8-K

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 8-K

^{______________}

Current Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

January 19, 2011

Date of Report

(Date of Earliest Event Reported)

AMERITRANS CAPITAL CORPORATION

 (Exact name of Registrant as specified in its charter)

Delaware	333-63951	52-2102424
(State or other jurisdiction of incorporation or organiztion)	(Commission File No.)	(I.R.S. Employee I.D. Number)

50 Jericho Quadrangle

Jericho, New York 11753

(Address of principal executive offices (Zip Code)

(212) 355-2449

 (Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[_]

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[_]

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[_]

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

On January 19, 2011, Ameritrans Capital Corporation (the “Company”) issued a Senior Secured Note (the “Note”) in the principal amount of $1,500,000 to an unaffiliated lender.  The Note bears interest at the rate of 12% per annum (except following an event of default under the Note, in which case the interest rate applicable to the Note would be 14%) and matures on February 1, 2012.

The Company may prepay the Note at any time.  The Company is required to prepay the Note in certain circumstances, including in the event and to the extent (i) the Company issues any capital stock (other than upon the conversion of securities outstanding as of January 19, 2011), (ii) a subsidiary of the Company pays a dividend to the Company; (iii) the Company sells assets (other than in the ordinary course of business in an amount less than $100,000 in the aggregate and only to the extent of 50% of the proceeds from such sales); or (iv) the Company engages in a transaction that results in a change of control.  The Company will incur a 15% fee for any principal prepayments other than in respect of asset sales.  

The Company’s obligations under the Note may be accelerated by the Note holder under certain circumstances, including: (i) the Company fails to pay the principal of the Note when due or interest on the Note when due and such failure continues for three business days and/or fails to pay any other amount payable under the Note for thirty days following notice of such failure; (ii) the Company materially breaches any representation, warranty or  covenant made pursuant to the Note and such breach is not cured within five business days following the Company’s awareness thereof or receipt of notice with respect thereto; (iii) the Company or any of its subsidiaries commences a bankruptcy or similar proceeding (or such a proceeding is commenced against the Company or its subsidiaries); (iv) a person or group of persons acquires a majority of the voting power of the Company or Elk Associates Funding Corporation (“Elk”); (v) a judgment is entered against the Company or any of its subsidiaries in an aggregate amount exceeding $500,000 or any execution, garnishment or attachment is levied against the Company’s or its any of its subsidiaries’ assets and such execution, garnishment or attachment impairs the Company’s or its subsidiaries’ ability to conduct its business; (vi) the Company fails to pay obligations in excess of $500,000 when due; or (vii) an event occurs which has or would reasonably be expected to have a material adverse effect on the Company’s or any of its subsidiaries’ business.   

The Note also contains customary representations and warranties as well as affirmative and negative covenants.  Pursuant to the Note, the Company has agreed, among other things, (i) to reimburse the lender for certain out-of-pocket expenses incurred in connection with the Note; (ii) to maintain a minimum consolidated net asset value of $4,000,000; (iii) not to sell any material assets with a fair market value in excess of $500,000; (iv) not to declare or pay any dividend with respect to any class of capital stock or make any payment on any indebtedness ranking junior to the lender under the Note; (v) not incur any indebtedness for borrowed money in excess of $250,000; and (vi) not to enter into certain related party transactions.  

The Note is secured by a pledge of 100% of the issued and outstanding shares of common stock of Elk owned by the Company.

In order to facilitate certain covenants under the Note relating to the Company’s Existing Notes (as defined below), on January 19, 2011, the Company entered into an Amendment to Promissory Note (the “Amendment”) with each holder of the Company’s (i) 8.75% notes due December 2011 (the  “December Notes”), which the Company issued in December 2009 in a private offering; and (ii) 8.75% notes due March 2012 (the  “March Notes” and together with the December Notes, the “Existing Notes”), which the Company issued in March 2010 in a private offering.  Pursuant to the Amendment, the interest rate on the Existing Notes was increased from 8.75% to 12% and the maturity date was extended until May 2012.  The holders of the Existing Notes also waived certain covenants contained in the Existing Notes related to additional borrowings by the Company.  In connection with the Amendment, the Company paid a fee equ al to 1%, or an aggregate of $30,000, to the holders of the Existing Notes.

The foregoing descriptions of the Note and the Amendment are only summaries and are qualified in their entirety by reference to the complete terms and provisions of the Note and the Amendment, as applicable.  The form of Note and the form of Amendment are attached hereto as Exhibits 10.1 and 10.2, respectively, and are incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

Exhibit No.	Description
10.1	Senior Secured Note
10.2	Form of Amendment to Promissory Note
10.3	Stock Pledge Agreement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly authorized and caused the undersigned to sign this Report on the Registrant's behalf.

AMERITRANS CAPITAL CORPORATION

By:  /s/ Michael Feinsod                                       

Name:  Michael Feinsod

Title: Chief Executive Officer and President

Dated: January 21, 2011

Exhibit Index

Exhibit No.	Description
10.1	Senior Secured Note
10.2	Form of Amendment to Promissory Note
10.3	Stock Pledge Agreement

EX-10.1

Exhibit 10.1

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.  THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS.

AMERITRANS CAPITAL CORPORATION

SENIOR SECURED NOTE

US$1,500,000 January 19, 2011

FOR VALUE RECEIVED, the undersigned, Ameritrans Capital Corporation, a corporation organized under the laws of the State of Delaware (the “Company”), hereby promises to pay, on the terms and conditions of this Senior Secured Note (as amended, supplemented or otherwise modified from time to time, this “Note”), to Ameritrans Holdings LLC, a limited liability company organized under the laws of the State of Delaware (the “Holder”) or order, the principal amount of ONE MILLION FIVE HUNDRED THOUSAND UNITED STATES DOLLARS ($1,500,000) (less any repayments of principal, and plus any amounts of capitalized interest, the “Principal Amount”), on the earliest to occur of (a) the Maturity Date or (b) when declared due and payable by the Holder in writing upon the occurrence of an Event of Default.

ARTICLE 1
INTEREST

1.1

Interest.     This Note shall bear interest at the Interest Rate on the outstanding Principal Amount.  Interest shall be calculated on the basis of a 360-day year and the actual number of days elapsed.  Interest shall be payable quarterly in arrears on each March 15, June 15, September 15, and December 15 (or, if any such day is not a Business Day, the next following Business Day).  Without limiting the Company’s obligation to pay interest in accordance with the previous sentence, any interest that is not paid in cash when due shall be capitalized and added to the Principal Amount.

1.2

Default Interest.     Upon the occurrence of any Event of Default, upon notice by the Holder to the Company, the outstanding balance of the Principal Amount and any accrued and unpaid interest shall bear interest at the Default Rate from the date of such Event of Default.  Such default interest shall be payable on demand, and shall accrue until the earlier of (i) waiver or cure of the applicable Event of Default or (ii) agreement of the Holder to rescind the charging of interest at the Default Rate.

ARTICLE 2
PAYMENT

2.1

Repayment on Maturity Date.     A single and final payment of the outstanding Principal Amount and accrued and unpaid interest and other amounts payable hereunder shall be due and payable in full on the Maturity Date.

2.2

Voluntary Prepayment.     The Company shall be permitted to prepay this Note, in whole or in part (but in no event in an amount less than the lesser of $100,000, and the outstanding Principal Amount and accrued and unpaid interest at the time of such prepayment, with respect to each prepayment), at any time and from time to time, upon at least five (5) Business Days advance written notice to the Holder.

2.3

Mandatory Prepayment.     The Company shall, no later than five Business Days following the occurrence of any the following events, apply the amount specified to prepay this Note:

(a)

In the event that the Company issues any capital stock or any instrument convertible into or exercisable for any of its capital stock, or incurs any Indebtedness of the type described in clause (a) and (c) of the definition thereof (other than (i) the issuance of additional capital stock through the conversion of existing convertible shares outstanding on the date hereof and (ii) any Indebtedness to the Holder or its affiliates), the Company shall apply 100% of the net cash proceeds of such issuance or borrowing (after payment of reasonable third party expenses, fees and taxes relating to such issuance or borrowing) to prepay this Note.

(b)

In the event that any Subsidiary of the Company declares or pays any dividend to the Company, repurchases any capital stock owned by the Company or otherwise makes any payment or distribution to the Company in respect of the Company’s ownership interests in such Subsidiary, the Company shall apply 100% of such dividend or payment to prepay this Note.

(c)

In the event that the Company sells any assets (other than (i) shares or other ownership interests in any Subsidiary and (ii) assets (other than investment assets) sold in the ordinary course of business with an aggregate value not to exceed $100,000), the Company shall apply 50% of the net cash proceeds of such sale (after payment of reasonable third party expenses, fees and taxes relating to such sale) to prepay this Note.  In the event that the Company sells any shares or other ownership interests in any Subsidiary, the Company shall apply 100% of the net cash proceeds of such sale (after payment of reasonable third party expenses, fees and taxes relating to such sale) to prepay this Note.

(d)

In the event of a Change of Control (other than a Change of Control in which the Holder or its affiliates acquires control of the Company), the Company shall prepay 100% of the Principal Amount and accrued and unpaid interest on this Note.

2.4

Amount Payable Upon Prepayment.     The amount of any prepayment in accordance with Section 2.2 or Section 2.3 shall be applied (a) first, to accrued and unpaid interest and other amounts other than principal payable hereunder and (b) second, pro rata to the repayment of principal and the payment of a prepayment premium equal to 15% of the principal amount being repaid (“Prepayment Premium”) (for example, a payment of $115,000 under this clause (b) would be applied $100,000 to repayment of principal and $15,000 to prepayment premium); provided, however, that the Prepayment Premium shall not be payable in respect of any prepayment with the proceeds of (x) any issuance of equity interests to, or borrowing from, the Holder or its affiliates or as a result of any Change of Control pursuant to which the Holder or its affiliates acquire Control of the Company or (y) any sale of assets subject to the first sentence of Section 2.3(c).

2.5

Manner of Payment.     Each payment in cash by the Company on account of the principal of or interest on this Note and any other amount owed to the Holder under this Note shall be made not later than 2:00 p.m. (New York time) on the date specified for payment under this Note to the Holder at its office located at the address for notices as provided in Section 9.2 below, by wire transfer to an account designated by the Holder in writing or as otherwise directed by the Holder, in lawful money of the United States of America in immediately available funds.  Any payment received by the Holder after 2:00 p.m. (New York time) shall be deemed received on the next business day.  Receipt by the Holder at or prior to 2:00 p.m. (New York time) on any business day shall be deemed to constitute receipt by the Holder on such business day.  Amounts repaid or prepaid under this Note may not be reborrowed.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

In order to induce the Holder to enter into this Note, the Company hereby represents and warrants to the Holder that:

3.1

Organization, Qualifications; Corporate Power.     The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification except where the failure to be so qualified, licensed or in good standing would not, in the aggregate, be material to the Company and its Subsidiaries taken as a whole.  The Company has the requisite power and authority to own and hold its properties, to carry on its business as now conducted and as proposed to be conducted and to execute, issue and deliver this Note.  The Company is in material compliance with all of the terms and provisions of its certificate of incorpo ration and bylaws and any shareholders agreement or similar agreement to which it is a party (the “Constituent Documents”).

3.2

Authorization of Agreements, Etc.     The execution, issuance and delivery by the Company of this Note and the performance by the Company of its obligations hereunder have been duly authorized by all requisite corporate action and will not violate any material provision of law, any order of any court or other agency of government, the Constituent Documents or other organizational documents of the Company, or any material provision of any material indenture to which the Company, any of its subsidiaries or any of their respective properties or assets is bound, or materially conflict with, result in a material breach of or constitute a material default under (with due notice or lapse of time or both) any indenture or other instrument, or result in the creation or imposition of any claim upon any of the properties or assets of the Company, or require the consent of, or the delivery of any notice to, any third party, o ther than such consents or notices which have been duly obtained or given, as applicable, as of the date of this Note or except as such notice requirements as may be required under state or Federal securities laws.

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3.3

Validity.     This Note has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally or (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

3.4

Indebtedness.     As of the date first set forth above, neither the Company nor its Subsidiaries has any Indebtedness for borrowed money other than (i) as represented by this Note and (ii) all other Indebtedness set forth on Schedule I attached hereto.

3.5

Approvals.     The Company has obtained any required approvals from any governmental entity or other Person to the extent required for the execution and performance of its obligations under this Note (including without limitation any approvals required pursuant to the Investment Company Act or the [Small Business Investment Act of 1958, as amended].

3.6

Financial Statements.     The Company’s consolidated statements of assets and liabilities, consolidated statements of operations, consolidated statements of changes in net assets, consolidated statements of cash flows and consolidated statements of investments set forth in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2010 and quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2010, in each case as filed with the SEC, present fairly, in all material respects, the consolidated financial position of the Company as of the dates set forth therein, and the results of their operations and their cash flows for each of the fiscal periods set forth therein, in conformity with accounting principles generally accepted in the United States of America.

3.7

Status as Business Development Company.     The Company is an “investment company” that has elected to be regulated as a “business development company” within the meaning of the Investment Company Act and qualifies for treatment as a RIC under the Code.

3.8

Compliance with Investment Company Act.     The business and other activities of the Company and its Subsidiaries, including the issuance of this Note, the application of the proceeds and repayment hereof by the Company and issuance of the security interest contemplated by the Pledge Agreement do not result in a violation or breach in any material respect of the provisions of the Investment Company Act, or any rules, regulations or orders issued by the SEC thereunder.

3.9

Use of Credit.     Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying “margin stock” within the meaning of Regulations T, U and X  of the Board of Governors of the Federal Reserve System (“Margin Stock”), and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock.

ARTICLE 4
COVENANTS

4.1

Affirmative Covenants.     From the date hereof until all principal interest owing hereunder have been paid in full, the Company shall (and shall, except in the cases of clause (a) and (b), cause its Subsidiaries to):

(a)

Promptly give written notice to the Holder: (i) of any condition or event that constitutes an Event of Default (as defined below) or (ii) of the occurrence of any event that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, and which notice in each case includes a certificate specifying the nature and period of existence of such condition or event, or specifying the notice given or action taken by any such Person and the nature of such claimed default or event of default, event or condition, and what action the Company or its applicable Subsidiary has taken, is taking and proposes to take with respect thereto;

(b)

preserve and maintain in all material respects its and its Subsidiaries’ legal status, rights, franchises and privileges in the jurisdiction of its and their respective organization and qualify and remain qualified as a foreign corporation or other entity, as applicable, in each jurisdiction in which such qualification is necessary or desirable in view of its and their respective businesses and operations or the ownership or lease of its and their respective properties except where the failure to be so qualified or in good standing would not be material to the Company and its Subsidiaries taken as a whole;

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(c)

comply in all material respects with the requirements of all (i) material applicable laws, rules, regulations and orders of any governmental authority and (ii) material contractual obligations of the Company and its Subsidiaries;

(d)

execute and deliver, or cause to be executed and delivered, upon the reasonable request of the Holder and at the Company’s expense, such additional documents, instruments and agreements as the Holder may determine to be reasonably necessary to carry out the provisions of this Note and the transactions and actions contemplated hereunder;

(e)

maintain proper books of record and account, in which entries that are full, true and correct in all material respects and are in conformity with applicable accounting principles consistently applied shall be made of all material financial transactions and matters involving the assets and business of the Company and its Subsidiaries;

(f)

reimburse the Holder for any reasonable out-of-pocket expenses, including reasonable fees and disbursements of counsel, (i) incurred in connection with the negotiation, documentation and issuance of this Note in an amount not to exceed $100,000 in the aggregate, or (ii) any enforcement by the Holder of its rights hereunder, within five (5) Business Days of the Holder presenting the Company with an invoice for such expenses;

(g)

concurrently with the execution and delivery of this Note, extend the term of the Existing Promissory Notes such that no amount of principal will be due or payable until at least 90 days following the Maturity Date, and deliver to the Holder evidence thereof that is satisfactory to the Holder;

(h)

use commercially reasonable best efforts to cause Elk at all times to be registered and in good standing as a small business investment company and to be in compliance with the rules and regulations of the Small Business Administration applicable to small business investment companies except for such non-compliance described in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2010 and/or quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2010;

(i)

at all times maintain a minimum consolidated net asset value (calculated as consolidated tangible assets minus consolidated liabilities, in each case in accordance with generally accepted accounting principles in the United States) equal to at least $4,000,000;

(j)

at all times maintain its status as a RIC under the Code, and as a “business development company” under the Investment Company Act; and

(k)

in the event that Elk sells any assets, the Company shall cause Elk to reinvest the proceeds of such sale in assets in a manner consistent with the Company’s existing plan as described in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2010 and/or quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2010; and

(l)

use the proceeds of this Note solely (i) to pay certain transaction expenses of the Holder and the Company as contemplated in Section 4.1(g) and (ii) for general working capital purposes.

4.2

Negative Covenants.     From the date hereof until all principal and interest owning hereunder have been paid in full the Company shall not, and in the case of clauses (a) through (d), the Company shall not permit any of its Subsidiaries to, do or take any action on or following the date hereof with respect to any of the following:

(a)

cease to conduct or carry on the business of the Company or its Subsidiaries substantially as now conducted or as proposed to be conducted or materially change any part of its business activities or take any action which would result in a Material Adverse Effect;

(b)

effect the sale, transfer or license, in a single transaction or a series of transactions, of any material assets with a fair market value in excess of $500,000;

(c)

avoid or seek to avoid the observance or performance of any of the terms of this Note through any reorganization, recapitalization, transfer of assets or other voluntary action;

(d)

(i) liquidate or dissolve, consolidate with, or merge into or with, any other corporation, provided, that this clause (i) shall not prevent a merger or consolidation involving only the Company and one or more of its Subsidiaries pursuant to which the Company is the surviving party or (ii) purchase or otherwise acquire all or substantially all of the capital stock or assets of any Person (or of any division or business unit thereof) other than in the ordinary course of business;

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(e)

declare or pay any dividend in respect of any class of its capital stock, or repurchase or agree or commit to repurchase any shares of its capital stock, or make any payment of principal on any Indebtedness ranking junior in right of payment or upon liquidation to this Note;

(f)

repay any amount of principal in respect of the Existing Promissory Notes;

(g)

incur any Indebtedness for borrowed money in excess of $250,000;

(h)

incur any Liens other than Permitted Liens; or

(i)

subject to compliance with fiduciary duties and statutory restrictions, amend or modify, or propose to amend or modify, or seek shareholder or other consent to the amendment or modification of, the Management Contract, including without limitation the replacement of the investment manager thereunder; or

(j)

without the prior written consent of the Holder, enter into any transaction or series of transactions with, or make any payment to, any director, officer or holder of capital stock representing more than five percent (5%) of the voting power in the Company, other than transactions or payments that prior to the date hereof have been disclosed in writing to the Holder or publicly disclosed in a filing with the SEC, in each case with a value exceeding $25,000 in any calendar month.

ARTICLE 5
EVENTS OF DEFAULT

5.1

Events of Default.     The occurrence of any one or more of the following events shall constitute an “Event of Default”:

(a)

the Company shall fail to pay (i) any principal of this Note when due in accordance with the terms hereof or (ii) interest on this Note when due in accordance with the terms hereof and such non-payment continues for a period of 3 Business Days after the due date therefor;

(b)

the Company shall fail to pay any amount (other than principal or interest) which is payable hereunder, when due in accordance with the terms hereof and such failure of payment has continued for 30 days after being notified of such failure by the Holder;

(c)

any representation, warranty, certification or statement made by or on behalf of the Company in this Note shall have been incorrect, misleading or false in any material respect when made and such inaccuracy has continued for 5 business days after the earlier of (i) the date on which the Company becomes aware of such inaccuracy and (ii) the date on which the Company has been notified of such inaccuracy in writing by the Holder;  

(d)

the Company shall breach any covenant, condition, agreement or provision contained in this Note and such breach has continued for five (5) business days after the earlier of (i) the date on which the Company becomes aware of such inaccuracy and (ii) the date on which the Company has been notified of such inaccuracy in writing by the Holder;

(e)

(i) the Company or any of its Subsidiaries shall commence any case, proceeding or other action (a) under any law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (b) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets; or (ii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (1) above which (a) results in the entry of an order for relief or any such adjudication or appointment or (b) remains undismissed, undischarged or unbonded for a period of 7 days; or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged or stayed, or bonded pending appeal, within 60 days after the entry thereof; (iv) the Company or any of its Subsidiaries shall (a) make a general assignment for the benefit of its creditors, or (b) shall admit its inability to pay its debts when they become due; (v) there shall be any order, judgment or decree entered against the Company or any of its Subsidiaries decreeing the dissolution or split up of the Company or any of its Subsidiaries and such order shall remain undischarged or unstayed for a period in excess of 60 days; or (vi) the Company or any of its Subsidiaries shall cease to carry on all or any substantial part of its business in the ordinary course;

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(f)

after the date hereof any Person or group of Persons (other than Holder or its affiliates) acquires in any manner a majority of the voting power of either the Company or Elk;

(g)

the failure by the Company or any of its Subsidiaries to promptly forestall or remove any execution, garnishment or attachment of such consequence as shall impair its ability to conduct its business or fulfill its obligations and such execution, garnishment or attachment shall not be vacated within 90 days;

(h)

there is entered against the Company or its Subsidiaries a final judgment or order for the payment of money in an aggregate amount exceeding US$500,000 and such judgment or order shall remain unsatisfied or without a stay in respect thereof for a period of 60 days;

(i)

the Company or any Subsidiary shall fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money or credit received or in respect of any capitalized lease, in each case for which the Company’s or such Subsidiary’s obligations exceed $500,000, or fail to observe or perform any material term, covenant or agreement contained in any material agreement by which it is bound and evidencing or securing borrowed money or credit received or in respect of any such capitalized lease for such period of time or otherwise as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof, or any such holder or holders shall rescind or shall have a right to rescind the purchase of any such obligations; or

(j)

any other event occurs, including without limitation any order, proceeding or other action by the SEC, the SBA or any other regulatory body having jurisdiction over the Company, Elk or any other Subsidiary, which has had or would reasonably be expected to have a Material Adverse Effect.

5.2

Consequence of Event of Default.     Upon the occurrence and during the continuance of an Event of Default, (i) upon notice pursuant to Section 1.2, the outstanding balance of the Principal Amount shall bear interest at the Default Rate from the date of such Event of Default and (ii) the Holder may, by notice in writing to the Company, declare the then outstanding Principal Amount of this Note, together with any accrued and unpaid interest due thereon, to be forthwith due and payable and all such amounts shall be immediately due and payable.

ARTICLE 6
REGISTRATION AND TRANSFER OF NOTE

6.1

Register.     The Company shall keep at its principal office a register in which the Company shall provide for the registration of this Note and record the name and address of the Holder.  The Holder shall notify the Company of any change of name or address and promptly after receiving such notification the Company shall record such information in such register.

6.2

Transfer.     This Note and all rights hereunder may be assigned, pledged, encumbered or otherwise transferred by the Holder without the consent of the Company.  This Note and the obligations of the Company hereunder may not be assigned or delegated by the Company.

ARTICLE 7
DEFINITIONS

7.1

Definitions.     In this Note, unless the context otherwise requires, the following words and expressions have the following meanings:

“Business Day” means any day other than a Saturday or a Sunday on which banks in New York, New York are not authorized or required to be closed.

“Change of Control” means the occurrence of (i) a sale or disposition of all or substantially all of the assets of the Company, (i) a sale or disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, (iii) a merger or consolidation of the Company or any Subsidiary and any other entity (other than the Company or a wholly owned Subsidiary of the Company), (iv) any issuance to any Person or group of Persons of capital stock of the Company representing more than 40% of the total voting power or total equity in the Company after the issuance thereof or (v) any transfer of beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Securities Exchange Act of 1934, as amended), directly or indirectly, of all or any portion of the outstanding shares of capital stock of the Company, in a single transaction or a series of related transactions, except where the holde rs of voting stock of the Company immediately prior to such transaction or series of related transactions retain directly or indirectly at least forty percent (40%) of the total voting power or total equity in the Company or the successor or acquiring entity (as applicable).

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“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Company” has the meaning given such term in the introductory paragraph hereof.

“Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.

“Default Rate” means the rate equal to the Interest Rate plus two percent (2%) per annum.

“Elk” has the meaning given to such term in Section 2.3(c).

“Event of Default” has the meaning given such term in Section 5.1.

 “Holder” has the meaning given such term in the introductory paragraph hereof.

“Indebtedness” means, with respect to a specified Person, (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business irrespective of when paid); (c) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (d) all obligations and liabilities of such Person created or arising under any conditional sales or other title retention agreement with respect to property used and/or acquired by such Person, even though the rights and remedies of the lessor, seller and/or lender thereunder are limited to repossession or sale of such property; (e) all capitalized lease obligations of such Person; (f) all the aggregate mark-to-market exposure of such Person under hedging agreements; (g) all obligations referred to in clauses (a) through (f ) of this definition of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, provided, that the amount of Indebtedness of others that constitutes Indebtedness solely by reason of this clause (g) shall not for purposes of this Agreement exceed the fair market value of the properties or assets subject to such Lien.

“Indemnitees” has the meaning given such term in Section 9.5.

“Indemnified Matters” has the meaning given such term in Section 9.5.

“Interest Rate” means twelve percent (12%) per annum.

“Investment Company Act” means the U.S. Investment Company Act of 1940, as amended.

“Lien” shall mean any lien, mortgage, pledge, security interest, charge, or encumbrance of any kind (including any conditional sale or other title retention agreement or any lease in the nature thereof) and any agreement to give or refrain from giving any lien, mortgage, pledge, security interest, charge, or other encumbrance of any kind.

“Material Adverse Effect” means any event or series of events that, individually or in the aggregate, results in a material adverse change in, or a material adverse effect upon, the operations, business, properties, or condition (financial or otherwise) of Borrower or any Subsidiary of Borrower.

“Maturity Date” means February 1, 2012.

“Note” has the meaning given such term in the introductory paragraph hereof.

“Obligations”, for purposes of the Pledge Agreement, means all obligations of the Company to the Holder hereunder and under the Pledge Agreement.

“Permitted Liens” means:  (a) Liens for taxes, assessments or other governmental charges which are not yet due and payable or are being contested in good faith by appropriate proceedings and as to which the Company has set aside adequate reserves; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business for sums not yet due and payable; (c) Liens (other than any Lien imposed by the Employment Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business (i) in connection with workers’ compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than capitaliz ed leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (d) any attachment or judgment Lien provided, that such Lien does not result in an Event of Default hereunder; (e) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case

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incidental to, and not interfering with, the ordinary conduct of the business of the Company provided, that such liens do not, in the aggregate, materially detract from the value of such property, (f) Liens of a collection bank on items in the course of collection arising under Section 4-208 of the UCC as in effect in the State of New York or any similar section under any applicable UCC or any similar Requirement of Law of any foreign jurisdiction, (g) Liens (i) arising by reason of zoning restrictions, easements, licenses, reservations, restrictions, covenants, rights-of-way, encroachments, minor defects or irregularities in title (including leasehold title) and other similar encumbrances on the use of real property or (ii) consisting of leases, licenses or subleases granted by a lessor, licensor or sublessor on its property (in each case other than capital leases) otherwise permitted herunder that, for each of the Liens in clauses (i) and (ii) above, do not, in the aggregate, materially (x) impair the value or marketability of such real property or (y) interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property, (h) the title and interest of a lessor or sublessor in and to personal property leased or subleased (other than through a capital lease), in each case extending only to such personal property; and (i) rights of setoff or bankers’ Liens upon deposits of cash or broker’s Liens upon securities accounts in favor of financial institutions, banks, or other depository institutions.

“Person” means an individual, corporation, trust, partnership, joint venture, unincorporated organization, government agency or any agency or political subdivision thereof, or other entity.

“Pledge Agreement” means the Pledge Agreement, dated as of the date hereof, by and between the Company, as “Pledgor” thereunder, and Holder, as “Secured Party” thereunder, as the same may be amended or modified from time to time.

“Principal Amount” has the meaning given such term in the introductory paragraph hereof.

“RIC” means a person qualifying for treatment as a “regulated investment company” under the Code.

“SEC” means the U.S. Securities Exchange Commission.

“Subsidiary” means, with respect to any Person, any other Person of which shares of stock or other interests having a majority of the general voting power in electing the board of directors or Persons exercising similar authority are, at the time as of which any determination is being made, beneficially owned, directly or indirectly, by the first Person.

7.2

Headings.     Section headings in this Note are included herein for convenience of reference only and shall not constitute a part of this Note for any other purpose.

ARTICLE 8
SECURITY

8.1

Security.     This Note is secured by the Pledge Agreement and such other instruments given by the Company to the Holder as may by their terms now or in the future secure or guaranty payment of the indebtedness evidenced by this Note.

8.2

Release of Security Does Not Modify Note.     The release of any security for this Note shall not release, modify or affect the liability of the Company hereunder except to the extent expressly stated therein.

ARTICLE 9
MISCELLANEOUS

9.1

Governing Law.     This Note (including any claim or controversy arising out of or relating to this Note) shall be governed by the laws of the State of New York without regard to conflict of law principles that would result in the application of any law other than the law of the State of New York.

9.2

Notices.     All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by telecopier or electronic mail, addressed as follows:

(a)

if to the Company, at

Ameritrans Capital Corporation
50 Jericho Quadrangle
Jericho, New York  11753
Attention:  Michael Feinsod
E-mail: mfeinsod@ameritranscapital.com

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With a copy to:

Elliot Press, Esq.
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York  10022
Fax:  (212) 940-6621
Elliot.press@kattenlaw.com

(b)

if to the Holder,

James C. Gorton, Esq.
Latham & Watkins, LLP
885 Third Avenue
New York, NY 10022
Fax: 212-751-4864
email: james.gorton@lw.com

All such notices or communications shall be deemed to be received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of a nationally recognized overnight courier, on the next business day after the date when sent, (c) in the case of facsimile transmission or electronic mail, upon confirmed receipt, and (d) in the case of mailing, on the third business day following the date on which the piece of mail containing such communication was posted.

9.3

Amendments; Waivers.     This Note may not be amended or modified, and no provisions hereof may be waived, without the written consent of the Company and the Holder.  Except as expressly agreed in writing by the Holder, no extension of time for payment of this Note, or any installment hereof, and no alternation, amendment or waiver of any provision of this Note shall release, discharge, modify, change or affect the liability of the Company under this Note.

9.4

Expenses.     Following an Event of Default and during the continuation thereof, all of the Holder’s costs of enforcing its rights hereunder, including any costs of collection, administering the Note, addressing any requests for amendments or waivers and any reasonable attorney’s fees in connection therewith, shall be paid by the Company.

9.5

Indemnification.     The Company agrees to defend, protect, indemnify and hold harmless the Holder and its Subsidiaries and their officers, directors, trustees, employees, agents and advisors (collectively called the “Indemnitees”) from and against any and all claims, losses, demands, settlements, damages, liabilities, obligations, penalties, fines, fees, reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees, costs and expenses, but excluding income, franchise and similar taxes of an Indemnitee) incurred by such Indemnitees, whether prior to or from and after the date hereof, as a result of or arising from or relating to or in connection with any of the following:  (a) the Holder’s furnishing of funds to the Company under this Note, (b) any matter relating to the financing transactions contemplated by this Note, (c) any claim, litigation, investigati on or administrative or judicial proceeding in connection with any transaction contemplated in, or consummated under, the Note or (d) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto (collectively, the “Indemnified Matters”); provided, however, that the Company shall not have any obligation to any Indemnitee under this Section 9.5 for any Indemnified Matter to the extent resulting from the bad faith, gross negligence or willful misconduct of such Indemnitee.  Such indemnification for all of the foregoing losses, damages, fees, costs and expenses of the Indemnitees shall be due and payable promptly after demand therefor.  To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 9.5 may be unenforceable because it is violative of any law or public policy, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applic able law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.  This Indemnity shall survive the repayment of the Notes.

9.6

Waiver.     The Company hereby waives diligence, presentment, protest and demand, notice of protest, notice of dishonor, notice of nonpayment and any and all other notices and demands in connection with the delivery, acceptance, performance, default or enforcement of this Note.  The Company further waives, to the full extent permitted by law, the right to plead any and all statutes of limitations as a defense to any demand on this Note.

9.7

Entire Agreement.     This Note constitutes the entire agreement of the Company and the Holder with respect to the subject matter hereof and supersedes all prior agreements and understandings, both oral and written, between the Company and the Holder with respect to the subject matter hereof.

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9.8

Counterparts.     This Note may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

9.9

Severability.     If any provision of this Note shall be declared void or unenforceable by any judicial or administrative authority, the validity of any other provision and of the entire Note shall not be affected thereby.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its officer or director thereunto duly authorized, on the date first above written.

AMERITRANS CAPITAL CORPORATION

BY:

/s/ Michael Feinsod                                                

NAME:  Michael Feinsod

TITLE:  Chief Executive Officer President

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Annex A

[Form of Officer’s Certificate to be Delivered Concurrently with the Execution of,

and as a Condition to Funding of, the Note]

CERTIFICATE OF AMERITRANS CAPITAL CORPORATION

I,                                                               , on behalf of Ameritrans Capital Corporation, a corporation organized under the laws of the State of Delaware (the “Company”), in my capacity as an officer of the Company and not in my personal capacity, hereby certify that:

(a)

the representations and warranties of the Company set forth in the Senior Secured Note being issued on the date hereof to Ameritrans Holdings LLC (the “Note”) are true and correct in all respects on and as of the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true and correct as of such earlier date); and

(b)

No Event of Default or default that with the passage of time would constitute an Event of Default exists, or would result from the issuance of the Note or from the application of the proceeds therefrom.

All defined terms used and not otherwise defined herein have the meanings set forth in the Note.

IN WITNESS WHEREOF, I have hereunto set my hand as of the 19th day of January, 2010.

By:

Name:

Title:

12

SCHEDULE I

EXISTING INDEBTEDNESS

1.  $3.0 million principal amount of indebtedness under the Existing Promissory Notes,

2.  $21.175 million principal amount of indebtedness under of debentures issued to the SBA, and

3.  $119,000 principal amount of indebtedness owed to Signature Bank.

13

EX-10.2

Exhibit 10.2

FORM OF AMENDMENT TO PROMISSORY NOTE

THIS AMENDMENT TO PROMISSORY NOTE is entered into as of January    , 2011 (this “Amendment”), by and between AMERITRANS CAPITAL CORPORATION, a Delaware corporation (the “Company”), and                          (the “Holder”).

WHEREAS, the Company executed and delivered that certain Promissory Note dated as of                          , payable to the order of the Holder in the original principal amount of $                      (the “Note”);

WHEREAS, the Company and the Holder wish to amend the Note in order to extend the maturity date thereof and to allow for the Company to enter into certain secured lending transactions otherwise not permitted by the terms of the Note

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and intending to be legally bound, the parties hereto agree as follows:

1.

All capitalized terms used but not otherwise defined herein have the meanings given to them in the Note.

2.

The Note is hereby amended by deleting the first paragraph thereof and replacing it in its entirety with the following:

“AMERITRANS CAPITAL CORPORATION, a Delaware corporation (the “Company”), for value received, hereby promises to pay to                                                                       or order (the “Holder”) on May 1, 2012 (the “Maturity Date”) at the offices of the Company, the principal sum of                                      &nbs p;                                                              ($                     ) DOLLARS in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts and to pay interest on the outstanding principal sum at the rate of (i) from the Issue Date (as defined below) until January __, 2011 eight and three quarters percent (8.75%) per annum and (ii) thereafter at twelve percent (12.0%) per annum through the Maturity Date.  Interest on the principal balance of this Promissory Note ( 7;Note”) from the date hereof (the “Issue Date”) shall be payable quarterly on each March 14,  June 14, September 14  and December 14 until all principal amounts hereunder have been satisfied.

3.

The Holder hereby consents to the Company granting a security interest in any of its assets to secure the repayment of any indebtedness incurred by it for borrowed funds.

4.

Except as set forth expressly herein, all terms of the Note, as amended hereby, shall be and remain in full force and effect and shall constitute the legal, valid, binding and enforceable obligations of the Company to the Holder.  The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Holder under the Note, nor constitute a waiver of any provision of the Note.  

5.

This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York and all applicable federal laws of the United States of America.

6.

This Amendment is not intended by the parties to be, and shall not be construed to be, a novation of the Note or an accord and satisfaction in regard thereto.

7.

This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument.  Delivery of an executed counterpart of this Amendment by facsimile transmission or electronic transmission shall be as effective as delivery of a manually executed counterpart hereof.

8.

This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns

9.

This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto.

 [Remainder of page intentionally left blank.  Signature page follows.]

1

IN WITNESS WHEREOF, the Company has caused this Amendment to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written.

AMERITRANS CAPITAL CORPORATION

By:                                                       

Name:

Title:

2

 IN WITNESS WHEREOF, the Holder has caused this Amendment to be signed on its behalf, all as of the day and year first above written.

If the Holder is an individual:	If the Holder is not an individual:
Name(s) of Holder	Name of Holder
	By:
Signature of Holder	Signature of Authorized Representative
Signature, if jointly held	Name and Title of Authorized Representative
Date	Date
(Signature(s) guaranteed)

3

EX-10.3

Exhibit 10.3

STOCK PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (this “Agreement”), dated as of January 19, 2011, by Ameritrans Capital Corporation, a corporation organized under the laws of the State of Delaware (“Pledgor”), in favor of Ameritrans Holdings LLC, a limited liability company organized under the laws of the State of Delaware (the “Secured Party”).

W I T N E S S E T H:

WHEREAS, the Pledgor legally and beneficially owns 100% of the issued and outstanding capital stock of Elk Associates Funding Corporation, a corporation existing under the laws of New York (“Elk”), as set forth on Schedule I hereto (the “Initial Pledged Stock”);

WHEREAS, pursuant to the Senior Secured Note, dated as of January 19, 2011 between the Secured Party and the Pledgor (the “Note”), the Secured Party is making Loans to the Pledgor on the terms and conditions set forth therein;

WHEREAS, the Pledgor will derive substantial benefit from the transactions contemplated by the Note;

NOW, THEREFORE, in consideration of the premises and to induce the Secured Party to enter into the Note, the Pledgor hereby agrees with the Secured Party as follows:

Defined Terms.  Unless otherwise defined herein, capitalized terms used but not defined herein have the meaning set forth in the Note.  Terms defined in the Uniform Commercial Code, as in effect in the State of New York from time to time (the “UCC”), which are not otherwise defined in this Agreement or in the Note are used in this Agreement as defined in the UCC.  As used herein, the following terms shall have the following respective meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined):

“Agreement” has the meaning set forth in the preamble.

“Collateral” has the meaning set forth in Section 1.

“Event of Default” has the meaning set forth in Section 5 hereof.

“Initial Pledged Stock” has the meaning set forth in the recitals.

“Pledged Securities” has the meaning set forth in Section 1.

“Pledged Stock” has the meaning set forth in Section 1.

“Pledgor” has the meaning set forth in the preamble.

“Obligations” means, collectively, “Obligations” as such term is defined in the Note, including, without limitation, all obligations of Pledgor hereunder.

“Secured Party” has the meaning set forth in the preamble.

“Securities Act” means the U.S. Securities Act of 1933, as amended.

SECTION 1.  Pledge.  As security for the payment and performance, as the case may be, in full of the Obligations and to secure the performance of the covenants hereunder, the Pledgor hereby pledges, assigns, hypothecates, transfers, sets over and delivers unto the Secured Party for its benefit, and grants to the Secured Party for its benefit, a security interest in all of the Pledgor’s right, title and interest in to and under: (a) the Initial Pledged Stock; (b) all other equity interests of Elk now or hereafter owned by the Pledgor (together with the Initial Pledged Stock, the “Pledged Stock”); (c) all other property which may be delivered to and held by the Secured Party pursuant to the terms hereof; (d) all cash and non-cash dividends, distributions, securities, instruments and other property and assets from time to time received, receivable or otherwise distributed in respect of, in exchange for, or upon the conversion of, the Pledged Stock and other property referred to in clauses (a), (b) and (c) above; and (e) except as provided in Section 6 below, all rights and privileges of the Pledgor with respect to the securities and other property referred to in clauses (a) through (d), and (f) all proceeds of any of the foregoing (the items referred to in clauses (a) through (f) being collectively called (the “Collateral”). Upon delivery to the Secured Party, (A) any stock certificates or other securities shall be accompanied by stock powers or instruments of transfer or assignment, each duly executed in blank, all in form and substance reasonably satisfactory to the Secured Party and by such other instruments and documents as the Secured Party may request, and (B) all other property comprising part of the Collateral shall be accompanied by proper instruments of assignment duly executed by the Pledgor and such other instruments or documents as the Secured Party may request.  Each delivery of Pledged Stock or other securities included in the Collateral (collectively, the “Pledged Securities”) shall be accompanied by a schedule describing the securities theretofore and then being pledged hereunder,

which schedule shall be attached hereto as Schedule I and made a part hereof.  Each schedule so delivered, after approval by the Secured Party, shall supersede any prior schedules so delivered.  In addition, all such Pledged Stock shall be accompanied by irrevocable written proxies meeting the requirements of the New York General Corporation Law.  The Pledgor agrees promptly to deliver or cause to be delivered to the Secured Party any and all Pledged Securities, and any and all certificates or other instruments or documents representing the Collateral, including without limitation all such items (whether now owned or hereafter acquired) which are required to be pledged to the Secured Party at any time hereafter pursuant to the Note.

SECTION 2.  Representations, Warranties and Covenants.  The Pledgor hereby represents, warrants and covenants to and with the Secured Party that:

(a)

the Pledgor has acquired the Pledged Stock pledged by it hereunder for value and without notice of any adverse claim to the Pledged Stock; the Pledged Stock includes that percentage as set forth on Schedule I of the issued and outstanding shares of each class of the equity interests of Elk; and all the shares of the Pledged Stock have been duly authorized and validly issued and are fully paid and non-assessable;

(b)

the Pledgor: (i) is and will at all times continue to be the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule I; (ii) holds and will so hold the same free and clear of all Liens (other than Permitted Liens) and of all other rights or options in favor of, or claims of, any other person; (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or Lien on, the Collateral, other than pursuant hereto, and (iv) will cause any and all certificates, instruments or other documents representing or evidencing Collateral to be forthwith deposited with the Secured Party and pledged or assigned hereunder;

(c)

the Pledgor: (i) has the power and authority to pledge the Collateral in the manner hereby done or contemplated; and (ii) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Agreement and Permitted Liens) and claims, however arising, of any Person;

(d)

no consent of any other person (including the stockholders or creditors of the Pledgor) and no consent or approval of any [Governmental Authority (other than the Small Business Administration)] or any securities exchange was or is necessary to the validity of the pledge effected hereby;

(e)

by virtue of the execution and delivery by the Pledgor of this Agreement, when the Pledged Securities, certificates or other documents representing or evidencing the Collateral are delivered to the Secured Party in accordance with this Agreement, the Secured Party will obtain a valid, legal and perfected first priority Lien upon and security interest in such Pledged Securities as security for the payment and performance of the Obligations and the covenants hereunder, free and clear of all Liens or other adverse claims;

(f)

the pledge and security interest effected hereby is effective to vest in the Secured Party the rights in the Collateral contemplated herein;

(g)

this Agreement is the legal, valid and binding obligation of the Pledgor and is enforceable against the Pledgor in accordance with its terms;

(h)

if the Pledgor shall become entitled to receive or shall receive any stock certificate (including without limitation any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of any capital or any certificate issued in connection with any reorganization), option or rights in respect of equity interests of Elk, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, the Pledgor shall accept the same as the agent of the Secured Party, hold the same in trust for the Secured Party and deliver the same forthwith to the Secured Party in the exact form received, duly endorsed by the Pledgor to the Secured Party and accompanied by such stock powers and proxies as provided in Section 4 below, to be held by the Secured Party, subject to the terms hereof, as additional Collateral for the O bligations.  Any sums paid upon or in respect of the Pledged Securities upon the liquidation or dissolution of the Elk shall be paid over to the Secured Party to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Securities or any property shall be distributed upon or with respect to the Pledged Securities pursuant to the recapitalization or reclassification of the capital of any Elk or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Secured Party, be delivered to the Secured Party to be held by it hereunder as additional collateral security for the Obligations.  If any sums of money or property so paid or distributed in respect of the Pledged Securities shall be received by the Pledgor, the Pledgor shall, until such money or property is paid or delivered to the Secured Party, hold such money or property in trust for the Secured Party, segregated from other funds of the Pledgor, as additional collateral security for the Obligations;  and

2

(i)

the Pledgor will not: (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Securities or proceeds thereof; (ii) create, incur or permit to exist any Lien or option in favor of, or any claim of any person with respect to, any of the Pledged Securities or proceeds thereof, or any interest therein, except for the security interests created by this Agreement; or (iii) enter into any agreement or undertaking restricting the right of the Pledgor or the Secured Party to sell, assign or transfer any of the Pledged Securities or proceeds thereof.

SECTION 3.  Registration in Nominee Name; Denominations.  The Pledgor will promptly give to the Secured Party copies of any notices or other communications received by it with respect to the Pledged Securities registered in the name of the Pledgor. The Secured Party shall at all times have the right to exchange the certificates, or instruments representing the Pledged Securities, for certificates, or instruments of smaller or larger denominations, for any purposes consistent with this Agreement.

SECTION 4.  Irrevocable Proxy; Voting Rights: Dividends and Interest; etc.

(a)

For so long as this Agreement and the pledge and security interest created hereby remain in effect, and whether or not the Collateral or any of the Pledged Securities has been transferred into the name of the Secured Party or its nominee, the Pledgor hereby grants to the Secured Party a present, irrevocable proxy, coupled with an interest, and hereby constitutes and appoints the Secured Party as the Pledgor’s proxy with full power, in the same manner, to the same extent and with the same effect as if the Pledgor were to do the same, to exercise all voting, consenting, corporate and other rights accruing to the Pledgor as owner of the Collateral or any part thereof, or arising out of or otherwise pertaining to the Collateral, and whether at any meeting of shareholders of Elk or in the absence of any such meeting or otherwise, and any and all rights of conversion, exchange and subscription and any other rights, privileges or options pert aining to such Collateral as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of Elk, or upon the exercise by the Pledgor or the Secured Party of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Secured Party may determine), all without liability except to account for property actually received by it, but the Secured Party shall have no duty to the Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.  As further assurance of the proxy granted hereby, the Pledgor shall fro m time to time execute and deliver to the Secured Party, all such additional written proxies, powers of attorney, and other instruments as the Secured Party shall reasonably request for the purpose of enabling the Secured Party to exercise the voting and other rights which it is entitled to exercise hereunder at any time.  The Pledgor shall revoke any proxy or proxies heretofore given by the Pledgor to any person or persons whatsoever and agrees not to give any other proxies in derogation hereof until this Agreement is no longer in full force and effect as hereinafter provided. Notwithstanding the preceding present grant of an irrevocable proxy, the Secured Party agrees not to exercise such proxy (and to permit the Pledgor to continue to exercise voting and other rights covered by such proxy and pertaining to the Pledged Securities pledged by the Pledgor on and subject to the conditions set forth in this Section 4(a)) until the occurrence and continuance of an Event of Default.  Excep t as provided in Sections 4(b) and 4(c) of this Agreement:

(i)

The Pledgor shall be entitled to exercise any and all voting rights and other consensual rights accruing to it as the owner of Pledged Securities for any purpose consistent with the terms of this Agreement and the Note;.

(ii)

The Secured Party shall execute and deliver to the Pledgor, or cause to be executed and delivered to the Pledgor, all such proxies, powers of attorney, and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and/or consensual rights and powers which it is entitled to exercise pursuant to subparagraph (i) above and to receive the cash payments it is entitled to receive pursuant to clause (iii) below.

(iii)

The Pledgor shall be entitled to receive and retain any and all cash dividends, interest and principal paid on the Pledged Securities to the extent and only to the extent that such cash dividends, interest and principal are permitted by, and otherwise paid in accordance with, the terms and conditions of this Agreement, the Note, and applicable laws.  All other payments, dividends and distributions made on or in respect of Pledged Securities, whether paid or payable in cash, securities or other property, and whether resulting from: (x) a subdivision, combination or reclassification of the outstanding Equity interests of Elk; (y) in connection with a partial or total liquidation or dissolution of the Elk; or (z) received in exchange for or in redemption of Pledged Securities or any part thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which Elk may be a party or otherwise, sha ll be and become part of the Collateral and, if received by the Pledgor, shall not be commingled by the Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Secured Party and shall be delivered to the Secured Party in the same form as so received (with any necessary endorsement).

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(b)

Upon the occurrence and during the continuance of an Event of Default and upon notice to Pledgor from the Secured Party, all rights of the Pledgor to dividends, interest and principal which the Pledgor is authorized to receive pursuant to clause (a)(iii) of this Section 4 shall cease, and all such rights shall thereupon become vested in the Secured Party, who shall have the sole and exclusive right and authority to receive and retain such dividend, interest and principal payments.  All dividends, interest and principal payments which are received by the Pledgor contrary to the provisions of this Section 4(b) shall be held in trust for the benefit of the Secured Party, shall be segregated from other property or funds of the Pledgor and shall be immediately delivered to the Secured Party in the same form as so received (with any necessary endorsement).  Any and all money and other property paid over to or receiv ed by the Secured Party pursuant to the provisions of this Section 4(b) shall be deposited by the Secured Party in an account to be established by the Secured Party upon receipt of such money or other property and such money or other property and interest thereon shall be applied in accordance with the provisions of Section 7 hereof.

(c)

Upon the occurrence and during the continuance of an Event of Default and notice to Pledgor from the Secured Party, and whether or not the Collateral shall have been registered in the name of the Secured Party or a nominee or shall remain registered in the name of the Pledgor, all rights of the Pledgor to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to clause (a)(i) of this Section 4 shall cease, and the Secured Party may thereupon fully exercise, to the exclusion of the Pledgor, the proxy granted to it in Section 4(a).

(d)

The Pledgor hereby authorizes and instructs Elk, without any other or further instruction from the Pledgor, to: (i) comply with any written instruction received by it from the Secured Party that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms and provisions of this Agreement; and (ii) directs payment of any dividends or other payments with respect to the Pledged Securities directly to the Secured Party (except to the extent such dividends or payments are permitted to be received by the Pledgor pursuant to the terms hereof).

SECTION 5.  Events of Default.  The following shall be an “Event of Default” under this Agreement:

(a)

An “Event of Default” as defined in the Note;

(b)

Default by the Pledgor in the observance or performance of any covenant or agreement herein; or

(c)

Any representation or warranty made by the Pledgor herein shall prove to have been incorrect in any material respect at the time made.

SECTION 6.  Remedies upon Default.  Upon the occurrence and during the continuance of an Event of Default, in addition to its rights under the Note:

(a)

The Secured Party shall have all of the rights and remedies with respect to the Collateral of a secured party under the UCC and such additional rights and remedies to which a secured party is entitled at law or in equity in any jurisdiction where any rights and remedies hereunder may be asserted, including without limitation the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Secured Party were the sole and absolute owner thereof (and the Pledgor agrees to take all such action as may be appropriate to give effect to such right).

(b)

The Secured Party in its sole and absolute discretion may, in its name or in the name of the Pledgor or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so.

(c)

The Secured Party may sell, lease, assign, grant options with respect to or otherwise dispose of all or part of the Collateral, at such place or places as the Secured Party deems best, and for cash or for credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of the time or place thereof (except such notice as is required above or by applicable statute and cannot be waived), and the Secured Party or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale) and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise) of the Pledgor, any such demand, notice and right or equity being hereby exp ressly waived and released.  The Secured Party shall provide the Pledgor with at least ten (10) days’ prior notice of the time and place of any public or private sale; provided, however, the Secured Party shall not be obligated to make a sale of the Collateral regardless of notice of sale having been given.  The Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned.  In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Secured Party until the sale price is paid in full by the purchaser or purchasers thereof, but the Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in ca se of any such failure, such Collateral may be sold again upon like notice.

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(d)

At any public (or, to the extent permitted by applicable law, private) sale made pursuant to this Section 6, the Secured Party may bid for or purchase, free from any right of redemption, stay or appraisal on the part of the Pledgor (all said rights being also hereby waived and released), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to it from the Pledgor as a credit against the purchase price, and it may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to the Pledgor thereof.

(e)

The Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act, and applicable state securities laws, the Secured Party may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof.  The Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to the Secured Party than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit registration of s uch Collateral for public sale.

(f)

The Pledgor shall bear all costs and expenses of carrying out its obligations hereunder with respect to the foregoing.  The Pledgor acknowledges that there is no adequate remedy at law for its failure to comply with the foregoing provisions and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements with respect to the foregoing may be specifically enforced.

SECTION 7.  Application of Proceeds of Sale.

(a)

The proceeds of any sale of Pledged Stock, and property and assets received or otherwise distributed in respect of, in exchange for or upon the conversion thereof and any proceeds thereof pursuant to this Agreement, shall be applied by the Secured Party first, to the payment of the costs and expenses of any such sale, including reasonable fees and disbursements of the Secured Party’s agent or counsel, and of any judicial proceeding wherein the same may be made, and of all expenses, liabilities and advances (to the extent such advances are made for the protection of such Collateral or the enforcement of the Secured Party’s security interest in such Collateral) made or incurred by the Secured Party, second, to the ratable payment of interest which shall have accrued on the Obligations and which shall be unpaid; third, to the ratable payment of or on account of the unpaid principal of the Obligations, including p rincipal not yet due and owing; and fourth to whomever shall be entitled thereto.

(b)

The Secured Party shall have absolute discretion as to the time of application of the proceeds, money or balances in accordance with this Agreement.  Upon any sale of the Collateral by the Secured Party (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the purchase money by the Secured Party or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Secured Party or such officer or be answerable in any way for the misapplication thereof.

SECTION 8.  Appointed Attorney-in-Fact: Other Provisions Regarding Secured Party.

(a)

The Pledgor hereby appoints the Secured Party the attorney-in-fact of the Pledgor for the purposes of carrying out the provisions of this Agreement or taking any action or executing any instrument which the Secured Party may deem reasonably necessary to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest.  Without limiting the generality of the foregoing, the Secured Party shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Secured Party’s name or in the name of the Pledgor, to ask for, demand, sue for, collect, receive and give acquittance for any and all monies due or to become due under or by virtue of any Collateral, to endorse checks, drafts, orders and other instruments for the payment of money payable to the Pledgor constituting Collateral or any part thereof or on account thereof and to give full discharge for the same, to settle, compromise, prosecute or defend any action, claim or proceeding with respect thereto, and to sell, assign, endorse, pledge, transfer and make any agreement respecting, or otherwise deal with, the same; provided, however, that nothing herein contained shall be construed as requiring or obligating the Secured Party to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Secured Party, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the monies due or to become due in respect thereof or any property covered thereby, and no action taken by the Secured Party or omitted to be taken with respect to the Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of the Pledgor or to any claim or action against the Secured Party.

(b)

If the Pledgor fails to perform any agreement contained herein, the Secured Party may (but shall not be required to) itself perform, or cause perfor­mance of, such agreement and the expenses of the Secured Party incurred in connection therewith shall be payable by the Pledgor under Section 12.

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(c)

The Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof.  All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released.

(d)

The Secured Party’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under the UCC or otherwise, shall be to deal with it in the same manner as the Secured Party deals with similar property for its own account.  Neither the Secured Party nor any of its employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or any other person or to take any other action whatsoever with regard to the Collateral or any part thereof.  The powers conferred on the Secured Party hereunder are solely to protect the Secured Party’s interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers.  The Secured Party shall be accountable only for a mounts that they actually receive as a result of the exercise of such powers, and neither the Secured Party nor any of its employees or agents shall be responsible to the Pledgor for any act or failure to act hereunder.

SECTION 9.  No Waiver.  No failure on the part of the Secured Party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Secured Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.  The Secured Party shall not be deemed to have waived any rights hereunder or under any other agreement or instrument unless such waiver shall be in writing and signed by the Secured Party.

SECTION 10.  Security Interest Absolute.  The obligations of the Pledgor under this Agreement are independent of the obligations under the Note, and a separate action or actions may be brought and prosecuted against the Pledgor to enforce this Agreement.  All rights of the Secured Party hereunder, the grant of a security interest in the Collateral and all obligations of the Pledgor hereunder shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Note; (b) any change in the time, manner or place of payment of, or in any other term of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note or any other agreement or instrument; (c) any exchange, release, amendment or waiver of, or consent to or departure from, any guaranty of the Obligations; (d) any change, restructuring or termination of the corporate structure or existence of the Pledgor or Elk; or (e) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Obligations or in respect of this Agreement.

SECTION 11.  Further Assurances.  The Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Secured Party may at any time reasonably request in connection with the administration and enforcement of this Agreement, with respect to the Collateral or any part thereof or in order better to assure and confirm unto the Secured Party its rights and remedies hereunder.

SECTION 12.  Secured Party’s Fees and Expenses.

(a)

The Pledgor agrees to pay upon demand to the Secured Party the amount of any and all expenses, including the fees and expenses of its counsel (excluding the allocated fees and expenses of in-house counsel) and of any experts or agents, which the Secured Party may incur in connection with the exercise or enforcement of any of the rights of the Secured Party hereunder.

(b)

The agreements in this Section 12 shall survive repayment of the Obligations and all other amounts payable under the Note.

SECTION 13.  Binding Agreement; Assignments.  This Agreement, and the terms, covenants and conditions hereof, shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Pledgor shall not be permitted to assign this Agreement or any interest herein or in the Collateral or any part thereof, or otherwise pledge, encumber or grant any option with respect to the Collateral or any part thereof, or any cash or property held by the Secured Party as Collateral under this Agreement, except as contemplated by this Agreement.

SECTION 14.  Governing Law.  This Agreement, including any claim or controversy arising out of the subject matter hereof, shall be governed by and construed in accordance with federal law and, in the absence of controlling federal law, by the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule that would result in the application of any other law.

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SECTION 15.  Waiver of Jury Trial.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 16.  Notices.  All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by telecopier or electronic mail, addressed as follows:

(a)

if to Pledgor, at

Ameritrans Capital Corporation
50 Jericho Quadrangle
Jericho, New York  11753
Attention:  Michael Feinsod
E-mail:  feinsod@ameritranscapital.com  

With a copy to:

Elliot Press, Esq.
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York  10022
Fax:  (212) 940-6621
Elliot.press@kattenlaw.com

(b)

if to the Secured Party,

James C. Gorton, Esq.
Latham & Watkins, LLP
885 Third Avenue
New York, NY 10022
Fax: 212-751-4864
email: james.gorton@lw.com

All such notices or communications shall be deemed to be received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of a nationally recognized overnight courier, on the next business day after the date when sent, (c) in the case of facsimile transmission or electronic mail, upon confirmed receipt, and (d) in the case of mailing, on the third business day following the date on which the piece of mail containing such communication was posted.

SECTION 17.  Severability.  In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, no party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired.  The parties shall endeavor in good-faith negotiations to replace the invalid, illegal and unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 18.  Section Headings.  The section and other headings used herein are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 19.  Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument.  Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement.

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SECTION 20.  Termination.

(a)

At such time as all of the Obligations (other than any indemnity and similar obligations which expressly survive termination of this Agreement or the Note and that are not then due and payable) have been paid irrevocably and in full, this Agreement and all obligations (other than those expressly stated to survive such termination) of the Secured Party and the Pledgor shall terminate, and the Collateral shall automatically be released from the pledge and security interests created hereby, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Pledgor.  At the request and sole expense of the Pledgor following any such termination, the Secured Party shall deliver to the Pledgor any Collateral then held by the Secured Party hereunder and shall execute and deliver to the Pledgor, but without recourse to or warranty by the Secured Party, such Uniform Commercial Code termination statements and similar documents prepared by the Pledgor which the Pledgor shall reasonably request to evidence the release of the Collateral from the security constituted hereby.

(b)

Notwithstanding anything to the contrary contained in this Agreement, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against the Pledgor for liquidation or reorganization, should the Pledgor become insolvent or make an assignment for any benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Pledgor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a “voidable preference,” “fraudulent conveyance” or otherwise, all as though such payment, or any part thereof, had not been made.

NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS INSTRUMENT, ANY FORECLOSURE, SALE, TRANSFER OR OTHER DISPOSITION OF, OR THE EXERCISE OF ANY RIGHT TO VOTE OR CONSENT WITH RESPECT TO, ANY OF THE COLLATERAL AS PROVIDED HEREIN OR ANY OTHER ACTION TAKEN OR PROPOSED TO BE TAKEN HEREUNDER, SHALL BE MADE IN ACCORDANCE WITH THE SMALL BUSINESS INVESTMENT ACT OF 1958, AS AMENDED AND ANY APPLICABLE RULES AND REGULATIONS OF THE SMALL BUSINESS ADMINISTRATION.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS INSTRUMENT, THE SECURED PARTY SHALL NOT, WITHOUT FIRST OBTAINING THE CONSENT OR APPROVAL OF THE SMALL BUSINESS ADMINISTRATION, TAKE ANY ACTION PURSUANT TO THIS INSTRUMENT IF ANY SUCH ACTION  WOULD REQUIRE, UNDER THEN EXISTING LAW, THE PRIOR CONSENT OR APPROVAL OF THE SMALL BUSINESS ADMINISTRATION.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, or caused this Agreement to be duly executed, as of the day and year first above written.

AMERITRANS HOLDINGS LLC

By:                                                          

AMERITRANS CAPITAL CORPORATION

By:                                                          

Name:                                                     

Title:                                                       

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SCHEDULE I

Pledged Stock

Elk	Number of Certificate	Registered Owner	Number and Class of Shares	Percentage of Shares
	1	Ameritrans Capital Corporation	1	100%

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ACKNOWLEDGMENT

The undersigned hereby:

(a)   acknowledges receipt of a copy of the foregoing Pledge Agreement;

(b)   waives any rights or requirement at any time hereafter to receive a copy of such Pledge Agreement in connection with the registration of any Pledged Securities or any other Collateral (as such terms are defined in the Pledge Agreement) in the name of the Secured Party or its nominee or the exercise of voting and/or consensual rights and powers by the Secured Party; and

(c)   agrees promptly to note on its books and records the transfer of the security interest in the Pledged Securities of the undersigned (as such term is defined in the Pledge Agreement) as provided in such Pledge Agreement.

Elk Associates Funding Corporation

By:                                                          

Name:                                                     

Title:                                                       

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