write off and depreciation of interest and loans receivable and losses on assets acquired for the three month period ended December 31, 2002 increased $74,825 when compared with the similar period in the prior year. Balance Sheet and Reserves Total assets increased $2,745,400 as of December 31, 2002 when compared with total assets as of June 30, 2002. This increase was due to cash generated by Elk's successful sales to the SBA of debentures in the amount of $2,050,000 and $3,000,000. Elk and the SBA entered into an agreement in January 2002 where the SBA committed to reserve debentures in the amount of $12,000,000 to be issued by Elk prior to September 30, 2006. In July 2002 a new debenture payable to the SBA for $2,050,000 was drawn from the reserved pool of $12,000,000. In September 2002 Elk paid off a SBA debenture in the amount of $2,690,000 in order to reduce costs. In December 2002 Elk paid off an additional SBA debenture in the amount of $1,020,000 and also drew a new debenture in the amount of $3,000,000. In addition Elk drew down an additional $1,310,000 on its bank borrowings in order to finance expansion. On a consolidated basis, the Company increased its loans receivable by a net of $2,064,510 between June 30, 2002 and December 31, 2002. During this six months period, the Company also increased its receivable from debtors in satisfaction of loans by $65,266 and its equity investments by $147,311. Liquidity At December 31, 2002, 79% of Elk's indebtedness was represented by indebtedness to its banks and 21% by the debentures issued to the SBA with fixed interest rates ranging from 4.67% to 8.20%. Elk currently may borrow up to $40,000,000 under its existing lines of credit, subject to the limitations imposed by its borrowing base agreement with its banks and the SBA, the statutory and regulatory limitations imposed by the SBA and the availability of funds. Our sources of liquidity are credit lines with banks, long-term SBA debentures that are issued to or guaranteed by the SBA, loans receivable amortization and prepayments. Prepayments on loans receivable are influenced significantly by general interest rates, economic conditions and competition. As a RIC, both Elk and Ameritrans distribute at least 90% of our investment company taxable income. Consequently, we primarily rely upon external sources of funds to finance growth. In order to provide the funds necessary for our expansion strategy, we expect to raise additional capital and to incur, from time to time, additional bank indebtedness and (if deemed necessary by management) to obtain SBA loans. There can be no assurances that such additional financing will be available on acceptable terms. -13- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Pursuant to the general instructions to Rule 305 of Regulation S-K, the qualitative and quantitative disclosures called for by this Item 3 and by Rule 305 of Regulation S-K are inapplicable to the Company at this time. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Based on their evaluation of our disclosure controls and procedures conducted within 90 days of the date of filing this report on Form 10-Q, our Chief Executive Officer and the Chief Financial Officer has concluded that our disclosure controls and procedures (as defined in Rules 13a - 14(c) and 15d - 14(c) promulgated under the Securities Exchange Act of 1934) are effective. (b) Changes in Internal Controls There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II. OTHER INFORMATION ITEM 6 -- Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Amended and Restated Employment Agreement by and between the Company and Gary Granoff dated December 31, 2002. 10.2 Amended and Restated Consulting Agreement by and between the Company and Gary Granoff dated December 31, 2002. 10.3 Amended and Restated Employment Agreement by and between the Company and Lee Forlenza dated December 31, 2002. 10.4 Master Note dated December 30, 2002 between Citibank, N.A. and the Company. 99.1 Certification of the Chief Executive and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K There were no reports filed on Form 8-K for the period ending December 31, 2002. -14- 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, 2003 By: /s/ Gary C. Granoff --------------------------------- Gary C. Granoff Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) -15- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Gary C. Granoff, President, Chief Executive Officer, and Chief Financial Officer of Ameritrans Capital Corporation certify that: 1. I have reviewed this quarterly report on Form 10-Q for the Ameritrans Capital Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation, and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): -16- (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Gary C. Granoff - ------------------- Gary C. Granoff President, Chief Executive Officer, and Chief Financial Officer February 14, 2003 -17- EX-10.1 3 d53614_ex10-1.txt AMENDED AND RESTATED EMPLOYMENT AGREEMENT Exhibit 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is dated as of December 31, 2002, between Gary C. Granoff ("Executive"), Ameritrans Capital Corporation ("Ameritrans"), and Elk Associates Funding Corporation ("Elk") (collectively, Ameritrans and Elk are hereinafter referred to as the "Employer"). WHEREAS, Executive is presently employed by the Employer as President and Chairman pursuant to an Employment Agreement dated July 1, 2001 (the "2001 Agreement"); and WHEREAS, the Employer and Executive desire to restate and amend certain terms of the 2001 Agreement; NOW, THEREFORE, 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 Executive. Employer hereby agrees to employ Executive, and Executive 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 Executive's employment under this Agreement shall commence as of the date of execution (the "Effective Date"), and shall continue until July 1, 2008 (the "Initial Employment Period"). Unless Employer gives notice of non-renewal at least six (6) months prior to the expiration of the Initial Employment Period or Executive gives notice of non-renewal at least six (6) months prior to the expiration of the Initial Employment Period, the term of this Agreement shall be extended for a 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 and providing for an annual base salary equal to the Base Salary (as hereinafter defined) in effect at the time of renewal, plus an annual increase each year thereafter during the renewal term of the greater of (i) four percent (4%) or (ii) the increase in the Consumer Price Index during each such year (the Initial Employment Period and any extension thereof is hereafter referred to as the "Employment Period"). The parties agree that any Bonus (as hereinafter defined) payable during any renewal period shall be paid solely in the discretion of the Board of Directors of Employer (the "Board"). If either Employer or Executive elects not to renew the Agreement by providing the other party with a notice of non-renewal, then the Agreement shall terminate on June 30, 2008, and the consulting agreement between Employer and Executive in the form attached hereto as Exhibit A (the "Consulting Agreement"), shall automatically become effective. 3. Duties and Responsibilities. 3.1. General. During the Employment Period, Executive shall have the title of Chairman and President of the Employer and shall have duties commensurate with his office and title as the chief executive officer of each of Ameritrans and Elk. Executive shall report directly to and take direction from the Board. Executive understands that he will be required to work with and coordinate certain business activities with other executives of the Employer in connection with certain projects as directed by the Board. Executive shall devote all of his business time and expend his best efforts, energies, and skills to the Employer; provided, however, that (i) during the Employment Period, Executive shall be permitted to establish and report to an office located in any state in which a substantial amount of Employer's business is conducted, (ii) Executive shall be allowed to devote such reasonable time as he deems necessary to his personal and family business matters and to fulfill his duties as a member of the Board of Trustees of George Washington University and as a member of the Investment Committee of the Board of Trustees, (iii) Executive shall be allowed to devote such reasonable time as he deems necessary to fulfill his duties as a member of the Board of Trustees of the Parker Institute and any committees on which Executive may serve, (iv) Employer acknowledges that Executive currently is and may remain as a director and an officer or employee of Gemini Capital Corporation, and (iv) Executive shall be permitted to serve as an officer and director of, or as "of counsel" and shall devote only nominal time to Granoff, Walker & Forlenza PC ("GW&F") so long as such time, attention, and duties in (i), (ii), (iii), and (iv), above, do not (A) interfere with his duties and responsibilities to Employer or (B) violate his obligations under Sections 7 and 8, herein, or any duty, consistent with his status with Employer, as he may be assigned from time to time by the Board. 4. Compensation and Related Matters. 4.1. Base Salary. For each twelve-month period, commencing July 1, 2003, during the Employment Period, (each such period, an "Employment Year"), Employer shall pay to Executive a base salary equal to $296,500 for the first Employment Year, $321,500 for the second Employment Year, $336,500 for the third Employment Year, $348,900 for the fourth Employment Year, and $361,800 for the fifth Employment Year (with respect to each Employment Year, the "Base Salary"). For the interim period between the Effective Date and July 1, 2003, the Employer shall pay to Executive a base salary equal to $255,000. The Base Salary 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"), Executive 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 (a "Bonus"), which Bonus shall not be less than $15,000 for each Bonus Year during the Initial Employment Period, payable monthly in arrears, and thereafter, if this Agreement is extended for another five (5) year period, at the discretion of the Board. The Bonus for each Bonus Year shall be payable promptly following the determination of the Board 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 Executive is eligible under their respective terms, Executive 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, 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 addition, during the Employment Period, Employer shall (i) reimburse Executive for the cost of the annual premiums (up to $5,000 per year) on term life insurance on Executive's life equal to $500,000 of coverage under Executive's current life insurance policy and (ii) assign to Executive upon termination of the Employment Period the existing life insurance policies described on Exhibit B, hereto. During the Employment Period, Employer shall also reimburse Executive for reasonable costs with respect to the following: (i) the lease of a car (up to $900/month); (ii) parking for Executive's automobile in Manhattan (if Executive drives to work (up to $450/month); (iii) tolls and gas for the automobile in connection with commuting to work; (iv) automobile insurance for one car (up to $2,200/year); (v) use of a cell phone and home telephone for business purposes (up to $300/month), (iv) reimbursement of $5,500 per year for the premium on Executive's disability policy, (vii) reimbursement of $5,000 toward Executive's country club dues, (viii) make regular contributions to Executive's SEP IRA account of 15% of Executive Base Salary and Bonus, subject to limitations under the plan, and (ix) reimburse Executive for expenses incurred in connection with travel, meals, and incidentals relating to activities as a trustee of the George Washington University and The Parker Institute. 4.4. Expense Reimbursement. Employer shall reimburse Executive for all business expenses reasonably incurred by him in the performance of his duties under this Agreement upon his 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. 4.5. Vacations. Executive shall be entitled to 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 Executive's performance of his duties under this Agreement. Time spent on services performed as a trustee shall be considered business-related. 4.6. Stock Options. In order to provide further incentive to Executive and align the interests of Executive with those of the stockholders of Employer, Employer shall grant to Executive, 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 Executive 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 Executive exercises such options. 4.7. Office Space; Resources. Employer shall provide Executive with sufficient office space, furnishings, equipment, computer resources, and supplies considered reasonable and necessary for Executive to carry out his duties. 5. Termination of Employment Period. 5.1. Termination Without Cause; Voluntary Termination by Executive. Employer may, by notice to Executive at any time during the Employment Period, terminate the Employment Period without Cause (as defined below). The effective date of such termination of Executive from Employer shall be the date that is thirty (30) days following the date on which such notice is given, except as otherwise specifically provided herein. Executive 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 Executive 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 Executive, 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 Executive in the course of his employment, (ii) substantial and continued failure by Executive to perform his duties hereunder, (iii) use of alcohol by Executive or his illegal use of drugs (including narcotics) which in either case is, or could reasonably be 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 Executive's duties hereunder, (iv) Executive'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 (v) Executive's violation of any of the provisions of Sections 7 or 8, herein. Any notice given by Employer pursuant to this Section 5.2 shall specify in writing in reasonable detail the event or the nature of Executive's action or inaction that is the cause for giving such notice. Executive will have 30 days to cure, to the reasonable satisfaction of Employer, any action or inaction charged by Employer for Cause under (ii) or (v), above. In the event of a termination of the Employment Period for Cause under (i), (iii), or (iv), above, the Employment Period shall terminate immediately upon notice by Employer of termination for Cause and the reason therefor, unless such actions or inactions can be cured and Executive has satisfactorily cured such actions or inactions. 5.3. By Executive for Good Reason. (a) Executive 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, Executive shall have "Good Reason" to terminate employment with Employer on account of any of the following events without Executive's consent: (i) any reduction in the Base Salary; (ii) the failure of Employer to provide employee benefits consistent with Section 4.3, herein; (iii) any requirement by Employer that Executive report to anyone other than the Board; 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 Executive to Employer, Employer cures such circumstances. The effective date of such termination of Executive 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 (vi) pursuant to any acquisition by Executive or any group or persons including Executive (or any entity controlled by Executive or any group of persons including Executive). 5.4. Disability. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Executive shall be unable to perform his duties under this Agreement for (i) a continuous period of at least 180 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 Executive can promptly resume his duties hereunder, Executive shall be deemed disabled (the "Disability") and Employer, by notice to Executive, 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 Executive in good faith, whose determination shall be final and binding on the parties. Executive shall cooperate in all reasonable respects to enable an examination to be made by such physician. 5.5. Death. The Employment Period shall end on the date of Executive'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 Without Cause by Employer. If the Employment Period is terminated by Employer without Cause pursuant to the provisions of Section 5.1 hereof, Employer will pay to Executive a lump-sum payment in an amount equal to (i) Executive'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, and (ii) an amount equal to all of the consulting fees payable under the terms of the consulting agreement entered into by and between Employee and Executive dated as of December 31, 2002 (the "Consulting Agreement") (the sum of (i) and (ii), collectively, shall hereinafter be referred to as the "Severance Payment"); provided, however, the Severance Payment shall not be less than an amount equal to three (3) years of the Executive's Base Salary as in effect at the time this Agreement is terminated as provided herein, plus the Bonus paid for the most recent Bonus Year. In calculating the Severance Payment, such payment shall include any adjustments in the Base Salary (as set forth in Section 4.1) that would have occurred during the remainder of the Employment Period, had Executive's employment not been terminated. Employer shall have the obligation to continue the benefits provided for in Section 4 past the date of termination through the balance of the Employment Period remaining at the time of termination. 6.2. Termination by Executive for Good Reason. If the Employment Period is terminated by Executive for Good Reason pursuant to the provisions of Section 5.3, hereof, Employer will pay to Executive in a lump-sum the Severance Payment, as set forth in Section 6.1, hereof; provided, however, the Severance Payment shall not be less than an amount equal to three (3) years of the Executive's Base Salary, as in effect at the time this Agreement is terminated as provided herein, plus the Bonus for the most recent Bonus Year. 6.3. Notice of Non-Renewal by either Employer or Executive; or Voluntary Termination by Executive. If the Employment Period terminates due to (i) notice of non-renewal from Employer or Executive prior to the expiration of the Initial Employment Period or (ii) due to the voluntary resignation of Executive at any time during the Employment Period, then upon the occurrence of such event, the Consulting Agreement shall automatically become effective. 6.4. Certain Other Terminations. If the Employment Period is terminated by Employer on account of Executive's Disability pursuant to the provisions of Section 5.4, or by death, pursuant to the provisions of Section 5.5, Employer shall pay to Executive, within thirty (30) calendar days of the date of termination, Executive's Base Salary through the date of termination. Provided the date of termination under Section 5.4. or 5.5 is after the end of a calendar year for which a Bonus is payable, but prior to the date of payment, Employer shall also pay to Executive or Executive's representatives, as the case may be, when due pursuant to provisions of Section 4.2 hereof, the Bonus for such Bonus Year. 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 Executive has been employed for at least six months during the Bonus Year of termination, Employer shall also pay to Executive a portion of the Bonus for the Bonus Year of termination 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. 6.5. Payment; No Other Termination Compensation. Any payment pursuant to this Section 6, with respect to which a payment date has not otherwise been specified, shall be made in a lump sum within ten (10) business days following the date of such termination. 7. Confidentiality. Unless otherwise required by law or judicial process, Executive shall retain in confidence during the Employment Period and after termination of Executive's employment with Employer pursuant to this Agreement all confidential information known to Executive concerning Employer and its businesses. The obligations of Executive pursuant to this Section 7 shall survive the expiration or termination of this Agreement. 8. Noncompetition. During the Employment Period, Executive shall not directly or indirectly, whether by way of employment, consulting, advising, ownership, partnership, joint venture, or other method, engage in any Competitive Activity (as defined below). "Competitive Activity" shall exclude those activities described in Section 3.1, hereof, and shall include business activity which is the same as or substantially similar to or is or would be competitive with the business activity in which Employer is engaged. 9. Nonsolicitation. During the Employment Period and for a period of one year thereafter (the "Nonsolicitation Period"), Executive shall not directly or indirectly solicit to enter into the employ of any other Entity, or hire, any of the employees of Employer. During the Employment Period, and for a period of one year thereafter, Executive shall not, directly or indirectly, solicit, hire, or take away or attempt to solicit, hire, or take away (i) any customer or client of Employer or (ii) any former customer or client (that is, any customer or client who ceased to do business with Employer during the three (3) years immediately preceding such date) of Employer or encourage any customer or client of Employer to terminate its relationship with Employer without Employer's prior written consent. The obligations of Executive pursuant to this Section 9 shall survive the expiration or termination of this Agreement. 10. Successors; Binding Agreement. This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive and Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, divisees, and legatees. If Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Executive's estate. 11. 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. 12. Miscellaneous. 12.1. 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 Elk Associates Funding Corporation 747 Third Avenue, 4th Floor New York, New York 10017 Attn: If to Executive: Mr. Gary Granoff 2 Fir Drive Great Neck, New York 11024 12.2. Taxes. Employer is authorized to withhold (from any compensation or benefits payable hereunder to Executive) 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. 12.3. 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. 12.4. 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. 12.5. 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. 12.6. 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. 12.7. 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. 12.8. Entire Agreement and Representation. This Agreement contains the entire agreement and understanding between Employer and Executive 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 Executive. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. 12.9. Termination of 2001 Agreement. The Employer and Executive hereby acknowledge that this Agreement is an amendment and restatement of the 2001 Agreement, and as such, is a termination of the 2001 Agreement. Both Employer and Executive hereby relinquish any and all rights they may have resulting from the termination of the 2001 Agreement. 12.10. 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 is 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/ Ellen M. Walker ELK ASSOCIATES FUNDING CORPORATION By: /s/ Ellen M. Walker /s/ Gary C. Granoff EX-10.2 4 d53614_ex10-2.txt AMENDED AND RESTATED CONSULTING AGREEMENT Exhibit 10.2 AMENDED AND RESTATED CONSULTING AGREEMENT This AMENDED AND RESTATED CONSULTING AGREEMENT (this "Agreement") is dated as of December 31, 2002, between Gary C. Granoff ("Consultant"), Ameritrans Capital Corporation ("Ameritrans"), and Elk Associates Funding Corporation ("Elk") (collectively, Ameritrans and Elk are hereinafter referred to as the "Company"). WHEREAS, Consultant entered into a consulting agreement with the Company dated as of July 1, 2001 (the "2001 Consulting Agreement"); and WHEREAS, Consultant and the Company desire to restate and amend certain terms of the 2001 Consulting Agreement; NOW, THEREFORE, 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. ENGAGEMENT The Company hereby engages and retains Consultant to perform the Services (as that term is hereinafter defined), and Consultant hereby accepts such appointment on the terms and subject to the conditions hereinafter set forth and agrees to use his best efforts in providing such Services. 2. INDEPENDENT CONTRACTOR Consultant shall be, and in all respects be deemed to be, an independent contractor in the performance of his duties hereunder, any law of any jurisdiction to the contrary notwithstanding. Consultant shall not, by reason of this Agreement or the performance of the Services, be or be deemed to be, an employee or agent of the Company, and Consultant shall have no power to enter into any agreement on behalf of, or otherwise bind the Company. Without limiting the foregoing, Consultant shall not enter into any contract or commitment on behalf of the Company without the Company's prior written consent. COMMENCEMENT AND TERM Commencement. This Agreement shall not be effective and shall not commence unless and until the Employment Agreement between the Company and Consultant dated December 31, 2002 (the "Employment Agreement"), is terminated due to (i) the voluntary resignation of Consultant from his employment pursuant to Section 6.2 of the Employment Agreement or (ii) a notice of non-renewal from the Company or Consultant pursuant to Section 6.2 of the Employment Agreement. Term. Provided the Employment Agreement is terminated pursuant to clauses (i) or (ii) of Section 3.1, above, this Agreement shall commence upon the date of termination of the Employment Agreement (the "Commencement Date"), and shall continue for a period of five (5) years (the "Consulting Period"). SERVICES Consultant agrees to provide the following services, hereinafter collectively referred to as the "Services": Serve as business consultant for the Company, which shall include, but not be limited to, general advice and consultation regarding the business and operations of the Company, investor relations, and providing assistance in setting the business direction and strategic objectives of the Company. BEST EFFORTS. Consultant shall devote such time and effort as he deems commercially reasonable under the circumstances to the affairs of the Company as is reasonable and adequate to render the consulting services contemplated by this Agreement; provided, however, in no event shall Consultant be required to devote more than half-time or twenty (20) hours per week to the performance of the Services. It is further understood and agreed by the parties that Consultant shall make himself available, and the non-use of Consultant by the Company shall in no manner affect the Company's obligations to make the payments provided hereunder. COMPENSATION AND RELATED MATTERS Compensation. In consideration for his availability and/or providing the Services, Consultant shall be paid an amount equal to one-half (1/2) of the sum of (i) Consultant's monthly Base Salary that was in effect at the time the Employment Agreement was terminated, and (ii) the most recent Bonus paid under the terms of the Employment Agreement prior to its termination. All capitalized financial terms having the meanings defined in the Employment Agreement are herein incorporated by reference. Other Benefits. During the Consulting Period, subject to and to the extent Consultant is eligible, Consultant shall be entitled to receive fifty percent (50%) of the benefits, set forth in Section 4.3 of the Employment Agreement, that Consultant was receiving from the Company at the time of termination of the Employment Agreement and at the levels in effect at the time of such termination, except for the following, to which Consultant shall be entitled to the same extent as under the Employment Agreement, (i) premiums on disability insurance not to exceed $5,500 per annum, (ii) husband and wife medical coverage, and (iii) the contributions to Consultant's SEP IRA, which shall continue at up to 15% of Consultant's fee compensation. Expense Reimbursement. The Company shall reimburse Consultant for all business expenses reasonably incurred by him in the performance of his duties under this Agreement in accordance with the Company's procedures and policies as adopted and in effect from time to time and applicable to its senior management employees. TERMINATION Voluntary Termination by Consultant. Consultant may, by notice to the Company at any time during the Consulting Period, upon thirty (30) days' prior written notice, terminate this Agreement. By the Company for Cause. The Company may, at any time during the Consulting Period, by notice to sConsultant, terminate this Consulting Agreement 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 Consultant, (ii) substantial and continued failure by Consultant to perform the Services, (iii) Consultant'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 the Company's reputation and standing in the community, or (iv) Consultant's violation of any of the provisions of Section 8 herein. Any notice given by the Company pursuant to this Section 6.2 shall specify in writing in reasonable detail the event or the nature of Consultant's action or inaction that is the cause for giving such notice. Consultant will have 30 days to cure, to the reasonable satisfaction of the Company, any action or inaction charged by the Company for Cause under (ii), above. In the event of a termination of the Consulting Period for Cause under (i), (iii), or (iv), above, the Consulting Period shall terminate immediately upon notice by the Company of termination for Cause and the reason therefor, unless such actions or inactions can be cured and Consultant has satisfactorily cured such actions or inactions. TERMINATION COMPENSATION Termination by Consultant. If Consultant terminates this Agreement in accordance with Section 6.1 or Section 6.2, the Company shall pay to Consultant, within thirty (30) calendar days of the date of termination, Consultant's fee through the date of termination. Certain Other Terminations. If the Consulting Period is terminated by the Company for Cause pursuant to the provisions of Section 6.2, the Company shall pay to Consultant, within thirty (30) calendar days of the date of termination, Consultant's Fee through the date of termination. CONFIDENTIALITY Unless otherwise required by law or judicial process, Consultant shall retain in confidence during the Consulting Period and after termination of this Agreement all confidential information known to Consultant concerning the Company and its businesses. The obligations of Consultant pursuant to this Section 8 shall survive the expiration or termination of this Agreement. NONCOMPETITION Consultant shall not directly or indirectly, whether by way of employment, consulting, advising, ownership, partnership, joint venture, or other method, engage in any Competitive Activity (as defined below) during the Consulting Period. "Competitive Activity" shall exclude those activities described in Section 3 of the Employment Agreement and shall include business activity which is the same as or substantially similar to or is or would be competitive with the business activity in which the Company is engaged during the Consulting Period. NONSOLICITATION During the Consulting Period and for a period of one year thereafter (the "Nonsolicitation Period"), Consultant shall not directly or indirectly solicit to enter into the employ of any other Entity, or hire, any of the employees of the Company. During the Consulting Period, and for a period of one year thereafter, Consultant shall not, directly or indirectly, solicit, hire, or take away or attempt to solicit, hire, or take away (i) any customer or client of the Company or (ii) any former customer or client (that is, any customer or client who ceased to do business with the Company during the three (3) years immediately preceding such date) of the Company or encourage any customer or client of the Company to terminate its relationship with the Company without the Company's prior written consent. The obligations of Consultant pursuant to this Section 10 shall survive the expiration or termination of this Agreement. SUCCESSORS; BINDING AGREEMENT This Agreement and all rights of Consultant hereunder shall inure to the benefit of and be enforceable by Consultant and Consultant's personal or legal representatives, executors, administrators, successors, heirs, distributees, divisees, and legatees. If Consultant should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Consultant's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Consultant's estate. 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. MISCELLANEOUS 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 the Company: Ameritrans Capital Corporation Elk Associates Funding Corporation 747 Third Avenue, 4th Floor New York, New York 10017 Attn: If to Consultant: Mr. Gary Granoff 2 Fir Drive Great Neck, New York 11024 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. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the city in which the Company'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. 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. 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. 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. Entire Agreement and Representation. This Agreement and the Employment Agreement contain the entire agreement and understanding between the Company and Consultant with respect to the subject matter hereof. No representations or warranties of any kind or nature relating to the Company or its several businesses, or relating to the Company's assets, liabilities, operations, future plans, or prospects have been made by or on behalf of the Company to Consultant. Termination of 2001 Consulting Agreement. The Company and the Consultant hereby acknowledge that this Agreement is an amendment and restatement of the 2001 Consulting Agreement, and as such, is a termination of the 2001 Consulting Agreement. Both the Company and the Consultant hereby relinquish any and all rights they may have resulting from the termination of the 2001 Consulting Agreement. 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/ Ellen M. Walker ELK ASSOCIATES FUNDING CORPORATION By: /s/ Ellen M. Walker /s/ Gary C. Granoff EX-10.3 5 d53614_ex10-3.txt AMENDED AND RESTATED EMPLOYMENT AGREEMENT Exhibit 10.3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is dated as of December 31, 2002, between Lee A. Forlenza ("Executive"), Ameritrans Capital Corporation ("Ameritrans"), and Elk Associates Funding Corporation ("Elk") (collectively, Ameritrans and Elk are hereinafter referred to as the "Employer"). WHEREAS, Executive is presently employed by the Employer as Senior Vice President pursuant to an Employment Agreement dated October 1, 2001 (the "2001 Agreement"); and WHEREAS, the Employer and Executive desire to restate and amend certain terms of the 2001 Agreement; NOW, THEREFORE, 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 Executive. Employer hereby agrees to employ Executive, and Executive 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 Executive's employment under this Agreement shall commence as of the date of execution (the "Effective Date"), and shall continue until July 1, 2008 (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 Executive 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 five (5) years 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 Executive 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, Executive shall have the title of Senior Vice President of the Employer and shall have duties commensurate with his office and title similar to other senior executives of the Employer. Executive shall report directly to and take direction from Gary Granoff or the Board of Directors of the Employer (the "Board"). Executive shall devote such of his business time and expend his best efforts, energies, and skills to the Employer; provided, however, that (i) Executive shall be allowed to devote such reasonable time as he deems necessary to his personal and family business matters, (ii) Employer acknowledges that Executive currently is and may remain as a director and an officer or employee of Gemini Capital Corporation and True Type Printing Co., Inc., and (iii) Employer acknowledges that Executive currently is and may remain a partner in the law firm of Granoff, Walker & Forlenza, P.C. and continue to practice law in a manner consistent with past practice, so long as such time, attention, and duties in (i), (ii), and (iii), above, do not (A) interfere with his duties and responsibilities to Employer or (B) violate his obligations under Section 7, herein, or any duty, consistent with his status with Employer, as he may be assigned from time to time by Gary Granoff or the Board. 4. Compensation and Related Matters. 4.1. Base Salary. For each twelve-month period, commencing July 1, 2003, during the Employment Period, (each such period, an "Employment Year"), Employer shall pay to Executive a base salary equal to $76,250 for the first Employment Year, which shall increase by 4% for each subsequent Employment Year (with respect to each Employment Year, the "Base Salary"). For the interim period between the Effective Date and July 1, 2003, the Employer shall pay to Executive a base salary equal to $54,080. The Base Salary shall be payable in accordance with the normal payroll procedures of Employer. 4.2. Initial Bonus. Within fifteen (15) days of the Effective Date, Executive shall be paid an initial bonus (the "Initial Bonus") of $7,500. 4.3. Annual Bonus. For each fiscal year during the Employment Period (each, a "Bonus Year"), Executive 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 (the "Bonus"), which bonus shall not be less than $10,000 during the Initial Employment Period, payable monthly in arrears, and thereafter, if this Agreement is extended for a five (5) year period, at the discretion of the Board. The Bonus shall be paid to Executive promptly following the determination of the Board, but in no event later than forty-five (45) days after the end of such year. 4.4. Other Benefits. During the Employment Period, subject to, and to the extent Executive is eligible under their respective terms, Executive 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, disability plan, or group life insurance, accidental death and dismemberment insurance, travel accident insurance, or other similar plan or program of Employer. In addition, Employer shall make regular contributions to Executive's SEP IRA account of 15% of Executive's Base Salary and Bonus, subject to limitations under the plan, and shall reimburse Executive for the use of a cell phone ($110/month). 4.5. Expense Reimbursement. Employer shall reimburse Executive for all business expenses reasonably incurred by him in the performance of his duties under this Agreement upon his 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. 4.6. Vacations. Executive shall be entitled to 20 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 Executive's performance of his duties under this Agreement. 4.7. Stock Options. In order to provide further incentive to Executive and align the interests of Executive with those of the stockholders of Employer, Employer shall grant to Executive, 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 Common Stock to Executive 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 Executive exercises such options. 5. Termination of Employment Period. 5.1. Voluntary Termination by Executive. Executive 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 Executive 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 Executive, 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 Executive in the course of his employment, (ii) an intentional breach of this Agreement by Executive that is injurious to Employer, (iii) substantial and continued failure by Executive to perform his duties hereunder, (iv) willful failure by Executive to follow the lawful directions of Gary Granoff or the Board, (v) use of alcohol by Executive or his 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 Executive's duties hereunder, (vi) Executive'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) Executive'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 Executive's action or inaction that is the cause for giving such notice. Executive 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 Executive has satisfactorily cured such actions or inactions. 5.3. By Executive for Good Reason. (a) Executive 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, Executive shall have "Good Reason" to terminate employment with Employer on account of any of the following events without Executive'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 Executive to Employer, Employer cures such circumstances. The effective date of such termination of Executive 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 Executive or any group or persons including Executive (or any entity controlled by Executive or any group of persons including Executive). 5.4. Disability. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Executive shall be unable to perform his 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 Executive can promptly resume his duties hereunder, Executive shall be deemed disabled (the "Disability") and Employer, by notice to Executive, 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. Executive shall cooperate in all reasonable respects to enable an examination to be made by such physician. Notwithstanding the foregoing, Employer may conclusively determine Executive to be disabled and terminate the Employment Period on account of Disability at any time after Executive has commenced receiving benefits under Employer's long-term disability insurance policy. 5.5. Death. The Employment Period shall end on the date of Executive'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 Executive. If the Employment Period is terminated by Executive for Good Reason pursuant to the provisions of Section 5.3, hereof, Employer will pay to Executive Executive'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 Executive hereunder shall not be less than an amount equal to two-and-one-half years of Executive'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 on account of Executive's Disability pursuant to the provisions of Section 5.4, or by death, pursuant to the provisions of Section 5.5, Employer shall pay to Executive, within thirty (30) calendar days of the date of termination, Executive'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 Executive has been employed for at least six months during the year of termination, Employer shall also pay to Executive 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. Executive 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 Executive agrees that during the term of the Executive's employment with the Company and for a period of one year thereafter, the Executive shall not directly recruit, solicit or otherwise induce or attempt to induce any employees of the Company to leave the employment of the Company. 7.2. Non-competition. The Executive agrees that during the term of the Executive's employment with the Company, the Executive shall not directly or indirectly, except as a passive investor in publicly held companies and except for investments held at the date hereof, engage in competition with the Company or any of its subsidiaries, excluding those activities described 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 Company or any of its subsidiaries. 8. Successors; Binding Agreement. This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive and Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, divisees, and legatees. If Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other beneficiary or, if there be no such beneficiary, to Executive'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 Executive: Mr. Lee Forlenza 16 Sutton Place, Apt. 13A New York, New York 10022 10.2. Taxes. Employer is authorized to withhold (from any compensation or benefits payable hereunder to Executive) 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. 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 Executive 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 Executive. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. 10.9. Termination of 2001 Agreement. The Employer and Executive hereby acknowledge that this Agreement is an amendment and restatement of the 2001 Agreement, and as such is a termination of the 2001 Agreement. Both Employer and Executive hereby relinquish any and all rights they may have resulting from the termination of the 2001 Agreement. 10.10. 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 is 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 ELK ASSOCIATES FUNDING CORPORATION By: /s/ Gary Granoff /s/ Lee A. Forlenza EX-10.4 6 d53614_ex10-4.txt LINE OF CREDIT AGREEMENT DATED FEBRUARY 4, 2003 MASTER NOTE (Eurodollar/Prime Rate) $16,000,000 Date: December 30, 2002 FOR VALUE RECEIVED, the undersigned, a New York corporation, promises to pay to the order of CITIBANK, N.A. (the "Bank"), on or before November 30, 2003 (the "Maturity Date"), the sum of Sixteen Million Dollars ($16,000,000), or, if less, the aggregate unpaid principal amount of all advances made by the Bank pursuant to the line of credit (each an "Advance" and collectively, the "Advances"), not to exceed an aggregate amount at any one time outstanding of Sixteen Million Dollars ($16,000,000), available to the undersigned hereunder (the "Line") together with interest thereon as set forth herein. Each Advance hereunder which is a Eurodollar Advance (as defined below) shall bear interest on the unpaid principal amount thereof for the Interest Period applicable thereto at a rate per annum equal to the Reserved Adjusted LIBOR determined for each Interest Period therefor in accordance with the terms of this Note plus a margin of 150 basis points. Each Advance which is a Prime Rate Advance (as defined below) shall bear interest on the unpaid principal amount thereof from the date thereof until payment of such Prime Rate Advance in full at a fluctuating rate per annum equal to 1/2% below the Prime Rate. The undersigned shall notify the Bank not later than 12 noon three Business Days prior to each Advance hereunder which the undersigned requests to maintain at a rate of interest based on Reserved Adjusted LIBOR (a "Eurodollar Advance"), and not later than 12 noon on the date of each Advance which the undersigned requests to maintain at a rate of interest based on the Prime Rate (a "Prime Rate Advance"). All requests for Advances shall be irrevocable and shall be in the minimum amount of $100,000 with respect to each Prime Rate Advance and $250,000 with respect to each Eurodollar Advance. Each request by the undersigned for an Advance hereunder shall specify whether the requested Advance is a Eurodollar Advance or a Prime Rate Advance, the proposed date to fund the Advance, and if a Eurodollar Advance is requested, the Interest Period applicable thereto. Any Eurodollar Advance may be continued as a Eurodollar Advance upon expiration of an Interest Period with respect thereto by complying with the notice provisions contained in the definition of the Interest Period; provided, however, that no Eurodollar Advance may be continued as such when any Event of Default or event which upon notice, passage of time or both would constitute an Event of Default has occurred and is continuing but shall be automatically converted to a Prime Rate Advance on the last date of the Interest Period in effect when the Bank is notified of such default or Event of Default. The undersigned may elect from time to time to convert outstanding Eurodollar Advances to Prime Rate Advances by giving the Bank at least three Business Days prior irrevocable notice of such election; provided that any conversion of a Eurodollar Advance may be made only on the last day of an Interest Period with respect thereto. The undersigned may elect from time to time to convert an outstanding Prime Rate Advance to a Eurodollar Advance by giving the Bank irrevocable written notice of such election not later than 12 noon, three Business Days prior to the date of the proposed conversion and further provided that (i) the conversion shall be in the minimum principal amount of $250,000 and (ii) no Event of Default or event upon notice, passage of time or both would constitute an Event of Default shall have occurred and be continuing. Interest in respect of Prime Rate Advances shall be payable on the first day of each month commencing on the first such date to occur after the date the Advance is made, and on the Maturity Date. Interest in respect of Eurodollar Advances shall be payable on the last day of the Interest Period in respect thereof. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. All payments hereunder shall be payable in immediately available funds in lawful money of the United States. The undersigned authorizes the Bank to charge any of the undersigned's accounts for payment of principal or interest. Any payment of principal of orinterest payable hereunder which is not paid when due, whether at maturity, by acceleration, or otherwise, shall bear - ---------- This note provides that interest be paid in respect of Prime Rate Advances and on the last day of any Interest Period in respect of Eurodollar Advances. interest from the date due until paid in full at a rate per annum equal to three percent (3%) above the rate otherwise payable with respect thereto. All requests for advances shall be irrevocable and must be received by the Bank no later than 12:00 noon on the date of the proposed advance. The Bank may act without liability upon the basis of telephonic notice believed by the Bank in good faith to be from the undersigned. In each such case, the undersigned hereby waives the right to dispute the Bank's record of the terms of such telephonic notice. All advances under the Line are at the Bank's sole and absolute discretion and the Bank, at its option and in its sole and absolute discretion and without notice to the undersigned, may decline to make any advance requested by the undersigned. Subject to the terms and conditions hereof and the terms and conditions set forth in any agreement in writing between the Bank and the undersigned, the undersigned may borrow, repay in whole or in part, and reborrow on a revolving basis, up to the maximum amount of the Line. Prime Rate Advances may be prepaid without premium or penalty together with accrued interest thereon to and including the date of the prepayment. Eurodollar Advances may be prepaid without premium or penalty (except as provided in the next succeeding paragraph) together with accrued interest thereon to and including the date of prepayment, provided such prepayment date must be the last day of the then current Interest Period of such Advance. The Bank shall maintain its records to reflect the amount and date of each Advance and of each payment of principal and interest thereon. All such records shall, absent manifest error, be conclusive as to the outstanding principal amount hereof; provided, however, that the failure to make any notation on the Bank's records shall not limit or otherwise affect the obligations of the undersigned to repay each advance made by the Bank, in accordance with the terms hereof. The undersigned agrees to indemnify the Bank and hold the Bank harmless from any loss or expense which the Bank may sustain or incur, including without limitation, interest or fees payable by the Bank to lenders of funds obtained by it in order to maintain a Eurodollar Advance hereunder, as a consequence of (a) default by the undersigned in payment of the principal amount of or interest on a Eurodollar Advance, (b) default by the undersigned in making any prepayment of a Eurodollar Advance after the undersigned gives notice in accordance with this Note, and/or (c) the making of any payment of a Eurodollar Advance on a day which is not the last day of the then applicable Interest Period with respect thereto. When claiming the indemnification under this paragraph, the Bank shall provide to the undersigned a statement explaining the amount of any such loss or expense which statement shall in the absence of manifest error be conclusive with respect to the undersigned. The indemnity obligations hereunder shall survive payment in full of the Note. As security for the payment of this Note, and of all other obligations and liabilities of the undersigned to the Bank, whether now or hereafter existing, joint, several, direct, indirect, absolute, contingent, secured, matured, or unmatured, the undersigned grants to the Bank a right of setoff against, a continuing security interest in, and an assignment and pledge of all moneys, deposits (general or special), securities and other property of the undersigned and the proceeds thereof, now or hereafter held by the Bank on deposit, in safekeeping, in transit, or otherwise, at any time credited by or due from the Bank to the undersigned, or in which the undersigned shall have an interest. Upon the occurrence and continuance of any of the following (each an "Event of Default"): (a) default in the payment when due of any amount hereunder; (b) filing by or against the undersigned of a petition commencing any proceeding under any bankruptcy, reorganization, rearrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, now or hereafter in effect; (c) making by the undersigned of an assignment for the benefit of creditors; (d) petitioning or applying to any tribunal for the appointment of a custodian, receiver, or trustee for the undersigned or for a substantial part of its assets; (e) death or incapacity of the undersigned (if an individual); (f) entry of any judgment or order of attachment, injunction or governmental tax lien or levy issued against the undersigned or against any property of the undersigned; (g) consent by the undersigned to assume, suffer, or allow to exist, without the prior written consent of the Bank, any liens, mortgages, assignment or other encumbrances in existence on the date hereof and consented to in writing by the bank; (h) default in the punctual payment or performance of this or any other obligation to the Bank or to any other lender at any time; (i) the existence or occurrence at any time of one or more conditions or events which, in the sole opinion of the Bank, has resulted or is reasonably likely to result in a material adverse change in the business, properties or financial condition of the undersigned; (j) failure on request to furnish any financial information or to permit inspection of the books and records of the undersigned; (k) any warranty, representation, or statement in any application, statement, or agreement which proves false in any material respect; (l) default in the observance or performance of any covenant or agreement of the undersigned herein or in any other agreement between the Bank and the undersigned; or (m) any of the foregoing events (other than the event described in clause (a)) shall occur with respect to any guarantor of the undersigned's obligations hereunder then this Note shall, at the sole option of the Bank, become due and payable without notice or demand; provided, however, if an event described in clause (b), clause (c), or clause (d) above occurs, this Note shall automatically become due and payable. Upon the occurrence and during the continuance of an Event of Default, the Bank shall be entitled to setoff against and apply to the payments hereof the balance of any account or accounts maintained with the Bank by the undersigned and to exercise any other right or remedy granted hereunder, or under any agreement between the undersigned and the Bank or available law or in equity, including, but not limited to, the rights and remedies of a secured party under the New York Uniform Commercial Code. The failure by the Bank at any time to exercise any such right shall -2- not be deemed a waiver thereof, nor shall it bar the exercise of any such right at a later date. Each and every right and remedy granted to the Bank hereunder or under any agreement between the undersigned and the Bank or available at law or in equity shall be cumulative and not exclusive of any other rights, powers, privileges, or remedies, and may be exercised by the Bank from time to time and as often as may be necessary in the sole and absolute discretion of the Bank. The undersigned agrees to pay, on demand, all of the Bank's costs and expenses, including reasonable counsel fees (whether in-house or outside counsel), in connection with the collection of any amounts due to the Bank hereunder or in connection with the enforcement of the Bank's rights under this Note. This Note shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflict or choice of laws. THE UNDERSIGNED HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN THE COUNTY OF NASSAU OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE UNDERSIGNED HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION, OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION, OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCIDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION, OR PROCEEDING IS IMPROPER, OR THAT THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE UNDERSIGNED AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OR SUCH JUDGMENT. THE UNDERSIGNED AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO ITS ADDRESS SET FORTH BELOW OR SUCH OTHER ADDRESS THAT THE UNDERSIGNED SHALL HAVE NOTIFIED THE BANK IN WRITING OR ANY METHOD AUTHORIZED BY THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS PROHIBITED BY LAW, THE UNDERSIGNED HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS NOTE. The undersigned and the Bank hereby agree and acknowledge that any and all information relating to the undersigned which is furnished by the undersigned to the Bank (or any affiliate of the Bank), and which is non-public, confidential, or proprietary in nature, shall be kept confidential by the Bank or such affiliate in accordance with applicable law; provided, however, that such information and other credit information relating to the undersigned may be distributed by the Bank or such affiliate (a) to the Bank's or other affiliate's directors, officers, employees, attorneys, affiliates, auditors, and regulators, and (b) upon the order of a court or other governmental agency having jurisdiction over the Bank or such affiliate, to any other party. The undersigned and the Bank further agree that this provision shall survive the termination of this Note. The Bank shall not, by any act, delay, omission, or otherwise, be deemed to have waived any of its rights and/or remedies hereunder. No change, amendment, modification, termination, waiver, or discharge, in whole or in part, of any provision of this Note shall be effective unless in writing and signed by the Bank, and if so given by the Bank, shall be effective only in the specific instance in which given. The undersigned acknowledges that this Note and the undersigned's obligations under this Note are, and shall at all times continue to be, absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Note and the obligations of the undersigned under this Note. The undersigned absolutely, unconditionally, and irrevocably waives any and all rights to assert any set-off, counterclaim, or crossclaim of any nature whatsoever with respect to this Note or the undersigned's obligations hereunder. In the event any one or more of the provisions contained in this Note should be invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The undersigned hereby waives presentment, demands for payment, protest, notice of dishonor, and any and all other notices or demands in connection with the delivery, acceptance, performance, default, or enforcement of this Note. As used herein, the following terms shall have the following meanings: "Bank" shall be defined to include the Bank, its successors and assigns, and any holder hereof. -3- "Business Day" means (a) a day other than a Saturday, Sunday, or other day on which commercial banks in New York, New York are authorized or required by law to close and (b) relative to the date of (i) continuing an Advance as, or converting an Advance to, a Eurodollar Advance, (ii) making any payment or prepayment of principal of or payment of interest on a Eurodollar Advance, or (iii) the undersigned giving any notice (or the number of Business Days to elapse prior to the effectiveness thereof) in connection with any matter referred to in (b)(i) or (b)(ii), any day on which dealings in U.S. dollars are carried on the London interbank eurodollar market. "Eurocurrency Reserve Requirement" means for any day as applied to a Eurodollar Advance, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal, and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other governmental authority having jurisdiction with respect thereto), as from time to time hereafter in effect, dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such system. "Interest Period" with respect to any Eurodollar Advance means: (a) Initially, the period commencing on the date such Eurodollar Advance is made and ending one, two, or three months thereafter; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Advance and ending one, two, or three months thereafter, as selected by the undersigned by irrevocable written notice to the Bank not less than three (3) Business Days prior to the last day of the then current Interest Period with respect to the Eurodollar Advance; provided, however, that all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period pertaining to a Eurodollar Advance would otherwise end on a day which is not a Business Day, the Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event, such Interest Period shall end on the immediately preceding Business Day; (ii) if the undersigned shall fail to give notice as provided in clause (b) above, the undersigned shall be deemed to have requested conversion of the affected Eurodollar Advance to a Prime Rate Advance on the last day of the then current Interest Period with respect thereto; and (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Prime Rate" shall mean a fluctuating rate per annum equal to the prime rate of interest as published in the Money Rates column of the Wall Street Journal from time to time. Any change in the Prime Rate shall take effect on the date of the change in the Prime Rate. "Reserved Adjusted LIBOR" shall mean with respect to the Interest Period pertaining to a Eurodollar Advance, the rate per annum equal to the quotient (rounded upwards to the next higher 1/16 of one percent) of (a) the annual rate of interest at which dollar deposits of an amount comparable to the amount of such Loan and for a period equal to the Interest Period applicable thereto are offered to the Bank in the London interbank market at approximately 11:00 a.m. (London time) on the second Business Day prior to the beginning of such Interest Period, divided by (b) a number equal to 1.00 minus the Eurocurrency Reserve Requirement. "Undersigned" shall mean, if this Note is signed by more than one party, unless otherwise stated herein, the "undersigned and each of them" and each undertaking herein contained shall be their joint and several undertaking. The Bank may proceed against one or more of the undersigned at one time or from time to time as it elects in its sole and absolute discretion. In the event the Bank shall have determined (which determination shall be conclusive and binding upon the undersigned) that, by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Reserved Adjusted LIBOR for any requested Interest Period or with respect to the continuation of a Eurodollar Advance beyond the expiration of the then current Interest Period with respect thereto, the Bank shall forthwith give notice of such determination, confirmed in writing, to the undersigned. If such notice is given, any outstanding Eurodollar Advance shall be converted, on the last day of the then current Interest Period with respect thereto, to a Prime Rate Advance. Such notice shall be withdrawn by the Bank when the Bank shall determine that adequate and reasonable means exist for ascertaining Reserved Adjusted LIBOR. -4- Notwithstanding anything to the contrary contained elsewhere in this Note, if any change after the date hereof in law, rule, regulation, guideline, or order or in the interpretation thereof by any governmental authority charged with the administration thereof, shall make it unlawful for the Bank to make or maintain any Advance as a Eurodollar Advance, then, by written notice to the undersigned, the Bank may require that the Eurodollar Advance be converted to a Prime Rate Advance, whereupon the Eurodollar Advance shall be automatically converted to a Prime Rate Advance as of the date of such notice to the undersigned. In the event that any change in applicable law or regulation, or in the interpretation thereof by any governmental authority charged with the administration thereof, shall impose on or deem applicable to the Bank any other costs or assessments, the undersigned shall pay to the Bank on demand an amount sufficient to compensate the Bank for the additional cost resulting from the maintenance or imposition of such reserves, costs, or assessments. Any consents, agreements, instructions, or requests pertaining to any matter in connection with this Note, signed by any one of the undersigned, shall be binding upon all of the undersigned. This Note shall bind the respective successors, heirs, or representatives of the undersigned. This Note and the Line shall not be assigned by the undersigned without the Bank's prior written consent. IN WITNESS WHEREOF, the undersigned has duly executed this Note the day and year first above written. Witness: /s/ Elk Associates Funding Corporation ------------------------ By: /s/ Silvia M. Mullens ------------------------------------- Name: Silvia M. Mullens Title: Vice President Borrower's Address: 747 Third Avenue, 4th Floor New York, New York 10017 -5- EX-99.1 7 d53614_ex99-1.txt CERTIFICATION OF PRESIDENT, CEO & CFO Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Ameritrans Capital Corporation (the "Company") on Form 10-Q for the six months ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary C. Granoff, President, Chief Executive Officer, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gary C. Granoff - ------------------- Gary C. Granoff President, Chief Executive Officer, and Chief Financial Officer February 14, 2003 -18- -----END PRIVACY-ENHANCED MESSAGE-----