<PAGE>
AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1996
SECURITIES ACT FILE NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_] PRE-EFFECTIVE AMENDMENT NO.
[_] POST-EFFECTIVE AMENDMENT NO.
----------------
MEDALLION FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
205 EAST 42ND STREET, SUITE 2020, NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 682-3300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
ALVIN MURSTEIN
CHIEF EXECUTIVE OFFICER
MEDALLION FINANCIAL CORP.
205 EAST 42ND STREET, SUITE 2020
NEW YORK, NEW YORK 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
STEVEN N. FARBER, ESQ. MARIO M. CUOMO, ESQ.
STANLEY KELLER, ESQ. CHRISTOPHER E. MANNO, ESQ.
PALMER & DODGE WILLKIE FARR & GALLAGHER
ONE BEACON STREET 153 EAST 53RD STREET
BOSTON, MASSACHUSETTS 02108 NEW YORK, NEW YORK 10022
(617) 573-0100 (212) 821-8000
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box [_]
It is proposed that this filing will become effective (check appropriate
box):
[_] when declared effective pursuant to Section 8(c) of the Securities Act of
1933.
[_] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933 and the
Securities Act registration statement number of the earlier effective
registration statement for the same offering is 333- .
[_] This Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933 and the Securities Act registration
statement number of the earlier effective registration statement for the
same offering is 333- .
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box: [_]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES BEING BEING OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 5,750,000 $12.00 $69,000,000 $23,793.10
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 750,000 shares which may be sold by the Company pursuant to an
option granted to the Underwriters solely to cover over-allotments, if
any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MEDALLION FINANCIAL CORP.
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEM NO. ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
-------- ---------------------------------- ----------------------
<C> <S> <C>
1. Outside Front Cover........... Front Cover Page
2. Inside Front and Outside Back Front Cover Page and Outside Back
Cover Page.................... Cover Page
3. Fee Table and Synopsis........ Prospectus Summary; Fees and Expenses
4. Financial Highlights.......... Prospectus Summary; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations
5. Plan of Distribution.......... Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders.......... Not Applicable
7. Use of Proceeds............... Prospectus Summary; Use of Proceeds;
Business
8. General Description of the Cover Page; Prospectus Summary; Risk
Registrant.................... Factors; The Company; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Investment Objectives,
Policies and Restrictions;
Determination of Net Asset Value;
Financial Statements
9. Management.................... Management; Custodian, Transfer Agent,
Dividend Disbursing Agent and
Registrar; Investment Objectives,
Policies and Restrictions
10. Capital Stock, Long Term Debt,
and Other Securities......... Business; Dividend Reinvestment Plan;
Federal Income Tax Considerations;
Description of Capital Stock
11. Defaults and Arrears on Senior Not Applicable
Securities....................
12. Legal Proceedings............. Not Applicable
13. Table of Contents of the
Statement of Additional
Information.................. Not Applicable
14. Cover Page.................... Not Applicable
15. Table of Contents............. Not Applicable
16. General Information and Business
History.......................
17. Investment Objective and Business; Investment Objectives,
Policies...................... Policies and Restrictions
18. Management.................... Management; Principal Stockholders
19. Control Persons and Principal
Holders of Securities........ Principal Stockholders
20. Investment Advisory and Other Management; Custodian, Transfer Agent,
Services...................... Dividend Disbursing Agent and
Registrar; Experts; Investment
Objectives, Policies and Restrictions
21. Brokerage Allocation and Other Not Applicable
Practices.....................
22. Tax Status.................... Federal Income Tax Considerations
23. Financial Statements.......... Index to Financial Statements;
Financial Statements
</TABLE>
- ----------
* Pursuant to the General Instructions to Form N-2, all information required
to be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1996
5,000,000 SHARES
[LOGO]
MEDALLION FINANCIAL CORP.
COMMON STOCK
----------
All of the shares of Common Stock, $.01 par value (the "Common Stock"),
offered hereby (the "Offering") are being sold by Medallion Financial Corp.
(the "Company").
The Company is a specialty finance company with a leading position in the
origination and servicing of loans financing the purchase of taxicab medallions
and related assets. The Company also originates and services commercial
installment loans financing small businesses in other targeted industries. In
addition, the Company operates a taxicab rooftop advertising business. See
"Business." The Company was organized to expand the specialty finance and
taxicab rooftop advertising businesses conducted by several companies which
will be acquired simultaneously with the closing of the Offering. See "The
Company."
Prior to the Offering there has been no public market for the Common Stock.
The Common Stock has been approved, subject to official notice of issuance, for
quotation on the Nasdaq National Market under the symbol "TAXI." It is
currently anticipated that the initial public offering price will be between
$10.00 and $12.00 per share. For a discussion of the factors considered in
determining the initial public offering price, see "Underwriting." The Company
is a closed-end, non-diversified management investment company that has elected
to be treated as a business development company under the Investment Company
Act of 1940, as amended.
This Prospectus sets forth the information about the Company that a
prospective investor should know before purchasing Common Stock. Prospective
investors are advised to read this Prospectus and retain it for future
reference.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR INFORMATION
THAT PROSPECTIVE INVESTORS SHOULD CONSIDER IN CONNECTION WITH THEIR INVESTMENT
DECISION.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO PUBLIC SALES LOAD(1) COMPANY(2)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
- -------------------------------------------------------------------------------------
Total(3).................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Excludes financial advisory fees payable by the Company. The Company has
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See "Certain
Transactions" and "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted a 30-day option to the Underwriters to purchase up
to an aggregate of 750,000 additional shares of Common Stock at the Price
to Public less Sales Load, solely to cover over-allotments, if any. If all
of such shares are purchased, the total Price to Public, Sales Load and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters, and subject to various prior
conditions, including the right to reject orders in whole or in part. It is
expected that delivery of share certificates will be made against payment
therefor at the offices of Furman Selz LLC in New York, New York on or about
, 1996.
FURMAN SELZ
J.C. BRADFORD & CO.
EVEREN SECURITIES, INC.
----------
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
<PAGE>
PROSPECTUS SUMMARY
Medallion Financial Corp. ("Medallion Financial") was recently organized to
acquire and expand the specialty finance businesses conducted by Tri-Magna
Corporation ("Tri-Magna"), Edwards Capital Company ("Edwards") and
Transportation Capital Corp. ("TCC" and, collectively with Tri-Magna and
Edwards, the "Founding Companies") as well as the taxicab rooftop advertising
business conducted by Tri-Magna. Tri-Magna has conducted its specialty finance
and taxicab rooftop advertising businesses through its wholly owned
subsidiaries, Medallion Funding Corp. ("MFC") and Medallion Media, Inc.
("Media"), respectively, and references herein to Tri-Magna include such
subsidiaries unless the context indicates otherwise. Simultaneously with, and
as a condition to, the closing of the Offering, Medallion Financial will
acquire each of the Founding Companies (the "Acquisitions"). See "Business --
Formation Transactions." In connection with the Acquisitions, Medallion
Financial has filed an application for an exemptive order under the Investment
Company Act of 1940, as amended (the "1940 Act"), with the Securities and
Exchange Commission (the "Commission"). See "Additional Information." The
Acquisitions and the Offering are contingent upon the receipt of such exemptive
order. Unless the context indicates otherwise, all references herein to the
"Company" include Medallion Financial Corp. and the Founding Companies
collectively as if their operations had been conducted on a combined basis
prior to the Offering, and references herein to "Medallion Financial" shall
mean Medallion Financial Corp. alone.
----------------
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION AND
DATA IN THIS PROSPECTUS (I) HAVE BEEN ADJUSTED TO GIVE EFFECT TO THE
ACQUISITIONS, (II) ASSUME A 12,500 FOR ONE STOCK SPLIT AND AN AMENDMENT AND
RESTATEMENT OF THE CERTIFICATE OF INCORPORATION OF MEDALLION FINANCIAL (THE
"CERTIFICATE") WHICH ARE EXPECTED TO BE EFFECTED PRIOR TO THE DATE OF THIS
PROSPECTUS AND (III) ASSUME THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED.
THE COMPANY
The Company is a specialty finance company with a leading position in the
origination and servicing of loans financing the purchase of taxicab medallions
and related assets ("Medallion Loans"). The Company also originates and
services commercial installment loans financing small businesses in other
targeted industries ("Commercial Installment Loans"). In addition, the Company
operates a taxicab rooftop advertising business. See "Business."
Management of the Company has successfully operated Tri-Magna since it began
its medallion lending operations in 1979. Tri-Magna is the largest of the three
Founding Companies being acquired by Medallion Financial in connection with the
Offering. Alvin Murstein, a founder and the Chairman and Chief Executive
Officer of the Company and of Tri-Magna, has over 40 years of experience in the
ownership, management and financing of taxicab fleets, taxicab medallions and
corporate car services. Tri-Magna, an investment company registered under the
1940 Act, has never experienced a loss of principal on any of the $287 million
in aggregate principal amount of Medallion Loans it has originated. See
"Management" and "Business --Medallion Lending."
Medallion Loans comprised approximately 80% of the Company's loan portfolio
at September 30, 1995. Since 1979 the Company has originated, on a combined
basis, approximately $500 million in Medallion Loans. Substantially all of the
Company's Medallion Loans are originated at fixed rates of interest in excess
of the prime rate of interest charged by major commercial banks (the "Prime
Rate") and are collateralized by first security interests in New York City
taxicab medallions and related assets. At September 30, 1995 the Company
estimates that the average loan-to-value ratio of all of the Company's
Medallion Loans was 56%. In addition, the Company has recourse against the
direct and indirect owners of the medallion through personal guarantees. The
New York City Taxi and Limousine Commission (the "TLC") estimates that the
total value of all 11,787 New York City
3
<PAGE>
medallions and related assets exceeds $2.3 billion and the Company estimates
that the total value of all taxicab medallions and related assets in the United
States exceeds $5 billion. The Company believes that it will continue to
develop growth opportunities by further penetrating the highly fragmented
medallion financing markets and by acquiring additional medallion financing
businesses and portfolios. See "Business -- Medallion Lending."
Commercial Installment Loans comprised approximately 20% of the Company's
loan portfolio at September 30, 1995. From the inception of this business in
1987 through September 30, 1995, Tri-Magna originated approximately 1,001
Commercial Installment Loans in an aggregate principal amount of approximately
$66 million. Tri-Magna's Commercial Installment Loan activity has increased in
recent years, with the number and principal amount of Commercial Installment
Loans originated by Tri-Magna in 1994 being 83% and 40% greater, respectively,
than in 1993. The Company's Commercial Installment Loans generally are secured
by equipment and made at fixed rates of interest ranging from 100 to 700 basis
points over the Prime Rate. Approximately 76% of the Company's Commercial
Installment Loan portfolio at September 30, 1995 was comprised of loans secured
by either retail dry cleaning equipment or coin operated laundromat equipment.
In addition, the Company requires the principals of borrowers to personally
guarantee loans. The Company has focused its lending efforts on the retail dry
cleaning and coin operated laundromat industries because they have offered the
Company high rates of interest and a strong collateral position. The Company's
aggregate realized loss of principal on loans secured by retail dry cleaning
and coin operated laundromat equipment originated to date is $52,000 or 0.1% of
the approximately $46 million in principal amount of such loans. The Company
plans to expand its Commercial Installment Loan activities to include a more
diverse borrower base, a larger geographic area and other targeted industries.
See "Business --Commercial Installment Loans."
The Company also provides taxicab rooftop advertising and owned approximately
1,500 installed taxicab rooftop advertising displays ("Displays") at September
30, 1995. Display occupancy averaged approximately 90% for the nine months then
ended. The Company's taxicab rooftop advertising business began operations in
November 1994. The Company believes that there is a significant opportunity for
a provider of taxicab rooftop advertising that operates in several major
metropolitan markets because many large advertisers prefer to advertise
nationally. The Company is well positioned to take advantage of this
opportunity because it believes it is one of the largest providers of such
advertising in the nation. The Company currently provides such advertising in
New York City, Philadelphia, Miami and Boston. The Company also intends to
expand to other major metropolitan areas and has recently entered the Atlanta
and Los Angeles markets. The Company believes that there are growth
opportunities within its existing markets because only approximately 25% of New
York City taxicabs have rooftop advertising and a much smaller percentage of
the taxicabs in major metropolitan areas nationwide have rooftop advertising.
In addition, the Company believes that its growth will be facilitated by its
reputation and relationships within the taxicab industry and because the
Company's arrangement with the taxicab owners provides them with incremental
income. See "Business -- Taxicab Rooftop Advertising."
The Company funds its operations through credit facilities with bank
syndicates and, to a lesser degree, through the issuance of fixed-rate, long-
term subordinated debentures that are issued to, or guaranteed by, the U.S.
Small Business Administration (the "SBA"). SBA financing offers attractive
interest rates, for example currently as low as 4.00% for Specialized Small
Business Investment Companies ("SSBICs"), but the availability of such
financing is limited. Accordingly, as the Company grows, it intends to continue
to reduce its reliance on SBA funding, while still maintaining the flexibility
to borrow under SBA programs to finance a portion of its loan portfolio when it
is advantageous to do so. At September 30, 1995, 73% of the Company's $119.4
million of debt consisted of bank debt which was at a weighted average
effective rate of interest of 7.81% which was 94 basis points below the Prime
Rate and 186 basis points above 90 day LIBOR as of such date. The balance of
the Company's debt, 27%, consisted of subordinated SBA debentures, with fixed
rates of interest with a weighted average rate of 7.44%. After the Offering,
the Company intends to negotiate an increase in the size of its bank credit
facilities from its current $96 million aggregate level. See "Business --
Sources of Funds."
4
<PAGE>
The Company is a closed-end, non-diversified management investment company
under the 1940 Act. The investment objectives of the Company are to provide a
high level of distributable income, consistent with preservation of capital, as
well as long-term growth of net asset value. The Company is managed by its
executive officers under the supervision of its Board of Directors and has
retained FMC Advisers, Inc. ("FMC") as an investment adviser. See "Investment
Objectives, Policies and Restrictions -- The Investment Adviser" and "Certain
Transactions." The Company has elected to be treated as a business development
company under the 1940 Act. See "Regulation." In addition, it plans to elect to
be treated for tax purposes as a regulated investment company (a "RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). As a RIC, the
Company will not be subject to U.S. federal income tax on any investment
company taxable income (which includes, among other things, dividends and
interest reduced by deductible expenses) that it distributes to its
stockholders if at least 90% of its investment company taxable income for that
taxable year is distributed. The Company intends to pay quarterly cash
dividends to comply with this requirement. The Company's specialty finance
subsidiaries, MFC, TCC and Edwards (collectively the "RIC Subsidiaries") also
plan to elect to be treated as RICs and will distribute at least 90% of their
respective investment company taxable income to the Company. For the nine
months ended September 30, 1995, 96% of the Company's net increase in net
assets resulting from operations ("net income"), on a pro forma combined basis,
was investment company taxable income. See "Federal Income Tax Considerations."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the 5,000,000 shares
Company(1)..................
Common Stock to be
outstanding after the 7,500,000 shares
Offering(1).................
Nasdaq National Market TAXI
Symbol......................
Use of proceeds.............. To pay the purchase price for the Founding
Companies, to repay indebtedness and to pay
investment advisory fees.
Distributions................ The Company intends to pay quarterly dividends
and to distribute to its stockholders at least
90% of its investment company taxable income
annually. For the nine months ended September
30, 1995, 96% of the Company's net income, on a
pro forma combined basis, was investment company
taxable income.
</TABLE>
- ----------
(1) Does not include 750,000 shares of Common Stock issuable pursuant to the
over-allotment option granted to the Underwriters.
RISK FACTORS
Investment in shares of the Common Stock involves certain risks relating to
the structure, operations and regulation of the Company that should be
considered by prospective purchasers of the Common Stock. The following summary
of Risk Factors is qualified in its entirety by the more detailed information
appearing under the heading "Risk Factors" in this Prospectus. Principal risk
factors include:
Industry and Geographic Concentration. A substantial portion of the Company's
revenue is derived from operations in New York City and these operations are
substantially focused in the area of financing New York City taxicab medallions
and related assets. There can be no assurance that an economic downturn in New
York City in general, or in the New York City taxicab industry in particular,
would not have an adverse impact on the Company. See "Risk Factors -- Industry
and Geographic Concentration" and "-- Taxicab Industry Regulation."
Interest Rate Spread. The Company's net interest income is largely dependent
upon achieving a positive interest rate spread and other factors. See "Risk
Factors -- Interest Rate Spread; Prepayment Risk."
5
<PAGE>
Leverage. The Company's use of leverage poses certain risks for holders of
the Common Stock, including the possibility of higher volatility of both the
net asset value of the Company and the market price of the Common Stock and,
therefore, an increase in the speculative character of the Common Stock. See
"Risk Factors-- Leverage."
Absence of Combined Operating History. The Founding Companies have been
operating as separate independent entities with separate management teams.
Medallion Financial was recently organized and there can be no assurance that
it will be able to successfully integrate these businesses and effectively
implement the Company's strategy to expand operations. See "Risk Factors --
Absence of Combined Operating History."
No Prior Market for Common Stock. There has been no prior public market for
the Common Stock and no assurance can be given that an active trading market
will develop after the Offering. See "Risk Factors -- No Prior Public Market
for the Common Stock; Determination of the Public Offering Price."
6
<PAGE>
SUMMARY FINANCIAL DATA
PRO FORMA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------ ----------------
1994 1994 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Investment income.............................. $15,156 $11,396 $11,662
Interest expense............................... 7,221 5,322 6,052
------- ------- -------
Net interest income............................ 7,935 6,074 5,610
Equity in earnings of unconsolidated
subsidiary(1)................................. 18 -- 133
Other income................................... 1,139 997 626
Accretion of negative goodwill................. 900 675 675
Total non-interest expense..................... 4,113 3,333 2,946
Amortization of goodwill....................... 420 315 315
------- ------- -------
Net investment income.......................... 5,459 4,098 3,783
Realized (loss) on investments, net............ (166) (79) (23)
Change in unrealized depreciation of
investments(2)................................ 872 641 179
------- ------- -------
Net increase in net assets resulting from
operations before extraordinary items......... 6,165 4,660 3,939
Extraordinary items(3)......................... (526) (526) --
------- ------- -------
Net increase in net assets resulting from
operations(4)................................. $ 5,639 $ 4,134 $ 3,939
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-------------
(DOLLARS IN
SELECTED FINANCIAL RATIOS AND OTHER DATA THOUSANDS)
<S> <C>
Medallion Loans as a percentage of investments.................... 80%
Commercial Installment Loans as a percentage of investments....... 20
Investments to assets............................................. 92
Equity to assets.................................................. 31
Debt to equity.................................................... 209
SBA debt to total debt............................................ 30
Portfolio yield................................................... 10.69
Average cost of funds............................................. 7.67
Spread............................................................ 3.02
BALANCE SHEET DATA
Investments
Medallion Loans................................................. $115,611
Commercial Installment Loans.................................... 29,748
Unrealized depreciation of investments(5)......................... --
--------
Investments, net of unrealized depreciation of investments........ 145,359
Total assets...................................................... 157,762
Notes payable and demand notes.................................... 71,513
Subordinated SBA debentures....................................... 31,344
Total liabilities................................................. 108,460
Total shareholders' equity........................................ 49,302
</TABLE>
- ----------
(1) Equity in earnings of unconsolidated subsidiary represents the net income
for the period earned by the Company from its investment in Media.
(2) Change in unrealized depreciation of investments represents the increase
(decrease) for the period in the unrealized depreciation applied against
the Company's investments to state them at fair value.
(3) The Company incurred a prepayment premium of $526,000 in connection with
its refinancing of $4.6 million and $5.1 million of subordinated SBA
debentures on June 29, 1994 and September 28, 1994, respectively.
(4) Net increase in net assets resulting from operations is the sum of net
investment income, net realized gains or losses on investments and the
change in unrealized gains or losses on investments.
(5) Upon completion of the Acquisitions, the Company's loan portfolio will be
recorded on the balance sheet at fair market value as estimated by the
Company in accordance with the 1940 Act and the purchase method of
accounting.
7
<PAGE>
TRI-MAGNA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------
1991(1) 1992(1) 1993 1994 1994(1) 1995
------- ------- ------- ------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 8,806 $ 7,953 $ 8,333 $ 8,820 $ 6,571 $ 7,192
Net interest income..... 4,667 4,444 4,672 4,064 3,168 2,761
Net investment income... 2,534 2,045 1,839 1,624 1,197 981
Net increase in net
assets resulting from
operations............. 2,129 1,947 1,671 1,660 1,339 875
SELECTED FINANCIAL RATIOS AND
OTHER DATA(1)(2)
Return on average
assets(3).............. 3.31% 2.81% 2.12% 1.88% 2.02% 1.23%
Return on average
equity(4).............. 19.34 17.67 15.29 15.29 16.45 10.67
Spread(5)............... 5.50 4.73 4.95 3.25 3.52 2.32
Weighted average
assets................. $64,320 $69,401 $78,921 $88,414 $ 88,356 $ 94,608
Weighted average
investments(6)......... 62,552 65,338 75,461 86,166 85,157 90,668
Weighted average
equity................. 11,011 11,019 10,931 10,855 10,854 10,929
Weighted average debt... 48,230 47,160 60,160 68,010 67,063 71,530
<CAPTION>
DECEMBER 31,(1) SEPTEMBER 30,(1)
---------------------------------- ------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Medallion Loans as a
percentage of
investments............ 73% 81% 81% 72% 74% 69%
Commercial Installment
Loans as a percentage
of investments......... 27 19 19 28 26 31
Debt to equity(7)....... 401 476 583 658 654 461
</TABLE>
MEDIA(8)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Advertising revenue.............................. $227,756 $1,091,724
Cost of services................................. 83,341 325,276
-------- ----------
Gross margin..................................... 144,415 766,448
Other operating expenses......................... 126,036 574,786
-------- ----------
Income before taxes.............................. 18,379 191,662
Income taxes..................................... -- 59,030
-------- ----------
Net income....................................... $ 18,379 $ 132,632
======== ==========
</TABLE>
EDWARDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------
1991 1992 1993 1994 1994(1) 1995
------- ------- ------- ------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 5,535 $ 5,444 $ 4,955 $ 4,334 $ 3,262 $ 3,269
Net interest income..... 2,277 2,571 2,214 1,569 1,174 1,196
Net investment income... 1,604 1,398 1,617 1,060 895 832
Net increase in net
assets resulting from
operations before
extraordinary items.... 965 1,385 1,617 1,060 895 832
Net increase in net
assets resulting from
operations............. 965 1,385 1,617 534 369 832
SELECTED FINANCIAL RATIOS AND
OTHER DATA(1)(2)
Return on average as-
sets(3)................ 2.27% 3.19% 3.60% 2.35% 2.68% 2.50%
Return on average part-
ners' capital(9)....... 12.22 16.47 17.51 11.69 13.29 12.66
Spread(5)............... 4.54 5.12 3.54 2.09 2.08 1.99
Weighted average as-
sets................... $42,501 $43,465 $44,953 $45,025 $44,577 $44,383
Weighted average invest-
ments(6)............... 40,260 41,567 43,047 43,074 42,975 43,532
Weighted average part-
ners' capital.......... 7,900 8,409 9,235 9,064 8,981 8,765
Weighted average debt... 35,370 36,015 34,385 34,690 34,625 34,469
<CAPTION>
DECEMBER 31,(1) SEPTEMBER 30,(1)
---------------------------------- ------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Medallion Loans as a
percentage of
investments............ 98% 98% 98% 98% 98% 99%
Commercial Installment
Loans as a percentage
of investments......... 2 2 2 2 2 1
Debt to partners' capi-
tal(7)................. 427 382 365 408 410 384
</TABLE>
8
<PAGE>
TCC
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ------------------
1991(1) 1992(1) 1993 1994 1994(1) 1995
------- ------- ------- ------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 4,197 $ 3,944 $ 3,110 $ 2,217 $ 1,708 $ 1,400
Net interest income..... 1,694 2,406 2,046 1,508 1,124 1,041
Net investment income,
adjusted for tax-
es(10)................. 488 1,294 1,760 144 90 151
Net increase (decrease)
in net assets resulting
from operations........ (2,519) 648 1,923 790 510 412
SELECTED FINANCIAL
RATIOS AND OTHER
DATA(1)(2)
Return on average
assets(3).............. (7.76)% 2.46% 8.36% 3.90% 3.29% 3.03%
Return on average common
equity(4).............. (61.83) 14.73 33.84 11.22 9.85 6.17
Spread(5)............... 3.21 7.31 7.67 6.26 5.69 7.03
Weighted average
assets................. $32,479 $26,338 $23,011 $20,260 $20,670 $18,154
Weighted average
investments(6)......... 31,907 24,295 19,000 14,446 15,311 10,538
Weighted average common
equity................. 4,074 4,398 5,683 7,042 6,902 8,900
Weighted average debt... 25,198 17,967 13,133 9,330 9,830 7,330
<CAPTION>
DECEMBER 31,(1) SEPTEMBER 30,(1)
----------------------------------- ------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Medallion Loans as a
percentage of
investments............ 84% 82% 85% 80% 84% 84%
Commercial Installment
Loans as a percentage
of investments......... 16 18 15 20 16 16
Debt to equity(7)....... 274 192 107 73 85 65
</TABLE>
- ----------
(1) Unaudited.
(2) Financial ratios for the nine month periods are annualized.
(3) Return on average assets is calculated as the net increase in net assets
resulting from operations divided by the weighted average assets for the
period.
(4) Return on average equity is calculated as the net increase in net assets
resulting from operations divided by the weighted average equity for the
period.
(5) Spread is calculated as the difference between average yield and average
cost of funds.
(6) Weighted average investments is the weighted average of investments net of
unrealized depreciation of investments. Investments consists of the
Company's loan portfolio and excludes cash and cash equivalents.
(7) Debt to equity is defined as total debt divided by total shareholders
equity and minority interest. In the case of Edwards, debt to partners'
capital is defined as total debt divided by total partners' capital.
(8) Equity in earnings of unconsolidated subsidiary represents the net income
for the period earned by Tri-Magna from its investment in Media.
(9) Return on average partners' capital is calculated as the net increase in
net assets resulting from operations before extraordinary items divided by
weighted average partners' capital for the period.
(10) Net investment income has been adjusted by combining TCC's income tax
provision (benefit) in order to present TCC's financial statements on a
comparable basis to the other Founding Companies.
9
<PAGE>
FEES AND EXPENSES
The purpose of the following table is to assist prospective investors in
understanding the various costs and expenses that an investor in the Company
will bear directly or indirectly.
FEE TABLE (1)
<TABLE>
<S> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)............... 7.00%(2)
Dividend Reinvestment Plan Fees.............................. None (3)
ANNUAL EXPENSES (as a percentage of net assets attributable to
Common Stock)(4)
Management Fees.............................................. 0.46 (5)
Operating Expenses........................................... 5.88 (6)
Interest Payments on Borrowed Funds.......................... 16.37 (7)
Other Expenses............................................... 2.48
-----
Total Annual Expenses.......................................... 25.19%
=====
</TABLE>
- ----------
(1) Based on estimated amounts for the current fiscal year.
(2) The sales load, which is a one-time fee paid by the Company to the
Underwriters in connection with the Offering, is the only sales load paid
in connection with the Offering. See "Underwriting."
(3) The expenses of the Dividend Reinvestment Plan are included in stock record
expenses, a component of "Other Expenses." The participants in the Dividend
Reinvestment Plan will bear a pro rata share of brokerage commissions
incurred with respect to open market purchases. See "Distributions" and
"Dividend Reinvestment Plan." The Company has no cash purchase plan.
(4) Assumes a net asset value of $49.3 million, which will be the Company's
estimated stockholders' equity upon completion of the Offering. Operating
expenses, interest payments on borrowed funds and other expenses are
calculated on an annualized pro forma combined basis based on the nine
months ended September 30, 1995.
(5) Management expenses consist of fees paid to the Company's investment
adviser, FMC. See "Investment Objectives, Policies and Restrictions -- The
Investment Adviser" and "Certain Transactions."
(6) Operating expenses consist primarily of compensation and employee benefits,
data processing, advertising, travel and other marketing expenses,
occupancy costs and other similar expenses. See "Management."
(7) Interest payments on borrowed funds consist primarily of interest payable
under credit agreements with banks and on subordinated SBA debentures. See
"Business -- Sources of Funds."
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Company. These amounts assume no increase or
decrease in leverage and are based upon payment by an investor of a 7% sales
load (the underwriting discount paid by the Company in connection with the
Offering) and payment by the Company of operating expenses at the levels set
forth in the table above.
An investor would pay the following expenses on a $1,000 investment, assuming
(i) a 5% annual return and (ii) reinvestment of all dividends and distributions
at net asset value:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
$281 $583 $775 $1,004
</TABLE>
This example as well as the information set forth in the table above should
not be considered a representation of the future expenses of the Company.
Actual expenses may be greater or less than those shown. Moreover, while the
example assumes (as required by the Commission) a 5% annual return, the
Company's performance will vary and may result in a return greater or less than
5%. In addition, while the example assumes reinvestment of all dividends and
distributions at net asset value, participants in the Dividend Reinvestment
Plan will receive shares purchased by the Dividend Reinvestment Plan Agent at
the market price in effect at the time, which may be at, above or below net
asset value. See "Distributions" and "Dividend Reinvestment Plan."
10
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating an investment in the shares of Common Stock offered hereby.
INTEREST RATE SPREAD; PREPAYMENT RISK
While the Medallion Loans and Commercial Installment Loans originated by the
Company in most cases bear interest at fixed rates, the Company finances a
substantial portion of such loans by incurring indebtedness with floating
interest rates. As a result, the Company's interest costs have increased in
the past and could increase in the future during periods of rising interest
rates, which may decrease net interest margins and thereby adversely affect
the Company's profitability. Accordingly, the Company, like most financial
services companies, faces the risk of interest rate fluctuations. Although the
Company intends to manage its interest rate risk through asset and liability
management, including the use of interest rate caps and swaps, general rises
in interest rates will tend to reduce the Company's net interest margin in the
short term. In addition, the Company relies on its counterparties to perform
their obligations under such interest rate caps and swaps. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Furthermore, loans made by the Company typically may be prepaid by the
borrower upon payment of certain prepayment charges. A borrower is likely to
exercise prepayment rights at a time when the interest rate payable on the
borrower's loan is high relative to prevailing interest rates. In such a lower
interest rate environment, the Company will have difficulty re-lending such
prepaid funds at comparable rates and, therefore, to the extent that the
Company's cost of funds is not correspondingly reduced, such a decrease in
market interest rates could adversely affect the Company. See "Business --
Medallion Lending" and "-- Commercial Installment Loans."
LEVERAGE
The Company is leveraged as a result of its bank borrowings and subordinated
SBA debentures. Leverage poses certain risks for holders of Common Stock,
including possible higher volatility of both the net asset value of the
Company and the market price of the Common Stock. Since interest is paid to
the Company's creditors before any income is distributed to the Company's
stockholders, fluctuations in the interest payable to such creditors will
affect the yield to holders of the Common Stock. In addition, income earned by
the Company from operations and lending the proceeds of borrowings must exceed
the interest payable with respect to such borrowings in order for there to be
income available for distribution to stockholders. Furthermore, the high rate
of distribution of investment company taxable income required to maintain the
Company's tax status as a RIC limits the funds that can be retained in the
business to cover periods of loss, provide for future growth and pay for
extraordinary items. In addition, in the event of a liquidation of the
Company, the Company's creditors would have claims on the Company's assets
superior to the claims of the holders of the Common Stock. Furthermore,
certain amounts could become payable to the SBA in connection with the
Company's repurchase, at a discount, of preferred stock from the SBA
previously issued by MFC and TCC, which resulted in a realized gain in
retained earnings in the amount of the repurchase discount. Such discounts
will be accreted to paid-in capital on a straight-line basis over 60 months;
however, if MFC or TCC is liquidated or loses its SBA license during the
accretion period, the SBA would have a claim for the remaining unaccreted
amount attributable to the subsidiary liquidating or losing its license. See
"Business -- Sources of Funds -- Preferred Stock Repurchase Agreements."
At September 30, 1995, the Company had $88.0 million outstanding on bank
commitments of $95.5 million under credit facilities with bank syndicates
consisting of (i) revolving lines of credit totalling $90.0 million, (ii) a
$3.2 million term loan and a $2.0 million term loan and (iii) a $275,000
demand loan. Amounts outstanding under the revolving lines of credit and
demand loan are together secured by all of the Company's assets and bear
interest at the relevant agent bank's prime rate or, at the Company's option,
a rate based on LIBOR. At September 30, 1995, the rates of interest on amounts
outstanding under the revolving lines of credit and the demand loan ranged
from 7.25% to 8.75%. The $3.2 million term loan bears interest at the annual
rate of 8.75%
11
<PAGE>
and the $2.0 million term loan bears interest at the annual rate of 7.5%. The
revolving lines of credit mature between July 31, 1996 and September 30, 1996,
the $2.0 million term loan matures on July 31, 1997 and the $3.2 million term
loan must be repaid from the proceeds of the Offering. See "Use of Proceeds"
and "Business-- Sources of Funds."
At September 30, 1995, the Company had borrowed $31.7 million under
subordinated SBA debentures that have fixed rates of interest and a ten-year
term. These debentures have maturities ranging from May 7, 1996 to September
1, 2004 and rates of interest varying from 5.0% to 9.8% per annum.
At September 30, 1995, the weighted average annual rate of interest on all
of the Company's borrowings was 7.71%. Based upon that rate, the Company must
achieve annual returns on investments of at least 5.01% to cover annual
interest payments on the bank and subordinated SBA debentures described above.
The following table illustrates the effect of leverage to a stockholder
assuming the Company's cost of funds at September 30, 1995 as described above
and various annual rates of return, net of expenses. The calculations set
forth in the table are hypothetical and actual returns may be greater or less
than those appearing below:
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed return on investments (net of
expenses)(1)................................. -10% -5% 0% 5% 10%
Corresponding net income to common
stockholders(1).............................. -48.2% -32.2% -16.1% 0.0% 16.1%
</TABLE>
- ----------
(1) Assumes (i) $158.5 million in average assets, (ii) an average cost of
funds of 7.71%, (iii) $102.9 million in average debt outstanding and (iv)
$49.3 million of average stockholders equity.
AVAILABILITY OF FUNDS
The Company has a continuing need for capital to finance its lending
activities. The Company funds its operations through credit facilities with
bank syndicates and, to a lesser degree, through subordinated SBA debentures.
Reductions in the availability of funds from banks and under SBA programs on
terms favorable to the Company could have a material adverse effect on the
Company. Because the Company intends to distribute to its shareholders at
least 90% of its investment company taxable income, such earnings will not be
available to fund loan originations.
At September 30, 1995, approximately 27% of the Company's $119.4 million of
outstanding indebtedness consisted of subordinated SBA debentures and the
Company intends to continue to seek to finance a portion of its business
through SBA funding programs. Although the Company is not aware of any pending
legislation to eliminate the SBA or to restrict or terminate the specific SBA
programs in which the Company participates, some members of Congress have
called for reform or elimination of various federally funded programs,
including those of the SBA. Discontinuation, elimination or a significant
reduction of or restriction on financing available to the Company from the SBA
would reduce the Company's funding alternatives.
Even if the SBA continues to receive funding and its programs are maintained
in their current form, the financing that the SBA makes available to Small
Business Investment Companies ("SBICs") and SSBICs will remain limited and
many SBICs and SSBICs will continue to compete with the Company for the
limited funds that are available. Although the Company has obtained
substantial financing under SBA programs in the past, there can be no
assurance that the Company will be able to obtain its desired level of SBA
financing in the future. See "Business -- Sources of Funds."
In addition to limits on the aggregate amount of SBA financing available,
such financing is restricted in its application. The SBA has informed the
Company that due to the SBA's concerns regarding the concentration of SSBIC
and SBIC loans in the taxicab industry and the availability of private capital
to finance taxicab related businesses, no additional SBA financing will be
made available to SBICs and SSBICs for such loans. As a result, the Company
does not expect to obtain SBA financing to originate additional Medallion
Loans. See "Business --Sources of Funds."
12
<PAGE>
The SBA also restricts the amount of bank debt that SBICs and SSBICs with
outstanding subordinated SBA debentures may incur. As a result, the SBA could
preclude TCC and Edwards from increasing or refinancing their credit
facilities. Combined with limitations on SBA funding, these restrictions on
bank debt could restrict further growth of TCC's and Edwards' loan portfolios.
INDUSTRY AND GEOGRAPHIC CONCENTRATION
Medallion Loans collateralized by New York City taxicab medallions and
related assets comprised a substantial portion of the Company's Medallion Loan
portfolio at September 30, 1995. According to TLC data, over the past 20 years
New York City medallions have appreciated in value an average of 10.5% each
year; however, for sustained periods during that time, medallions declined in
value. Most of the Company's Commercial Installment Loans have been made to
retail dry cleaning and coin operated laundromat businesses in New York City
and a major portion of the Company's taxicab advertising revenue is derived
from New York City taxicabs. There can be no assurance that the Company will
be able to geographically diversify its operations or that an economic
downturn in New York City in general, or in the New York City taxicab, retail
dry cleaning or coin operated laundromat industries in particular, would not
have an adverse impact on the Company. In addition to expanding
geographically, the Company intends to expand its financing operations to
include other industries and financial products and there can be no assurance
that management's experience with its current lending activities will lead to
success with such other industries and products. See "Business."
ABSENCE OF COMBINED OPERATING HISTORY
Medallion Financial was founded recently and has conducted no operations to
date. Medallion Financial has entered into agreements to acquire the Founding
Companies simultaneously with the closing of the Offering. Each of the
Founding Companies has been operating independently of each other with
separate management teams and there can be no assurance that Medallion
Financial will be able to successfully integrate these businesses and
effectively implement the Company's strategy to expand operations. In
addition, there can be no assurance that the expected benefits of
consolidation, such as reduced risk through diversification of the portfolio
and elimination of duplicate facilities and expenses, will materialize. See
"The Company," "Business" and "Management."
COMPETITION
Banks, credit unions and other finance companies, some of which are SSBICs
and SBICs, compete with the Company in the origination of Medallion Loans and
Commercial Installment Loans. Finance subsidiaries of equipment manufacturers
also compete with the Company. Many of these competitors have greater
resources than the Company and certain competitors are subject to less
restrictive regulations than the Company. As a result, there can be no
assurance that the Company will be able to identify and complete financing
transactions that will permit it to compete successfully. The Company's
taxicab rooftop advertising business competes with other taxicab rooftop
advertisers as well as all segments of the out-of-home advertising industry
and other types of advertising media, including cable and network television,
radio, newspapers, magazines and direct mail marketing. Many of these
competitors have greater financial resources than the Company and offer
several forms of advertising as well as production facilities. There can be no
assurance that the Company will compete with these businesses successfully.
See "Business."
CREDIT QUALITY
The Company's loans are not guaranteed by the SBA. The Company's borrower
base consists primarily of small business owners that have limited resources.
There is generally no publicly available information about such small business
owners, and the Company must rely on the diligence of its employees and agents
to obtain information in connection with the Company's credit decisions. In
addition, these small businesses do not have audited financial statements.
Typically, the success of small businesses and their ability to repay the
Company's loans are dependant upon the management talents and efforts of one
person or a small group of persons, and the
13
<PAGE>
death, disability or resignation of one or more of these persons could have an
adverse impact on their business. Moreover, small businesses may be more
vulnerable to economic downturns and often need substantial additional capital
to expand or compete. Such companies may also experience substantial
variations in operating results. Lending to small businesses therefore
involves a high degree of business and financial risk, which can result in
substantial losses and accordingly should be considered speculative. In
addition, expansion of the portfolio and increases in the proportion of the
portfolio consisting of Commercial Installment Loans could have an adverse
impact on the credit quality of the portfolio. See "Business -- Medallion
Lending" and "-- Commercial Installment Loans."
PORTFOLIO VALUATION
Under the 1940 Act, the Company's loan portfolio must be recorded at fair
market value. Unlike certain lending institutions, the Company is not
permitted to establish reserves for loan losses, but adjusts quarterly the
valuation of its portfolio to reflect the Company's estimate of the current
realizable value of the loan portfolio. Since no ready market exists for this
portfolio, fair market value is subject to the good faith determination of the
Company's management and the approval of the Company's Board of Directors. In
determining such value, the directors take into consideration various factors
such as the financial condition of the borrower, the adequacy of the
collateral, and the relationships between current and projected market rates
of interest and portfolio rates of interest and maturities. For example, in a
period of sustained increases in market rates of interest, the Board of
Directors could decrease its valuation of the portfolio because the portfolio
consists primarily of fixed-rate loans. These fair valuation procedures are
designed to approximate the value that would have been established by market
forces and are therefore subject to uncertainties and variations from reported
results. Based on the foregoing criteria, the Company determines net
unrealized depreciation of investments or the amount by which the Company's
estimate of the current realizable value of its portfolio is below its cost
basis. At September 30, 1995, the Company's net unrealized depreciation of
investments was $1.6 million. Based upon current market conditions and current
loan to value ratios, the Company's Board of Directors believes that its net
unrealized depreciation of investments is adequate to reflect the fair market
value of the portfolio. Because of the subjectivity of these estimates, there
can be no assurance that in the event of a foreclosure or in the sale of
portfolio loans, the Company would be able to recover the amounts reflected on
its balance sheet. Further, costs associated with foreclosure proceedings,
such as a 5% New York City transfer tax assessed in connection with every
medallion transfer, may reduce the Company's expected net proceeds. See
"Business -- Medallion Lending -- Loan Portfolio"; "-- Commercial Installment
Loans -- Loan Portfolio"; "-- Delinquency and Collections"; and "-- Loan Loss
Experience."
TAXICAB INDUSTRY REGULATION
Every city in which the Company originates Medallion Loans, and most other
major cities in the United States, limit the supply of taxicab medallions. In
many markets, regulation results in supply restrictions which, in turn,
support the value of medallions; consequently, actions which loosen such
restrictions and result in the issuance of additional medallions into a market
could decrease the value of medallions in that market and, therefore, the
collateral securing the Company's then outstanding Medallion Loans, if any, in
that market. The Company is unable to forecast with any degree of certainty
whether any potential increases in the supply of medallions will occur.
However, in January 1996, the New York City Council passed a law authorizing
the city to sell up to 400 additional taxicab medallions, which represents a
3.4% increase in the 11,787 taxicab medallions presently outstanding. The
first 100 medallions are expected to be sold in April 1996. See "Business --
Medallion Lending --Industry Overview."
In New York City, and in other markets where the Company originates
Medallion Loans, taxicab fares are generally set by government agencies,
whereas expenses associated with operating taxicabs are largely unregulated.
As a consequence, in the short term, the ability of taxicab operators to
recoup increases in expenses is limited. Escalating expenses, therefore, can
render taxicab operation less profitable and make it more difficult for
borrowers to service loans from the Company and potentially adversely affect
the value of the Company's collateral. In January 1996, the TLC approved an
approximately 20% increase in taxicab fares and imposed a mandatory retirement
age for taxicabs. The Company is unable to predict whether ridership or
taxicab operator profitability will be affected by these measures.
14
<PAGE>
GOVERNMENT REGULATION OF TOBACCO ADVERTISING
Currently, substantially all of the Company's taxicab rooftop advertising
revenue is derived from cigarette advertising. President Clinton recently
authorized the Food and Drug Administration (the "FDA") to assert regulatory
jurisdiction over cigarettes and smokeless tobacco products ("tobacco
products") for the purpose of curbing use of these products by individuals
under the age of 18. The FDA has proposed new rules which, among other things,
regulate advertising of tobacco products. The Company believes that certain of
the proposed rules which include provisions prohibiting the placement of
tobacco products advertising within 1,000 feet of playgrounds and primary and
secondary schools only apply to stationary advertising such as billboards and,
thus, would not restrict taxicab rooftop advertising. However, other
restrictions in the proposed rules limiting tobacco products advertising to a
format consisting of black text on a white background may apply to taxicab
rooftop advertising. The Company cannot predict whether or in what form the
proposed rules will be adopted, or whether the proposed rules will be modified
or nullified by legislative or judicial action. In any event, if rules
restricting the advertising of tobacco products are adopted and are ultimately
interpreted to restrict taxicab rooftop advertising, such rules could have an
adverse effect upon the taxicab rooftop advertising business of the Company.
From time to time there have been legislative initiatives requiring
advertisers which carry tobacco products to also display anti-smoking
messages. In 1994, the U.S. Court of Appeals for the Second Circuit upheld a
district court ruling which prevented the application of a New York City
ordinance requiring, in certain circumstances, that Displays carry anti-
smoking messages. There can be no assurance that there will not be further
such initiatives or that they will be nullified by judicial action.
PASS-THROUGH TAX TREATMENT
Risks Associated with Distribution Requirements and Leverage
The Company, together with the RIC Subsidiaries, intends to qualify and
elect to be treated as a RIC under Subchapter M of the Code. In any year in
which these companies so qualify under Subchapter M, they generally will not
be subject to federal income tax on investment company taxable income (which
includes, among other things, dividends and interest reduced by deductible
expenses) distributed to their stockholders. To so qualify, these companies
must meet certain income, distribution and diversification requirements. See
"Federal Income Tax Considerations." However, because these companies use
leverage, they are subject to certain asset coverage ratio requirements set
forth in the 1940 Act. These asset coverage requirements could, under certain
circumstances, prohibit these companies from making distributions that are
necessary to maintain Subchapter M status. In addition, the asset coverage and
distribution requirements impose significant cash flow management restrictions
on the Company and limit the Company's ability to retain earnings to cover
periods of negative income, provide for future growth and pay for
extraordinary items, such as the repayment of principal of debt incurred by
the Company. See "Federal Income Tax Considerations." Qualification as a RIC
under Subchapter M is made on an annual basis and, although it is the
Company's policy to qualify as a RIC, no assurance can be given that Medallion
Financial or the RIC Subsidiaries will continue to qualify for such treatment.
If these companies were to elect not to be treated as RICs under Subchapter M,
or were to fail to qualify because the 1940 Act asset coverage requirements or
the payment of extraordinary items precluded distributions necessary to
maintain Subchapter M status or for any other reason, their respective incomes
would become fully taxable and a substantial reduction in the amount of income
available for distribution to Medallion Financial and its stockholders would
result. See "Federal Income Tax Considerations" and "Regulation."
Risks Associated with Diversification Requirements
The Company intends to pursue an expansion strategy in its taxicab rooftop
advertising business and believes that there are growth opportunities in this
market. However, the asset diversification requirements under the Code could
restrict such expansion. These requirements provide, in part, that not more
than 25% of the value of a RIC's total assets may be invested in the
securities (other than U.S. Government securities or securities of other RICs)
of any one issuer or two or more issuers controlled by such RIC which are
engaged in similar or related trades or
15
<PAGE>
businesses. Unlike Medallion Financial's investments in the RIC Subsidiaries,
which will not be subject to this diversification test so long as these
subsidiaries are RICs, Medallion Financial's investment in Media will be
subject to this test. The test is initially calculated at the time the assets
are acquired. At the time of the Acquisitions, Media will represent less than
25% of Medallion Financial's assets and the diversification test will be
satisfied. Subsequent growth of Media, if internally generated, will not
retrigger the test even if Media represents in excess of 25% of Medallion
Financial's assets. However, under the Code, the test must be reapplied in the
event that Medallion Financial makes a subsequent investment in Media, lends
to it or acquires another taxicab rooftop advertising business. If such
aggregate asset value represents more than 25% of Medallion Financial's total
assets at that time, Medallion Financial would fail the diversification test.
If that were to occur Medallion Financial would lose RIC status with the
consequences described above. Accordingly, the Company's maintenance of RIC
status could limit the Company's ability to expand its taxicab rooftop
advertising business. It will be the Company's policy to expand its
advertising business through internally generated growth and to only consider
acquisitions if, giving effect to the acquisition, the Code's diversification
requirements would be met.
NO PRIOR PUBLIC MARKET FOR THE COMMON STOCK; DETERMINATION OF THE PUBLIC
OFFERING PRICE
There has been no prior public market for the Common Stock. Consequently,
the initial public offering price was determined through negotiations among
the Company and the representatives of the Underwriters. See "Underwriting"
for factors considered in determining the initial public offering price. The
negotiated initial public offering price may not be indicative of net asset
value or the market price for the Common Stock following the Offering. The
Common Stock has been approved, subject to official notice of issuance, for
quotation on the Nasdaq National Market under the symbol "TAXI." However,
there can be no assurance that an active trading market will develop
subsequent to the Offering or, if developed, that it will be sustained. See
"Underwriting."
DEPENDENCE ON CASH FLOW FROM SUBSIDIARIES
Medallion Financial is a holding company and will derive most of its
operating income and cash flow from its subsidiaries. As a result, Medallion
Financial will rely entirely upon distributions from its subsidiaries to
generate the funds necessary to make dividend payments and other distributions
to its stockholders. Funds are expected to be provided to Medallion Financial
by its subsidiaries through dividends and payments on intercompany
indebtedness, but there can be no assurance that such subsidiaries will be in
a position to make such dividend or debt payments. See "The Company" and
"Business."
IMMEDIATE AND SUBSTANTIAL DILUTION
Immediately upon the closing of the Offering, the purchasers of the Common
Stock will experience dilution in the net tangible book value of their shares
of $4.79 per share. See "Dilution."
RELIANCE ON MANAGEMENT
The success of the Company will be largely dependent upon the efforts of
senior management. The death, incapacity or loss of the services of any of
such individuals could have an adverse effect on the Company and there can be
no assurance that other qualified officers could be hired. See "Management."
CERTAIN ANTI-TAKEOVER PROVISIONS
Prior to the completion of the Offering, the Company will adopt the
Certificate and Restated By-Laws (the "By-Laws"). Certain provisions of the
Certificate and the By-Laws may have the effect of discouraging a third party
from making an acquisition proposal for the Company and thereby inhibit a
change in control of the Company in circumstances that could give the holders
of the Common Stock the opportunity to realize a premium over the then
prevailing market price of the Common Stock. Such provisions may also
adversely affect the market price for the Common Stock. In addition, the
classification of the Company's Board of Directors into three classes may have
the effect of delaying a change in control of the Company. See "Description of
Capital Stock -- Delaware Law and Certain Provisions of the Certificate of
Incorporation and the By-Laws."
CONTROL BY EXISTING STOCKHOLDERS
After the Offering, officers and directors of the Company, together with
entities affiliated with them, will beneficially own approximately 35% of the
Common Stock outstanding (approximately 31% of the Common
16
<PAGE>
Stock outstanding assuming exercise of the Underwriters' over-allotment option
in full). Because of their Common Stock ownership, these stockholders, if they
were to act together, could control the election of all members of the
Company's Board of Directors and determine most corporate actions after the
Offering. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
market prices prevailing from time to time. In addition, several of the
Company's principal stockholders and entities affiliated with them hold a
significant portion of the Company's outstanding Common Stock and a decision
by one or more of these stockholders to sell their shares could adversely
affect the market price of the Common Stock. Upon completion of the Offering,
the Company will have outstanding 7,500,000 shares of Common Stock (8,250,000
if the Underwriters' over-allotment option is exercised in full). Of these
shares, the 5,000,000 shares offered hereby (5,750,000 if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or registration under the Securities Act of 1933, as amended (the
"Securities Act") except to the extent purchased by affiliates of the Company.
The remaining 2,500,000 shares (the "Restricted Shares") were issued and
sold by the Company in private transactions in reliance upon exemptions from
registration under the Securities Act and are restricted securities under Rule
144 of the Securities Act and may not be sold without registration except in
compliance with Rule 144 or an exemption from registration under the
Securities Act. All of the Restricted Shares are subject to lock-up agreements
as described below (the "Lock-up Agreements"). In addition, all of the
Restricted Shares will not be eligible for sale pursuant to Rule 144 until the
expiration of the two-year holding period from the date such Restricted Shares
were acquired. Accordingly, 2,500,000 Restricted Shares will become eligible
for sale subject to Rule 144 resale restrictions, including volume
limitations, on October 24, 1997. The Commission has proposed amendments to
Rule 144 that would, if adopted, retroactively reduce the two-year holding
period to one year.
Pursuant to Lock-up Agreements with the Company's directors and officers and
certain other stockholders, all of the Restricted Shares are subject to
certain resale restrictions. Each party to a Lock-up Agreement has agreed that
he or she will not, directly or indirectly, offer for sale, sell, contract to
sell, grant an option to purchase or otherwise dispose of any shares of the
Common Stock, except for shares deposited in escrow and gifts to family
members or charitable institutions, for a period of two years from the date of
this Prospectus, without the prior written consent of Furman Selz LLC. See
"Underwriting."
In addition, it is anticipated that prior to the closing of the Offering, an
executive officer of the Company will be granted stock options exercisable for
the number of shares of Common Stock determined by dividing $500,000 by the
public offering price per share set forth on the cover page of this
Prospectus. The exercise price for such shares will be equal to the public
offering price set forth on the cover page of this Prospectus. These options
will begin to become exercisable one year after the date of this Prospectus.
Including shares reserved for issuance in connection with such options, the
Company will reserve a total of 750,000 additional shares of Common Stock for
issuance with respect to the grant of options under the Medallion Financial
1996 Stock Option Plan (the "1996 Plan").
In addition, a total of 100,000 additional shares of Common Stock will be
reserved for issuance with respect to the grant of options under the Medallion
Financial Corp. 1996 Non-Employee Directors Stock Option Plan (the "Director
Plan"). It is anticipated that upon Commission approval of the Director Plan,
the Company's four disinterested directors will each receive an option to
purchase the number of shares of Common Stock determined by dividing $100,000
by the fair market value of the Common Stock on the date the plan is approved
by the Commission.
Following the completion of this offering, the Company currently expects to
file a registration statement under the Securities Act to register shares for
issuance under the 1996 Plan and the Director Plan. Shares issued upon
exercise of outstanding stock options after the effective date of such
registration statement generally will be tradeable without restriction under
the Securities Act. See "Shares Eligible for Future Sale."
17
<PAGE>
THE COMPANY
The Company is a specialty finance company with a leading position in the
origination and servicing of Medallion Loans. The Company also originates and
services Commercial Installment Loans. In addition, the Company operates a
taxicab rooftop advertising business. The investment objectives of the Company
are to provide a high level of current income, consistent with preservation of
capital, as well as long-term growth of net asset value. The Company intends
to pay quarterly cash dividends.
The Company is a closed-end, non-diversified management investment company
and has elected to be treated as a business development company under the 1940
Act. See "Regulation." In addition, it plans to elect to be treated for tax
purposes as a RIC under the Code. As a RIC, the Company will not be subject to
U.S. federal income tax on any investment company taxable income (which
includes, among other things, dividends and interest reduced by deductible
expenses) that it distributes to its stockholders for its taxable year if at
least 90% of its investment company taxable income for that taxable year is
distributed. For the nine months ended September 30, 1995, 96.1% of the
Company's net income, on a pro-forma combined basis, was investment company
taxable income. See "Federal Income Tax Considerations."
The Company was incorporated in Delaware in 1995 to acquire and expand the
specialty finance and taxicab rooftop advertising businesses of the Founding
Companies. The closing of the Offering is contingent upon the completion of
the acquisition of each of the Founding Companies. For a description of the
transactions pursuant to which these businesses will be acquired, see
"Business -- Formation Transactions" and "Certain Transactions." The Pro Forma
Selected Financial Data of the Company included in this Prospectus for the
nine months ended September 30, 1994 and 1995 and for the year ended December
31, 1994 are derived from the financial position and results of operations of
each of the Founding Companies, collectively, and are presented as if the
Acquisitions and the Offering had been effected as of January 1, 1994 or
September 30, 1995, as applicable. In addition, Pro Forma Combined Financial
Statements for the Company for the nine months ended September 30, 1994 and
1995 and the year ended December 30, 1994, and Financial Statements and Notes
thereto for each of the Founding Companies for the nine months ended September
30, 1995 and the years ended December 31, 1993 and 1994, as well as Historical
Financial Data for each of the Founding Companies for the nine months ended
September 30, 1994 and 1995 and for the years ended December 31, 1991, 1992,
1993 and 1994 are included in this Prospectus.
The aggregate consideration being paid by the Company to acquire the
Founding Companies consists of (i) $38.7 million in cash, (ii) the assumption
of approximately $87.7 million in bank debt and (iii) the assumption of
approximately $31.7 million in subordinated SBA debentures. The aggregate
consideration to be paid for each Founding Company, including assumption of
debt, based on September 30, 1995 amounts, is estimated to be as follows: (a)
Tri-Magna -- $91.7 million; (b) Edwards -- $49.5 million; and (c) TCC -- $17.0
million. The consideration being paid for each Founding Company was determined
by arm's-length negotiations between the Company and such Founding Company.
See "Business -- Formation Transactions," "Use of Proceeds" and "Certain
Transactions."
18
<PAGE>
The following chart illustrates the organization of the Company following
the Acquisitions:
[CHART APPEARS HERE]
Tri-Magna Corporation. Tri-Magna is a closed-end, management investment
company registered under the 1940 Act and is the sole stockholder of MFC and
Media. Management of the Company has operated Tri-Magna and its subsidiaries
since they were organized. Operating primarily in New York City, MFC is a
well-established medallion lender and has diversified its operations by
developing a division that originates Commercial Installment Loans financing
small businesses outside of the taxicab industry. MFC, the largest SSBIC in
the nation, was incorporated in 1979 and is a closed-end, management
investment company registered under the 1940 Act. Media, which was
incorporated in 1994, provides taxicab rooftop advertising and has initiated a
plan to become a national provider of such advertising. Media currently
provides such advertising in New York City, Philadelphia, Miami and Boston and
has recently entered the Atlanta and Los Angeles markets. Upon consummation of
the Acquisitions, Tri-Magna will be merged into Medallion Financial and MFC
and Media will become wholly owned subsidiaries of Medallion Financial. At
that time, Tri-Magna will constitute approximately 61% of the Company's
assets.
Edwards Capital Company. Operating exclusively in New York City, Edwards is
a well-established medallion lender. Unlike MFC and TCC, which are SSBICs,
Edwards is an SBIC and, therefore, is permitted to lend to any small business
concern rather than being restricted to financing small business concerns that
are owned and managed by persons deemed to be socially or economically
disadvantaged. Accordingly, Edwards has a larger borrower base than the SSBICs
and performs its credit analyses based solely on economic criteria. The
Company anticipates that after the Offering, Edwards will increase its volume
of originations of Commercial Installment Loans. Edwards was organized in 1979
and operated as a privately held limited partnership until the acquisition of
substantially all of its assets by Medallion Financial through a newly formed
subsidiary which has registered as a closed-end, management investment company
under the 1940 Act. Upon consummation
19
<PAGE>
of the Acquisitions, Edwards will be registered as a closed-end, management
investment company under the 1940 Act and will constitute approximately 28% of
the Company's assets.
Transportation Capital Corp. TCC is a well-established and geographically
diverse medallion lender with operations in Boston, Cambridge, Chicago and New
York City. The Company anticipates that after the Offering, TCC will increase
its volume of originations of Commercial Installment Loans. TCC was a wholly
owned indirect subsidiary of Leucadia National Corporation ("Leucadia") until
its acquisition by Medallion Financial. TCC was incorporated in 1979 and is
licensed as an SSBIC. Upon consummation of the Acquisitions, TCC will be a
closed-end, management investment company registered under the 1940 Act, will
be a wholly owned subsidiary of Medallion Financial and will constitute
approximately 11% of the Company's assets.
The Company's executive offices are located at 205 East 42nd Street, Suite
2020, New York, New York 10017, and its telephone number is (212) 682-3300.
20
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
N-2 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement, including the exhibits and schedules thereto. Statements contained
in this Prospectus as to the contents of any contract or any other document
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. MFC, TCC and Edwards have each filed or intend to file with the
Commission a Notification of Registration on Form N-8A and intend to file a
Registration Statement on Form N-5 under the 1940 Act prior to April 1996. For
further information with respect to MFC, TCC and Edwards, reference is hereby
made to their respective Registration Statements on Form N-5, including the
exhibits and schedules thereto. The Registration Statement and the
Registration Statements on Form N-5 when filed, including exhibits and
schedules thereto, may be inspected without charge at the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies can also be obtained from the Commission at
prescribed rates.
In connection with the Acquisitions, the Company has filed with the
Commission an application for an exemptive order under the 1940 Act (the
"Application"). The Application seeks an exemption from certain provisions of
the 1940 Act and rules thereunder that would otherwise prohibit the
Acquisitions and operation of the Company on a combined basis. The
Acquisitions and the Offering are contingent upon receipt of such exemptive
order. The Application may be inspected without charge at the Commission's
Public Reference Section and copies can be obtained from the Commission at
prescribed rates. See "Business -- Formation Transactions."
21
<PAGE>
DISTRIBUTIONS
The Company's policy is to make quarterly distributions of its investment
company taxable income and to distribute at least 90% of such income annually.
Initial distributions to stockholders are expected to be declared
approximately 90 days, and paid approximately 120 days, after the completion
of the Offering. Investment company taxable income of the Company includes,
among other things, dividends and interest reduced by deductible expenses. See
"Federal Income Tax Considerations." For the nine months ended September 30,
1995, 96.1% of the Company's net income, on a pro forma combined basis, was
investment company taxable income. The Company does not expect to have capital
gains, however, to the extent that it does, it will distribute them annually.
The Company's ability to make dividend payments is restricted by certain asset
coverage requirements under the 1940 Act and is dependent upon maintenance of
its status as a RIC under the Code. See "Regulation" and "Federal Income Tax
Considerations." The Company's ability to make dividend payments is further
restricted by certain financial covenants contained in the Company's credit
agreements, by SBA Regulations and under the terms of the subordinated SBA
debentures. The Company has adopted a dividend reinvestment plan pursuant to
which stockholders can have distributions reinvested in additional shares of
Common Stock. See "Dividend Reinvestment Plan."
Substantially all of the Company's investment company taxable income is
expected to be comprised of cash dividends paid to it by the RIC Subsidiaries.
The RIC Subsidiaries intend to elect to be treated for tax purposes as RICs
under the Code and, therefore, must comply with the same income distribution
requirements that apply to the Company. As RICs, they are not subject to U.S.
federal income tax on any investment company taxable income that they
distribute to their stockholder, the Company, if at least 90% of their
respective investment company taxable income is distributed to the Company.
See "Federal Income Tax Considerations." The policy of each of the RIC
Subsidiaries is to make quarterly distributions to the Company of at least 90%
of their respective investment company taxable income. Substantially all of
the RIC Subsidiaries' net income is investment company taxable income and is
derived from interest paid on Medallion Loans and Commercial Installment
Loans.
Media is not expected to pay dividends to the Company for the foreseeable
future. Media, unlike the RIC Subsidiaries, does not qualify as a RIC under
the Code and, therefore, is not subject to RIC distribution requirements.
Media is subject to U.S. federal income tax as a corporation under the Code
and will pay taxes on corporate income under the standard corporate tax rules.
Media expects to retain all of its earnings for funding the operation and
expansion of its business.
22
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting the sales
load and other offering expenses payable by the Company (estimated to be
approximately $5.7 million), are estimated to be approximately $49.3 million,
assuming an offering price of $11.00 per share (approximately $57.0 million if
the Underwriters' over-allotment option is exercised in full). Of this amount,
$38.7 million will be used to pay the cash purchase price for the acquisition
of the Founding Companies. See "Business -- Formation Transactions" and
"Certain Transactions."
The following table sets forth the aggregate consideration estimated to be
payable for each Founding Company based on September 30, 1995 amounts:
<TABLE>
<CAPTION>
BANK DEBT SBA DEBT
CASH ASSUMED ASSUMED TOTAL
------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tri-Magna................................ $13,378 $78,320 $ -- $ 91,698
Edwards.................................. 15,096 9,425 24,950 49,471
TCC...................................... 10,223 -- 6,730 16,953
------- ------- ------- --------
Total.................................. $38,697 $87,745 $31,680 $158,122
======= ======= ======= ========
</TABLE>
All cash payments reflected in the preceding table are payable solely out of
the net proceeds of the Offering. Of the $119.4 million in indebtedness
assumed in connection with the Acquisitions, $9.7 million and $6.5 million
will initially be repaid from the proceeds from the Offering and the cash
acquired in the Acquisitions, respectively, within 30 days of the completion
of the Offering. Of the $9.7 million, $3.2 million will be used to repay
indebtedness incurred in connection with the Company's repurchase of
subordinated SBA debentures and preferred stock. The indebtedness to be repaid
from the proceeds of the Offering bears interest at rates ranging from 7.83%
to 8.75%, with a weighted average rate of interest of 8.01%. Such indebtedness
would otherwise mature at various dates through September 30, 1996. In
addition, the Company will pay $900,000 in investment advisory fees. See
"Business -- Sources of Funds -- Preferred Stock Repurchase Agreements" and
"Investment Objectives, Policies and Restrictions--The Investment Adviser."
23
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
at September 30, 1995 assuming (i) 2,500,000 shares of Common Stock of the
Company issued prior to the Offering (the "Pre-Offering Issuance") had been
outstanding on that date, (ii) the sale of 5,000,000 shares of Common Stock
offered hereby with estimated net proceeds of $49.3 million and (iii) the
application of the estimated net proceeds in connection with the Acquisitions,
application of the cash acquired in connection therewith and for other uses as
described herein. See "Use of Proceeds" and "Business -- Sources of Funds."
This table should be read in conjunction with the Selected Financial Data
included in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
---------------------------------------
PRO FORMA
AS ADJUSTED
MEDALLION FOR APPLICATION
FINANCIAL AS ADJUSTED OF OFFERING
HISTORICAL FOR OFFERING PROCEEDS
---------- ------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Subordinated SBA debentures of
subsidiaries........................ $-- $-- $ 31,344
Notes payable to bank................ -- -- 71,513
---- ------- --------
Total long-term debt............... -- -- 102,857
Stockholders' equity:(1)
Preferred Stock, $.01 par value;
1,000,000 shares authorized; no
shares issued and outstanding....... -- -- --
Common Stock, $.01 par value;
15,000,000 shares authorized;
2,500,000 shares issued and
outstanding historical, 7,500,000
shares as adjusted for offering,
7,500,000 shares pro forma as
adjusted for application of Offering
proceeds............................ -- 75 75
Additional paid-in capital........... 2 49,225 49,227
---- ------- --------
Total stockholders' equity......... 2 49,300 49,302
---- ------- --------
Total capitalization................... $ 2 $49,300 $152,159
==== ======= ========
</TABLE>
- ----------
(1) Reflects a 12,500 for one stock split and an amendment and restatement of
the Certificate which are expected to be effected prior to the date of
this Prospectus.
24
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at September 30, 1995
was negative $2.8 million, or negative $1.10 per share after giving effect to
(i) the Acquisitions and (ii) the Pre-Offering Issuance. "Pro forma net
tangible book value per share" is the pro forma tangible net worth (total pro
forma tangible assets less total pro forma liabilities) of the Company divided
by the number of shares of Common Stock outstanding after giving effect to (i)
the Acquisitions and (ii) the Pre-Offering Issuance. After giving effect to
the sale of the Common Stock offered hereby (after deducting the sales load
and estimated offering expenses), the pro forma net tangible book value of the
Company at September 30, 1995 would have been $46.5 million, or $6.21 per
share, representing an immediate increase in net tangible book value of $7.31
per share to existing stockholders and an immediate dilution of $4.79 per
share to the investors purchasing the shares of Common Stock in the Offering
("New Investors").
The following table illustrates this dilution to New Investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $11.00
Pro forma net tangible book value per share before the
Offering..................................................... ($1.10)
Increase per share attributable to the sale of shares to New
Investors.................................................... 7.31
------
Pro forma net tangible book value per share after the
Offering..................................................... 6.21
------
Dilution to New Investors.............................................. $ 4.79
======
</TABLE>
The following table sets forth at the date of this Prospectus the number of
shares of Common Stock acquired from the Company, the total consideration paid
to the Company and the average price per share paid by existing stockholders
(after giving effect to the Acquisitions and the SBA Repurchase) and by the
New Investors.
<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 2,500,000 33.3% $ 2,000 -- % $ --
New Investors............... 5,000,000 66.7 55,000,000 100.0 11.00
--------- ----- ----------- -----
Total....................... 7,500,000 100.0% $55,002,000 100.0%
========= ===== =========== =====
</TABLE>
25
<PAGE>
SELECTED FINANCIAL DATA
Medallion Financial Corp. was recently organized to acquire and expand the
specialty finance businesses conducted by Tri-Magna, Edwards and TCC as well
as the taxicab rooftop advertising business conducted by Tri-Magna. Medallion
Financial has only recently been organized and, accordingly, has no results of
operations. Simultaneously with, and as a condition to the closing of the
Offering, Medallion Financial will acquire each of the Founding Companies.
Prior to the Acquisitions, each of the Founding Companies had been operating
independently of each other. Accordingly, the following Selected Financial
Data is comprised of two major sections.
The first section, Pro Forma Data, presents selected unaudited financial
data of the Company as if the Founding Companies had been acquired and the
Offering effected, and gives effect to the application of the proceeds of the
Offering and the cash acquired in the Acquisitions as described in "Use of
Proceeds." In addition, the pro forma information is based on available
information and certain assumptions and adjustments set forth in Notes 1 and 2
to the "Pro Forma Combined Financial Statements." The pro forma selected
balance sheet data were prepared as if the Offering and the Acquisitions had
occurred on September 30, 1995. The pro forma selected statement of operations
data were prepared as if the Offering and the Acquisitions had occurred on
January 1, 1994. The pro forma data are not necessarily indicative of the
future financial position or results of operations of the Company.
The second section of the following discussion presents the Historical
Selected Financial Data of each of the Founding Companies. The Historical
Selected Financial Data for the nine months ended September 30, 1995 and the
fiscal years ended December 31, 1994 and 1993 have been derived from audited
financial statements appearing in this Prospectus. The Historical Selected
Financial Data for Edwards and TCC have been reclassified to permit a
presentation that is consistent with the investment company status they will
acquire upon completion of the Acquisitions and the Offering. The Historical
Selected Financial Data for the nine months ended September 30, 1994 have been
derived from unaudited financial statements that appear in this Prospectus.
The Selected Financial Data for the fiscal years ended December 31, 1991 and
1992 for Tri-Magna and TCC have been derived from their respective unaudited
financial statements not included in this Prospectus. These unaudited
financial statements have been prepared on the same basis as the audited
financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the financial position and results of operations of the
Founding Companies for the period presented.
The Selected Financial Data provided herein should be read in conjunction
with the financial statements of Tri-Magna, Edwards and TCC, including the
Notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Prospectus.
26
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------ ----------------
1994 1994 1995
------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Investment income.............................. $15,156 $11,396 $11,662
Interest expense............................... 7,221 5,322 6,052
------- ------- -------
Net interest income............................ 7,935 6,074 5,610
Equity in earnings of unconsolidated
subsidiary(1)................................. 18 -- 133
Other income................................... 1,139 997 626
Accretion of negative goodwill................. 900 675 675
Total non-interest expense..................... 4,113 3,333 2,946
Amortization of goodwill....................... 420 315 315
------- ------- -------
Net investment income.......................... 5,459 4,098 3,783
Realized (loss) on investments, net............ (166) (79) (23)
Change in unrealized depreciation of
investments(2)................................ 872 641 179
------- ------- -------
Net increase in net assets resulting from
operations before extraordinary items......... 6,165 4,660 3,939
Extraordinary items(3)......................... (526) (526) --
------- ------- -------
Net increase in net assets resulting from
operations(4)................................. $ 5,639 $ 4,134 $ 3,939
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
--------------
SELECTED FINANCIAL RATIOS AND OTHER DATA
<S> <C>
Medallion Loans as a percentage of investments................... 79.6%
Commercial Installment Loans as a percentage of investments...... 20.4
Investments to assets............................................ 91.7
Equity to assets................................................. 31.3
Debt to equity................................................... 209
SBA debt to total debt........................................... 30.5
Weighted average yield........................................... 10.69
Weighted average cost of funds................................... 7.67
Spread........................................................... 3.02
<CAPTION>
SEPTEMBER 30,
1995
--------------
BALANCE SHEET DATA (IN THOUSANDS)
<S> <C>
Investments
Medallion Loans................................................ $115,611
Commercial Installment Loans................................... 29,748
Unrealized depreciation of investments(5)........................ --
--------
Investments, net of unrealized depreciation of investments....... 145,359
Total assets..................................................... 157,762
Notes payable and demand notes................................... 71,513
Subordinated SBA debentures...................................... 31,344
Total liabilities................................................ 108,460
Total shareholders' equity....................................... 49,302
</TABLE>
- ----------
(1) Equity in earnings of unconsolidated subsidiary represents the net income
for the period earned by the Company from its investment in Media.
(2) Change in unrealized depreciation of investments represents the increase
(decrease) for the period in the unrealized depreciation applied against
the Company's investments to state them at fair value.
(3) The Company incurred a prepayment premium of $526,000 in connection with
its refinancing of $4.6 million and $5.1 million of subordinated SBA
debentures on June 29, 1994 and September 28, 1994, respectively.
(4) Net increase in net assets resulting from operations is the sum of net
investment income, net realized gains or losses on investments and the
change in unrealized gains or losses on investments.
(5) Upon completion of the Acquisitions, the Company's loan portfolio will be
recorded on the balance sheet at fair market value as estimated by the
Company in accordance with the 1940 Act and the purchase method of
accounting.
27
<PAGE>
HISTORICAL SELECTED FINANCIAL DATA
TRI-MAGNA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Investment income........ $ 8,806 $ 7,953 $ 8,333 $ 8,820 $ 6,571 $ 7,192
Interest expense......... 4,139 3,509 3,661 4,756 3,403 4,431
------- ------- ------- ------- ------- -------
Net interest income...... 4,667 4,444 4,672 4,064 3,168 2,761
Equity in earnings of
unconsolidated
subsidiary(1)........... -- -- -- 18 -- 133
Other income............. 393 632 541 519 443 315
Total non-interest ex-
pense................... 2,249 2,754 3,097 2,700 2,206 2,020
Dividends paid on minor-
ity interest............ 277 277 277 277 208 208
------- ------- ------- ------- ------- -------
Net investment income.... 2,534 2,045 1,839 1,624 1,197 981
Realized gain (loss) on
investments, net........ (205) (223) (115) (22) (9) 4
Change in unrealized
depreciation of
investments(2).......... (200) 125 (53) 58 151 (110)
------- ------- ------- ------- ------- -------
Net increase in net
assets resulting from
operations.............. $ 2,129 $ 1,947 $ 1,671 $ 1,660 $ 1,339 $ 875
======= ======= ======= ======= ======= =======
SELECTED FINANCIAL RATIOS
AND OTHER DATA(3)(4)
Return on average as-
sets(5)................. 3.31% 2.81% 2.12% 1.88% 2.02% 1.23%
Return on average equi-
ty(6)................... 19.34 17.67 15.29 15.29 16.45 10.67
Interest rate spread
Average yield(7)........ 14.08 12.17 11.04 10.24 10.29 10.58
Average cost of
funds(8)............... 8.58 7.44 6.09 6.99 6.77 8.26
Spread(9)............... 5.50 4.73 4.95 3.25 3.52 2.32
Other income to average
assets.................. 0.61 0.91 0.69 0.59 0.67 0.44
Non-interest expense to
average assets.......... 3.50 3.97 3.92 3.05 3.33 2.85
Weighted average assets.. $64,320 $69,401 $78,921 $88,414 $88,356 $94,608
Weighted average invest-
ments(10)............... 62,552 65,338 75,461 86,166 85,157 90,668
Weighted average equity.. 11,011 11,019 10,931 10,855 10,854 10,929
Weighted average debt.... 48,230 47,160 60,160 68,010 67,063 71,530
<CAPTION>
DECEMBER 31,(4) SEPTEMBER 30,(4)
----------------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Medallion Loans as a
percentage of
investments............. 73.0% 81.0% 81.0% 72.4% 74.4% 69.1%
Commercial Installment
Loans as a percentage of
investments............. 27.0 19.0 19.0 27.6 25.6 30.9
Investments to assets.... 94.6 93.8 96.4 96.7 94.5 96.3
Equity to assets......... 16.9 15.0 12.9 11.8 11.8 11.6
Debt to equity(11)....... 218 259 315 356 354 461
SBA debt to total debt... 28.3 23.8 19.8 17.5 17.6 --
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Investments
Medallion Loans......... $45,642 $56,460 $66,437 $65,424 $65,533 $64,890
Commercial Installment
Loans.................. 16,922 13,325 15,577 24,918 22,557 29,032
Unrealized depreciation
of investments(12)...... (900) (775) (828) (770) (677) (880)
------- ------- ------- ------- ------- -------
Investments, net of
unrealized depreciation
of investments.......... 61,664 69,010 81,186 89,572 87,413 93,042
Total assets............. 65,199 73,603 84,239 92,590 92,473 96,627
Notes payable............ 31,700 40,000 50,700 59,025 58,625 78,320
Subordinated SBA
debentures.............. 12,500 12,500 12,500 12,500 12,500 --
Total liabilities........ 44,954 53,341 64,171 72,480 72,366 79,643
Minority interest........ 9,234 9,234 9,234 9,234 9,234 --
Total shareholders'
equity.................. 11,011 11,027 10,834 10,876 10,873 16,984
</TABLE>
28
<PAGE>
MEDIA(1)
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Advertising revenue.................................. $227,756 $1,091,724
Cost of services..................................... 83,341 325,276
-------- ----------
Gross margin......................................... 144,415 766,448
Other operating expenses............................. 126,036 574,786
-------- ----------
Income before taxes.................................. 18,379 191,662
Income taxes......................................... -- 59,030
-------- ----------
Net income........................................... $ 18,379 $ 132,632
======== ==========
</TABLE>
- ----------
(1) Equity in earnings of unconsolidated subsidiary represents the net income
for the period earned by Tri-Magna from its investment in Media.
(2) Change in unrealized depreciation of investments represents the increase
(decrease) for the period in the unrealized depreciation applied against
Tri-Magna's investments to state them at fair value.
(3) Financial ratios for the nine month periods are annualized.
(4) Unaudited.
(5) Return on average assets is calculated as the net increase in net assets
resulting from operations divided by the weighted average assets for the
period.
(6) Return on average equity is calculated as the net increase in net assets
resulting from operations divided by the weighted average equity for the
period.
(7) Average yield is calculated as gross investment income for the period
divided by the weighted average investments for the period.
(8) Average cost of funds is calculated as interest expense for the period
divided by the weighted average debt for the period.
(9) Spread is calculated as the difference between average yield and average
cost of funds.
(10) Weighted average investments is the weighted average of investments net
of unrealized depreciation of investments. Investments consists of the
Tri-Magna's loan portfolio and excludes cash and cash equivalents and
Tri-Magna's investment in Media.
(11) Debt to equity is defined as total debt divided by total shareholders
equity and minority interest.
(12) Upon completion of the Acquisitions, Tri-Magna's loan portfolio will be
recorded on the balance sheet at fair market value as estimated by Tri-
Magna in accordance with the 1940 Act and the purchase method of
accounting.
29
<PAGE>
EDWARDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 5,535 $ 5,444 $ 4,955 $ 4,334 $ 3,262 $ 3,269
Interest expense........ 3,258 2,873 2,741 2,765 2,088 2,073
------- ------- ------- ------- ------- -------
Net interest income..... 2,277 2,571 2,214 1,569 1,174 1,196
Other income............ 322 412 476 620 554 311
Total non-interest ex-
pense.................. 965 1,512 1,022 1,108 821 642
Income tax expense...... 30 73 51 21 12 33
------- ------- ------- ------- ------- -------
Net investment income... 1,604 1,398 1,617 1,060 895 832
Realized gain (loss) on
investments, net....... (639) (13) -- -- -- --
------- ------- ------- ------- ------- -------
Net increase in net
assets resulting from
operations before
extraordinary items.... 965 1,385 1,617 1,060 895 832
Extraordinary items(1).. -- -- -- (526) (526) --
------- ------- ------- ------- ------- -------
Net increase in net
assets resulting from
operations............. $ 965 $ 1,385 $ 1,617 $ 534 $ 369 $ 832
======= ======= ======= ======= ======= =======
SELECTED FINANCIAL RATIOS AND
OTHER DATA(2)(3)
Return on average as-
sets(4)................ 2.27% 3.19% 3.60% 2.35% 2.68% 2.50%
Return on average part-
ners' capital(5)....... 12.22 16.47 17.51 11.69 13.29 12.66
Interest rate spread
Average yield(6)....... 13.75 13.10 11.51 10.06 10.12 10.01
Average cost of
funds(7).............. 9.21 7.98 7.97 7.97 8.04 8.02
Spread(8).............. 4.54 5.12 3.54 2.09 2.08 1.99
Other income to average
assets................. 0.76 0.95 1.06 1.38 1.66 0.93
Non-interest expense to
average assets......... 2.27 3.48 2.27 2.46 2.46 1.93
Weighted average as-
sets................... $42,501 $43,465 $44,953 $45,025 $44,577 $44,383
Weighted average invest-
ments(9)............... 40,260 41,567 43,047 43,074 42,975 43,532
Weighted average part-
ners' capital.......... 7,900 8,409 9,235 9,064 8,981 8,765
Weighted average debt... 35,370 36,015 34,385 34,690 34,625 34,469
<CAPTION>
DECEMBER 31,(3) SEPTEMBER 30,(3)
---------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Medallion Loans as a
percentage of
Investments............ 98.0% 98.3% 98.3% 98.3% 98.1% 98.5%
Commercial Installment
Loans as a percentage
of Investments......... 2.0 1.7 1.7 1.7 1.9 1.5
Investments to assets... 95.0 96.7 97.0 97.5 97.2 97.7
Partners' capital to as-
sets................... 18.6 20.1 21.0 19.2 19.3 20.3
Debt to partners' capi-
tal(10)................ 427 382 365 408 410 384
SBA debt to total debt.. 63.6 73.2 71.6 71.4 72.3 72.6
</TABLE>
30
<PAGE>
EDWARDS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Investments
Medallion Loans........ $39,564 $42,301 $43,383 $42,740 $41,705 $42,571
Commercial Installment
Loans................. 867 719 758 747 796 637
Unrealized depreciation
of investments(11)..... (50) (50) (43) (20) (43) (20)
------- ------- ------- ------- ------- -------
Investments, net of
unrealized depreciation
of investments......... 40,381 42,970 44,098 43,467 42,458 43,188
Total assets............ 42,501 44,430 45,476 44,574 43,679 44,192
Notes payable and demand
notes.................. 12,250 9,125 9,900 10,000 9,550 9,425
Subordinated SBA deben-
tures.................. 21,450 24,950 24,950 24,950 24,950 24,950
Total liabilities....... 34,601 35,511 35,926 35,998 35,268 35,239
Total partners' capi-
tal.................... 7,900 8,919 9,551 8,576 8,411 8,953
</TABLE>
- ----------
(1) Edwards incurred a prepayment premium of $526,000 in connection with its
refinancing of $4.6 million and $5.1 million of subordinated SBA
debentures on June 29, 1994 and September 28, 1994, respectively.
(2) Financial ratios for the nine month periods are annualized.
(3) Unaudited.
(4) Return on average assets is calculated as the net increase in net assets
resulting from operations before extraordinary items divided by the
weighted average assets for the period.
(5) Return on average partners' capital is calculated as the net increase in
net assets resulting from operations before extraordinary items divided by
the weighted average partners' capital for the period.
(6) Average yield is calculated as gross investment income for the period
divided by the weighted average investments for the period.
(7) Average cost of funds is calculated as interest expense for the period
divided by the weighted average debt for the period.
(8) Spread is calculated as the difference between average yield and average
cost of funds.
(9) Weighted average investments is the weighted average of investments net of
unrealized depreciation of investments. Investments consists of Edwards'
loan portfolio and excludes cash and cash equivalents.
(10) Debt to partners' capital is defined as total debt divided by total
partners' capital.
(11) Upon completion of the Acquisitions, Edwards' loan portfolio will be
recorded on the balance sheet at fair market value as estimated by
Edwards in accordance with the 1940 Act and the purchase method of
accounting.
31
<PAGE>
TCC
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 4,197 $ 3,944 $ 3,110 $ 2,217 $ 1,708 $ 1,400
Interest expense........ 2,503 1,538 1,064 709 584 359
------- ------- ------- ------- ------- -------
Net interest income..... 1,694 2,406 2,046 1,508 1,124 1,041
Total non-interest ex-
pense.................. 1,206 1,038 1,269 711 637 586
Income tax expense (ben-
efit)(1)............... -- 74 (983) 653 397 304
------- ------- ------- ------- ------- -------
Net investment income,
adjusted for taxes(2).. 488 1,294 1,760 144 90 151
Realized gain (loss) on
investments............ (1,302) (646) (69) (144) (70) (28)
Change in unrealized
depreciation of
investments(3)......... (1,705) -- 232 790 279 289
------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets resulting
from operations........ $(2,519) $ 648 $ 1,923 $ 790 $ 510 $ 412
======= ======= ======= ======= ======= =======
SELECTED FINANCIAL
RATIOS AND OTHER
DATA(4)(5)
Return on average
assets(6).............. (7.76)% 2.46% 8.36% 3.90% 3.29% 3.03%
Return on average common
equity(7).............. (61.83) 14.73 33.84 11.22 9.85 6.17
Interest rate spread
Average yield(8)....... 13.14 15.87 15.77 13.86 13.61 13.56
Average cost of
funds(9).............. 9.93 8.56 8.10 7.60 7.92 6.53
Spread(10)............. 3.21 7.31 7.67 6.26 5.69 7.03
Non-interest expense to
average assets......... 3.71 3.94 5.51 3.51 4.11 4.30
Weighted average
assets................. $32,479 $26,338 $23,011 $20,260 $20,670 $18,154
Weighted average
investments(11)........ 31,907 24,295 19,000 14,446 15,311 10,538
Weighted average common
equity................. 4,074 4,398 5,683 7,042 6,902 8,900
Weighted average debt... 25,198 17,967 13,133 9,330 9,830 7,330
<CAPTION>
DECEMBER 31, (5) SEPTEMBER 30, (5)
----------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Medallion Loans as a
percentage of
investments............ 83.8% 81.6% 85.4% 80.1% 83.5% 83.8%
Commercial Installment
Loans as a percentage
of investments......... 16.2 18.4 14.6 19.9 16.5 16.2
Loans to assets......... 91.7 74.4 75.6 52.8 57.0 52.6
Equity to assets........ 26.4 33.2 46.5 57.1 53.3 59.7
Debt to equity(12)...... 274 192 107 73 85 65
SBA debt to total debt.. 30.7 73.4 100.0 100.0 100.0 100.0
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Investments
Medallion Loans........ $23,368 $16,471 $15,433 $ 8,796 $10,474 $ 8,223
Commercial Installment
Loans................. 4,513 3,721 2,641 2,185 2,071 1,596
Unrealized depreciation
of investments(13)..... (2,000) (2,000) (1,768) (978) (1,278) (689)
------- ------- ------- ------- ------- -------
Investments, net of
unrealized depreciation
of investments......... 25,881 18,192 16,306 10,003 11,267 9,130
Cash and cash
equivalents............ 1,847 5,790 3,911 8,199 7,479 7,730
Total assets............ 28,223 24,453 21,569 18,951 19,772 17,357
Notes payable and demand
notes.................. 14,132 4,132 -- -- -- --
SBA debentures.......... 6,265 11,405 10,730 7,930 8,930 6,730
Total liabilities....... 20,766 16,348 11,541 8,129 9,230 6,997
Total shareholders'
equity................. 7,457 8,105 10,028 10,822 10,542 10,361
</TABLE>
- ----------
(1) Income tax expense (benefit) includes income tax provision (benefit) on
investment income, realized losses on investments and change in unrealized
depreciation of investments. See note (2).
(2) Net investment income has been adjusted by combining TCC's income tax
provision (benefit) in order to present TCC's financial statements on a
comparable basis to the other Founding Companies.
(3) Change in unrealized depreciation of investments represents the increase
(decrease) for the period in the unrealized depreciation applied against
TCC's investments to state them at fair value.
(4) Financial ratios for the nine month periods are annualized.
(5) Unaudited.
(6) Return on average assets is calculated as the net increase (decrease) in
net assets resulting from operations divided by the weighted average
assets for the period.
(7) Return on average common equity is calculated as the net increase in net
assets resulting from operations divided by the weighted average equity
for the period.
(8) Average yield is calculated as gross investment income excluding interest
income on cash and cash equivalents for the period divided by the weighted
average investments for the period.
(9) Average cost of funds is calculated as interest expense for the period
divided by the weighted average debt for the period.
(10) Spread is calculated as the difference between average yield and average
cost of funds.
(11) Weighted average investments is the weighted average of investments net
of unrealized depreciation of investments. Investments consists of TCC's
loan portfolio and excludes cash and cash equivalents.
(12) Debt to equity is defined as total debt divided by total shareholders
equity and minority interests.
(13) Upon completion of the Acquisitions, TCC's loan portfolio will be
recorded on the balance sheet at fair market value as estimated by TCC in
accordance with the 1940 Act and the purchase method of accounting.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
This discussion is intended to assist investors in their analysis of the
financial condition and results of operations of the Company. The information
contained in this section should be read in conjunction with the Selected
Financial Data and the Financial Statements and Notes thereto appearing in
this Prospectus.
The Company's principal activity is the origination and servicing of
Medallion Loans and Commercial Installment Loans. The earnings of the Company
depend primarily on its level of net interest income, which is the difference
between interest earned on interest-earning assets consisting primarily of
Medallion Loans and Commercial Installment Loans, and the interest paid on
interest-bearing liabilities consisting primarily of credit facilities with
bank syndicates and subordinated debentures issued to or guaranteed by the
SBA. Net interest income is a function of the net interest rate spread which
is the difference between the average yield earned on interest-earning assets
and the average interest rate paid on interest-bearing liabilities, as well as
the average balance of interest-earning assets as compared to interest-bearing
liabilities. Net interest income is affected by economic, regulatory and
competitive factors that influence interest rates, loan demand and the
availability of funding to finance the Company's lending activities. The
Company, like other financial institutions, is subject to interest rate risk
to the degree that its interest-earning assets reprice on a different basis
than its interest-bearing liabilities.
The Company's investment income is driven by the yield on Medallion Loans
and Commercial Installment Loans. The extent to which the yield of the
Company's Medallion Loan originations exceeds the Prime Rate has been in a
long-term decline. However, since December 1994 the average yield of both the
Medallion Loan and Commercial Installment Loan portfolios has slightly
increased. On a pro forma basis, weighted average portfolio yield at September
30, 1995 was 10.69%. The increase in average yield is partially the result of
stabilization in market interest rates for Medallion Loans, which began in
July 1994. Since December 1994, the average portfolio yield has increased as
older, lower interest rate loans in the portfolio have matured or been prepaid
and newer, higher interest rate loans have constituted a greater proportion of
the portfolio. From inception of its business through September 30, 1995, the
period between the origination and final payment of all Medallion Loans
originated by Tri-Magna has been estimated by the Company to be 29 months, on
a weighted average basis. The Company believes that this weighted average time
period varies to some extent as a function of changes in interest rates
because borrowers are more likely to exercise prepayment rights in a
decreasing interest rate environment when the interest rate payable on the
borrower's loan is high relative to prevailing interest rates and are less
likely to prepay in a rising interest rate environment.
The Company has also increased the average yield of the portfolio by
shifting the portfolio mix toward a higher percentage of Commercial
Installment Loans which historically have had a yield of approximately 350
basis points higher than the Company's Medallion Loans. Commercial Installment
Loans represented 20.4% of the total portfolio at September 30, 1995. The
Company intends to continue to increase the percentage of Commercial
Installment Loans in the total portfolio.
The Company's interest expense is driven by the interest rate payable on the
Company's LIBOR-based short-term credit facilities with bank syndicates and,
to a lesser degree, fixed-rate, long-term subordinated debentures issued to or
guaranteed by the SBA. Recently, the Company has reduced its reliance on SBA
financing and increased the relative proportion of bank debt to total
liabilities. SBA financing offers very attractive rates, but such financing is
restricted in its application and its availability is uncertain. In addition,
SBA financing subjects its recipients to limits on the amount of secured bank
debt they may incur. Accordingly, the Company plans to continue to limit its
use of SBA funding and will seek such funding only when advantageous, such as
when SBA financing rates are particularly attractive, and to fund loans that
qualify under SBA Regulations through subsidiaries already subject to SBA
restrictions. The Company believes that its transition to financing its
operations primarily with short-term LIBOR-based bank debt has generally
decreased its interest
33
<PAGE>
expense thus far, but has also increased the Company's exposure to the risk of
increases in market interest rates. The Company also expects that net interest
income should increase because bank debt is more available than SBA financing
and will thus permit an increased level of loan originations. On a pro forma
basis, at September 30, 1995, short-term LIBOR-based debt constituted 69.5% of
total debt.
The Company's cost of funds is primarily driven by (i) the average maturity
of debt issued by the Company, (ii) the premium to LIBOR paid by the Company
on its LIBOR-based debt, and (iii) the ratio of LIBOR-based debt to SBA
financing. The Company incurs LIBOR-based debt for terms generally ranging
from 30 to 180 days. The Company's subordinated debentures issued to or
guaranteed by the SBA typically have terms of ten years. The Company's cost of
funds reflects fluctuations in LIBOR to a greater degree than in the past
because LIBOR-based debt has come to represent a greater proportion of the
Company's debt. The Company measures its cost of funds as its aggregate
interest expense for all of its interest-bearing liabilities divided by the
face amount of such liabilities. The Company analyzes its cost of funds in
relation to the average of the monthly 90- and 180-day LIBOR (the "LIBOR
Benchmark"). On a pro forma basis, at September 30, 1995, the Company's
weighted average cost of funds was 7.67%, or 147 basis points over the LIBOR
Benchmark of 6.20%.
In connection with its Medallion Loan finance business, the Company also
conducts a taxicab rooftop advertising business which began operations in
November 1994. Media's revenue is affected by the number of Displays that it
owns and the occupancy rate of those Displays. At September 30, 1995, Media
owned 1,523 Displays and its Display occupancy rate averaged 90% for the nine
months then ended. The Company expects that Media will continue to expand its
operations. Although Media is a wholly-owned subsidiary of the Company, its
results of operations are not consolidated with the Company because Commission
regulations prohibit the consolidation of non-investment companies, such as
Media, with investment companies, such as Medallion Financial.
Factors which affect the Company's net assets include net realized gain/loss
on investments and change in net unrealized depreciation of investments. Net
realized gain/loss on investments is the difference between the proceeds
derived upon foreclosure of a loan and the cost basis of such loan. Change in
net unrealized depreciation of investments is the amount, if any, by which the
Company's estimate of the fair market value of its loan portfolio is below the
cost basis of the loan portfolio. Under the 1940 Act and the Small Business
Investment Act of 1958 (the "SBIA") and regulations thereunder ("SBA
Regulations"), the Company's loan portfolio must be recorded at fair market
value or "marked to market." Unlike certain lending institutions, the Company
is not permitted to establish reserves for loan losses, but adjusts quarterly
the valuation of its loan portfolio to reflect the Company's estimate of the
current realizable value of the loan portfolio. Since no ready market exists
for the Company's loans, fair market value is subject to the good faith
determination of the Company. In determining such value, the Company takes
into consideration factors such as the financial condition of its borrowers,
the adequacy of its collateral and the relationships between current and
projected market rates of interest and portfolio rates of interest and
maturities. Any change in the fair value of portfolio loans as determined by
the Company is reflected in net unrealized depreciation of investments and
affects net increase in net assets resulting from operations, but has no
impact on net investment income or distributable income. Upon completion of
the Acquisitions, the Company's loan portfolio will be recorded on the balance
sheet at fair market value as estimated by the Company in accordance with the
1940 Act and the purchase method of accounting.
The Company has only recently been organized and, accordingly, has no
results of operations. Simultaneously with, and as a condition to the closing
of the Offering, the Company will acquire each of the Founding Companies.
Prior to the Acquisitions, each of the Founding Companies had been operating
independently of each other, with management of the Company successfully
operating Tri-Magna since it began its medallion lending operations in 1979.
Tri-Magna is the largest of the three Founding Companies being acquired by
Medallion Financial in connection with the Offering and is an investment
company registered under the 1940 Act.
The following discussion, under the caption "Pro Forma Data," presents the
financial position and results of operations of the Company had the Founding
Companies been acquired and the Offering effected on
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January 1, 1994 or September 30, 1995, as applicable. The Pro Forma Data are
not comparable to or indicative of future performance. The historical
financial condition and results of operations of each of Tri-Magna, Edwards
and TCC are then discussed. Discussions of asset/liability management and
liquidity and capital resources of the Company on a combined basis then
follow.
PRO FORMA DATA
Comparison of the Pro Forma Nine Months Ended September 30, 1994 and
September 30, 1995
Performance Summary. Net increase in net assets resulting from operations
decreased $195,000 or 4.8% from $4.1 million for the nine months ended
September 30, 1994 to $3.9 million for the nine months ended September 30,
1995. The decrease was the result of a decrease in net interest income caused
by an increase in cost of funds which exceeded an increase in portfolio yield.
Other income was also lower because of a decline in the receipt of prepayment
fees due to an increase in market rates for Medallion Loans resulting in
decreased refinancing activity. In addition, a prepayment premium of $526,000,
which is recorded as an extraordinary item, was incurred in 1994 in connection
with Edwards' refinancing of $9.7 million in subordinated SBA debentures.
Substantially offsetting the foregoing were increases in advertising revenue
generated by Media which began active operations in November 1994 and
decreases in non-interest expense and net unrealized depreciation of
investments. Non-interest expense decreased because of a reduction in
professional fees, a reduction in operating expenses relating to a reduction
in rent and salaries associated with contraction of TCC's loan portfolio and a
reduction in profit sharing payments. Net unrealized depreciation of
investments decreased because of the decreased potential loan loss exposure
corresponding to the contraction of TCC's loan portfolio.
Net Interest Income. Net interest income decreased $464,000 or 7.6% from
$6.1 million for the nine months ended September 30, 1994 to $5.6 million for
the nine months ended September 30, 1995. The interest rate spread was 3.02%
at September 30, 1995. The Company's investment income increased $266,000 or
2.3% from $11.4 million for the nine months ended September 30, 1994 to $11.7
million for the nine months ended September 30, 1995. The increase in
investment income was partially the result of portfolio growth. On a pro forma
basis, portfolio yield at September 30, 1995 was 10.69%. The increase in
average yield was caused by both (i) a shift in the portfolio mix toward a
higher percentage of Commercial Installment Loans which historically have had
a yield of approximately 350 basis points higher than Medallion Loans and (ii)
a slight increase in the average interest rate on Medallion Loans. Commercial
Installment Loans represented approximately 20.4% of the loan portfolio at
September 30, 1995.
The Company's interest expense increased $730,000 or 13.8% from $5.3 million
for the nine months ended September 30, 1994 to $6.1 million for the nine
months ended September 30, 1995. The Company's weighted average cost of funds
was 7.67% at September 30, 1995. Interest expense increased as the result of
an increase in the average cost of funds during the period due primarily to a
170 basis point increase in the LIBOR Benchmark. This increase in cost of
funds was partially offset by (i) the refinancing and reduction of relatively
higher interest rate subordinated debentures and (ii) a 38 basis point
decrease in the spread over LIBOR charged by the Company's banks. The increase
in interest expense was also in part the result of increased net borrowings to
$102.9 million at September 30, 1995. The increased borrowings were incurred
to fund portfolio growth.
Equity in Earnings of Unconsolidated Subsidiary. For the nine months ended
September 30, 1995, Media generated advertising revenue of $1.1 million and
incurred Display rental costs of $325,000, resulting in a gross margin of
$766,000 or 69.6% of advertising revenue. For the nine months ended September
30, 1995, Media generated $133,000 in net income which is recorded as equity
in earnings of unconsolidated subsidiary on the Company's consolidated
statement of operations and represented 3.5% of the Company's net investment
income. Media began active operations in November 1994; accordingly, there was
no corresponding operating data for the nine months ended September 30, 1994.
At September 30, 1995, Media owned 1,523 Displays and its Display occupancy
rate averaged 90% for the nine months then ended.
Other Income. The Company's other income decreased $371,000 or 37.2% from
$997,000 for the nine months ended September 30, 1994 to $626,000 for the nine
months ended September 30, 1995. Other income
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decreased because of a reduction in the receipt of prepayment fees due to an
increase in market rates for Medallion Loans resulting in decreased
refinancing activity. In addition, other income declined because of a
reduction in the receipt of income from servicing Medallion Loan
participations.
Accretion of Negative Goodwill. Negative goodwill is the excess of fair
value of net assets of an acquired business over the cost basis of such
business. Negative goodwill of $3.4 million and $100,000 was generated in the
acquisition of Tri-Magna and TCC, respectively.
Non-interest Expense. The Company's non-interest expense decreased $387,000
or 11.7% from $3.3 million for the nine months ended September 30, 1994 to
$2.9 million for the nine months ended September 30, 1995. The decrease was
primarily due to reductions in professional fees which were higher in 1994
because of costs associated with refinancing subordinated SBA debentures. The
Company will seek to reduce non-interest expense as a percentage of assets by
consolidating the operations of the Founding Companies, maximizing
efficiencies of scale and eliminating redundant services and functions.
Amortization of Goodwill. Goodwill is the excess of cost of an acquired
business over the fair value of net assets acquired. Goodwill of $6.3 million
was generated in the acquisition of Edwards.
Net Realized Gain/Loss on Investments and Change in Net Unrealized
Depreciation of Investments. For the nine months ended September 30, 1994 and
1995, the Company had realized losses on investments of $79,000 and $23,000,
respectively. The Company's change in net unrealized depreciation of
investments decreased $462,000 or 72.1% from $641,000 for the nine months
ended September 30, 1994 to $179,000 for the nine months ended September 30,
1995, due to the decreased potential loan loss exposure associated with the
contraction of the TCC loan portfolio. Upon completion of the Acquisitions,
the Company's loan portfolio will be recorded on the balance sheet at fair
market value as estimated by the Company in accordance with the 1940 Act and
the purchase method of accounting.
Extraordinary Item. The Company incurred a prepayment premium of $526,000 in
connection with Edwards' refinancing of $4.6 million and $5.1 million of
subordinated SBA debentures on June 29, 1994 and September 28, 1994,
respectively.
TRI-MAGNA HISTORICAL RESULTS OF OPERATIONS
Comparison of the Historical Nine Months Ended September 30, 1994 and
September 30, 1995
Net Interest Income. Net interest income decreased $407,000 or 12.7% from
$3.2 million for the nine months ended September 30, 1994 to $2.8 million for
the nine months ended September 30, 1995. The interest rate spread of 3.52%
for the nine months ended September 30, 1994 decreased 120 basis points to
2.32% for the nine months ended September 30, 1995. This decrease reflected a
149 basis point increase in the average cost of funds offset by a 29 basis
point increase in the average yield of the portfolio during the period. Tri-
Magna's investment income increased $621,000 or 9.4% from $6.6 million for the
nine months ended September 30, 1994 to $7.2 million for the nine months ended
September 30, 1995. The increase in investment income was the result of
portfolio growth of $5.5 million or 6.5% from an average of $85.2 million for
the nine months ended September 30, 1994 to an average of $90.7 million for
the nine months ended September 30, 1995. The increase in investment income
was also the result of an increase in the average yield of the portfolio which
increased 29 basis points from 10.29% for the nine months ended September 30,
1994 to 10.58% for the nine months ended September 30, 1995. Commercial
Installment Loans represented approximately 25.6% of the loan portfolio at
September 30, 1994 and 30.9% at September 30, 1995.
The increase in average yield was caused by both (i) a shift in the
portfolio mix toward a higher percentage of Commercial Installment Loans which
historically have had a yield of approximately 350 basis points higher than
Medallion Loans and (ii) an increase in the average interest rate on Medallion
Loans.
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Tri-Magna's interest expense increased $1.0 million or 29.4% from $3.4
million for the nine months ended September 30, 1994 to $4.4 million for the
nine months ended September 30, 1995. The increase was in part the result of
increased average net borrowings of $4.4 million or 6.6% from $67.1 million
for the nine months ended September 30, 1994 to $71.5 million for the nine
months ended at September 30, 1995. The increased borrowings were incurred to
fund portfolio growth. Interest expense also increased as the result of a 149
basis point increase in the average cost of funds during the period from an
average of 6.77% for the nine months ended September 30, 1994 to 8.26% for the
nine months ended September 30, 1995. Tri-Magna's 149 basis point increase in
average cost of funds was driven by a 170 basis point increase in the LIBOR
Benchmark offset by a 21 basis point decrease in the difference between cost
of funds and the LIBOR Benchmark. The decrease in the difference between cost
of funds and the LIBOR Benchmark was primarily the result of a 25 basis point
decrease in the premium to LIBOR paid by Tri-Magna on its LIBOR-based debt and
Tri-Magna's transition from financing its operations with both subordinated
SBA debentures and LIBOR-based debt to solely relying on LIBOR-based debt. At
September 30, 1994 and 1995, short-term LIBOR-based debt constituted 82.7% and
100%, respectively, of total liabilities. Tri-Magna negotiated an increase in
the amount available under its credit facilities from $65.0 million to $85.0
million to repay $12.5 million in subordinated SBA debentures, repurchase
preferred stock from the SBA and fund portfolio growth.
Equity in Earnings of Unconsolidated Subsidiary. For the nine months ended
September 30, 1995, Media generated advertising revenue of $1.1 million and
incurred Display rental costs of $325,000, resulting in a gross margin of
$766,000 or 69.6% of advertising revenue. For the nine months ended September
30, 1995, Media generated $133,000 in net income which is recorded as equity
in earnings of unconsolidated subsidiary on Tri-Magna's statement of
operations and represented 13.6% of Tri-Magna's net investment income. Media
began active operations in November 1994; accordingly, there were no
corresponding operating data for the nine months ended September 30, 1994. At
September 30, 1995, Media owned 1,523 Displays and its Display occupancy rate
averaged 90% for the nine months then ended.
Other Income. Tri-Magna's other income decreased $128,000 or 28.9% from
$443,000 for the nine months ended September 30, 1994 to $315,000 for the nine
months ended September 30, 1995. This decrease was primarily caused by the
receipt of fewer prepayment fees due to an increase in market rates for
Medallion Loans resulting in decreased refinancing activity.
Non-interest Expense. Tri-Magna's non-interest expense decreased $186,000 or
8.5% from $2.2 million for the nine months ended September 30, 1994 to $2.0
million for the nine months ended September 30, 1995. The decrease was
primarily due to reduction in profit sharing payments.
Net Realized Gain/Loss on Investments and Change in Net Unrealized
Depreciation of Investments. For the nine months ended September 30, 1995,
Tri-Magna had a realized gain on investments of $4,000 as compared to a $9,000
loss on investments for the nine months ended September 30, 1994. Tri-Magna's
change in net unrealized depreciation of investments increased $261,000 or
172.8% from $151,000 at September 30, 1994 to negative $110,000 at September
30, 1995 due to the potential loan loss exposure associated with the increased
proportion of Commercial Installment Loans in the loan portfolio and overall
portfolio growth.
Comparison of the Historical Years Ended December 31, 1993 and December 31,
1994
Net Interest Income. Net interest income decreased $608,000 or 12.9% from
$4.7 million for the year ended December 31, 1993 to $4.1 million for the year
ended December 31, 1994. The interest rate spread of 4.95% for the year ended
December 31, 1993 decreased 170 basis points to 3.25% for the year ended
December 31, 1994. This decrease reflected an 80 basis point decrease in the
average yield of the loan portfolio and a 90 basis point increase in the
average cost of funds over the year. Tri-Magna's investment income increased
$487,000 or 5.9% from $8.3 million for the year ended December 31, 1993 to
$8.8 million for the year ended December 31, 1994. The increase in investment
income was the result of portfolio growth of $10.7 million or 14.2% from an
average of $75.5 million for the year ended December 31, 1993 to an average of
$86.2 million for the year ended December 31, 1994. Loan portfolio growth was
offset by a decrease in the average yield of
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the portfolio of 80 basis points from 11.04% for the year ended December 31,
1993 to 10.24% for the year ended December 31, 1994. The decrease in average
yield of the portfolio represented the continuation of a long-term trend which
has been primarily caused by competition in the Medallion Loan origination
market.
Tri-Magna's interest expense increased $1.1 million or 29.7% from $3.7
million for the year ended December 31, 1993 to $4.8 million for the year
ended December 31, 1994. The increase was the result of increased average net
borrowings of $7.9 million or 13.1% from $60.2 million for the year ended
December 31, 1993 to $68.0 million for the year ended December 31, 1994. The
increased borrowings were incurred to fund loan portfolio growth. Interest
expense also increased as the result of a 90 basis point increase in the
average cost of funds during the period from an average of 6.09% for the year
ended December 31, 1993 to 6.99% for the year ended December 31, 1994. Tri-
Magna's 90 basis point increase in average cost of funds was driven by a 148
basis point increase in the LIBOR Benchmark offset by a 58 basis point
decrease in the difference between cost of funds and the LIBOR Benchmark. The
decrease in the difference between cost of funds and the LIBOR Benchmark was
primarily the result of a decrease in the average maturity of Tri-Magna's
LIBOR debt and an increase in the ratio of LIBOR-based debt to SBA financing.
LIBOR-based borrowings represented approximately 81.4% of Tri-Magna's total
liabilities at December 31, 1994 and 79.0% at December 31, 1993.
Equity in Earnings of Unconsolidated Subsidiary. For the year ended December
31, 1994, Media generated advertising revenue of $228,000 and incurred Display
rental costs of $83,000, resulting in a gross margin of $144,000 or 63.2% of
advertising revenue. For the year ended December 31, 1994, Media generated
$18,000 in net income which is recorded as equity in earnings of
unconsolidated subsidiary on Tri-Magna's statement of operations and
represented 1.1% of Tri-Magna's net investment income. Media began active
operations in November 1994; accordingly, there were no corresponding
operating data for the year ended December 31, 1993. At December 31, 1994,
Media owned approximately 600 Displays and its Display occupancy rate averaged
100% from inception of the business in November 1994 through that date.
Other Income. Tri-Magna's other income decreased $22,000 or 4.1% from
$541,000 for the year ended December 31, 1993 to $519,000 for the year ended
December 31, 1994.
Non-interest Expense. Tri-Magna's non-interest expense decreased $397,000 or
12.8% from $3.1 million for the year ended December 31, 1993 to $2.7 million
for the year ended December 31, 1994. The decrease was due to a decrease in
salaries and benefits related to a reduction of senior executive bonuses and
profit sharing plan contributions.
Net Realized Gain/Loss on Investments and Change in Net Unrealized
Depreciation of Investments. For the year ended December 31, 1994, Tri-Magna
had a net realized loss on investments of $22,000 compared to a net realized
loss on investments of $115,000 for the year ended December 31, 1993. The 1993
net loss on investments reflected the write-off of the last radio car loans in
Tri-Magna's portfolio. Tri-Magna no longer originates radio car loans. Tri-
Magna's change in net unrealized depreciation of investments increased
$111,000 or 209.4% from negative $53,000 at December 31, 1993 to $58,000 at
December 31, 1994, due to the potential loan loss exposure associated with the
increased proportion of Commercial Installment Loans in the loan portfolio and
overall portfolio growth.
EDWARDS HISTORICAL RESULTS OF OPERATIONS
Comparison of the Historical Nine Months Ended September 30, 1994 and
September 30, 1995
Net Interest Income. Net interest income increased $22,000 or 1.8% to $1.2
million for the nine months ended September 30, 1995. The interest rate spread
of 2.08% for the nine months ended September 30, 1994
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decreased 9 basis points to 1.99% for the nine months ended September 30,
1995. The decrease reflected an 11 basis point decrease in the average yield
of the loan portfolio and a 2 basis point decrease in the average cost of
funds during the period. Edwards' investment income increased $7,000 or 0.2%
to $3.3 million for the nine months ended September 30, 1995. The increase in
investment income was the result of portfolio growth of $557,000 or 1.3% from
an average of $43.0 million for the nine months ended September 30, 1994 to an
average of $43.5 million for the nine months ended September 30, 1995. The
increase in investment income was offset by a decrease in the average yield of
the portfolio which decreased 11 basis points from 10.12% for the nine months
ended September 30, 1994 to 10.01% for the nine months ended September 30,
1995.
Edwards' interest expense decreased $15,000 or 0.7% to $2.1 million for the
nine months ended September 30, 1995. The decrease in interest expense
reflected a 2 basis point decrease in the average cost of funds during the
period from an average of 8.04% for the nine months ended September 30, 1994
to 8.02% for the nine months ended September 30, 1995. The decrease was a
result of the refinancings in June 1994 of $4.6 million and September 1994 of
$5.1 million of subordinated SBA debentures at a lower interest rate and a
decrease in average net borrowing of $156,000 or 0.5% from $34.6 million for
the nine months ended September 30, 1994 to $34.5 million for the nine months
ended September 30, 1995. The foregoing were offset by an increase in interest
rates on bank debt. Edwards' 2 basis point decrease in average cost of funds
was driven by a 170 basis point increase in the LIBOR Benchmark and a 172
basis point decrease in the difference between cost of funds and the LIBOR
Benchmark. The decrease in the difference between cost of funds and the LIBOR
Benchmark was primarily the result of a reduction in the weighted average
interest rate paid on subordinated SBA debentures caused by the refinancing of
$9.7 million of such debentures. Subordinated SBA debentures represented 70.8%
of total liabilities at September 30, 1994 and remained unchanged at September
30, 1995. The balance of total liabilities is represented primarily by LIBOR-
based credit facilities with banks.
Other Income. Edwards' other income decreased $243,000 or 43.9% from
$554,000 for the nine months ended September 30, 1994 to $311,000 for the nine
months ended September 30, 1995. This decrease was primarily the result of
decreased income from servicing Medallion Loan participations. Gross loans
serviced by Edwards for third parties declined by $7.4 million from $45.4
million at September 30, 1994 to $38.0 million at September 30, 1995. Edwards
typically receives servicing fees which averaged 51 basis points of the
principal amount of each loan participation that it services. Other income
also decreased because of a reduction in the receipt of prepayment fees and
late charges.
Non-interest Expense. Edwards' non-interest expense decreased $179,000 or
21.8% from $821,000 for the nine months ended September 30, 1994 to $642,000
for the nine months ended September 30, 1995. The reduction was primarily
related to decreased professional fees which were higher in 1994 primarily
because of costs associated with refinancing subordinated debentures.
Net Realized Gain/Loss on Investments. During the nine months ended
September 30, 1994 and 1995 Edwards did not incur any realized gains or losses
on investments because Edwards' portfolio consists almost entirely of
Medallion Loans.
Extraordinary Item. Edwards incurred a prepayment premium of $526,000 in
connection with its refinancing of $4.6 million and $5.1 million of
subordinated SBA debentures on June 29, 1994 and September 28, 1994,
respectively.
Comparison of the Historical Years Ended December 31, 1993 and December 31,
1994
Net Interest Income. Net interest income decreased $645,000, or 29.3% from
$2.2 million for the year ended December 31, 1993 to $1.6 million for the year
ended December 31, 1994. The interest rate spread of 3.54% for the year ended
December 31, 1993 decreased 145 basis points to 2.09% for the year ended
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December 31, 1994, due entirely to a decrease in average yield of the
portfolio. The decrease reflected a 145 basis point decrease in the average
yield of the portfolio and no change in the average cost of funds during the
period. Edwards' investment income decreased $621,000 or 12.4% from $5.0
million for the year ended December 31, 1993 to $4.3 million for the year
ended December 31, 1994. The decrease in investment income was the result of a
decrease in the average yield of the portfolio which decreased 145 basis
points from 11.51% for the year ended December 31, 1993 to 10.06% for the year
ended December 31, 1994. The decrease in average yield of the portfolio
represented the continuation of a long-term trend which was primarily caused
by general decreases in interest rates and competition in the Medallion Loan
origination market.
Edwards' interest expense increased $24,000 or 0.9% from $2.7 million for
the year ended December 31, 1993 to $2.8 million for the year ended December
31, 1994. The increase was the result of an increase in interest rates on bank
debt offset by the refinancing of $5.1 million of subordinated debentures in
September 1994 and $4.6 million of subordinated SBA debentures in June 1994 at
lower interest rates. In addition, Edwards incurred increased average net
borrowings of $305,000 or 0.9% from $34.4 million for the year ended December
31, 1993 to $34.7 million for the year ended December 31, 1994. The average
cost of funds during 1993 and 1994 remained unchanged at 7.97%. Stability in
Edwards' average cost of funds was the result of a 148 basis point increase in
the LIBOR Benchmark and a 148 basis point decrease in the difference between
cost of funds and the LIBOR Benchmark. The decrease in the difference between
cost of funds and the LIBOR Benchmark was primarily the result of a reduction
in the weighted average interest rate paid on subordinated SBA debentures
caused by the partial year effect of the refinancing of $9.7 million of such
debentures. Subordinated SBA debentures represented 69.4% of total liabilities
at December 31, 1993 and remained almost unchanged at December 31, 1994. The
balance of total liabilities is primarily represented by LIBOR-based credit
facilities with banks.
Other Income. Edwards' other income increased $144,000 or 30.3% from
$476,000 for the year ended December 31, 1993 to $620,000 for the year ended
December 31, 1994. This increase was the result of increased income from
servicing Medallion Loan participations. Gross loans serviced by Edwards for
third parties increased $9.3 million from $35.0 million at December 31, 1993
to $44.3 million at December 31, 1994. Edwards typically receives servicing
fees which averaged 51 basis points of the principal amount of each loan
participation that it services. Other income also increased because of an
increase in the receipt of prepayment fees and late charges.
Non-interest Expense. Edwards non-interest expense increased $86,000 or 8.6%
from $1.0 million for the year ended December 31, 1993 to $1.1 million for the
year ended December 31, 1994. The increase is primarily related to increased
professional fees which were higher in 1994 because of costs associated with
the refinancing of subordinated debentures.
Net Realized Gain/Loss on Investments. During the year ended December 31,
1994, Edwards did not incur any realized gains or losses on investments
because Edwards' portfolio consists almost entirely of Medallion Loans.
Extraordinary Item. Edwards incurred a prepayment premium of $526,000 in
connection with its refinancing of $4.6 million and $5.1 million of
subordinated SBA debentures on June 29, 1994 and September 28, 1994,
respectively.
TCC HISTORICAL RESULTS OF OPERATIONS
Comparison of the Historical Nine Months Ended September 30, 1994 and
September 30, 1995
Net Interest Income. Net interest income decreased $83,000 or 7.5% from $1.1
million for the nine months ended September 30, 1994 to $1.0 million for the
nine months ended September 30, 1995. The decrease was
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primarily due to loan portfolio contraction in the amount of $2.7 million
undertaken in connection with a change in investment policy instituted by
Leucadia in 1993. Under this change in policy TCC substantially reduced
Medallion Loan originations in New York City where competition had decreased
yields, and emphasized originations in Boston, Cambridge, Chicago and Newark
where yields were higher. The interest rate spread of 5.69% for the nine
months ended September 30, 1994 increased 134 basis points to 7.03% for the
nine months ended September 30, 1995. This spread increase reflected primarily
a reduction in higher interest rate subordinated SBA debentures, resulting in
a 139 basis point decrease in the average cost of funds for the period offset
by a 5 basis point decrease in the average yield of the portfolio. TCC
finances its portfolio with fixed-rate subordinated SBA debentures rather than
LIBOR-based bank debt. TCC's investment income decreased $308,000 or 18.1%
from $1.7 million for the nine months ended September 30, 1994 to $1.4 million
for the nine months ended September 30, 1995. The decrease in investment
income was the result of a $490,000 or 31.4% decrease in interest earned on
the loan portfolio which contracted $4.8 million or 31.2% from an average of
$15.3 million for the nine months ended September 30, 1994 to an average of
$10.5 million for the nine months ended September 30, 1995. In addition, the
average yield of the portfolio decreased 5 basis points from 13.61% for the
nine months ended September 30, 1994 to 13.56% for the nine months ended
September 30, 1995. The decrease in interest earned on the loan portfolio was
offset by a $182,000 or 124.7% increase in interest income earned on treasury
bills from $146,000 at September 30, 1994 to $328,000 at September 30, 1995
attributable to an increase in the weighted average interest rate on treasury
bills which increased 102 basis points from 4.26% at September 30, 1994 to
5.28% at September 30, 1995.
TCC's interest expense decreased $225,000 or 38.5% from $584,000 for the
nine months ended September 30, 1994 to $359,000 for the nine months ended
September 30, 1995. The decrease was in part the result of a decrease in
average net borrowing of $2.5 million or 25.5% from $9.8 million for the nine
months ended September 30, 1994 to $7.3 million for the nine months ended
September 30, 1995. This decrease was caused by the repayment of subordinated
SBA debentures in the amount of $2.2 million. TCC repaid subordinated SBA
debentures with higher average interest rates than the debentures remaining
outstanding; accordingly, interest expense also decreased as the result of a
139 basis point decrease in the average cost of subordinated SBA debentures
outstanding from an average of 7.92% at September 30, 1994 to 6.53% at
September 30, 1995.
Non-interest Expense. TCC's non-interest expense decreased $51,000 or 8.0%
from $637,000 for the nine months ended September 30, 1994 to $586,000 for the
nine months ended September 30, 1995. The decrease was primarily due to a
$32,000 reduction in operating expenses relating to a reduction in rent and
salaries associated with contraction of the loan portfolio.
Net Realized Gain/Loss on Investments and Change in Net Unrealized
Depreciation of Investments. TCC realized a loss on investments of $28,000 for
the nine months ended September 30, 1995, and a $70,000 loss on investments
for the nine months ended September 30, 1994. TCC's change in unrealized
depreciation of investments decreased $201,000 or 41.0% from $490,000 at
September 30, 1994 to $289,000 at September 30, 1995 due to the reduction of
potential loan loss exposure corresponding to the contraction of the loan
portfolio.
Comparison of the Historical Years Ended December 31, 1993 and December 31,
1994
Net Interest Income. Net interest income decreased $538,000 or 26.9% from
$2.0 million for the year ended December 31, 1993 to $1.5 million for the year
ended December 31, 1994. These effects were in large part a result of
Leucadia's change in investment policy. The interest rate spread of 7.67% for
the year ended December 31, 1993 decreased 141 basis points to 6.26% for the
year ended December 31, 1994. This decrease reflected a 191 basis point
decrease in the average yield of the portfolio offset by a 50 basis point
decrease in the average cost of funds for the year. TCC finances its portfolio
with fixed-rate subordinated SBA debentures rather than LIBOR-based bank debt.
TCC's investment income contracted $893,000 or 28.8% from $3.1 million for the
year ended December 31, 1993 to $2.2 million for the year ended December 31,
1994. The decrease in investment income was the result of a $994,000 or 33.2%
decrease in interest earned on the loan portfolio which contracted $4.6
million or 24.2% from an average of $19.0 million for the year ended December
31, 1993 to an
41
<PAGE>
average of $14.4 million for the year ended December 31, 1994. In addition,
the average yield of the portfolio decreased 191 basis points from 15.77% for
the year ended December 31, 1993 to 13.86% for the year ended December 31,
1994 reflecting the repayment of higher rate loans and the resulting increased
proportion of lower rate loans in the portfolio. The decrease in interest
earned on the loan portfolio was offset by a $101,000 or 88.6% increase in
interest income on treasury bills from $114,000 at December 31, 1993 to
$215,000 at December 31, 1994 attributable to an increase in the weighted
average interest rate earned on treasury bills which increased 212 basis
points from 3.00% at December 31, 1993 to 5.12% at December 31, 1994.
TCC's interest expense decreased $355,000 or 32.3% from $1.1 million for the
year ended December 31, 1993 to $709,000 for the year ended December 31, 1994.
The decrease was in part the result of a decrease in average net borrowing of
$3.8 million or 29.0% from $13.1 million for the year ended December 31, 1993
to $9.3 million for the year ended December 31, 1994. This decrease was caused
by the repayment of subordinated SBA debentures in the amount of $2.8 million.
TCC repaid subordinated SBA debentures with higher average interest rates than
the debentures remaining outstanding; accordingly, interest expense also
decreased as the result of a 50 basis point decrease in the average cost of
subordinated SBA debentures outstanding from an average of 8.10% at December
31, 1993 to 7.60% at December 31, 1994.
Non-interest Expense. TCC's non-interest expense decreased $558,000 or 42.9%
from $1.3 million for the year ended December 31, 1993 to $711,000 for the
year ended December 31, 1994. The decrease was primarily due to a $363,000
reduction in legal and accounting fees which were higher in 1993 principally
due to costs related to non-recurring litigation and filings with the
Commission, a $113,000 reduction in pension expense related to the merger of
TCC's defined benefit plan into Leucadia's defined benefit plan and a $57,000
reduction in rent expense.
Income Tax Expense. A $1.6 million increase in provision for income taxes
for the year ended December 31, 1994 was primarily due to the effect of the
change in tax status of TCC beginning in July 1, 1993 from a non-taxable
regulated investment company to a taxable corporation.
Net Realized Gain/Loss on Investments and Change in Net Unrealized
Depreciation of Investments. TCC realized a loss on investments of $69,000 for
the year ended December 31, 1993, and a $144,000 loss on investments for the
year ended December 31, 1994. TCC's change in unrealized depreciation of
investments increased $558,000 or 240.5% from $232,000 at December 31, 1993 to
$790,000 at December 31, 1994 due to the reduction of potential loan loss
exposure corresponding to the contraction of the loan portfolio.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity. Financial institutions such as the Company are
subject to interest rate risk to the extent their interest-earning assets
(consisting of Medallion Loans and Commercial Installment Loans) reprice on a
different basis over time in comparison to their interest-bearing liabilities
(consisting primarily of credit facilities with bank syndicates and
subordinated SBA debentures).
A relative measure of interest rate risk can be derived from the Company's
interest rate sensitivity gap. The interest rate sensitivity gap represents
the difference between interest-earning assets and interest-bearing
liabilities which mature and/or reprice within specified intervals of time.
The gap is considered to be positive when repriceable assets exceed
repriceable liabilities and negative when the inverse situation exists. A
relative measure of interest rate sensitivity is provided by the cumulative
difference between interest sensitive assets and interest sensitive
liabilities for a given time interval expressed as a percentage of total
assets.
The following gap table sets forth at September 30, 1995 the amount of
interest-earning assets and interest-bearing liabilities maturing or repricing
within the time periods indicated. Medallion Loans and Commercial Installment
Loans are assigned to the time frames in which they are contractually
scheduled to mature. The
42
<PAGE>
Company has not reflected an assumed annual prepayment rate for Medallion
Loans or Commercial Installment Loans in this table.
The Company's interest rate sensitive assets were $156.0 million and
interest rate sensitive liabilities were $119.7 million at September 30, 1995.
The one year cumulative net interest rate sensitivity gap was negative $60.0
million, or 38.5% of interest rate sensitive assets.
GROSS CONTRACTUAL MATURITIES AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
MORE THAN 1 MORE THAN 2 MORE THAN 3 MORE THAN 5
LESS THAN AND LESS THAN AND LESS THAN AND LESS THAN AND LESS THAN
1 YEAR 2 YEARS 3 YEARS 5 YEARS 10 YEARS TOTAL
--------- ------------- ------------- ------------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Medallion Loans and
Commercial Installment
Loans................. $ 19,209 $22,677 $24,398 $36,156 $44,508 $146,948
Cash and cash equiva-
lents 9,095 -- -- -- -- 9,095
-------- ------- ------- ------- ------- --------
Total.................. 28,304 22,677 24,398 36,156 44,508 156,043
Liabilities
Revolving line of cred-
it.................... 82,788 -- -- -- -- 82,788
Term loan.............. 3,232 2,000 -- -- -- 5,232
Subordinated SBA deben-
tures................. 2,290 1,500 3,000 24,890 31,680
-------- ------- ------- ------- ------- --------
Total.................. 88,310 3,500 3,000 -- 24,890 $119,700
-------- ------- ------- ------- -------
Interest Gap............ $(60,006) $19,177 $21,398 $36,156 $19,618
======== ======= ======= ======= =======
</TABLE>
Having interest-bearing liabilities that mature or reprice more frequently
on average than assets may be beneficial in times of declining interest rates,
although such an asset/liability structure may result in declining net
earnings during periods of rising interest rates. Conversely, having interest-
earning assets that mature or reprice more frequently on average than
liabilities may be beneficial in times of rising interest rates, although this
asset/liability structure may result in declining net earnings during periods
of falling interest rates. The mismatch between maturities and interest rate
sensitivities of the Company's interest-earning assets and interest-bearing
liabilities results in interest rate risk. Abrupt increases in market rates of
interest may have an adverse impact on the Company's earnings.
The effect of changes in market rates of interest is mitigated by regular
turnover of the portfolio. From inception of its business through September
30, 1995, the period between the origination and final payment of all
Medallion Loans originated by Tri-Magna is estimated by the Company to have
been 29 months on a weighted average basis. Accordingly, the Company
anticipates that approximately 40% of the portfolio will mature or be prepaid
each year. The Company believes that the average life of its loan portfolio
varies to some extent as a function of changes in interest rates because
borrowers are more likely to exercise prepayment rights in a decreasing
interest rate environment when the interest rate payable on the borrower's
loan is high relative to prevailing interest rates and are less likely to
prepay in a rising interest rate environment.
The Company seeks to manage the exposure of the balance of the portfolio to
increases in market interest rates by entering into interest rate cap
agreements to hedge a portion of its variable-rate debt against increases in
interest rates and by incurring fixed-rate debt. The Company has entered into
interest rate cap agreements to limit the Company's interest rate exposure to
7.5% on $20.0 million of its LIBOR-based debt through April 7, 1997 and to
7.0% on an additional $20.0 million of its LIBOR-based debt through November
16, 1997. The preceding interest sensitivity gap table does not account for
the effect of the Company's interest rate cap agreements. The Company will
seek to manage interest rate risk by evaluating and purchasing, if
appropriate, additional derivatives, originating adjustable-rate loans and
revising, if appropriate, its overall level of asset and liability matching.
Nevertheless, the Company accepts varying degrees of interest rate risk
depending on market conditions and believes that the resulting asset/liability
interest rate mismatch results in opportunities for higher net interest
income.
43
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity are credit facilities with bank
syndicates, fixed rate, long-term subordinated SBA debentures that are issued
to or guaranteed by the SBA and loan amortization and prepayments. As a RIC,
the Company distributes at least 90% of its investment company taxable income;
consequently, the Company primarily relies upon external sources of funds to
finance growth. At September 30, 1995, 73.0% of the Company's $119.4 million
of debt consisted of bank debt, substantially all of which was at variable
effective rates of interest averaging below the Prime Rate and 26.5% consisted
of subordinated SBA debentures with fixed rates of interest with a weighted
average rate of 7.4%. The Company is eligible to seek SBA funding but plans to
continue to limit its use of SBA funding and will seek such funding only when
advantageous, such as when SBA financing rates are particularly attractive, or
to fund loans that qualify under SBA regulations through Edwards and TCC which
are already subject to SBA restrictions. In the event that the Company seeks
SBA funding, no assurance can be given that such funding will be obtained. See
"Risk Factors -- Availability of Funds." In addition to SBA funding, an
additional $7.5 million of debt was available at September 30, 1995 at
variable effective rates of interest averaging below the Prime Rate under the
Company's $95.5 million bank credit facilities. After the Offering the Company
intends to negotiate an increase in the amount available under such
facilities.
The following table illustrates each of the Founding Companies' sources of
available funds and amounts outstanding under credit facilities at September
30, 1995. The Company has only set forth funding sources which are expected to
be available to the indicated companies after the Offering and the
Acquisitions. In addition to the following amounts, $9.7 million is expected
to be available to the Company from the proceeds of the Offering. See "Use of
Proceeds."
<TABLE>
<CAPTION>
TRI-MAGNA MFC EDWARDS TCC TOTAL
--------- ------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equiva-
lents.................. $1,363 $ -- $ -- $7,730 $ 9,093
Revolving line of cred-
it..................... 2,000 78,000 10,000 90,000
Amounts available..... 1,162 5,750 575 7,487
Amounts outstanding... 838 72,250 9,425 82,513
Average interest
rate................ 7.43% 7.83% 7.46%
Maturity............. 8/96 9/96 10/95-9/96
Term loan............... 3,232 2,000 5,232
Interest rate......... 8.75% 7.50%
Maturity.............. 4/96 7/97
SBA debentures.......... 24,950 6,730 31,680
Average interest
rate................. 8.00% 5.38%
Maturity.............. 9/96-9/04 5/96-6/02
Total cash and remaining
amounts available under
credit facilities...... 2,525 5,750 575 7,730 16,580
Total debt outstanding.. $4,070 $74,250 $34,375 $6,730 $119,425
</TABLE>
Loan amortization and prepayments also provide a source of funding for the
Company. Prepayments on loans are influenced significantly by general interest
rates, economic conditions and competition. Medallion Loan prepayments
accelerated throughout virtually all of 1993 and the first three months of
1994 because of the generally lower level of interest rates which prompted
significant Medallion Loan refinancing activity. However, these prepayments
have slowed since early 1994 because of increases in the level of interest
rates which have caused a decrease in Medallion Loan refinancing activity.
MFC and TCC have repurchased all of their previously issued preferred stock
from the SBA for an aggregate price of $4.4 million, representing a discount
of 65.0% from the original aggregate issuance price of $12.6 million. MFC's
repurchase of preferred stock as well as its repayment of all of its
outstanding subordinated
44
<PAGE>
debentures has resulted in the termination of SBA limits on the amount of bank
debt MFC can incur and a realized gain in retained earnings in the amount of
the repurchase discount which will be accreted to paid-in capital on a
straight-line basis over 60 months. After the termination of such limit, MFC
negotiated a $15.0 million increase in its revolving line of credit.
The Company has limited its use of SBA funding and will seek such funding
only when advantageous. Over the past two years the Company has expanded its
loan portfolio, reduced its level of SBA financing and increased its level of
bank funding. At September 30, 1995 SBA financing represented 26.5% of total
debt as compared to 40.5% at September 30, 1994. The Company's bank financing
increased to $95.5 million at September 30, 1995 from $77.5 million at
September 30, 1994. While bank funding often carries higher interest rates
than SBA funding, the Company believes that such higher rates will be offset
by the increased volume of funding and loan originations which should result
in increased net interest margin.
Media was initially capitalized with equity investments and now funds its
operations primarily through internal cash flow. Media is not a RIC and,
therefore, is able to retain earnings to finance growth.
The Company believes that the net proceeds of this Offering remaining after
application of such proceeds to the purchase of the Founding Companies,
application of the cash acquired in connection with the Acquisitions,
anticipated borrowings from the SBA and under its bank credit facilities and
cash flow from operations (after distributions to stockholders) will be
adequate to fund the continuing growth of the Company's loan portfolio and
advertising business through at least 1996. In addition, in order to provide
the funds necessary for the Company's expansion strategy, the Company expects
to incur, from time to time, additional short- and long-term bank and (to the
extent permitted) SBA leverage, and to issue, in public or private
transactions, its equity and debt securities. The availability and terms of
any such securities will depend upon market, regulatory and other conditions.
There can be no assurance that such additional financing will be available on
terms acceptable to the Company.
45
<PAGE>
BUSINESS
GENERAL
The Company operates a specialty finance business and its principal focus is
the origination and servicing of Medallion Loans. As an adjunct to its finance
business, the Company also operates a taxicab rooftop advertising business.
The Company has been engaged in taxicab medallion lending since 1979 and has
developed a leading position in the industry. The Company also originates and
services Commercial Installment Loans secured by retail dry cleaning and coin
operated laundromat equipment. It entered into this business in 1987 in order
to diversify its lending activity. The Company originates and services
Commercial Installment Loans to other targeted industries and intends to use
the expertise it has developed in its areas of concentration to further expand
the range of financial products it offers as well as the industries and
geographic areas it services.
The Company believes its taxicab rooftop advertising business is one of the
largest providers in the nation of this segment of the out-of-home advertising
industry. At September 30, 1995, the Company owned approximately 1,500
installed taxicab rooftop advertising displays. The Company sells advertising
space to advertising agencies and companies promoting products. Currently, the
Company provides such advertising in New York City, Philadelphia, Miami and
Boston. The Company also intends to expand to other major metropolitan areas
and has recently entered the Atlanta and Los Angeles markets.
BUSINESS STRATEGY
Prior to the Offering, each of the Founding Companies that was engaged in
specialty financing operated under regulatory and capital constraints imposed
under the SBIA and SBA Regulations. Certain SBA Regulations precluded these
companies from offering flexible terms often requested by customers and, in
the case of MFC and TCC, restricted their lending activities as SSBICs to
borrowers that are socially or economically disadvantaged ("Disadvantaged
Borrowers") and small business concerns that are at least 50% owned and
managed by Disadvantaged Borrowers. In addition, the size of Tri-Magna's loan
portfolio was significantly limited because the SBA restricted the amount of
bank debt that Tri-Magna could incur. See "Regulation."
As a result of the Offering and the Acquisitions, the Company will have
greater flexibility and resources to operate its specialty finance business
and its lending activities will be subject to fewer restrictions than was the
case for each of the Founding Companies operating separately. The Company
will, however, continue to focus loan originations on specific industries and
perform credit reviews and analyses as it has historically. Specifically, the
Offering and the Acquisitions will permit the Company to:
(i) significantly increase its debt to equity ratio to a level that is
more consistent with industry standards for finance companies;
(ii) originate loans to borrowers that are not Disadvantaged Borrowers
and, as a result, broaden its base of borrowers and lend solely on
the basis of economic criteria;
(iii) originate loans to borrowers whose intended use of proceeds is not
restricted to investment in their businesses (e.g., refinancing a
Medallion Loan where the proceeds are used to purchase a home or
finance an unrelated business);
(iv) originate loans with terms of less than four years; and
(v) explore the potential to securitize its loan portfolio and sell the
loans into the secondary market.
The Founding Companies have regularly received requests for products both
with some of these characteristics and from non-Disadvantaged Borrowers, but
in many cases have had to reject such requests due to restrictions imposed
under SBA Regulations.
46
<PAGE>
In addition to engaging in operations which are not subject to SBA
restrictions, the Company intends to initiate other strategies to expand its
lending activities as follows:
(i) develop larger Medallion Loan and Commercial Installment Loan
origination operations in cities in which it now has a presence, such
as Boston, Cambridge, Chicago and Newark, as well as continue to
expand its operations in New York City, the largest taxi medallion
lending market in the U.S.;
(ii) originate larger loans, decrease the amount of loan participations
that the Company sells to third parties, and consider the repurchase
of participations that the Company previously sold to third parties;
(iii) take advantage of opportunities to acquire other medallion lenders
and portfolios of Medallion Loans as they may arise; and
(iv) continue to expand its portfolio of loans secured by retail dry
cleaning and coin operated laundromat equipment and consider lending
to other targeted industries.
The Company also intends to expand its taxicab rooftop advertising business,
which has grown rapidly over the past year. The Company believes that a
significant market opportunity exists because (i) providing taxicab rooftop
advertising is a largely unpenetrated segment of the out-of-home advertising
market and (ii) many customers that advertise nationally prefer a single
provider that can deliver the effectiveness of taxicab rooftop advertising
simultaneously in several major metropolitan markets. In addition, the Company
believes that only approximately 25% of New York City taxicabs have rooftop
advertising and a much smaller percentage of the taxicabs operating in other
major metropolitan areas nationwide have rooftop advertising.
The Company's strategy to expand its taxicab rooftop advertising business is
to penetrate each of its targeted geographic markets further by securing
additional exclusive, long-term contracts with individual and taxicab fleet
owners, expanding Display servicing and maintenance operations, adding to its
national advertising accounts, exploring opportunities to provide taxicab
interior audio and visual advertising and acquiring other taxicab rooftop
advertising businesses. In addition, the Company will seek to maximize
utilization rates by increasing the proportion of long-term advertising
contracts in its inventory. The Company currently provides advertising in New
York City, Philadelphia, Miami and Boston. The Company also intends to expand
to other major metropolitan areas and has recently entered the Atlanta and Los
Angeles markets.
GROSS LOAN PORTFOLIO SUMMARY DATA
The following table classifies, on a combined basis, the Company's loans
outstanding as of September 30, 1995:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE MATURITY BALANCE
TYPE OF LOAN OF LOANS INTEREST RATE DATE OUTSTANDING
------------ -------- ------------- --------- ------------
<S> <C> <C> <C> <C>
New York City Medallion Loans.... 1,049 9.67% 9/95-9/02 $108,325,637
Other Medallion Loans............ 231 13.58 9/95-9/02 7,358,291
----- ------------
All Medallion Loans............ 1,280 9.92 9/95-9/02 115,683,928
Dry cleaners and laundromats..... 464 13.67 9/95-9/99 23,803,145
Other............................ 109 13.20 9/95-9/99 7,461,253
----- ------------
Total........................ 1,853 10.69% 9/95-9/02 $146,948,326
===== ============
</TABLE>
MEDALLION LENDING
Industry Overview
The New York City Market. A New York City taxicab medallion represents the
only license to operate a taxicab and accept street hails in New York City. As
reported by the TLC, individual (owner-driver) medallions currently sell for
approximately $170,000 and corporate medallions currently sell for
approximately $221,000. According to TLC data, over the past 20 years,
medallions have appreciated in value an average of 10.5% each year. The TLC
estimates that in 1993 New York City taxicabs transported approximately 226
million people and collected in excess of $1 billion in gross revenue.
Taxicabs play a prominent role in intra-Manhattan travel. According to the
TLC, taxicabs transported 154% more passengers than Manhattan buses in 1993.
In addition,
47
<PAGE>
taxicabs provided 34% of all intra-Manhattan passenger trips taken in 1993 by
subway, bus, livery car or taxicab. Between 1977 and 1993, taxicab ridership
for intra-Manhattan travel increased by 42%, while citywide bus ridership
declined by 40%. The Company believes that much of the popularity of taxicabs
can be attributed to the difficulty and expense Manhattan residents encounter
in maintaining a private automobile in Manhattan.
The number of taxicab medallions is limited by law and no new medallions
have been issued since 1937. It is anticipated, however, that 400 additional
medallions will be issued over the next four years with the first 100
medallions offered for sale in April 1996. See "Risk Factors -- Taxicab
Industry Regulation." As a result of the limited supply of medallions, an
active market for medallions has developed. TLC estimates indicate that the
total value of the 11,787 medallions exceeds $2.3 billion. The law limiting
the number of medallions also stipulates that the ownership for the 11,787
medallions shall remain divided into 4,969 owner-driver or individual
medallions and 6,818 fleet or corporate medallions. Corporate medallions are
more valuable because they can be aggregated by businesses and leased to
drivers.
Based upon TLC statistics, the Company estimates that from 1989 through 1993
the number of taxicab medallions sold each year ranged from approximately 500
to 850, divided roughly equally between corporate and individual medallions.
The purchase of a taxicab medallion is frequently financed with a loan and, in
addition, there is an active refinancing market for such loans. Assuming that
approximately 75% of the purchase price of corporate medallions and
approximately 75% of the purchase price of individual medallions are typically
financed, the dollar volume of New York City financing of medallion sales
would range from $72 million to $124 million a year. The Company believes that
the dollar volume of the refinancing market exceeds the dollar volume of
financing of medallion sales.
A prospective medallion owner must qualify under the medallion ownership
standards set and enforced by the TLC. These standards prohibit individuals
with criminal records from owning medallions, require that the funds used to
purchase medallions be derived from legitimate sources and mandate that
taxicab vehicles and meters meet TLC specifications. In addition, before the
TLC will approve a medallion transfer, the TLC requires a waiver from the
seller's insurer stating that there are no outstanding claims for personal
injuries in excess of insurance coverage. After the sale is approved, the
owner's taxicab is subject to quarterly TLC inspections.
The Boston and Cambridge Markets. The Company estimates that Boston
medallions currently sell for approximately $93,000. The number of Boston
medallions had been limited by law since 1930 to 1,525 medallions. In 1993,
however, the Massachusetts legislature authorized the Boston Hackney Carriage
Bureau, which regulates the issuance of new medallions, to issue 300
additional medallions, but the Bureau has only issued 40 additional medallions
which are restricted to "wheelchair accessible" taxicabs. The Company
estimates that the total value of all Boston medallions and related assets is
approximately $157 million. In addition, the Company estimates Cambridge
medallions currently sell for approximately $80,000. The number of Cambridge
medallions has been limited to 248 since 1945 by a Cambridge city ordinance;
accordingly, the Company estimates that the total value of all Cambridge
medallions and related assets is approximately $25 million.
The Chicago Market. Based on the Company's experience, Chicago medallions
currently sell for approximately $35,000. Pursuant to a 1988 municipal
ordinance, the number of outstanding medallions, which currently is capped at
5,500, has increased steadily from 4,600 in 1988 and will be increased to
5,700 in 1997. The ordinance has also required two major taxicab companies to
forfeit 1,300 medallions from 1988 through 1997. The newly issued and
forfeited medallions have been reissued for nominal consideration to new
owners by the city through a lottery. The Company estimates that the total
value of all Chicago medallions and related assets is approximately $250
million.
Market Position
The Company has originated and serviced Medallion Loans since 1979 and has
established a leading position in this industry. The Company's management has
a long history of owning, managing and financing taxicab fleets, taxicab
medallions and corporate car services. Medallion Loans collateralized by New
York City
48
<PAGE>
taxicab medallions and related assets comprised 94% of the value of the
Company's Medallion Loan portfolio at September 30, 1995. The balance
consisted of Medallion Loans collateralized by Boston, Cambridge, Chicago and
Newark taxicab medallions. The Company believes that there are significant
growth opportunities in these and other metropolitan markets nationwide.
Most New York City medallion transfers are handled through approximately 35
medallion brokers who are licensed by the TLC. In addition to brokering
medallions, these brokers also arrange TLC documentation, insurance, vehicles
and meters as well as financing. The Company has excellent relations with many
of the most active of these brokers and regularly receives referrals from
them. However, the Company receives most of its referrals from a small number
of brokers. The Company does not pay referral fees.
Loan Portfolio
Medallion Loans comprised approximately 80% of the Company's loan portfolio
at September 30, 1995. On that date, the Company had 1,280 Medallion Loans
outstanding ranging from $1,200 to $720,000 in principal amount outstanding
with an average principal amount outstanding of $105,000. Substantially all of
the Company's Medallion Loans are made at fixed rates of interest in excess of
the Prime Rate. These loans generally require equal monthly payments covering
accrued interest and amortization of principal over a ten-year schedule
subject to a balloon payment of all outstanding principal after four years.
Borrowers may prepay Medallion Loans upon payment of a fee of 90 days'
interest. The Company generally retains the Medallion Loans it originates.
From inception of its business through September 30, 1995, the period between
the origination and final payment of all Medallion Loans originated by Tri-
Magna has been estimated by the Company to be 29 months on a weighted average
basis. The Company believes that this weighted average time period varies to
some extent as a function of changes in interest rates because borrowers are
more likely to exercise prepayment rights in a decreasing interest rate
environment when the interest rate payable on the borrower's loan is high
relative to prevailing interest rates and are less likely to repay in a rising
interest rate environment. At September 30, 1995, substantially all of the
Company's Medallion Loans were secured by first security interests in taxicab
medallions and related assets. The Company originates Medallion Loans at an
approximate average loan-to-value ratio of 70% and on September 30, 1995 the
Company estimates that the average loan to value ratio of all of the Company's
Medallion Loans was 56%. The Company has recourse against the direct and
indirect owners of the medallion through personal guarantees.
The Company believes that its Medallion Loan portfolio is of high credit
quality because medallions have generally increased in value and are easy to
repossess and resell in an active market. Tri-Magna has never experienced a
loss of principal on any of the $287 million in aggregate principal amount of
Medallion Loans it has originated since 1979. The Company has lost little
principal or interest on Medallion Loans in their entirety. In the event of
defaults by borrowers, the medallions collateralizing such loans have been
seized and, when such loans have not been brought current, readily sold in the
active market for medallions at prices at or in excess of the amounts due.
COMMERCIAL INSTALLMENT LOANS
Overview
Tri-Magna began Commercial Installment Loan operations in 1987 to diversify
its loan portfolio which, prior to that time, consisted almost entirely of
Medallion Loans. Tri-Magna has chosen to concentrate these operations on
originating loans secured by retail dry cleaning and coin operated laundromat
equipment because of certain characteristics similar to medallion lending that
make these industries attractive candidates for profitable lending including
the following (i) relatively high fixed rates of interest ranging from 5% to
7% over the Prime Rate, (ii) low historical repossession rates, (iii) vendor
recourse, (iv) significant equity investments by borrowers, (v) an active
market for repossessed equipment, (vi) a small average loan size of $53,000
and (vii) collateral service life that is frequently twice as long as the term
of the loans. The Company estimates that there are approximately 4,000 retail
dry cleaners and approximately 3,000 laundromats in the New York City
metropolitan area. Specialization in these industries has permitted relatively
low administrative costs because
49
<PAGE>
documentation and terms of credit are standardized. Moreover, the consistency
among the loans has facilitated simplified credit review and portfolio
analysis. In addition, the Company believes that other niche industries with
similar characteristics will provide additional loan portfolio growth
opportunities.
Loan Portfolio
Commercial Installment Loans comprised 20% of the Company's loan portfolio
at September 30, 1995. These loans finance either the purchase of the
equipment and related assets necessary to open a new business or the purchase
or improvement of an existing business. The Company has originated Commercial
Installment Loans in principal amounts ranging from $5,000 to $500,000. These
loans are generally retained by the Company and at September 30, 1995 had
maturities ranging from one to seven years. At September 30, 1995, there were
573 Commercial Installment Loans outstanding with an aggregate principal
balance of $31.3 million. Loans to dry cleaners and laundromats represented
76% of the aggregate principal amount of Commercial Installment Loans
outstanding at September 30, 1995. The remaining Commercial Installment Loans
are spread among other industries including food service, private pay phone
and radio broadcast.
The number of the Company's originations of Commercial Installment Loans has
grown during the nine months ended September 30, 1995. The Company originated
348 Commercial Installment Loans in 1994 in the aggregate principal amount of
$24.1 million, compared to 190 Commercial Installment Loans in the aggregate
principal amount of $17.2 million originated in 1993.
From 1987 through September 30, 1995, Tri-Magna originated 1,001 Commercial
Installment Loans in the aggregate principal amount of $65.7 million, of which
$16.6 million were to retail dry cleaners and $29.9 million were to coin
operated laundromats. The balance of Tri-Magna's Commercial Installment Loans
were secured by real estate, food service equipment, radio broadcast licenses
and other equipment. Tri-Magna's aggregate losses to date of total Commercial
Installment Loans originated during that period were $280,000, or 0.4% and
aggregate losses to date of Commercial Installment Loans secured by retail dry
cleaning and coin operated laundromat equipment originated during that period
were $52,000 or 0.1%.
Commercial Installment Loans made by the Company typically require equal
monthly payments covering accrued interest and amortization of principal over
a four to five year term and generally can be prepaid with a fee of 90 days'
interest. At September 30, 1995, the Company's Commercial Installment Loans
had a weighted average interest rate of 13.64%. The term of, and interest rate
charged on, the Company's loans outstanding at the time of the Offering are
subject to SBA Regulations. See "Regulation." Under SBA Regulations, the
maximum rate of interest permitted on loans originated by the Company during
September 1995 was 15%. Unlike Medallion Loans, for which competition
precludes the Company from charging the maximum rate of interest permitted
under SBA Regulations, the Company is able to charge the maximum rate on
certain Commercial Installment Loans and anticipates that after the Offering
it will be able to charge in excess of the maximum rate. The weighted average
rate of interest on Commercial Installment Loans exceeded the weighted average
rate of interest on Medallion Loans by 372 basis points at September 30, 1995.
The Company believes that the increased yield on Commercial Installment Loans
compensate for their higher risk relative to Medallion Loans and further
illustrate the benefits of diversification.
The Company generally originates Commercial Installment Loans at an
approximate average loan to value ratio of 80% and estimates that the average
loan to value ratio of all of the Company's Commercial Installment Loans at
September 30, 1995 was approximately 60%. Substantially all of the Company's
Commercial Installment Loans are collateralized by first security interests in
the assets being financed by the borrower. At September 30, 1995, 76% of the
aggregate principal outstanding in the Company's Commercial Installment Loan
portfolio was secured by first security interests in retail dry cleaning and
coin operated laundromat equipment and the balance, 24%, was secured by real
estate, food service equipment, radio broadcast licenses and other equipment.
In addition, the Company requires the principals of borrowers to personally
guarantee loans. Additional security is provided by equipment vendors, and at
September 30, 1995, approximately 40% of the aggregate principal amount of
Commercial Installment Loans outstanding was secured by full recourse
50
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guarantees from equipment vendors and approximately 5% was secured by partial
recourse guarantees from equipment vendors. Since 1987, of approximately $29.9
million in originations of loans secured by coin operated laundromat
equipment, Tri-Magna has experienced losses of $52,000 or 0.1% and of
approximately $16.6 million in originations of loans secured by retail dry
cleaning equipment, Tri-Magna has experienced no losses.
MARKETING, ORIGINATION AND LOAN APPROVAL PROCESS
The Company employs five loan officers that originate Medallion Loans and
Commercial Installment Loans. The Company's loan officers regularly receive
referrals from medallion brokers and make use of an extensive referral network
in the retail dry cleaning and coin operated laundromat industry. Equipment
vendors are the single most important source of Commercial Installment Loan
referrals and the Company attributes its excellent relations with these
vendors, in part to its success in financing the purchase of retail dry
cleaning and coin operated laundromat equipment.
Each loan application is individually reviewed through analysis of a number
of factors, including loan-to-value ratios, a review of the borrower's credit
history, public records, personal interviews, trade references and personal
inspection of the premises and TLC approval, if applicable. The Company also
requires each applicant to provide personal and corporate tax returns and
premises leases or property deeds. The Company's Credit Committee establishes
loan origination criteria. Loans that conform to such criteria may be
processed by a loan officer and non-conforming loans must be approved by three
of the four members of the Company's Credit Committee.
GROSS LOANS RECEIVABLE
The following table sets forth the portfolio loans of the Company.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ ----------------
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Receivable
Tri-Magna.............. $ 62,564 48% $ 69,785 53% $ 82,014 57% $ 90,343 62% $ 93,922 64%
Edwards................ 40,431 31 43,020 32 44,141 30 43,487 30 43,207 29
TCC.................... 27,881 21 20,192 15 18,074 13 10,981 8 9,819 7
-------- --- -------- --- -------- --- -------- --- --------- ----
Total.................. $130,876 100% $132,997 100% $144,229 100% $144,811 100% $ 146,948 100%
======== === ======== === ======== === ======== === ========= ====
</TABLE>
During the nine months ended September 30, 1995, the Company originated 631
loans in the aggregate principal amount of $41.1 million. For that period, the
Company's realized losses were less than 0.1% of its loan portfolio. During
the nine months ended September 30, 1994, the Company originated loans in the
aggregate principal amount of $40.0 million. For that period, the Company's
realized losses were approximately 0.1% of its loan portfolio. During the year
ended December 31, 1994, the Company originated loans in the aggregate
principal amount of $80.0 million. For that year, the Company's realized
losses were approximately 0.1% of its loan portfolio. See Pro Forma Selected
Financial Data of the Company for additional information concerning the
Company's loan portfolios.
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<PAGE>
LOAN ACTIVITY
The following table sets forth the Company's loans originated, renewed and
repaid for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------ --------------------
1994 1994 1995
------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans originated........................... $ 61,357 $ 40,004 $ 41,079
Loan repayments (including renewals)....... (60,610) (41,020) (38,918)
Increase (decrease) in unrealized
depreciation.............................. 871 641 179
Loans (written off) recovered.............. (166) (79) (23)
-------- --------- ---------
Increase (decrease) in loans receivable--
net....................................... 1,452 (454) 2,317
Loans receivable-net (beginning of
period)................................... 141,590 141,590 143,042
-------- --------- ---------
Loans receivable-net (end of period)....... $143,042 $ 141,136 $ 145,359
======== ========= =========
</TABLE>
DELINQUENCY AND LOAN LOSS EXPERIENCE
While operating Tri-Magna, management of the Company developed the following
collection practices which it intends to continue to follow in operating the
Company. When a borrower fails to make a required monthly payment, the
borrower is notified by mail after approximately 10 days, and a collection
officer generally contacts the borrower if the payment remains unpaid after 10
additional days. The Company generally follows a practice of discontinuing the
accrual of interest income on loans which are in arrears as to interest
payments for a period in excess of 90 days. The Company delivers a default
notice and begins foreclosure and liquidation proceedings when management
determines that pursuit of these remedies is the most appropriate course of
action in the circumstances.
At September 30, 1995, the Company had 66 loans with an aggregate principal
balance of $5.8 million, or 4.0% of the portfolio, for which accrued interest
and principal payments of $705,000 were delinquent for 90 days or more,
compared to 58 loans with an aggregate principal balance of $3.2 million, or
2.2% of the portfolio, for which accrued interest and principal payments of
$681,000 were delinquent for 90 days or more at September 30, 1994. Although
the aggregate principal balance of delinquent loans increased from 2.2% of the
portfolio at September 30, 1994 to 4.0% at September 30, 1995, the amount of
accrued interest and principal which was delinquent only increased $24,000
from $681,000 at September 30, 1994 to $705,000 at September 30, 1995. Of the
66 loans which were delinquent at September 30, 1995, 36, in the aggregate
principal amount of $4.8 million, were Medallion Loans. The Company considers
a loan to be delinquent if the borrower fails to make payments for 10 days or
more; however, the Company may agree with a borrower that cannot make payments
in accordance with the original loan agreement to modify the payment terms of
the loan. The Company's current net unrealized depreciation of investments is
$1.6 million. Based upon the Company's assessment of its collateral position,
the Company anticipates that a substantial portion of the principal amount of
its delinquent loans would be collected upon foreclosure of such loans, if
necessary. There can be no assurance, however, that the collateral securing
such loans will be adequate in the event of foreclosure.
The Company monitors delinquent loans for possible exposure to loss. In its
analysis, the Company reviews various factors, including the value of the
collateral securing the loan and the borrower's prior payment history. Based
upon these factors and the Company's analysis of the yield and maturity of
loans in the portfolio relative to current and projected market interest
rates, the Company determines net unrealized depreciation of investments or
the amount by which the Company's estimate of the current realizable value of
its portfolio is below the cost basis thereof.
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<PAGE>
The following table sets forth the Company's loan loss experience:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED,
DECEMBER 31, SEPTEMBER 30,
------------ ---------------------
1994 1994 1995
------------ -------------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of period.............. $2,639 $2,639 $1,768
Change in unrealized depreciation of in-
vestments................................ (438) (435) (151)
Realized loan losses...................... (177) (98) (37)
Recoveries................................ 33 29 9
Interest income received.................. (289) (137) --
------ ------ ------
Balance, end of period.................... $1,768 $1,998 $1,589
====== ====== ======
</TABLE>
TAXICAB ROOFTOP ADVERTISING
Media provides taxicab rooftop advertising which is a relatively undeveloped
segment of the out-of-home advertising industry. Out-of-home advertising
includes (i) traditional outdoor advertising, such as billboards and posters,
(ii) transit advertising, such as taxicabs, buses, bus shelters, subway,
commuter train and airport advertising and (iii) in-store point of sale
advertising. The Company entered this business in November 1994 with the
organization of Media as a subsidiary of Tri-Magna and since that time the
business has grown rapidly. The Company intends to continue to expand this
business through internally generated growth and to consider acquisitions of
taxicab rooftop advertising businesses.
The Company currently provides taxicab rooftop advertising in New York City,
Philadelphia, Miami and Boston. The Company has only recently established
operations in Atlanta and Los Angeles and intends to expand in the Atlanta
market prior to the 1996 Summer Olympic Games. The Company's goal is to become
the leading national provider of taxicab rooftop advertising by establishing a
presence in several major U.S. metropolitan markets. In furtherance of this
goal, the Company has recently hired a National Sales Director with 27 years
of management experience in the outdoor advertising industry. The Company
believes that no provider currently operates nationwide. On September 30,
1995, the Company owned approximately 1,500 Displays, approximately 90% of
which were in use in New York City. Display occupancy averaged approximately
90% for the nine months ended September 30, 1995. For the nine months ended
September 30, 1995, Media accounted for 3.5% of the Company's net investment
income.
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<PAGE>
The following line graph indicates the number of Displays installed at the
end of each fiscal quarter indicated.
[BAR GRAPH APPEARS HERE]
Each Display is attached to the rooftop of a taxicab by the Company and the
Company also performs all ongoing Display maintenance and repair. The Display
remains the property of the Company. The Display serves as a platform or frame
for advertising copy which is preprinted on vinyl sheets with adhesive backing
and provided by the advertiser. The advertising copy adheres to the Display
and is illuminated whenever the taxicab is in operation. The vinyl sheet is
durable and is generally left on the Display for up to 90 days. The
advertising copy is replaced at the advertiser's discretion and cost when
advertising campaigns change. The standard size of the vinyl advertising copy,
14 inches high and 48 inches long, was designed to be proportionally similar
to "bulletins" or "billboards" to permit advertisers to conveniently translate
billboard copy to Display copy.
Generally, the Company enters into agreements with taxicab associations,
fleets or individuals to lease taxicab rooftop space for five-year terms.
Typically, under these agreements, the Company is only required to make lease
payments upon receipt of payment from the relevant advertiser; accordingly,
unoccupied Displays remain on taxicab rooftops rent-free. The Company markets
the Displays to companies promoting products, advertising agencies and outdoor
advertising buying agencies. Advertising contracts generally vary from 30 days
to one year and provide for monthly payments of rent by the advertiser. The
Company's advertising accounts have included HBO; R. J. Reynolds Tobacco
Company; CBS, Inc.; NEC; NYNEX Corporation; Metro-Goldwyn-Mayer Inc. and Brown
& Williamson Tobacco Corporation.
The Company believes the inherent in-motion nature of taxicabs and their
concentration and distribution throughout densely populated metropolitan areas
enhance their effectiveness as an advertising medium. Displays can be placed
throughout an area, effectively covering the population and providing
continuous exposure. Moreover, taxicab rooftop advertising is not zoned out of
any of the areas in New York City, such as Park Avenue and Central Park, where
stationary advertising is generally prohibited. Unlike other forms of transit
advertising in New York City such as buses, bus shelters and subway and
commuter train stations, which are prohibited from advertising tobacco
products, taxicabs are not restricted by New York City from advertising
54
<PAGE>
tobacco products. In addition, the Company believes that taxicab rooftop
advertising compares favorably with other forms of outdoor advertising, which
in general have among the lowest cost-per-thousand impressions or "CPM", a
standard measurement of effectiveness among media, of all advertising media.
Currently, substantially all of the Company's taxicab rooftop advertising
revenue is derived from tobacco products advertising. The FDA has proposed new
rules, which, among other things, regulate advertising of tobacco products.
The Company cannot predict whether the proposed rules restricting tobacco
products advertising will be adopted, or whether the proposed rules will, if
adopted, restrict taxicab rooftop advertising. The Company believes, however,
it could replace revenue lost due to government regulations if rules
restricting the advertising of tobacco products are adopted and restrict
taxicab rooftop advertising. See "Risk Factors -- Government Regulation of
Tobacco Advertising".
SOURCES OF FUNDS
Overview
The Company funds its operations through credit facilities with bank
syndicates and, to a lesser degree, through fixed rate, long-term subordinated
debentures issued to or guaranteed by the SBA. The determination of funding
sources is established by the Company's management, based upon analysis of the
respective financial and other costs and burdens associated with funding
sources. SBA financing offers very attractive rates, for example currently as
low as 4.0%, but such financing is restricted in its application and its
availability is uncertain. In addition, SBA financing subjects its recipients
to limits on the amount of secured bank debt they may incur. Accordingly, the
Company plans to limit its use of SBA funding and will seek such funding only
when advantageous, such as to fund loans that qualify under SBA Regulations
through subsidiaries already subject to SBA restrictions. At September 30,
1995, 73% of the Company's $119.4 million of debt consisted of bank debt,
substantially all of which was at variable effective rates of interest
averaging below the Prime Rate and 27% consisted of subordinated SBA
debentures, with fixed rates of interest with a weighted average rate of
7.44%. An additional $7.5 million of debt was available at September 30, 1995
at variable effective rates of interest averaging below the Prime Rate under
the Company's $96 million in bank credit facilities. After the Offering, the
Company intends to negotiate an increase in the amount available under such
facilities. A table appearing under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" illustrates each of the Founding Companies' sources of
available funds at September 30, 1995.
The Company funds its fixed rate loans with variable rate bank debt and
fixed rate subordinated SBA debentures. The mismatch between maturities and
interest-rate sensitivities of these balance sheet items results in interest
rate risk. See "Risk Factors -- Interest Rate Spread; Prepayment Risk." The
Company seeks to manage its exposure to increases in market rates of interest
to an acceptable level by (i) purchasing interest rate caps to hedge a portion
of its variable rate debt against increases in interest rates, (ii) incurring
fixed-rate debt and (iii) originating adjustable rate loans. Nevertheless, the
Company accepts varying degrees of interest rate risk depending on market
conditions and believes that the resulting asset/liability interest rate
mismatch results in opportunities for higher net interest income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset/Liability Management."
Tri-Magna Funding
Tri-Magna has a $2.0 million revolving line of credit with a bank syndicate.
At September 30, 1995, $838,000 was outstanding under this facility, bearing
interest at 7.43%. Tri-Magna is also subject to a $3.2 million term loan which
will be repaid with the proceeds from the Offering. The term loan bears
interest at 8.75%. The Company expects that the revolving line of credit will
be transferred to Medallion Financial after the Offering.
55
<PAGE>
Edwards Funding
Edwards has a $12.5 million revolving line of credit with a bank syndicate.
Under an agreement with the SBA, Edwards was restricted from borrowing more
than $10.0 million in bank debt without the prior approval of the SBA. In
January 1996, this amount was increased to $11.5 million.
As an SBIC, Edwards is eligible to obtain low cost financing from the SBA
through the issuance of subordinated SBA debentures and has outstanding such
debentures in the principal amount of $25.0 million. Following the Offering,
Edwards intends to seek to issue additional subordinated SBA debentures. SBA
Regulations limit the amount of subordinated SBA debentures or "leverage"
SBICs may issue. Generally, under SBA Regulations, the maximum principal
amount of subordinated SBA debentures Edwards is permitted to issue is equal
to 300% of its private or non-SBA paid-in capital and paid-in surplus
("Leveragable Capital"). SBA Regulations generally also limit the aggregate
amount of leverage SBICs and SSBICs under common control, such as Edwards, MFC
and TCC, have outstanding to no more than $90 million. Accordingly, Edwards,
MFC and TCC collectively may not issue subordinated SBA debentures and
preferred stock in an aggregate amount that exceeds $90 million and at
September 30, 1995, the aggregate amount outstanding was $31.6 million. The
interest rates payable on outstanding subordinated SBA debentures at September
30, 1995 ranged from 7.15% to 9.8% with a weighted average of 8.0%.
At September 30, 1995, Edwards had Leveragable Capital of $8.4 million and
had issued $25.0 million in principal amount of subordinated SBA debentures
that carry fixed rates of interest and have ten-year terms. These debentures
have maturities ranging from September 1, 1996 to September 1, 2004 and rates
of interest varying from 7.15% to 9.8% per annum. Subject to the limitations
discussed above, Edwards was eligible on September 30, 1995, to issue $250,000
in aggregate principal amount of additional subordinated SBA debentures.
MFC Funding
MFC intends to rely on its bank credit facilities rather than on SBA
financing to fund its operations. MFC has a credit facility with a bank
syndicate consisting of a $78.0 million revolving line of credit and a $2.0
million term loan. Amounts outstanding under the revolving line of credit bear
interest at the agent bank's prime rate or, at MFC's option, a rate based on
LIBOR. At September 30, 1995, the applicable interest rate was 7.82% which was
93 basis points below the Prime Rate and 187 basis points above 90-day LIBOR
as of such date. The revolving line of credit is secured by all of MFC's
assets and matures on September 30, 1996. As of September 30, 1995, there was
an outstanding balance of $72.3 million under the revolving line of credit.
The term loan bears interest at the rate of 7.5% and matures on July 31, 1997.
SBA financing is limited and so long as an SBIC or SSBIC has SBA financing
outstanding, the SBA restricts the amount of bank debt such SBIC or SSBIC may
have outstanding. As a result of these SBA limitations, debt financing from
all sources is effectively limited. To eliminate this funding cap, MFC has
repurchased all of its outstanding subordinated SBA debentures and preferred
stock and thereby terminated SBA limitations on the amount of bank debt MFC
can incur. The Company believes that MFC will be able to obtain more funding
from banks than it was able to obtain from the SBA and banks under SBA
limitations, and that this will permit MFC to more effectively expand its
operations. See "Business -- Sources of Funds -- Preferred Stock Repurchase
Agreements."
Media Funding
Media has a $275,000 demand loan from a bank. The loan is secured and bears
interest at the rate of 10.75%.
TCC Funding
As an SSBIC, TCC is eligible to obtain low cost financing from the SBA
through the issuance of subordinated SBA debentures and the issuance of non-
voting cumulative preferred stock to the SBA. TCC has $6.7 million of
subordinated SBA debentures outstanding and presently has no preferred stock
outstanding.
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<PAGE>
Following the Offering, TCC intends to seek to issue preferred stock and
additional subordinated SBA debentures. SBA Regulations limit the amount of
subordinated SBA debentures and preferred stock or "leverage" SSBICs may
issue. Generally, under SBA Regulations, the maximum principal amount of
subordinated SBA debentures and preferred stock TCC is permitted to issue is
the lesser of (i) an amount equal to 300% of its Leveragable Capital, or (ii)
$35.0 million. All 300% of this leverage is permitted to consist of
subordinated SBA debentures, while no more than 100% is permitted to consist
of preferred stock. The $90 million limit on the aggregate amount of leverage
permitted for SBICs and SSBICs under common control referred to above also
applies. The cumulative dividend currently payable on shares of preferred
stock issued by SSBICs to the SBA is 4.0% and at September 30, 1995 the
weighted average interest rate payable on subordinated SBA debentures was
5.38%. As a result of an SBA subsidy program available to SSBICs, the
effective interest rate on such debentures is 3.00% below the stated interest
rate for the first five years such debentures are outstanding.
At September 30, 1995, TCC had Leveragable Capital of $7.7 million and had
issued $6.7 million in principal amount of subordinated SBA debentures that
carry fixed rates of interest, ten-year terms and may be prepaid after five
years without penalty. These debentures have maturities ranging from May 7,
1996 to June 1, 2002 and rates of interest varying from 5.00% to 7.38% per
annum. Future issuances of subordinated SBA debentures by TCC are also limited
by the SBA to the aggregate amount of TCC's outstanding non-Medallion Loans
and the aggregate amount of non-Medallion Loans originated in connection with
such financing. At September 30, 1995, TCC had $1.6 million in principal
amount of non-Medallion Loans outstanding. Subject to the foregoing
limitations, TCC was eligible on September 30, 1995, to issue $16.4 million in
aggregate amount of additional subordinated SBA debentures and preferred
stock.
Preferred Stock Repurchase Agreements
MFC and TCC have repurchased all of their previously issued preferred stock
from the SBA for an aggregate price of $4.4 million, representing a discount
of 65% from the original aggregate issuance price of $12.6 million. The
repurchase price discount of $8.2 million reflects the below market 3%
dividend rate and the fact that the preferred stock was not subject to
mandatory redemption at any time. The repurchase has resulted in the
termination of SBA limits on the amount of bank debt MFC can incur and a
realized gain in retained earnings in the amount of the repurchase discount
which will be accreted to paid-in capital on a straight-line basis over 60
months, commencing August 12, 1995. However, if MFC or TCC is liquidated or
loses its SBA license during the accretion period, the SBA will receive the
remaining unaccreted amount of the realized gain attributable to the
subsidiary liquidating or losing its license.
COMPETITION
Banks, credit unions and finance companies, some of which are SSBICs and
SBICs, compete with the Company in originating Medallion Loans and Commercial
Installment Loans. Finance subsidiaries of equipment manufacturers also
compete with the Company. Many of these competitors have greater resources
than the Company and certain competitors are subject to less restrictive
regulations than the Company. As a result, there can be no assurance that the
Company will be able to identify and complete the financing transactions that
will permit it to compete successfully. The Company's taxicab rooftop
advertising business competes with other taxicab rooftop advertisers as well
as all segments of the out-of-home advertising industry and other types of
advertising media, including cable and network television, radio, newspapers,
magazines and direct mail marketing. Many of these competitors have greater
financial resources than the Company and offer several forms of advertising as
well as production facilities.
FORMATION TRANSACTIONS
Simultaneously with the closing of the Offering, Medallion Financial will
acquire the Founding Companies, and the Offering is contingent upon the
successful acquisition of each of the Founding Companies. In connection with
the Acquisitions, the Company has filed an application for an exemptive order
under the 1940 Act with the
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<PAGE>
Commission. The Acquisitions and the Offering are contingent upon receipt of
such exemptive order. See "Additional Information." The aggregate
consideration to be paid by Medallion Financial in these transactions consists
of (i) approximately $38.7 million in cash; (ii) the assumption of
approximately $87.7 million in bank debt; and (iii) the assumption of
approximately $31.7 million in subordinated SBA debentures. See "Certain
Transactions" and "Use of Proceeds." The consideration to be paid for the
Founding Companies was determined through arm's-length negotiations between
Medallion Financial and representatives of each Founding Company. The factors
considered by the parties in determining the consideration to be paid
included, among others, the history of and prospects for the business in which
the particular Founding Company operates, the Founding Company's past and
present operations, loan portfolio quality, past and present revenue and
earnings and the trends of such revenue and earnings, expert opinion, revenue
and earnings prospects and stock prices of comparable finance companies and
out-of-home advertising companies. Each Founding Company was represented by
independent counsel in the negotiation of the terms and conditions of the
Acquisitions.
The consummation of each Acquisition is subject to customary closing
conditions. These conditions include the continuing accuracy on the closing
date of the Acquisitions of the representations and warranties of the Founding
Companies and Medallion Financial, the performance of all covenants included
in the agreements relating to the Acquisitions, the nonexistence of any
material adverse change in the results of operations, financial condition or
business of the Founding Companies and stockholder approval in the case of
Tri-Magna and TCC and general and limited partner approval in the case of
Edwards. The acquisitions of Tri-Magna, TCC and Edwards are also contingent
upon SBA approval.
The agreements relating to the Acquisitions may be terminated, under certain
circumstances, prior to the consummation of the Acquisitions. Specifically,
each agreement may be terminated: (i) by mutual consent of the parties; (ii)
if the Acquisitions of Tri-Magna, TCC and Edwards are not consummated by April
30, 1996; (iii) if a material breach or default under the agreements occurs
and is not cured within 20 days of notice of such breach; or (iv) if the
special committee of the Tri-Magna Board of Directors terminates the Tri-Magna
merger agreement or fails to recommend the acquisition of Tri-Magna to its
stockholders.
There can be no assurance that the conditions to the closing of the
Acquisitions will be satisfied, or, if not satisfied, waived or that the
Acquisition agreements will not be terminated. If any of the Acquisitions is
terminated for any reason, Medallion Financial will not consummate the
Offering.
Tri-Magna. Under an agreement with Tri-Magna, Tri-Magna will be merged with
and into Medallion Financial and Tri-Magna's wholly owned subsidiaries, MFC
and Media, will become wholly owned subsidiaries of Medallion Financial. The
aggregate consideration to be paid by Medallion Financial for Tri-Magna is
approximately (i) $13.4 million in cash and (ii) the assumption of $78.3
million in bank debt. See "Certain Transactions" and "Use of Proceeds."
Edwards. Under an agreement with Edwards, a newly organized, wholly owned
subsidiary of Medallion Financial will acquire all of the assets of Edwards.
The aggregate consideration to be paid by Medallion Financial for Edwards is
approximately (i) $15 million in cash, (ii) the assumption of approximately
$25 million in subordinated SBA debentures and (iii) the assumption of
approximately $9.4 million in bank debt. In connection with this transaction,
Edwards, its general partner and certain affiliates will enter into non-
competition agreements with Medallion Financial pursuant to which they will
agree not to compete with the Company for three years after the consummation
of this transaction.
TCC. Under an agreement with TCC and certain of its affiliates, Medallion
Financial or a wholly owned subsidiary of Medallion Financial will acquire all
of the issued and outstanding common stock of TCC. Upon consummation of this
transaction, TCC will become a wholly owned subsidiary of Medallion Financial.
The
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<PAGE>
aggregate consideration to be paid by Medallion Financial for TCC is
approximately (i) $10.2 million in cash and (ii) the assumption of $6.7
million in subordinated SBA debentures. In connection with this transaction,
Leucadia will enter into a non-competition agreement with Medallion Financial
pursuant to which it will agree that it and all of its affiliates will not
compete with the Company for three years after the consummation of this
transaction.
EMPLOYEES
As of September 30, 1995, the Company employed a total of 32 employees. The
Company believes that its relations with all of its employees are good, but
that its future success will depend, in part, on its ability to continue to
recruit, retain and motivate qualified personnel at all levels.
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<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Company's investment objectives will be to provide a high level of
current income for its stockholders through quarterly distributions,
consistent with preservation of capital, as well as long term growth of net
asset value. The Company will seek to achieve its investment objectives by
maximizing net interest income and fee income from operations and expanding
operations. There can be no assurance that the Company will achieve its
investment objectives.
The Company's only fundamental policies, that is, policies that cannot be
changed without the approval of the holders of a majority of the Company's
outstanding voting securities, as defined under the 1940 Act, are the
restrictions described in the following seven paragraphs. A "majority of the
Company's outstanding voting securities" as defined under the 1940 Act means
the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of
the outstanding shares. The other policies and investment restrictions
referred to in this Prospectus, including the Company's investment objectives,
are not fundamental policies of the Company and may be changed by the
Company's Board of Directors without stockholder approval. Unless otherwise
noted, whenever an investment policy or limitation states a maximum percentage
of the Company's assets that may be invested in any security or other asset,
or sets forth a policy regarding quality standards, such standard or
percentage limitation will be determined immediately after and as a result of
the Company's acquisition of such security or other asset. Accordingly, any
subsequent change in values, assets, or other circumstances will not be
considered when determining whether the investment complies with the Company's
investment policies and limitations. The Company's fundamental policies are as
follows:
1. The Company will at all times conduct its business so as to retain its
status as a business development company under the 1940 Act. In order to
retain that status, the Company may not acquire any assets (other than non-
investment assets necessary and appropriate to its operations as a business
development company) if, after giving effect to such acquisition, the value
of its "Qualifying Assets," as such term is described under the caption
"Regulation," amount to less than 70% of the value of its total assets. The
Company believes that the securities it has acquired and it proposes to
acquire in connection with the acquisition of the Founding Companies, as
well as temporary investments it makes with its funds, will generally be
Qualifying Assets.
2. MFC, TCC, Edwards, and any subsidiaries of the Company organized in
the future that are SBA licensees, may issue the maximum principal amount
of subordinated SBA debentures and preferred stock permitted under the SBIA
and SBA Regulations. As SSBICs under common control, the maximum principal
amount of subordinated debentures and preferred stock MFC and TCC are
permitted to issue is the lesser of (i) an amount equal to 300% of their
Leveragable Capital (generally non-SBA paid-in capital and paid-in
surplus), or (ii) $35 million. All 300% of this leverage is permitted to
consist of subordinated debentures, while no more than 100% is permitted to
consist of preferred stock. As an SBIC, the maximum principal amount of
subordinated debentures Edwards is permitted to issue is equal to 300% of
its Leveragable Capital. In addition, SBA Regulations also limit the
aggregate principal amount of subordinated SBA debentures and preferred
stock or "leverage" SSBICs and SBICs under common control, such as the RIC
Subsidiaries, may have outstanding to no more than $90 million. At
September 30, 1995, TCC and Edwards had, in aggregate, $31.7 million in
principal amount of subordinated debentures and no preferred stock
outstanding. At that date, TCC and Edwards had, in aggregate, $16.1 million
in Leveragable Capital and accordingly the maximum aggregate principal
amount of additional SBA leverage TCC and Edwards could issue on that date
was $16.6 million. MFC has Leveragable Capital of $14.5 million but has no
subordinated SBA debentures outstanding. At September 30, 1995, MFC had no
subordinated SBA debentures outstanding and has no intention of issuing
any; however, MFC reserves the right to issue subordinated debentures to
the maximum extent permitted under the SBIA or SBA Regulations.
3. The Company may borrow funds and issue "senior securities" to the
maximum extent permitted under the 1940 Act. As a business development
company, the Company may issue senior securities if, immediately after such
issuance, the senior securities will have an asset coverage of at least
200%. Under
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the 1940 Act, subordinated debentures issued to or guaranteed by the SBA
and preferred stock issued to the SBA by the RIC Subsidiaries may be
considered senior securities issued by the Company requiring asset coverage
of 200%; however, pursuant to an exemptive order of the Commission
requested under the Application, such debentures and preferred stock are
exempt from the asset coverage requirements of the 1940 Act.
4. The Company will not (i) underwrite securities issued by others
(except to the extent that it may be considered an "underwriter" within the
meaning of the Securities Act in the disposition of restricted securities),
(ii) purchase or sell real estate or real estate mortgage loans unless
acquired as a result of ownership of securities or other instruments
(except that the Company may purchase and sell real estate or interests in
real estate in connection with the orderly liquidation of investments or
the foreclosure of mortgages held by the Company), (iii) engage in short
sales of securities, (iv) purchase securities on margin (except to the
extent that it may purchase securities with borrowed money), (v) write or
buy put or call options or (vi) engage in the purchase or sale of
commodities or commodity contracts, including futures contracts (except
where necessary in working out distressed loan or investment situations).
The Company and the RIC Subsidiaries may purchase interest rate caps and
swaps covering up to 100% of their variable rate debt.
5. The Company and the RIC Subsidiaries may originate loans and loans
with equity features. The Company may also make loans as permitted (i)
under the 1996 Plan, (ii) under plans providing for options for
disinterested directors that might be adopted by the Company in the future
and (iii) to officers and directors for the purchase of Common Stock. The
Company will hold all of the outstanding common stock of the Founding
Companies and may organize additional subsidiaries in the future. The
Company may acquire restricted securities of small businesses.
6. Each RIC Subsidiary shall not originate loans to, or invest in the
securities of, any entity if, immediately after such loan or investment,
more than 5% of the total assets of the RIC Subsidiary originating such
loan or making such investment (taken at current value) would be loaned to,
or invested in the securities of such entity, or acquire more than 10% of
the outstanding voting securities of any issuer, provided that this
limitation does not apply to obligations issued or guaranteed as to
interest and principal by the U.S. Government or its agencies or
instrumentalities or to repurchase agreements secured by such obligations,
and that up to 25% of each RIC Subsidiary's total assets (at current value)
may be invested without regard to this limitation.
7. The Company and each RIC Subsidiary shall not lend or invest more than
25% of their respective total assets (taken at current value) to or in
entities primarily engaged in any one industry except the taxicab, retail
dry cleaning and coin operated laundromat industries, provided that this
limitation does not apply to obligations issued or guaranteed as to
interest and principal by the U.S. Government or its agencies or
instrumentalities or to repurchase agreements secured by such obligations
or to bank money-market instruments.
PORTFOLIO TURNOVER
During the year ended December 31, 1994, the Company originated loans
totalling $61.4 million in aggregate principal amount and experienced
prepayments totalling $60.6 million in aggregate principal amount. During the
nine months ended September 30, 1995, the Company originated loans totalling
$41.0 million in aggregate principal amount and experienced prepayments
totalling $38.9 million in aggregate principal amount. All borrowers have the
right to prepay loans made by the Company at any time. Although the Company
experiences more prepayments when interest rates are falling and fewer
prepayments when interest rates are rising, the Company is unable to predict
the level of prepayments it will experience during any period of time.
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<PAGE>
THE INVESTMENT ADVISER
The Company is managed by its executive officers under the supervision of
its Board of Directors. In addition, under the terms of an advisory agreement
(the "Advisory Agreement") between the Company and FMC, the Company has
retained FMC to consult with management upon reasonable request in the review
and refinement of the Company's strategies.
Myron Cohen, Robert Fanger and Michael Miller control FMC and will provide
the advisory services to the Company on behalf of FMC. They have served as
directors and executive officers of Tri-Magna and MFC since inception and,
along with Alvin Murstein, comprised Tri-Magna's Executive Committee. Messrs.
Cohen, Fanger and Miller will resign their offices with Tri-Magna and MFC
effective upon the closing of the Acquisitions. Upon the request of the
officers of the Company, FMC will consult with respect to strategic decisions
concerning originations, credit quality assurance, development of financial
products, leverage, funding, geographic and product diversification, the
repurchase of participations, acquisitions, regulatory compliance and
marketing.
Under the Advisory Agreement, the Company will pay FMC monthly, as
compensation for the services to be rendered by it, a fee of $18,750. For the
first 48 months of service, fees shall be paid in advance in one payment in
the amount of $900,000 from the proceeds of the Offering. Unless earlier
terminated as described below, the Advisory Agreement will remain in effect
until February 1998 and from year to year thereafter only if approved annually
by (i) a majority of the non-interested directors of the Company and (ii) the
Board of Directors, or by a majority of the outstanding voting securities of
the Company, as defined in the 1940 Act. The Advisory Agreement may be
terminated without penalty on 60 days' written notice by either party or by
vote of a majority of the outstanding voting securities of the Company, as
defined in the 1940 Act, and will terminate if assigned. In the event of
termination, prepaid fees for services not yet performed, if any, must be
repaid to the Company. Under the Advisory Agreement, FMC will not be liable
for any loss suffered by the Company, except a loss resulting from FMC's
willful malfeasance, bad faith or gross negligence.
The Alvin Murstein Second Family Trust and the Andrew Murstein Family Trust
(collectively the "Murstein Trusts") will enter into an escrow agreement with
FMC at the closing of the Offering. Under the escrow agreement, the Murstein
Trusts will deposit into escrow Common Stock valued at $1.8 million, at the
price per share set forth on the cover page of this Prospectus. Subject to
certain limitations, the Murstein Trusts have agreed to maintain in escrow
Common Stock worth 200% of the advisory fees subject to repayment by FMC to
the Company in the event of termination or non-renewal of the Advisory
Agreement during the first 48 months of service. In the event that the Company
or its stockholders terminate or do not renew the Advisory Agreement during
this period for any reason other than (i) breach of the Advisory Agreement by
FMC or (ii) FMC's willful malfeasance, bad faith or gross negligence, and as a
result of such termination or failure to renew FMC is required to repay fees
for services not yet performed, the escrow agent shall assign to FMC Common
Stock in escrow equal in value to the amount of the refunded fees.
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MANAGEMENT
The business and affairs of the Company are managed under the direction of
its Board of Directors. The Board of Directors is divided into three classes,
each with a term of three years. Only one class of directors stands for
election in any year. Messrs. Kreitman and Rudnick are in the first class and
stand for election in 1997; Messrs Cuomo and Andrew Murstein are in the second
class and stand for election in 1998 and Messrs. Alvin Murstein and Ward are
in the third class and stand for election in 1999. The Board of Directors has
two committees, a Compensation Committee comprised of Messrs. Kreitman, Alvin
Murstein and Ward and an Audit Committee comprised of Messrs. Kreitman,
Rudnick and Ward. The directors will each be paid $10,000 a year for each year
they serve and shall each receive $2,000 for each Board meeting attended and
$1,000 for each committee meeting attended and are reimbursed for expenses
relating thereto. The Board of Directors elects the Company's officers who
serve at the pleasure of the Board of Directors.
The Company's directors and officers are as set forth below.
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD WITH THE COMPANY
---------------- ----- ---------------------------------
<S> <C> <C>
Alvin Murstein*............ 61 Chairman, Chief Executive Officer and Director
Andrew Murstein*........... 31 President and Director
Marie Russo*............... 71 Senior Vice President and Secretary
Daniel F. Baker*........... 32 Treasurer and Chief Financial Officer
Michael Fanger*............ 38 Executive Vice President
Michael J. Kowalsky*....... 50 Executive Vice President
Budd S. Goldman*........... 48 Senior Vice President
Michael Leible*............ 58 Vice President
Mario M. Cuomo............. 63 Director
Stanley Kreitman........... 62 Director
David L. Rudnick........... 55 Director
Benjamin Ward.............. 69 Director
</TABLE>
- ----------
An asterisk (*) indicates an "interested person" as such term is defined in
(S) 2(a)(19) of the 1940 Act.
Alvin Murstein has been Chairman of the Board of Directors, Chief Executive
Officer and President of Tri-Magna since its founding in 1989 and of MFC since
its founding in 1979. Mr. Murstein has also been Chairman of the Board of
Directors and Chief Executive Officer of Media since its founding in 1994.
Upon completion of the Offering and the Acquisitions, Mr. Murstein will be
Chairman of the Board of Directors and Chief Executive Officer of MFC,
Edwards, TCC and Media. Mr. Murstein received a B.A. and an M.B.A. from New
York University and has been an executive in the taxicab industry for over 40
years. Mr. Murstein has served on the Board of Directors of the Strober
Organization, Inc., a building supply company, since 1988. Alvin Murstein is
the father of Andrew Murstein.
Andrew Murstein has been Tri-Magna's Director of New Business Development
since 1991. Mr. Murstein has also been a Director of Media since 1994 and was
President of Media from inception through January 1996. Mr. Murstein is Tri-
Magna's liaison with the TLC and the New York City Mayor's office. Upon
completion of the Offering and the Acquisitions, Mr. Murstein will be a
Director of Media and a Director of MFC, Edwards and TCC. Mr. Murstein
received a B.A. in economics, cum laude, from Tufts University and an M.B.A.
in finance from New York University. Mr. Murstein serves on the New York City
Small Business Task Force. Andrew Murstein is the son of Alvin Murstein and
the son-in-law of Mr. Rudnick, and is the third generation of his family to be
active in the taxicab industry.
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<PAGE>
Marie Russo has been the Vice President of Operations of Tri-Magna since its
founding in 1989 and of MFC since 1986. From 1983 to 1986 she was Controller
of MFC. Upon completion of the Offering and the Acquisitions, Ms. Russo will
be Senior Vice President of MFC, Edwards and TCC. Ms. Russo received a B.S. in
accounting from Hunter College.
Daniel F. Baker has been Tri-Magna's Vice President of Finance since 1992.
From 1989 through 1991, Mr. Baker was Controller of Tri-Magna and from 1988
through 1991 he was Controller of MFC. Prior to joining MFC, Mr. Baker was
employed by Arthur Andersen & Co. Upon completion of the Offering and the
Acquisitions, Mr. Baker will be Treasurer and Chief Financial Officer of MFC,
Edwards, TCC and Media. Mr. Baker received a B.S. in accounting from Husson
College.
Michael Fanger has been Tri-Magna's Vice President of Commercial Lending
since its founding in 1989 and of MFC since 1987. Upon completion of the
Offering and the Acquisitions, Mr. Fanger will be President of TCC, Executive
Vice President of MFC and Senior Vice President of Edwards. Prior to joining
MFC, Mr. Fanger was a Vice President, Commercial Lending at Shawmut Bank, NA.
Mr. Fanger received a B.A. from Colby College.
Michael J. Kowalsky has been Edwards' Chief Operating Officer since 1992.
Prior to joining Edwards in 1990, Mr. Kowalsky was a Senior Vice President at
General Cigar Co. Inc., a cigar manufacturing company. Upon completion of the
Offering and the Acquisitions, Mr. Kowalsky will be President of MFC and of
Edwards. Mr. Kowalsky received a B.A. and M.A. in economics from the
University of Kentucky and an M.B.A. from the New York University Graduate
School of Business.
Budd S. Goldman has been President of Media since January 1996. Prior to
joining Media, Mr. Goldman was Chairman and Chief Executive Officer of
Millennium Telecommunications, Inc. from 1994 through October 1995 and
Chairman and Chief Executive Officer of Banning Enterprises, Ltd., a consumer
products company, from 1979 until 1993. Mr. Goldman is a certified public
accountant. Mr. Goldman received a B.B.A. in accounting from the City College
of New York.
Michael Leible has been Vice President and National Sales Director of Media
since 1994. Prior to joining Media, Mr. Leible was Executive Vice President
and National Sales Manager at Metropolitan Outdoor Advertising, Inc. where he
worked from April 1990 until March 1995. From 1979 through 1989 he was Vice
President--National Sales at Transportation Displays, Inc. ("TDI"). Prior to
joining TDI, Mr. Leible was Vice President--National Sales at Metromedia,
Inc., where he worked from 1967 through 1979.
Mario M. Cuomo served as Governor of the State of New York from January 1983
through 1994. Governor Cuomo has been a partner in the law firm of Willkie
Farr & Gallagher since February 1995. Willkie Farr & Gallagher serves as
counsel to the Underwriters in connection with this Offering. Mr. Cuomo
received a B.A., summa cum laude, from St. John's University and a J.D., magna
cum laude, from St. John's University School of Law.
Stanley Kreitman serves as Vice Chairman of Manhattan Associates, an
investment banking company. Mr. Kreitman served as a Director of Tri-Magna
from 1991 until the completion of the Offering and the Acquisitions. Mr.
Kreitman served as President of the United States Banknote Corporation, a
securities printing company, from 1975 until his retirement in 1994. Mr.
Kreitman is Chairman of the Board of Trustees of the New York Institute of
Technology. Mr. Kreitman received an A.B. from New York University and an
M.B.A. from New York University Graduate School of Business.
David L. Rudnick serves as President of Century Properties, Inc., a national
commercial real estate concern. Mr. Rudnick joined Century Properties, Inc. in
1966. Mr. Rudnick was a director of West Side Federal Savings & Loan
Association. Mr. Rudnick received an A.B. in economics from Harvard University
and an M.B.A. from Columbia University Graduate School of Business. Mr.
Rudnick is Andrew Murstein's father-in-law.
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Benjamin Ward served as a Director of Tri-Magna from 1992 until the
completion of the Offering and the Acquisitions. Mr. Ward served as Police
Commissioner of New York City from 1984 until 1989. Mr. Ward received a B.A.
in sociology, magna cum laude, from Brooklyn College and a J.D. from Brooklyn
Law School.
COMPENSATION
The following table sets forth for the fiscal year ending December 31, 1996,
the estimated compensation to be paid to the three most highly compensated
officers of the Company. The Company does not anticipate paying any director
aggregate compensation in excess of $30,000 during fiscal 1996 from Medallion
Financial and the Founding Companies for such individual's service as a
director.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION FROM
NAME OF PERSON, POSITION THE COMPANY(1)
------------------------ -----------------
<S> <C>
1. Alvin Murstein, $250,000
Chairman and Chief Executive Officer
2. Andrew Murstein, $155,000
President and Director
3. Michael Kowalsky $150,000
Executive Vice-President
</TABLE>
- ----------
(1) Estimates for the fiscal year ending December 31, 1996.
EMPLOYMENT AGREEMENTS
Alvin Murstein and Andrew Murstein have entered into employment agreements
with the Company. The agreements automatically renew annually for a five-year
term unless either party terminates the agreement. The agreements contain non-
competition covenants in favor of the Company.
1996 STOCK OPTION PLAN
The 1996 Plan was adopted by the Board of Directors, including a majority of
the non-interested directors, in 1996. The 1996 Plan authorizes the grant of
incentive stock options within the meaning of Section 422 of the Code and non-
qualified stock options for the purchase of an aggregate of 750,000 shares
(subject to adjustment for stock splits and similar capital changes) of Common
Stock to employees of the Company. As of January 31, 1996, no non-qualified
options to purchase shares of Common Stock and no incentive stock options had
been granted under the 1996 Plan. Accordingly, as of January 31, 1996, 750,000
shares of Common Stock were available for future awards under the 1996 Plan.
It is anticipated that prior to the closing of the Offering, Michael
Kowalsky, an Executive Vice President of the Company, will be granted stock
options exercisable for the number of shares of Common Stock determined by
dividing $500,000 by the public offering price per share set forth on the
cover page of this Prospectus and currently estimated to be 45,000 shares of
Common Stock. These options will begin to become exercisable one year after
the date of this Prospectus and the exercise price per share for such shares
will be equal to the public offering price.
The Board of Directors has appointed the Compensation Committee of the Board
of Directors to administer the 1996 Plan. Awards of options under the 1996
Plan are granted at the discretion of the Compensation Committee, which
determines the eligible persons to whom, and the times at which, awards shall
be granted, the type of award to be granted, and all other related terms,
conditions and provisions of each award granted. In addition, all questions of
interpretation of the 1996 Plan are determined by the Compensation Committee.
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NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In order to attract and retain highly qualified directors, and to ensure
close identification of interests between non-employee directors and the
Company's stockholders, the Board of Directors of the Company adopted and the
stockholders approved the Director Plan, which provides for the automatic
grant of options to directors of the Company who are not employees, officers
or interested persons of the Company (an "Eligible Director"). In accordance
with the provisions of the 1940 Act, the automatic grant of options under the
Director Plan will not occur until after the date of the approval of the plan
by the Commission (the "Approval Date").
The Director Plan provides that Eligible Directors serving on the Company's
Board of Directors prior to the Approval Date will each automatically receive
on the Approval Date the grant of an option to purchase the number of shares
of Common Stock determined by dividing $100,000 by the fair market value of
the Common Stock on the Approval Date. With respect to any Eligible Director
who is elected as a director of the Company after the Approval Date such
director will automatically receive on the date of such election an option to
purchase the number of shares of Common Stock determined by dividing $100,000
by the fair market value of the Common Stock on the date of such election.
The total number of shares which may be granted from time to time under the
Director Plan is 100,000 shares. The Director Plan will be administered by a
committee of the Board of Directors comprised of directors that are not
eligible for grants or awards of options under the Director Plan. Options
granted under the Director Plan will be exercisable at a price equal to the
fair market value of the shares at the time the option is granted. Options
become exercisable with respect to one third of such shares granted on the
date of each annual stockholders meeting following the date on which the
option was granted, so long as the optionee remains an Eligible Director. No
option may be exercised more than five years after the date on which it is
granted. The number of shares available for options, the number of shares
subject to outstanding options and their exercise prices will be adjusted for
changes in outstanding shares such as stock splits and combinations of shares.
Shares purchased upon exercise of options, in whole or in part, must be paid
for in cash or by means of unrestricted shares of Common Stock or any
combination thereof.
Options granted under the Director Plan will not be transferable other than
by the laws of descent and during the optionee's life may be exercised only by
the optionee. All rights to exercise options will terminate after the optionee
ceases to be an Eligible Director for any reason, other than death, three
months following the date such director ceases to be an Eligible Director. If
the optionee dies before expiration of the option, his legal successors may
have the right to exercise the option in whole or in part within one year of
death.
The Director Plan may be terminated at any time by the Board of Directors,
and will terminate ten years after the effective date of the Director Plan.
The Board of Directors may not materially increase the number of shares
authorized under the plan or materially increase the benefits accruing to
participants under the plan without the approval of the stockholders of the
Company.
401(K) PLAN
In 1996, the Company adopted the Medallion Financial Corp. 401(k) Investment
Plan (the "401(k) Plan") which covers all full and part-time employees of the
Company who have attained the age of 21 and have a minimum of one-half year of
service. Under the 401(k) Plan, an employee may elect to defer not less than
1% and no more than 15% of the total annual compensation that would otherwise
be paid to the employee, provided, however, that employees' contributions may
not exceed certain maximum amounts determined under Section 402(g) of the
Code. Employee contributions are invested in various mutual funds, according
to the directions of the employee.
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<PAGE>
PRINCIPAL STOCKHOLDERS
At February 14, 1996, of the 15,000,000 shares of Common Stock authorized,
there were 2,500,000 shares of Common Stock outstanding and two holders of
record. The following table sets forth certain ownership information with
respect to the Common Stock for (i) those persons who directly or indirectly
beneficially own 5% or more of the outstanding Common Stock and (ii) all
officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP
PERCENTAGE OWNED
---------------------------------------
TYPE OF OWNERSHIP BEFORE AFTER
NAME AND ADDRESS (RECORD/BENEFICIAL/BOTH) SHARES OFFERING OFFERING
- ---------------- ------------------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Alvin Murstein Second Both(1) 1,250,000(2) 50% 16.67%(2)
Family Trust...........
205 East 42nd Street,
Suite 2020
New York, NY 10017
Andrew Murstein Family Both(3) 1,250,000 50% 16.67%
Trust..................
205 East 42nd Street,
Suite 2020
New York, NY 10017
All officers and
directors as a group
(12 persons)........... 2,500,000(2) 100% 33.33%(2)
</TABLE>
- ----------
(1) Alvin Murstein is a trustee and beneficiary of the Alvin Murstein Second
Family Trust.
(2) Alvin Murstein will use all of the net proceeds from his sale of Tri-Magna
common stock to the Company to purchase shares of Common Stock of the
Company at a price per share equal to the public offering price. At an
assumed initial public offering price of $11.00 per share, Mr. Murstein
would purchase 90,909 shares and he would beneficially own 1,340,909 or
17.88% of the shares outstanding after the Offering. Giving effect to Mr.
Murstein's purchase, all officers and directors as a group would hold
2,590,909 or 34.55% of the shares outstanding after the Offering.
(3) Andrew Murstein is a trustee and beneficiary of the Andrew Murstein Family
Trust.
CERTAIN TRANSACTIONS
Approximately $13.4 million of the net proceeds from the Offering will be
used by the Company to purchase all of the issued and outstanding shares of
Common Stock of Tri-Magna. Of this amount, approximately $1.7 million,
representing 12.7% of the Tri-Magna purchase price, will be paid to purchase
the Tri-Magna common stock of certain stockholders of Tri-Magna who are or
will become officers, directors or 5% stockholders of the Company as follows:
Alvin Murstein -- $1.4 million; Andrew Murstein -- $105,000; Marie Russo --
$24,000; Michael Fanger -- $93,000; Stanley Kreitman -- $10,000 and Benjamin
Ward -- $10,000. Alvin Murstein will use all of the net proceeds from his sale
of Tri-Magna common stock to the Company to purchase shares of Common Stock of
the Company at a price per share equal to the public offering price set forth
on the cover page of this Prospectus. In addition, approximately $2.5 million,
representing 18.7% of the Tri-Magna purchase price will be paid to certain
stockholders of Tri-Magna who are also directors and officers of Tri-Magna as
follows: Myron Cohen -- $652,000; Robert Fanger -- $686,000; Richard
Giesser -- $253,000; Barnet Lieberman -- $212,000; Michael Miller -- $663,980
and T. Lincoln Morison, Jr. -- $10,000. Messrs. Cohen, Fanger, Giesser,
Lieberman, Miller and Morison will not become officers, directors or 5%
stockholders of the Company.
The Company and FMC will enter into the Advisory Agreement upon the closing
of the Offering. Under the Advisory Agreement, the Company will pay FMC
monthly, as compensation for the services to be rendered by FMC, a fee of
$18,750. Myron Cohen, Robert Fanger and Michael Miller control FMC. For the
first 48 months of service, fees shall be paid in advance in one payment in
the amount of $900,000 from the proceeds of the Offering. Subject to certain
limitations, the Murstein Trusts have agreed to maintain in escrow Common
Stock worth 200% of the advisory fees subject to repayment by FMC to the
Company in the event of termination or non-renewal of the Advisory Agreement.
See "Investment Objectives, Policies and Restrictions -- The Investment
Adviser."
Since December 1994, EVEREN Securities, Inc., one of the Company's principal
underwriters, has provided financial advisory services to the Company with
respect to the Acquisitions, the structure of the Company, the capital markets
and the Offering. For these services, the Company will pay EVEREN Securities,
Inc. a financial advisory fee of $225,000. See "Underwriting."
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DETERMINATION OF NET ASSET VALUE
The net asset value per share of Common Stock will be determined quarterly,
as soon as practicable after and as of the end of each calendar quarter, by
dividing the value of total assets minus liabilities by the total number of
shares of Common Stock outstanding on a fully diluted basis at that date.
A substantial portion of the Company's assets will consist of the loans held
in the portfolios of the RIC Subsidiaries. The RIC Subsidiaries' respective
Boards of Directors will value their respective loans in connection with their
respective determinations of net asset value. The net asset value per share of
each subsidiary's common stock will be determined quarterly, as soon as
practicable after and as of the end of each calendar quarter, by dividing the
value of total assets minus liabilities by the total number of shares
outstanding on a fully diluted basis at that date.
In making its valuation determination, each of the Boards of Directors of
the RIC Subsidiaries will adhere to a valuation policy approved by the SBA and
adopted by such Board of Directors. In calculating the value of the relevant
subsidiary's total assets, loans will be valued at fair value as determined in
good faith by that subsidiary's Board of Directors. In making such
determinations, the Board of Directors will value loans and nonconvertible
debt securities for which there exists no public trading market at cost plus
amortized original issue discount, if any, unless adverse factors lead to a
determination of a lesser value, at which time net unrealized depreciation of
investments would be recognized. Convertible debt securities and warrants are
valued to reflect the worth of the underlying equity security less the
conversion or exercise price. In valuing equity securities for which there
exists no public trading market, investment cost is presumed to represent fair
value except in cases where the valuation policy provides that the Board of
Directors may determine fair value on the basis of (i) financings by
unaffiliated investors, (ii) a history of positive cash flow from operations
for two years using conservative financial measures such as earnings ratios or
cash flow multiples, (iii) the market value of comparable companies which are
publicly traded (discounted for illiquidity) and (iv) other pertinent factors.
A substantial portion of each of the RIC Subsidiaries' assets will consist
of loans carried at fair values determined by such subsidiary's Board of
Directors. Independent public accountants will review and express an opinion
as to the reasonableness of the basis used by such Boards of Directors in
determining the valuation of loans and investments, the adequacy of the
procedures applied by the directors in valuing such loans and investments and
the appropriateness of the underlying documentation. However, determination of
fair values involves subjective judgment not susceptible to substantiation by
auditing procedures. Accordingly, under current standards, the accountants'
opinion on the Financial Statements included in this Prospectus refers to the
uncertainty with respect to the possible effect on such Financial Statements
of such valuations.
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DIVIDEND REINVESTMENT PLAN
Pursuant to the Company's Dividend Reinvestment Plan (the "Reinvestment
Plan"), a stockholder whose shares are registered in his own name can have all
distributions reinvested in additional shares of Common Stock by The First
National Bank of Boston (the "Plan Agent") if the stockholder enrolls in the
Reinvestment Plan by delivering an Authorization Form to the Plan Agent prior
to the corresponding dividend declaration date. The Plan Agent will effect
purchases of Common Stock under the Reinvestment Plan in the open market.
Holders of Common Stock who do not elect to participate in the Reinvestment
Plan will receive all distributions in cash paid by check mailed directly to
the stockholder of record (or if the Common Stock is held in street or other
nominee name, then to the nominee) as of the relevant record date, by the Plan
Agent, as dividend disbursing agent. Stockholders whose shares are held in the
name of a broker or nominee or stockholders transferring such an account to a
new broker or nominee should contact the broker or nominee to determine
whether and how they may participate in the Reinvestment Plan.
The Plan Agent serves as agent for the holders of Common Stock in
administering the Reinvestment Plan. After the Company declares a dividend,
the Plan Agent will, as agent for the participants, receive the cash payment
and use it to buy Common Stock on the NASDAQ National Market or elsewhere for
the participants' accounts. The price of the shares will be the average market
price at which such shares were purchased by the Plan Agent.
Participants in the Reinvestment Plan may withdraw from the Reinvestment
Plan upon written notice to the Plan Agent. Such withdrawal will be effective
immediately if received not less than ten days prior to a dividend record
date; otherwise, it will be effective the day after the related dividend
distribution date. When a participant withdraws from the Reinvestment Plan or
upon termination of the Reinvestment Plan as provided below, certificates for
whole shares of Common Stock credited to his or her account under the
Reinvestment Plan will be issued and a cash payment will be made for any
fractional share of Common Stock credited to such account.
The Plan Agent will maintain each participant's account in the Reinvestment
Plan and will furnish monthly written confirmations of all transactions in
such account, including information needed by the stockholder for personal and
tax records. Common Stock in the account of each Reinvestment Plan participant
will be held by the Plan Agent in non-certificated form in the name of such
participant. Proxy materials relating to stockholders' meetings of the Company
will include those shares purchased as well as shares held pursuant to the
Reinvestment Plan.
In the case of participants whose beneficially owned shares are held in the
name of banks, brokers or other nominees, the Plan Agent will administer the
Reinvestment Plan on the basis of the number of shares of Common Stock
certified from time to time by the record holders as the amount held for the
account of such beneficial owners. Shares of Common Stock may be purchased by
the Plan Agent through any of the Underwriters, acting as broker or, after the
completion of this offering, dealer.
The Plan Agent's fees for the handling or reinvestment of dividends and
other distributions will be paid by the Company. Each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of
distributions. There are no other charges to participants for reinvesting
distributions.
Distributions are taxable whether paid in cash or reinvested in additional
shares, and the reinvestment of distributions pursuant to the Reinvestment
Plan will not relieve participants of any U.S. federal income tax or state
income tax that may be payable or required to be withheld on such
distributions. See "Federal Income Tax Considerations."
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Experience under the Reinvestment Plan may indicate that changes are
desirable. Accordingly, the Company reserves the right to amend or terminate
the Reinvestment Plan as applied to any distribution paid subsequent to
written notice of the change sent to all stockholders of the Company at least
90 days before the record date for such distribution.
The Reinvestment Plan also may be amended or terminated by the Plan Agent by
at least 90 days' written notice to all stockholders of the Company. All
correspondence concerning the Plan should be directed to, and additional
information can be obtained from, the Plan Agent at 160 Royal Street, Canton,
Massachusetts 02021 (telephone 617-575-2000).
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of material federal income tax considerations is based
on current law and does not purport to deal with all aspects of taxation that
may be relevant to particular stockholders in light of their personal
investment or tax circumstances, or to certain types of stockholders
(including insurance companies, financial institutions, non-profit
institutions, ERISA plans and broker-dealers) subject to special treatment
under the federal income tax laws. Each prospective purchaser is advised to
consult his own tax adviser regarding the specific tax consequences to him of
the purchase, ownership and sale of the shares.
The Company plans to make an election to be taxed as a RIC under Sections
851 through 855 of the Code, commencing with its taxable year ending December
31, 1995. The Company intends, during this and subsequent taxable years, to
operate in a manner that permits it to satisfy the requirements for taxation
as a RIC under the applicable provisions of the Code, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified.
The sections of the Code relating to qualification and operation as a RIC are
highly technical and complex. The following sets forth the material aspects of
the Code sections that govern the federal income tax treatment of a RIC and
its stockholders. This summary is qualified in its entirety by the applicable
Code provisions, rules and regulations thereunder, and administrative and
judicial interpretations thereof.
In brief, if certain detailed conditions of the Code are met, business
development companies, such as the Company, that otherwise would be treated
for federal income tax purposes as corporations are generally not taxed at the
corporate level on their "investment company taxable income" that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and stockholder
levels) that generally results from the use of corporate investment vehicles.
A RIC is, however, generally subject to federal income tax at regular
corporate rates on undistributed investment company taxable income.
Furthermore, in order to avoid a 4% nondeductible federal excise tax on
undistributed income and capital gains, the Company must distribute (or be
deemed to have distributed) by December 31 of each year at least 98% of its
ordinary income for such year, at least 98% of its capital gain net income
(which is the excess of its capital gain over its capital loss and is
generally computed on the basis of the one-year period ending on October 31 of
such year) and any amounts that were not distributed in the previous calendar
year and on which no income tax has been paid.
If the Company fails to qualify as a RIC in any year, it will be subject to
federal income tax as if it were a domestic corporation, and its stockholders
will be taxed in the same manner as stockholders of ordinary corporations. In
this event, the Company could be subject to potentially significant tax
liabilities and the amount of cash available for distribution to its
stockholders could be reduced.
REQUIREMENTS FOR QUALIFICATION
The Code defines the term "RIC" to include a domestic corporation that has
elected to be treated as a business development company under the 1940 Act and
meets certain requirements. These requirements include that (a) the company
derive at least 90% of its gross income for each taxable year from dividends,
interest, interest payments with respect to securities loans and gains from
the sale or other disposition of stocks or securities or foreign currencies,
or other income derived from its business of investing in such stocks,
securities or currencies; (b) the company derives less than 30% of its gross
income for each taxable year from the sale or other disposition of any of the
following that are held for less than three months: (i) stock or securities
and (ii) certain other financial interests (the "short-short test"); and (c)
the company diversifies its holdings so that, at the close of each quarter of
its taxable year, (i) at least 50% of the value of its total assets is
represented by (A) cash, and cash items (including receivables), U.S.
Government securities and securities of other RICs, and (B) other securities
limited in respect of any one issuer to an amount not greater in value than 5%
of the value of the total assets of the company and to not more than 10% of
the outstanding voting securities of such issuer, and
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(ii) not more than 25% of the value of total assets is invested in the
securities (other than U.S. Government securities or securities of other RICs)
of any one issuer or two or of more issuers controlled by the company and
engaged in the same, similar or related trades or businesses. The foregoing
diversification requirements under the Code could restrict the Company's
expansion of its taxicab rooftop advertising business. See "Risk Factors --
Possible Loss of Pass-Through Tax Treatment."
Furthermore, in order to qualify as a RIC under the Code, each taxable year,
a company also must distribute to its stockholders at least 90% of (a) its
investment company taxable income and (b) the excess of its tax-exempt
interest income over certain disallowed deductions.
TAXATION OF THE COMPANY
Provided that the Company satisfies the above requirements, neither the
investment company taxable income it distributes to stockholders nor any net
capital gain that is distributed to stockholders should subject the Company to
federal income tax. Investment company taxable income and/or net capital gains
that are retained by the Company should be subject to federal income tax at
regular corporate income tax rates; provided, however, that to the extent that
the Company retains any net long-term capital gains, it may designate them as
"deemed distributions" and pay a tax thereon for the benefit of its
stockholders. The Company currently intends to distribute to its stockholders
for each of its taxable years substantially all of its investment company
taxable income and may or may not distribute any capital gains.
If the Company acquires debt obligations that were originally issued at a
discount, or that bear interest rates that do not call for payments at fixed
rates (or certain "qualified variable rates") at regular intervals over the
life of the obligation, it will be required to include as interest income each
year a portion of the "original issue discount" that accrues over the life of
the obligation regardless of whether it receives the income, and it will be
obligated to make distributions accordingly. In this event, the Company may
borrow funds or sell assets to meet the distribution requirements. However,
under the 1940 Act, the Company will not be permitted to make distributions to
stockholders while senior securities are outstanding unless it meets certain
asset coverage requirements. If the Company is unable to make the required
distributions, it may fail to qualify as a RIC and may be subject to the
nondeductible 4% excise tax. Furthermore, the SBA restricts the distributions
that may be made to an amount equal to undistributed net realized earnings
less the allowance for unrealized loan losses (which in the case of the
Company is included in unrealized depreciation).
TAXATION OF STOCKHOLDERS
As long as the Company qualifies as a RIC, distributions made to its taxable
domestic stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them
as ordinary income. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed the Company's actual net long-term capital gain for the taxable year)
without regard to the period for which the stockholder has held its stock.
Corporate stockholders however, are subject to tax on capital gain dividends
at the same rate as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
stockholder, reducing the tax basis of a stockholder's Common Stock by the
amount of such distribution (but not below zero), with distributions in excess
of the stockholders's tax basis taxable as capital gains (if the Common Stock
is held as a capital asset). In addition, any dividends declared by the
Company in October, November or December of any year and payable to a
stockholder of record on a specific date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of
such year, provided that the dividend is actually paid by the Company during
January of the following calendar year. Stockholders may not include in their
individual income tax returns any net operating losses or capital losses of
the Company.
If the Company chooses to retain and pay tax on any net capital gain rather
than distribute such gain to its stockholders, the Company will designate such
deemed distribution in a written notice to stockholders prior to
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the expiration of 60 days after the close of the taxable year. Each
stockholder would then be treated for federal income tax purposes as if the
Company had distributed to such stockholder on the last day of its taxable
year the stockholder's pro rata share of the net long-term capital gain
retained by the Company and the stockholder had paid its pro rata share of the
taxes paid by the Company and reinvested the remainder in the Company.
In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as long-term capital loss, to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and to the Internal
Revenue Service the amount of dividends paid during each calendar year and the
amount of tax withheld, if any, with respect thereto. Under backup withholding
rules, a stockholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such stockholder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A stockholder that
does not provide the Company with its correct taxpayer identification number
may also be subject to penalties imposed by the Internal Revenue Service. Any
amount paid as backup withholding will be creditable against the stockholder's
federal income tax liability.
OTHER TAX CONSIDERATIONS
Reinvestment Plan
Stockholders participating in the Reinvestment Plan will be deemed to have
received the gross amount of any cash distributions which would have been paid
by the Company to such stockholders had they not elected to participate. These
deemed distributions will be treated as actual distributions from the Company
to the participating stockholders and will retain the character and tax effect
applicable to distributions from the Company generally. Participants in the
Reinvestment Plan are subject to federal income tax on the amount of the
deemed distributions to the extent that such distributions represent dividends
or gains, even though they receive no cash. Shares of Common Stock received
under the Reinvestment Plan will have a holding period beginning with the day
after purchase, and a tax basis equal to their cost (which is the gross amount
of the deemed distribution). See "Dividend Reinvestment Plan."
State, Local and Foreign Taxes
The Company and its stockholders may be subject to state, local or foreign
taxation in various jurisdictions, including those in which it or they
transact business or reside. The state, local and foreign tax treatment of the
Company and its stockholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective stockholders should
consult their own tax advisers regarding the effect of state, local and
foreign tax laws on an investment in the Common Stock of the Company.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 1,000,000 shares of
Preferred Stock, par value $.01 per share and 15,000,000 shares of Common
Stock, par value $.01 per share. Upon completion of the Offering, the Company
will have outstanding 7,500,000 shares of Common Stock (8,250,000 shares of
Common Stock if the Underwriters' over-allotment option is exercised in full)
and no shares of Preferred Stock. As of February 14, 1996, there were no
shares of Preferred Stock outstanding and 2,500,000 shares of Common Stock
outstanding and two record holders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of the Common Stock are entitled to such dividends as may be declared
in the discretion of the Board of Directors out of funds legally available
therefor. See "Distributions." Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no
preemptive rights to purchase shares of stock of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible
into any other securities of the Company. All outstanding shares of Common
Stock are, and the shares of Common Stock to be issued pursuant to the
Offering will be upon payment therefor, fully paid and non-assessable.
PREFERRED STOCK
Subject to the asset coverage requirements of the 1940 Act, Preferred Stock
may be issued from time to time by the Board of Directors as shares of one or
more classes or series. Subject to the provisions of the Company's Certificate
and limitations prescribed by law, the Board of Directors is expressly
authorized to adopt resolutions to issue the shares, to fix the number of
shares and to change the number of shares constituting any series, and to
provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, in each case without any further action or vote by the
stockholders. The Company has no current plans to issue any shares of
Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of the Preferred Stock pursuant to the
Board of Directors' authority described above may adversely affect the rights
of the holders of Common Stock. For example, Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate and under Delaware law, directors of
the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in
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connection with a breach of duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
for dividend payments or stock repurchases illegal under Delaware law or any
transaction in which a director has derived an improper personal benefit.
AUTHORIZED AND OUTSTANDING COMMON STOCK
The following table illustrates authorized and outstanding securities of the
Company on February 14, 1996.
AUTHORIZED AND OUTSTANDING SECURITIES
<TABLE>
<CAPTION>
(1) (2) (3) (4)
AMOUNT
OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF
THE COMPANY OR AMOUNT SHOWN
TITLE OF CLASS AMOUNT AUTHORIZED FOR ITS ACCOUNT UNDER COLUMN (3)
-------------- ----------------- --------------- ----------------
<S> <C> <C> <C>
Common Stock................. 15,000,000 -- 2,500,000
Preferred Stock.............. 1,000,000 -- --
</TABLE>
DELAWARE LAW AND CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
THE BY-LAWS
The Company's Certificate and By-Laws include provisions that could make
more difficult the acquisition of the Company by means of a merger, tender
offer, a proxy contest or otherwise. These provisions, as described below, are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control
of the Company first to negotiate with the Company. These provisions may also,
however, inhibit a change in control of the Company in circumstances that
could give the holders of the Common Stock the opportunity to realize a
premium over the then prevailing market price of the Common Stock. In
addition, such provisions could adversely affect the market price for the
Common Stock. The Company believes that the benefits of increased protection
of its potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure the Company outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiations with respect to such proposals could result in an improvement of
their terms.
The Certificate and the By-Laws provide that the Board of Directors (the
"Board") will be divided into three classes of directors, with the term of
each class expiring in a different year. See "Management." The By-Laws provide
that the number of directors will be fixed from time to time exclusively by
the Board, but shall consist of not more than 15 nor less than three
directors. A majority of the Board then in office has the sole authority to
fill any vacancies on the Board. The Certificate provides that directors may
be removed only by the affirmative vote of holders of at least 75% of the
voting power of all of the then outstanding shares of stock entitled to vote
generally in the election of directors ("Voting Stock"), voting together as a
single class.
The Certificate provides that stockholder action can be taken only at an
annual or special meeting of stockholders and prohibits stockholder action by
written consent in lieu of a meeting. The Certificate and By-Laws provide that
special meetings of stockholders can be called by the Chairman of the Board of
the Company, pursuant to a resolution approved by a majority of the total
number of directors which the Company would have if there were no vacancies on
the Board, or by the stockholders owning at least 20% of the stock entitled to
vote at the meeting. The business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting
by the Chairman of the Board, or at the request of a majority of the members
of the Board, or as specified in the stockholders' notice of a meeting.
The By-Laws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board, of candidates for
election as directors and with regard to business brought before an annual
meeting of stockholders of the Company.
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The Certificate and By-Laws contain provisions requiring the affirmative
vote of the holders of at least 75% of the Voting Stock, voting together as a
single class, to amend certain provisions of the Certificate relating
primarily to anti-takeover provisions and to the limitations on director
liability.
The Certificate empowers the Board, when considering a tender offer or
merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. Such factors may include
(i) comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the capital stock, the estimated
current value of the Company in a freely negotiated transaction, and the
estimated future value of the Company as an independent entity; (ii) the
impact of such a transaction on the customers and employees of the Company,
and its effect on the communities in which the Company operates; and (iii) the
ability of the Company to fulfill its objectives under applicable statutes and
regulations.
The Certificate prohibits the Company from purchasing any shares of the
Company's stock from any person, entity or group that beneficially owns 5% or
more of the Company's Voting Stock at a price exceeding the average closing
price for the 20 trading days prior to the purchase date, unless a majority of
the Company's disinterested stockholders approve the transaction. This
restriction on purchases by the Company does not apply to any offer to
purchase shares of a class of the Company's stock which is made on the same
terms and conditions to all holders of that class of stock, to any purchase of
stock owned by such a 5% stockholder occurring more than two years after such
stockholder's last acquisition of the Company's stock, to any purchase of the
Company's stock in accordance with the terms of any stock option or employee
benefit plan, or to any purchase at prevailing market prices pursuant to a
stock purchase program.
Section 203 of the Delaware General Corporation Law ("DGCL") is applicable
to corporations organized under the laws of the State of Delaware. Subject to
certain exceptions set forth therein, Section 203 of the DGCL provides that a
corporation shall not engage in any business combination with any "interested
stockholder" for a three-year period following the date that such stockholder
becomes an interested stockholder unless (a) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (b) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares) or (c) on or
subsequent to such date, the business combination is approved by the Board of
Directors of the corporation and by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified therein, an interested stockholder is defined
to mean any person that (i) is the owner of 15% or more of the outstanding
voting stock of the corporation, or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date, and the affiliates and associates of such person referred to in
clause (i) or (ii) of this sentence. Under certain circumstances, Section 203
of the DGCL makes it more difficult for an interested stockholder to effect
various business combinations with a corporation for a three-year period,
although the stockholders may, by adopting an amendment to the corporation's
certificate of incorporation or by-laws, elect not to be governed by this
section, effective twelve months after adoption. The Company's Certificate and
By-Laws do not exclude the Company from the restrictions imposed under Section
203 of the DGCL. It is anticipated that the provisions of Section 203 of the
DGCL may encourage companies interested in acquiring the Company to negotiate
in advance with the Board.
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REGULATION
The Company is a closed-end, non-diversified management investment company
that has elected to be treated as a business development company and, as such,
is subject to regulation under the 1940 Act. The 1940 Act contains
prohibitions and restrictions relating to transactions between investment
companies and their affiliates, principal underwriters and affiliates of those
affiliates or underwriters. In addition, the 1940 Act provides that the
Company may not change the nature of its business so as to cease to be, or to
withdraw its election as, a business development company unless so authorized
by the vote of a "majority of the Company's outstanding voting securities," as
defined under the 1940 Act.
The Company is permitted, under specified conditions, to issue multiple
classes of indebtedness and one class of stock (collectively, "senior
securities," as defined under the 1940 Act) senior to the shares of Common
Stock offered hereby if the Company's asset coverage of such indebtedness and
all senior securities is at least 200% immediately after each such issuance.
Subordinated debentures and preferred stock guaranteed by or issued to the SBA
by the RIC Subsidiaries, are not subject to this asset coverage test. In
addition, while senior securities are outstanding, provision must be made to
prohibit the declaration of any dividend or other distribution to stockholders
(except stock dividends) or the repurchase of such securities or shares unless
the Company meets the applicable asset coverage ratios at the time of the
declaration of the dividend or distribution or repurchase.
Under the 1940 Act, a business development company may not acquire any asset
other than assets of the type listed in Section 55(a) of the 1940 Act
("Qualifying Assets") unless, at the time the acquisition is made, certain
Qualifying Assets represent at least 70% of the value of the company's total
assets. The principal categories of Qualifying Assets relevant to the proposed
business of the Company are the following:
(1) Securities purchased in transactions not involving a public offering
from the issuer of such securities, which issuer is an eligible
portfolio company. An "eligible portfolio company" is defined in the
1940 Act as any issuer which:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than an SBIC or SSBIC wholly-
owned by the business development company; and
(c) does not have any class of securities with respect to which a
broker or dealer may extend margin credit.
(2) Securities of any eligible portfolio company which is controlled by
the business development company.
(3) Securities received in exchange for or distributed on or with respect
to securities described in (1) or (2) above, or pursuant to the
exercise of options, warrants or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a business development company must have been organized (and
have its principal place of business) in the United States for the purpose of
making investments in the types of securities described in (1) or (2) above.
In order to count securities as Qualifying Assets for the purpose of the 70%
test, the business development company must either control the issuer of the
securities or must make available to the issuer of the securities significant
managerial assistance; except that, where the business development company
purchases such securities in conjunction with one or more other persons acting
together, one of the other persons in the group may make available the
required managerial assistance. The Company believes that the common stock of
the Founding Companies held by Medallion Financial will be Qualifying Assets.
Edwards is a small business investment company or "SBIC" and MFC and TCC are
specialized small business investment companies or "SSBICs." The SBIA
authorizes the organization of SBICs as vehicles for
77
<PAGE>
providing equity capital, long term financing and management assistance to
small business concerns. A small business concern, as defined in the SBIA and
the SBA Regulations, is a business that is independently owned and operated
and which is not dominant in its field of operation. The SBIA further
authorizes the organization of SSBICs as vehicles for providing the same forms
of assistance to small business concerns which are at least 50% owned and
managed by persons whose participation in the free enterprise system is
hampered because of social or economic disadvantages. These persons include
African Americans, Asian Sub-Continent Americans, Eskimos, Hispanic Americans,
Native Americans, Vietnam War era veterans and other groups identified by the
SBA. A small business concern must either (i) have a tangible net worth,
together with any affiliates, of $18.0 million or less and an average annual
net income after U.S. federal income taxes for the preceding two years of $6.0
million or less (average annual net income is computed without the benefit of
any carryover loss) or (ii) satisfy alternative criteria under the SBA
Regulations that focus on the industry in which the business is engaged and
the number of persons employed by the business or its gross revenues. In
addition, at the end of each fiscal year, at least 20% of the total amount of
loans made since April 8, 1994 by each SBIC and SSBIC must be made to a
subclass of small business concerns that (i) have a net worth, together with
any affiliates, of $6.0 million or less and average annual net income after
U.S. federal income taxes for the preceding two years of $2.0 million or less
(average annual net income is computed without the benefit of any carryover
loss), or (ii) satisfy alternative criteria under SBA Regulations that focus
on the industry in which the business is engaged and the number of persons
employed by the business or its gross revenues. SBA Regulations also prohibit
an SBIC from providing funds to a small business concern for certain purposes,
such as re-lending and investment outside the United States.
Under current SBA Regulations and subject to local usury laws, the maximum
rate of interest that MFC, TCC or Edwards may charge may not exceed the sum of
(i) the higher of (a) that company's weighted average cost of qualified
borrowings, as determined under SBA Regulations, or (b) the current
subordinated SBA debenture rate, plus (ii) 11%, rounded off to the next lower
eighth of one percent. SBA Regulations further provide that if the current
subordinated SBA debenture rate is 8% per annum or lower, then the maximum
rate of interest that the RIC Subsidiaries may charge is 15%. The maximum rate
of interest permitted on loans originated by the RIC Subsidiaries during
September 1995 was 15% per annum. Effective January 31, 1996, the maximum
permitted rate was increased to 19%. At September 30, 1995, the Company's
outstanding Medallion Loans had a weighted average rate of interest of 9.92%
and outstanding Commercial Installment Loans had a weighted average rate of
interest of 13.56%. See "Business." SBA Regulations also require that each
loan originated by SBICs and SSBICs have a term of between four years and 20
years and that 50% of such loans have terms of at least five years.
The SBA restricts the ability of SBICs and SSBICs to repurchase their
capital stock, to retire their subordinated SBA debentures and to lend money
to their officers, directors and employees or invest in affiliates thereof.
The SBA also prohibits, without prior SBA approval, a "change of control" or
transfers which would result in any person (or group of persons acting in
concert) owning 10% or more of any class of capital stock of an SBIC or SSBIC.
A "change of control" is any event which would result in the transfer of the
power, direct or indirect, to direct the management and policies of an SBIC or
SSBIC, whether through ownership, contractual arrangements or otherwise.
Under SBA Regulations, loans to any single small business concern may not
exceed 20% of the SBICs or SSBICs Leveragable Capital without prior SBA
approval.
SSBICs and SBICs must invest funds that are not being used to make loans in
investments permitted under SBA Regulations. These permitted investments
include direct obligations of, or obligations guaranteed as to principal and
interest by, the government of the United States with a term of 15 months or
less and deposits maturing in one year or less issued by an institution
insured by the FDIC. The percentage of an SSBICs or SBICs assets so invested
will depend on, among other things, loan demand, timing of equity infusions
and SBA funding and availability of funds under credit facilities.
78
<PAGE>
SSBICs and SBICs may purchase voting securities of small business concerns
in accordance with SBA Regulations. SBA Regulations permit SSBICs and SBICs to
purchase (i) up to 50% of the voting securities of a small business concern if
the small business concern has less than 50 stockholders or (ii) up to 20%
(and in certain situations up to 25%) of the voting securities of a small
business concern if the small business concern has 50 or more stockholders. In
addition, SBA Regulations prohibit SSBICs and SBICs from controlling a small
business concern except where necessary to protect an investment.
79
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
market prices prevailing from time to time. As described below, only a limited
number of shares will be available for sale shortly after the Offering because
of certain contractual and legal restrictions on resale. Sales of substantial
amounts of Common Stock in the public market after these restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of the Offering, the Company will have outstanding 7,500,000
shares of Common Stock (8,250,000 if the Underwriter's over-allotment option
is exercised in full). Of these shares, the 5,000,000 shares offered hereby
(5,750,000 if the Underwriters' over-allotment option is exercised in full)
will be freely tradeable without restriction or registration under the
Securities Act (except to the extent purchased by affiliates of the Company).
SALES OF RESTRICTED SHARES
The remaining 2,500,000 shares (the "Restricted Shares") were issued and
sold by the Company in private transactions in reliance upon exemptions from
registration under the Securities Act and are restricted securities under Rule
144 of the Securities Act. All of the Restricted Shares are subject to Lock-up
Agreements for a period of two years from the date of this Prospectus as
described below. The Restricted Shares will not be eligible for sale pursuant
to Rule 144 until the expiration of the two-year holding period from the date
such Restricted Shares were acquired. Accordingly they will become eligible
for sale subject to the Rule 144 resale limitations, including the volume
restrictions discussed in the following paragraph, on October 24, 1997. The
Commission has proposed amendments to Rule 144 that would, if adopted,
retroactively reduce the two-year holding period to one year.
Restricted Shares may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including pursuant to Rule 144. In general, under Rule 144 as
currently in effect, beginning 90 days after the Offering, a person (or
persons whose shares are aggregated) who has beneficially owned Restricted
Shares for at least two years, including affiliates of the Company, would be
entitled to sell in brokers' transactions or to market makers within any
three-month period a number of Restricted Shares that does not exceed the
greater of one percent (1.0%) of the then outstanding shares of the Company's
Common Stock (approximately 75,000 shares, based on the number of shares
outstanding after the Offering assuming no exercise of the Underwriters' over-
allotment option) or the average weekly trading volume of the Common Stock on
NASDAQ National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. No
stockholder of the Company will have held his or her shares for two years
until October 24, 1997.
Restricted Shares held by affiliates of the Company eligible for sale in the
public market under Rule 144 are subject to the foregoing volume limitations
and other restrictions. Affiliates may sell shares not constituting Restricted
Shares only in accordance with the foregoing volume limitations and other Rule
144 restrictions, but without regard to the two-year holding period.
A person who is not an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned Restricted Shares for at
least three years, would be entitled to sell such Restricted Shares under Rule
144(k) without regard to the availability of current public information,
volume limitations, manner of sale provisions or notice requirements. No
stockholder of the Company will have held Common Stock for three years until
October 24, 1998.
Rule 144A provides a non-exclusive safe harbor exemption from the
registration requirements of the Securities Act for specified resales of
restricted securities to certain institutional investors. Rule 144A allows
unregistered resales of restricted securities to a qualified institutional
buyer, which generally includes an entity,
80
<PAGE>
acting for its own account or the account of other qualified institutional
buyers, that in the aggregate owns and invests on a discretionary basis at
least $100.0 million in securities of unaffiliated issuers. Rule 144A does not
extend an exemption to the offer or sale of securities that, when issued, were
of the same class as securities listed on a national securities exchange or
quoted in an automated interdealer quotation system. Because the Restricted
Shares, when they were issued, were not of the same class as any listed or
quoted securities, all of such securities are eligible for resale under Rule
144A.
LOCK-UP AGREEMENTS
Pursuant to Lock-up Agreements with the Company's directors and officers and
certain other stockholders, all of the 2,500,000 Restricted Shares are subject
to certain resale restrictions. Each party to the Lock-up Agreements has
agreed that he or she will not, directly or indirectly, offer for sale, sell,
contract to sell, grant an option to purchase or otherwise dispose of any
shares of the Company's Common Stock, except (i) shares escrowed by the
Murstein Trusts, or (ii) gifts to family members or charitable institutions,
provided that such family member or charitable institution agrees to be bound
by such Lock-up Agreement, for a period of two years from the date of this
Prospectus, without the prior written consent of Furman Selz LLC. In addition,
the Company has agreed that for a period of 180 days following the date of
this Prospectus, the Company will not, without the prior written consent of
Furman Selz LLC, directly or indirectly, offer for sale, sell, contract to
sell, or grant any option to purchase or otherwise dispose of or transfer any
shares of the Company's Common Stock other than options granted under the 1996
Plan, the Director Plan or shares issued pursuant to the exercise of
outstanding options. See "Underwriting."
OPTIONS
It is anticipated that prior to the closing of the Offering, Michael
Kowalsky, an Executive Vice President of the Company, will be granted stock
options exercisable for the number of shares of Common Stock determined by
dividing $500,000 by the public offering price per share set forth on the
cover page of this Prospectus and currently estimated to be 45,000 shares of
Common Stock. The exercise price per share for such shares will be equal to
the public offering price. These options will begin to become exercisable one
year after the date of this Prospectus. Including the shares reserved for
issuance in connection with that option, the Company will reserve a total of
750,000 additional shares of Common Stock for issuance with respect to the
future grant of options under the 1996 Plan.
In addition, a total of 100,000 additional shares of Common Stock will be
reserved for issuance with respect to the grant of options under the Director
Plan. It is anticipated that upon Commission approval of the Director Plan,
the Company's four disinterested directors will be granted stock options to
purchase the number of shares of Common Stock determined by dividing $100,000
by the fair market value of the Common Stock on the date the plan is approved
by the Commission. Additional disinterested directors elected in the future
will receive a similar grant upon election.
Following the completion of the Offering, the Company currently expects to
file a registration statement under the Securities Act to register shares
reserved for issuance under the 1996 Plan and the Director Plan. Shares issued
upon exercise of outstanding stock options after the effective date of such
registration statement generally will be tradeable without restriction under
the Securities Act.
81
<PAGE>
UNDERWRITING
Furman Selz LLC, J.C. Bradford & Co. and EVEREN Securities, Inc. are acting
as representatives (the "Representatives") of each of the underwriters named
below (the "Underwriters"). Subject to the terms and conditions set forth in
the underwriting agreement dated as of the date hereof (the "Underwriting
Agreement"), the Underwriters named below have severally agreed to purchase,
and the Company has agreed to sell to them, the aggregate number of shares of
Common Stock set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Furman Selz LLC................................................
J.C. Bradford & Co. ...........................................
EVEREN Securities, Inc. .......................................
---------
Total........................................................ 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by counsel
and various other conditions. The nature of the Underwriters' obligations is
such that they are committed to purchase all of the above shares if any are
purchased. The Underwriters propose to offer the shares of Common Stock
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share to
certain other dealers. After the Offering, the offering price and other
selling terms may be changed by the Representatives.
Prior to the consummation of the Offering, there has been no public market
for the Common Stock. Accordingly, the initial public offering price has been
determined by negotiation between the Company and the Representatives. Among
the factors considered in determining the initial public offering price were
the history of and prospects for the businesses in which the Company operates,
the Company's past and present operations, the Founding Companies' loan
portfolio quality, past and present revenue and earnings and the trends of
such revenue and earnings, previous valuations of the Company, expert opinion,
the prospects for the Company's revenue and earnings, an assessments of the
Company's management, stock prices of comparable finance companies and out-of-
home advertising companies and the general condition of the securities markets
at the time of the Offering. There can be no assurance that any active trading
market will develop for the Common Stock or as to the price at which the
Common Stock may trade in the public market from time to time subsequent to
the Offering made hereby.
The Company has granted to the Underwriters an option, expiring 30 days from
the date of this Prospectus, to purchase up to 750,000 additional shares of
Common Stock on the same terms as set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any, incurred in the sale of
the shares of Common Stock offered hereby. If the Underwriters exercise the
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase such number of additional shares of Common Stock as is
proportionate to such Underwriter's initial commitment to purchase shares from
the Company.
Since December 1994, EVEREN Securities, Inc. has provided financial advisory
services to the Company with respect to the Acquisitions, the structure of the
Company, the capital markets and the Offering. For these services, the Company
will pay EVEREN Securities, Inc. a financial advisory fee of $225,000. See
"Certain Transactions."
Pursuant to Lock-up Agreements with the Company's directors and officers and
certain other stockholders, 2,500,000 of the Restricted Shares are subject to
certain resale restrictions. Each party to the Lock-up Agreements has agreed
that he or she will not, directly or indirectly, offer for sale, sell,
contract to sell, grant an option to purchase or otherwise dispose of any
shares of the Company's Common Stock, except (i) those offered hereby, or (ii)
gifts to family members or charitable institutions, provided that such family
member or charitable
82
<PAGE>
institution agrees to be bound by such Lock-up Agreement, for a period of two
years from the date of this Prospectus, without the prior written consent of
Furman Selz LLC. In addition, the Company has agreed that during the two-year
period, the Company will not, without the prior written consent of Furman Selz
LLC, directly or indirectly, offer for sale, sell, contract to sell, or grant
any option to purchase or otherwise dispose of or transfer any shares of
Common Stock other than options granted under the 1996 Plan or shares issued
pursuant to the exercise of outstanding options.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Common Stock has been approved, subject to official notice of issuance,
on the Nasdaq National Market under the symbol "TAXI."
The principal address of Furman Selz LLC is 230 Park Avenue, New York, New
York 10169, the principal address of J.C. Bradford & Co. is 330 Commerce
Street, Nashville, Tennessee 37201 and the principal address of EVEREN
Securities, Inc. is 77 West Wacker Drive, Chicago, Illinois 60601.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING
AGENT AND REGISTRAR
All cash and securities are held by The First National Bank of Boston, 160
Royal Street, Canton, Massachusetts 02021 as custodian. The First National
Bank of Boston also serves as the transfer agent, dividend disbursing agent
and registrar for the Company's Common Stock.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports containing
unaudited consolidated financial information for the first three quarters of
each fiscal year.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge, Boston, Massachusetts, and for the
Underwriters by Willkie Farr & Gallagher, New York, New York. Mario M. Cuomo,
a partner in the firm of Willkie Farr & Gallagher, is a director of the
Company.
EXPERTS
The balance sheet of Medallion Financial as of December 31, 1995; the
financial statements of Tri-Magna as of September 30, 1995 and December 31,
1994 and for the nine months ended September 30, 1995, and for the years ended
December 31, 1994 and 1993; the financial statements of Edwards as of
September 30, 1995 and for the nine months ended September 30, 1995, and the
financial statements of TCC as of September 30, 1995, and for the nine months
ended September 30, 1995, included in this Prospectus have been so included in
reliance on the report of Arthur Andersen LLP, Boston, Massachusetts
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The financial statement of Edwards as of December 31,
1994 and for the years ended December 31, 1994 and 1993 included in this
Prospectus have been so included in reliance on the report of Friedman, Alpren
& Green LLP, New York, New York. The balance sheet of TCC, including the
financial statement schedules, as of December 31, 1994 and the related
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period then ended, included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand LLP, New York,
New York, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
83
<PAGE>
MEDALLION FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MEDALLION FINANCIAL CORP.
Introduction to Pro Forma Combined Financial Statements.................. F-2
Pro Forma Combined Balance Sheet at September 30, 1995 (unaudited)....... F-3
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1995 (unaudited).......................................... F-4
Pro Forma Combined Statement of Operations for the year ended December
31, 1994 (unaudited).................................................... F-5
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1994 (unaudited).......................................... F-6
Notes to the Unaudited Pro Forma Combined Financial Statements........... F-7
MEDALLION FINANCIAL CORP.
Report of Arthur Andersen LLP, Independent Public Accountants............ F-10
Balance Sheet as of December 31, 1995.................................... F-11
Notes to Balance Sheet................................................... F-12
TRI-MAGNA CORPORATION AND SUBSIDIARIES
Report of Arthur Andersen LLP, Independent Public Accountants............ F-14
Consolidated Balance Sheets as of September 30, 1995 and December 31,
1994.................................................................... F-15
Consolidated Statements of Operations for the nine months ended September
30, 1995 and 1994 and for the years ended December 31, 1994 and 1993.... F-16
Consolidated Statements of Shareholders' Equity for the nine months ended
September 30, 1995 and for each year in the two year period ended
December 31, 1994 and 1993.............................................. F-17
Consolidated Statements of Cash Flows for the nine months ended September
30, 1995 and 1994 and for the years ended December 31, 1994 and 1993.... F-18
Notes to Consolidated Financial Statements............................... F-19
EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP)
Independent Auditors' Report of Friedman, Alpren & Green LLP............. F-27
Report of Arthur Andersen LLP, Independent Public Accountants............ F-28
Balance Sheets as of September 30, 1995 and December 31, 1994............ F-29
Statements of Operations for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-30
Statements of Changes in Partners' Capital for the nine months ended
September 30, 1995 and 1994 and for the years ended December 31, 1994
and 1993................................................................ F-31
Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-32
Notes to Financial Statements............................................ F-33
TRANSPORTATION CAPITAL CORP.
Report of Coopers & Lybrand LLP, Independent Public Accountants.......... F-40
Report of Arthur Andersen LLP, Independent Public Accountants............ F-41
Balance Sheets as of September 30, 1995 and December 31, 1994............ F-42
Statements of Operations for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-43
Statements of Changes in Shareholders' Equity for the nine months ended
September 30, 1995 and for each year in the two year period ended
December 31, 1994....................................................... F-44
Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-45
Notes to Financial Statements............................................ F-46
</TABLE>
F-1
<PAGE>
MEDALLION FINANCIAL CORP
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- UNAUDITED
The following unaudited pro forma combined balance sheet as of September 30,
1995 and unaudited pro forma combined statements of operations for the nine
months ended September 30, 1995 and 1994 and for the year ended December 31,
1994 have been prepared to reflect the Offering, the application of the
proceeds of the Offering (including the acquisitions of Tri-Magna, Edwards and
TCC which will be acquired by the Company simultaneously with the closing of
the Offering and the application of the cash acquired in connection with the
acquisitions) and the adjustments described in the accompanying notes. The pro
forma combined financial information is based on the historical financial
statements of the Company, Tri-Magna, Edwards and TCC and should be read in
conjunction with those financial statements and the notes thereto, as well as
the estimates and assumptions set forth below and in the notes to the pro
forma combined financial statements. The pro forma combined balance sheet was
prepared as if the Offering and the application of the proceeds of the
Offering occurred on September 30, 1995. The pro forma combined statements of
operations were prepared as if the Offering and the application of the
proceeds of the Offering occurred on January 1, 1994.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. Pro
forma purchase price adjustment allocations are based on the preliminary
results of the Company's due diligence, but are subject to change, since the
preliminary estimates of the fair value of assets acquired as a result of the
Acquisitions may change upon completion of the final analysis. The Company
does not expect any such changes to result in a material variation from the
information set forth in the pro forma combined balance sheet. The pro forma
combined financial information is not necessarily indicative of the financial
position or results of operations which actually would have occurred if such
transactions had been consummated on January 1, 1994 or September 30, 1995, as
applicable, nor does it purport to represent the Company's future financial
position or results of operations. Neither expected benefits and cost
reductions anticipated by the Company nor future corporate costs that are not
under contract have been reflected in the accompanying pro forma financial
statements.
F-2
<PAGE>
MEDALLION FINANCIAL CORP.
PRO FORMA COMBINED
BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR ACQUISITIONS
ADJUSTMENTS --------------------------------------------
FOR TRI-MAGNA EDWARDS TCC
MEDALLION TRI-MAGNA EDWARDS TCC OFFERING ADJUSTMENTS(H) ADJUSTMENTS(J) ADJUSTMENTS(I)
--------- ----------- ----------- ----------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments
Medallion
loans.......... $ -- $64,890,307 $42,570,994 $ 8,222,627 $ -- $ -- $ -- $ (72,789)
Commercial
installment
loans.......... -- 29,031,609 636,651 1,596,138 -- (880,000) (20,000) (616,487)
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Gross
investments..... -- 93,921,916 43,207,645 9,818,765 -- (880,000) (20,000) (689,276)
Unrealized
depreciation on
investments.... -- (880,000) (20,000) (689,276) -- 880,000 20,000 689,276
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Net investments.. -- 93,041,916 43,187,645 9,129,489 -- -- -- --
Investment in
subsidiaries.... -- -- -- -- 38,697,352 (d) (13,378,000) (15,095,780) (10,223,572)
Investment in
unconsolidated
subsidiary...... -- 152,011 -- -- -- (152,011) -- --
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
investments..... -- 93,193,927 43,187,645 9,129,489 38,697,352 (13,530,011) (15,095,780) (10,223,572)
49,300,000 (a)
(49,300,000)(b)
Cash and cash
equivalents..... 2,000 1,363,200 21,462 7,730,158 (6,529,252)(c) -- (21,462) --
Accrued interest
receivable...... -- 833,027 370,000 134,708 -- -- -- --
Deferred
financing
costs........... -- -- 367,052 -- -- -- (367,052) --
Fixed assets,
net............. -- 92,260 71,167 17,373 -- (92,260) (71,167) (17,373)
Goodwill......... -- -- -- -- -- -- 6,300,000 --
Other assets..... 338,466 1,144,143 175,048 69,243 (338,466)(g) -- (89,566) --
900,000 (e)
Deferred income
taxes........... -- -- -- 276,400 -- -- -- (276,400)
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total assets..... $340,466 $96,626,557 $44,192,374 $17,357,371 $32,729,634 $(13,622,271) $(9,345,027) $(10,517,345)
======== =========== =========== =========== =========== ============ =========== ============
LIABILITIES
Accounts payable
and accrued
expenses........ $338,466 $ 625,309 $ 864,172 $ 141,134 $ (338,466)(g) $ -- $ (391,825) $ --
Accrued interest
payable......... -- 697,586 -- 125,640 -- -- -- --
Notes payable to
bank and demand
notes .......... -- 78,319,900 9,425,000 -- (16,231,900)(f) -- -- --
SBA debentures
payable......... -- -- 24,950,000 6,730,000 -- -- -- (336,500)
Negative
goodwill........ -- -- -- -- -- 3,361,491 -- 179,752
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
liabilities.... 338,466 79,642,795 35,239,172 6,996,774 (16,570,366) 3,361,491 (391,825) $ (156,748)
Stockholders'
equity
Common stock..... 2,000 6,689 -- 13 49,300,000 (a) (6,689) -- (13)
Partners'
capital......... -- -- 8,953,202 -- -- -- (8,953,202) --
Additional paid-
in capital...... -- 11,276,811 -- 7,749,456 -- (11,276,811) -- (7,749,456)
Capital.......... -- 6,002,100 -- 2,199,166 -- (6,002,100) -- (2,199,166)
Accumulated
undistributed
gain (loss)..... -- (301,838) -- 411,962 -- 301,838 -- (411,962)
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
stockholders'
equity......... 2,000 16,983,762 8,953,202 10,360,597 49,300,000 (16,983,762) (8,953,202) (10,360,597)
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
liabilities and
stockholders'
equity......... $340,466 $96,626,557 $44,192,374 $17,357,371 $32,729,634 $(13,622,271) $(9,345,027) $(10,517,345)
======== =========== =========== =========== =========== ============ =========== ============
<CAPTION>
PRO FORMA
------------
<S> <C>
ASSETS
Investments
Medallion
loans.......... $115,611,139
Commercial
installment
loans.......... 29,747,911
------------
Gross
investments..... 145,359,050
Unrealized
depreciation on
investments.... --
------------
Net investments.. 145,359,050
Investment in
subsidiaries.... --
Investment in
unconsolidated
subsidiary...... --
------------
Total
investments..... 145,359,050
Cash and cash
equivalents..... 2,566,106
Accrued interest
receivable...... 1,337,735
Deferred
financing
costs........... --
Fixed assets,
net............. --
Goodwill......... 6,300,000
Other assets..... 2,198,868
Deferred income
taxes........... --
------------
Total assets..... $157,761,759
============
LIABILITIES
Accounts payable
and accrued
expenses........ $ 1,238,790
Accrued interest
payable......... 823,226
Notes payable to
bank and demand
notes .......... 71,513,000
SBA debentures
payable......... 31,343,500
Negative
goodwill........ 3,541,243
------------
Total
liabilities.... 108,459,759
Stockholders'
equity
Common stock..... 49,302,000
Partners'
capital......... --
Additional paid-
in capital...... --
Capital.......... --
Accumulated
undistributed
gain (loss)..... --
------------
Total
stockholders'
equity......... 49,302,000
------------
Total
liabilities and
stockholders'
equity......... $157,761,759
============
</TABLE>
See accompanying notes to unaudited pro forma combined balance sheet.
F-3
<PAGE>
MEDALLION FINANCIAL CORP.
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR OFFERING AND
MEDALLION TRI-MAGNA EDWARDS TCC TOTAL USE OF PROCEEDS PRO FORMA
--------- ---------- ---------- ---------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Interest Income on
Investments........... $-- $7,191,918 $3,269,495 $1,072,144 $11,533,557 $ -- $11,533,557
Interest Income on
Treasury Bills........ -- -- -- 328,141 328,141 (199,425)(m) 128,716
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Investment
Income................ -- 7,191,918 3,269,495 1,400,285 11,861,698 (199,425) 11,662,273
---- ---------- ---------- ---------- ----------- ---------- -----------
Interest Expense
Notes Payable to Bank.. -- 3,650,197 578,490 -- 4,228,687 (30,675)(l) 4,198,012
SBA Debentures......... -- 780,254 1,494,806 358,729 2,633,789 (780,254)(l) 1,853,535
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Interest
Expense............... -- 4,430,451 2,073,296 358,729 6,862,476 (810,929) 6,051,547
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Interest Income..... -- 2,761,467 1,196,199 1,041,556 4,999,222 611,504 5,610,726
---- ---------- ---------- ---------- ----------- ---------- -----------
Non-Interest Income
Equity in earnings of
unconsolidated
subsidiary............ -- 132,632 -- -- 132,632 -- 132,632
Accretion of Negative
Goodwill.............. -- -- -- -- -- 675,218 (k) 675,218
Other Income............ -- 314,717 311,122 -- 625,839 -- 625,839
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Non-Interest
Income................ -- 447,349 311,122 -- 758,471 675,218 1,433,689
---- ---------- ---------- ---------- ----------- ---------- -----------
Expenses
Professional Fees...... -- 344,311 126,355 269,417 740,083 (136,759)(p) 603,324
Salaries and Benefits.. -- 832,710 287,153 201,445 1,321,308 (247,500)(o) 1,242,558
168,750 (p) --
Other Operating Ex-
penses................ -- 843,441 228,858 115,089 1,187,388 (54,042)(q) 1,100,172
(33,174)(r) --
Amortization of Good-
will.................. -- -- -- -- -- 315,000 (k) 315,000
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Expenses......... -- 2,020,462 642,366 585,951 3,248,779 12,275 3,261,054
---------- ---------- ---------- ----------- ---------- -----------
Dividends on Minority
Interest............... -- 207,774 -- -- 207,774 (207,774)(n) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
before income taxes.... -- 980,580 864,955 455,605 2,301,140 1,482,221 3,783,361
Income Taxes............ -- -- 33,111 304,624 337,735 (337,735)(s) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
after income taxes..... -- 980,580 831,844 150,981 1,963,405 1,819,956 3,783,361
Change in unrealized
depreciation........... -- (110,000) -- 288,574 178,574 -- 178,574
Net realized gain (loss)
on investments......... -- 4,390 -- (27,592) (23,202) -- (23,202)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
Assets resulting from
Operations............. $-- $ 874,970 $ 831,844 $ 411,963 $ 2,118,777 $1,819,956 $ 3,938,733
==== ========== ========== ========== =========== ========== ===========
Pro forma net increase
in net assets resulting
from operations per
share.................. $ 0.53
===========
Pro forma weighted
average shares
outstanding............ 7,500,000
===========
</TABLE>
See accompanying notes to unaudited pro forma combined statement of operations.
F-4
<PAGE>
MEDALLION FINANCIAL CORP.
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR OFFERING AND
MEDALLION TRI-MAGNA EDWARDS TCC TOTAL USE OF PROCEEDS PRO FORMA
--------- ---------- ---------- ---------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Interest Income on
Investments............ $-- $8,820,273 $4,334,100 $2,001,527 $15,155,900 $ -- $15,155,900
Interest Income on
Treasury Bills......... -- -- -- 215,353 215,353 (215,353)(m) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Investment
Income................ -- 8,820,273 4,334,100 2,216,880 15,371,253 (215,353) 15,155,900
---- ---------- ---------- ---------- ----------- ---------- -----------
Interest Expense
Notes Payable to Bank... -- 3,781,910 2,136,807 -- 5,918,717 (34,595)(l) 5,884,122
SBA Debentures.......... -- 974,105 627,700 708,695 2,310,500 (974,105)(l) 1,336,395
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Interest
Expense............... -- 4,756,015 2,764,507 708,695 8,229,217 (1,008,700) 7,220,517
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Interest Income..... -- 4,064,258 1,569,593 1,508,185 7,142,036 793,347 7,935,383
---- ---------- ---------- ---------- ----------- ---------- -----------
Non-Interest Income
Equity in earnings of
unconsolidated
subsidiary............. -- 18,379 -- -- 18,379 -- 18,379
Accretion of Negative
Goodwill............... -- -- -- -- -- 900,157 (k) 900,157
Other Income............ -- 519,030 619,716 -- 1,138,746 -- 1,138,746
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Non-Interest
Income................. -- 537,409 619,716 -- 1,157,125 900,157 2,057,282
---- ---------- ---------- ---------- ----------- ---------- -----------
Expenses
Professional Fees....... -- 367,484 393,513 356,162 1,117,159 (180,000)(p) 937,159
Salaries and Benefits... -- 1,164,627 386,995 157,384 1,709,006 (330,000)(o) 1,604,006
225,000 (p)
Other Operating
Expenses............... -- 1,168,202 351,019 198,069 1,717,290 (101,704)(q) 1,571,897
(43,689)(r)
Amortization of
Goodwill............... -- -- -- -- -- 420,000 (k) 420,000
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Expenses......... -- 2,700,313 1,131,527 711,615 4,543,455 (10,393) 4,533,062
---- ---------- ---------- ---------- ----------- ---------- -----------
Dividends on Minority
Interest............... -- 277,020 -- -- 277,020 (277,020)(n) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
before income taxes.... -- 1,624,334 1,057,782 796,570 3,478,686 1,980,917 5,459,603
Income Taxes............ -- -- 21,289 652,900 674,189 (674,189)(s) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
after income taxes..... -- 1,624,334 1,036,493 143,670 2,804,497 2,655,106 5,459,603
Change in unrealized
depreciation........... -- 58,000 23,415 790,283 871,698 -- 871,698
Net realized gain (loss)
on investments......... -- (21,938) -- (144,058) (165,996) -- (165,996)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
Assets resulting from
Operations before
Extraordinary Item..... -- 1,660,396 1,059,908 789,895 3,510,199 2,655,106 6,165,305
Extraordinary Item...... -- -- (526,287) -- (526,287) -- (526,287)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
assets resulting from
Operations............. $-- $1,660,396 $ 533,621 $ 789,895 $ 2,983,912 $2,655,106 $ 5,639,018
==== ========== ========== ========== =========== ========== ===========
Pro forma net increase
in Net Assets resulting
from operations per
share.................. $ 0.75
===========
Pro forma weighted
average shares
outstanding............ 7,500,000
===========
</TABLE>
See accompanying notes to unaudited pro forma combined statement of operations.
F-5
<PAGE>
MEDALLION FINANCIAL CORP.
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR OFFERING AND
MEDALLION TRI-MAGNA EDWARDS TCC TOTAL USE OF PROCEEDS PRO FORMA
--------- ---------- ---------- ---------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Interest Income on
Investments............ $-- $6,570,595 $3,262,382 $1,562,571 $11,395,548 $ -- $11,395,548
Interest Income on
Treasury Bills......... -- -- -- 145,867 145,867 (145,867)(m) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Investment
Income................. -- 6,570,595 3,262,382 1,708,438 11,541,415 (145,867) 11,395,548
---- ---------- ---------- ---------- ----------- ---------- -----------
Interest Expense
Notes Payable to Bank... -- 2,674,945 450,786 -- 3,125,731 (25,125)(l) 3,100,606
SBA Debentures.......... -- 728,078 1,636,941 584,039 2,949,058 (728,078)(l) 2,220,980
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Interest Expense.. -- 3,403,023 2,087,727 584,039 6,074,789 (753,203) 5,321,586
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Interest Income..... -- 3,167,572 1,174,655 1,124,399 5,466,626 607,336 6,073,962
Non-Interest Income
Equity in earnings of
unconsolidated
subsidiary............. -- -- -- -- -- -- --
Accretion of Negative
Goodwill............... -- -- -- -- -- 675,218(k) 675,218
Other Income............ -- 442,894 554,446 -- 997,340 -- 997,340
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Non-Interest
Income................. -- 442,894 554,446 -- 997,340 675,218 1,672,558
---- ---------- ---------- ---------- ----------- ---------- -----------
Expenses
Professional Fees....... -- 297,488 288,111 277,659 863,258 (136,759)(p) 726,499
Salaries and Benefits... -- 964,471 293,330 188,481 1,446,282 (247,500)(o) 1,367,532
168,750 (p)
Other Operating
Expenses............... -- 943,846 240,277 171,151 1,355,274 (83,371)(q) 1,239,136
(32,767)(r)
Amortization of
Goodwill............... -- -- -- -- -- 315,000 (k) 315,000
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Expenses.......... -- 2,205,805 821,718 637,291 3,664,814 (16,647) 3,648,167
---- ---------- ---------- ---------- ----------- ---------- -----------
Dividends on Minority
Interest............... -- 207,765 -- -- 207,765 (207,765)(n) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
before income taxes.... -- 1,196,896 907,383 487,108 2,591,837 1,506,966 4,098,353
Income Taxes............ -- -- 12,289 397,000 409,289 (409,289)(s) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
after income taxes..... -- 1,196,896 895,094 90,108 2,182,098 1,916,255 4,098,353
Change in unrealized
depreciation........... -- 151,000 -- 490,007 641,007 -- 641,007
Net realized gain (loss)
on investments......... -- (8,938) -- (70,339) (79,277) -- (79,277)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
Assets resulting from
Operations before
Extraordinary Item..... -- 1,338,958 895,094 509,776 2,743,828 1,916,255 4,660,083
Extraordinary Item...... -- -- (526,287) -- (526,287) -- (526,287)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
Assets resulting from
Operations............. $-- $1,338,958 $ 368,807 $ 509,776 $ 2,217,541 $1,916,255 $ 4,133,796
==== ========== ========== ========== =========== ========== ===========
Pro forma net increase
in net assets resulting
from operations per
share.................. $ 0.55
===========
Pro forma weighted
average shares
outstanding............ 7,500,000
===========
</TABLE>
See accompanying notes to unaudited pro forma combined statement of operations.
F-6
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. Unaudited pro forma combined balance sheet adjustments (all dollars in
thousands)
(a) Adjustment to reflect the expected proceeds raised from the Offering
based on the initial public offering price of $11.00 per share, an
underwriter's discount of 7% ($3,850) and estimated expenses of $1,850 and
the issuance of 5,000,000 shares of common stock for a total of 7,500,000
shares of common stock outstanding.
(b) Adjustment to reflect the use of a portion of the net proceeds of the
Offering to pay the purchase price of the Acquisitions (estimated to be
$13,378 for Tri-Magna; $10,223 for TCC; $15,096 for Edwards) and an
obligation to repay a Tri-Magna loan ($3,232) due upon consummation of the
Offering, to prepay an advisory fee to an investment adviser ($900) and to
repay a portion of existing debt ($6,471).
(c) Adjustment to reflect the use of a portion of the surplus cash
resulting from the Acquisitions ($6,529) to reduce debt.
(d) Adjustment to reflect the elimination of investments in Tri-Magna,
Edwards and TCC.
(e) Adjustment to reflect deferred advisory fees ($900) related to the
advisory fee agreement with an investment advisor.
(f) Adjustment to reflect the use of a portion of the net proceeds of the
Offering ($9,703), plus surplus cash resulting from the Acquisitions
($6,529), to reduce debt.
(g) Adjustment to reflect the elimination of the accrual of the Company's
deferred offering costs incurred prior to September 30, 1995 in conjunction
with the Offering, net of costs which will be reimbursed in connection with
the Acquisition agreements, as all of the Offering costs have been paid
with a portion of the proceeds from the Offering.
(h) Adjustment to reflect purchase price adjustments associated with the
acquisition of Tri-Magna. This acquisition is to be accounted for under the
purchase method of accounting. As Tri-Magna was an investment company under
the 1940 Act, its historic balance sheet is reflected at fair market value.
Accordingly, no fair market value adjustments are required. Because the
acquisition of Tri-Magna results in the net fair value assigned to the
assets exceeding the acquisition cost, the excess is allocated to
proportionately reduce the values assigned to noncurrent assets with any
remaining value constituting negative goodwill. As a result of this
allocation, Tri-Magna's investment in unconsolidated subsidiary was written
down by $152 and fixed assets were written down by $92. The resulting
negative goodwill will be accreted to earnings over 4 years.
(i) Adjustment to reflect purchase price adjustments associated with the
acquisition of TCC. This acquisition is to be accounted for under the
purchase method of accounting. Because the acquisition of TCC results in
the net fair value assigned to the assets exceeding the acquisition cost,
the excess is allocated proportionately to reduce the values assigned to
noncurrent assets with any remaining value constituting negative goodwill.
As a result of this allocation, TCC's fixed assets were written down by
$17. The resulting negative goodwill will be accreted to earnings over 3
years. Additional adjustments to record the fair value of assets including
the write-off of the deferred tax asset which will not be realized.
(j) Adjustment to reflect purchase price adjustments associated with the
acquisition of certain assets and the assumption of certain of the
liabilities of Edwards. This acquisition is to be accounted for under the
purchase method of accounting. As Edwards was an investment company under
the 1940 Act, its historic balance sheet is reflected at fair market value.
Accordingly, no fair market value adjustments are required. Goodwill will
be amortized over 15 years.
F-7
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
2. Unaudited pro forma combined statement of operations adjustments (all
dollars in thousands)
(k) Adjustments to record the amortization of the goodwill (excess of
cost over the fair value of net assets of business acquired) and accretion
of negative goodwill (excess of fair value of net assets over cost of
business acquired), respectively, recorded in purchase accounting related
to the goodwill resulting from the Edwards acquisition and the negative
goodwill arising in the acquisitions of Tri-Magna and TCC. The goodwill
related to Edwards is being amortized on a straight line basis over 15
years and the negative goodwill related to Tri-Magna and TCC is being
accreted on a straight line basis over 4 years and 3 years, respectively.
(l) Adjustment to reflect the reduction in SBA debenture interest expense
(September 1994: $728; December 1994: $974; September 1995: $780) resulting
from the replacement of all Tri-Magna's SBA debenture ($12,500) with bank
debt bearing interest (September 1994: $628; December 1994: $874; September
1995: $766) at a weighted average rate of 6.7%, 7.0% and 8.2% per annum,
respectively. An adjustment is then made to reflect the reduction in bank
debt interest expense (September 1994: $653; December 1994: $909; September
1995: $797) resulting from the elimination of bank debt ($13,000) from the
net proceeds of the Offering, bearing interest at a weighted average rate
of 6.7%, 7.0% and 8.2% per annum, respectively.
(m) Adjustment to reflect the reduction in interest income (September
1994: $146; December 1994: $215; September 1995: $199) related to the
payment of approximately $6,529 of excess cash in conjunction with the
paydown of bank debt, bearing interest at an assumed rate of 3.0%, 3.3% and
4.1% per annum, respectively.
(n) Adjustment to record the elimination of preferred stock dividend
(September 1994: $208; December 1994: $277; September 1995: $208) resulting
from the buyback of Tri-Magna's preferred stock from the Offering proceeds.
This transaction occurred on September 29, 1995, and the buyback was
considered by the Company in its determination of negative goodwill.
Although this buyback was funded by additional debt, no interest expense
savings were considered by the Company as the additional debt was
outstanding for only one day.
TCC also participated in the preferred stock buyback program on August
14, 1995. There are no dividends to eliminate as TCC did not elect to pay
them. Further, no interest income adjustment was reflected related to the
funding of this buyback as the amount was considered nominal.
(o) Adjustment to reflect the reduction in executive compensation and
pension expense, as a result of the elimination of three senior vice
president executive positions at Tri-Magna (September 1994: $248; December
1994: $330; September 1995: $248).
(p) Adjustment to reflect the increase in expense is due to the
amortization of the investment advisory fees (September 1994: $169;
December 1994: $225; September 1995: $169) to be paid in advance to FMC
Advisers, Inc. This investment advisory arrangement ($900) is being
amortized on a straight line basis over the term of the arrangement. This
increase in expense is partially offset by the reduction in expense due to
the elimination of the management agreement previously in place with the
parent company of TCC (September 1994: $137; December 1994: $180; September
1995: $137).
(q) Adjustment to eliminate certain operating expenses of Edwards. These
expenses will not recur as the related assets and liabilities were not
acquired by the Company as part of the acquisition of Edwards. These
expenses include the elimination of depreciation (September 1994: $18;
December 1994: $23;
F-8
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
September 1995: $14); and the elimination of amortization of deferred
financing costs (September 1994: $65; December 1994: $79; September 1995:
$40).
(r) Adjustment to eliminate certain operating expenses of Tri-Magna and
TCC in connection with the accounting for the Company's negative goodwill.
These expenses will not recur as the related assets were written off by the
Company as part of the acquisition, including (i) the elimination of Tri-
Magna's depreciation (September 1994: $30; December 1994: $40; September
1995: $30); and (ii) the elimination of TCC's depreciation (September 1994:
$3; December 1994: $4; September 1995: $3).
(s) Adjustment to eliminate income and other corporate tax expenses for
TCC (September 1994: $397; December 1994: $653; September 1995: $305) and
Edwards (September 1994: $12; December 1994: $21; September 1995: $33).
Both companies intend to be treated as regulated investment companies and
therefore no taxes will be assessed to them.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Medallion Financial Corp.:
We have audited the accompanying balance sheet of Medallion Financial Corp.
(a Delaware Corporation) as of December 31, 1995. This financial statement is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Medallion Financial Corp. as of
December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
February 21, 1996
F-10
<PAGE>
MEDALLION FINANCIAL CORP.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
Cash.................................................................. $ 2,000
Deferred Offering Costs............................................... 716,217
--------
Total assets........................................................ $718,217
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable and Accrued Liabilities (Note 2)..................... $716,217
--------
Commitments and Contingencies (Note 4)
Shareholders' Equity:
Common stock (3,000 shares of $.01 par value stock authorized -- 200
shares outstanding at December 31, 1995) (Note 3).................. 2
Capital in excess of par value (Note 2)............................. 1,998
--------
Total shareholders' equity........................................ 2,000
--------
Total liabilities and shareholders' equity........................ $718,217
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-11
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO BALANCE SHEET
DECEMBER 31, 1995
(1) FORMATION OF MEDALLION FINANCIAL CORP.
Medallion Financial Corp. (Medallion) is a closed-end management investment
company organized as a Delaware corporation in 1995. In 1996, Medallion
intends to complete an initial public offering (IPO) of its common stock and
intends to file an election under Section 54 of the Investment Company Act of
1940, as amended (the 1940 Act) to be regulated as a business development
company. In parallel with the IPO, Medallion will merge with Tri-Magna
Corporation and subsidiaries (TMC); acquire substantially all of the assets of
Edwards Capital Company, L.P. (ECC); and acquire all of the outstanding voting
stock of Transportation Capital Corp. (TCC) (collectively, the Acquisitions).
In connection with the Acquisitions, Medallion has filed an application for an
exemptive order under the 1940 Act with the Securities and Exchange
Commission. The Acquisitions and the IPO are contingent upon the receipt of
such exemptive order, as well as approval of the Small Business Administration
(SBA). Medallion will engage directly and/or through its principal
subsidiaries primarily in the business of making loans to small businesses
and, to a lesser degree, in the business of taxicab rooftop advertising.
TMC is a closed-end management investment company registered under the 1940
Act and is the sole shareholder of Medallion Funding Corp. (MFC) and Medallion
Taxi Media, Inc. (Media). MFC is a closed-end management investment company
registered under the 1940 Act and is licensed as a specialized small business
investment company (SSBIC) by the SBA. As an adjunct to MFC's taxicab
medallion finance business, Media operates a taxicab rooftop advertising
business. In accordance with the merger agreement between Medallion and TMC
signed on December 21, 1995 (the Merger Agreement), TMC will be acquired by
being merged into Medallion, and as a result, MFC and Media will become wholly
owned subsidiaries of Medallion.
ECC is licensed as a small business investment company (SBIC) by the SBA.
ECC is an unrelated, privately held limited partnership. Upon consummation of
the acquisition of substantially all of ECC's assets through a newly formed
subsidiary of Medallion, the newly formed, wholly owned subsidiary will be
registered as a closed-end management investment company under the 1940 Act.
TCC is licensed as an SSBIC by the SBA. TCC has operated as a wholly owned,
indirect subsidiary of a public company. Medallion will acquire all of the
outstanding voting common stock of TCC. Upon consummation of the acquisitions,
TCC will be a closed-end management investment company registered under the
1940 Act and will be a wholly owned subsidiary of Medallion.
(2) ACCOUNTING TREATMENT
Medallion's acquisitions will be accounted for under the purchase method of
accounting. Under this accounting method, Medallion will record as its cost
the fair value of the acquired assets and liabilities assumed. The difference
between the cost of acquired companies and the sum of the fair values of
tangible and identifiable intangible assets less liabilities assumed will be
recorded as goodwill or negative goodwill.
Deferred offering costs incurred by Medallion in connection with the sale of
shares will be recorded as a reduction of capital upon completion of the
offering. These costs are recorded, net of $200,000 payable by TMC in
accordance with the Merger Agreement.
(3) AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of Medallion consists of 3,000 shares of common
stock at $.01 par value. All of the outstanding 200 shares of common stock
were issued in connection with the incorporation of Medallion at a price
reflecting the fair market value of Medallion at inception. It is anticipated
that immediately preceding
F-12
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1995
the IPO, Medallion will amend its charter to increase the number of authorized
shares of common stock and effect a stock split to increase the number of the
outstanding shares of common stock. The exact number of shares to be offered
in the IPO and the exact ratio of the stock split has not been determined and
will depend on the valuation of Medallion by the underwriters and the per
share offering price of the common stock in the IPO.
(4) COMMITMENTS AND CONTINGENCIES
Medallion plans on entering into an advisory contract (the Advisory
Agreement) with FMC Advisors, Inc. (FMC) in which FMC will provide investment
advisory services to Medallion.
FMC will regularly consult with management of Medallion with respect to
strategic decisions concerning originations, credit quality assurance,
development of financial products, leverage, funding, geographical and product
diversification, the repurchase of participations, acquisitions, regulatory
compliance, and marketing.
Unless terminated earlier as described below, the Advisory Agreement will
remain in effect for a period of two years following execution and delivery by
the parties. The term will continue from year to year thereafter, if approved
annually by (i) a majority of Medallion's noninterested directors and (ii) the
Board of Directors, or by a majority of Medallion's outstanding voting
securities. The Advisory Agreement will be terminable without penalty to
Medallion on 60 days' written notice by either party or by vote of a majority
of Medallion's outstanding voting securities, and will terminate if assigned
by FMC. In the event of termination, prepaid fees for services not yet
performed, if any, must be repaid to Medallion.
Two officers, directors and shareholders of Medallion have agreed to
personally assure FMC of payment for the first 48 months of service under the
Advisory Agreement pursuant to an escrow arrangement under which they will
maintain in escrow common stock of Medallion worth 200% of the advisory fees
subject to repayment by FMC to Medallion in the event of termination or non-
renewal of the Advisory Agreement.
It is anticipated that in connection with the IPO of the Company's stock (as
discussed in Note 1), the Company will implement a Stock Option Plan and enter
into employment contracts with certain individuals who are employees,
directors and/or shareholders of the Company (see Management section of the
Prospectus).
(5) RELATED PARTY TRANSACTIONS
A director, officer and shareholder of TMC is also a director, officer and
shareholder of Medallion. An employee and shareholder of TMC is also a
director, officer and shareholder of Medallion.
The officers, directors and shareholders of FMC also serve as officers,
directors and shareholders of TMC. In connection with the merger of TMC with
and into Medallion, the officers, directors and shareholders of FMC will
resign as officers and directors of TMC and will sell their shares of TMC to
Medallion.
(6) SUBSEQUENT EVENTS
On February 12, 1996, Medallion entered into a stock purchase agreement with
Transportation Capital Corp. (TCC). Under the agreement, Leucadia (the parent
of TCC) will sell, and Medallion will purchase, all of the outstanding shares
of capital stock of the Company for a purchase price based upon net book
value, as defined in the agreement (approximately $10,000,000).
On February 21, 1996, Medallion entered into an asset purchase agreement
with Edwards Capital Company, a limited partnership (the Partnership). Under
the agreement, the Partnership will sell certain assets to Medallion for a
purchase price of approximately $15,000,000 plus certain liabilities, which
will be assumed by Medallion.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Tri-Magna Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Tri-Magna
Corporation (a Delaware corporation) and subsidiaries (collectively referred
to as the Company) as of September 30, 1995 and December 31, 1994, including
the consolidated summary of investments as of September 30, 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the nine month period ended September 30, 1995 and for each of the
two years in the period ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of loans receivable as of September 30, 1995
by correspondence with the borrowers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tri-Magna
Corporation and subsidiaries as of September 30, 1995 and December 31, 1994,
and the results of their operations and their cash flows for the nine month
period ended September 30, 1995 and for each of the two years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As explained in Note 2, the consolidated financial statements include loans
receivable valued at $93,041,916 (96% of total assets) and at $89,572,393 (96%
of total assets) as of September 30, 1995 and December 31, 1994, respectively,
whose values have been estimated by the Board of Directors in the absence of
readily ascertainable market values. We have reviewed the procedures used by
the Board of Directors in arriving at its estimates of value of such loans and
have inspected underlying documentation, and in the circumstances, we believe
that the procedures are reasonable and the documentation appropriate. However,
because of the inherent uncertainty of valuation, those estimated values may
differ significantly from the values that would have been used had a ready
market for the loans existed, and the differences could be material.
Arthur Andersen LLP
Boston, Massachusetts
November 6, 1995 (except with
respect to the matter discussed in
Note 11, as to which the date is
December 21, 1995)
F-14
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
ASSETS
Investments (Note 2)............................. $90,342,393 $93,921,916
Less unrealized depreciation on investments
(Note 7)...................................... (770,000) (880,000)
----------- -----------
89,572,393 93,041,916
Investment in unconsolidated subsidiary
(Note 2)........................................ 19,379 152,011
Cash............................................. 1,268,324 1,363,200
Accrued interest receivable...................... 778,098 833,027
Furniture and fixtures, net...................... 111,543 92,260
Other assets..................................... 839,950 1,144,143
----------- -----------
Total Assets..................................... $92,589,687 $96,626,557
=========== ===========
LIABILITIES
Notes payable to banks and demand notes
(Note 3)........................................ $59,025,000 $78,319,900
Accounts payable and accrued expenses............ 253,687 625,310
Accrued interest payable......................... 631,817 697,586
Dividends payable (Note 5)....................... 69,255 --
Subordinated debentures payable (Note 4)......... 12,500,000 --
----------- -----------
Total Liabilities................................ 72,479,759 79,642,796
MINORITY INTEREST (Note 5)......................... 9,234,000 --
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY
Common stock (1,000,000 shares of $.01 par value
stock authorized, 668,900 shares outstanding at
December 31, 1994 and September 30, 1995)
(Note 6)........................................ 6,689 6,689
Capital in excess of par value................... 11,276,811 11,276,811
Accumulated undistributed loss................... (407,572) (301,839)
----------- -----------
10,875,928 10,981,661
Restricted capital surplus (Note 5).............. -- 6,002,100
----------- -----------
Total Shareholders' equity....................... 10,875,928 16,983,761
----------- -----------
Total Liabilities and Shareholders' equity....... $92,589,687 $96,626,557
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1993 1994 1994 1995
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest on investments...... $8,333,400 $8,820,273 $6,570,595 $7,191,918
---------- ---------- ---------- ----------
Total Investment Income.... 8,333,400 8,820,273 6,570,595 7,191,918
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on SBA debentures
(Note 4).................... 1,046,417 974,105 728,078 780,254
Interest on bank debt
(Note 3).................... 2,614,859 3,781,910 2,674,945 3,650,197
---------- ---------- ---------- ----------
Total Interest Expense..... 3,661,276 4,756,015 3,403,023 4,430,451
---------- ---------- ---------- ----------
Net Interest Income.......... 4,672,124 4,064,258 3,167,572 2,761,467
---------- ---------- ---------- ----------
NON-INTEREST INCOME
Equity in earnings of
unconsolidated subsidiary
(Note 2).................... -- 18,379 -- 132,632
Other income................. 540,778 519,030 442,894 314,717
---------- ---------- ---------- ----------
Total Non-Interest Income.. 540,778 537,409 442,894 447,349
---------- ---------- ---------- ----------
EXPENSES
Administration and advisory
fees........................ 27,520 33,905 25,702 11,637
Legal and accounting fees.... 391,279 367,484 297,488 344,311
Directors' fee (Note 9)...... 22,000 76,500 71,500 31,000
Officers' and employees'
salaries.................... 1,347,666 1,028,627 851,471 769,702
Employee benefit plans
(Note 8).................... 227,000 136,000 113,000 63,008
Other operating expenses..... 1,081,519 1,057,797 846,644 800,804
---------- ---------- ---------- ----------
Total Expenses............. 3,096,984 2,700,313 2,205,805 2,020,462
---------- ---------- ---------- ----------
Dividends paid on minority
interest (Note 5)........... 277,020 277,020 207,765 207,774
---------- ---------- ---------- ----------
Net Investment Income........ 1,838,898 1,624,334 1,196,896 980,580
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain (loss) on
investments (Note 7)........ (114,507) (21,938) (8,938) 4,390
Change in unrealized
depreciation (Note 7)....... (53,000) 58,000 151,000 (110,000)
---------- ---------- ---------- ----------
Net Realized and Unrealized
Gain (Loss) on Investments.. (167,507) 36,062 142,062 (105,610)
---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $1,671,391 $1,660,396 $1,338,958 $ 874,970
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF CAPITAL ACCUMULATED RESTRICTED
COMMON STOCK COMMON STOCK IN EXCESS UNDISTRIBUTED CAPITAL
OUTSTANDING $.01 PAR VALUE OF PAR VALUE LOSS SURPLUS
------------ -------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992................... 665,900 $6,659 $11,227,341 $ (206,789) $ --
------- ------ ----------- ----------- ----------
Dividends paid, common.. -- -- -- (1,864,520) --
Distributable net
income................. -- -- -- 1,724,391 --
Change in unrealized
depreciation........... -- -- -- (53,000) --
BALANCE AT DECEMBER 31,
1993................... 665,900 6,659 11,227,341 (399,918) --
------- ------ ----------- ----------- ----------
Dividends paid, common.. -- -- -- (1,668,050) --
Distributable net
income................. -- -- -- 1,602,396 --
Sale of common stock.... 3,000 30 49,470 -- --
Change in unrealized
depreciation........... -- -- -- 58,000 --
BALANCE AT DECEMBER 31,
1994................... 668,900 6,689 11,276,811 (407,572) --
------- ------ ----------- ----------- ----------
Dividends paid, common.. -- -- -- (769,237) --
Distributable net
income................. -- -- -- 984,970 --
Gain on minority
interest buyback
(Note 5)............... -- -- 6,002,100
Change in unrealized
depreciation........... -- -- -- (110,000) --
------- ------ ----------- ----------- ----------
BALANCE AT SEPTEMBER 30,
1995................... 668,900 $6,689 $11,276,811 $ (301,839) $6,002,100
======= ====== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1993 1994 1994 1995
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................. $ 1,671,391 $ 1,660,396 $ 1,338,958 $ 874,970
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization............. 63,237 64,848 48,636 35,469
Change in unrealized
depreciation............. 53,000 (58,000) (151,000) 110,000
Realized loss (gain) on
investments.............. 114,507 21,938 8,938 (4,390)
Increase in investment in
unconsolidated
subsidiary............... -- (19,379) -- (132,632)
Decrease (increase) in
accrued interest
receivable............... (12,719) (64,697) (39,117) (54,929)
Decrease (increase) in
other assets............. 100,199 (99,434) (11,506) (440,504)
Increase (decrease) in
accounts payable and
accrued expenses......... 77,972 (90,565) (51,988) 371,623
Increase (decrease) in
dividends payable
minority interest........ 138,510 (69,255) (69,255) (69,255)
Increase (decrease) in
accrued interest
payable.................. (86,969) 143,725 391,527 65,769
----------- ----------- ----------- -----------
Net cash provided by op-
erating activities...... 2,119,128 1,489,577 1,465,193 756,123
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments... (30,678,530) (33,103,213) (26,295,679) (22,757,218)
Proceeds from investment
maturities and
terminations............. 18,335,808 24,753,080 20,211,494 19,182,087
Proceeds from liquidation
of other assets.......... -- 414,884 388,829 130,835
Capital expenditures...... (13,126) (6,991) (5,375) (10,714)
----------- ----------- ----------- -----------
Net cash used for invest-
ing activities.......... (12,355,848) (7,942,240) (5,700,731) (3,455,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term
debt..................... 10,700,000 8,325,000 7,925,000 19,294,900
Payments of SBA
debentures............... -- -- -- (12,500,000)
Buyback of minority
interest................. -- -- -- (3,231,900)
Sale of common stock...... -- 49,500 -- --
Dividends paid on common
stock.................... (1,864,520) (1,668,050) (1,300,155) (769,237)
----------- ----------- ----------- -----------
Net cash provided by fi-
nancing activities...... 8,835,480 6,706,450 6,624,845 2,793,763
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH...................... (1,401,240) 253,787 2,390,307 94,876
CASH, beginning of period.. 2,415,777 1,014,537 1,014,537 1,268,324
----------- ----------- ----------- -----------
CASH, end of period........ $ 1,014,537 $ 1,268,324 $ 3,404,844 $ 1,363,200
=========== =========== =========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the
period for interest
(Includes dividends paid
on minority interest)
(Note 5)................. $ 3,886,755 $ 4,958,565 $ 3,288,516 $ 4,651,461
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(1) ORGANIZATION
On February 3, 1989, Tri-Magna Corporation, a newly formed Delaware
corporation, (referred to as Tri-Magna or the Parent Company) and its
subsidiary, Medallion Funding Corp. (Medallion) entered into an Agreement and
Plan of Share Exchange (the Share Exchange). Tri-Magna and its wholly-owned
subsidiaries Medallion, F.A.P. Holding Corp. (FAP) and Medallion Taxi Media,
Inc. (Media) are collectively referred to as the Company. Under the Share
Exchange, 100 shares of common stock of the Parent Company were exchanged for
each of the outstanding shares of common stock of Medallion. On May 18, 1989,
the shareholders of Medallion voted in favor of the Share Exchange Plan. This
transaction was accounted for as a pooling of interests.
The Parent Company was formed in January 1989 for the purpose of acquiring
all of the outstanding shares of Medallion common stock pursuant to the Share
Exchange. The Parent Company is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 (the
1940 Act), and has elected to be treated as a regulated investment company
under the Internal Revenue Code of 1986, as amended.
Medallion was formed in 1979 for the purpose of operating as a Specialized
Small Business Investment Company (SSBIC), licensed, regulated and financed in
part by the U.S. Small Business Administration (SBA). Medallion was granted a
license to operate as a SSBIC by the SBA on June 23, 1980. On February 2,
1982, Medallion registered as a closed-end, nondiversified investment company
under the 1940 Act.
On June 22, 1992, Medallion established a wholly-owned subsidiary, FAP. This
subsidiary was established for the purpose of acquiring and managing property
purchased in foreclosure from Medallion.
On August 23, 1994, Media, a New York corporation was formed. Media is
engaged in the outdoor media advertising business and is a wholly-owned
subsidiary of Tri-Magna.
The accompanying consolidated financial statements include the accounts of
Tri-Magna and Medallion after elimination of all intercompany amounts. (See
Note 2)
Unaudited consolidated statements of operations and cash flows for the nine
months ended September 30, 1994 are included for comparative purposes.
Information included in these Notes to Consolidated Financial Statements as of
and for the period ended September 30, 1994 is unaudited.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company, which conform with
generally accepted accounting policies and accounting principles and
procedures generally accepted in the investment company industry, include the
following:
Investments
Medallion's investments consist primarily of long-term loans to persons
defined by SBA regulations as being socially or economically disadvantaged, or
to entities that are at least 50% owned by such persons. Approximately 73% and
69% of Medallion's loan portfolio at December 31, 1994, and September 30,
1995, respectively, has arisen in connection with the financing of taxicab
medallions, taxicabs and related assets, substantially all in the metropolitan
New York area. These loans are secured by the medallions, taxicabs and related
assets, and are personally guaranteed by the borrowers, or in the case of
corporations, personally guaranteed by the owners. The remaining portion of
Medallion's portfolio represents loans to various commercial enterprises,
including dry cleaners, garages, gas stations and laundromats. These loans are
secured by various equipment and/or real estate and are generally guaranteed
by the owners, and in certain cases, by the equipment dealers. These loans are
made primarily in the metropolitan New York City area.
F-19
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Tri-Magna began funding loans in March 1995. Since then Tri-Magna has funded
37 loans totaling $3,326,216; of this amount, Tri-Magna participated out a
total of $2,273,140.
Under the 1940 Act, the Company's long-term loans are considered investments
and are recorded at their fair value. Since no ready market exists for these
loans, fair value is determined by the Board of Directors in good faith. In
determining fair value, the directors take into consideration the financial
condition of the borrower, the adequacy of the collateral, and the
relationships between market rates and portfolio rates. Loans were valued at
cost, less unrealized depreciation of $770,000 and $880,000 at December 31,
1994 and September 30, 1995, respectively. The directors have determined that
this valuation approximates fair value.
The principal portion of loans serviced for others by the Company at
December 31, 1994 and September 30, 1995 amounted to approximately $3,967,690
and $15,278,372, respectively.
The Company offsets loan origination fees against related direct loan
origination costs. The net amount is deferred and amortized over the life of
the loan in accordance with the Statement of Financial Accounting Standards
No. 91 (SFAS No. 91), "Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases" which
addresses the accounting by creditors for initial fees and costs associated
with the origination of loans. At December 31, 1994 and September 30, 1995,
the net deferred asset totaled $83,591 and $178,507, respectively.
Amortization expense was $22,117, $27,916 and $10,877 for the year ended
December 31, 1994, and the nine months ended September 30, 1995 and 1994,
respectively. There was no amortization expense in 1993.
Investment in Unconsolidated Subsidiary
Tri-Magna owns 100% of the outstanding stock of Media. Tri-Magna' investment
in Media is accounted for under the equity method because as a non-investment
company, Media, cannot be consolidated with an investment company, Tri-Magna.
Financial information for Media is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
BALANCE SHEET 1994 1995
------------- ------------ -------------
<S> <C> <C>
Cash............ $ 6,193 $ --
Accounts
receivable..... 211,500 242,736
Equipment, net.. 214,042 469,557
Other........... 23,625 3,850
-------- --------
Total Assets.... $455,360 $716,143
======== ========
Notes payable... $275,000 $275,000
Accrued
expenses....... 160,981 289,132
-------- --------
Total
Liabilities.... 435,981 564,132
-------- --------
Common stock.... 1,000 1,000
Retained
earnings....... 18,379 151,011
-------- --------
Total equity.... 19,379 152,011
-------- --------
Total
Liabilities and
Shareholders
equity......... $455,360 $716,143
======== ========
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
STAEMENT OF OPERATIONST 1994 1995
- ----------------------- ------------ -----------------
<S> <C> <C>
Advertising
revenue........ $227,756 $1,091,724
Cost of
services....... 83,341 325,276
-------- ----------
Gross margin.... 144,415 766,448
Other operating
expenses....... 126,036 574,786
-------- ----------
Income before
taxes.......... 18,379 191,662
Income taxes.... -- 59,030
-------- ----------
Net income...... $ 18,379 $ 132,632
======== ==========
</TABLE>
On March 8, 1995, Tri-Magna guaranteed a demand loan for Media. At September
30, 1995, $275,000 was outstanding at an interest rate of 10.75%. The loan
matures on December 4, 1995, and can be extended at the option of the bank and
acceptance of both Tri-Magna and Media.
F-20
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Federal Income Taxes
It is the Company's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies, which require the
Company to distribute at least 90% of its investment company taxable income to
its shareholders. Therefore, no provision for federal income tax has been
made.
FAP and Media have elected to be taxed as regular corporations and, for the
nine months ended September 30, 1995 recorded a provision for income taxes
totaling approximately $59,000. This amount has been reflected in equity in
earnings of unconsolidated subsidiary on the accompanying consolidated
statement of operations.
Income Recognition
When, in the judgment of management, collection of any portion of the
interest or principal amount of a receivable is in doubt, accrual of interest
income is discontinued, and interest is recorded when received. At December
31, 1994 and September 30, 1995, nonaccrual loans totaled approximately
$1,063,901 and $1,137,093, respectively, and the related foregone interest
income amounted to approximately $250,439 and $229,174, respectively.
Additionally, at December 31, 1994 and September 30, 1995, restructured loans
totaled approximately $477,469 and $800,617, of which $90,000 and $192,323
were included in nonaccrual loans, respectively. Other income on the
accompanying consolidated statements of operations consists of late fees,
prepayment penalties and fee income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(3) NOTES PAYABLE TO BANKS
At December 31, 1994 and September 30, 1995, the Company had outstanding
bank borrowings under the following agreements:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
DESCRIPTION 1994 1995
----------- ------------ -------------
<S> <C> <C>
Revolving Credit Agreement........................ $57,025,000 $72,250,000
Term Loan Agreements.............................. 2,000,000 5,231,900
Short Term Note................................... -- 838,000
----------- -----------
Total............................................. $59,025,000 $78,319,900
=========== ===========
</TABLE>
Borrowings under these agreements are secured by all assets of the Company.
Revolving Credit Agreement
On March 27, 1992 (and as subsequently amended), the Company entered into a
committed revolving credit agreement (the Revolver) with a group of banks. The
Company extended the Revolver until September 30, 1996 at an aggregate credit
commitment amount of $78,000,000 pursuant to the Renewal and Extension
Agreement dated September 29, 1995. The Revolver may be extended annually
thereafter upon the option of the
F-21
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
participating banks and acceptance by the Company. Should any participating
bank not extend its committed amount, the Revolver agreement provides that
each bank shall extend a term loan equal to its share of the principal amount
outstanding of the revolving credit note. Maturity of the term note shall be
the earlier of two years or any other date on which it becomes payable in
accordance with the Revolver. Interest and principal payments are to be made
monthly. Interest is calculated monthly at either the bank's prime rate or a
rate based on the adjusted London Interbank Offered Rate of interest (LIBOR)
at the option of the Company. Substantially all promissory notes evidencing
the Company's investments are held by a bank, as collateral agent under the
agreement. Outstanding borrowings under the Revolver were $57,025,000 and
$72,250,000, at December 31, 1994 and September 30, 1995, at an average
interest rate of 7.81% and 7.83%, respectively. During the years ended
December 31, 1994, and the nine months ended September 30, 1995, the Company's
weighted average borrowings were approximately $54,485,000 and $59,030,000 and
the maximum outstanding borrowings were $63,000,000 and $72,250,000,
respectively. The weighted average interest rates on the weighted average
borrowings were 6.73% and 8.18% during the year ended December 31, 1994 and
the nine months ended September 30, 1995, respectively.
The Company is required to pay an annual facility fee of 1/4% effective
prospectively as of March 28, 1995 on the Revolver aggregate commitment. For
the year ended December 31, 1994 and up through March 27, 1995, the Company
was required to pay an annual facility fee of 3/8%. Additionally, effective
prospectively as of September 29, 1995, the Company is required to pay an
additional annual fee of $62,500.
Term Loan Agreements
At December 31, 1994 and September 30, 1995, the Company had borrowed a
total of $2,000,000 under a term loan agreement (Term Loan) with a bank. The
$2,000,000 was outstanding at December 31, 1994 and September 30, 1995. During
fiscal year 1995, the fixed interest rate of 5.88% was increased to 7.5%.
Interest payments are due quarterly. The weighted average interest rate paid
on such borrowings was 5.88%, and 6.33%, respectively during the year ended
December 31, 1994, and the nine months ended September 30, 1995, respectively.
The total term borrowings outstanding at September 30, 1995 under this
agreement are due in July 1997.
On September 29, 1995, Tri-Magna entered into a $3,231,900 term loan with a
certain bank maturing on April 1, 1996. Interest is paid monthly at the prime
rate. The loan is secured by all assets of Tri-Magna. The proceeds of this
loan were invested in Medallion as a capital contribution to facilitate the
repurchase of its preferred stock from the SBA. (See Note 5)
Short-Term Note
On December 19, 1994, Tri-Magna entered into a demand promissory note
(Demand Note) with a certain bank. As of December 31, 1994, there were no
outstanding borrowings under the Demand Note. On September 1, 1995 the Demand
Note was converted into a $2,000,000 short-term secured note (Short-Term Note)
which matures on August 31, 1996. Interest is calculated monthly at either the
bank's prime rate or a rate based upon adjusted LIBOR at the option of the
Company. Substantially all promissory notes evidencing Tri-Magna's investments
are pledged to the bank as collateral. The Company is required to pay an
annual facility fee of 1/4% effective prospectively as of September 29, 1995
on the aggregate amount of the note. Outstanding borrowings under the Short-
Term Note were $838,000 at September 30, 1995, at an average interest rate of
7.43%. During the nine months ended September 30, 1995, Tri-Magna's weighted
average borrowings were approximately $773,714 and the maximum outstanding
borrowings were $838,000. The weighted average interest rate on such
borrowings was 8.2% during the nine months ended September 30, 1995.
F-22
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Interest Rate Cap Agreements
On July 15, 1992, the Company entered into two interest rate cap agreements
to reduce the impact of changes in interest rates on its floating long-term
debt. These agreements limit the Company's maximum LIBOR exposure on
$10,000,000 of its revolving credit facility to 6%. The premiums paid in under
these agreements were $69,000 and $69,750, respectively. The premiums were
capitalized and were amortized over the three-year term of the agreements,
with both agreements terminating on July 17, 1995. Amortization related to
these agreements was included in interest expense in the accompanying
consolidated statements of operations.
On April 7, 1995, the Company entered into three interest rate cap
agreements to reduce the impact of changes in interest rates on its floating
rate long-term debt. These agreements limit the Company's maximum LIBOR
exposure on $20,000,000 of its revolving credit facility to 7.5%. The premiums
paid under these agreements were $46,875, $31,000 and $46,687, respectively.
The premiums have been capitalized and are being amortized over the two-year
term of the agreements, which expires on April 7, 1997. The Company is exposed
to credit loss in the event of nonperformance by the counterparties on these
interest rate cap agreements. The Company does not anticipate nonperformance
by any of these parties.
(4) INDEBTEDNESS TO THE SMALL BUSINESS ADMINISTRATION
Indebtedness to the Small Business Administration is comprised of the
following long-term subordinated debentures at December 31, 1994:
<TABLE>
<S> <C>
9 3/8% interest only, payable semiannually, principal due
January 9, 1996............................................ $ 2,000,000
7 3/8% interest only, payable semiannually, principal due
May 15, 1996............................................... 2,000,000
9 1/8% interest only, payable semiannually, principal due
October 17, 1998........................................... 2,000,000
Demand Note................................................. 1,000,000
Demand Note................................................. 1,500,000
Demand Note................................................. 4,000,000
-----------
$12,500,000
===========
</TABLE>
On January 23, 1991, a $1,000,000 subordinated debenture matured and was
converted to the $1,000,000 demand note. On September 27, 1992, a $1,500,000
subordinated debenture matured and was converted to the $1,500,000 demand
note. On September 19, 1993, a $4,000,000 subordinated debenture matured and
was converted to the $4,000,000 demand note. The interest rate on all three
demand notes was 7.5% at December 31, 1994. All the outstanding debentures
were paid in full on September 29, 1995 and the SBA has removed all
restrictions on third party debt.
(5) MINORITY INTEREST
At December 31, 1994 The Company's minority interest consisted of 3%
cumulative, preferred nonvoting stock of Medallion, with a par value of $1,000
per share, which Medallion had sold to the SBA. The preferred stock dividend
of Medallion is reflected as a dividend on preferred stock in the accompanying
consolidated
F-23
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
statements of operations. The Small Business Administration imposes certain
restrictions on transfers of stock and payments of dividends by its licensees.
On September 29, 1995, Medallion repurchased and retired all of its 3%
preferred stock owned by the SBA at a discount of 65%, under an SBA preferred
stock repurchase agreement. The effective date of the buyback was August 12,
1994. The purchase price of the preferred stock was $3,231,900. The amount of
the discount, $6,002,100 was recorded as an increase in capital in an account
separate from other paid-in capital accounts, as restricted capital surplus
account. Under the repurchase agreement, the SBA retains a liquidating
interest in the amount of the discount on the repurchase, which expires on a
straight line basis over five years or on a later date if an event of default,
as defined in the agreement, has occurred and such default has been cured or
waived. Upon the occurrence of any event of default, the SBA's liquidating
interest will become fixed at the level immediately preceeding the event of
default and will not accrete further until the default is cured or waived. In
the event of Medallion's liquidation, the unexpired portion of the liquidating
interest becomes immediately payable to the SBA.
At September 30, 1995, the unaccreted amount of the SBA's liquidating
interest in the restricted capital surplus was $4,651,628.
(6) COMMON STOCK
On July 20, 1994, the Board of Directors of the Company voted to rescind the
issuance of 3,000 shares of common stock approved on April 19, 1994, and
approved the sale of 3,000 shares of common stock at a price of $16.50 per
share. The sale of the stock was completed in November 1994.
(7) REALIZED LOSSES (GAINS) AND UNREALIZED DEPRECIATION ON INVESTMENTS
A summary of realized losses and unrealized depreciation on investments for
the years ended December 31, 1994 and 1993, and the nine months ended
September 30, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------- --------------------
UNREALIZED DEPRECIATION 1994 1993 1995 1994
----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at Beginning of Period... $(828,000) $(775,000) $(770,000) $(828,000)
Change in Unrealized Deprecia-
tion............................ 58,000 (53,000) (110,000) 151,000
--------- --------- --------- ---------
Balance at End of Period......... $(770,000) $(828,000) $(880,000) $(677,000)
========= ========= ========= =========
</TABLE>
For the years ended December 31, 1994 and 1993 and the nine months ended
September 30, 1995 and 1994, realized losses (gains) were $21,938, $114,507,
$(4,390) and $8,938, respectively.
(8) EMPLOYEE BENEFIT PLANS
The Company maintains two defined contribution employee benefit plans, the
Medallion Funding Corp. Pension Plan and the Medallion Funding Corp. Profit-
Sharing Retirement Plan, under which substantially all Tri-Magna and Medallion
employees and officers are covered. The Company's management acts as trustee
of both plans. At year end, the Company has no obligation for post-retirement
or post-employment agreements.
Under the noncontributory pension plan, the Company contributes up to 10% of
each participant's annual compensation. Under the profit-sharing plan,
voluntary employee contributions as well as Company contributions are allowed.
The Company's policy is to fund pension costs accrued.
F-24
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Total employer contributions to both plans are limited to the lesser of 10%
of each participant's compensation or $10,000 for the nine months ended
September 30, 1995 and 1994, and the year ended December 31, 1994, and the
lesser of 20% of each participant's compensation or $20,000 for the year ended
December 31, 1993.
The expense for employee benefit plans was approximately $136,000, $227,000,
$63,008 and $113,000, for the years ended December 31, 1994, and 1993 and the
nine months ended September 30, 1995 and 1994, respectively.
(9) TRANSACTIONS WITH RELATED PARTIES
Certain officers and directors of Medallion are also shareholders of Tri-
Magna. Officers' salaries are set by the Board of Directors. Directors who are
not officers receive a fee of $1,000 per meeting. Directors who are members of
committees receive $500 for each meeting attended. Directors who are members
of the independent committee receive $1,000 for each meeting attended. One
loan receivable has been guaranteed by a related party.
(10) COMMITMENTS AND CONTINGENCIES
At September 30, 1995, the Company's unfunded commitments were approximately
$1,661,444 for 19 loans that will bear interest at rates ranging from 9.0% to
15.2%.
In September 1987, the Company entered into a 10-year lease for its
executive and general offices. The lease calls for an annual rental of
approximately $140,000, subject to certain escalation clauses. During the
years ended December 31, 1994 and 1993, and the nine months ended September
30, 1995 and 1994, rental expenses totaled $195,777, $187,679, $168,477, and
$142,824 respectively, and are included in other operating expenses.
The Company is a party to various legal proceedings arising from the normal
course of business, none of which, in management's opinion, is expected to
have a material adverse impact on the Company's financial position or results
of operations.
(11) SUBSEQUENT EVENT
On November 16, 1995, the Company entered into three additional interest
rate cap agreements to reduce the impact of changes in interest rates on its
floating rate long-term debt. These agreements limit the Company's maximum
LIBOR exposure on an additional $20,000,000 of its revolving credit facility
to 7.0%. The premiums paid under these agreements were $13,000, $25,000 and
$12,500, respectively. The premiums have been capitalized and are being
amortized over the two-year term of the agreements, which expires on
November 16, 1997. The Company is exposed to credit loss in the event of
nonperformance by the counterparties on these interest rate cap agreements.
The Company does not anticipate nonperformance by any of these parties.
On October 18, 1995, the Company declared a dividend on common stock of $.35
per share, payable on October 26, 1995 to shareholders of record as of October
18, 1995. Medallion also declared a dividend of $275,000 on common stock
payable on October 18, 1995 to the Parent Company for purposes of funding the
Company's dividend.
On December 21, 1995, the Company entered into a merger agreement with
Medallion Financial Corp. Under the agreement, subject to the approval of the
shareholders, the shareholders will sell to, and Medallion Financial Corp.
will purchase, all of the outstanding shares of capital stock of the Company
for a purchase price of $20.00 per share.
As discussed in Note 5, under the terms of the preferred stock repurchase
agreement with the SBA, a change in ownership of the Company would result in
the unexpired portion of the liquidating interest becoming payable to the SBA.
The transaction with Medallion Financial Corp. is subject to SBA approval. It
is anticipated that such approval will include a waiver of this provision.
F-25
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NUMBER BALANCE INTEREST RANGE OF
OF LOANS OUTSTANDING RATE MATURITY DATES
-------- ----------- -------- ---------------
<S> <C> <C> <C>
1 $ 81,619 5.000% 3/1/00
1 26,190 7.000 7/1/98
17 3,809,812 8.000 3/1/97-1/1/09
3 305,275 8.250 1/1/98
22 3,467,300 8.500 5/1/96-5/1/00
10 1,538,912 8.750 2/1/97-7/1/99
60 9,348,889 9.000 9/30/95-7/1/04
77 7,904,523 9.250 5/1/96-9/1/10
106 11,584,236 9.500 9/30/95-9/1/04
2 124,111 9.625 8/1/96-8/1/04
18 1,333,031 9.750 9/30/95-8/1/02
139 11,544,474 10.000 9/30/95-12/1/04
25 2,344,780 10.250 7/1/97-9/1/02
1 131,584 10.375 2/1/00
41 4,733,273 10.500 7/1/96-1/1/03
32 2,975,798 10.750 3/1/99-8/1/02
1 68,352 10.900 11/1/99
46 4,081,906 11.000 9/30/95-8/1/03
3 199,864 11.250 6/1/96-10/1/98
4 270,218 11.500 1/1/97-2/1/99
2 172,504 11.750 4/1/96-9/1/99
60 4,567,004 12.000 9/30/95-6/1/05
9 517,934 12.500 12/1/95-8/1/00
1 7,742 12.580 9/30/95
2 286,183 12.750 1/1/97-9/1/00
1 76,645 12.950 1/1/99
95 5,388,290 13.000 9/30/95-2/1/04
4 758,594 13.250 9/30/95-2/1/00
21 1,125,080 13.500 9/30/95-7/1/02
2 50,895 13.750 2/1/98-1/1/99
1 17,721 13.870 9/1/96
80 4,365,904 14.000 6/1/96-10/1/02
1 43,269 14.050 1/1/01
1 48,839 14.200 6/1/00
1 8,701 14.250 12/1/98
1 17,127 14.300 5/1/99
14 946,473 14.500 9/30/95-4/1/02
6 175,318 14.840 6/1/99-10/1/00
179 7,777,713 15.000 9/30/95-9/1/02
10 812,517 15.200 3/1/99-2/1/01
9 280,110 15.250 9/30/95-6/1/98
8 155,608 15.500 9/30/95-7/1/99
1 3,480 15.625 2/1/96
1 100,239 15.750 9/30/95
2 51,688 16.000 4/1/99-5/1/00
5 25,313 16.250 9/30/95-3/1/96
3 12,804 16.500 11/1/95-1/1/96
1 47,990 16.750 9/30/95
1 27,577 18.000 10/1/97
---- -----------
Total: 1,131 $93,743,409
Plus: Loan origination
costs, net................. 178,507
-----------
Total investments at cost... 93,921,916
Less -- Unrealized deprecia-
tion on investments........ (880,000)
-----------
Total investments at direc-
tors' valuation............ $93,041,916
===========
</TABLE>
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Edwards Capital Company:
We have audited the accompanying balance sheet of Edwards Capital Company (a
limited partnership) as of December 31, 1994, and the related statements of
operations, changes in partners' capital and cash flows for each of the two
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Edwards Capital Company as
of December 31, 1994, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
Friedman, Alpren & Green LLP
New York, New York
January 28, 1995
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Edwards Capital Company:
We have audited the accompanying balance sheet of Edwards Capital Company (a
New York limited partnership), including the schedule of loans as of September
30, 1995, and the related statements of operations, changes in partners'
capital and cash flows for the nine months ended September 30, 1995. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Edwards Capital Company as
of September 30, 1995, and the results of its operations and its cash flows
for the nine months ended September 30, 1995, in conformity with generally
accepted accounting principles.
As explained in Note 1, the financial statements include finance receivables
valued at $43,187,645 (98% of total assets) as of September 30, 1995, the
values of which have been estimated by the General Partner in the absence of
readily ascertainable market values. We have reviewed the procedures used by
the General Partner in arriving at its estimates of value of such loans and
have inspected underlying documentation, and in the circumstances, we believe
that the procedures are reasonable and the documentation appropriate. However,
because of the inherent uncertainty of valuation, those estimated values may
differ significantly from the values that would have been used had a ready
market for the loans existed, and the differences could be material.
Arthur Andersen LLP
Boston, Massachusetts
December 14, 1995 (except with
respect to the matter discussed in
Note 8, as to which the date is
February 21, 1996)
F-28
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Cash................................................ $ 170,725 $ 21,462
Finance Receivables:
Medallions........................................ 42,739,897 42,570,994
Radios, less allowance for doubtful accounts of
$20,000 in 1994 and 1995......................... 29,451 2,830
Other............................................. 697,494 613,821
Accrued Interest Receivable......................... 329,000 370,000
Deferred Financing Costs, net of accumulated
amortization of $123,507 in 1994 and $163,598 in
1995............................................... 407,143 367,052
Property and Equipment, at cost, net of accumulated
depreciation and amortization of $115,645 in 1994
and $129,596 in 1995............................... 75,349 71,167
Prepaid Expenses and Other Assets................... 125,468 175,048
----------- -----------
Total Assets.................................... $44,574,527 $44,192,374
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Bank Loans Payable.................................. $10,000,000 $ 9,425,000
Subordinated Debentures Payable..................... 24,950,000 24,950,000
Accounts Payable and Accrued Expenses............... 1,048,459 864,172
----------- -----------
35,998,459 35,239,172
Partners' Capital................................... 8,576,068 8,953,202
----------- -----------
Total Liabilities and Partners' Capital......... $44,574,527 $44,192,374
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ----------------------
1993 1994 1994 1995
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Interest from finance
receivables................... $4,954,502 $4,334,100 $3,262,382 $3,269,495
Other income................... 476,192 619,716 554,446 311,122
---------- ---------- ---------- ----------
Total revenues................ 5,430,694 4,953,816 3,816,828 3,580,617
---------- ---------- ---------- ----------
Operating Expenses:
Interest on subordinated
debentures.................... 2,230,415 2,136,807 1,636,941 1,494,806
Interest on bank loans......... 511,008 627,700 450,786 578,490
Salaries....................... 385,676 351,715 244,672 262,972
Employee benefits.............. 38,383 35,280 23,553 24,181
Payroll and other taxes........ 29,119 28,576 25,105 25,856
Professional fees.............. 306,732 393,513 288,111 126,355
Rent........................... 39,996 39,996 29,997 29,997
Office expense................. 39,298 45,082 32,406 31,213
Computer expense............... 8,760 48,859 27,776 35,472
Telephone...................... 8,860 9,963 8,156 8,168
Entertainment.................. 23,005 17,378 7,838 8,771
Amortization of deferred
financing costs............... 42,701 79,118 65,752 40,091
Processing and collection
services...................... 69,276 57,950 46,206 31,811
Depreciation and amortization.. 27,471 22,586 17,619 13,951
New York City unincorporated
business tax.................. 50,972 21,289 12,289 33,111
Reduction in allowance for
doubtful radio loans.......... -- (23,415) -- --
Sundry......................... 2,010 1,511 4,527 3,528
---------- ---------- ---------- ----------
Total operating expenses...... 3,813,682 3,893,908 2,921,734 2,748,773
---------- ---------- ---------- ----------
Income before extraordinary
charge....................... 1,617,012 1,059,908 895,094 831,844
Extraordinary Charge -- Premium
on Prepayment of Subordinated
Debentures..................... -- 526,287 526,287 --
---------- ---------- ---------- ----------
Net income.................... $1,617,012 $ 533,621 $ 368,807 $ 831,844
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1993 1994 1994 1995
---------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cumulative Capital
Contributions.............. $7,200,000 $ 7,200,000 $ 7,200,000 $7,200,000
========== =========== =========== ==========
SBA Permanent Capital....... $8,400,000 $ 8,400,000 $ 8,400,000 $8,400,000
========== =========== =========== ==========
Balance, Beginning of
Period..................... $8,918,704 $ 9,550,947 $ 9,550,947 $8,576,068
Net income................ 1,617,012 533,621 368,807 831,844
Distributions --
General Partner......... -- (16,000) (16,000) --
Limited Partners........ (984,769) (1,492,500) (1,492,500) (454,710)
---------- ----------- ----------- ----------
Balance, end of period...... $9,550,947 $ 8,576,068 $ 8,411,254 $8,953,202
========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------------
1993 1994 1994 1995
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income............. $ 1,617,012 $ 533,621 $ 368,807 $ 831,844
Adjustments to
reconcile net income
to net cash provided
by operating
activities --
Extraordinary charge... -- 526,287 526,287 --
Amortization of de-
ferred financing
costs................. 42,701 79,118 65,752 40,091
Depreciation and amor-
tization.............. 27,471 22,586 17,619 13,951
Reduction in allowance
for doubtful radio
loans................. -- (23,415) -- --
Changes in assets and
liabilities --
Accrued interest re-
ceivable............. 10,515 (339) 9,865 (41,000)
Deferred financing
costs................ -- (254,625) (254,625) --
Prepaid expenses and
other assets......... (70,902) 91,806 41,716 (49,580)
Accounts payable and
accrued expenses..... (331,582) (21,710) (304,600) (184,287)
Deferred income....... (29,370) (5,332) (3,040) --
------------ ------------ ------------ -----------
Net cash provided by
operating activi-
ties................ 1,265,845 947,997 467,781 611,019
Cash flows from invest-
ing activities:
Origination of new fi-
nance receivables..... (14,473,522) (15,573,645) (4,661,605) (8,412,801)
Repayments of finance
receivables........... 13,344,455 16,228,136 6,301,827 8,691,998
Collection of notes re-
ceivable.............. 126,633 272,546 89,942 --
Purchase of property
and equipment......... (20,202) (5,041) (10,295) (9,769)
Collection of receiv-
ables from radio
groups................ 67,858 -- -- --
------------ ------------ ------------ -----------
Net cash (used in)
provided by invest-
ing activities...... (954,778) 921,996 1,719,869 269,428
Cash flows from financ-
ing activities:
Premium on prepayment
of subordinated deben-
tures................. -- (526,287) (526,287) --
Proceeds from bank
loans................. 12,800,000 22,425,000 18,350,000 8,775,000
Principal payments of
bank loans............ (12,025,000) (22,325,000) (18,700,000) (9,350,000)
Distributions to part-
ners --
General partner........ -- (16,000) (16,000) --
Limited partners....... (984,769) (1,492,500) (1,492,500) (454,710)
------------ ------------ ------------ -----------
Net cash used in fi-
nancing activities.. (209,769) (1,934,787) (2,384,787) (1,029,710)
------------ ------------ ------------ -----------
Net increase (decrease)
in cash................ 101,298 (64,794) (197,137) (149,263)
Cash, beginning of peri-
od..................... 134,221 235,519 235,519 170,725
------------ ------------ ------------ -----------
Cash, end of period..... $ 235,519 $ 170,725 $ 38,382 $ 21,462
============ ============ ============ ===========
Supplemental disclosure
of cash flow informa-
tion:
Interest paid.......... $ 2,679,856 $ 2,885,512 $ 2,355,471 $ 2,142,405
============ ============ ============ ===========
New York City unincor-
porated business tax.. $ 70,038 $ 27,939 $ 27,939 $ 14,058
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Edwards Capital Company (the Partnership) is organized under the laws of the
State of New York as a Small Business Investment Company, subject to the rules
and regulations of the Federal Small Business Administration (the SBA). The
Partnership's principal activity is the financing of loans collateralized by
New York City taxicab medallions.
The Partnership has one General Partner and six classes of limited partners.
Allocations of income or loss and cash distributions are based on formulas, as
set forth in the Partnership Agreement. The formulas utilize the average prime
rate for the year, net cash receipts, as defined, and the weighted average
capital for each class of partner.
Unaudited statements of operations and cash flows for the nine months ended
September 30, 1994 are included for comparative purposes.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Finance Receivables and the Allowance for Doubtful Accounts
Finance receivables, net of participation sold to others and an allowance
for doubtful accounts, are stated at fair value. The fair value of such loans
is determined in good faith by the General Partner. The allowance for doubtful
accounts is maintained at a level that, in the General Partner's judgment, is
adequate to absorb losses inherent to the portfolio.
Finance receivables collateralized by New York City taxicab medallions are
considered fully collectible, as the value of the collateral is deemed
sufficient to assure full collection in the event of foreclosure. At
September 30, 1995, there is an allowance for doubtful accounts on receivables
collateralized by radio rights, as the value of the collateral on certain
loans is deemed insufficient.
The allowance is reviewed and adjusted periodically by the General Partner
on the basis of available information, including the fair value of the
underlying collateral; individual credit risks; past loss experience; the
volume, composition and growth of the portfolio; and current and projected
financial and economic conditions.
Interest is continued to be recognized as income on all finance receivables
that are past due, as to principal and interest, when the value of the
underlying collateral is deemed sufficient to assure full collection of the
principal and associated interest in the event of foreclosure. At September
30, 1995, the value of the underlying collateral on finance receivables was
deemed adequate.
The principal amount of loans serviced for others at December 31, 1994 and
September 30, 1995 amounted to approximately $34,918,209 and $30,251,230,
respectively.
Deferred Financing Costs
Costs incurred in connection with obtaining subordinated debenture financing
have been deferred and are being amortized on the effective interest rate
method over the terms of the loans.
F-33
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on an
accelerated method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the estimated useful life of the asset or, if
less, the life of the lease.
Origination Fees
Origination fees (included in other income) for loans are deferred and
amortized on a straight-line basis over the terms of the loans. At September
30, 1995, loan origination fees were fully amortized.
Income Taxes
The Partnership is not a taxpaying entity for income tax purposes and,
accordingly, no provision has been made for income taxes. The partners'
allocable shares of the Partnership's taxable income or loss are reportable on
their income tax returns. A provision is made for New York City unincorporated
business tax.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the current year's presentation.
(2) FINANCE RECEIVABLES
Finance receivables are interest-bearing loans that are secured by mortgages
collateralized by New York City taxicab medallion rights, taxicabs or radio
group rights, and the personal guarantees of individuals or stockholders of
corporate borrowers.
Maximum original terms of finance receivables at December 31, 1994 and
September 30, 1995 are as follows:
(ROUNDED TO 000'S)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
60 months...................................... $41,118,000 $41,064,000
84 months...................................... 1,657,000 1,630,000
120 months..................................... 692,000 494,000
----------- -----------
$43,467,000 $43,188,000
=========== ===========
</TABLE>
Contractual maturities of finance receivables at December 31, 1994 and
September 30, 1995 are approximately as follows:
(ROUNDED TO 000'S)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <S> <C>
1995.................... $ 2,520,000 1995.................... $ 3,709,000
1996.................... 5,924,000 1996.................... 3,610,000
1997.................... 5,502,000 1997.................... 6,940,000
1998.................... 8,519,000 1998.................... 14,827,000
1999.................... 20,174,000 1999.................... 13,221,000
Thereafter.............. 828,000 Thereafter.............. 881,000
----------- -----------
$43,467,000 $43,188,000
=========== ===========
</TABLE>
F-34
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Actual maturities may differ, as loans are often paid in advance of their
maturities, and loans with participation sold to others contain subordinate
prepayment provisions. During the year ended December 31, 1994 and the nine
months ended September 30, 1995, collections of loans, including prepayments,
were approximately $16,228,000 and $8,692,000, respectively.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and
September 30, 1995:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Furniture and Equipment...................... $152,931 $162,700
Leasehold Improvements....................... 38,063 38,063
-------- --------
190,994 200,763
Less -- Accumulated Depreciation and Amorti-
zation...................................... 115,645 129,596
-------- --------
$ 75,349 $ 71,167
======== ========
</TABLE>
(4) BANK LOANS PAYABLE
The Partnership has lines of credit with four banks totaling $12,500,000, of
which $10,000,000 and $9,425,000 was drawn upon at December 31, 1994 and
September 30, 1995, respectively. Interest is charged at the borrower's
option, at either the lender's prime rate or at a rate based on the adjusted
London Interbank Offered Rate (LIBOR). Under an agreement with the SBA,
Edwards was restricted from borrowing more than $10.0 million in bank debt
without the prior approval of the SBA. In January 1996, this amount was
increased to $11.5 million.
The average amount of borrowings for the year ended December 31, 1994 and
for the nine months ended September 30, 1995 was $9,740,000 and $9,518,750,
respectively.
The loans are secured by all of the Partnership's assets. Under an
intercreditor agreement, all banks share in the collateral. In addition, all
bank indebtedness is senior to SBA-guaranteed indebtedness pursuant to SBA
rules and regulations.
F-35
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(5) SUBORDINATED DEBENTURES PAYABLE
Outstanding subordinated debentures, which are guaranteed by the SBA, are as
follows at December 31, 1994 and September 30, 1995:
<TABLE>
<CAPTION>
INTEREST
DUE DATE RATE AMOUNT
-------- -------- -----------
<S> <C> <C>
September 1, 1996................................... 8.75% $ 600,000
September 1, 1996................................... 8.75 600,000
April 1, 1997....................................... 8.95 1,500,000
June 1, 1998........................................ 9.80 3,000,000
September 1, 2002................................... 7.15 3,500,000
September 1, 2002................................... 7.15 6,050,000
June 1, 2004........................................ 7.80 4,600,000
September 1, 2004................................... 8.20 5,100,000
-----------
$24,950,000
===========
</TABLE>
On June 29, 1994 and September 28, 1994, the Partnership refinanced
$4,600,000 and $5,100,000, respectively, of subordinated debentures, bearing
interest rates of 9.615% to 11.505% and 10.35%, respectively, and with
maturity dates of February 1, 1995 to December 1, 1995 and September 1, 1997,
respectively. The newly incurred debt of $4,600,000 and $5,100,000, included
above, bears interest at 7.80% and 8.20%, respectively, and matures on June 1,
2004 and September 1, 2004, respectively. The prepayment premium of $526,287,
paid in connection with these refinancings, is presented as an extraordinary
item in the accompanying statements of operations.
(6) RELATED PARTY TRANSACTIONS
The law firm of Herrick, Feinstein LLP provides legal services to the
Partnership and subleases office space to it under a lease commencing on June
1, 1992 and expiring on April 30, 1997. The lease requires minimum annual
rental payments of $40,000 and additional rentals based on increases in real
estate taxes and operating expenses over base period amounts. It is cancelable
by the firm upon giving 60 days' notice. Certain principals of the firm are
limited partners of the Partnership and are shareholders of the corporate
General Partner of the Partnership.
Rent expense and legal fees paid and accrued to Herrick, Feinstein LLP for
the years ended December 31, 1993 and 1994 and the nine months ended September
30, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, NINE MONTHS ENDED
----------------- SEPTEMBER 30,
1993 1994 1995
-------- -------- -----------------
<S> <C> <C> <C>
Rent expense.......................... $ 39,996 $ 39,996 $ 29,997
Legal fees............................ 183,295 288,985 78,564
-------- -------- --------
$223,291 $328,981 $108,561
======== ======== ========
</TABLE>
Legal fees of $80,000 were incurred and accrued to Herrick, Feinstein in
connection with the proposed sale of assets by the Partnership to Medallion
Financial Corp. (see Note 8). These costs have been deferred and are included
in prepaid expenses and other assets in the accompanying balance sheet at
September 30, 1995.
(7) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, there are outstanding commitments and
contingent liabilities that are not reflected in the financial statements.
F-36
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
At December 31, 1994 and September 30, 1995, the Partnership had an
operating lease for office space which expires in April 30, 1997 (see Note 6).
There are lawsuits pending against the Partnership in the normal course of
business. Based on its review of current litigation and discussions with legal
counsel, management does not expect that the resolution of such matters will
have a material adverse effect on the Partnership's financial condition or
results of operations.
(8) SUBSEQUENT EVENTS
On February 21, 1996, the Partnership entered into an asset purchase
agreement with Medallion Financial Corp. Under the agreement, the Partnership
will sell certain assets to Medallion Financial Corp. for a purchase price of
approximately $15,000,000 plus certain liabilities, which will be assumed by
Medallion Financial Corp.
F-37
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
SEPTEMBER 30, 1995
The distribution of loans at September 30, 1995 by rate of interest is as
follows:
<TABLE>
<CAPTION>
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ----------- --------
<S> <C> <C>
5 $ 141,513 7.82%
7 265,000 8.05
1 56,000 8.12
12 736,000 8.25
6 239,000 8.30
8 392,000 8.38
3 514,438 8.44
6 456,500 8.49
14 475,750 8.50
2 368,000 8.75
1 108,000 8.78
9 507,500 8.88
34 2,171,339 9.00
22 1,251,879 9.13
15 1,994,836 9.25
2 288,228 9.39
63 7,242,883 9.50
5 330,000 9.60
58 7,902,862 9.75
2 169,984 9.80
16 1,915,667 9.90
48 5,851,247 10.00
41 5,369,184 10.25
5 607,712 10.38
11 918,952 10.50
2 122,421 10.75
13 863,425 11.00
5 276,711 11.25
2 298,004 11.50
4 261,697 11.75
4 710,172 12.00
1 5,295 12.50
2 88,669 13.00
2 134,256 13.25
1 36,910 13.50
1 58,195 13.55
1 15,942 14.00
2 13,092 14.50
2 48,382 15.00
--- -----------
438 43,207,645 9.75%
===
Less Allowance for Doubtful
Accounts on Radio Loans.... (20,000)
-----------
$43,187,645
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
Neither TCC nor the entities that were its direct or indirect parents prior
to the closing of the Acquisitions, or any officer or director thereof has
commented upon, has reviewed, has knowledge with respect to, or takes any
responsibility for, any financial statements or other financial or business
information concerning any third party or parties.
F-39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Transportation Capital Corp.:
We have audited the accompanying balance sheet of Transportation Capital
Corp. (a New York corporation), including the financial statement schedules as
of December 31, 1994, and the related statements of operations, shareholders'
equity and cash flows for each of the two years in the period ended December
31, 1994. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of loans receivable as of December 31, 1994
by correspondence with the borrowers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transportation Capital
Corp. as of December 31, 1994, and the results of its operations and cash
flows for each of the two years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered
in relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included
therein.
As explained in Note 1, the financial statements include loans receivable
valued at $10,003,050 (53% of total assets) as of December 31, 1994, whose
values have been estimated by the Board of Directors in the absence of readily
ascertainable market values. We have reviewed the procedures used by the Board
of Directors in arriving at their estimates of value of such loans and have
inspected underlying documentation and, in the circumstances, we believe that
the procedures are reasonable and the documentation appropriate. However,
because of the inherent uncertainty of valuation, those estimated values may
differ significantly from the values that would have been used had a ready
market for the loans existed, and the differences could be material.
Coopers & Lybrand LLP
New York, New York
October 24, 1995
F-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Transportation Capital Corp.:
We have audited the accompanying balance sheet of Transportation Capital
Corp. (a New York corporation) as of September 30, 1995, including the
schedule of investments other than investments in affiliates and schedule of
loans as of September 30, 1995, the related statements of operations,
shareholders' equity and cash flows for the nine months ended September 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included the confirmation of loans receivable as of September 30,
1995 by correspondence with the borrowers. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transportation Capital
Corp. as of September 30, 1995, and the results of its operations and cash
flows for the nine months ended September 30, 1995, in conformity with
generally accepted accounting principles.
As explained in Note 1, the financial statements include loans receivable
valued at $9,129,489 (53% of total assets) as of September 30, 1995, whose
values have been estimated by the Board of Directors in the absence of readily
ascertainable market values. We have reviewed the procedures used by the Board
of Directors in arriving at their estimates of value of such loans and have
inspected underlying documentation and, in the circumstances, we believe that
the procedures are reasonable and the documentation appropriate. However,
because of the inherent uncertainty of valuation, those estimated values may
differ significantly from the values that would have been used had a ready
market for the loans existed, and the differences could be material.
Arthur Andersen LLP
Boston, Massachusetts
November 8, 1995 (except with
respect to the matter discussed in
Note 12, as to which the date is
February 12, 1996)
F-41
<PAGE>
TRANSPORTATION CAPITAL CORP.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Loans Receivable.................................... $10,980,900 $ 9,818,765
Allowance for Loan Losses........................... (977,850) (689,276)
----------- -----------
Loans receivable, at fair value................... 10,003,050 9,129,489
Cash and Cash Equivalents........................... 8,199,210 7,730,158
Accrued Interest Receivable......................... 147,938 134,708
Furniture, Fixtures and Leasehold Improvements, at
cost, less accumulated depreciation of $7,960 and
$11,137............................................ 16,210 17,373
Other Assets........................................ 188,274 69,243
Deferred Income Taxes............................... 396,200 276,400
----------- -----------
Total assets.................................... $18,950,882 $17,357,371
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to Small Business Administra-
tion............................................. $ 7,930,000 $ 6,730,000
Accrued interest payable.......................... 73,388 125,640
Accrued expenses.................................. 125,511 141,134
----------- -----------
Total liabilities............................... 8,128,899 6,996,774
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
3% Cumulative preferred stock, $1,000 par value--
Authorized--9,000 shares
Issued and outstanding--3,383 1/3 shares in 1994
and none in 1995............................... 3,383,333 --
Common stock, $.125 par value--
Authorized--5,000,000 shares
Issued and outstanding--100 shares.............. 13 13
Additional paid-in capital........................ 6,565,289 7,749,456
Restricted contributed capital surplus............ -- 2,199,166
Accumulated undistributed net investment income... 5,577,636 4,958,291
Accumulated undistributed net realized loan loss-
es............................................... (4,116,938) (4,132,353)
Net unrealized depreciation on loans.............. (587,350) (413,976)
----------- -----------
Total shareholders' equity...................... 10,821,983 10,360,597
----------- -----------
Total liabilities and shareholders' equity...... $18,950,882 $17,357,371
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1993 1994 1994 1995
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest from small business
concerns (net of interest to
participants)................ $2,995,747 $2,001,527 $1,562,571 $1,072,144
Interest from treasury bills.. 114,302 215,353 145,867 328,141
---------- ---------- ---------- ----------
3,110,049 2,216,880 1,708,438 1,400,285
---------- ---------- ---------- ----------
EXPENSES:
Interest...................... 1,063,563 708,695 584,039 358,729
Salaries...................... 256,833 246,874 188,481 172,011
Legal and other professional
fees......................... 719,248 356,162 277,659 269,417
Rent expense.................. 115,072 58,046 52,469 20,953
General and administrative.... 178,746 50,533 118,682 123,570
---------- ---------- ---------- ----------
2,333,462 1,420,310 1,221,330 944,680
---------- ---------- ---------- ----------
INVESTMENT INCOME BEFORE INCOME
TAXES......................... 776,587 796,570 487,108 455,605
INCOME TAX (PROVISION) BENE-
FIT........................... 204,930 (342,948) (215,650) (201,601)
---------- ---------- ---------- ----------
Net investment income........ 981,517 453,622 271,458 254,004
---------- ---------- ---------- ----------
REALIZED LOAN LOSSES BEFORE
INCOME TAXES.................. (68,933) (144,058) (70,339) (27,592)
INCOME TAX BENEFIT............. 18,138 59,748 29,250 12,177
---------- ---------- ---------- ----------
Net realized loan losses..... (50,795) (84,310) (41,089) (15,415)
---------- ---------- ---------- ----------
CHANGE IN UNREALIZED
DEPRECIATION ON LOANS BEFORE
INCOME TAXES.................. 231,867 790,283 490,007 288,574
DEFERRED INCOME TAX (PROVISION)
BENEFIT....................... 760,200 (369,700) (210,600) (115,200)
---------- ---------- ---------- ----------
NET CHANGE IN UNREALIZED
DEPRECIATION ON LOANS......... 992,067 420,583 279,407 173,374
---------- ---------- ---------- ----------
Increase in net assets from
operations................... $1,922,789 $ 789,895 $ 509,776 $ 411,963
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
PREFERRED STOCK COMMON STOCK RESTRICTED UNDISTRIBUTED UNDISTRIBUTED
------------------------ ---------------------- ADDITIONAL CONTRIBUTED NET NET
SHARES SHARES PAID-IN CAPITAL INVESTMENT REALIZED
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL SURPLUS INCOME LOAN LOSSES
----------- ----------- ----------- --------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY
1, 1993........ 3,383 1/3 $ 3,383,333 2,364,723 $ 295,590 $6,265,790 $ -- $4,142,497 $(3,981,833)
Net investment
income......... -- -- -- -- -- -- 981,517 --
Net realized
loan losses.... -- -- -- -- -- -- -- (50,795)
Net change in
unrealized
depreciation on
loans.......... -- -- -- -- -- -- -- --
Issuance of
common stock,
$4.50 per
share.......... -- -- 122,081 15,261 534,107 -- -- --
Distributions on
3% cumulative
preferred
stock.......... -- -- -- -- (64,600) -- -- --
Distributions on
common stock,
$.205 per
share.......... -- -- -- -- (484,768) -- -- --
---------- ----------- ---------- --------- ---------- ---------- ---------- -----------
BALANCE,
DECEMBER 31,
1993........... 3,383 1/3 3,383,333 2,486,804 310,851 6,250,529 -- 5,124,014 (4,032,628)
Merger of TCC
Purchase Co.... -- -- (2,486,704) (310,838) 314,760 -- -- --
Net investment
income......... -- -- -- -- -- -- 453,622 --
Net realized
loan losses.... -- -- -- -- -- -- -- (84,310)
Net change in
unrealized
depreciation on
loans.......... -- -- -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- ---------- ---------- -----------
BALANCE,
DECEMBER 31,
1994........... 3,383 1/3 3,383,333 100 13 6,565,289 -- 5,577,636 (4,116,938)
Net investment
income......... -- -- -- -- -- -- 254,004 --
Net realized
loan losses.... -- -- -- -- -- -- -- (15,415)
Net change in
unrealized
depreciation on
loans.......... -- -- -- -- -- -- -- --
Capital
contribution... -- -- -- -- 310,818 -- -- --
Capitalization
of accumulated
undistributed
net investment
income......... -- -- -- -- 873,349 -- (873,349) --
Repurchase of 3%
preferred
stock.......... (3,383 1/3) (3,383,333) -- -- -- 2,199,166 -- --
---------- ----------- ---------- --------- ---------- ---------- ---------- -----------
BALANCE,
SEPTEMBER 30,
1995........... -- $ -- 100 $ 13 $7,749,456 $2,199,166 $4,958,291 $(4,132,353)
========== =========== ========== ========= ========== ========== ========== ===========
<CAPTION>
NET
UNREALIZED TOTAL
DEPRECIATION SHAREHOLDERS'
ON LOANS EQUITY
------------- -------------
<S> <C> <C>
BALANCE, JANUARY
1, 1993........ $(2,000,000) $ 8,105,377
Net investment
income......... -- 981,517
Net realized
loan losses.... -- (50,795)
Net change in
unrealized
depreciation on
loans.......... 992,067 992,067
Issuance of
common stock,
$4.50 per
share.......... -- 549,368
Distributions on
3% cumulative
preferred
stock.......... -- (64,600)
Distributions on
common stock,
$.205 per
share.......... -- (484,768)
------------- -------------
BALANCE,
DECEMBER 31,
1993........... (1,007,933) 10,028,166
Merger of TCC
Purchase Co.... -- 3,922
Net investment
income......... -- 453,622
Net realized
loan losses.... -- (84,310)
Net change in
unrealized
depreciation on
loans.......... 420,583 420,583
------------- -------------
BALANCE,
DECEMBER 31,
1994........... (587,350) 10,821,983
Net investment
income......... -- 254,004
Net realized
loan losses.... -- (15,415)
Net change in
unrealized
depreciation on
loans.......... 173,374 173,374
Capital
contribution... -- 310,818
Capitalization
of accumulated
undistributed
net investment
income......... -- --
Repurchase of 3%
preferred
stock.......... -- (1,184,167)
------------- -------------
BALANCE,
SEPTEMBER 30,
1995........... $ (413,976) $10,360,597
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------------
1993 1994 1994 1995
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Increase in net assets
from operations....... $ 1,922,789 $ 789,895 $ 509,776 $ 411,963
Adjustments to
reconcile increase in
net assets from
operations to net cash
provided by (used for)
operating
activities --
Change in unrealized
depreciation on
loans................. (231,867) (790,283) (490,007) (288,574)
Effect of change in tax
status................ (1,057,000) -- -- --
Provision for deferred
taxes................. 111,000 549,800 385,000 119,800
Depreciation and
amortization.......... 13,500 14,199 10,708 10,882
Realized loan losses... 68,933 144,058 70,339 27,592
Net change in --
Accrued interest
receivable........... (20,752) 141,191 88,262 13,230
Other assets.......... (196,428) (102,185) (59,871) 111,325
Accrued interest
payable.............. (36,290) (148,943) (28,563) 52,252
Accrued expenses...... 35,695 (462,757) (580,270) 15,623
------------ ------------ ----------- -----------
Net cash provided by
(used for) operating
activities.......... 609,580 134,975 (94,626) 474,093
------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Principal collected on
loans................. 15,501,264 19,628,701 14,501,399 11,043,336
Advances on loans...... (13,175,044) (12,682,418) (9,046,139) (9,908,793)
Furniture, fixtures and
office equipment...... (8,878) 3,500 3,500 (4,339)
------------ ------------ ----------- -----------
Net cash provided by
investing
activities.......... 2,317,342 6,949,783 5,458,760 1,130,204
------------ ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repurchase of preferred
stock from SBA........ -- -- -- (1,184,167)
Repayment of debentures
payable to SBA........ (675,000) (2,800,000) (1,800,000) (1,200,000)
Repayment of bank
debt.................. (4,131,500) -- -- --
Capital contribution... -- -- -- 310,818
Merger of TCC Purchase
Co.................... -- 3,922 3,922 --
Distributions on
preferred stock....... (64,600) -- -- --
Distributions on common
stock................. (484,768) -- -- --
Issuance of common
stock................. 549,368 -- -- --
------------ ------------ ----------- -----------
Net cash used for
financing
activities.......... (4,806,500) (2,796,078) (1,796,078) (2,073,349)
------------ ------------ ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (1,879,578) 4,288,680 3,568,056 (469,052)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 5,790,108 3,910,530 3,910,530 8,199,210
------------ ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 3,910,530 $ 8,199,210 $ 7,478,586 $ 7,730,158
============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for --
Interest............... $ 1,099,851 $ 857,638 $ 612,602 $ 306,477
============ ============ =========== ===========
Net income tax
payments.............. $ -- $ 132,852 $ 143,925 $ 149,110
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Transportation Capital Corp. (the Company), a New York corporation, is an
indirect wholly owned subsidiary of Leucadia National Corporation (Leucadia)
and is licensed by the Small Business Administration (SBA) to operate as a
specialized small business investment company (SSBIC) under the Small Business
Investment Act of 1958, as amended. The Company was also registered as an
investment company under the Investment Company Act of 1940, as amended (the
Investment Company Act). On January 4, 1994, pursuant to the Company's
application, the Securities and Exchange Commission issued a conditional order
under Section 8(f) of the Investment Company Act declaring that the Company
had ceased to be a registered investment company. Termination of the Company's
registration under the Investment Company Act has not affected the Company's
regulation by the SBA, its status as a SSBIC, or its results of operation or
financial position. On August 30, 1994, TCC Purchase Co., an indirect wholly
owned subsidiary of Leucadia, merged with the Company and concurrently
increased Leucadia's ownership of the Company's common shares from 99% to
100%.
In 1993, the Company changed its year-end from June 30 to December 31. The
1993 statements of operations, changes in shareholders' equity and cash flows
present results for the 12 months ended December 31, 1993.
The 1993 financial statements present captions that are consistent with
those used for 1994. In certain cases, they differ from captions presented in
previously issued financial statements as of and for the year ended June 30,
1993 and as of and for the six months ended December 31, 1993. Such changes
include presenting net realized loan losses and the change in unrealized
depreciation on loans separately in the statement of operations. Additionally,
accumulated undistributed net realized loan losses and net unrealized
depreciation on loans are presented separately in the balance sheet and the
statement of changes in shareholders' equity.
Unaudited statements of operations and cash flows for the nine months ended
September 30, 1994 are included for comparative purposes. Information included
in these Notes to Financial Statements as of and for the period ended
September 30, 1994 is unaudited.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Loans and the Allowance for Loan Losses
Loans, net of participation sold to other lenders and an allowance for
possible losses, are stated at fair value. The fair value of such loans is
determined in good faith by the Board of Directors. The allowance for loan
losses is maintained at a level that, in the Board of Director's judgment, is
adequate to absorb losses inherent in the portfolio.
The allowance is reviewed and adjusted periodically by the Board of
Directors on the basis of available information, including the fair value of
the underlying collateral; individual credit risks; past loss experience; the
volume, composition and growth of the portfolio; and current and projected
economic conditions. Assets acquired in satisfaction of loans are carried at
estimated net realizable value.
A fully collateralized loan is placed on nonearning status once it becomes
180 days past due as to principal and interest. Loans that are not fully
collateralized are placed on nonearning status when they are 90 days past due
as to principal or interest. Interest on nonearning loans is recognized as
income when collected.
F-46
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Realized Loan Losses
Realized loan losses consist of write-offs of loans or assets acquired in
satisfaction of loans, net of recoveries.
All unrealized changes in the value of loans, including the provision for
losses, are included in the caption net change in unrealized depreciation on
loans, which is net of income tax effect. Net unrealized depreciation on loans
at December 31, 1994 and September 30, 1995 is net of deferred income taxes of
$390,500 and $275,300, respectively.
Depreciation and Amortization
Depreciation and amortization of furniture, fixtures, office equipment, and
leasehold improvements is computed using straight-line and accelerated methods
at rates adequate to allocate the cost of applicable assets over their
estimated useful lives or, if less, the term of the lease. Depreciation and
amortization amounted to $3,925, $3,226, and $3,177 for the years ended
December 31, 1994 and 1993, and for the nine months ended September 30, 1995,
respectively.
Income Taxes
For the period January 1, 1993 through June 30, 1993, the Company qualified
as a regulated investment company (RIC) under the Internal Revenue Code of
1986, as amended. To avoid a federal income tax liability, a RIC is required
to distribute to its shareholders as dividends at least 90% of its investment
company taxable income for each fiscal year, as well as meet certain other
requirements. The Company was not taxable during this period. Upon termination
of the Company's registration under the Investment Company Act, its status as
a nontaxable RIC was also terminated retroactive to July 1, 1993. Beginning
July 1, 1993, the Company's results of operations are reported in the
consolidated federal income tax return filed by its ultimate parent company,
Leucadia.
The Company and Leucadia have entered into a tax sharing agreement pursuant
to which the Company makes payments to (or receives payments from) Leucadia
consisting of the tax liability that the Company would incur if it filed a
separate federal income tax return.
The Company provides for income taxes using the liability method under
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under the liability method, deferred income taxes are provided
at the statutory rates for differences between the tax and accounting bases of
substantially all assets and liabilities and for carryforwards. A valuation
allowance is provided if deferred tax assets are not considered more likely
than not to be realized.
Cash and Cash Equivalents
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
loan receivables.
The Company considers short-term instruments with original maturities of
three months or less, measured from their acquisition date, to be cash
equivalents. Cash and cash equivalents consist of cash in banks and U.S.
Treasury bills at market value.
Noncash Investing Activities
During the years ended 1994 and 1993 and the nine months ended September 30,
1995, the Company refinanced loans amounting to $1,041,933, $7,222,212 and
$587,583, respectively.
F-47
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(2) LOANS RECEIVABLE
Nonearning and reduced rate loans outstanding were approximately $224,000
and $90,600 at December 31, 1994 and September 30, 1995, respectively. At
December 31, 1994 and September 30, 1995, there were no commitments to loan
additional funds to borrowers whose loans were classified as nonearning or
reduced rate.
Transactions in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- -------------
SEPTEMBER 30,
1993 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
Balance, beginning............... $ 2,000,000 $ 1,768,133 $ 977,850
Charge-offs...................... (232,360) (176,975) (37,063)
Recoveries....................... 163,427 32,917 9,471
Interest income deferred (re-
ceived)......................... 289,430 (289,430) --
Reduction in allowance........... (452,364) (356,795) (260,982)
------------ ------------ ---------
Balance, ending.................. $ 1,768,133 $ 977,850 $ 689,276
============ ============ =========
</TABLE>
The 1993 provision for deferred interest income is against interest not
previously recognized on 1992 nonearning loans. These loans were subsequently
restructured in 1993 to include the interest in the loan principal, but
management considered their recovery doubtful. The provision was reversed in
1994 upon collection of the restructured loans.
(3) DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
Debentures payable to the SBA at December 31, 1994 and September 30, 1995
consisted of subordinated debentures with the following maturities and
interest rates (interest is payable semi-annually):
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
-----------------------------
1994 1995 DUE DATE INTEREST RATE
---------- ---------- -------- ----------------
<S> <C> <C> <C>
$1,200,000 $ -- 09/11/95 10.50% per annum
1,090,000 1,090,000 05/07/96 7.375% per annum
5,640,000 5,640,000 06/01/02 5.000% per annum
---------- ---------- through 5/31/97,
8% thereafter
$7,930,000 $6,730,000
========== ==========
</TABLE>
Under the terms of the subordinated debentures, the Company may not
repurchase or retire any of its capital stock, make any distributions to its
shareholders other than dividends out of accumulated undistributed net
investment income (as computed in accordance with SBA regulations) or increase
salaries under certain conditions without the prior written approval of the
SBA.
In 1993, the SBA permitted the Company to make the recorded distributions
from additional paid-in capital on the condition that the Company paid all
current and accrued preferred dividends and that the Company's shareholders
contributed additional capital in the aggregate amount of all dividends paid.
As a result, during the year ended December 31, 1993, the Company's then
largest shareholder acquired from the Company 122,081 newly issued common
shares for an aggregate purchase price of $549,368 ($4.50 per share).
F-48
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(4) SHAREHOLDERS' EQUITY
Effective February 19, 1986, the Company adopted an Employee Incentive Stock
Option Plan (the Plan), which expires on February 18, 1996. Under the Plan,
the Company may grant options to purchase 24,000 shares of common stock at not
less than the fair market value of the shares on the date of grant. There are
no outstanding options issued under the Plan, and the Company does not intend
to issue any.
At December 31, 1994, the Company had 3,383 1/3 shares of preferred stock
issued to the SBA which bear dividends of 3% per annum. Dividends are not
required to be paid to the SBA on an annual or other periodic basis as long as
cumulative dividends are paid to the SBA before any other payments are made to
investors. Cumulative dividends not declared or paid as of December 31, 1994
were $143,400.
On August 14, 1995, the Company repurchased and retired all of its 3%
preferred stock owned by the SBA at a discount of 65% under an SBA 3%
preferred stock repurchase agreement dated March 22, 1995. The purchase price
of the preferred stock was $1,184,167. The funds paid to the SBA were obtained
from a $310,818 capital contribution from the Company's sole shareholder, LNC
Investments, Inc., and a $873,349 capitalization of accumulated undistributed
net investment income, in accordance with Appendix I to Part 107 of the SBA
rules and regulations. As a result, the accumulated undistributed net
investment income was reduced, and the additional paid-in capital was
increased by $873,349; the net effect was the same as if the Company had made
a distribution to its shareholders, who then reinvested the same amount in the
Company.
The amount of the discount was recorded as an increase in capital in an
account separate from additional paid-in capital, as restricted contributed
capital surplus account. Under the repurchase agreement, the SBA retains a
liquidating interest in the amount of the discount on the repurchase, which
expires on a straight-line basis over five years or on a later date if an
event of default, as defined in the repurchase agreement, has occurred and
such default has been cured or waived. Upon the occurrence of any event of
default, the SBA's liquidating interest will become fixed at the level
immediately preceding the event of default and will not amortize further until
the default is cured or waived.
While the liquidating interest expires over a five-year period, the balance
in the restricted contributed capital surplus account remains unchanged in
accordance with the SBA requirements. The SBA requires this treatment because
the additional equity obtained as a result of the repurchase transaction is
subject to certain restrictions which remain even after the liquidating
interest has been eliminated.
In the event of the Company's liquidation, the unexpired portion of the
liquidating interest becomes immediately payable to the SBA. In addition, the
SBA retains a residual interest in the preferred dividends in arrears at March
22, 1995 in the amount of $152,250, which also expires on a straight-line
basis over five years. In the event of a change in ownership or liquidation of
the Company, unexpired dividends become immediately payable to the SBA.
At September 30, 1995, the unamortized amounts of the SBA's liquidating
interest in the restricted contributed capital surplus was $1,979,250, and the
residual interest in the cumulative dividends not declared or paid was
$137,025.
There are 9,000 shares of redeemable preferred stock authorized, of which
none has been issued. Such shares, which may be issued only to the SBA, would
have a par value of $1,000 per share, bear cumulative annual dividends of 4%
and would be required to be redeemed 15 years after issuance.
F-49
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(5) INCOME TAXES
The provisions (benefits) for income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------
1993 1994 1994 1995
------------ ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net investment income --
Current --
Federal.................... $ (38,107) $110,233 $ 21,166 $128,040
State...................... 18,977 52,615 20,084 68,961
------------ ----------- -------- --------
(19,130) 162,848 41,250 197,001
------------ ----------- -------- --------
Deferred --
Federal.................... (146,900) 142,500 138,500 3,600
State...................... (38,900) 37,600 35,900 1,000
------------ ----------- -------- --------
(185,800) 180,100 174,400 4,600
------------ ----------- -------- --------
$(204,930) $342,948 $215,650 $201,601
============ =========== ======== ========
Net realized loan losses --
Current --
Federal.................... $ (17,155) $ (43,433) $(21,166) $ (7,940)
State...................... (983) (16,315) (8,084) (4,237)
------------ ----------- -------- --------
$ (18,138) $ (59,748) $(29,250) $(12,177)
============ =========== ======== ========
Net change in unrealized de-
preciation on loans --
Deferred --
Federal.................... $(601,100) $298,600 $166,500 $ 89,200
State...................... (159,100) 71,100 44,100 26,000
------------ ----------- -------- --------
$(760,200) $369,700 $210,600 $115,200
============ =========== ======== ========
</TABLE>
The following is a reconciliation of income taxes at the expected statutory
federal income tax to the actual income tax provision (benefit):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------SEPTEMBER 30,
1993 1994 1995
------------ -------------------------
<S> <C> <C> <C>
Net investment income --
Expected federal income tax........... $ 264,039 $ 270,834 $154,906
State income taxes, net of federal in-
come tax benefit..................... 968 59,542 46,174
Effect of change in tax status........ (156,500) -- --
Benefit from nontaxable RIC status.... (257,960) -- --
Other................................. (55,477) 12,572 521
------------ ----------- --------
$ (204,930) $ 342,948 $201,601
============ =========== ========
</TABLE>
Included in other in 1993 is the reversal of $57,000, which was accrued as
of December 31, 1992, in anticipation of a change to taxable status at that
date. Ultimately, the Company retained its nontaxable status through June 30,
1993 and reversed the 1992 accrual in 1993.
F-50
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- SEPTEMBER 30,
1993 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
Net realized loan losses --
Expected federal income tax.......... $ (23,437) $ (48,980) $ (9,381)
State income taxes, net of federal
income tax benefit.................. (86) (10,768) (2,796)
Other................................ 5,385 -- --
------------ ----------- --------
$ (18,138) $ (59,748) $(12,177)
============ =========== ========
Net change in unrealized depreciation
on loans --
Expected federal income tax.......... $ 78,835 $ 268,696 $ 98,115
State income taxes, net of federal
income tax benefit.................. 16,900 46,926 17,142
Effect of change in tax status....... (900,500) -- --
Other................................ 44,565 54,078 (57)
------------ ----------- --------
$ (760,200) $ 369,700 $115,200
============ =========== ========
</TABLE>
The principal components of the deferred tax asset at December 31, 1994 and
September 30, 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
--------------------------- ---------------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan loss-
es..................... $302,494 $88,006 $390,500 $213,300 $62,000 $275,300
Interest................ 5,672 1,604 7,276 2,041 594 2,635
Depreciation............ (1,266) (310) (1,576) (1,241) (294) (1,535)
-------- ------- -------- -------- ------- --------
$306,900 $89,300 $396,200 $214,100 $62,300 $276,400
======== ======= ======== ======== ======= ========
</TABLE>
The Company believes it is more likely than not that the recorded deferred
tax asset will be realized; such realization is expected to result principally
from taxable income generated by profitable operations.
(6) TRANSACTIONS WITH AFFILIATES
In May 1994, the Company entered into a one-year management agreement with a
subsidiary of Leucadia pursuant to which the subsidiary agreed to perform
certain general, administrative and accounting functions for an annual fee of
$180,000 with subsequent annual increases to be determined according to
increases in the consumer price index. This agreement shall continue in full
force and effect after the initial one-year term so long as it is approved on
an annual basis by the Company's Board of Directors. This agreement may be
terminated by either party at any time, without the payment of any penalty, on
thirty days' written notice.
Prior to May 1994, the Company reimbursed Leucadia for providing the
services of one of its officers who serves as the Chairman of the Board,
President and Chief Executive Officer of the Company.
Amounts charged to results of operations under these arrangements were
$180,000 during each of the years ended December 31, 1994 and 1993 and
$136,760 during the nine months ended September 30, 1995.
(7) DIRECTORS' AND OFFICERS' COMPENSATION
Directors' Compensation amounted to $6,900, $25,000 and $2,400 and Officers'
compensation amounted to $159,466, $123,945 and $134,709 during the years
ended December 31, 1994 and 1993 and the nine months ended September 30, 1995,
respectively.
F-51
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(8) PENSION PLAN
The Company maintained a defined benefit pension plan to provide retirement
benefits for those employees who were eligible to participate in the plan.
Benefits accrued under the plan were frozen on July 14, 1990, and all
participating employees became fully vested. On December 31, 1994, the
Company's plan was merged into Leucadia's defined benefit pension plan. As of
the merger date, the Company recorded a net asset of $113,814 and reduced
pension expense. The net asset reflects the overfunding of the Company's plan
as of the merger date, reduced by the projected benefit obligation liability
associated with granting the Company's employees retroactive coverage under
the Leucadia formula for service after July 14, 1990. During the nine months
ended September 30, 1995, the Company made contributions to Leucadia's plan
based on its allocable share of expenses in the amount of $12,000.
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingent liabilities that are not reflected in the financial statements. At
September 30, 1995, the Company had outstanding loan commitments of $740,300,
which bear interest at rates ranging from 12% to 14%. Management does not
expect any material losses to result from these matters.
At December 31, 1994 and September 30, 1995, the Company had operating
leases for office space expiring through July 1997. Future minimum annual
rental commitments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
1995....................... $20,900 $ 5,500
1996....................... 19,800 19,800
1997....................... 8,800 8,800
------- -------
$49,500 $34,100
======= =======
</TABLE>
In addition, the Company is subject to additional rent based upon increases
in the Consumer Price Index.
There are various lawsuits pending against the Company. In the opinion of
management, after consultation with counsel, it is remote that losses, if any,
arising from such claims will be material to the financial position or results
of operations of the Company.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about certain financial
instruments, whether or not recognized on the balance sheet. Where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In addition, SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Therefore, the aggregate fair value amounts presented do not
purport to represent and should not be considered representative of the
underlying market or franchise value of the Company.
The methods and assumptions used to estimate the fair value of each class of
the financial instruments are described below:
Loans Receivable -- As described in Note 1, the carrying amount of loans
receivable is the estimated fair value of such loans.
F-52
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Cash and Cash Equivalents -- For short-term investments, the carrying amount
approximates fair value.
Debentures Payable to SBA -- The fair value of the debentures payable to SBA
is estimated based upon current market interest rates for similar debt.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets --
Loans receivable................. $10,003,050 $10,003,050 $9,129,489 $9,129,489
Cash and cash equivalents........ 8,199,210 8,199,210 7,730,158 7,730,158
Financial liabilities --
Debentures payable to SBA........ 7,930,000 7,794,000 6,730,000 7,097,000
</TABLE>
(11) SHAREHOLDER LITIGATION
The Company has settled certain litigation related to past allegations of
violations of SBA regulations and securities laws. Related settlements
required that former officers of the Company pay $677,000 to the Company in
the year ended December 31, 1992 and that the Company pay plaintiffs' legal
fees amounting to $368,788 in the year ended December 31, 1994. Of the amount
paid by the Company, $66,000 was reimbursed by former officers of the Company.
As of December 31, 1993, the Company had accrued an estimated settlement of
$356,000 related to the past allegations.
As a result of the allegations, the Division of Enforcement of the
Securities and Exchange Commission (SEC) conducted an informal investigation
into the Company's affairs. In the year ended December 31, 1994, a former
officer of the Company settled federal charges with the SEC, concluding the
SEC's investigation.
(12) SUBSEQUENT EVENT
On February 12, 1996, the Company entered into a stock purchase agreement
with Medallion Financial Corp. Under the agreement, Leucadia will sell, and
Medallion Financial Corp. will purchase, all of the outstanding shares of
capital stock of the Company for a purchase price based upon net book value,
as defined in the agreement (approximately $10,000,000).
As discussed in Note 4, under the terms of the preferred stock repurchase
agreement with the SBA, a change in ownership of the Company would result in
the unexpired portion of the dividends becoming payable to the SBA. The
transaction with Medallion Financial Corp. is subject to SBA approval. It is
anticipated that such approval will include a waiver of this provision.
F-53
<PAGE>
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF INVESTMENTS OTHER THAN INVESTMENTS IN AFFILIATES
<TABLE>
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
---------------------------------------------- -------------------------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
LOANS BY COLLATERAL TYPE OF LOANS BALANCE FAIR VALUE BOOK VALUE OF LOANS BALANCE FAIR VALUE BOOK VALUE
------------------------ -------- ----------- ----------- ----------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MEDALLIONS:
New York............... 20 $ 1,271,544 $ 1,271,544 $ 1,271,544 18 $ 961,917 $ 960,397 $ 960,397
Boston................. 91 4,383,344 4,357,462 4,357,462 85 3,701,666 3,681,362 3,681,362
Cambridge.............. 37 1,375,401 1,374,401 1,374,401 41 1,689,965 1,658,745 1,658,745
Chicago................ 82 1,549,963 1,537,560 1,537,560 87 1,696,784 1,694,584 1,694,584
Newark................. 17 218,989 186,019 186,019 12 171,289 153,742 153,742
--- ----------- ----------- ----------- --- ---------- ---------- ----------
Total medallions....... 247 8,799,241 8,726,986 8,726,986 243 8,221,621 8,148,830 8,148,830
NEW YORK RADIO CARS..... 49 924,856 387,444 387,444 37 639,010 246,774 246,774
MINUTEMAN RECEIVABLES... 3 1,254,460 886,315 886,315 3 955,903 731,654 731,654
OTHERS.................. 2 6,108 6,070 6,070 1 1,225 1,225 1,225
--- ----------- ----------- ----------- --- ---------- ---------- ----------
Subtotal............... 301 10,984,665 10,006,815 10,006,815 284 9,817,759 9,128,483 9,128,483
RECEIVABLE FOR
FORECLOSURE EXPENSES... -- 21,707 21,707 21,707 -- 22,574 22,574 22,574
UNAPPLIED COLLECTIONS... -- (25,472) (25,472) (25,472) -- (21,568) (21,568) (21,568)
--- ----------- ----------- ----------- --- ---------- ---------- ----------
Total loans receivable,
net................... 301 $10,980,900 $10,003,050 $10,003,050 284 $9,818,765 $9,129,489 $9,129,489
=== =========== =========== =========== === ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
DECEMBER 31, 1994
It is the Company's policy to make loans to persons who qualify under Small
Business Administration regulations as socially or economically disadvantaged
and to entities which are at least 50%-owned by such persons.
Substantially all of the Company's loans are for the purpose of financing
the purchase of New York City, Boston, Cambridge, Chicago and Newark taxi
medallions, taxi cabs, car radio rights, radio cars and related assets (the
Collateral). It is the Company's policy that these loans are collateralized by
a first priority perfected security interest in the collateral.
The distribution of loans at December 31, 1994 by rate of interest is as
follows:
<TABLE>
<CAPTION>
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ----------- --------
<S> <C> <C>
2 $ 135,205 9.50%
3 231,174 10.00
1 108,059 10.50
10 529,752 11.00
63 3,013,981 12.00
2 92,082 12.50
16 505,202 13.00
4 68,126 13.25
63 2,317,243 13.50
8 364,819 13.75
31 1,481,519 14.00
21 560,112 14.25
6 92,796 14.50
5 202,875 14.75
29 638,383 15.00
2 51,821 15.25
6 161,570 15.50
14 173,937 15.75
1 21,656 16.00
1 761 16.25
5 79,102 16.50
7 141,332 16.75
1 13,158 17.00
-----------
301 10,984,665 13.16
RECEIVABLES FOR
FORECLOSURE EXPENSES............................... 21,707
UNAPPLIED COLLECTIONS............................... (25,472)
-----------
$10,980,900
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
SEPTEMBER 30, 1995
The distribution of loans at September 30, 1995 by rate of interest is as
follows:
<TABLE>
<CAPTION>
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ----------- --------
<S> <C> <C>
2 $ 120,714 9.50%
3 128,920 10.00
1 103,688 10.50
9 359,104 11.00
56 2,309,405 12.00
2 72,338 12.50
41 1,117,567 13.00
4 35,512 13.25
52 1,830,549 13.50
7 287,996 13.75
43 2,176,264 14.00
20 478,555 14.25
4 54,229 14.50
3 116,895 14.75
17 240,070 15.00
2 43,167 15.25
3 116,233 15.50
6 40,799 15.75
1 15,845 16.00
2 65,406 16.50
5 97,244 16.75
1 7,259 17.00
----------
284 9,817,759 13.18
RECEIVABLES FOR FORECLOSURE EXPENSES................... 22,574
UNAPPLIED COLLECTIONS.................................. (21,568)
----------
$9,818,765
==========
<CAPTION>
PERCENT
--------
<S> <C> <C>
COMPOSITION OF LOAN PORTFOLIO:
New York medallions................................... $ 961,917 9.80
New York radios and others............................ 640,235 6.52
New York minuteman receivables........................ 955,903 9.74
Newark medallions..................................... 171,289 1.75
Boston medallions..................................... 3,701,666 37.70
Cambridge medallions.................................. 1,689,965 17.21
Chicago medallions.................................... 1,696,784 17.28
---------- ------
Total composition of loan portfolio.................. $9,817,759 100.00%
========== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
Total Medallion and Commercial Loan Portfolio and
Gross Loan Serviced for Third Parties
[BAR GRAPH APPEARS HERE]
Total Medallion and Commercial Installment Loan Portfolio
[BAR GRAPH APPEARS HERE]
Total Commercial Installment Loan Portfolio
[BAR GRAPH APPEARS HERE]
<PAGE>
Price of New York City Medallions
[GRAPH APPEARS HERE]
Gross Loans Serviced for Third Parties
[BAR GRAPH APPEARS HERE]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY MEDALLION FINANCIAL CORP. OR BY ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER AT ANY TIME IMPLIES THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
The Company.............................................................. 18
Additional Information................................................... 21
Distributions............................................................ 22
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Dilution................................................................. 25
Selected Financial Data.................................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 46
Investment Objectives, Policies and Restrictions......................... 60
Management............................................................... 63
Principal Stockholders................................................... 67
Certain Transactions..................................................... 67
Determination of Net Asset Value......................................... 68
Dividend Reinvestment Plan............................................... 69
Federal Income Tax Considerations ....................................... 71
Description of Capital Stock............................................. 74
Regulation............................................................... 77
Shares Eligible for Future Sale.......................................... 80
Underwriting............................................................. 82
Custodian, Transfer Agent, Dividend Disbursing Agent and Registrar....... 83
Reports to Stockholders.................................................. 83
Validity of Shares....................................................... 83
Experts.................................................................. 83
Index to Financial Statements............................................ F-1
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 SHARES
MEDALLION FINANCIAL CORP.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
----------------
PROSPECTUS
----------------
FURMAN SELZ
J.C. BRADFORD & CO.
EVEREN SECURITIES, INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART C
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements.
The following financial statements are included in the Prospectus on
the identified pages.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MEDALLION FINANCIAL CORP.
Introduction to Pro Forma Combined Financial Statements.................. F-2
Pro Forma Combined Balance Sheet at September 30, 1995 (unaudited)....... F-3
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1995 (unaudited).......................................... F-4
Pro Forma Combined Statement of Operations for the year ended December
31, 1994 (unaudited).................................................... F-5
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1994 (unaudited).......................................... F-6
Notes to the Unaudited Pro Forma Combined Financial Statements........... F-7
MEDALLION FINANCIAL CORP.
Report of Arthur Andersen LLP, Independent Public Accountants............ F-10
Balance Sheet as of December 31, 1995.................................... F-11
Notes to Balance Sheet................................................... F-12
TRI-MAGNA CORPORATION AND SUBSIDIARIES
Report of Arthur Andersen LLP, Independent Public Accountants............ F-14
Consolidated Balance Sheets as of September 30, 1995 and December 31,
1994.................................................................... F-15
Consolidated Statements of Operations for the nine months ended September
30, 1995 and 1994 and for the years ended December 31, 1994 and 1993.... F-16
Consolidated Statements of Shareholders' Equity for the nine months ended
September 30, 1995 and for each year in the two year period ended
December 31, 1994 and 1993.............................................. F-17
Consolidated Statements of Cash Flows for the nine months ended September
30, 1995 and 1994 and for the years ended December 31, 1994 and 1993.... F-18
Notes to Consolidated Financial Statements............................... F-19
EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP)
Independent Auditors' Report of Friedman, Alpren & Green LLP............. F-27
Report of Arthur Andersen LLP, Independent Public Accountants............ F-28
Balance Sheets as of September 30, 1995 and December 31, 1994............ F-29
Statements of Operations for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-30
Statements of Changes in Partners' Capital for the nine months ended
September 30, 1995 and 1994 and for the years ended December 31, 1994
and 1993................................................................ F-31
Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-32
Notes to Financial Statements............................................ F-33
TRANSPORTATION CAPITAL CORP.
Report of Coopers & Lybrand LLP, Independent Public Accountants.......... F-40
Report of Arthur Andersen LLP, Independent Public Accountants............ F-41
Balance Sheets as of September 30, 1995 and December 31, 1994............ F-42
Statements of Operations for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-43
Statements of Changes in Shareholders' Equity for the nine months ended
September 30, 1995 and for each year in the two year period ended
December 31, 1994....................................................... F-44
Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-45
Notes to Financial Statements............................................ F-46
</TABLE>
II-1
<PAGE>
2. Exhibits.
a. --Medallion Financial Corp. Certificate of Incorporation*
b. --Medallion Financial Corp. By-Laws*
e. --Medallion Financial Corp. Dividend Reinvestment Plan+
f. --Subordinated debentures issued to the U.S. Small Business
Administration+
g. --Investment Advisory Agreement between Medallion Financial Corp.
and FMC Advisers, Inc.*
h.1 --Form of Underwriting Agreement+
h.2 --Form of Agreement Among Underwriters+
i.1 --Medallion Financial Corp. 1996 Stock Option Plan*
i.2 --Medallion Financial Corp. 401(k) Investment Plan+
i.3 --Medallion Financial Corp. 1996 Non-Employee Directors Stock
Option Plan+
j. --Custodial Services Agreement with The First National Bank of
Boston, dated , 1996+
k.1 --Stock Purchase Agreement among Medallion Financial Corp.,
Transportation Capital Corp., LNC Investments, Inc., Leucadia,
Inc. and Leucadia National Corporation, dated February 12, 1996*
k.2 --Asset Purchase Agreement between Medallion Financial Corp., and
Edwards Capital Company, dated February 21, 1996*
k.3 --Agreement of Merger between Medallion Financial Corp. and Tri-
Magna Corporation, dated December 21, 1995, as amended on February
22, 1996*
l. --Opinion and consent of Palmer & Dodge+
n.1 --Consent of Arthur Andersen LLP relating to its report dated
February 21, 1996*
n.2 --Consent of Arthur Andersen LLP relating to its report dated
November 8, 1995*
n.3 --Consent of Arthur Andersen LLP relating to its report dated
December 14, 1995*
n.4 --Consent of Arthur Andersen LLP relating to its report dated
November 6, 1995*
n.5 --Consent of Coopers & Lybrand LLP relating to its report dated
October 24, 1995*
n.6 --Consent of Friedman, Alpren & Green LLP relating to its report
dated January 28, 1995*
p.1 --Subscription Agreement between the Alvin Murstein Second Family
Trust and Medallion Financial Corp.+
p.2 --Subscription Agreement between the Andrew Murstein Family Trust
and Medallion Financial Corp.+
Ex27 --Medallion Financial Corp. Financial Data Schedule*
- ----------------
* Filed herewith.
+ To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Section [7] of the Underwriting Agreement which is attached as Exhibit
h.1 hereto [and Section [ ] of the AAU which is attached as Exhibit h.2
hereto.]
In connection with the Offering, the Underwriters may over-allot or effect
transactions which stabilize or maintain the market price of the Common Stock
at a level above that which might otherwise prevail in the open market. Such
stabilizing, if commenced, may be discontinued at any time.
II-2
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be
incurred in connection with the Offering:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 23,793.10
NASD fees....................................................... 7,400.00
Nasdaq initial listing fee......................................
Blue Sky fees and expenses......................................
Financial advisory fees......................................... 225,000.00
Accounting fees and expenses....................................
Legal fees and expenses.........................................
Printing and engraving fees.....................................
Registrar and transfer agent's fees.............................
Miscellaneous fees and expenses.................................
-----------
Total......................................................... $
===========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
MEDALLION FINANCIAL CORP.
---------------------------------------------------------------
Medallion Medallion Edwards Transportation
Funding Corp. Media, Inc. Capital Capital Corp.
Company
All of the subsidiaries are 100% owned by Medallion Financial and they are
Delaware corporations. The financial statements for Edwards Capital Company
and Transportation Capital Corp. are included in the Prospectus which forms a
part of this Registration Statement. The financial statements of Medallion
Funding Corp. are consolidated with the financial statements of Tri-Magna
Corporation included in the Prospectus. Summary financial statements of
Medallion Media, Inc. are included in the notes to the financial statements of
Tri-Magna Corporation and have not been consolidated because Medallion Media,
Inc. is not an investment company and its results of operations may not be
consolidated with the results of operations of Tri-Magna Corporation which is
an investment company.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of record holders of the Company's
Common Stock as of February 14, 1996.
<TABLE>
<CAPTION>
NAME OF CLASS NUMBER OF RECORD HOLDERS
------------- ------------------------
<S> <C>
Common Stock, $.01 par value per share 2
</TABLE>
ITEM 29. INDEMNIFICATION
Section 145 of the Delaware General Corporation Law grants the Company the
power to indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that he is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful,
provided, however, no indemnification shall be made in connection with any
proceeding brought by or in the right of the Company where the person involved
is adjudged to be liable to the Company except to the extent approved by a
II-3
<PAGE>
court. Article TENTH of the Company's Certificate of Incorporation as
currently in effect provides that the Company shall, to the fullest extent
permitted by the Delaware General Corporation Law, as amended from time to
time, indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Company, or is or was serving, or has agreed to serve, at the
request of the Company, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise. The indemnification provided for in Article TENTH is expressly not
exclusive of any other rights to which those seeking indemnification may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and shall inure to the benefit of the heirs, executors
and administrators of such persons. Article TENTH permits the Board of
Directors to authorize the grant of indemnification rights to other employees
and agents of the Company and such rights may be equivalent to, or greater or
less than, those set forth in Article TENTH.
Article V, Section 2 of the Company's By-Laws provides that the Company
shall have the power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company, or
is or was serving at the request of the Company, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against and incurred by such person in any such capacity.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
Article NINTH of the Company's Certificate of Incorporation eliminates a
director's personal liability for monetary damages to the Company and its
stockholders for breaches of fiduciary duty as a director, except to the
extent that the elimination or limitation of liability is not then permitted
under the Delaware General Corporation Law.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Information as to the directors and officers of FMC Advisers, Inc. is
included in its Form ADV filed with the Commission (File No. 801-50981), as
amended as of the date hereof, and is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
The Company maintains at its principal office physical possession of each
account, book or other document required to be maintained by Section 31(a) of
the 1940 Act as applicable, pursuant to Section 64 of the 1940 Act.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(1) The Company hereby undertakes:
(a) to suspend the Offering until the Prospectus is amended if (1)
subsequent to the effective date of this Registration Statement, its net
asset value declines more than ten percent from its net asset value as of
the effective date of this Registration Statement or (2) the net asset
value increases to an amount greater than its net proceeds as stated in the
Prospectus.
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Company under Rule 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
II-4
<PAGE>
(c) that, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the provisions of the Certificate of Incorporation and
By-Laws, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication for such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, AND STATE OF
NEW YORK, ON THE 26TH DAY OF FEBRUARY 1996.
Medallion Financial Corp.
By: /s/ Alvin Murstein
---------------------------------
Alvin Murstein
Chairman and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED; AND EACH OF THE UNDERSIGNED OFFICERS
AND DIRECTORS OF MEDALLION FINANCIAL CORP., HEREBY SEVERALLY CONSTITUTE AND
APPOINT ALVIN MURSTEIN AND ANDREW MURSTEIN, AND EACH OF THEM, TO SIGN FOR HIM,
AND IN HIS NAME IN THE CAPACITY INDICATED BELOW, ALL AMENDMENTS, INCLUDING
POST-EFFECTIVE AMENDMENTS, TO SUCH REGISTRATION STATEMENT AND ANY RELATED RULE
462(B) REGISTRATION STATEMENT OR AMENDMENT THERETO, HEREBY RATIFYING AND
CONFIRMING SUCH SIGNATURES AS THEY MAY BE SIGNED BY SUCH ATTORNEYS TO SUCH
REGISTRATION STATEMENTS AND ANY AND ALL AMENDMENTS THERETO.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSON IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Alvin Murstein
____________________________________ Chairman and Chief Executive February 26, 1996
Alvin Murstein Officer (Principal Executive
Officer)
/s/ Andrew Murstein
____________________________________ President and Director February 26, 1996
Andrew Murstein
/s/ Daniel Baker
____________________________________ Treasurer and Chief February 26, 1996
Daniel Baker Financial Officer
/s/ Mario M. Cuomo
____________________________________ Director February 26, 1996
Mario M. Cuomo
/s/ Stanley Kreitman
____________________________________ Director February 26, 1996
Stanley Kreitman
/s/ David L. Rudnick
____________________________________ Director February 26, 1996
David L. Rudnick
/s/ Benjamin Ward
____________________________________ Director February 26, 1996
Benjamin Ward
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
PAGE
Exhibit Number and Description
a. --Medallion Financial Corp. Certificate of Incorporation*
b. --Medallion Financial Corp. By-Laws*
e. --Medallion Financial Corp. Dividend Reinvestment Plan+
f. --Subordinated debentures issued to the U.S. Small Business
Administration+
g. --Investment Advisory Agreement between Medallion Financial
Corp. and FMC Advisers, Inc.*
h.1 --Form of Underwriting Agreement+
h.2 --Form of Agreement Among Underwriters+
i.1 --Medallion Financial Corp. 1996 Stock Option Plan*
i.2 --Medallion Financial Corp. 401(k) Investment Plan+
i.3 --Medallion Financial Corp. 1996 Non-Employee Directors Stock
Option Plan+
j. --Custodial Services Agreement with The First National Bank
of Boston, dated , 1996+
k.1 --Stock Purchase Agreement among Medallion Financial Corp.,
Transportation Capital Corp., LNC Investments, Inc.,
Leucadia, Inc. and Leucadia National Corporation, dated
February 12, 1996*
k.2 --Asset Purchase Agreement between Medallion Financial Corp.,
and Edwards Capital Company, dated February 21, 1996*
k.3 --Agreement of Merger between Medallion Financial Corp. and
Tri-Magna Corporation, dated December 21, 1995, as amended
on February 22, 1996*
l. --Opinion and consent of Palmer & Dodge+
n.1 --Consent of Arthur Andersen LLP relating to its report dated
February 21, 1996*
n.2 --Consent of Arthur Andersen LLP relating to its report dated
November 8, 1995*
n.3 --Consent of Arthur Andersen LLP relating to its report dated
December 14, 1995*
n.4 --Consent of Arthur Andersen LLP relating to its report dated
November 6, 1995*
n.5 --Consent of Coopers & Lybrand LLP relating to its report
dated October 24, 1995*
n.6 --Consent of Friedman, Alpren & Green LLP relating to its
report dated January 28, 1995*
p.1 --Subscription Agreement between the Alvin Murstein Second
Family Trust and Medallion Financial Corp.+
p.2 --Subscription Agreement between the Andrew Murstein Family
Trust and Medallion Financial Corp.+
- ----------------
* Filed herewith.
+ To be filed by amendment.
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "MEDALLION FINANCIAL CORP.", FILED IN THIS OFFICE ON THE
TWENTIETH DAY OF OCTOBER, A.D. 1995, AT 9:05 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[SEAL] /S/ EDWARD J. FREEL
---------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7684678
DATE: 10-23-95
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MEDALLION FINANCIAL CORP.
The undersigned, for the purpose of forming a corporation under the laws of
the State of Delaware, hereby certifies as follows:
FIRST. The name of the corporation is Medallion Financial Corp..
SECOND. The address of the corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent,
State of Delaware 19904. The name of its registered agent at such address is
The Prentice-Hall Corporation System, Inc..
THIRD. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue is three thousand (3,000) shares of Common Stock with a
par value of One Cent ($0.01) per share.
FIFTH. The name and mailing address of the incorporator are as follows:
Mark J. Enyedy, Esq.
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
SIXTH. The corporation is to have perpetual existence.
SEVENTH. Election of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
EIGHTH. The Board of Directors of the corporation is authorized to adopt,
amend or repeal the by-laws of the corporation.
NINTH. A director shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is not
permitted under the General Corporation Law of the State of Delaware as in
effect when such liability is determined. No amendment or repeal of this
provision shall deprive a director of the benefits hereof with respect to any
act or omission occurring prior to such amendment or repeal.
2
<PAGE>
TENTH. The corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the corporation, or
is or was serving, or has agreed to serve, at the request of the corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by the corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayments.
The corporation shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
corporation.
The indemnification rights provided in this Article (i) shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the corporation or other persons serving the
corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
Any person seeking indemnification under this Article shall be deemed to
have met the standard of conduct required for such indemnification unless the
contrary shall be established.
Any amendment or repeal of the provisions of this Article shall not
adversely affect any right or protection of a director or officer of this
corporation with respect to any act or omission of such director or officer
occurring prior to such amendment or repeal.
ELEVENTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Signed this 20th day of October, 1995.
/s/ Mark J. Enyedy
-------------------------------
Mark J. Enyedy, Incorporator
3
<PAGE>
BY-LAWS
OF
MEDALLION FINANCIAL CORP.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of stockholders shall be held
-----------------
at the principal office of the corporation or at such other place as may be
named in the notice.
SECTION 2. Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date and at such hour and place as
the directors or an officer designated by the directors may determine. If the
annual meeting is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the stockholders may be
----------------
called at any time by the President, the Chairman of the Board, if any, or the
Board of Directors, or by the Secretary or any other officer upon the written
request of one or more stockholders holding of record at least a majority of the
outstanding shares of stock of the corporation entitled to vote at such meeting.
Such written request shall state the purpose or purposes of the proposed
meeting. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
<PAGE>
SECTION 4. Notice of Meetings. Except where some other notice is required
------------------
by law, written notice of each meeting of stockholders, stating the place, date
and hour thereof and the purposes for which the meeting is called, shall be
given by or under the direction of the Secretary, not less than ten nor more
than sixty days before the date fixed for such meeting, to each stockholder
entitled to vote at such meeting of record at the close of business on the day
fixed by the Board of Directors as a record date for the determination of the
stockholders entitled to vote at such meeting or, if no such date has been
fixed, of record at the close of business on the day before the day on which
notice is given. Notice shall be given personally to each stockholder or left at
his or her residence or usual place of business or mailed postage prepaid and
addressed to the stockholder at his or her address as it appears upon the
records of the corporation. In case of the death, absence, incapacity or
refusal of the Secretary, such notice may be given by a person designated either
by the Secretary or by the person or persons calling the meeting or by the Board
of Directors. A waiver of such notice in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to such notice. Attendance of a person at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice. Except as
required by statute, notice of any adjourned meeting of the stockholders shall
not be required.
SECTION 5. Voting List. The officer who has charge of the stock ledger of
-----------
the corporation shall prepare and make, at least ten days before every meeting
of
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<PAGE>
stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote at
any meeting of stockholders.
SECTION 6. Quorum of Stockholders. At any meeting of the stockholders,
----------------------
the holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the consideration
of such question, but a smaller group may adjourn any meeting from time to time.
When a quorum is present at any meeting, a majority of the stock represented
thereat and entitled to vote shall, except where a larger vote is required by
law, by the certificate of incorporation, or by these by-laws, decide any
question brought before such meeting. Any election by stockholders shall be
determined by a plurality of the vote cast by the stockholders entitled to vote
at the election.
SECTION 7. Proxies and Voting. Unless otherwise provided in the
------------------
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock held of record by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless
-3-
<PAGE>
said proxy provides for a longer period. Persons holding stock in a fiduciary
capacity shall be entitled to vote the shares so held, and persons whose stock
is pledged shall be entitled to vote, unless in the transfer by the pledgor on
the books of the corporation the pledgee shall have been expressly empowered to
vote thereon, in which case only the pledgee or the pledgee's proxy may
represent said stock and vote thereon. Shares of the capital stock of the
corporation belonging to the corporation or to another corporation, a majority
of whose shares entitled to vote in the election of directors is owned by the
corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
SECTION 8. Conduct of Meeting. Meetings of the stockholders shall be
------------------
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, a chairman to be chosen by the stockholders.
The Secretary of the corporation, if present, or an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman of the meeting shall appoint a secretary of
the meeting.
SECTION 9. Action Without Meeting. Any action required or permitted to be
----------------------
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders or by
proxy for the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote on such action were present and
voted. Prompt notice of the taking of corporate action without a meeting by less
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<PAGE>
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
DIRECTORS
SECTION 1. General Powers. The business and affairs of the corporation
--------------
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation which are not by law required to
be exercised by the stockholders. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
SECTION 2. Number; Election; Tenure and Qualification. The initial Board
------------------------------------------
of Directors shall consist of two (2) persons and shall be elected by the
incorporator. Thereafter, the number of directors which shall constitute the
whole Board shall be fixed by resolution of the Board of Directors, but in no
event shall be less than one. Each director shall be elected by the stockholders
at the annual meeting and all directors shall hold office until the next annual
meeting and until their successors are elected and qualified, or until their
earlier death, resignation or removal. The number of directors may be increased
or decreased by action of the Board of Directors. Directors need not be
stockholders of the corporation.
SECTION 3. Enlargement of the Board. The number of the Board of Directors
------------------------
may be increased at any time, such increase to be effective immediately, by vote
of a majority of the directors then in office.
-5-
<PAGE>
SECTION 4. Vacancies. Unless and until filled by the stockholders, any
---------
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director for cause or without cause, may be filled by
vote of a majority of the directors then in office although less than a quorum,
or by the sole remaining director. A director elected to fill a vacancy shall
hold office until the next annual meeting of stockholders and until his or her
successor is elected and qualified or until his or her earlier death,
resignation, or removal. When one or more directors shall resign from the
Board, effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. If at any time there are no directors in
office, then an election of directors may be held in accordance with the General
Corporation Law of the State of Delaware.
SECTION 5. Resignation. Any director may resign at any time upon written
-----------
notice to the corporation. Such resignation shall take effect at the time
specified therein, or if no time is specified, at the time of its receipt by the
President or Secretary.
SECTION 6. Removal. Except as may otherwise be provided by the General
-------
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, at an annual meeting or at a special meeting called for
that purpose, by the holders of a majority of the shares then entitled to vote
at an election of directors. The vacancy or vacancies thus created may be filled
by the stockholders at the meeting held for the purpose of removal or, if not so
filled, by the directors in the manner provided in Section 4 of this Article II.
-6-
<PAGE>
SECTION 7. Committees. The Board of Directors may, by resolution or
----------
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of such absent or
disqualified member.
A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. The Board of Directors shall have the power to change the
members of any such committee at any time, to fill vacancies therein and to
discharge any such committee, either with or without cause, at any time.
Any such committee, unless otherwise provided in the resolution of the
Board of Directors, or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority denied it by Section 141 of the General Corporation Law
of the State of Delaware.
Each committee shall keep regular minutes of its meetings and make such
reports as the Board of Directors may from time to time request.
-7-
<PAGE>
SECTION 8. Meetings of the Board of Directors. Regular meetings of the
----------------------------------
Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at the
same place as the annual meeting of the stockholders, or any special meeting of
the stockholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by the Chairman
of the Board of Directors, the President, Treasurer, Secretary, or two or more
directors. Reasonable notice of the time and place of a special meeting shall
be given to each director unless such notice is waived by attendance or by
written waiver in the manner provided in these by-laws for waiver of notice by
stockholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of Directors.
No notice of any adjourned meeting of the Board of Directors shall be required.
In any case it shall be deemed sufficient notice to a director to send notice by
mail at least seventy-two hours, or by telegram at least forty-eight hours,
before the meeting, addressed to such director at his or her usual or last known
business or home address.
Directors or members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
SECTION 9. Quorum and Voting. A majority of the total number of directors
-----------------
shall constitute a quorum, except that when a vacancy or vacancies exist in the
-8-
<PAGE>
Board, a majority of the directors then in office (but not less than one-third
of the total number of the directors) shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn any
meeting from time to time. The vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except where a different vote is required or permitted by law, by the
certificate of incorporation, or by these by-laws.
SECTION 10. Compensation. The Board of Directors may fix fees for their
------------
services and for their membership on committees, and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. Action Without Meeting. Any action required or permitted to
----------------------
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting, and without notice, if a written consent thereto
is signed by all members of the Board of Directors, or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE III
OFFICERS
SECTION 1. Titles. The officers of the corporation shall consist of a
------
President, a Secretary, a Treasurer, and such other officers with such other
titles as the
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<PAGE>
Board of Directors shall determine, including without limitation a Chairman of
the Board, a Vice-Chairman of the Board, and one or more Vice-Presidents,
Assistant Treasurers, or Assistant Secretaries.
SECTION 2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of the stockholders. Each officer shall hold office
until his or her successor is elected and qualified, unless a different term is
specified in the vote electing such officer, or until his or her earlier death,
resignation or removal.
SECTION 3. Qualification. Unless otherwise provided by resolution of
-------------
the Board of Directors, no officer, other than the Chairman or Vice-Chairman of
the Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. Removal. Any officer may be removed, with or without cause, at
-------
any time, by resolution adopted by the Board of Directors.
SECTION 5. Resignation. Any officer may resign by delivering a written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt or at such later
time as may be specified therein.
SECTION 6. Vacancies. The Board of Directors may at any time fill any
---------
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary.
SECTION 7. Powers and Duties. The officers of the corporation shall have
-----------------
such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors, and shall have
such additional powers and
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<PAGE>
duties as are incident to their office except to the extent that resolutions of
the Board of Directors are inconsistent therewith.
SECTION 8. President and Vice-Presidents. The President shall be the
-----------------------------
chief executive officer of the corporation, shall preside at all meetings of the
stockholders and the Board of Directors unless a Chairman or Vice-Chairman of
the Board is elected by the Board, empowered to preside, and present at such
meeting, shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
In the absence of the President or in the event of his or her inability or
refusal to act, the Vice-President if any (or in the event there be more than
one Vice-President, the Vice-Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors.
SECTION 9. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
attend all meetings of the Board of Directors and of the stockholders and record
all the proceedings of such meetings in a book to be kept for that purpose,
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their
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<PAGE>
signatures. The Board of Directors may give general authority to any other
officer to affix and attest the seal of the corporation.
The Assistant Secretary if any (or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors of if there be no
such determination, then in the order of their election) shall, in the absence
of the Secretary or in the event of the Secretary's inability or refusal to act,
perform the duties and exercise the powers of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers. The Treasurer shall have
----------------------------------
the custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board of Directors or the President, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or whenever they may require it, an account
of all transactions and of the financial condition of the corporation.
The Assistant Treasurer if any (or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors or if there be no
such determination, then in the order of their election) shall, in the absence
of the Treasurer or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the Treasurer.
SECTION 11. Bonded Officers. The Board of Directors may require any
---------------
officer to give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors upon such terms and
conditions as the Board of Directors may specify, including without limitation a
bond for the faithful performance of
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<PAGE>
the duties of such officer and for the restoration to the corporation of all
property in his or her possession or control belonging to the corporation.
SECTION 12. Salaries. Officers of the corporation shall be entitled to
--------
such salaries, compensation or reimbursement as shall be fixed or allowed from
time to time by the Board of Directors.
ARTICLE IV
STOCK
SECTION 1. Certificates of Stock. One or more certificates of stock,
---------------------
signed by the Chairman or Vice-Chairman of the Board of Directors or by the
President or Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying, in the aggregate, the number of shares owned by the stockholder in
the corporation. Any or all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature shall have been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the certificate of incorporation, the by-laws,
applicable securities laws, or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
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<PAGE>
SECTION 2. Transfers of Shares of Stock. Subject to the restrictions, if
----------------------------
any, stated or noted on the stock certificates, shares of stock may be
transferred on the books of the corporation by the surrender to the corporation
or its transfer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of signature as
the corporation or its transfer agent may reasonably require. The corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to that stock, regardless of any transfer, pledge
or other disposition of that stock, until the shares have been transferred on
the books of the corporation in accordance with the requirements of these by-
laws.
SECTION 3. Lost Certificates. A new certificate of stock may be issued in
-----------------
the place of any certificate theretofore issued by the corporation and alleged
to have been lost, stolen, destroyed, or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss,
theft, destruction or mutilation of any such certificate, or the issuance of any
such new certificate.
SECTION 4. Record Date. The Board of Directors may fix in advance a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or
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<PAGE>
exchange of stock, or for the purpose of any other lawful action. Such record
date shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action to which such record
date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. Unless otherwise fixed by the Board of
Directors, the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed. The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 5. Fractional Share Interests. The corporation may, but shall not
--------------------------
be required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (l) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to
-15-
<PAGE>
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing full
shares before a specified date, or subject to the conditions that the shares for
which scrip or warrants are exchangeable may be sold by the corporation and the
proceeds thereof distributed to the holders of scrip or warrants, or subject to
any other conditions which the Board of Directors may impose.
SECTION 6. Dividends. Subject to the provisions of the certificate of
---------
incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the common
stock of the corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification. The corporation shall, to the extent
---------------
permitted by the certificate of incorporation, as amended from time to time,
indemnify each person whom it may indemnify pursuant thereto.
SECTION 2. Insurance. The corporation shall have power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity or
arising out of such person's status as such, whether or not the
-16-
<PAGE>
corporation would have the power to indemnify such person against such liability
under the provisions of the General Corporation Law of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Fiscal Year. Except as otherwise designated from time to time
-----------
by the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January and end on the last day of December.
SECTION 2. Corporate Seal. The corporate seal shall be in such form as
--------------
shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal. The Board of Directors may authorize a duplicate seal to
be kept and used by any other officer.
SECTION 3. Certificate of Incorporation. All references in these by-laws
----------------------------
to the certificate of incorporation shall be deemed to refer to the certificate
of incorporation of the corporation, as in effect from time to time.
SECTION 4. Execution of Instruments. The Chairman and Vice-Chairman of
------------------------
the Board of Directors, if any, the President, any Vice-President, and the
Treasurer shall have power to execute and deliver on behalf and in the name of
the corporation any instrument requiring the signature of an officer of the
corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts, and other orders for the payment of money. In addition, the
Board of Directors may expressly delegate such powers to any other officer or
agent of the corporation.
-17-
<PAGE>
SECTION 5. Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization the
securities of which may be held by this corporation.
SECTION 6. Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. Transactions with Interested Parties. No contract or
------------------------------------
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for that reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or transaction
or solely because the vote of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
-18-
<PAGE>
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 8. Books and Records. The books and records of the corporation
-----------------
shall be kept at such places within or without the State of Delaware as the
Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. By the Board of Directors. These by-laws may be altered,
-------------------------
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
SECTION 2. By the Stockholders. These by-laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of
-19-
<PAGE>
stockholders provided notice of such alteration, amendment, repeal or adoption
of new by-laws shall have been stated in the notice of such special meeting.
-20-
<PAGE>
ADVISORY AGREEMENT
------------------
THIS ADVISORY AGREEMENT (this "Agreement") is entered into as of ________
---------
___, 1996, by MEDALLION FINANCIAL CORP., a Delaware corporation (the "Company")
-------
and FMC ADVISERS, INC., a Delaware corporation (the "Adviser").
-------
W I T N E S S E T H :
WHEREAS, the Company is engaged in business as a non-diversified closed-end
management investment company and has elected to be treated as a business
development company under the Investment Company Act of 1940, as amended (the
"1940 Act");
- ---------
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, (the "Advisers Act") and hereby
------------
undertakes to provide investment advisory services to the Company on the terms
and conditions set forth in this Agreement; and
WHEREAS, the Company desires to retain the Adviser to furnish investment
advisory services on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE 1. Duties of the Adviser. The Adviser, subject to the control,
---------------------
direction and supervision of the Board of Directors and management of the
Company, shall provide the Company on an ongoing basis with its analysis of the
Company's operations and the medallion finance and commercial installment
finance industries with a view to assisting the Company in managing its loan
portfolio and originating loans. Specifically, but without limitation, senior
personnel of the Adviser shall regularly consult with management of the Company
with respect to strategic decisions concerning originations, credit quality
assurance, development of financial products, leverage, funding, geographic and
product diversification, the repurchase of participations, acquisitions,
regulatory compliance and marketing. In addition, the Adviser will advise the
Company on general market, economic, financial and political matters. The
Adviser shall, upon the Company's specific request, offer personal consultation
with senior personnel of the Adviser regarding any of the foregoing matters
identified by the Company, and shall provide any other investment advisory
services to the Company as may be mutually agreed to by the Company and the
Adviser.
ARTICLE 2. Expenses. The Company shall pay or reimburse the Adviser for
--------
reasonable travel expenses, if any, incurred by the Adviser in connection with
the Adviser's performance of services under this Agreement. All other costs and
expenses incurred by Adviser in connection with such services shall be the sole
responsibility of Adviser.
<PAGE>
ARTICLE 3. Compensation of the Adviser. For the services to be rendered
---------------------------
as provided herein, the Company shall pay to the Adviser a monthly fee of
$18,750. For the first 48 months of service, fees shall be paid in advance in
one payment in the amount of $900,000 payable on the date hereof. In the event
of termination or non-renewal of this Agreement during the aforementioned 48
month period, prepaid fees for services not yet performed, if any, must be
repaid to the Company.
ARTICLE 4. Limitation of Liability of the Adviser. The Adviser shall not
--------------------------------------
be liable for any error of judgment or mistake of law or for any loss arising
out of any loan or for any act or omission in the performance of its duties
hereunder, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its obligations
and duties hereunder. As used in this Article 4, the term "Adviser" shall
include directors, officers and employees of the Adviser when acting in such
capacity as well as that corporation itself.
ARTICLE 5. Activities of the Adviser. The services provided by the
-------------------------
Adviser to the Company hereunder are not exclusive; accordingly, the Adviser is
free to render such services to others.
ARTICLE 6. Records. The Adviser agrees to preserve the records required
-------
by Rule 204-2 under the Advisers Act, for the period specified therein.
ARTICLE 7. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until ________ __, 1998 and from year to year thereafter if approved
annually by (i) a majority of the non-interested directors of the Company and
(ii) the board of directors of the Company, or by a majority of the outstanding
voting securities of the Company.
This Agreement may be terminated without penalty on 60 days' written notice
by either party or by vote of a majority of the outstanding voting securities of
the Company and will terminate if assigned.
ARTICLE 8. Amendments of this Agreement. This Agreement may be amended by
----------------------------
the parties only if such amendment is specifically approved by the board of
directors of the Company including a majority of the non-interested directors of
the Company and by a majority of the outstanding voting securities of the
Company.
ARTICLE 9. Agency Relationship. Nothing herein shall be construed as
-------------------
constituting the Adviser as an agent of the Company.
ARTICLE 10. Severability. If any term or condition of this Agreement
------------
shall be found to be invalid or unenforceable to any extent or in any
application, then the remainder of this Agreement and such term or condition,
except to the extent or in such application such term or condition is held
invalid or unenforceable, shall not be affected thereby, and each and every term
and condition of this Agreement shall be valid and enforceable to the fullest
extent and in the broadest application permitted by law.
-2-
<PAGE>
ARTICLE 11. Captions. The captions of this Agreement are included for
--------
convenience only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
ARTICLE 12. Definitions of Certain Terms. For purposes of this Agreement,
----------------------------
the terms "majority of the outstanding voting securities," "assignment" and
"interested person" shall have the respective meanings specified in the 1940 Act
and the rules and regulations thereunder, subject, however, to such exemptions
as may be granted to either the Adviser or the Company by the Securities and
Exchange Commission or its staff, under the 1940 Act and the Advisers Act.
ARTICLE 13. Notices. All notices required or permitted to be sent under
-------
this Agreement shall be sent, if to the Company, to Medallion Financial Corp.,
Attention: Andrew Murstein, President, 205 East 42nd Street, Suite 2020, New
York, NY 10017 and if to the Adviser to FMC Advisers, Inc., Attention Myron
Cohen, Secretary, c/o Cohen, Pontani & Lieberman, 551 Fifth Avenue, New York, NY
10176, with a copy of notices to either party to Steven N. Farber, Esq., Palmer
& Dodge, One Beacon Street, Boston, MA 02108, or such other name or address as
may be given by any of the above in writing to the other party. Any notice
shall be deemed to be given or received on the fifth day after deposit in the
United States mail with certified postage prepaid or when actually received,
whichever is earlier.
ARTICLE 14. Entire Agreement. This Agreement contains the entire
----------------
agreement of the parties with respect to the matters referred to herein and
supersedes all prior agreements, negotiations, commitments or understandings.
ARTICLE 15. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original and together shall constitute one and the same document.
ARTICLE 16. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MEDALLION FINANCIAL CORP.
By___________________________
Name:
Title:
FMC ADVISERS, INC.
By____________________________
Name:
Title:
-4-
<PAGE>
MEDALLION FINANCIAL CORP.
1996 STOCK OPTION PLAN
This 1996 Stock Option Plan (the "Plan") is intended to encourage ownership
of Common Stock, $0.01 par value (the "Stock") of Medallion Financial Corp. (the
"Company") by its officers, employees and consultants so as to provide
additional incentives to promote the success of the Company through the grant of
Incentive Stock Options and Nonstatutory Stock Options (collectively as defined
below, "Options").
1. Administration of the Plan.
--------------------------
The administration of the Plan shall be under the general supervision of
the Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee"). Within the limits of the Plan, the Compensation
Committee shall determine the individuals to whom, and the times at which,
Options shall be granted, the type of Option to be granted, the duration of each
Option, the price and method of payment for each Option, and the time or times
within which (during its term) all or portions of each Option may be exercised.
The Compensation Committee may establish such rules as it deems necessary for
the proper administration of the Plan, make such determinations and
interpretations with respect to the Plan and Options granted under it as may be
necessary or desirable and include such further provisions or conditions in
Options granted under the Plan as it deems advisable. To the extent permitted
by law, the Compensation Committee may delegate its authority under the Plan to
a sub-committee of the Compensation Committee. Whenever options are granted to
any person subject to Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"), each member of the Committee shall be a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act.
2. Shares Subject to the Plan.
--------------------------
(a) Number and Type of Shares. The aggregate number of shares of Stock of
-------------------------
the Company which may be optioned under the Plan is 700,000 shares. In the
event that the Compensation Committee in its discretion determines that any
stock dividend, split-up, combination or reclassification of shares,
recapitalization or other similar capital change affects the Stock such that
adjustment is required in order to preserve the benefits or potential benefits
of the Plan or any Option granted under the Plan, the maximum aggregate number
and kind of shares or securities of the Company as to which Options may be
granted under the Plan and as to which Options then outstanding shall be
exercisable, and the option price of such Options, shall be appropriately
adjusted by the Compensation Committee (whose determination shall be conclusive)
so that the proportionate number of shares or other securities as to which
Options may be granted and the proportionate interest of holders of outstanding
Options shall be maintained as before the occurrence of such event.
(b) Effect of Certain Transactions. In the event of a consolidation or
------------------------------
merger of the Company with another corporation, or the sale or exchange of all
or substantially all
<PAGE>
of the assets of the Company, or a reorganization or liquidation of the Company,
each holder of an outstanding Option shall be entitled to receive upon exercise
and payment in accordance with the terms of the Option the same shares,
securities or property as he would have been entitled to receive upon the
occurrence of such event if he had been, immediately prior to such event, the
holder of the number of shares of Stock purchasable under his Option; provided,
however, that in lieu of the foregoing the Board of Directors of the Company
(the "Board") may upon written notice to each holder of an outstanding Option
provide that such Option shall terminate on a date not less than 20 days after
the date of such notice unless theretofore exercised. In connection with such
notice, the Board may in its discretion accelerate or waive any deferred
exercise period. Options granted under this Plan may contain such provisions as
the Compensation Committee shall approve permitting part or all of such options
to become exercisable without regard to any deferred exercise period in the
event of a change of control of the Company, as defined by the Committee.
(c) Restoration of Shares. If any Option expires or is terminated
---------------------
unexercised or is forfeited for any reason, the shares subject to such Option,
to the extent of such expiration, termination forfeiture, shall again be
available for granting Options under the Plan, subject, however, in the case of
Incentive Stock Options, to any requirements under the Code (as defined below).
(d) Reservation of Shares. The Company shall at all times while the Plan
---------------------
is in force reserve such number of shares of Stock as will be sufficient to
satisfy the requirements of the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
3. Grant of Options; Eligible Persons
----------------------------------
(a) Types of Options. Options shall be granted under the Plan either as
----------------
incentive stock options ("Incentive Stock Options"), as defined in Section 422
of the Internal Revenue Code of l986, as amended (the "Code"), or as Options
which do not meet the requirements of Section 422 ("Nonstatutory Stock
Options"). Options may be granted from time to time by the Compensation
Committee, within the limits set forth in Sections l and 2 of the Plan, to all
employees of the Company or of any parent corporation or subsidiary corporation
of the Company (as defined in Sections 424(e) and (f), respectively, of the
Code) and, in the case of Nonstatutory Stock Options, to consultants.
(b) Date of Grant. The date of grant for each Option shall be the date on
-------------
which it is approved by the Compensation Committee, or such later date as the
Compensation Committee may specify. No Incentive Stock Options shall be granted
hereunder after ten years from the date on which the Plan was approved by the
Board.
(c) Automatic Awards. The Compensation Committee may provide for the
----------------
automatic award of an Option upon the delivery of shares to the Company in
payment of an Option for up to the number of shares so delivered.
-2-
<PAGE>
4. Form of Options.
---------------
Options granted hereunder shall be evidenced by a writing delivered to the
optionee specifying the terms and conditions thereof and containing such other
terms and conditions not inconsistent with the provisions of the Plan as the
Compensation Committee considers necessary or advisable to achieve the purposes
of the Plan or comply with applicable tax and regulatory laws and accounting
principles. The form of such Options may vary among optionees.
5. Option Price.
------------
The price at which shares may from time to time be optioned shall be
determined by the Compensation Committee, provided that such price shall not be
less than the fair market value of the Stock on the date of granting as
determined in good faith by the Compensation Committee; and provided further
that no Incentive Stock Option shall be granted to any individual who is
ineligible to be granted an Incentive Stock Option because his ownership of
stock of the Company or its parent or subsidiary corporations exceeds the
limitations set forth in Section 422(b)(6) of the Code unless such option price
is at least ll0% of the fair market value of the Stock on the date of grant.
To the extent permitted by law, the Compensation Committee may in its
discretion permit the option price to be paid in whole or in part by a note or
in installments or with shares of Stock of the Company or such other lawful
consideration as the Compensation Committee may determine.
6. Term of Option and Dates of Exercise.
------------------------------------
(a) Exercisability. The Compensation Committee shall determine the term
--------------
of all Options, the time or times that Options are exercisable and whether they
are exercisable in installments, provided that the term of each Incentive Stock
Option granted under the Plan shall not exceed a period of ten years from the
date of its grant, and provided further that no Incentive Stock Option shall be
granted to any individual who is ineligible to be granted such Option because
his ownership of stock of the Company or its parent or subsidiary corporations
exceeds the limitations set forth in Section 422(b)(6) of the Code unless the
term of his Incentive Stock Option does not exceed a period of five years from
the date of its grant. In the absence of such determination, the Option shall
be exercisable at any time or from time to time, in whole or in part, during a
period of ten years from the date of its grant or, in the case of an Incentive
Stock Option, the maximum term of such Option.
(b) Effect of Disability, Death or Termination of Employment. The
--------------------------------------------------------
Compensation Committee shall determine the effect on an Option of the
disability, death, retirement or other termination of employment of an optionee
and the extent to which, and during the period which, the optionee's estate,
legal representative, guardian, or beneficiary on death may exercise rights
thereunder. Any beneficiary on death shall be designated by the optionee, in
the manner determined by the Compensation Committee, to exercise rights of the
optionee in the case of the optionee's death.
-3-
<PAGE>
(c) Other Conditions. The Compensation Committee may impose such
----------------
conditions with respect to the exercise of Options, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable.
(d) Withholding. The optionee shall pay to the Company, or make provision
-----------
satisfactory to the Compensation Committee for payment of, any taxes required by
law to be withheld in respect of any Options under the Plan no later than the
date of the event creating the tax liability. In the Compensation Committee's
discretion, such tax obligations may be paid in whole or in part in shares of
Stock, including shares retained from the exercise of the Option creating the
tax obligation, valued at the fair market value of the Stock on the date of
delivery to the Company as determined in good faith by the Compensation
Committee. The Company and any parent corporation or subsidiary corporation of
the Company (as defined in Sections 424(e) and (f), respectively, of the Code)
may, to the extent permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the optionee.
(e) Amendment of Options. The Compensation Committee may amend, modify or
--------------------
terminate any outstanding Option, including substituting therefor another Option
of the same or different type, changing the date of exercise or realization and
converting an Incentive Stock Option to a Nonstatutory Stock Option, provided
that the optionee's consent to such action shall be required unless the
Compensation Committee determines that the action, taking into account any
related action, would not materially and adversely affect the optionee.
7. Non-transferability.
-------------------
Options granted under the Plan shall not be transferable by the holder
thereof otherwise than by will or the laws of descent and distribution or, in
the case of a Nonstatutory Stock Option, to the extent consistent with
qualifying for the exemption provided by Rule 16b-3 under the Exchange Act,
pursuant to a qualified domestic relations order, and shall be exercisable,
during the holder's lifetime, only by him or her or such permitted transferee.
8. No Right to Employment.
----------------------
No persons shall have any claim or right to be granted an Option, and the
grant of an Option shall not be construed as giving an optionee the right to
continued employment. The Company expressly reserves the right at any time to
dismiss an optionee free from any liability or claim under the Plan, except as
specifically provided in the applicable Option.
9. No Rights as a Shareholder.
--------------------------
Subject to the provisions of the applicable Option, no optionee or any
person claiming through an optionee shall have any rights as a shareholder with
respect to any shares of Stock to be distributed under the Plan until he or she
becomes the holder thereof.
-4-
<PAGE>
10. Amendment or Termination.
------------------------
The Board may amend or terminate the Plan at any time, provided that no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any applicable tax or regulatory requirement, including
any requirement for exemptive relief under Section 16(b) of the Exchange Act.
11. Stockholder Approval.
--------------------
The Plan is subject to approval by the stockholders of the Company by the
affirmative vote of the holders of a majority of the shares of capital stock of
the Company entitled to vote thereon and present or represented at a meeting
duly held in accordance with the laws of the State of Delaware, or by any other
action that would be given the same effect under the laws of such jurisdiction,
which action in either case shall be taken within twelve (12) months from the
date the Plan was adopted by the Board. In the event such approval is not
obtained, all Options granted under the Plan shall be void and without effect.
12. Governing Law.
-------------
The provisions of the Plan shall be governed by and interpreted in
accordance with the laws of the State of Delaware.
__________________________________
Adopted by the Board of Directors on February __, 1996.
Adopted by the Shareholders on __________ __, 1996.
-5-
<PAGE>
================================================================================
STOCK PURCHASE AGREEMENT
among
MEDALLION FINANCIAL CORP.,
TRANSPORTATION CAPITAL CORP.
LNC INVESTMENTS, INC.,
LEUCADIA, INC.
and
LEUCADIA NATIONAL CORPORATION
_____________________________
Dated as of February 12, 1996
_____________________________
================================================================================
<PAGE>
Table of Contents
SECTION 1 - SALE AND PURCHASE OF SHARES......................... 1
1.1 Sale of the Shares............................... 1
1.2 Further Assurances............................... 2
1.3 Purchase Price................................... 2
1.4 The Closing...................................... 4
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TCC AND THE
STOCKHOLDER........................................... 4
2.1 Ownership of the Shares.......................... 5
2.2 Organization and Qualification................... 5
2.3 Capitalization................................... 5
2.4 Authority to Execute and Perform Agreements...... 5
2.5 Subsidiaries and Other Affiliates................ 6
2.6 Charter and By-laws; Books and Records........... 6
2.7 Financial Statements............................. 6
2.8 Absence of Undisclosed Liabilities............... 7
2.9 No Material Adverse Change....................... 7
2.10 Tax Matters...................................... 8
2.11 Compliance with Laws............................. 9
2.12 Consents; No Breach.............................. 10
2.13 Actions and Proceedings.......................... 10
2.14 Contracts and Other Agreements................... 10
2.15 Real Property; Leases............................ 12
2.16 Tangible Property................................ 13
2.17 Intellectual Property............................ 13
2.18 Title to Assets; Liens........................... 13
2.19 Accounts and Notes Receivable.................... 13
2.20 Customers........................................ 14
2.21 Employee Benefit Plans........................... 14
2.22 Employee Relations............................... 14
2.23 Relationships with Affiliates.................... 15
2.24 Insurance........................................ 15
2.25 Banking Relationships............................ 15
2.26 Brokerage........................................ 15
2.27 Hazardous Materials.............................. 16
2.28 Full Disclosure.................................. 16
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC............... 17
3.1 Organization..................................... 17
3.2 Authority to Execute and Perform Agreement....... 17
3.3 Brokerage........................................ 17
3.4 Restrictive Documents............................ 17
3.5 Consents and Approvals of Governmental
Authorities...................................... 17
(i)
<PAGE>
3.6 SBI Act Requirements............................. 17
3.7 Full Disclosure.................................. 18
3.8 Investment Intent................................ 18
3.9 Actions and Proceedings.......................... 18
SECTION 4 - COVENANTS AND AGREEMENTS............................ 19
4.1 Conduct of Business.............................. 19
4.2 Corporate Examinations and Investigations........ 22
4.3 Consummation of Agreement........................ 22
4.4 Further Assurances............................... 22
4.5 No Publicity/Confidentiality..................... 22
4.6 Stockholder Agreement to Vote in Favor........... 23
4.7 Exclusive Dealing................................ 23
4.8 Non-Competition Agreement........................ 24
4.9 Other Acquisitions............................... 24
4.10 Approvals and Authorizations..................... 24
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE.................................................... 24
5.1 Representations, Warranties and Covenants........ 24
5.2 Opinions of Counsel to TCC, the Stockholder,
Leucadia and Leucadia National................... 24
5.3 Consents, Permits, and Approvals................. 24
5.4 Non-Competition Agreement........................ 24
5.5 Escrow Agreement................................. 25
5.6 Other Acquisitions............................... 25
5.7 Financing........................................ 25
5.8 Investment Company Act; SBA...................... 25
5.9 Termination of Management Agreement.............. 25
5.10 Adverse Proceedings.............................. 25
5.11 Certificates..................................... 25
5.12 Approval of Documentation........................ 25
SECTION 6 - CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF TCC AND THE STOCKHOLDER................... 25
6.1 Representations, Warranties and Covenants........ 25
6.2 Opinion of Counsel to MFC........................ 26
6.3 Escrow Agreement................................. 26
6.4 Adverse Proceedings.............................. 26
6.5 Certificates..................................... 26
6.6 Governmental and Third-Party Approvals........... 26
6.7 Approval of Documentation........................ 26
SECTION 7 - INDEMNIFICATION..................................... 26
7.1 Survival......................................... 26
7.2 Obligation of the Leucadia Parties to Indemnify.. 27
7.3 Obligation of MFC to Indemnify................... 27
(ii)
<PAGE>
7.4 Limitation on Indemnification.................... 27
7.5 Notice and Defense of Claims..................... 27
7.6 Payment.......................................... 28
7.7 Additional Indemnification by MFC................ 28
7.8 Additional Indemnification by the Leucadia
Parties.......................................... 29
SECTION 8 - TERMINATION OF AGREEMENT............................ 30
8.1 Termination...................................... 30
8.2 Effect of Termination............................ 31
SECTION 9 - MISCELLANEOUS....................................... 31
9.1 Notices.......................................... 31
9.2 Entire Agreement................................. 32
9.3 Expenses, Transfer Taxes......................... 32
9.4 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies......................... 32
9.5 Governing Law.................................... 33
9.6 Binding Effect; No Assignment.................... 33
9.7 Variations in Pronouns........................... 33
9.8 Counterparts..................................... 33
9.9 Exhibits and Disclosure Schedule................. 33
9.10 Headings......................................... 33
9.11 "Best Knowledge" or "Knowledge" Defined.......... 33
9.12 No Third Party Beneficiaries..................... 34
EXHIBITS
A - Escrow Agreement
B - Non-Competition Agreement
C-1 - Opinion of Counsel to TCC, the Stockholder, Leucadia and
Leucadia National
C-2 - Opinion of Counsel to TCC, the Stockholder, Leucadia and
Leucadia National
D - Opinion of Counsel to MFC
SCHEDULES
Disclosure Schedule
MFC Disclosure Schedule
(iii)
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of February 12, 1996 is among
Medallion Financial Corp. ("MFC"), a Delaware corporation, Transportation
---
Capital Corp. ("TCC"), a New York corporation, LNC Investments, Inc., a Delaware
---
corporation and the sole stockholder of TCC (the "Stockholder"), Leucadia, Inc.,
-----------
a New York Corporation ("Leucadia") and Leucadia National Corporation, a New
--------
York Corporation ("Leucadia National")(TCC, the Stockholder, Leucadia and
-----------------
Leucadia National being collectively referred to herein as the "Leucadia
--------
Parties").
WITNESSETH
WHEREAS, the Stockholder is the legal and beneficial owner of all issued and
outstanding shares of capital stock of TCC, consisting of 100 shares of common
stock, $.125 par value per share (the "Shares");
------
WHEREAS, the Stockholder is a wholly owned subsidiary of Leucadia, and
Leucadia is a wholly owned subsidiary of Leucadia National;
WHEREAS, the Stockholder wishes to sell, and MFC wishes to purchase, the
Shares upon the terms and conditions of this Agreement;
WHEREAS, TCC is organized solely for the purpose of operating as a
specialized small business investment company ("SSBIC") under the Small Business
-----
Investment Act of 1958, as amended, and the rules and regulations promulgated
thereunder (such Act, rules and regulations being collectively referred to
herein as the "SBI Act") by the U.S. Small Business Administration (the "SBA"),
------- ---
to conduct the activities described under Title III of the SBI Act, with the
powers and responsibilities, and subject to the limitations provided by the SBI
Act;
WHEREAS, MFC intends to continue to operate TCC as an SSBIC and plans to
file with the SBA a complete License Application, SBA Form 415, together with
the required fee, exhibits and an executed Transferee's Liability Contract,
seeking the SBA's prior approval for transfer of control of TCC to MFC, and will
formally adopt as part of its License Application the provisions required by the
SBA of licensees with outstanding Debentures and Leverage, as those terms are
defined in the SBI Act, and comply with all licensing requirements of the SBA;
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein, the parties hereto
agree as follows:
SECTION 1 - SALE AND PURCHASE OF SHARES
1.1 Sale of the Shares. Subject to and upon the terms and conditions of
------------------
this Agreement, at the Closing (as defined in Section 1.4), the Stockholder
agrees to sell, assign, convey, transfer and deliver the Shares to MFC and MFC
agrees to purchase the Shares
<PAGE>
from the Stockholder. The Stockholder agrees at the Closing to deliver to MFC
all certificates representing the Shares accompanied by duly executed stock
transfer forms or other documents of transfer sufficient to convey the Shares to
MFC, and such other instruments of conveyance as MFC may reasonably request, in
order to effect the sale, assignment, conveyance and transfer to MFC of good and
marketable title to the Shares, free and clear of all claims, liens, pledges,
security interests, charges, encumbrances, equities, options, calls, voting
trusts, agreements, commitments and restrictions of every kind ("Encumbrances").
------------
1.2 Further Assurances. At any time and from time to time after the
------------------
Closing, at MFC's request without further consideration, the Stockholder will
promptly execute and deliver such instruments of sale, transfer, conveyance,
assignment and confirmation, and take all such other actions as MFC may
reasonably request, more effectively to transfer, convey and assign to MFC, and
to confirm MFC's title to, the Shares, to put MFC in actual possession and
operating control of the assets, properties and business of TCC, to assist MFC
in exercising all rights with respect thereto, and to carry out the purpose and
intent of this Agreement.
1.3 Purchase Price.
--------------
1.3.1 Determination of Purchase Price. The purchase price to be paid
-------------------------------
to the Stockholder for the Shares (the "Purchase Price") shall be an amount
--------------
equal to the Net Book Value of TCC as of the date of the Closing. "Net Book
--------
Value" means the excess of the depreciated book value of all assets of TCC, over
- -----
all liabilities of TCC, all as determined in accordance with generally accepted
accounting principles applicable to specialized small business investment
companies ("GAAP"), provided, however, that "liabilities of TCC" shall include
----
for this purpose all unamortized accumulated but unpaid dividends with respect
to shares of Preferred Stock and Redeemable Preferred Stock of TCC, whether or
not such amounts would properly be reflected as liabilities in accordance with
GAAP. The Purchase Price shall be payable as described in Section 1.3.2 and
shall be subject to adjustment pursuant to Section 1.3.3.
1.3.2 Payments at Closing. At the Closing, MFC shall deliver:
-------------------
(i) To the Stockholder, the Purchase Price, payable in
immediately available funds by wire transfer to an account designated by
the Stockholder, less the amount delivered to the Escrow Agent pursuant to
subsection (ii).
(ii) To Merchants Bank of New York, as escrow agent (the "Escrow
------
Agent"), the sum of $300,000, to be held pursuant to the terms of the
-----
Escrow Agreement attached as Exhibit A hereto, to satisfy any downward
---------
adjustment to the Purchase Price pursuant to Section 1.3.3 payable to MFC
and any claims for indemnity pursuant to Section 7.2 or Section 7.8.
-2-
<PAGE>
1.3.3 Post Closing Adjustments.
------------------------
(i) The Purchase Price shall be determined and paid at the
Closing based on the estimated and unaudited balance sheet of TCC as of the
Closing Date and delivered within five business days prior to the Closing
Date (the "Preliminary Closing Date Balance Sheet") prepared in accordance
--------------------------------------
with GAAP applied consistently with TCC's past practice and submitted by
TCC and reasonably acceptable to MFC.
(ii) As promptly as possible following the Closing, the
Stockholder shall cause Coopers & Lybrand L.L.P., independent public
accountants for TCC ("TCC's Auditors") to conduct an audit of the books and
--------------
records of TCC as of the Closing Date. Not later than 45 days after the
Closing Date, the Stockholder shall cause TCC's Auditors to deliver a
balance sheet of TCC as of the Closing Date immediately prior to the
registration of TCC as an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act") (as corrected
----------------------
pursuant to subsection (iii), the "Final Closing Date Balance Sheet") to
--------------------------------
each party to this Agreement. The Final Closing Date Balance Sheet shall
be prepared in accordance with GAAP applied consistently with TCC's past
practice, without any adjustments applicable solely as a result of the
acquisition of the Shares by MFC, and shall be certified without
qualification by TCC's Auditors. The Final Closing Date Balance sheet
shall include or be accompanied by a computation based on the amounts
reflected on the Final Closing Date Balance Sheet of the Net Book Value of
TCC as of the Closing Date. During the period from the Closing Date until
the date of delivery of the Final Closing Date Balance Sheet, MFC shall
give Stockholder, TCC's Auditors and other appropriate personnel such
assistance and access to the assets and books and records of TCC as
Stockholder and TCC's Auditors shall reasonably request in order to enable
them to prepare and examine, respectively, the Final Closing Date Balance
Sheet.
(iii) MFC shall have 30 days after receipt of the Final Closing
Date Balance Sheet and accompanying computation of Net Book Value to assert
any disagreement with such items by written notice to the Stockholder which
specifies in reasonable detail the nature and extent of its disagreement.
If such notice is not given within 30 days, the amounts reflected on the
Final Closing Date Balance Sheet and the accompanying computation of Net
Book Value shall be final and binding on MFC. If the parties are unable to
resolve any properly asserted disagreement within 30 days, an independent
accounting firm of national reputation other than TCC's Auditors (with no
material relationship to MFC, TCC or the Stockholder) shall be chosen by
mutual agreement of MFC and the Stockholder; provided, however, that if MFC
-------- -------
and the Stockholder cannot agree on such a firm within 15 days after
expiration of the 30 day period described above, MFC shall select such a
firm and the Stockholder shall select such a firm, such selections to be
made within 2 business days thereafter, and such firms shall, within 15
days of the selection of the last of such firms, mutually select another
such firm which shall act alone; and, provided, further, that, if either
--- -------- -------
MFC on the one hand, or the Stockholder on the other hand, shall fail to
timely select a qualified firm, the firm selected by the other party shall
act alone (the firm ultimately selected to act alone to resolve any such
disputes is hereinafter referred to
-3-
<PAGE>
as the "Firm"). The Firm shall review and resolve the disputed items and
----
deliver a report of its conclusions to each party to this Agreement, which
report shall be final and binding on all parties. The cost of such review
shall be borne equally by MFC and the Stockholder. If the report of the
Firm indicates that a correction should be made to the previously delivered
Final Closing Date Balance Sheet, such correction shall be made, and the
Final Closing Date Balance Sheet, as corrected, shall be the Final Closing
Date Balance Sheet for purposes of this Agreement.
(iv) If the Net Book Value of TCC as of the Closing Date
computed on the basis of the Final Closing Date Balance Sheet is greater
than the Net Book Value of TCC computed at the Closing based on the
Preliminary Closing Date Balance Sheet, the amount of such excess, together
with interest on such excess from the Closing Date to the date of payment
of such excess at the rate of 6% per annum, shall be paid within 3 business
days by MFC to the Stockholder in immediately available funds by wire
transfer to an account designated by the Stockholder. If the Net Book
Value of TCC as of the Closing Date computed on the basis of the Final
Closing Date Balance Sheet is less than the Net Book Value of TCC computed
at the Closing based on the Preliminary Closing Date Balance Sheet, the
amount of such deficiency, together with interest on such deficiency from
the Closing Date to the date of payment of such deficiency, to the extent
that interest is not paid out of the escrow established pursuant to the
terms of the Escrow Agreement, at the rate of 6% per annum, shall be paid
within 3 business days to MFC by the Escrow Agent to the extent provided in
the Escrow Agreement, and otherwise by the Stockholder in immediately
available funds by wire transfer to an account designated by MFC.
1.4 The Closing. Subject to the provisions of Sections 5 and 6 hereof,
-----------
the closing of the sale and purchase of the Shares (the "Closing") shall take
-------
place at the offices of Palmer & Dodge, One Beacon Street, Boston, Massachusetts
on a date (the "Closing Date") and time mutually agreeable to the parties, but
------------
not later than March 31, 1996. At the Closing, the Stockholder will make
available to MFC the written resignation of all the directors and officers of
TCC effective as of the Closing except for such directors and officers as MFC
may designate in writing, shall make available to MFC all minute books, stock
record books, books of account, corporate seals, contracts and other documents,
instruments and papers belonging to TCC and shall cause full possession and
control of all of the assets and properties of TCC and of all the matters
pertaining to the business of TCC to be delivered to MFC. At the Closing, the
parties will deliver the agreements, certificates, opinions and other documents
and instruments referred to in Section 5 and Section 6.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TCC AND THE STOCKHOLDER
Except as set forth on the disclosure schedule delivered to MFC on the date
hereof (the "Disclosure Schedule"), the section numbers of which are numbered to
-------------------
correspond to the section numbers of this Agreement to which they refer, TCC and
the Stockholder, jointly and severally, represent and warrant to MFC as set
forth below:
-4-
<PAGE>
2.1 Ownership of the Shares. The Stockholder is the legal and beneficial
-----------------------
owner of the Shares, free and clear of all Encumbrances. The Stockholder has
full legal right, power and authority to sell, assign, convey, transfer and
deliver the Shares pursuant to this Agreement, except for any required approvals
of the SBA that are described in Section 2.12 of the Disclosure Schedule. The
------------
delivery to MFC of the Shares pursuant to the provisions of this Agreement will
transfer to MFC good and marketable title thereto, free and clear of all
Encumbrances.
2.2 Organization and Qualification. TCC is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of New York
and has full corporate power and authority to own, lease and operate its assets,
properties and business and to carry on its business as now being and as
heretofore conducted. TCC is qualified or is otherwise authorized to transact
business as a foreign corporation in each jurisdiction (in the United States and
outside of the United States) in which such qualification or authorization is
required by law, all of which jurisdictions are identified in Section 2.2 of the
-----------
Disclosure Schedule.
2.3 Capitalization.
--------------
2.3.1 Outstanding Capital Stock. TCC's authorized capital stock
-------------------------
consists of 5,000,000 shares of Common Stock, $.125 par value per share, of
which 100 are issued and outstanding on the date hereof, 9,000 shares of 3%
Cumulative Preferred Stock, $1,000 par value per share, none of which are
outstanding on the date hereof, and 9,000 shares of 4% Redeemable Cumulative
Preferred Stock, $1,000 par value per share, none of which are outstanding on
the date hereof. The Shares constitute all of the issued and outstanding
capital stock of TCC. The Shares are duly authorized, validly issued, fully
paid, and nonassessable and have been issued in compliance with all charter
documents of TCC and all applicable federal and state laws. Except as set forth
in this Section 2.3.1, no other capital stock of TCC is authorized or
outstanding. All shares of TCC Preferred Stock previously issued to the SBA
have been repurchased by TCC and cancelled.
2.3.2 Options or Other Rights. Except as contemplated by this
-----------------------
Agreement, (i) no subscription, warrant, option, preemptive right, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock or other security of TCC is authorized or outstanding,
(ii) there is no commitment or offer by TCC to issue or provide any such
subscription, warrant, option, preemptive right, convertible security or other
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of TCC, (iii) TCC has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof, (iv) there are no restrictions on the
transfer of TCC's capital stock other than those arising from securities laws
and the SBI Act, and (v) there are no voting trusts, proxies or other
agreements, instruments or understandings with respect to outstanding shares
of TCC's capital stock to which TCC or the Stockholder is a party.
2.4 Authority to Execute and Perform Agreements. Each of TCC, the
-------------------------------------------
Stockholder, Leucadia and Leucadia National has the requisite corporate power
and authority
-5-
<PAGE>
to execute and deliver this Agreement and each agreement, document and
instrument contemplated by this Agreement to which it is a party, to consummate
the transactions contemplated hereby and thereby and to perform fully its
respective obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and each such other agreement, document and
instrument to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of TCC, the Stockholder, Leucadia and Leucadia
National. This Agreement and each agreement, document and instrument to which
it is a party executed and delivered pursuant to this Agreement constitutes, or
when executed and delivered will constitute, valid and binding obligations of
each of TCC, the Stockholder, Leucadia and Leucadia National, as the case may
be, enforceable in accordance with their terms.
2.5 Subsidiaries and Other Affiliates. TCC does not have any subsidiary
---------------------------------
or directly or indirectly own or have any investment in any of the capital stock
of, or any other interest in, and is not a party to a partnership or joint
venture with, any other person or entity.
2.6 Charter and By-laws; Books and Records. TCC has heretofore delivered
--------------------------------------
or made available to MFC true and complete copies of its Certificate of
Incorporation (certified by the Secretary of State of New York) and By-laws as
in effect on the date hereof, and corporate minute books. TCC is not in default
in the performance, observation or fulfillment of either its Certificate of
Incorporation or By-laws. Since February 28, 1992 (the "Acquisition Date"),
----------------
and, to the best knowledge of the Stockholder, for all periods prior thereto,
the minute books of TCC contain true and complete records of all meetings and
consents in lieu of meetings of the Board of Directors (and any committees
thereof) and of the stockholders of TCC, and accurately reflect all transactions
referred to in such minutes and consents in lieu of meetings. The stock books
of TCC are true, complete and correct. The general ledgers and books of account
of TCC to which MFC and its representatives have been given access are correct
and complete in all material respects and since the Acquisition Date have been
maintained in accordance with good business practice.
2.7 Financial Statements. (i) TCC has previously delivered to MFC the
--------------------
audited financial statements of TCC at and for the fiscal year ended December
31, 1994 (the "Audited Financial Statements"). (ii) TCC has also previously
----------------------------
delivered to MFC the unaudited balance sheet of TCC and related statements of
income and cash flow at and for the 9 month period ended September 30, 1995 (the
"Current Financial Statements'). (iii) Prior to the Closing, pursuant to
----------------------------
Section 4.1.1, TCC will deliver to MFC the unaudited balance sheet of TCC and
related statements of income and cash flow at and for the period ended on a date
not more than 45 days prior to the Closing Date (the "Updated Financial
-----------------
Statements"). All of the foregoing are referred to collectively as the "TCC
- ---------- ---
Financial Statements". (iv) At the Closing, pursuant to Section 1.3.3, TCC will
- --------------------
deliver to MFC the Preliminary Closing Date Balance Sheet. The TCC Financial
Statements and the financial statements described in Section 4.1.1(vi)(a) have
been (or, in the case of the Updated Financial Statements, will be) prepared
from and in accordance with the books and records of TCC, have been (or will be)
prepared in accordance with GAAP applied consistently with past practices, have
been (or will be) certified, in the case of the Audited Financial Statements,
without qualification by TCC's Auditors and, in the case of the Current
Financial
-6-
<PAGE>
Statements and Updated Financial Statements, by TCC's chief financial officer,
and present (or will present) fairly the financial position and results of
operation of TCC as of the date and for the period indicated.
2.8 Absence of Undisclosed Liabilities. As at December 31, 1994, TCC had
----------------------------------
no material liabilities of any nature, whether accrued, absolute, contingent or
otherwise (including without limitation, liabilities as guarantor or otherwise
with respect to obligations of others or liabilities for taxes due or then
accrued or to become due), required to be reflected or disclosed in the December
31, 1994 balance sheet included in the Audited Financial Statements that were
not adequately reflected or reserved against on such balance sheet. TCC has no
such liabilities, except as and to the extent (i) adequately reflected and
reserved against in the December 31, 1994 balance sheet included in the Audited
Financial Statements, (ii) adequately reflected and reserved against in the
balance sheet included in the Current Financial Statements, (iii) when
delivered, adequately reflected and reserved against in the balance sheet
included in the Updated Financial Statements, or (iv) incurred subsequent to the
dates of such balance sheets in the ordinary course of business and not material
in amount, either individually or in the aggregate.
2.9 No Material Adverse Change. Since December 31, 1994, there has not
--------------------------
been:
(i) any material adverse change in the assets, liabilities, condition
(financial or otherwise), results of operation, business or prospects of
TCC or any occurrence or circumstance which reasonably could be expected to
result in such a material adverse change;
(ii) any material change in the method of operating the business of
TCC, in the manner of keeping the books, accounts or records of TCC, or in
any accounting method or practice of TCC;
(iii) any sale, lease, mortgage, pledge, encumber, abandonment or
disposition of, or agreement to sell, lease, mortgage, pledge, encumber,
abandon or dispose of, any material assets or properties of TCC, other than
in the usual and ordinary course of business;
(iv) any material transaction, commitment, contract or agreement
entered into by TCC, or any relinquishment or abandonment by TCC of any
material contract or right, or any modification, waiver, amendment,
release, recision, or termination of any material term, condition or
provision of any contract pertaining to TCC (other than any satisfaction by
performance in accordance with the terms thereof), other than in the usual
and ordinary course of business;
(v) any adverse relationships or conditions with employees, suppliers,
lenders, customers or governmental agencies that could reasonably be
anticipated to have a material adverse effect on TCC or its business;
(vi) any new material obligation or liability of TCC for borrowed
money;
-7-
<PAGE>
(vii) any acquisition by TCC (other than property or interests
therein acquired in the ordinary course of its lending business) of all or
any part of the assets, properties, capital stock or business of any other
person or entity;
(viii) any redemption or other acquisition by TCC of any of its
capital stock or any declaration, setting aside or payment of any dividend
or distribution of any kind with respect to shares of its capital stock;
(ix) any loan or advance by TCC to any shareholder, officers, director
or consultant, or any other loan or advance other than in the ordinary
course of business; or
(x) any new employment or consulting agreement, any increase in
compensation, bonus or other benefits payable or to become payable by TCC
to any director, officer or employee, other than regularly scheduled
increases consistent with past practice in the ordinary course of business,
or any new grant of severance or termination rights, or increase in rights
or benefits payable under existing severance or termination policies or
agreements, to any director, officer or employee of TCC.
2.10 Tax Matters.
-----------
2.10.1 TCC is not and has not been a member of an affiliated group of
corporations filing a consolidated federal income tax return other than a group
the common parent of which is Leucadia National (hereinafter the "Leucadia
--------
Group"). TCC has paid or caused to be paid or established appropriate reserves
for all federal, state, county, local, foreign and other taxes, including,
without limitation, income taxes, estimated taxes, alternative minimum taxes,
excise taxes, sales taxes, use taxes, import duties, value-added taxes, gross
receipts taxes, franchise taxes, capital stock taxes, employment and payroll-
related taxes, withholding taxes, stamp taxes, transfer taxes, windfall profit
taxes, environmental taxes and property taxes, whether or not measured in whole
or in part by net income and all deficiencies, or other additions to such taxes
and interest, fines and penalties thereon (hereinafter, "Taxes" or,
-----
individually, a "Tax") required to be paid by TCC through the date hereof
---
whether disputed or not. The reserves and the provisions in respect of Taxes
reflected on the balance sheet included in the Current Financial Statements are
adequate and, when delivered, the balance sheet included in the Updated
Financial Statements will be adequate, to cover any and all Tax liabilities of
TCC in respect of its assets, properties, business and operations for periods
ended on or prior to the date of such Updated Financial Statements. There is no
Tax deficiency or claim for additional Taxes or interest thereon or penalties in
connection therewith, asserted or, to the best knowledge of TCC and the
Stockholder, threatened in writing to be asserted against TCC by any taxing
authority.
2.10.2 TCC has in accordance with applicable law timely filed all
material Tax reports or returns required to be filed by it through the date
hereof and paid all taxes and other charges shown as due thereon. Each of the
Tax reports and returns filed by TCC correctly and accurately reflects the
amount of its Tax liability for such period and other required information.
Since the Acquisition Date and to the best knowledge of the Stockholder for
periods prior thereto, there has not been any audit or other examination of
-8-
<PAGE>
any Tax return filed by TCC and no audit or other examination of any Tax return
of TCC is in progress and TCC has not been notified in writing by any Tax
authority that any such audit or other examination is contemplated or pending.
Other than extensions to September 15 with respect to the filing of federal tax
returns, no extension of time with respect to any date on which a Tax return was
or is to be filed by TCC is in force, and no waiver or agreement by TCC is in
force for the extension of time for the assessment or payment of any Tax. Since
the Acquisition Date, and to the best knowledge of the Stockholder for periods
prior thereto, no claim has been made by an authority in a jurisdiction where
TCC does not file reports or returns that TCC is or may be subject to taxation
by that jurisdiction. There are no Encumbrances on any of the assets of TCC
that arose in connection with any failure (or alleged failure) to pay any Taxes
for periods prior to the Closing Date. TCC has no liability for the taxes of
any other member of the Leucadia Group by contract, including any tax sharing
agreement, or as a result of joint and several liability arising out of the
consolidated tax filings.
2.11 Compliance with Laws.
--------------------
2.11.1 TCC is not in violation in any material respect of any order,
judgment, injunction, award or decree, or any federal, state, local or foreign
law, ordinance or regulation or any other requirement of any governmental or
regulatory body, court or arbitrator, including, without limitation, regulations
and requirements of the SBA, and is in compliance in all material respects with
all of the foregoing that are applicable to it, its business or its assets.
Since the Acquisition Date, and to the best knowledge of the Stockholder prior
thereto, TCC has not received notice of, and there has not been any citation,
fine or penalty imposed or asserted against TCC for, any such violation or
alleged violation that has not been favorably resolved.
2.11.2 Set forth in Section 2.11 of the Disclosure Schedule is a
------------
correct and complete list of all of the licenses, permits, certificates,
franchises, orders or approvals of any federal, state, local or foreign
governmental or regulatory body, including, but not limited to, the license
issued by the SBA under the SBI Act, that are material to the conduct of TCC's
business and the uses of its assets (collectively, "Permits"). Correct and
-------
complete copies of such Permits have been delivered or made available by TCC to
MFC. TCC holds all Permits necessary to operate its business as presently
conducted. Such Permits are in full force and effect and the validity and
effectiveness of such Permits will not be affected by the sale of the Shares to
MFC. Since the Acquisition Date, to the knowledge of TCC and Stockholder, no
violations are or have been recorded with any governmental or regulatory body in
respect of any Permit, no proceeding is pending or, to the best knowledge of TCC
and the Stockholder, threatened to revoke or limit any Permit, and with respect
to any Permits of the SBA, TCC and the Stockholder know of no grounds for any
such revocation or limitation.
2.11.3 Since the Acquisition Date, TCC has timely filed with the SBA
all reports required to be filed including all reports on Form 468. TCC has
previously delivered to MFC a correct and complete copy of the report on Form
468 most recently filed with the SBA and dated December 31, 1994. All
information required to be included in said Form
-9-
<PAGE>
468 is included therein and all such information is correct and complete in all
material respects.
2.12 Consents; No Breach. All consents, permits, authorizations and
-------------------
approvals from any person or entity that are required pursuant to applicable
law, or agreement or otherwise in connection with the execution, delivery and
performance of this Agreement by TCC and the Stockholder are set forth in
Section 2.12 of the Disclosure Schedule. Subject to any prior approval
- ------------
requirements set forth in Section 2.12 of the Disclosure Schedule, the
------------
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (i) violate any provision of the
Certificate of Incorporation or By-laws of TCC; (ii) violate, conflict with or
result in the breach of any of the terms or conditions of, result in a material
modification of, or otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default under, any material instrument, contract or other agreement to which TCC
is a party or to which TCC or any of its assets or properties is bound or
subject; (iii) violate any statute, law or regulation of any jurisdiction or any
order, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body applicable to or binding upon TCC or its
securities, properties, assets or business; (iv) violate any Permit; (v) require
any filing with, notice to, or approval or consent of any foreign, federal,
state, local or other governmental or regulatory body or any other person or
entity; (vi) result in the creation of any Encumbrance on the assets or
properties of TCC; or (vii) except that any remaining unamortized accumulated
dividends must be paid to the SBA prior to any distribution or payment to MFC,
give rise to any obligation to make any payment or give rise to any other
obligation to the SBA under agreements or arrangements pertaining to the
repurchase from the SBA of shares of TCC's Preferred Stock, where such
violation, filing with, notice to, approval, consent or creation of an
Encumbrance or obligation either individually or in the aggregate, would have a
material adverse effect on the business or financial condition of TCC (a
"Material Adverse Effect") or a material adverse effect on the consummation of
- ------------------------
the transactions contemplated by this Agreement.
2.13 Actions and Proceedings. There are no outstanding orders, judgments,
-----------------------
injunctions, awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against or involving TCC or any of its securities, assets,
or properties. There are no actions, suits or claims or legal, judicial,
administrative or arbitral proceedings or investigations (whether or not the
defense thereof or liabilities in respect thereof are covered by insurance)
pending or, to the best knowledge of TCC and the Stockholder, threatened against
or involving TCC or any of its securities, assets or properties, which if
adversely determined to TCC, would have singly or in the aggregate, a Material
Adverse Effect.
2.14 Contracts and Other Agreements. Section 2.14 of the Disclosure
------------------------------ ------------
Schedule sets forth a correct and complete list all of the following contracts
and other agreements to which TCC is a party or by or to which it or its assets
or properties are bound or subject:
(i) contracts and other agreements with or for the benefit of any
current or former officer, director, stockholder, employee, consultant,
agent or other representative of TCC, the Stockholder, Leucadia or Leucadia
National and contracts and other agreements for the payment of fees or
other consideration to any entity in
-10-
<PAGE>
which any of the foregoing, the Stockholder, Leucadia or Leucadia National
has an interest;
(ii) contracts and other agreements with any labor union or
association representing any employee of TCC or otherwise providing for any
form of collective bargaining;
(iii) contracts and other agreements for the purchase or sale of
materials, supplies, equipment, merchandise or services that contain an
escalation, renegotiation or redetermination clause or that obligate TCC
to purchase all or substantially all of its requirements of a particular
product from a supplier, or for periodic minimum purchases of a particular
product from a supplier;
(iv) contracts and other agreements for the sale of any of the
assets or properties of TCC other than in the ordinary course of business
or for the grant to any person of any options, rights of first refusal, or
preferential or similar rights to purchase any of such assets or
properties;
(v) partnership or joint venture agreements;
(vi) contracts or other agreements under which TCC agrees to act
as surety or guarantor for or to indemnify any party or to share the tax
liability of any party;
(vii) contracts, options, outstanding purchase orders and other
agreements for the purchase of any material asset, tangible or intangible;
(viii) contracts and other agreements that cannot by their terms
be canceled by TCC and any successor or assignee of TCC without liability,
premium or penalty on no less than thirty (30) days notice;
(ix) contracts and other agreements with customers, suppliers or
other parties for the sharing of fees, the rebating of charges or other
similar arrangements;
(x) contracts, stipulations or agreements with the SBA;
(xi) contracts and other agreements containing obligations or
liabilities of any kind to holders of the securities of TCC as such
(including, without limitation, an obligation to register any of such
securities under any federal or state securities laws);
(xii) contracts and other agreements containing covenants of TCC
not to compete in any line of business or with any person or entity or
covenants of any other person or entity not to compete with TCC in any line
of business;
-11-
<PAGE>
(xiii) contracts and other agreements relating to the
acquisition by TCC of any operating business or the capital stock of any
other person or entity;
(xiv) contracts and other agreements requiring the payment to
any party of a brokerage or sales commission or a finder's or referral fee;
(xv) contracts, indentures, mortgages, promissory notes,
debentures loan agreements, guaranties, security agreements, pledge
agreements, and other agreements and instruments relating to the borrowing
or lending of money or securing any such liability;
(xvi) any agreement or series of related agreements requiring
aggregate payments by or to TCC of more than $10,000;
(xvii) contracts under which TCC will acquire or has acquired
ownership of, or license to, intangible property, including software;
(xviii) any other material contract or other agreement whether
or not made in the ordinary course of business that has or may have a
material effect on TCC's business or prospects, condition, financial or
otherwise, or any of the assets or properties of TCC.
There have been delivered or made available to MFC true and complete copies
of all of the contracts and other agreements (and all amendments, waivers or
other modifications thereto) set forth in Section 2.14 of the Disclosure
------------
Schedule. All of such contracts and other agreements are valid, subsisting, in
full force and effect, binding upon TCC, and to the best knowledge of TCC and
the Stockholder, binding upon the other parties thereto in accordance with their
terms, TCC is not in default under any of them, nor, to the best knowledge of
TCC and the Stockholder, is any other party to any such contract or other
agreement in default thereunder, nor does any condition exist that constitutes
or with notice or lapse of time or both would constitute a default thereunder
other than those which would not, either singly or in the aggregate, have a
Material Adverse Effect.
2.15 Real Property; Leases. TCC does not own any real property or any
---------------------
buildings or other structures and does not have any options or any contractual
obligations to purchase or acquire any interest in real property. Section 2.15
------------
of the Disclosure Schedule sets forth a correct and complete list of all leases
of real property to which TCC is a party (collectively, the "Leases"). True,
------
correct and complete copies of the leases and all amendments, modifications and
supplemental agreements thereto have been delivered by TCC to MFC. The Leases
are in full force and effect and to the best knowledge of TCC and the
Stockholder, are binding and enforceable against each of the parties thereto in
accordance with their respective terms. To the best knowledge of TCC and the
Stockholder, no party to any Lease has given notice to any other party thereto
claiming the existence or occurrence of a breach or default thereunder and there
has not occurred any event or circumstances which constitutes, or with the
passage of time or the giving of notice would constitute, a breach or default
thereunder other than defaults which would not, either singly or in the
aggregate, have a Material Adverse Effect.
-12-
<PAGE>
2.16 Tangible Property. Set forth in Section 2.16 of the Disclosure
----------------- ------------
Schedule is a correct and complete description of the plant, machinery,
equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
any related capitalized items and other tangible property material to the
business of TCC ("Tangible Property"). TCC has good and marketable title to,
-----------------
free and clear of all Encumbrances, or otherwise has the unrestricted right to
use, each item of Tangible Property. All such Tangible Property is in good and
sufficient operating condition and repair, ordinary wear and tear excepted, and
to the best knowledge of TCC and the Stockholder, TCC has not received notice
that any of its Tangible Property is in violation of any existing law or any
building, zoning, health, safety or other ordinance, code or regulation.
2.17 Intellectual Property. TCC owns or is licensed to use, or otherwise
---------------------
has the unrestricted right to use all patents, trademarks, service marks, trade
names, logos, franchises, and copyrights, and all applications for any of the
foregoing, and all technology, inventions, trade secrets, know-how, computer
software and processes material to the conduct of its business as now conducted
(collectively, the "Proprietary Rights"). A correct and complete list of all
------------------
such Proprietary Rights and all applications therefor has been provided by TCC
to MFC. Neither TCC nor the Stockholder has actual knowledge based on written
notice of any claim by any third party that the business of TCC as currently
conducted infringes upon the proprietary rights of others, nor has TCC or the
Stockholder received any notice or claim from any third party of such
infringement. TCC does not have actual knowledge of any infringement by any
third party on, or any competing claim of right to use or own any of, the
Proprietary Rights. TCC has the right to use, free and clear of claims or
rights of others, all customer lists and third party computer software material
to the conduct of its business.
2.18 Title to Assets; Liens. TCC owns outright, leases or rents, and has
----------------------
good title to all of its material assets and properties, including, without
limitation, all of the assets and properties reflected on the balance sheet
included in the Current Financial Statements (and, when delivered, the balance
sheet included in the Updated Financial Statements), free and clear of any
Encumbrance, except for (i) assets and properties disposed of in the ordinary
course of business, (ii) liens or other Encumbrances securing the claims of
materialmen, carriers, landlords and like persons, all of which are not yet due
and payable, (iii) liens for taxes not yet due and payable or for taxes being
contested in good faith by appropriate proceedings, or (iv) Encumbrances
reflected on the balance sheet included in the Current Financial Statements and,
when delivered, the balance sheet included in the Updated Financial Statements.
2.19 Accounts and Notes Receivable. Set forth in Section 2.19 of the
----------------------------- ------------
Disclosure Schedule is a correct and complete description of all accounts and
notes receivable of TCC as of September 30, 1995 reflected on the Current
Financial Statements; at the Closing, Section 2.19 of the Disclosure Schedule
------------
will be updated to provide a correct and complete description of all accounts
receivable of TCC within five business days of the Closing Date. TCC will
provide MFC with access to correct and complete copies or descriptions of all
agreements, instruments and other documents evidencing, securing or otherwise
relating to such accounts and notes receivable. All such accounts and notes
receivable have arisen in the ordinary course of business of TCC and represent
valid and enforceable obligations due
-13-
<PAGE>
to TCC. TCC has no accounts or notes receivable from any person, firm or
corporation which is affiliated with TCC, the Stockholder, Leucadia or Leucadia
National or from any director, officer or employee of any of them.
2.20 Customers. Section 2.20 of the Disclosure Schedule sets forth the
--------- ------------
names and addresses of all parties that are or at any time during the prior
three years were customers of TCC (collectively, the "Customers") and TCC has
---------
provided MFC with correct and complete copies or descriptions of all current
agreements with Customers. The relationships of TCC with its current Customers
are good commercial working relationships. Except at the request of TCC and
except for customers who have prepaid their loans or who have requested and been
refused refinancing of a loan by TCC, no Customer of TCC has canceled or
otherwise terminated or notified TCC of its intention to cancel or otherwise
terminate its relationship with TCC during the prior three years.
2.21 Employee Benefit Plans. Section 2.21 of the Disclosure Schedule sets
---------------------- ------------
forth a correct and complete list of all pension, profit sharing, retirement,
deferred compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay and similar plans, programs or arrangements, including without
limitation all employee benefit plans as defined in Section 3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") with respect to
-----
which TCC is the "Plan Sponsor" within the meaning of Section 3(16)(b) of ERISA
------------
(the "Plans"), copies of which have been previously furnished by TCC to MFC.
-----
TCC does not maintain or contribute to any "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA, and TCC has not incurred any material liability
under Sections 4062, 4063 or 4201 of ERISA. Each Plan maintained by TCC which
is intended to be qualified under either Section 401(a) or 501(c)(9) of the
Internal Revenue Code of 1986 (the "Code") is so qualified. Each Plan has been
----
administered in all material respects in accordance with the terms of such Plan
and the provisions of any and all statutes, orders or governmental rules or
regulations, including without limitation ERISA and the Code, and to the
knowledge of TCC and the Stockholder nothing has been done or omitted to be done
with respect to any Plan that would result in any material liability on the part
of TCC under Title I of ERISA or Section 4975 of the Code. All reports required
to be filed with respect to all Plans, including without limitation annual
reports on Form 5500, have been timely filed except where the failure to so file
would not have a material adverse effect on the business of TCC. No "reportable
----------
event" as defined at Section 4043 of ERISA, other than any such event for which
- -----
the thirty-day notice period has been waived, has occurred with respect to any
Plan subject to Title IV of ERISA. With respect to all Plans subject to Title
IV of ERISA, such Plans have no unfunded benefit liabilities, all contributions
to such Plans under the minimum funding requirements of Section 412 of the Code
have been made and all premium payments to the Pension Benefit Guaranty
Corporation with respect to such Plans have been made. All claims for welfare
benefits incurred by employees on or before the Closing are or will be fully
covered by third-party insurance policies or programs. Except for continuation
of health coverage to the extent required under Section 4980B of the Code or as
otherwise set forth in this Agreement, there are no obligations under any
welfare plan providing benefits after termination of employment.
2.22 Employee Relations. TCC has approximately 3 full-time equivalent
------------------
employees and generally enjoys good employer-employee relations. None of TCC's
employees are
-14-
<PAGE>
represented by any labor union. TCC is not delinquent in payments to any of its
employees or consultants for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed by them to the date hereof or
amounts required to be reimbursed to such employees or consultants. TCC has no
obligations of any kind relating to employee severance and neither MFC nor TCC
will by reason of the sale of the Shares to MFC or anything done prior to the
Closing be liable to any TCC employees for severance pay or any other payments
in the event any such employees are terminated. Correct and complete
information as to all current directors, officers, employees or consultants of
TCC including, in each case, name, current job title and annual rate of
compensation has been provided by TCC to MFC.
2.23 Relationships with Affiliates. No officer or director of TCC, nor the
-----------------------------
Stockholder, Leucadia or Leucadia National, nor any officer or director of the
Stockholder, Leucadia or Leucadia National has (directly or indirectly) any
interest in, (i) any property or assets of TCC (except in the case of the
Stockholder, Leucadia or Leucadia National, as a shareholder), (ii) any
competitor or customer of TCC, (iii) any supplier or lender to TCC, or (iv) any
party to any material contract or agreement with TCC.
2.24 Insurance. Section 2.24 of the Disclosure Schedule sets forth a
--------- ------------
correct and complete list of all policies or binders of fire, liability, product
liability, workmen's compensation, vehicular, directors' and officers' and other
insurance held by or on behalf of TCC specifying in each case the type and scope
of coverage, the amount of coverage, the premium, the insurer, the expiration
date and all claims made thereunder within the past three years. Such policies
and binders are in full force and effect, are reasonably believed to be adequate
for the businesses engaged in by TCC, are in conformity with the requirements of
all leases or other agreements to which TCC is a party and are valid and
enforceable in accordance with their terms. All premiums due under such
policies and binders have been paid, and TCC is not in default with respect to
any provision contained in any such policy or binder nor has TCC failed to give
any notice or present any claim under any such policy or binder in due and
timely fashion. There are no outstanding unpaid claims under any such policy or
binder. TCC has not received notice of cancellation or non-renewal of, or any
material amendment to, or any material increase in deductibles or premiums
under, any such policy or binder. Correct and complete copies of certificates
of insurance with respect to all such policies and binders have been provided by
TCC to MFC
2.25 Banking Relationships. Section 2.25 of the Disclosure Schedule sets
--------------------- ------------
forth (i) a correct and complete list of each bank, or similar financial
institution in which TCC (and, to the extent that any funds of TCC are deposited
in accounts or safe deposit boxes maintained by the Stockholder, the
Stockholder) maintains an account or safety deposit box, including the name,
number and location of each such account or safety deposit box, the name of each
person authorized to draw on such account or have access to such safety deposit
box, and the nature and scope of such authority and (ii) a description of all
loan agreements, lines of credit, and other credit facilities maintained by TCC
(or by the Stockholder, Leucadia or Leucadia National for the benefit of TCC)
with banks or similar financial institutions.
2.26 Brokerage. No broker, finder, agent or similar intermediary has acted
---------
on behalf of TCC or the Stockholder in connection with this Agreement or the
transactions
-15-
<PAGE>
contemplated hereby, and there are no brokerage commissions, finders fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with, or any action taken by TCC or the
Stockholder.
2.27 Hazardous Materials. Since the Acquisition Date and to the
-------------------
knowledge of the Stockholder, (i) TCC has not generated, used or handled any
Hazardous Materials (as defined below), (ii) nor has TCC treated, stored or
disposed of any Hazardous Materials at any site owned or leased by TCC or
shipped any Hazardous Materials for treatment, storage or disposal at any other
site or facility. To the knowledge of the Stockholder, since the Acquisition
Date, no other person has generated, used, handled, stored or disposed of any
Hazardous Materials at any site owned or premises leased by TCC or at any site
in which TCC presently holds a mortgage or similar interest, nor has there been
or is there threatened any release of any Hazardous Materials on or at any such
site or premises. TCC does not presently own, hold any mortgage or similar
interest in, operate, lease or use, nor since the Acquisition Date has it owned,
operated, leased, or used any site on which, to the Stockholder's knowledge,
underground storage tanks are or were located. Since the Acquisition Date, to
the Stockholder's knowledge, no lien has been imposed by any governmental agency
on any property, facility, machinery, or equipment owned, operated, leased or
used by TCC or in which TCC holds any mortgage, lien, or similar interest in
connection with the presence of any Hazardous Materials. For purposes of this
Section 2.27, "Hazardous Materials" shall mean and include any "hazardous waste"
------------------- ---------------
as defined in either the United States Resource Conservation and Recovery Act or
regulations adopted pursuant to said Act, and also any "hazardous substances" or
--------------------
"hazardous materials" as defined in the United States Comprehensive
-------------------
Environmental Response, Compensation and Liability Act. TCC has provided to MFC
copies of all documents, records and information available to TCC concerning any
environmental or health and safety matter relevant to TCC, whether generated by
TCC or others, including, without limitation, environmental audits,
environmental risk assessments, site assessments, documentation regarding off-
site disposal of Hazardous Materials, spill control plans, and reports,
correspondence, permits, licenses, approvals, consents and other authorizations
related to environmental or health and safety matters issued by any governmental
agency.
2.28 Full Disclosure. All documents and other papers delivered by or on
---------------
behalf of TCC or the Stockholder in connection with this Agreement and the
transactions contemplated hereby are true, complete and authentic. No
representation, warranty or statement of TCC or the Stockholder made in this
Agreement or in any Exhibit or the Disclosure Schedule hereto or in any
document, statement or certificate furnished to MFC pursuant to this Agreement
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements made, in
light of the circumstance under which they were made, not false or misleading.
-16-
<PAGE>
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC
Except as set forth in the disclosure schedule delivered to TCC on the
date hereof (the "MFC Disclosure Schedule"), MFC represents and warrants to TCC
-----------------------
and the Stockholder as follows:
3.1 Organization. MFC is a corporation duly organized, validly
------------
existing and in good standing under the laws of the state of Delaware with full
corporate power and authority to own, lease and operate its assets and to carry
on its business as now being and as heretofore conducted.
3.2 Authority to Execute and Perform Agreement. MFC has the
------------------------------------------
corporate power and authority required to enter into, execute and deliver this
Agreement and each agreement, document and instrument delivered by MFC pursuant
to this Agreement and to perform fully its respective obligations hereunder and
thereunder. The execution and delivery of this Agreement and each such other
agreement, document and instrument and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of MFC. This Agreement and each agreement,
document and instrument executed and delivered pursuant to this Agreement
constitutes, or when executed and delivered will constitute, valid and binding
obligations of MFC, enforceable in accordance with their terms.
3.3 Brokerage. No broker, finder, agent or similar intermediary has
---------
acted on behalf of MFC in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with or any action taken by MFC.
3.4 Restrictive Documents. Neither MFC nor any affiliate of MFC is
---------------------
subject to any charter, by-law, mortgage, lien, lease, license, permit,
agreement, contract, business arrangement, instrument, order, law, rule,
ordinance, regulation, judgment or decree, or any other restriction of any kind
or character, which would prevent consummation of the transactions contemplated
by this Agreement or compliance by MFC with the terms, conditions and provisions
of this Agreement or any other agreement contemplated hereby, other than the
matters referred to in Section 3.5.
3.5 Consents and Approvals of Governmental Authorities. Except for
--------------------------------------------------
(i) any required approvals and consents of the SBA, (ii) any requirements under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, and (iii) any requirements under the Investment Company Act of 1940,
and the rules and regulations thereunder, no consent, approval or authorization
of, or declaration or registration with, any governmental or regulatory
authority is required in connection with the execution and delivery by MFC of
this Agreement and the consummation of the transactions contemplated hereby.
3.6 SBI Act Requirements. MFC acknowledges and understands that the
--------------------
prior written approval of the SBA is required under the SBI Act as a condition
of authorizing the sale of the Shares held by the Stockholder and the transfer
of control of TCC to MFC. MFC
-17-
<PAGE>
represents and agrees that it will file with the SBA a complete License
Application, SBA Form 415, together with the required fee, exhibits and an
executed Transferee's Liability Contract seeking the SBA's prior written
approval for the purchase of the Shares held by the Stockholder and the transfer
of control of TCC to MFC, and will formally adopt as part of its License
Application the provisions required by the SBA of licensees with outstanding
Debentures and Leverage, as those terms are defined in the SBI Act, and will
comply with all licensing requirements of the SBA and the SBI Act. MFC further
acknowledges and understands that as a specific condition of the agreement
pertaining to the repurchase from the SBA of shares of TCC's Preferred Stock,
TCC is obligated to remain as an active SSBIC subject to the SBI Act for a
period of at least 5 years from March 22, 1995. MFC also acknowledges the terms
and conditions of the letter agreement dated June 1, 1995 relating to the
repurchase of the SBA shares.
3.7 Full Disclosure. All documents and other papers delivered by or
---------------
on behalf of MFC in connection with this Agreement and the transactions
contemplated hereby are true, complete and authentic. No representation,
warranty or statement of MFC made in this Agreement or in any Exhibit or the MFC
Disclosure Schedule hereto or in any document, statement or certificate
furnished by MFC or its affiliates to TCC or the Stockholder pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
made, in light of the circumstance under which they were made, not false or
misleading.
3.8 Investment Intent. The Shares are being acquired by MFC for its
-----------------
own account, for investment only and MFC has no present intention of resale or
other distribution thereof. MFC acknowledges that the Shares have not been
registered under the Securities Act of 1933, as amended, or the securities act
or Blue Sky laws of any state. MFC acknowledges that (a) Stockholder disclosed
to it that such Shares may not be resold absent such registration or unless an
exemption from registration is available and (b) such shares are legended to
such effect. MFC has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
such Shares. Notwithstanding the foregoing, MFC has advised TCC and the
Stockholder that it may offer and sell common stock of MFC to the public
pursuant to an effective registration statement under the Securities Act.
3.9 Actions and Proceedings. There are no outstanding orders,
-----------------------
judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving MFC or any of its
securities, assets or properties. There are no actions, suits or claims or
legal, judicial, administrative or arbitral proceedings or investigations
pending, or to the best knowledge of MFC, threatened against or involving MFC or
any of its assets, securities or properties, which if adversely determined to
MFC, would have singly or in the aggregate, a material adverse effect on the
business or financial condition of MFC.
-18-
<PAGE>
SECTION 4 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
4.1 Conduct of Business. Except with the prior written consent of
-------------------
MFC or as otherwise contemplated herein, during the period from the date hereof
to the Closing Date, TCC and the Stockholder shall observe the following
covenants:
4.1.1 Affirmative Covenants Pending Closing.
--------------------------------------------
The Stockholder will cause TCC to, and TCC will:
(i) Preservation of Personnel. Use best efforts to preserve
-------------------------
intact TCC's business organization and keep available the services of TCC's
present employees;
(ii) Insurance. Use best efforts to keep in effect casualty,
---------
public liability, worker's compensation and other insurance policies in
amount and scope of coverage comparable to those in effect at the date of
this Agreement;
(iii) Preservation of the Business; Maintenance of Properties,
--------------------------------------------------------
Contracts. Use best efforts to preserve its business, advertise, promote
---------
and market its services in accordance with past practices, keep its
properties intact in all material respects, preserve its goodwill, maintain
all physical properties in good condition and working order in all material
respects and in such operating condition as will permit the continued
conduct of TCC's business on a basis consistent with past practice, and
perform and comply in all material respects with the terms of the contracts
set forth in Section 2.14 of the Disclosure Schedule;
------------
(iv) Preservation of Business Relationships. Use best efforts
--------------------------------------
consistent with past practice to maintain TCC's existing relationships with
material suppliers, customers, lenders, and others in all material
respects, including the SBA;
(v) Approvals and Authorizations. Use reasonable best efforts,
----------------------------
to the extent within its control or capable of influence to obtain (or with
respect to the SBA to assist MFC in obtaining) all authorizations,
consents, permits and approvals of all parties (including the SBA)
necessary to permit the consummation of the transactions contemplated by
this Agreement; provided, however, that TCC and Stockholder shall have no
obligation with respect to the registration with the Securities and
Exchange Commission of TCC under the Investment Company Act (except as
provided in Section 4.1.1(x)) or with respect to the MFC Public Offering
(as defined in section 7.7 below);
(vi) Financial Reports. Deliver to MFC on or prior to the
-----------------
Closing the TCC Financial Statements described in Section 2.7 and provide
MFC with the following other financial information (collectively, the
"Section 4.1 Financial Information"):
----------------------------------
-19-
<PAGE>
(a) audited financial statements of TCC for the calendar
years ended December 31, 1993 and 1994 to be audited by TCC's Auditors
at the Stockholder's expense;
(b) unaudited financial statements of TCC for the calendar
years ended December 31, 1991 and 1992 to be prepared at TCC's expense
by TCC on a basis consistent with those referred to in subparagraph
(a); and
(c) audited financial statements of TCC for the nine months
ended September 30, 1995 to be audited at MFC's expense by Arthur
Andersen L.L.P. on a basis consistent with those referred to in
subparagraph (a).
The parties hereto agree that none of TCC, Stockholder, Leucadia
or Leucadia National shall have any responsibility for pro forma
adjustments that may be made to the Section 4.1 Financial Information (or
other TCC Financial Statements or the Preliminary Closing Date Balance
Sheet), all of which shall be the sole responsibility of MFC, and that,
except pursuant to Section 7.2 hereof, the delivery of the Section 4.1
Financial Information to MFC and any subsequent use thereof by MFC shall
not create or give rise to any liability or indemnification obligation to
any party.
MFC hereby agrees that it shall not reproduce, summarize, use or
refer to any financial statements of TCC, including the TCC Financial
Statements, the Preliminary Closing Date Balance Sheet and the Section 4.1
Financial Information, in any document which refers to the financial
condition, business or prospects of a third party or parties without an
express written statement that neither TCC nor its direct or indirect
parents or any officer or director thereof has commented upon, has
reviewed, has knowledge with respect to, or takes any responsibility for,
any financial statements or other financial or business information
concerning such third party or parties. With respect to any such
reproduction summarization, use or reference occurring after the Closing
Date, such statement shall refer to the former direct or indirect parents
of TCC or any officer or director thereof.
(vii) Disclosure. Promptly disclose to MFC in writing any
----------
information set forth in the Disclosure Schedule which is no longer correct
and any information which arises after the date hereof which would have
been required to be included in the Disclosure Schedule in order to make
the representations, warranties and covenants of TCC and the Stockholder
herein accurate and complete if such information had been known on the date
hereof.
(viii) Compliance. Comply in all material respects with all
----------
applicable laws, regulations and other governmental requirements and all
contracts, commitments and obligations applicable to TCC and material to
TCC and its business or properties.
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<PAGE>
(ix) Ordinary Course of Business. Operate its business
---------------------------
diligently and solely in the ordinary course and substantially in the same
manner as it has been operated in the past consistent with past practice.
(x) Investment Company Act Filings. Cooperate in all reasonable
------------------------------
respects with MFC with respect to MFC's registration of TCC under the
Investment Company Act.
(ix) No Further Liability as Sponsor. As of the Closing TCC will
-------------------------------
cease to be an Employer, as defined in the Leucadia National defined
benefit pension plan (the "Defined Benefit Plan") and will have no further
--------------------
liability as a sponsor of the Defined Benefit Plan for contributions or
otherwise.
4.1.2 Negative Covenants Pending Closing. The Stockholder will not
----------------------------------
permit TCC to, and TCC will not, without the express consent of MFC:
(i) Disposition of Assets. Sell or transfer, or mortgage,
---------------------
pledge or create or permit to be created any Encumbrance on any of its
assets or properties other than sales or transfers in the ordinary course
of business;
(ii) Liabilities. Incur any obligation or liability other than
-----------
in the ordinary course of business consistent with past practice, incur any
indebtedness for borrowed money, enter into any contracts or commitments
involving payments to or by TCC of $10,000 or more, or cancel any debts or
claims other than in the ordinary course of business;
(iii) Compensation. Change the compensation or fringe benefits
------------
of or make any bonus or similar payments to any officer, employee, agent or
consultant, other than year-end bonuses consistent with prior practice
which do not exceed $47,000 in the aggregate, and except for ordinary merit
compensation increases for employees (other than officers) in accordance
with past practice, or enter into or modify any benefit plan or any
employment, severance or other agreement with any officer, director,
employee or consultant;
(iv) Capital Stock. Make any change in the number of shares of
-------------
its capital stock authorized, issued or outstanding or grant or accelerate
the exerciseability of any option, warrant or other right to purchase, or
to convert any obligation into, shares of its capital stock, or declare or
pay any dividend or other distribution with respect to any shares of its
capital stock, or issue, sell, transfer, purchase or redeem any shares of
its capital stock except for payment of unamortized accumulated dividends
to the SBA in an amount not to exceed $137,025 or payments to former
shareholders of TCC of merger consideration in an amount not to exceed
$16,402.50.
(v) Charter and By-Laws. Take any action to amend its
-------------------
Certificate of Incorporation or By-Laws;
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(vi) Acquisitions. Make any material acquisition of property
------------
other than in the ordinary course of business consistent with past
practice.
4.2 Corporate Examinations and Investigations. Prior to the Closing, MFC
-----------------------------------------
shall be entitled, through its employees and representatives, to have such
access to the assets, properties, records, business and operations of TCC as is
reasonably necessary or appropriate in connection with MFC's investigation of
TCC with respect to the transactions contemplated hereby. Any such
investigation and examination shall be conducted during normal business hours
and under reasonable circumstances and in accordance with any reasonable rules,
procedures and requests of TCC and the Stockholder so as to minimize any
disruption to or impairment of TCC's business, and TCC and the Stockholder shall
cooperate fully therein. No investigation by MFC shall diminish or obviate or
constitute an enlargement of or an addition to any of the representations,
warranties, covenants or agreements of TCC or the Stockholder contained in this
Agreement. MFC shall promptly notify TCC and the Stockholder of any
determination (whether or not the result of such investigation) that a breach of
a representation or warranty made by TCC or the Stockholder shall have occurred,
but any failure to give such notice shall not affect the rights or liabilities
of any party except in the event and to the extent of actual prejudice. In
order that MFC may have full opportunity to make such investigation, TCC and the
Stockholder shall furnish the representatives of MFC during such period with all
such information and copies of such documents concerning the affairs of TCC as
such representatives may reasonably request and cause its officers, employees,
consultants, agents, accountants and attorneys to cooperate fully with such
representatives in connection with such investigation.
4.3 Consummation of Agreement. Each party shall use its respective best
-------------------------
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement and to ensure that to the extent within
its control or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Closing, all to the end that the transactions contemplated by this
Agreement shall be fully carried out in a timely fashion.
4.4 Further Assurances. Each of the parties shall execute such documents,
------------------
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
4.5 No Publicity/Confidentiality. No party shall issue any press release
----------------------------
or make any public statement, announcement or filing, or make any other
statement or disclosure to any third party not an affiliate of such party, with
respect to this Agreement and its contents (including the identities of the
parties hereto), without the approval of the other parties at any time, except
as is required by applicable law in the opinion of counsel for the party
required to make the release or statement, or is required in connection with a
public offering of shares of MFC common stock, and in such event such party
shall use all reasonable efforts to permit the other parties an opportunity to
review any such release or statement prior to dissemination.
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<PAGE>
Confidential Information (as defined below) obtained by MFC during the
course of its due diligence examination of the books and records of TCC will be
used solely for the purpose of evaluating the purchase of the Shares and not in
any way directly or indirectly detrimental to TCC or the Stockholder and such
information will be kept confidential by MFC, except for such disclosure as may
be required in connection with a public offering of shares of MFC common stock,
and then upon advice of counsel in consultation with TCC and the Stockholder.
The term "Confidential Information" shall be deemed to include all
------------------------
information provided to MFC by TCC or the Stockholder concerning TCC as well as
all notes, analyses, compilations, studies, interpretations or other documents
prepared by MFC which contain, reflect or are based upon, in whole or in part,
the information furnished to MFC pursuant hereto. The term "Confidential
------------
Information" does not include any information which (i) at the time of
- -----------
disclosure or thereafter is generally available to and known by the public
(other than as a result of its disclosure by MFC), (ii) was available to MFC on
a nonconfidential basis from a source other than TCC or any of its affiliates or
their advisors, provided that source is not known by MFC to be bound by a
confidentiality agreement with TCC or otherwise subject to another contractual,
legal or fiduciary obligation of confidentiality to TCC or any other party or
(iii) has been independently acquired or developed by MFC without violating any
of its obligations under this Agreement.
The parties agree that money damages would not be a sufficient remedy for
any breach of the agreements contained in this Section 4.5 and that the parties
each shall be entitled to specific performance and injunctive relief as remedies
of any such breach. Such remedies shall not be deemed to be the exclusive
remedies for a breach of this Section 4.5 but shall be in addition to all other
remedies available at law or equity.
4.6 Stockholder Agreement to Vote in Favor. The Stockholder agrees to
--------------------------------------
vote all shares of the Shares owned by it in favor of the approval of this
Agreement and the transactions contemplated hereby and not to exercise any
dissenters' rights it may have under applicable law.
4.7 Exclusive Dealing. Between the date hereof and the earlier to occur
-----------------
of the Closing or the termination of this Agreement, neither the Stockholder,
Leucadia, Leucadia National nor TCC will, directly or indirectly (i) solicit,
initiate or encourage discussions with or submission of proposals or offers from
any person or entity relating to a possible acquisition of all or any material
portion of the assets or capital stock of TCC or any merger or other business
combination with TCC (an "Acquisition Transaction"), or (ii) participate in any
-----------------------
discussions or negotiations regarding, or furnish any information with respect
to, or facilitate or encourage, any effort or attempt by any other person or
entity to do or seek any Acquisition Transaction. The Stockholder and TCC will
promptly notify MFC of any such proposal, offer, inquiry or other contact
relating to any proposed Acquisition Transaction.
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<PAGE>
4.8 Non-Competition Agreement. At or before the Closing Leucadia National
-------------------------
will enter into a Non-Competition Agreement (the "Non-Competition Agreement")
-------------------------
with MFC substantially in the form attached hereto as Exhibit B.
---------
4.9 Other Acquisitions. Following the execution of this Agreement MFC
------------------
shall proceed diligently and in good faith and use reasonable best efforts to
negotiate and complete the acquisition of Tri-Magna Corporation, Edwards Capital
Corporation, and Vango Media, Inc. (the "Other Acquisitions").
------------------
4.10 Approvals and Authorizations. MFC will use reasonable best efforts,
----------------------------
to the extent within its control or capable of influence to obtain, or to assist
TCC in obtaining, all authorizations, consents, permits and approvals of all
parties necessary to permit the consummation of the transactions contemplated by
this Agreement.
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE
Each obligation of MFC to be performed at the Closing is subject to the
fulfillment, at or prior to the Closing Date, of the following conditions
(unless waived in writing by MFC):
5.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of TCC and the Stockholder contained in this Agreement shall have
been true and correct when made and shall be true and correct on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date (with such exceptions as may be permitted under or contemplated by
this Agreement or the Disclosure Schedule). TCC and the Stockholder shall have
performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by them on or prior to the Closing.
Each of TCC and the Stockholder shall have delivered to MFC a certificate, dated
the Closing Date, to the foregoing effect, as applicable.
5.2 Opinions of Counsel to TCC, the Stockholder, Leucadia and Leucadia
------------------------------------------------------------------
National. MFC shall have received the opinions of both Weil, Gotshal & Manges
- --------
and the Law Offices of R. Michael Haynes, each counsel to TCC, the Stockholder,
Leucadia and Leucadia National, dated the Closing Date, substantially in the
forms of Exhibit C-1 and Exhibit C-2 hereto and otherwise in forms and
----------- -----------
substance reasonably acceptable to MFC and its counsel.
5.3 Consents, Permits, and Approvals. All consents, permits, licenses,
--------------------------------
authorizations and approvals required to permit the consummation by TCC and the
Stockholder of the transactions contemplated by this Agreement and the continued
operation of the business of TCC in the manner conducted prior to the Closing
including, without limitation, those set forth in Section 2.12 of the Disclosure
------------
Schedule shall have been obtained, and confirmation thereof shall have been
provided to MFC.
5.4 Non-Competition Agreement. The Non-Competition Agreement shall have
-------------------------
been executed and delivered by Leucadia National.
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5.5 Escrow Agreement. The Escrow Agreement shall have been executed and
----------------
delivered by all parties thereto.
5.6 Other Acquisitions. MFC shall have consummated the Other Acquisitions
------------------
or be in a position to consummate the Other Acquisitions concurrently with or
reasonably concurrently with the Closing.
5.7 Financing. MFC shall have obtained and have available financing
---------
sufficient to consummate the purchase of the Shares and the Other Acquisitions.
5.8 Investment Company Act; SBA. TCC shall concurrently with the Closing,
---------------------------
be registered under the Investment Company Act as a Closed-End Investment
Company, and TCC shall be licensed as an SSBIC by the SBA.
5.9 Termination of Management Agreement. TCC and Leucadia Management
-----------------------------------
Services Corporation ("LMSC") shall concurrently with the Closing terminate the
----
management agreement dated May 2, 1994 between TCC and LMSC and there shall be
no further liabilities or obligations of TCC of any kind with respect to such
agreement.
5.10 Adverse Proceedings. No action, suit or proceeding shall have been
-------------------
instituted or overtly threatened before any court or governmental or regulatory
body by any agency of any government or any other third party seeking to
restrain, modify or prevent the carrying out of the transactions contemplated
hereby, or which could reasonably be expected to affect the right and ability of
MFC to own the Shares and operate the business of TCC following the Closing.
5.11 Certificates. TCC and the Stockholder shall have furnished MFC with
------------
such certificates of public officials and other third parties as may be
reasonably requested by MFC.
5.12 Approval of Documentation. All certificates, instruments, opinions
-------------------------
and other documents delivered or to be delivered to MFC hereunder shall be
reasonably satisfactory to MFC and its counsel in all respects.
SECTION 6 - CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF TCC AND THE STOCKHOLDER
Each obligation of TCC and the Stockholder to be performed at the Closing
is subject to the fulfillment at or prior to the Closing Date of the following
conditions (unless waived in writing by TCC and the Stockholder):
6.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of MFC contained in this Agreement shall have been true and correct
when made and shall be true and correct on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date (with such
exceptions as may be permitted under
-25-
<PAGE>
or contemplated by this Agreement). MFC shall have performed and complied with
all covenants and agreements required by this Agreement to be performed or
complied with by it on or prior to the Closing. MFC shall have delivered to the
Stockholder a certificate, dated the Closing Date, to the foregoing effect.
6.2 Opinion of Counsel to MFC. The Stockholder, Leucadia and Leucadia
-------------------------
National shall have received an opinion of Palmer & Dodge, counsel to MFC, dated
the Closing Date, substantially in the form of Exhibit D hereto and otherwise in
---------
form and substance reasonably acceptable to the Stockholder and its counsel.
6.3 Escrow Agreement. The Escrow Agreement shall have been executed and
----------------
delivered by all parties thereto.
6.4 Adverse Proceedings. No action, suit or proceeding shall have been
-------------------
instituted or threatened before any court or governmental or regulatory body by
any agency of any government or any other third party seeking to restrain,
modify or prevent the carrying out of the transactions contemplated hereby.
6.5 Certificates. MFC shall have furnished the Stockholder with such
------------
certificates of public officials and other third parties, as may be reasonably
requested by the Stockholder.
6.6 Governmental and Third-Party Approvals. MFC shall have provided
--------------------------------------
Stockholder with such confirmation as may reasonably be requested by Stockholder
that the purchase of the Shares from Stockholder and the transfer of control of
TCC to MFC shall have received the prior written approval of the SBA and shall
have been approved by all other governmental agencies and other third parties
from whom such approval is required.
6.7 Approval of Documentation. All instruments, certificates, opinions
-------------------------
and other documents delivered or to be delivered to Stockholder hereunder shall
be reasonably satisfactory to Stockholder and its counsel in all respects.
SECTION 7 - INDEMNIFICATION
7.1 Survival. Notwithstanding any right of any party to fully investigate
--------
the affairs of the other party and notwithstanding any knowledge of facts
determined or determinable by such party pursuant to such investigation or right
of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party in
this Agreement or in any certificate, financial statement or other document
delivered by any party pursuant hereto. All such representations, warranties,
covenants and agreements shall survive the execution and delivery hereof and the
Closing hereunder and shall expire 18 months after the Closing Date except for
(i) any representation or warranty concerning tax matters, which shall survive
until the expiration or lapse of the applicable statute of limitations, (ii) any
claims asserted prior to such expiration, which shall survive until finally
resolved and satisfied in full and (iii) any claims made pursuant to Section 7.8
which shall survive for the periods set forth in Section 7.8.
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<PAGE>
7.2 Obligation of the Leucadia Parties to Indemnify. The Leucadia Parties
-----------------------------------------------
(other than TCC) agree, jointly and severally, to indemnify and hold harmless
MFC (and its respective directors, officers, employees, agents, affiliates and
permitted assigns) from and against all losses, liabilities, damages,
deficiencies, costs or expenses, including interest and penalties imposed or
assessed by any judicial or administrative body and reasonable attorneys' fees,
whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing ("Losses") based upon,
------
arising out of or otherwise in respect of any inaccuracy in, or breach of, any
representation, warranty or covenant of TCC or the Stockholder contained herein
or in any certificate or other document, instrument or agreement delivered
pursuant hereto that is established by MFC.
7.3 Obligation of MFC to Indemnify. MFC agrees to indemnify and hold
------------------------------
harmless the Stockholder, Leucadia and Leucadia National (and their respective
directors, officers, employees, agents, affiliates and assigns) from and against
all Losses based upon, arising out of or otherwise in respect of any inaccuracy
in, or breach of, any representation, warranty or covenant of MFC contained
herein or in any certificate or other document, instrument or agreement
delivered pursuant hereto that is established by the Stockholder, Leucadia or
Leucadia National.
7.4 Limitation on Indemnification. Notwithstanding this Section 7 to the
-----------------------------
contrary, the right to indemnification under this Section 7 shall be subject to
the following terms:
7.4.1 No indemnification shall be payable pursuant to Section 7.2 or
Section 7.3, as the case may be, unless and until the amount of all claims for
indemnification pursuant to the applicable Section exceeds for such Section
$100,000 in the aggregate, whereupon indemnification pursuant to Section 7.2 or
Section 7.3, as the case may be, shall be payable for all such claims without
any deduction. Notwithstanding the foregoing, all amounts payable pursuant to
Section 1.3.3 (iv) or Section 7.8 shall be payable without regard to their
amount and irrespective of whether such amounts payable are less than $100,000.
7.4.2 The maximum aggregate indemnification amount that shall be due
under Section 7.2 or Section 7.3, shall not in any event exceed, in the
aggregate, the Purchase Price or, if the Closing has not occurred, the Net Book
Value of TCC as of September 30, 1995.
7.5 Notice and Defense of Claims. Promptly after receipt of notice of any
----------------------------
claim, liability or expense for which a party seeks indemnification hereunder,
such party shall give written notice thereof to the indemnifying party, but such
notification shall not be a condition to indemnification hereunder except to the
extent of actual prejudice to the indemnifying party. The notice shall state
the information then available regarding the amount and nature of such claim,
liability or expense and shall specify the provision or provisions of this
Agreement under which the liability or obligation is asserted. If within 30
days after receiving such notice the indemnifying party gives written notice to
the indemnified party stating that it intends to defend against such claim,
liability or expense at its own cost and expense, then defense of such matter,
including selection of counsel (subject to the consent of the indemnified party
which consent shall not be unreasonably withheld), shall be by the
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<PAGE>
indemnifying party and the indemnified party shall make no payment on such
claim, liability or expense as long as the indemnifying party is conducting a
good faith and diligent defense. Notwithstanding the foregoing, the indemnified
party shall at all times have the right to fully participate in such defense at
its own expense directly or through counsel; provided, however, if the named
parties to the action or proceeding include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate under applicable standards of professional conduct, the expense
of one separate counsel for the indemnified party shall be paid by the
indemnifying party. If no such notice of intent to dispute and defend is given
by the indemnifying party, or if such diligent good faith defense is not being
or ceases to be conducted, the indemnified party shall, at the expense of the
indemnifying party, undertake the defense of such claim, liability or expense
with counsel selected by the indemnified party, and shall have the right to
compromise or settle the same exercising reasonable business judgment. The
indemnified party shall make available all information and assistance that the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense. Notwithstanding anything herein to the
contrary, the indemnifying party shall have the right to settle all claims of
third parties for which indemnification is payable hereunder without the consent
of the indemnified party so long as such settlement releases the indemnified
party from all liability for or in connection with such action and does not
materially and adversely impair the ability of the indemnified party to carry on
its business and does not contain any admission of wrong doing on the part of
the indemnified party.
7.6 Payment. Any payments to which MFC is entitled pursuant to Section
-------
7.2 or Section 7.8 shall be made by the Escrow Agent out of funds held under the
Escrow Agreement to the extent such payments are provided for thereunder and
sufficient funds are available to the Escrow Agent to make such payments. All
such payments which are not made by the Escrow Agent and all payments to which
any indemnified party is entitled to under Section 7.3 shall be made promptly by
the indemnifying party in cash or by certified check or wire transfer of
immediately available funds to an account designated by the indemnified party.
7.7 Additional Indemnification by MFC. (i) To the fullest extent lawfully
---------------------------------
permitted, MFC will indemnify and hold harmless each of the Leucadia Parties
(other than TCC) against any Losses, joint or several, to which such Leucadia
Party may become subject, as such expenses are incurred, insofar as such Losses
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement filed in connection
with TCC's registration under the Investment Company Act or any registration
statement, prospectus (whether preliminary or final), or any amendment or
supplement thereto, used or filed in connection with a public offering of MFC
common stock (the "MFC Public Offering") or arise out of or are based upon the
-------------------
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each of the Leucadia Parties (other than TCC) for any legal or
other expenses reasonably incurred by such Leucadia Party in connection with
investigating or defending any such Losses or action as such expenses are
incurred; provided, however, that MFC will not be liable in any such case to the
extent that any such Losses arises out of or is based upon an untrue statement
or alleged untrue statement in or omission or alleged omission from any of such
documents in
-28-
<PAGE>
reliance upon and in conformity with written information furnished to MFC by any
of the Leucadia Parties specifically for use therein (it being understood that
the representations and warranties of TCC and Stockholder contained herein, the
TCC Financial Statements, the Section 4.1 Financial Information and any
schedules delivered pursuant hereto constitute such written information).
(ii) If the indemnification provided for in Section 7.7(i) is
unavailable to a Leucadia Party (other than TCC) in respect of any Losses
referred to therein, then MFC, in lieu of indemnifying such Leucadia Party,
shall contribute to the amount paid or payable by such Leucadia Party as a
result of such Losses in such proportion as is appropriate to reflect the
relative fault of MFC or a third party on the one hand and of the Leucadia Party
on the other in connection with the statements or omissions which result in such
Losses as well as any other relevant equitable consideration. The relative
fault of MFC or a third party on the one hand and of the Leucadia Party on the
other shall be determined by reference to, among other things, whether the
untrue statement or alleged untrue statement of a material fact or omission or
alleged omission relates to information supplied by MFC or a third party on the
one hand or by the Leucadia Party on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
7.8 Additional Indemnification by the Leucadia Parties. The Leucadia
--------------------------------------------------
Parties (other than TCC) agree, jointly and severally, to indemnify and hold
harmless MFC (and its respective directors, officers, employees, agents,
affiliates and permitted assigns) (i) from all Losses based upon, arising out of
or otherwise in respect of any liability to any employee of TCC at the time of
the Closing for severance pay resulting from any action taken or obligation
incurred by TCC, the Stockholder, Leucadia or Leucadia National prior to the
Closing and (ii) with respect to any actions, suits or claims described in
Section 2.13 of the Disclosure Schedule (the "Scheduled Actions"), from all "Net
Losses" in excess of $50,000 suffered prior to the third anniversary of the
Closing in connection with the Scheduled Actions; provided, however, that as a
-----------------
condition to the foregoing indemnity, (A) counsel for TCC in the Scheduled
Actions shall be Butler, Fitzgerald and Potter, or another law firm to be
designated by Leucadia National with the consent of MFC (which consent shall not
be unreasonably withheld), (B) MFC hereby consents to the designation of Butler,
Fitzgerald & Potter, and (C) if Butler Fitzgerald and Potter is no longer
counsel to TCC in the Scheduled Actions and Leucadia National fails to designate
replacement counsel within a reasonable time therefor such replacement counsel
may be designated by MFC.
Subject to the restrictions set forth in this paragraph, MFC may settle any
of the Scheduled Actions in its discretion. Any settlement of a Scheduled
Action must satisfy the following criteria:
(w) any such settlement (A) shall release each of the Stockholder,
Leucadia and Leucadia National from all liability for or in connection with such
Scheduled Action (whether or not such Leucadia Party is named as a defendant in
the Scheduled Action), (B) shall not materially and adversely impair the ability
of the Stockholder, Leucadia and Leucadia National to carry on their businesses,
and (C) shall not contain any admission of wrongdoing on the part of TCC (for
any time after the Acquisition Date), the Stockholder, Leucadia or Leucadia
National;
-29-
<PAGE>
(x) if a settlement would give rise to an indemnification obligation under
this Section 7.8, then such settlement must be approved in writing in advance by
----------
the Leucadia Parties (other than TCC);
(y) if consent of the Leucadia Parties (other than TCC) is required under
(x) above, and such Leucadia Parties do not give such consent, then, subject to
(z) below, such Leucadia Parties shall assume the defense of such Scheduled
Action (a "Transferred Action") and shall indemnify MFC for any Losses resulting
from such Transferred Action, without regard to the three year indemnification
period established in this Section 7.8;
(z) as a condition to the Leucadia Parties' (other than TCC) assumption of
the defense and indemnification of a Transferred Action under (y), MFC shall pay
to Leucadia National the balance between $50,000 and the Net Losses (up to
$50,000, it being understood that payment of such balance shall constitute
Losses for the purpose of calculating Net Losses as defined in this Section 7.8)
paid by or on behalf of TCC up to the time of such denial of consent, and from
and after the time of such denial of consent, MFC shall pay or cause to be paid
to Leucadia National any and all recoveries in respect of any Scheduled Action
(including a Transferred Action) received by or credited to or for the benefit
of TCC after such time, without regard to the three year period established
under this Section 7.8.
Except as set forth in Section 7.8(y), the Leucadia Parties (other than
TCC) shall have no indemnification or other responsibility with respect to the
Scheduled Actions after the third anniversary of the Closing Date.
For the purposes of this Section 7.8, "Net Losses" shall equal any and all
losses suffered by TCC in respect of the Scheduled Actions prior to the third
anniversary of the Closing minus any and all recoveries in respect of the
-----
Scheduled Actions received by or credited to or for the benefit of TCC prior to
the third anniversary of the Closing.
SECTION 8 - TERMINATION OF AGREEMENT
8.1 Termination. This Agreement may be terminated prior to the Closing as
-----------
follows:
(a) at the election of TCC or the Stockholder upon written notice to
MFC if MFC has breached any representation, warranty, covenant or agreement
contained in this Agreement and has not, within twenty (20) business days of
receipt by MFC of written notice from TCC or the Stockholder of such breach of
representation, warranty, covenant or agreement, cured such breach;
(b) at the election of MFC upon written notice to TCC and the
Stockholder from MFC if TCC or the Stockholder have breached any representation,
warranty, covenant or agreement contained in this Agreement and have not, within
twenty (20) business days of receipt by TCC and the Stockholder of written
notice from MFC of such breach of representation, warranty, covenant or
agreement, cured such breach;
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<PAGE>
(c) at any time on or prior to the Closing Date by written agreement
of the parties hereto; or
(d) by any party if, without fault of such party, the Closing shall
not have occurred by May 31, 1996, which date may be extended by mutual
agreement of the parties.
8.2 Effect of Termination. If this Agreement is terminated and the
---------------------
transactions contemplated hereby are not consummated as provided above, this
Agreement shall become null and void and be of no further force or effect, other
than the provisions of this Section 8, Section 9.3 ("Expenses") and Section 4.5
--------
("No Publicity/Confidentiality"), which shall survive and continue in effect,
----------------------------
and each and every representation and warranty contained in this Agreement or
the Disclosure Schedule or the MFC Disclosure Schedule hereto, or any
certificate, document or other instrument delivered by the parties in connection
herewith, shall expire and none of the parties hereto shall have any further
liability with respect to any such representation or warranty; provided that
nothing contained in this Section 8.2 shall relieve any party of any liability
(including any liability under Section 7, "Indemnification") for any breach or
---------------
default hereunder occurring prior to such termination.
SECTION 9 - MISCELLANEOUS
9.1 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission, sent by overnight courier service or
sent by certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given upon actual receipt when so delivered personally,
telegraphed, telexed or sent by facsimile transmission or overnight courier
service or, if mailed, two (2) days after the date of deposit in the United
States mails, as follows:
(i) if to MFC, to:
Medallion Financial Corp.
205 East 42nd Street
New York, NY 10017
Attention: Mr. Andrew Murstein
Fax: (212) 983-0351
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Attention: Steven N. Farber, Esquire
Fax: (617) 227-4420
(ii) if to TCC or the Stockholder:
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<PAGE>
Transportation Capital Corp.
315 Park Avenue South
New York, NY 10010
Attention: Mark Hornstein
Fax: (212) 598-4869
and
Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Attention: Joseph S. Steinberg
Fax: (212) 598-4869
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Attention: Stephen E. Jacobs, Esquire
Fax: (212) 310-8007
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9.2 Entire Agreement. This Agreement contains the entire agreement among
----------------
the parties with respect to the purchase of the Shares and related transactions,
and supersedes all prior agreements, written or oral, with respect thereto,
except for a letter agreement, dated the date hereof, and addressed to TCC and
the Stockholder, executed and delivered concurrently with this Agreement by
Alvin Murstein and Andrew Murstein, setting forth certain undertakings and
agreements of Messrs. Murstein with respect to certain matters described in this
Agreement.
9.3 Expenses, Transfer Taxes. Whether or not the transactions
------------------------
contemplated hereby are consummated, each of the parties hereto shall bear its
own costs and expenses (including fees and expenses of legal counsel) in
connection with the negotiation, preparation, execution, review and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
MFC agrees that it will pay all sales, transfer or other taxes which may be
payable in connection with the transactions contemplated by this Agreement and
that it will pay all fees, costs and expenses in connection with (i) the
registration of TCC under the Investment Company Act and (ii) the registration
statement that may be filed by MFC or its affiliates under the Securities Act,
except as otherwise provided in this Agreement.
9.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
-----------------------------------------------------------------
Remedies. This Agreement may be amended, superseded, canceled, renewed or
- --------
extended, and the terms hereof may be waived, only by a written instrument
signed by all the parties hereto or, in the case of a waiver, by the party
waiving compliance. No delay on the part of
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<PAGE>
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such right,
power or privilege, preclude any further exercise thereof or the exercise of any
other such right, power or privilege. The rights and remedies herein provided
are cumulative and are not exclusive of any rights or remedies that any party
may otherwise have at law or in equity. The rights and remedies of any party
based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representation, warranty, covenant or agreement contained in this
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement (or in any other
agreement between the parties) as to which there is not inaccuracy or breach.
9.5 Governing Law. This Agreement shall be governed by and construed,
-------------
interpreted and enforced in accordance with the laws of the State of Delaware.
9.6 Binding Effect; No Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law or by MFC to any of its affiliates, provided that any such assignment by MFC
to its affiliates shall not relieve MFC of its obligations hereunder.
9.7 Variations in Pronouns. All pronouns and any variations thereof refer
----------------------
to the masculine, feminine or neuter, singular or plural, as the context may
require.
9.8 Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
9.9 Exhibits and Disclosure Schedule. The Exhibits, the Disclosure
--------------------------------
Schedule and the MFC Disclosure Schedule are a part of this Agreement as if
fully set forth herein. All references herein to Sections, subsections,
clauses, Exhibits, the Disclosure Schedule and the MFC Disclosure Schedule shall
be deemed references to such parts of this Agreement, unless the context shall
otherwise require.
9.10 Headings. The headings in this Agreement are for reference only, and
--------
shall not affect the interpretation of this Agreement.
9.11 "Best Knowledge" or "Knowledge" Defined. References to best knowledge
---------------------------------------
or knowledge of a party in any representation and warranty contained in this
Agreement shall mean with respect to periods prior to the Acquisition Date and
with respect to Section 2.27 the actual knowledge, without duty of
investigation, of the executive officers of such party and in all other cases
shall mean the actual knowledge, after reasonably investigation of the executive
officers of such party. It is acknowledged and agreed that Mark Hornstein and
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<PAGE>
Jonathan Hirsh are executive officers of TCC and Mark Hornstein is an executive
officer of the Stockholder.
9.12 No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the parties hereto and their
respective successors and permitted assigns or as expressly set forth herein.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
---------------------------------
TRANSPORTATION CAPITAL CORP.
By: /s/ Mark Hornstein
---------------------------------
LNC INVESTMENTS, INC.
By: /s/ Mark Hornstein
---------------------------------
LEUCADIA, INC.
By: /s/ Mark Hornstein
---------------------------------
LEUCADIA NATIONAL CORPORATION
By: /s/ Mark Hornstein
---------------------------------
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<PAGE>
Exhibit A
---------
ESCROW AGREEMENT
----------------
ESCROW AGREEMENT, dated ________ ___, 1996, among Medallion Financial
Corp., a Delaware corporation ("MFC"), LNC Investments, a Delaware corporation
---
(the "Stockholder") and the sole stockholder of Transportation Capital Corp.
-----------
("TCC"), and _________________________, as escrow agent (the "Escrow Agent").
- ----- ------------
WHEREAS, MFC, TCC, the Stockholder and others, are parties to a Stock
Purchase Agreement, dated as of February 12, 1996 (the "Purchase Agreement"),
------------------
pursuant to which MFC is acquiring from the Stockholder all of the issued and
outstanding capital stock of TCC; and
WHEREAS, the Purchase Agreement provides for the payment and delivery by
MFC of money into the escrow hereby established, to be held and dealt with by
the Escrow Agent as herein provided;
NOW THEREFORE, the parties agree as follows:
The Purchase Agreement is by this reference incorporated herein and made a
part of this Agreement to the same extent as if its terms were fully set forth
herein. Terms defined in the Purchase Agreement shall have their defined
meanings when used herein unless the context otherwise requires.
1. Establishment of the Escrow Fund.
--------------------------------
1.1. Appointment of Escrow Agent. The Stockholder and MFC each hereby
---------------------------
consent to the appointment of and hereby appoint
________________________________ as Escrow Agent, to serve as Escrow Agent in
accordance with the terms and conditions herein set forth, and Escrow Agent
hereby accepts such appointment.
1.2. Deposit of Escrow Fund. Simultaneously with the execution and
----------------------
delivery of this Agreement, in partial satisfaction of payment of the purchase
price under the Purchase Agreement, MFC is depositing with the Escrow Agent the
sum of three hundred thousand dollars ($300,000) against which MFC may make
Claims (as defined below) in accordance with this Agreement. All such deposits
as from time to time invested and reinvested as herein provided, less any
distributions pursuant to Section 4.3., shall sometimes be collectively referred
to herein as the "Escrow Fund." The Escrow Agent will hold, invest and dispose
-----------
of the Escrow Fund, and any accretions thereto or income with respect thereto,
in accordance with the terms and conditions hereof.
1.3. Definition of Claims. MFC shall be entitled to make claims against
--------------------
the Escrow Fund in accordance with the terms hereof based upon a claim under the
post closing adjustment provisions (Section 1.3.3) of the Purchase Agreement or
the indemnification
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<PAGE>
provisions (Section 7.2) of the Purchase Agreement (all such claims being
referred to herein as a "Claim").
-----
2. Investment of the Escrow Fund. The Escrow Agent shall hold all funds
-----------------------------
deposited in the Escrow Fund during the term of this Agreement in segregated
interest-bearing bank accounts insured by the Federal Deposit Insurance
Corporation in a manner consistent with the need that such funds be available to
be delivered by the Escrow Agent to MFC or the Stockholder, as the case may be,
at the times or on the dates specified herein.
3. Distribution of Income. No interest earned on the Escrow Fund shall
----------------------
become part of the Escrow Fund. All interest earned on the Escrow Fund shall be
the property of Stockholder and subject to the following sentence shall be
payable to Stockholder at its written request or distributed to Stockholder
automatically on a quarterly basis. Notwithstanding the foregoing, no such
interest shall be paid to the Stockholder until any amount which may be payable
to MFC as a result of the post closing adjustment provisions (Section 1.3.3) of
the Purchase Agreement (a "Purchase Price Adjustment") has been paid in full or
it has been finally determined in accordance with said provisions that no
Purchase Price Adjustment is payable to MFC, and all interest earned on any
portion of the Escrow Fund which is paid to MFC as a result of a Purchase Price
Adjustment shall be paid to MFC at the time such portion of the Escrow Fund is
paid to MFC.
4. Procedure with Respect to Claims.
--------------------------------
4.1. Claims by MFC. If MFC has a Claim, MFC shall give written notice
-------------
thereof (a "Claim Notice") to the Stockholder stating the full amount of the
------------
Claim and specifying the basis on which the Claim is asserted.
4.2. Stockholder's Response to a Claim by MFC. Within 30 days after
----------------------------------------
receipt of any Claim Notice asserting a claim as set forth under Section 4.1.,
the Stockholder shall, by written notice to MFC, either (a) confirm its
obligation to MFC as set forth in the Claim Notice, in which event Stockholder
and MFC shall execute and deliver to the Escrow Agent a completed Disbursing
Instruction in the form attached as Annex A hereto or (b) dispute MFC's Claim
Notice. Stockholder's failure to provide MFC with timely written notice
pursuant to this Section 4.2 shall constitute a notice of dispute for the
purpose of this Section 4.2.
4.3. Payment By Escrow Agent. The Escrow Fund shall be released by the
-----------------------
Escrow Agent as follows:
(a) Not less than three nor more than five business days following the
receipt by the Escrow Agent of Disbursing Instructions in the form attached
hereto as Annex A executed by both MFC and Stockholder, Escrow Agent shall
disburse to MFC the amount specified in such Disbursing Instructions.
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<PAGE>
(b) Upon a final determination of the Purchase Price in accordance with
Section 1.3.3 of the Purchase Agreement resulting in a Purchase Price
Adjustment, then if MFC and Stockholder have not completed and delivered to the
Escrow Agent Disbursing Instructions pursuant to paragraph (a) above, MFC shall
complete Disbursing Instructions in the form attached hereto as Annex B
directing Escrow Agent to release to MFC the amount stated in the Disbursing
Instructions and deliver such Disbursing Instructions to Stockholder. If
Stockholder shall fail to execute and deliver to the Escrow Agent (with a copy
to MFC) such Disbursing Instructions within two business days of receipt thereof
from MFC, MFC may deliver to the Escrow Agent completed Disbursing Instructions
in the form attached hereto as Annex B executed by MFC, together with written
confirmation from the accounting firm responsible for the Final Closing Date
Balance Sheet that the amount stated in the Disbursing Instruction is due to MFC
from Stockholder pursuant to Section 1.3.3 of the Purchase Agreement.
If MFC shall fail to complete and deliver Disbursing Instructions in
accordance with this paragraph (b) in the event of a Purchase Price Adjustment,
then Stockholder may complete such Disbursing Instruction and deliver it,
together with such accounting firm's written confirmation, to the Escrow Agent
(with a copy to MFC).
Not less than five nor more than seven business days following receipt of
such Disbursing Instruction and written confirmation, Escrow Agent shall deliver
to MFC the amount stated in such Disbursing Instruction.
(c) Within seven business days following entry of a "Final Order" of a
court of competent jurisdiction directing Stockholder to pay a sum to MFC, MFC
shall deliver to Stockholder and Escrow Agent a completed Disbursing Instruction
in the form attached hereto as Annex C, together with a copy of such Final
Order, directing Escrow Agent to disburse the Escrow Fund in accordance or
consistent with the Final Order. Not less than five nor more than seven
business days following receipt of such Disbursing Instruction, Escrow Agent
shall deliver to MFC the amount set forth in such Disbursing Instructions.
(d) Notwithstanding anything contained herein to the contrary, in the event
the Escrow Agent receives notice from Stockholder or MFC that it disputes the
release of the Escrow Fund pursuant to a Disbursing Instruction received under
Section 4.2(b) hereof, Escrow Agent shall not release any portion of the Escrow
Fund in accordance with such disputed Disbursing Instruction unless and until
directed to do so pursuant to a Final Order of a court of competent jurisdiction
or upon receipt of a letter signed by both Stockholder and MFC.
(e) For purposes hereof, a "Final Order" shall mean a judgment or order as
to which all appeals have been finally determined and no further appeal
therefrom may be taken, or if no appeal therefrom shall have been taken, when
the applicable time to appeal (or further appeal) therefrom shall have expired.
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<PAGE>
(f) The parties hereto undertake to deliver any instructions or notices to
be delivered under Section 4 as promptly as practicable under the circumstances.
4.4. Claims in Excess of the Escrow Fund. If at any time during the
-----------------------------------
period that this Agreement is in effect the amount of any payment required to be
made by the Escrow Agent to MFC pursuant to Section 4.3, exceeds the amount of
the Escrow Fund, the rights of MFC under the Purchase Agreement shall not be
satisfied or extinguished to the extent any Claim is not satisfied by payment of
the amounts described hereunder, and MFC shall be entitled to recover the
balance of any amounts owed to it thereunder, subject to the conditions set
forth therein. Subject to the provisions of Section 7 hereof, in no event shall
Escrow Agent be liable with respect to any deficiency which may exist if the
amounts required to be disbursed pursuant to any Disbursing Instruction exceed
the amount of the Escrow Fund.
5. Distributions to the Stockholder from the Escrow Fund. On the date one
-----------------------------------------------------
year from the date of this Agreement, the Escrow Agent shall distribute to the
Stockholder an amount equal to the remaining balance of the Escrow Fund,
together with any interest earned on the Escrow Fund to which the Stockholder is
entitled and not previously released to Stockholder, less all Claims made by MFC
then pending against the Escrow Fund. If any Claims by MFC are at such time
pending against the Escrow Fund, the balance of the Escrow Fund, if any, shall
be distributed to the Stockholder promptly following such time as all Claims by
MFC against the Escrow Funds have been finally resolved.
6. Termination. This Agreement shall terminate upon the distribution of
-----------
all of the Escrow Fund and all other sums held by the Escrow Agent pursuant to
this Agreement.
7. Duties of the Escrow Agent.
--------------------------
7.1. Reliance. The Escrow Agent may rely upon, and shall be protected in
--------
acting or refraining from acting upon, any written notice, instruction or
request furnished to it hereunder and believed by it to be genuine and to have
been signed or presented by the proper party or parties.
7.2. Good Faith. MFC and the Stockholder shall indemnify the Escrow Agent
----------
and hold it harmless against any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection with this
Agreement, including the costs and expenses incurred in defending any such claim
of liability. The Escrow Agent may consult with its own counsel, and shall have
full and complete authorization and protection for any action taken or suffered
in good faith and in accordance with the opinion of such counsel.
7.3. Notice to Parties. Upon receipt of a Disbursing Instruction in the
-----------------
form of Annex B or Annex C attached hereto executed by Stockholder or MFC,
Escrow Agent
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<PAGE>
shall immediately provide a copy of such Disbursing Instruction to the party who
did not execute the Disbursing Instruction in accordance with Section 10.1.
8. Resignation and Termination of the Escrow Agent.
-----------------------------------------------
8.1. Resignation. The Escrow Agent may resign at any time by giving 30
-----------
days' notice of such resignation to MFC and the Stockholder. Thereafter, the
Escrow Agent shall have no further obligation thereunder except to hold the
Escrow Fund as depository. In such event the Escrow Agent shall not take any
action until MFC and the Stockholder have jointly designated a banking
corporation, trust company, attorney or other person as successor Escrow Agent.
Upon receipt of such instructions, the Escrow Agent shall promptly deliver the
Escrow Fund to such successor Escrow Agent and shall thereafter have no further
obligations hereunder.
8.2. Termination. MFC and the Stockholder together may terminate the
-----------
appointment of the Escrow Agent hereunder upon notice specifying the date upon
which such termination shall have effect. In the event of such termination, MFC
and the Stockholder shall within 30 days of such notice jointly appoint a
successor Escrow Agent and the original Escrow Agent shall turn over to such
successor Escrow Agent all funds in the Escrow Fund and any other amounts held
by it pursuant to this Agreement. Upon receipt of the funds and other amounts
and execution and delivery of a counterpart hereof, the successor Escrow Agent
shall thereupon be bound by all of the provisions hereof.
9. Fees and Expenses of Escrow Agent. The Stockholder and MFC shall each
---------------------------------
pay the Escrow Agent one-half of $2,500, being the compensation of the Escrow
Agent for the Escrow Agent's services hereunder, and all expenses, disbursements
and advances (including reasonable attorneys' fees) incurred in carrying out the
Escrow Agent's duties hereunder.
10. Miscellaneous.
-------------
10.1. Notices. Any notice or other communication required or which may
-------
be given hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by overnight delivery, and shall be deemed
given when so delivered personally, or upon written confirmation (which may be
facsimile transmitted) of receipt of such facsimile transmission by such
addressees or, if mailed, one day after the date of overnight delivery,
addressed to MFC and the Stockholder and their respective counsel at their
respective addresses set forth in the Purchase Agreement, and if to the Escrow
Agent, as follows:
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<PAGE>
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notice.
10.2. Entire Agreement. This Agreement has been executed and delivered
----------------
pursuant to the Purchase Agreement and as such contains the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
10.3. Waivers and Amendments. This Agreement may be amended, modified,
----------------------
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived only by a written instrument signed by the parties or, in the case
of a waiver, the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
10.4. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such state.
10.5. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties and their respective successors and legal
representatives. This Agreement is not assignable except by operation of law or
by MFC to any of its affiliates.
10.6. Further Assurances. Each of the parties shall execute such
------------------
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby.
10.7. Counterparts. This Agreement 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.
10.8. Headings. The headings in this Agreement are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
MEDALLION FINANCIAL CORP.
By:________________________________
LNC INVESTMENTS, INC.
By:________________________________
[ ], as
Escrow Agent
By:________________________________
Title:
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<PAGE>
ANNEX A
-------
Disbursing Instructions for Release
of Escrow Property upon
Mutual Consent
[Escrow Agent]
Gentlemen:
Reference is made to that certain Escrow Agreement, dated
______________________, 1996 among Medallion Financial Corp. ("MFC"), LNC
Investments, Inc. ("Stockholder") and _______________________ as Escrow Agent
(the "Escrow Agreement"). All capitalized terms used herein without definition
shall have the meanings ascribed thereto in the Escrow Agreement.
Pursuant to and in accordance with the Escrow Agreement, you are hereby
directed to release to MFC $___________________ of the Escrow Fund.
MEDALLION FINANCIAL CORP.
By:____________________________
Title:_________________________
LNC INVESTMENTS, INC.
By:____________________________
Title:_________________________
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<PAGE>
ANNEX B
-------
Disbursing Instructions Upon
A Purchase Price Adjustment
[Escrow Agent]
Gentlemen:
Reference is made to that certain Escrow Agreement, dated
______________________, 1996 among Medallion Financial Corp. ("MFC"), LNC
Investments, Inc. ("Stockholder") and _______________________ as Escrow Agent
(the "Escrow Agreement"). All capitalized terms used herein without definition
shall have the meanings ascribed thereto in the Escrow Agreement.
Pursuant to and in accordance with the Escrow Agreement, you are hereby
directed to release to MFC $___________________ of the Escrow Fund.
If the signatures of both parties hereto do not appear at the bottom of
this Instruction, this Instruction shall not become effective unless accompanied
by written confirmation of the sum set forth in the preceding paragraph being
due to MFC from Coopers & Lybrand L.L.P. or the other accounting firm
responsible for the Final Closing Date Balance Sheet (who shall certify such
firm's status as the "Firm" pursuant to the Purchase Agreement).
MEDALLION FINANCIAL CORP.
By:_____________________________
Title:__________________________
LNC INVESTMENTS, INC.
By:_____________________________
Title:__________________________
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<PAGE>
ANNEX C
-------
Disbursing Instructions Upon
Resolution of an Indemnification Claim
[Escrow Agent]
Gentlemen:
Reference is made to that certain Escrow Agreement, dated
______________________, 1996 among Medallion Financial Corp. ("MFC"), LNC
Investments, Inc. ("Stockholder") and _______________________ as Escrow Agent
(the "Escrow Agreement"). All capitalized terms used herein without definition
shall have the meanings ascribed thereto in the Escrow Agreement.
Pursuant to and in accordance with the Escrow Agreement, you are hereby
directed to release to MFC $___________________ of the Escrow Fund.
Attached hereto is a copy of the Final Order directing payment to MFC of
the sum set forth in the preceding paragraph.
MEDALLION FINANCIAL CORP.
By:__________________________
Title:_______________________
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<PAGE>
Exhibit B
---------
NON-COMPETITION AGREEMENT
-------------------------
This Agreement dated _________ ___, 199___ is by and between Medallion
Financial Corp., a Delaware corporation ("MFC") and Leucadia National
Corporation, a New York corporation (the "Stockholder").
This Agreement is entered into pursuant to a Stock Purchase Agreement dated
February 12, 1996 (the "Stock Purchase Agreement") among MFC, the Stockholder,
Transportation Capital Corp. ("TCC"), a wholly owned subsidiary of the
Stockholder, and others, pursuant to which MFC is purchasing from the
Stockholder all of the issued and outstanding shares of capital stock of TCC.
WHEREAS, TCC is engaged in the business of financing taxis, taxi
medallions, radio cars, livery vehicles and so called "black cars"
(collectively, the "taxi finance business");
WHEREAS, the parties desire to assure to MFC the benefits of the stock
purchased by MFC pursuant to the Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, the parties agree as follows:
1. Covenant Not to Compete. Commencing as of the Closing Date (as defined
-----------------------
in the Stock Purchase Agreement) and continuing for a period of three years
thereafter, neither the Stockholder nor any of its affiliates (including but not
limited to Leucadia, Inc. and LNC Investments, Inc.) will, directly or
indirectly, whether on its or their own account or as a shareholder, partner,
joint venturer, consultant, advisor, and/or agent of any other person or entity:
-46-
<PAGE>
(a) own, manage, operate, control, finance, promote, or engage in any
taxi finance business in any of the following geographic markets
(the "Geographic Markets"): New York City, New York; Boston and
Cambridge, Massachusetts; Newark, New Jersey and Chicago,
Illinois;
(b) solicit (other than as a result of a general advertised
solicitation) the employment of or hire or attempt to hire any
employee of TCC, or encourage or attempt to induce any employee
of TCC to terminate his or her employment with TCC for any
reason; provided that Stockholder shall inquire of any potential
employee whether he or she is then currently employed by TCC.
Stockholder may rely upon, without incurring any liability
hereunder, the information provided by such prospective employee
(unless Stockholder has actual knowledge to the contrary); or
(c) call upon or solicit any vendor or customer of TCC or its
affiliates with a view to engaging in the taxi finance business
in any of the Geographic Markets.
Provided, however, that it shall not be a violation of this Agreement for
-------- -------
the Stockholder to have beneficial ownership of less than 5% of the outstanding
amount of any class of securities listed on a national securities exchange or
quoted on an inter-dealer quotation system (notwithstanding that the issuer of
such securities is engaged in the taxi finance business).
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<PAGE>
2. Remedies. The parties agree that in the event of any breach of any
--------
provision of this Agreement, the damage to MFC will be substantial, although
difficult to ascertain, and there can be no adequate remedy at law for such
breach, and therefore, upon any such breach or any threat thereof, MFC shall be
entitled, in addition to all other rights and remedies it may have at law, to
specific performance, injunctive and other equitable relief. MFC shall be
entitled to full indemnification from the Stockholder for any such breach,
including, without limitation, attorneys' fees and costs of suit.
3. Severability. The Stockholder acknowledges and agrees that the
------------
foregoing agreements of the Stockholder are reasonable in duration and scope and
geographic area and are reasonably necessary for the protection of MFC's
interests under the Stock Purchase Agreement. The parties agree and intend that
the foregoing agreements shall be deemed to be a series of separate covenants
and agreements, one for each and every county or other political subdivision of
each State of the United States and each and every political subdivision of each
and every country outside the United States where the foregoing agreements are
intended to be effective. In the event that in any judicial proceeding any
court determines that the duration or scope or geographic area of any of the
foregoing agreements are unreasonable and to that extent unenforceable, the
parties intend and agree that the foregoing agreements shall remain in full
force and effect for the greatest time period, the greatest scope and the
greatest geographic area that would not render them unenforceable.
4. Successors & Assigns. This Agreement shall be binding upon and inure
--------------------
to the benefit of the parties hereto and their respective successors and
assigns.
-48-
<PAGE>
5. Governing Law. This Agreement shall be governed by, and construed,
-------------
interpreted and enforced in accordance with, the laws of the State of Delaware.
6. Counterparts. This Agreement may be executed by the parties hereto
------------
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
MEDALLION FINANCIAL CORP.
By:__________________________
LEUCADIA NATIONAL CORPORATION
By:__________________________
-49-
<PAGE>
Exhibit C-1
-----------
[WG&M Letterhead]
______________,199__
Medallion Financial Corp.
205 East 42nd Street
New York, New York 10017
Gentlemen:
We have acted as counsel to Transportation Capital Corp., a New York
corporation ("TCC"), LNC Investments, Inc., a Delaware corporation
("Stockholder"), Leucadia, Inc., a New York corporation ("LI"), and Leucadia
National Corporation, a New York corporation ("Leucadia") in connection with the
preparation, authorization, execution and delivery of, and the consummation of
the transactions contemplated by, the Stock Purchase Agreement by and among TCC,
Stockholder, LI, Leucadia and Medallion Financial Corp., a Delaware corporation
("MFC") dated as of February 12, 1996 (the "Stock Purchase Agreement"). This
opinion is rendered to you pursuant to Section 5.2 of the Stock Purchase
Agreement. Capitalized terms defined in the Stock Purchase Agreement and used
but not otherwise defined herein are used herein as so defined.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Stock Purchase Agreement and such
corporate records, agreements, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and
representatives of TCC, Stockholder, LI and Leucadia, and have made such
inquiries of such officers and representatives, as we have deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents. As to all questions of fact material to
this opinion which have not been independently established, we have relied upon
certificates or other comparable documents of officers and representatives of
TCC, Stockholder, LI and Leucadia and upon the representations and warranties of
such parties contained in the Stock Purchase Agreement. As used herein "to our
knowledge" means the
-50-
<PAGE>
Medallion Financial Corp.
___________, 199_
Page 2
conscious awareness of facts or other information by any lawyer in our firm
actively involved in negotiating the transactions contemplated by the Stock
Purchase Agreement.
Based on the foregoing and subject to the qualifications stated herein, we
are of the opinion that:
1. TCC is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York and has all requisite corporate
power and authority to carry on its business as now being conducted. TCC is
duly qualified to transact business and is in good standing as a foreign
corporation in each jurisdiction listed in Section 2.2, of the Disclosure
Schedule and such jurisdictions are the only jurisdiction where the character of
its activities requires such qualification, except where the failure of TCC to
be so qualified would not have a Material Adverse Effect.
2. The authorized and outstanding capital stock of TCC is as described in
Section 2.3.1 of the Stock Purchase Agreement. All of such outstanding shares
of TCC's capital stock are owned of record and, to our knowledge, beneficially
by Stockholder, free and clear, to our knowledge, of all liens, claims,
limitations on voting rights, options, security interests and other encumbrances
and are duly authorized, validly issued, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof except, where applicable,
as provided by Section 630 of the New York Business Corporation Law, and have
not been issued in violation of any preemptive rights. To our knowledge, there
are no outstanding securities of TCC convertible into or evidencing the right to
purchase or subscribe for any shares of capital stock of TCC, there are no
outstanding or authorized options, warrants, calls, subscriptions, rights,
commitments or any other agreements of any character obligating the Company to
issue any shares of its capital stock or any securities convertible into or
evidencing the right to purchase or subscribe for any shares of such stock,
there are no agreements or understandings with respect to the voting, sale or
transfer of any shares of capital stock of TCC to which TCC is a party (other
than with the United States Small Business Administration (the "SBA")). Upon
transfer, assignment and delivery of the shares of TCC stock and payment
therefor in accordance with the terms of the Stock Purchase Agreement, and,
assuming with your consent that the laws of the Commonwealth of Massachusetts
relevant thereto are the same as the laws of the State of New York, MFC will
acquire good and marketable title to such shares, free and clear of any and all
liens, pledges, encumbrances, charges, agreements or claims of any kind
whatsoever, assuming MFC acquires the shares without notice of any adverse claim
as such term is used in Section 8-302 of the Uniform Commercial Code in effect
in the State of New York.
3. Each of the Stockholder, LI and Leucadia is a corporation duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation.
-51-
<PAGE>
Medallion Financial Corp.
___________, 199_
Page 3
4. Each of TCC, Stockholder, LI and Leucadia has all requisite corporate
power and authority to execute and deliver the Stock Purchase Agreement, and, in
the case of Stockholder, the Escrow Agreement, and, in the case of Leucadia, the
Non-Competition Agreement, and to perform their respective obligations
thereunder (such agreements collectively referred to as the "Agreements"). The
execution, delivery and performance of the Agreements by each of TCC,
Stockholder, LI and Leucadia, as the case may be, and the consummation by it of
the transactions contemplated thereby have been duly authorized by all necessary
corporate action. The Agreements have been duly and validly executed and
delivered by each of TCC, Stockholder, LI and Leucadia, as the case may be, and
(assuming the due authorization, execution and delivery thereof by MFC)
constitutes the legal, valid and binding obligations of each of TCC,
Stockholder, LI and Leucadia, as the case may be, enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except that (A) rights to indemnification
thereunder may be limited by federal or state securities laws or public policy
relating thereto and (B) our opinion as to the enforceability of the Non-
Competition Agreement assumes that the restrictions contained therein would be
deemed to be reasonable in time, scope and extent.
5. The execution and delivery of the Stock Purchase Agreement by TCC and
Stockholder, the Escrow Agreement by Stockholder and the Non-Competition
Agreement by Leucadia, the consummation of the transactions contemplated thereby
and compliance with any of the provisions thereof will not conflict with,
constitute a default under or violate (i) any of the terms, conditions or
provisions of the certificate of incorporation or by-laws of TCC, Stockholder
or Leucadia, (ii) any of the terms, conditions or provisions of any document,
agreement or other instrument to which TCC, Stockholder or Leucadia is a party
or by which either of them are bound of which we are aware, (iii) any New York,
Delaware corporate or federal law or regulation (other than federal and state
securities or blue sky laws, or the Small Business Investment Act of 1958, as
amended, and the rules and regulations promulgated thereunder, as to which we
express no opinion), (iv) any judgment, writ, injunction, decree, order or
ruling of any court or governmental authority binding on TCC or Stockholder of
which we are aware, or (v) to our knowledge result in the creation of any lien
or other encumbrance on the assets or properties of TCC pursuant to any
document, agreement or instrument referred to in clause (ii) above.
6. No consent, approval, waiver, license or authorization or other action
by or filing with any New York, Delaware corporate or federal governmental
authority is required in connection with the execution and delivery by TCC or
Stockholder of the Stock Purchase Agreement or by Stockholder of the Escrow
Agreement or the consummation of the
-52-
<PAGE>
Medallion Financial Corp.
___________, 199_
Page 4
transactions contemplated thereby, except for the approval of the SBA, as to
which we express no opinion.
7. Except as set forth in Section 2.13 of the Disclosure Schedule, to our
knowledge, there is no litigation, proceeding or governmental investigation
pending or overtly threatened against TCC.
The opinions herein are limited to the laws of the State of New York, the
corporate laws of the State of Delaware and the federal laws of the United
States, and we express no opinion as to the effect on the matters covered by
this opinion or the laws of any other jurisdiction and we express no opinion
with respect to the registration by MFC of TCC under the Investment Company Act
of 1940, as amended or the Securities Act of 1933, as amended. For purposes of
this opinion, we assume that the laws of the State of Delaware other than the
Corporate Laws of the State of Delaware are identical to the laws of the State
of New York.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by
any other person and may not be disclosed, quoted, filed with a governmental
agency or otherwise referred to without our prior written consent.
Very truly yours,
-53-
<PAGE>
Exhibit C-2
[Law Offices of R. Michael Haynes letterhead]
December , 1995
Medallion Financial Corp.
205 East 42nd Street
New York, NY 10017
Gentlemen:
I have acted as counsel to Transportation Capital Corp., a New York
Corporation ("TCC"), LNC Investment, Inc., a Delaware Corporation
("Stockholder"), Leucadia, Inc., a New York Corporation ("Leucadia") and
Leucadia National Corporation, a New York Corporation ("Leucadia National") in
connection with issues relating to the operations of TCC as a specialized small
business investment company ("SSBIC") under the Small Business Investment Act of
1958, as amended, and the rules and regulations promulgated thereunder (such Act
and rules and regulations being collectively referred to herein as the "SBI
Act") by the U.S. Small Business Administration (the "SBA") in connection with
the preparation, authorization, execution and delivery of, and the consummation
of the transactions contemplated by, the Stock Purchase Agreement by and among
TCC, Stockholder, Leucadia, Leucadia National and Medallion Financial Corp., a
Delaware corporation ("MFC") dated as of ____________________, 1996. This
opinion is rendered to you pursuant to your request of Weil, Gotshal & Manges,
counsel to TCC, the Stockholder, Leucadia and Leucadia National, and pursuant to
Section 5.2 of the Stock Purchase Agreement. Capitalized terms defined in the
Stock Purchase Agreement and used but not otherwise defined herein are used
herein as so defined.
In so acting, I have examined originals or copies certified or otherwise
identified to my satisfaction, of the Stock Purchase Agreement and such
corporate records, agreements, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and
representatives of TTC, Stockholder, Leucadia and Leucadia National, and have
made such inquiries of such officers and representatives, as I have deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, I have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to me as originals, the conformity to original documents of all documents
submitted to me as certified or photostatic copies and the authenticity of the
originals of such latter
-54-
<PAGE>
documents. As to all questions of fact material to this opinion which have
not been independently established, I have relied upon certificates or other
comparable documents of officers and representatives of TCC, Stockholder,
Leucadia and Leucadia National and upon the representations and warranties of
such parties contained in the Stock Purchase Agreement.
Based on the foregoing and subject to the qualifications stated herein, I
am of the opinion that:
1. Subject to the prior written approval of the SBA of a complete License
Application, SBA Form 415, together with the required fee, exhibits and an
executed Transferee's Liability Contract, submitted by MPC to the SBA seeking
prior written approval for transfer of control of TCC to MFC, and formal
adoption by MFC as part of its License Application of the provisions required by
the SBA of licensees with outstanding Debentures and Leverage, as those terms
are defined in the SBI Act, and compliance by MFC with all licensing
requirements of the SBA and the SBI Act, execution of the Stock Purchase
Agreement by TCC and Stockholder and the Escrow Agreement by Stockholder, the
consummation of the transactions contemplated thereby and compliance with any of
the provisions thereof will not conflict with, constitute a default under or
violate the SBI Act.
2. No consent, approval, waiver, license or authorization or other action
by or filing with any federal governmental authority is required in connection
with the execution and delivery by TCC or Stockholder of the Stock Purchase
Agreement or by Stockholder of the Escrow Agreement or the consummation of the
sale of the shares contemplated thereby, except for the prior written approval
of the SBA.
The opinions herein are limited to the federal laws of the United States,
and I express no opinion as to the effect on the matters covered by this opinion
of the laws of any other jurisdiction.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by
any other person and may not be disclosed, quoted, filed with a governmental
agency or otherwise referred to without my prior written consent.
Very truly yours,
Law Offices of R. Michael Haynes
By:_____________________________
R. Michael Haynes
-55-
<PAGE>
Exhibit D
---------
[Letterhead of Palmer & Dodge]
______________, 199__
LNC Investments, Inc.,
Leucadia, Inc. and
Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Gentlemen:
We have acted as counsel to Medallion Financial Corp., a Delaware
corporation ("MFC"), in connection with the preparation, authorization,
execution and delivery of, and the consummation of the transactions contemplated
by, the Stock Purchase Agreement by and among MFC, Transportation Capital Corp.,
a New York corporation ("TCC"), LNC Investments, Inc., a Delaware corporation
("Stockholder"), Leucadia, Inc., a New York corporation ("LI"), and Leucadia
National Corporation, a New York corporation ("Leucadia"), dated as of February
12, 1996 (the "Stock Purchase Agreement'), the Escrow Agreement dated as of the
date hereof by and among MFC and Stockholder (the "Escrow Agreement") (the Stock
Purchase Agreement and the Escrow Agreement being collectively referred to as
the "Agreements"). This opinion is rendered to you pursuant to Section 6.2 of
the Stock Purchase Agreement. Capitalized terms defined in the Stock Purchase
Agreement and used but not otherwise defined herein are used herein as so
defined.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Agreements and such corporate records,
agreements, documents and other instruments, and such certificates or comparable
documents of public officials and of officers and representatives of MFC and
have made such inquiries of such officers and representatives of MFC as we have
deemed relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. As to
all questions of fact material to this opinion which have not been independently
established, we have relied upon certificates or other comparable documents of
officers and representatives of MFC and upon the representations and warranties
of MFC contained in the Stock Purchase Agreement. As used
-56-
<PAGE>
herein "to our knowledge" means the conscious awareness of facts or other
information by any lawyer in our firm actively involved in negotiating the
transactions contemplated by the Stock Purchase Agreement.
The opinions herein are limited to the Laws of the Commonwealth of
Massachusetts, the corporate laws of the State of Delaware, and the federal laws
of the United States, and we express no opinion as to the laws of other
jurisdictions. For purposes of this opinion, we assume that the laws of the
State of Delaware other than the corporate laws of the State of Delaware are
identical to the laws of the Commonwealth of Massachusetts.
Based on the foregoing and subject to the qualifications stated herein, we
are of the opinion that:
1. MFC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
2. MFC has all requisite corporate power and authority to execute and
deliver the Agreements and to perform its obligations thereunder. The
execution, delivery and performance of the Agreements by MFC and the
consummation by MFC of the transactions contemplated thereby have been duly
authorized by all necessary corporate action on the part of MFC. The Agreements
have been duly and validly executed and delivered by MFC and (assuming the due
authorization, execution and delivery of the Agreements by TCC, Stockholder, LI
and Leucadia) the Agreements constitute the legal, valid and binding obligations
of MFC, enforceable against it in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity) and except
that rights to indemnification thereunder may be limited by federal or state
securities laws or public policy relating thereto.
3. The execution and delivery of the Agreements, the consummation of the
transactions contemplated thereby and compliance by MFC with any of the
provisions thereof will not conflict with, constitute a default under or violate
(i) any of the terms, conditions or provisions of the certificate of
incorporation or by-laws of MFC, (ii) any of the terms, conditions or provisions
of any document, agreement or other instrument to which MFC is a party or by
which it is bound of which we are aware or (iii) any Delaware corporate or
federal law or regulation (other than federal and state securities or blue sky
laws, and except for any approvals required from the United States Small
Business Administration (the "SBA") for the transfer of control of TCC to MFC
pursuant to the Stock Purchase Agreement or (iv)
-57-
<PAGE>
any judgment, writ injunction, decree, order or ruling of any court or
governmental authority binding on MFC of which we are aware.
4. No consent, approval, waiver, license or authorization or other action
by or filing with any Delaware corporate or federal governmental authority is
required in connection with the execution and delivery by MFC of the Agreements
or the consummation by MFC of the transactions contemplated thereby except for
any approvals required from the SBA for the transfer of control of TCC to MFC
pursuant to the Stock Purchase Agreement.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by
any other person and may not be disclosed, quoted, filed with a governmental
agency or otherwise referred to without our prior written consent.
Very truly yours,
-58-
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
between
MEDALLION FINANCIAL CORP.,
and
EDWARDS CAPITAL COMPANY
_____________________________
Dated as of February 21, 1996
_____________________________
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<C> <S> <C>
SECTION 1 - SALE AND PURCHASE OF ASSETS............................................ 1
1.1 Sale of Assets.......................................................... 1
1.2 Assumption of Liabilities............................................... 1
1.3 Purchase Price and Payment.............................................. 2
1.4 Closing Adjustment...................................................... 2
1.5 Additional Payments at Closing.......................................... 4
1.6 Post Closing Adjustment................................................. 4
1.7 Transfer of Purchased Assets............................................ 5
1.8 Delivery of Records and Contracts....................................... 6
1.9 MFC Designees........................................................... 6
1.10 The Closing............................................................. 6
1.11 Allocation of Purchase Price............................................ 6
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF EDWARDS.............................. 7
2.1 Organization............................................................ 7
2.2 Authorization and Validity of the Agreement............................. 7
2.3 Subsidiaries and Other Affiliates....................................... 7
2.4 Certificate of Limited Partnership; General Partner; Books and Records.. 7
2.5 Financial Statements.................................................... 8
2.6 Absence of Undisclosed Liabilities...................................... 8
2.7 No Material Adverse Change.............................................. 8
2.8 Tax Matters............................................................. 10
2.9 Compliance with Laws.................................................... 10
2.10 Consents; No Breach..................................................... 11
2.11 Actions and Proceedings................................................. 11
2.12 Contracts and Other Agreements.......................................... 12
2.13 Real Property; Leases................................................... 14
2.14 Tangible Property....................................................... 14
2.15 Intellectual Property................................................... 14
2.16 Title to Assets; Liens; Sufficiency..................................... 15
2.17 Accounts and Notes Receivable........................................... 15
2.18 Customers............................................................... 15
2.19 Employee Benefit Plans.................................................. 15
2.20 Employee Relations...................................................... 16
2.21 Relationships with Affiliates........................................... 16
2.22 Insurance............................................................... 16
2.23 Banking Relationships................................................... 17
2.24 Brokerage............................................................... 17
2.25 Hazardous Materials..................................................... 17
2.26 Full Disclosure......................................................... 18
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC.................................. 18
3.1 Organization........................................................... 18
3.2 Authority to Execute and Perform Agreement............................. 18
3.3 Consents; No Breach.................................................... 19
3.4 Other Agreements....................................................... 19
3.5 Actions and Proceedings................................................ 19
3.6 Brokerage ............................................................. 19
SECTION 4 - COVENANTS AND AGREEMENTS............................................... 20
4.1 Conduct of Business.................................................... 20
4.2 Examinations and Investigations........................................ 22
4.3 Consummation of Agreement.............................................. 23
4.4 Further Assurances..................................................... 23
4.5 No Publicity/Confidentiality........................................... 23
4.6 Exclusive Dealing...................................................... 24
4.7 Escrow Agreement....................................................... 24
4.8 Non-Competition........................................................ 24
4.9 Other Acquisitions..................................................... 24
4.10 Change of Name......................................................... 24
4.11 Edwards Office Sublease................................................ 25
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MFC TO
CLOSE.......................................................................... 25
5.1 Representations, Warranties and Covenants.............................. 25
5.2 Opinion of Counsel to Edwards.......................................... 25
5.3 Consents, Permits, and Approvals....................................... 25
5.4 Non-Competition Agreement.............................................. 26
5.5 Escrow Agreement....................................................... 26
5.6 Instruments of Transfer................................................ 26
5.7 Other Acquisitions..................................................... 26
5.8 Financing.............................................................. 26
5.9 1940 Act; SBA.......................................................... 26
5.10 Change of Name......................................................... 26
5.11 Adverse Proceedings.................................................... 26
5.12 Certificates........................................................... 26
5.13 Approval of Documentation.............................................. 26
5.14 Minimum Net Book Value................................................. 26
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
EDWARDS TO CLOSE............................................................... 27
6.1 Representations, Warranties and Covenants.............................. 27
6.2 Consideration.......................................................... 27
6.3 Opinion of Counsel to MFC.............................................. 27
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
6.4 Consents, Permits, and Approvals....................................... 27
6.5 Novation of Bank Loans................................................. 27
6.6 Escrow Agreement....................................................... 27
6.7 Adverse Proceedings.................................................... 28
6.8 Certificates........................................................... 28
6.9 Approval of Documentation.............................................. 28
SECTION 7 - INDEMNIFICATION........................................................ 28
7.1 Survival............................................................... 28
7.2 Obligation of Edwards to Indemnify..................................... 28
7.3 Obligation of MFC to Indemnify......................................... 28
7.4 Notice and Defense of Claims........................................... 29
7.5 Payment................................................................ 29
7.6 Limitations on Indemnification......................................... 30
SECTION 8 - TERMINATION OF AGREEMENT............................................... 30
8.1 Termination............................................................ 30
8.2 Effect of Termination.................................................. 31
SECTION 9 - MISCELLANEOUS.......................................................... 31
9.1 Notices................................................................ 31
9.2 Entire Agreement....................................................... 32
9.3 Expenses............................................................... 32
9.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
Remedies............................................................... 32
9.5 Governing Law.......................................................... 33
9.6 Binding Effect; No Assignment.......................................... 33
9.7 Variations in Pronouns................................................. 33
9.8 Counterparts........................................................... 33
9.9 Exhibits and Schedules................................................. 33
9.10 Headings............................................................... 33
</TABLE>
(iii)
<PAGE>
EXHIBITS
A - Instrument of Assumption of Liabilities
B - Bill of Sale
C - Escrow Agreement
D - Non-Competition Agreements
E - Opinion of Counsel to Edwards
F - Opinion of Counsel to MFC
SCHEDULES
1.1.A Purchased Assets
1.1.B Excluded Assets
1.2 Assumed Liabilities
1.11 Allocation of Purchase Price
-- Disclosure Schedule
-- MFC Disclosure Schedule
(iv)
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of February 21, 1996 is between
Medallion Financial Corp. ("MFC"), a Delaware corporation, and Edwards Capital
---
Company ("Edwards"), a New York limited partnership.
-------
WITNESSETH
WHEREAS, MFC wishes to purchase, and Edwards wishes to sell,
substantially all of the assets and business of Edwards, for the consideration
set forth below and the assumption of certain of Edward's liabilities set forth
below, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein, the parties hereto
agree as follows:
SECTION 1 - SALE AND PURCHASE OF ASSETS
1.1 Sale of Assets. Subject to and upon the terms and conditions of
--------------
this Agreement, at the Closing (as defined in Section 1.10), Edwards agrees to
sell, assign, convey, transfer and deliver to MFC, and MFC agrees to purchase,
all of the properties, assets, rights, interests and business of Edwards of
every kind and description, tangible and intangible, real, personal or mixed,
and wherever located including, without limitation, all accounts and notes
receivable and any security held by Edwards for the payment thereof, inventory,
equipment, furnishings, supplies, prepaid expenses, contract rights, licenses
and permits, intellectual property rights, books, records, accounts, goodwill
and the exclusive right to use the name "Edwards Capital Company", including
without limitation the items set forth or described on Schedule 1.1.A, free and
--------------
clear of all claims, liens, mortgages, pledges, security interests, restrictions
and encumbrances ("Encumbrances"), except for Permitted Encumbrances (as defined
------------
in Section 2.16); excluding only cash and cash equivalents in hand or in bank
accounts and any other assets set forth or described on Schedule 1.1.B
--------------
("Excluded Assets"). The properties, assets, rights, interests and business of
- -----------------
Edwards to be sold to and purchased by MFC hereunder are referred to in this
Agreement as the "Purchased Assets". The Purchased Assets and the Excluded
----------------
Assets constitute all of the assets which are used by Edwards in the conduct of
its business as currently conducted (the "Business").
--------
1.2 Assumption of Liabilities. At the Closing, MFC shall, by
-------------------------
execution and delivery of an Instrument of Assumption of Liabilities
substantially in the form of Exhibit A, assume and agree to pay or discharge
---------
when due the liabilities and obligations of Edwards described on Schedule 1.2
------------
which are to be performed after the Closing Date (the "Assumed Liabilities").
-------------------
MFC shall not assume or agree to perform, pay or discharge, or have any
liability for, and Edwards shall remain unconditionally liable for and shall
discharge, all obligations, liabilities and commitments of Edwards, of any kind
or nature, known or
<PAGE>
unknown, fixed or contingent, other than the Assumed Liabilities, including,
without limitation: (i) any liability of Edwards incurred in connection with
this Agreement and the transactions provided for herein, including brokerage,
accounting and counsel fees, transfer and other taxes (except as provided in
Section 9.3), and expenses, if any, pertaining to its liquidation or the
performance by Edwards of its obligations hereunder, (ii) any liability or
obligation of Edwards arising out of any contract or agreement, (iii) any
obligations to Edwards' employees, including without limitation, any pension,
retirement, or profit-sharing plan or trust and any severance payment
obligation, (iv) any litigation, proceeding, claim by any person or entity or
other obligation of Edwards relating to its Business or operations or to the
Purchased Assets prior to the Closing, whether or not such litigation,
proceeding, claim or obligation is pending, threatened, or asserted before, on,
or after the Closing Date (other than expenses arising after the Closing Date in
connection with pursuing foreclosure and collection proceedings of Edwards
pending on the Closing Date on account of Purchased Assets but not in defending
claims asserted by the debtor based on the operation of the Business or the
Purchased Assets prior to the Closing Date), (v) Taxes (as defined in Section
2.8) whether relating to periods before or after the Closing Date, (vi)
liabilities or obligations to the U.S. Small Business Administration (the "SBA")
---
other than as described on Schedule 1.2, and (vii) any obligations under any
law, including but not limited to antitrust, civil rights, health, safety,
labor, discrimination and environmental laws, and any rules, regulations,
policies and procedures of the SBA, relating to the conduct of the Business
prior to the Closing. The assumption of the Assumed Liabilities by MFC
hereunder shall not enlarge any rights of third parties under contracts or
arrangements with MFC or Edwards.
1.3 Purchase Price and Payment. The purchase price (the "Purchase
-------------------------- --------
Price") for the Purchased Assets shall be $15,000,000, subject to adjustment
- -----
pursuant to Sections 1.4 and 1.6. At the Closing, MFC shall deliver:
1.3.1 To Edwards, the Purchase Price, less the amount delivered to
the Escrow Agent pursuant to Section 1.3.2, payable in immediately available
funds by wire transfer to an account designated by Edwards.
1.3.2 To Merchants Bank of New York, as escrow agent (the "Escrow
------
Agent"), the sum of $1,500,000, to be held pursuant to the terms of the Escrow
- -----
Agreement (the "Escrow Agreement") attached as Exhibit C hereto (subject to
---------------- ---------
reduction to $1,000,000 as provided in the Escrow Agreement), to satisfy any
adjustments pursuant to Section 1.6 and any claims for indemnity pursuant to
Section 7.2.
1.4 Closing Adjustment. The Purchase Price has been determined on
------------------
the assumption that the Net Book Value (as defined below) as of the Closing Date
will be equal to $8,700,000.
1.4.1 "Net Book Value" means the excess of the "Finance Receivables"
over the total of "Bank Loans Payable" and "Subordinated Debentures Payable" as
those terms are used in the Edwards financial statements excluding Accrued
Interest Receivable on the
-2-
<PAGE>
Finance Receivables and accrued interest payable on the Bank Loans Payable and
on the Subordinated Debentures Payable, determined in accordance with generally
accepted accounting principles as applied by Edwards in its financial statements
for the six and nine month periods ended June 30 and September 30, 1995 (the
"Interim Financial Statements"), including, without limitation, as Edwards has
- -----------------------------
historically accounted for valuations, reserves, allowances and write-offs and
accruals.
1.4.2 The Net Book Value will be computed by Edwards at the Closing
and will be set forth in the unaudited valuation certificate of Edwards as of
the Closing Date (the "Preliminary Closing Date Valuation Certificate") prepared
----------------------------------------------
and submitted by Edwards, including the calculations referred to in subsection
1.4.4, on a basis consistent with the Balance Sheets included in the Interim
Financial Statements (the "Interim Balance Sheets"). The Preliminary Closing
----------------------
Date Valuation Certificate, shall be accompanied by a certificate of Edwards
representing and warranting that it has been prepared from and in accordance
with the books and records of Edwards, has been prepared in accordance with
generally accepted accounting principles applied consistently with past
practices as reflected in the Interim Balance Sheets, and presents fairly the
financial position of Edwards reflected therein as of the date thereof.
1.4.3 If the Net Book Value reflected on the Preliminary Closing Date
Valuation Certificate is less than $8,700,000, the Purchase Price provided for
in Section 1.3 shall be reduced by the amount of the deficiency; and, if such
Net Book Value is greater than $8,700,000, the Purchase Price provided for in
Section 1.3 shall be increased by the amount of the excess, provided that the
reduction or increase may not exceed $1,000,000 in any case. If the increase
exceeds $1,000,000, Edwards may liquidate and distribute sufficient assets in
the amount of the excess, unless MFC agrees to pay such excess as part of the
Purchase Price. The assets to be liquidated or distributed shall be subject to
MFC's approval, which shall not be unreasonably withheld. If the decrease
exceeds $1,000,000, MFC may terminate this Agreement or may waive the condition
to closing set forth in Section 5.14 of this Agreement and agree to pay the
Purchase Price as adjusted, provided that the adjustment in that case shall not
exceed the sum of $1,000,000 plus the amount of any distributions (other than
distributions from net profits consistent with past practices) made by Edwards
to its partners subsequent to March 31, 1995.
1.4.4 The Preliminary Closing Date Valuation Certificate shall also
include the calculations required by Section 1.5 of this Agreement, as of the
Closing Date, which shall be determined in accordance with generally accepted
accounting principles as applied by Edwards in the "Interim Financial
Statements", including, without limitation, as Edwards has historically
accounted for valuations, reserves, allowances, write-offs and accruals.
-3-
<PAGE>
1.5 Additional Payments at Closing.
------------------------------
In addition to and independent of the Purchase Price, at the Closing
MFC and Edwards shall make the following payments to each other, payable in
immediately available funds by wire transfer to the account designated by the
payee of such funds:
1.5.1 MFC shall pay to Edwards the sum equal to:
(i) the Accrued Interest Receivable of Edwards as reported in the
Preliminary Closing Date Valuation Certificate;
(ii) the Advances to Banks on Loan Participations, as included in the
Edwards General Ledger 2100 Series Accounts labeled by bank and borrowers, as
historically combined in the Interim Balance Sheet item entitled Prepaid
Expenses and Other Assets, as reported in the Preliminary Closing Date Valuation
Certificate; and
(iii) the accrued participation agreement servicing income as
included by the accountants for Edwards in their work paper schedule entitled
Syndicated Income Accrual, as posted to the Miscellaneous Receivables General
Ledger Account Number 1785 and as combined in the Interim Balance Sheet item
entitled Prepaid Expenses and Other Assets, as reported in the Preliminary
Closing Date Valuation Certificate.
1.5.2 Edwards shall pay to MFC the amount of accrued interest payable
on the Bank Loans Payable and on the Subordinated Debentures Payable as included
by the accountants for Edwards in their work paper account entitled Accounts
Payable and Accrued Expenses General Ledger Account Number 2600, as combined in
the Interim Balance Sheet item entitled Accounts Payable and Accrued Expenses,
as reported in the Preliminary Closing Date Valuation Certificate.
1.5.3 The payments due pursuant to subsections 1.5.1 and 1.5.2 (the
"Additional Payments") shall be offset against each other and the net balance
- --------------------
payable shall be added to or subtracted from, as the case may be, the payment to
be made by MFC to Edwards on account of the Purchase Price.
1.6 Post Closing Adjustment.
-----------------------
1.6.1 As promptly as possible following the Closing, MFC shall cause
Arthur Andersen LLP, independent public accountants for MFC ("MFC's Auditors"),
--------------
to conduct a confirmatory review of the books and records of Edwards as of the
Closing Date. Not later than 30 days after the Closing Date, MFC shall cause
MFC's Auditors to deliver a valuation certificate of the Net Book Value of
Edwards as of the Closing Date as provided in Section 1.4 and of the Additional
Payments as of the Closing Date as provided in Section 1.5 (such valuation
certificate as corrected pursuant to subsection 1.6.2, the "Final Closing Date
------------------
-4-
<PAGE>
Valuation Certificate") to Edwards, MFC and the Escrow Agent. The Final Closing
- ---------------------
Date Valuation Certificate shall be prepared in accordance with generally
accepted accounting principles applied consistently with Edwards' past practice
as reflected in the Interim Balance Sheets, without any adjustments caused by
the acquisition of the Purchased Assets and the assumption of the Assumed
Liabilities by MFC, and shall be without qualification by MFC's Auditors.
1.6.2 Edwards shall have 30 days after receipt of the Final Closing
Date Valuation Certificate to assert any disagreement with such items by written
notice to MFC which specifies in reasonable detail the nature and extent of its
disagreement. If such notice is not given within 30 days, the amounts reflected
on the Final Closing Date Valuation Certificate shall be final and binding on
Edwards. If the parties are unable to resolve any properly asserted
disagreement within 30 days after Edward's response, an independent accounting
firm other than MFC's Auditors (with no material relationship to MFC or Edwards)
shall be chosen by mutual agreement of MFC and Edwards. Such independent
accounting firm shall review and resolve the disputed items and deliver a report
of its conclusions to each party to this Agreement and to the Escrow Agent,
which report shall be final and binding on all parties. The cost of such review
shall be borne equally by MFC and Edwards. If the report of the independent
accounting firm indicates that a correction should be made to the previously
delivered Final Closing Date Valuation Certificate, such correction shall be
made, and the Final Closing Date Valuation Certificate, as corrected, shall be
the Final Closing Date Valuation Certificate for purposes of this Agreement.
1.6.3 If the Net Book Value as of the Closing Date computed on the
basis of the Final Closing Date Valuation Certificate is less than the Net Book
Value computed and paid at the Closing based on the Preliminary Closing Date
Valuation Certificate, the Purchase Price shall be reduced by the amount of the
deficiency in the Net Book Value, and the amount of such reduction shall be paid
promptly to MFC, by the Escrow Agent to the extent provided in the Escrow
Agreement, and otherwise, to the extent that the amount held by the Escrow Agent
is insufficient, by Edwards in immediately available funds by wire transfer to
an account designated by MFC.
1.6.4 If the Additional Payments as of the Closing Date computed on
the basis of the Final Closing Date Valuation Certificate reflects a greater
amount payable to or a lesser amount payable by MFC than the Additional Payments
computed and paid at the Closing based on the Preliminary Closing Date Valuation
Certificate, such amount shall be paid promptly to MFC, by the Escrow Agent to
the extent provided in the Escrow Agreement, and otherwise, to the extent that
the amount held by the Escrow Agent is insufficient, by Edwards in immediately
available funds by wire transfer to an account designated by MFC.
1.7 Transfer of Purchased Assets. At the Closing, Edwards shall
----------------------------
execute and deliver to MFC a Bill of Sale substantially in the form of Exhibit B
---------
and shall deliver or cause to be delivered to MFC such other good and sufficient
instruments of transfer as shall
-5-
<PAGE>
be reasonably necessary and effective to transfer to MFC title to all the
Purchased Assets. Such other instruments of transfer (a) shall be in the form
and contain warranties, covenants and other provisions (not inconsistent with
the provisions hereof) which are usual and customary for transferring the type
of property involved under the laws of the jurisdictions applicable to such
transfers, (b) shall be in form and substance reasonably satisfactory to MFC and
its counsel, and (c) shall effectively vest in MFC good and marketable title to
all the Purchased Assets free and clear of all Encumbrances other than Permitted
Encumbrances.
1.8 Delivery of Records and Contracts. At the Closing, Edwards shall
---------------------------------
deliver or cause to be delivered to MFC all written leases, contracts,
commitments and rights evidencing the Purchased Assets and Assumed Liabilities,
with such assignments thereof and consents to assignments as are necessary to
assure MFC of the full benefit of the same. Edwards shall also deliver to MFC
at the Closing all of Edwards' business records, books, papers, files and data
relating to the Purchased Assets and Assumed Liabilities and its business and
operations and Edwards shall take all requisite steps to put MFC in actual
possession and operating control of the Purchased Assets, business and
operations of Edwards. Edwards shall have reasonable access to such records and
the cooperation of MFC's employees at reasonable times to the extent required
for the preparation of Edward's tax returns, the satisfaction of its liabilities
and the defense and prosecution of claims, responding to administrative
investigations and for other legitimate purposes.
1.9 MFC Designees. MFC shall have the right, in its sole discretion,
-------------
to designate one or more direct or indirect subsidiaries to purchase the
Purchased Assets pursuant to this Agreement and fulfill the other obligations
and exercise the other rights of MFC hereunder. Notwithstanding the foregoing,
MFC shall at all times remain responsible to Edwards for the payment and
performance of all obligations of MFC to Edwards hereunder.
1.10 The Closing. Subject to the provisions of Sections 5 and 6
-----------
hereof, the closing of the sale and purchase of the Purchased Assets (the
"Closing") shall take place at the offices of Herrick Feinstein LLP, 2 Park
- --------
Avenue, New York, New York on a date (the "Closing Date") and time mutually
------------
agreeable to the parties, but not later than April 30, 1996, time being of the
essence. At the Closing, the parties will deliver the items referred to above
and the agreements, certificates, opinions and other documents and instruments
referred to in Sections 5 and 6.
1.11 Allocation of Purchase Price. The Purchase Price and the
----------------------------
Assumed Liabilities shall be allocated among the Purchased Assets as described
on Schedule 1.11. Such allocation shall be appropriately adjusted to reflect
-------------
any adjustment in the Purchase Price pursuant to Sections 1.4 and 1.6. Neither
MFC nor Edwards shall take any position inconsistent with such allocation in any
filing with or reports made to any taxing authority, or in any judicial or
administrative proceedings.
-6-
<PAGE>
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF EDWARDS
Except as set forth on the disclosure schedule delivered to MFC on the
date hereof (the "Disclosure Schedule"), the section numbers of which are
-------------------
numbered to correspond to the section numbers of this Agreement to which they
refer, Edwards represents and warrants to MFC as set forth below:
2.1 Organization. Edwards is a limited partnership duly organized,
------------
validly existing and in good standing under the laws of the State of New York
and has all requisite power and authority to own, lease and operate its assets,
properties and business and to carry on its Business as now being conducted.
Edwards is qualified or is otherwise authorized to transact business in each
jurisdiction in which the failure to be so qualified or authorized would have a
material adverse effect on Edwards' financial condition, results of operations
assets, business or prospects (a "Material Adverse Effect"). All jurisdictions
-----------------------
in which Edwards is so qualified or authorized are identified in Section 2.1 of
-----------
the Disclosure Schedule.
2.2 Authorization and Validity of the Agreement. Subject to
-------------------------------------------
obtaining the approvals identified in Section 2.2 of the Disclosure Schedule,
-----------
Edwards has full legal right and power and all authority and approvals required
to enter into, execute and deliver this Agreement and each agreement, document
and instrument contemplated by this Agreement, to consummate the transactions
contemplated hereby and thereby and to perform fully its respective obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and each other agreement, document and instrument and the consummation
of the transactions contemplated hereby and thereby have been or shall be duly
authorized by all necessary action on the part of Edwards and its general and
limited partners. This Agreement and each agreement, document and instrument
executed and delivered pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of Edwards,
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting the
rights and remedies of creditors and to general principles of equity (the
"General Limitations").
- --------------------
2.3 Subsidiaries and Other Affiliates. Edwards does not directly or
---------------------------------
indirectly own or have any investment in any of the capital stock of, or any
other interest in, and is not a party to a partnership or joint venture with,
any other person or entity.
2.4 Certificate of Limited Partnership; General Partner; Books and
--------------------------------------------------------------
Records. Edwards has heretofore delivered to MFC true and complete copies of
- -------
its Certificate of Limited Partnership (certified by the Clerk of the County of
New York) and Agreement of Limited Partnership, as amended, as in effect on the
date hereof and delivered or provided access to its record books. Edwards is
not in default in any material respect in the performance, observation or
fulfillment of either its Certificate of Limited Partnership or
-7-
<PAGE>
Agreement of Limited Partnership. Harvard Servicing Corp. (the "General
-------
Partner") is the sole general partner of Edwards and is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. The General Partner has the corporate power and authority to act as
general partner of Edwards. The general ledgers and books of account of Edwards
to which MFC and its representatives have been given access are correct and
complete in all material respects and have been maintained in accordance with
good business practice.
2.5 Financial Statements. (i) Edwards has previously delivered to
--------------------
MFC the audited financial statements of Edwards at and for the fiscal year ended
December 31, 1994 (the "Audited Financial Statements"). (ii) Edwards has also
----------------------------
previously delivered to MFC the Interim Financial Statements. (iii) All of the
foregoing are referred to collectively as the "Edwards Financial Statements".
----------------------------
The Edwards Financial Statements have been prepared from and in accordance with
the books and records of Edwards, have been prepared in accordance with
generally accepted accounting principles applied consistently with past
practices, have been certified, in the case of the Audited Financial Statements,
without qualification by Edwards' independent public accountants and, in the
case of the Interim Financial Statements, by Edwards' chief financial officer,
and present fairly the financial position and results of operation of Edwards as
of the date and for the period indicated.
2.6 Absence of Undisclosed Liabilities. As at December 31, 1994,
----------------------------------
Edwards had no material liabilities of any nature, whether accrued, absolute,
contingent or otherwise (including without limitation, liabilities as guarantor
or otherwise with respect to obligations of others or liabilities for taxes due
or then accrued or to become due), required to be reflected or disclosed in the
December 31, 1994 balance sheet included in the Audited Financial Statements
that were not adequately reflected or reserved against on such balance sheet.
Edwards has no such liabilities, except as and to the extent (i) adequately
reflected and reserved against in the December 31, 1994 balance sheet included
in the Audited Financial Statements, (ii) adequately reflected and reserved
against in the Interim Balance Sheets, (iii) when delivered, adequately
reflected and reserved against in the Preliminary Closing Date Valuation
Certificate, or (iv) incurred subsequent to the dates of such balance sheets in
the ordinary course of business and not material in amount, either individually
or in the aggregate.
2.7 No Material Adverse Change. Since December 31, 1994, except as
--------------------------
reflected in the Interim Financial Statements, there has not been:
(i) any material adverse change in the assets, liabilities, condition
(financial or otherwise), results of operation, business or prospects of
Edwards or any occurrence or circumstance which reasonably could be
expected to result in such a material adverse change;
-8-
<PAGE>
(ii) any material change in the method of operating the business of
Edwards, in the manner of keeping the books, accounts or records of
Edwards, or in any accounting method or practice of Edwards;
(iii) any sale, lease, mortgage, pledge, encumbrance, abandonment or
disposition of, or agreement to sell, lease, mortgage, pledge, encumber,
abandon or dispose of, any assets or properties of Edwards, other than in
the usual and ordinary course of business;
(iv) any transaction, commitment, contract or agreement entered into
by Edwards, or any relinquishment or abandonment by Edwards of any contract
or right, or any modification, waiver, amendment, release, recision, or
termination of any term, condition or provision of any contract pertaining
to Edwards (other than any satisfaction by performance in accordance with
the terms thereof), other than in the usual and ordinary course of
business;
(v) any adverse relationships or conditions with employees, suppliers,
lenders, customers or governmental agencies that may have a material
adverse effect on Edwards or the Business or on the Purchased Assets;
(vi) any new material obligation or liability of Edwards for borrowed
money, other than borrowings in the usual and ordinary course of business;
(vii) any acquisition by Edwards (other than equipment acquired in
the ordinary course of business) of all or any part of the assets,
properties, capital stock or business of any other person or entity;
(viii) any redemption or other acquisition by Edwards of any
partnership interest in Edwards or any declaration, setting aside or
payment of any dividend or distribution of any kind to any partner of or
with respect to any partnership interest in Edwards, other than cash
distributions of current income in accordance with prior practices;
(ix) any loan or advance by Edwards to any partner, employee or
consultant, or any other loan or advance other than in the ordinary course
of business; or
(x) any new employment or consulting agreement, any increase in
compensation, bonus or other benefits payable or to become payable by
Edwards to any partner or employee, other than regularly scheduled
increases consistent with past practice in the ordinary course of business,
or any new grant of severance or termination rights, or increase in rights
or benefits payable under existing severance or termination policies or
agreements, to any partner or employee of Edwards.
-9-
<PAGE>
2.8 Tax Matters.
-----------
2.8.1 Edwards has paid or caused to be paid all federal, state,
county, local, foreign and other taxes, whether or not measured in whole or in
part by net income, and all deficiencies or other additions to such taxes, and
interest, fines and penalties thereon (hereinafter, "Taxes" or, individually, a
-----
"Tax") required to be paid by Edwards through the date hereof whether disputed
---
or not. There is no Tax deficiency or claim for additional Taxes or interest
thereon or penalties in connection therewith, asserted or, to the best knowledge
of Edwards, threatened to be asserted against Edwards by any taxing authority
and Edwards knows of no grounds for any such assertion.
2.8.2 Edwards has in accordance with applicable law timely filed all
Tax reports or returns required to be filed by it through the date hereof and
paid all Taxes and other charges shown as due thereon. Each of the Tax reports
and returns filed by Edwards correctly and accurately reflects the amount of its
Tax liability for such period and other required information. There has not
been any audit or other examination of any Tax return filed by Edwards and no
audit or other examination of any Tax return of Edwards is in progress and
Edwards has not been notified by any Tax authority that any such audit or other
examination is contemplated or pending. No extension of time with respect to
any date on which a Tax return was or is to be filed by Edwards is in force, and
no waiver or agreement by Edwards is in force for the extension of time for the
assessment or payment of any Tax. No claim has ever been made by an authority
in a jurisdiction where Edwards does not file reports or returns that Edwards is
or may be subject to taxation by that jurisdiction. There are no Encumbrances
on any of the assets of Edwards that arose in connection with any failure (or
alleged failure) to pay any Taxes.
2.9 Compliance with Laws.
--------------------
2.9.1 Edwards has not received notice within the prior three years of
any violation and, to the best of its knowledge, has not been during that period
and is not in violation, of any order, judgment, injunction, award or decree, or
any federal, state, local or foreign law, ordinance or regulation or any other
requirement of any governmental or regulatory body, court or arbitrator other
than violations noted in Edwards' SBA audit reports for the prior three years
(the "SBA Reports") which have been addressed or waived and which will not have
-----------
a Material Adverse Effect, and has not received any currently applicable notice
that it is not in full compliance in all material respects in accordance with
normal industry practice with all of the foregoing that are applicable to it,
the Business or the Purchased Assets. Edwards has delivered to MFC copies of
the SBA Reports and since the date of completion of the audit covered by the
last such report has not received from the SBA notice of any violation of SBA
rules or regulations.
2.9.2 Set forth in Section 2.9 of the Disclosure Schedule is a
-----------
correct and complete list of all of the licenses, permits, certificates,
franchises, orders or approvals of any federal, state, local or foreign
governmental or regulatory body, including, but not
-10-
<PAGE>
limited to, licenses issued by the SBA (collectively, "Permits") that are
-------
material to the conduct of the Business and the uses by Edwards of its assets.
Correct and complete copies of such Permits have been delivered by Edwards to
MFC. Edwards holds all Permits necessary to operate the Business as presently
conducted and as currently contemplated to be conducted. Such Permits are in
full force and effect and, assuming SBA approval of the transaction contemplated
by this Agreement, the validity and effectiveness of such Permits will not be
affected by the sale of the Purchased Assets to MFC. No proceeding is pending
or, to the best knowledge of Edwards, threatened to revoke or limit any Permit,
and Edwards knows of no grounds for any such revocation or limitation.
2.9.3 Edwards has timely filed with the SBA all reports required to
be filed including all reports on Form 468. Edwards has previously delivered to
MFC a correct and complete copy of the report on Form 468 most recently filed
with the SBA and dated December 31, 1994. To the best knowledge of Edwards, all
information required to be included in said Form 468 is included therein and all
such information is correct and complete in all material respects.
2.10 Consents; No Breach. All consents, permits, authorizations and
-------------------
approvals from any person or entity that are required pursuant to applicable law
or any agreement or otherwise in connection with the execution, delivery and
performance of this Agreement by Edwards are set forth on Section 2.10 of the
------------
Disclosure Schedule. Subject to obtaining the foregoing, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not (i) violate any provision of the
Certificate of Limited Partnership or Agreement of Limited Partnership of
Edwards; (ii) violate, conflict with or result in the breach of any of the terms
or conditions of, result in modification of the effect of, or otherwise give any
other contracting party the right to terminate, or constitute (or with notice or
lapse of time or both constitute) a default under, any instrument, contract or
other agreement to which Edwards is a party or to which Edwards or any of its
assets or properties is bound or subject; (iii) violate any statute, law or
regulation of any jurisdiction or any order, judgment, injunction, award or
decree of any court, arbitrator or governmental or regulatory body applicable to
or binding upon Edwards or its securities, properties, assets or business; (iv)
violate any Permit; (v) require any filing with, notice to, or approval or
consent of any foreign, federal, state, local or other governmental or
regulatory body or any other person or entity; (vi) result in the creation of
any Encumbrance on the assets or properties of Edwards; or (vii) give rise to
any obligation to make any payment or give rise to any other obligation to the
SBA, except in the case of clauses (ii), (iii) and (iv) immaterial violations
that will not have a Material Adverse Effect.
2.11 Actions and Proceedings. There are no outstanding orders, judgments,
-----------------------
injunctions, awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against or involving Edwards or any of its assets or
properties. There are no actions, suits or claims or legal, judicial,
administrative or arbitral proceedings or investigations (whether or not the
defense thereof or liabilities in respect thereof are covered by insurance)
pending or, to the best knowledge of Edwards, threatened against or involving
-11-
<PAGE>
Edwards or any of its partnership interests, assets or properties. To the best
knowledge of Edwards, there is no fact, event or circumstance that reasonably
could be expected to give rise to any such action, suit, claim, proceeding or
investigation.
2.12 Contracts and Other Agreements. Section 2.12 of the Disclosure
------------------------------ ------------
Schedule sets forth a correct and complete list all of the following contracts
and other agreements to which Edwards is a party or by or to which it or its
assets or properties are bound or subject:
(i) contracts and other agreements with or for the benefit of any
current or former partner, employee, consultant, agent or other
representative of Edwards and contracts and other agreements for the
payment of fees or other consideration to any entity in which any of the
foregoing has an interest;
(ii) contracts and other agreements with any labor union or
association representing any employee of Edwards or otherwise providing for
any form of collective bargaining;
(iii) contracts and other agreements for the purchase or sale of
materials, supplies, equipment, merchandise or services in excess of
$25,000 or for a term of more than one year that contain an escalation,
renegotiation or redetermination clause or that obligate Edwards to
purchase all or substantially all of its requirements of a particular
product from a supplier, or for periodic minimum purchases of a particular
product from a supplier;
(iv) contracts and other agreements for the sale of any of the assets
or properties of Edwards other than in the ordinary course of business or
for the grant to any person of any options, rights of first refusal, or
preferential or similar rights to purchase any of such assets or
properties;
(v) partnership or joint venture agreements;
(vi) contracts or other agreements under which Edwards agrees to act
as surety or guarantor for or to indemnify any party or to share the tax
liability of any party;
(vii) contracts, options, outstanding purchase orders and other
agreements for the purchase of any asset, tangible or intangible;
(viii) contracts and other agreements that cannot by their terms be
canceled by Edwards and any successor or assignee of Edwards without
liability, premium or penalty on less than thirty (30) days' notice;
(ix) contracts and other agreements with customers, suppliers or other
parties for the sharing of fees, the rebating of charges or other similar
arrangements;
-12-
<PAGE>
(x) contracts, stipulations or agreements with the SBA;
(xi) contracts and other agreements containing obligations or
liabilities of any kind to holders of partnership interests in or other
securities of Edwards as such (including, without limitation, an obligation
to register any of such securities under any federal or state securities
laws);
(xii) contracts and other agreements containing covenants of Edwards
not to compete in any line of business or with any person or entity or
covenants of any other person or entity not to compete with Edwards in any
line of business;
(xiii) contracts and other agreements relating to the acquisition by
Edwards of any operating business or the capital stock of any other person
or entity;
(xiv) contracts and other agreements requiring the payment to any
party of a brokerage or sales commission or a finder's or referral fee;
(xv) contracts, indentures, mortgages, promissory notes, debentures,
loan agreements, guaranties, security agreements, pledge agreements, and
other agreements and instruments relating to the borrowing or lending of
money or securing any such liability;
(xvi) any agreement or series of related agreements requiring
aggregate payments by or to Edwards of more than $25,000;
(xvii) contracts under which Edwards will acquire or has acquired
ownership of, or license to, intangible property, including software;
(xviii) leases, subleases or other agreements under which Edwards is
lessor or lessee of any real property; or
(xix) any other material contract or other agreement whether or not
made in the ordinary course of business that has or may have a material
effect on Edwards' business or prospects, condition, financial or
otherwise, or any of the assets or properties of Edwards.
There have been delivered or made available to MFC true and complete copies
of all of the contracts and other agreements (and all amendments, waivers or
other modifications thereto) set forth in Section 2.12 of the Disclosure
------------
Schedule. All of such contracts and other agreements are valid, subsisting, in
full force and effect, binding upon Edwards, and to the best knowledge of
Edwards, binding upon the other parties thereto in accordance with their terms,
subject to the General Limitations, and Edwards has paid in full or accrued all
amounts now due thereunder and has satisfied in full or provided for all of its
liabilities and obligations thereunder which are presently required to be
satisfied or provided for, and is not
-13-
<PAGE>
in default under any of them, nor, to the best knowledge of Edwards, is any
other party to any such contract or other agreement in default thereunder, nor,
to the best knowledge of Edwards, does any condition exist that constitutes or
with notice or lapse of time or both would constitute a default thereunder,
except for defaults by borrowers on loans secured by taxicab medallions at
levels, individually and in the aggregate, which are not material.
2.13 Real Property; Leases. Edwards does not own any real property or any
---------------------
buildings or other structures and does not have any options or any contractual
obligations to purchase or acquire any interest in real property. Section 2.13
------------
of the Disclosure Schedule sets forth a correct and complete list of all leases
of real property to which Edwards is a party (collectively, the "Leases"). True,
------
correct and complete copies of the leases and all amendments, modifications and
supplemental agreements thereto have been delivered by Edwards to MFC. The
Leases are in full force and effect and are binding and enforceable against each
of the parties thereto in accordance with their respective terms, subject to the
General Limitations. No party to any Lease has given notice to any other party
thereto claiming the existence or occurrence of a breach or default thereunder.
There has not occurred any event or circumstances which constitutes, or with the
passage of time or the giving of notice would constitute, such a breach or
default.
2.14 Tangible Property. Set forth in Section 2.14 of the Disclosure
----------------- ------------
Schedule is a correct and complete description of the plant, machinery,
equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
any related capitalized items and other tangible property material to the
Business ("Tangible Property"). Edwards has good and marketable title to, free
-----------------
and clear of all Encumbrances, or otherwise has the unrestricted right to use,
each item of Tangible Property. All such Tangible Property is in sufficient
operating condition and repair, ordinary wear and tear excepted, as is necessary
for the continued operation of the Business.
2.15 Intellectual Property. Edwards owns or is licensed to use, or
---------------------
otherwise has the unrestricted right to use all patents, trademarks, service
marks, trade names, logos, franchises, and copyrights, and all applications for
any of the foregoing, and all technology, inventions, trade secrets, know-how,
computer software and processes used in or necessary for the conduct of its
business as now conducted or proposed to be conducted (collectively, the
"Proprietary Rights"). A correct and complete list of all such Proprietary
- -------------------
Rights and all applications therefor has been provided by Edwards to MFC.
Edwards is not aware of any claim by any third party that the Business as
currently conducted or proposed to be conducted infringes upon the proprietary
rights of others, nor has Edwards received any notice or claim from any third
party of such infringement. Edwards is not aware of any infringement by any
third party on, or any competing claim of right to use or own any of, the
Proprietary Rights. Edwards has the right to use, free and clear of claims or
rights of others, all customer lists and third party computer software used in
the conduct of its Business.
-14-
<PAGE>
2.16 Title to Assets; Liens; Sufficiency. Edwards owns outright and has
-----------------------------------
good and marketable title to all of its assets and properties, including,
without limitation, all of the assets and properties reflected on the Interim
Balance Sheets (other than assets disposed of in the ordinary course of
business), and, at the Closing, the Purchased Assets will be free and clear of
any Encumbrance, except for (i) liens for taxes not yet due and payable, (ii)
Encumbrances arising from the Assumed Liabilities to the extent such
Encumbrances are reflected on the Interim Balance Sheets, and (iii) other
matters set forth in Section 2.16 of the Disclosure Schedule under the heading
------------
"Permitted Encumbrances" (collectively, "Permitted Encumbrances"). The
----------------------
Purchased Assets and the Excluded Assets constitute all of the assets which are
used by Edwards in the conduct of the Business, and, subject to adequate
capitalization and financing, the Purchased Assets include all rights and
property necessary to the continued conduct of the Business in the manner in
which it is presently conducted.
2.17 Accounts and Notes Receivable. Set forth in Section 2.17 of the
----------------------------- ------------
Disclosure Schedule is a correct and complete description of all accounts and
notes receivable of Edwards. Edwards has provided or made available to MFC
correct and complete copies or descriptions of all agreements, instruments and
other documents evidencing, securing or otherwise relating to such accounts and
notes receivable. All such accounts and notes receivable have arisen in the
ordinary course of business of Edwards, represent valid and enforceable
obligations due to Edwards, and have been and are not known to be subject to any
set-off or counter-claim, but Edwards does not guarantee their collectibility.
Edwards has no accounts or notes receivable from any person, firm or corporation
which is affiliated with Edwards or from any director, officer or employee of
Edwards.
2.18 Customers. Section 2.18 of the Disclosure Schedule sets forth or
--------- ------------
Edwards has made available to MFC or its auditors pursuant to confidentiality
agreements the names and addresses of all parties that are or at any time during
the prior twelve months were customers of Edwards (collectively, the
"Customers") and Edwards has provided or made available to MFC correct and
---------
complete copies or descriptions of all current agreements with such Customers.
The relationships of Edwards with its current Customers are, to the best
knowledge and belief of Edwards, good commercial working relationships.
2.19 Employee Benefit Plans. Section 2.19 of the Disclosure Schedule sets
---------------------- ------------
forth a correct and complete list of all pension, profit sharing, retirement,
deferred compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay and similar plans, programs or arrangements, including without
limitation all employee benefit plans as defined in Section 3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (the "Plans")
----- -----
maintained by Edwards, copies of which have been previously furnished by Edwards
to MFC. Edwards does not maintain or contribute to any "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA, and Edwards has not incurred any
material liability under Sections 4062, 4063 or 4201 of ERISA. Each Plan
maintained by Edwards which is intended to be qualified under either Section
401(a) or 501(c)(9) of the Internal Revenue Code of 1986, as amended (the
"Code") is so qualified.
----
-15-
<PAGE>
Each Plan has been administered in all material respects in accordance with the
terms of such Plan and the provisions of any and all statutes, orders or
governmental rules or regulations, including without limitation ERISA and the
Code, and to the knowledge of Edwards nothing has been done or omitted to be
done with respect to any Plan that would result in any material liability on the
part of Edwards under Title I of ERISA or Section 4975 of the Code. All reports
required to be filed with respect to all Plans, including without limitation
annual reports on Form 5500, have been timely filed except where the failure to
so file would not have a Material Adverse Effect. No "reportable event" as
defined at Section 4043 of ERISA, other than any such event for which the
thirty-day notice period has been waived, has occurred with respect to any
pension plan subject to Title IV of ERISA. With respect to all pension plans
subject to Title IV of ERISA, such plans have no unfunded benefit liabilities,
all contributions to such plans under the minimum funding requirements of
Section 412 of the Code have been made and all premium payments to the Pension
Benefit Guaranty Corporation with respect to such plans have been made. All
claims for welfare benefits incurred by employees on or before the Closing are
or will be fully covered by third-party insurance policies or programs. Except
for continuation of health coverage to the extent required under Section 4980B
of the Code or as otherwise set forth in this Agreement, there are no
obligations under any welfare plan providing benefits after termination of
employment.
2.20 Employee Relations. Edwards has approximately seven full-time
------------------
equivalent employees and generally enjoys good employer-employee relations.
None of Edwards' employees are represented by any labor union. Edwards is not
delinquent in payments to any of its employees or consultants for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by them to the date hereof or amounts required to be reimbursed to
such employees or consultants. Upon termination of the employment of any
employees, neither MFC nor Edwards will by reason of the sale of the Purchased
Assets to MFC or anything done prior to the Closing be liable to any of such
employees for severance pay or any other payments (other than accrued salary,
vacation or sick pay in accordance with Edwards' normal policies). Correct and
complete information as to all current employees or consultants of Edwards
including, in each case, name, current job title and annual rate of compensation
has been provided or made available by Edwards to MFC.
2.21 Relationships with Affiliates. Except as set forth in Section 2.21 of
----------------------------- ------------
the Disclosure Schedule, no general partner of Edwards, nor any officer or
director or stockholder of any corporate general partner of Edwards, has
(directly or indirectly) any interest in, (i) any property or assets of Edwards
(except in their capacity as a partner), (ii) any competitor or customer of
Edwards, (iii) any supplier or lender to Edwards, or (iv) any party to any
material contract or agreement with Edwards.
2.22 Insurance. Section 2.22 of the Disclosure Schedule sets forth a
--------- ------------
correct and complete list of all policies or binders of fire, liability, product
liability, workmen's compensation, vehicular and other insurance held by or on
behalf of Edwards specifying in each case the type and scope of coverage, the
amount of coverage, the premium, the insurer,
-16-
<PAGE>
the expiration date and all claims in excess of $10,000 made thereunder within
the prior twelve months. Such policies and binders are in full force and
effect, are reasonably believed to be adequate for the Business, are in
conformity with the requirements of all leases or other agreements to which
Edwards is a party and are valid and enforceable in accordance with their terms.
All premiums due under such policies and binders have been paid, and Edwards is
not in default with respect to any provision contained in any such policy or
binder nor has Edwards failed to give any notice or present any claim under any
such policy or binder in due and timely fashion. There are no outstanding
unpaid claims under any such policy or binder. Edwards has not received notice
of cancellation or non-renewal of, or any material amendment to, or any material
increase in deductibles or premiums under, any such policy or binder. Correct
and complete copies of all such policies and binders have been provided or made
available by Edwards to MFC.
2.23 Banking Relationships. Section 2.23 of the Disclosure Schedule sets
--------------------- ------------
forth a description of all loan agreements, lines of credit, participation
agreements or arrangements, and other credit facilities maintained by Edwards
with banks or similar financial institutions.
2.24 Brokerage. No broker, finder, agent or similar intermediary has acted
---------
on behalf of Edwards in connection with this Agreement or the transaction
contemplated hereby, and there are no brokerage commissions, finders fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with, or any action taken by Edwards.
Edwards has not dealt with any broker or finder in connection with the
transaction contemplated hereby.
2.25 Hazardous Materials. Edwards has never generated, used or handled any
-------------------
Hazardous Materials (as defined below), nor has Edwards treated, stored or
disposed of any Hazardous Materials at any site owned or leased by Edwards or
shipped any Hazardous Materials for treatment, storage or disposal at any other
site or facility. Edwards has no notice that any other person has ever
generated, used, handled, stored or disposed of any Hazardous Materials at any
site owned or premises leased by Edwards during the period of Edwards' ownership
or lease nor that there has been or is threatened any release of any Hazardous
Materials on or at any such site or premises. Except as set forth in Section
-------
2.25 of the Disclosure Schedule, Edwards has no notice that any Hazardous
- ----
Materials have ever been generated, used, handled, stored or disposed of at any
site in which it presently holds any mortgage or similar interest, or that any
underground storage tanks are or were located on any such site. No lien has
ever been imposed by any governmental agency on any property, facility,
machinery, or equipment owned, operated, leased or used by Edwards or, to the
best knowledge of Edwards, in which Edwards holds any mortgage, lien, or similar
interest in connection with the presence of any Hazardous Materials. For
purposes of this Section 2.25, "Hazardous Materials" shall mean and include any
-------------------
"hazardous waste" as defined in either the United States Resource Conservation
and Recovery Act or regulations adopted pursuant to said Act, and also any
"hazardous substances" or "hazardous materials" as defined in the United States
Comprehensive Environmental Response, Compensation and Liability Act. Edwards
has provided to MFC copies of all documents, records and
-17-
<PAGE>
information available to Edwards concerning any environmental or health and
safety matter relevant to Edwards, whether generated by Edwards or others,
including, without limitation, environmental audits, environmental risk
assessments, site assessments, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and reports, correspondence, permits,
licenses, approvals, consents and other authorizations related to environmental
or health and safety matters issued by any governmental agency.
2.26 Full Disclosure. All documents and other papers delivered by or on
---------------
behalf of Edwards in connection with this Agreement and the transactions
contemplated hereby are true, complete and authentic in all material respects.
No representation, warranty or statement of Edwards made in this Agreement or in
any Exhibit or Schedule hereto or in any document, statement or certificate
furnished to MFC pursuant to this Agreement contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements made, in the context in which made, not false
or misleading. There is no fact known to Edwards that has not been disclosed to
MFC in this Agreement or the Schedules that is likely to have a Materially
Adversely Effect. Notwithstanding the foregoing, Edwards makes no
representation or warranty with respect to any projections, forecasts or budgets
which may have been furnished or made available to MFC.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC
MFC represents and warrants to Edwards as follows:
3.1 Organization. MFC is a corporation duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its assets and to carry on its
business as now being and as heretofore conducted. MFC is qualified to do
business as a foreign corporation in the State of New York.
3.2 Authority to Execute and Perform Agreement. MFC has the corporate
------------------------------------------
power and authority required to enter into, execute and deliver this Agreement
and each agreement, document and instrument delivered by MFC pursuant to this
Agreement and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement and each such other agreement, document
and instrument and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of MFC. This Agreement and each agreement, document and instrument executed and
delivered pursuant to this Agreement constitutes, or when executed and delivered
will constitute, valid and binding obligations of MFC, enforceable in accordance
with their terms, subject to the General Limitations.
-18-
<PAGE>
3.3 Consents; No Breach. All consents, permits, authorizations and
-------------------
approvals from any person or entity that are required pursuant to applicable law
or any agreement or otherwise in connection with the execution, delivery and
performance of this Agreement by MFC are set forth on Section 3.3 of the
-----------
disclosure schedule delivered to Edwards on the date hereof (the "MFC Disclosure
--------------
Schedule"). Subject to obtaining the foregoing, the execution, delivery and
- --------
performance of this Agreement and the consummation of the transactions
contemplated hereby will not (i) violate any provision of the Certificate of
Incorporation or Bylaws of MFC; (ii) violate, conflict with or result in the
breach of any of the terms or conditions of, result in modification of the
effect of, or otherwise give any other contracting party the right to terminate,
or constitute (or with notice or lapse of time or both constitute) a default
under,any instrument, contract or other agreement to which MFC is a party or to
which MFC or any of its assets or properties is bound or subject; (iii) violate
any statute, law or regulation of any jurisdiction or any order, judgment,
injunction, award or decree of any court, arbitrator or governmental or
regulatory body applicable to or binding upon MFC or its securities, properties,
assets or business; (iv) violate any Permit; or (v) require any filing with,
notice to, or approval or consent of any foreign, federal, state, local or other
governmental or regulatory body or any other person or entity except in the case
of clauses (ii), (iii) and (iv) immaterial violations that will not have a
material adverse effect on MFC's financial condition or on its ability to
consummate the transactions contemplated hereunder.
3.4 Other Agreements. MFC has entered into an agreement of merger with
----------------
Tri-Magna Corporation ("Tri-Magna") providing for the acquisition of Tri-Magna
---------
by MFC, and such agreement has been authorized by the Board of Directors of Tri-
Magna subject to approval by the Tri-Magna stockholders. MFC has entered into a
stock purchase agreement with Leucadia National Corporation to purchase the
outstanding capital stock of Transportation Capital Corp. ("TCC").
---
3.5 Actions and Proceedings. There are no actions, suits or claims or
-----------------------
legal, judicial, administrative or arbitral proceedings or investigations
pending or, to the best knowledge of MFC, threatened against or involving MFC or
any of its assets or properties seeking to restrain, modify or prevent the
carrying out of the transactions contemplated hereby. To the best knowledge of
MFC, there is no fact, event or circumstance that reasonably could be expected
to give rise to any such action, suit, claim, proceeding or investigation.
3.6 Brokerage. No broker, finder, agent or similar intermediary has acted
---------
on behalf of MFC in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with or any action taken by MFC. MFC
has not dealt with any broker or finder in connection with the transaction
contemplated hereby.
-19-
<PAGE>
SECTION 4 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
4.1 Conduct of Business. Except with the prior written consent of MFC or
-------------------
as otherwise contemplated herein, during the period from the date hereof to the
Closing Date, Edwards shall observe the following covenants:
4.1.1 Affirmative Covenants Pending Closing. Edwards will:
-------------------------------------
(i) Preservation of Personnel. Use best efforts to preserve
-------------------------
intact Edwards' business organization and keep available the services of
Edwards' present employees (except for the termination of an employee for
good cause);
(ii) Insurance. Keep in effect casualty, public liability,
---------
worker's compensation and other insurance policies in amount and scope of
coverage comparable to those in effect at the date of this Agreement;
(iii) Preservation of the Business; Maintenance of Properties,
--------------------------------------------------------
Contracts. Use best efforts to preserve its business, advertise, promote
---------
and market its services in accordance with past practices, keep its
properties intact, preserve its goodwill, maintain all physical properties
in good condition and working order and in such operating condition as will
permit the continued conduct of the Business on a basis consistent with
past practice, and perform and comply in all material respects with the
terms of the contracts set forth in Section 2.12 of the Disclosure
------------
Schedule;
(iv) Preservation of Business Relationships. Use best
--------------------------------------
commercially reasonable efforts consistent with past practices to maintain
Edwards' existing relationships with suppliers, customers, lenders and
others, including the SBA, except that nothing herein shall prevent Edwards
from reducing its bank lines of credit so long as they are not reduced
below $9,000,000 in the aggregate;
(v) Approvals and Authorizations. Use best efforts to obtain at
----------------------------
its expense (except as provided in Section 9.3) all authorizations,
-----------
consents, permits and approvals of all parties (including the SBA, bank
lenders and the limited partners of Edwards) necessary to permit the
consummation of the transactions contemplated by this Agreement and to
formally request the approval of the limited partners of Edwards no later
than March 6, 1996; provided that Edwards shall not be required to make any
payment for obtaining any such authorization, consent, permit or approval
(other than payment of its own expenses or fees incident thereto);
(vi) Financial Reports. Provide MFC on a timely basis consistent
-----------------
with past practices Edwards' audited financial statements for the year
ended
-20-
<PAGE>
December 31, 1995 and, at MFC's expense, with such other financial
statements and other financial reports concerning Edwards as may be
required in connection with a public offering of MFC's common stock or as
MFC may otherwise reasonably request, such financial statements to be
prepared from and in accordance with the books and records of Edwards, to
be prepared in accordance with generally accepted accounting principles
applied consistently with past practices and to present fairly the
financial position and results of operation of Edwards as of the date and
for the period indicated; provided, however, that any representations and
warranties given by Edwards to MFC's auditors shall not enlarge the
representations and warranties of Edwards given to MFC in this Agreement.
(vii) Disclosure. Except for changes contemplated by this
----------
Agreement, promptly disclose to MFC in writing any information set forth in
the Disclosure Schedule which Edward's becomes aware is no longer correct
and any information which arises after the date hereof which would have
been required to be included in the Disclosure Schedule in order to make
the representations, warranties and covenants of Edwards and the General
Partner herein accurate and complete in all material respects as if such
information had been known on the date hereof;
(viii) Compliance. Comply with all existing applicable laws,
----------
regulations and other governmental requirements and all contracts,
commitments and obligations in a manner consistent with past practice,
except to the extent being contested in good faith without any Material
Adverse Effect;
(ix) Ordinary Course of Business. Operate its business
---------------------------
diligently and solely in the ordinary course and substantially in the same
manner as it has been operated in the past;
(x) Public Offering. Make available appropriate financial and
---------------
other information concerning Edwards for incorporation in, and otherwise
cooperate with MFC in connection with due diligence efforts and in
presentations associated with a public offering of MFC's common stock,
including any required audited financial statements, provided that any such
financial statements which are not ordinarily prepared or obtained by
Edwards shall be at the expense of MFC.
4.1.2 Negative Covenants Pending Closing. Edwards will not:
----------------------------------
(i) Disposition of Assets. Sell or transfer, or mortgage, pledge
---------------------
or create or permit to be created any Encumbrance on any of its assets or
properties other than sales or transfers in the ordinary course of business
and Permitted Encumbrances;
(ii) Liabilities. Other than in the ordinary course of business
-----------
consistent with past practice, incur any obligation or liability, incur any
indebtedness
-21-
<PAGE>
for borrowed money, enter into any contracts or commitments involving
payments to or by Edwards of $25,000 or more, or cancel any debts or
claims, provided that nothing herein shall prevent Edwards from increasing
its bank lines of credit and SBA debt by not more than $5,000,000 in the
aggregate or such additional amount as MFC may approve, its approval not to
be unreasonably withheld;
(iii) Compensation. Change the compensation or fringe benefits
------------
of or make any bonus or similar payments to any employee, agent or
consultant, except for ordinary merit compensation increases for employees
in accordance with past practice, or enter into or modify any benefit plan
or any employment, severance or other agreement with any employee or
consultant, except that Edwards may, if it so chooses, make severance
payments at Closing;
(iv) Distributions. Declare or pay any dividend or other
-------------
distribution to any partner of or with respect to any partnership interest
in Edwards except from net profits in accordance with past practices so
long as such distributions will not individually or in the aggregate have a
Material Adverse Effect, or issue, sell, transfer, purchase, redeem or
otherwise acquire any partnership interest in Edwards (other than
acquisitions which would be permitted distributions);
(v) Certificate of Limited Partnership and Agreement of Limited
-----------------------------------------------------------
Partnership. Take or permit any action to amend its Certificate of Limited
-----------
Partnership or Agreement of Limited Partnership, except as may be required
for approval of this Agreement;
(vi) Acquisitions. Make any material acquisition of property
------------
other than in the ordinary course of business consistent with past
practice.
4.2 Examinations and Investigations. Prior to the Closing and subject to
-------------------------------
Section 4.5, MFC shall be entitled, through its employees and representatives,
- -----------
to have such access to the assets, properties, records, business and operations
of Edwards as is reasonably necessary or appropriate in connection with MFC's
investigation of Edwards with respect to the transactions contemplated hereby.
Any such investigation and examination shall be conducted at reasonable times
and under reasonable circumstances so as to minimize any disruption to or
impairment of Edwards' business and Edwards shall cooperate fully therein. No
investigation by MFC shall diminish or obviate any of the representations,
warranties, covenants or agreements of Edwards contained in this Agreement. In
order that MFC may have full opportunity to make such investigation, Edwards
shall furnish or make available to the representatives of MFC during such period
all such information and copies of such documents concerning the affairs of
Edwards as such representatives may reasonably request and cause its employees,
consultants, agents, accountants and attorneys to cooperate fully with such
representatives in connection with such investigation.
-22-
<PAGE>
4.3 Consummation of Agreement. Each party shall use its best efforts to
-------------------------
perform and fulfill all conditions and obligations to be performed and fulfilled
by it under this Agreement and to ensure that to the extent within its control
or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Closing, all to the end that the transactions contemplated by this
Agreement shall be fully carried out in a timely fashion. MFC shall apply for
any SBA approvals required to be obtained by it for approval to purchase the
Purchased Assets, including Edwards' SBA license, and assume the Assumed
Liabilities, and shall expeditiously file with the Securities and Exchange
Commission and seek to have declared effective a registration statement covering
a public offering of its common stock unless it determines that it is
impractical or inadvisable to do so, in which event it shall give Edwards prompt
notice of such determination and of any alternative plan of MFC to obtain
financing.
4.4 Further Assurances. Each of the parties shall execute such documents,
------------------
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby. Following the
Closing, MFC shall make relevant records and employees available to assist
Edwards in preparing its tax returns and in satisfying the liabilities retained
by Edwards.
4.5 No Publicity/Confidentiality. Confidential Information (as defined
----------------------------
below) obtained by MFC during the course of its due diligence examination of the
books and records of Edwards will be used solely for the purpose of this
Agreement and the transaction contemplated hereby and not in any way directly or
indirectly detrimental to Edwards and such information will be kept confidential
by MFC, except for such disclosure as may be required in connection with a
public offering of shares of MFC common stock, and then upon advice of counsel
in consultation with Edwards. It is agreed that there shall arise a rebuttable
presumption that MFC has breached the obligation described in the immediately
preceding sentence upon the occurrence of all of the following conditions: (i)
the Closing has not occurred, (ii) it is within three years after the date of
this Agreement, (iii) MFC or any of its affiliated companies (which, for
purposes of this Section 4.5, shall include Tri-Magna Corporation and Medallion
Funding Corp.) provide financing to an individual or entity that is currently a
customer of Edwards or was listed by Edwards as a past customer, and (iv) the
customer has not had a previous business relationship with MFC or any of its
affiliated companies. Edwards will keep confidential and not disclose without
MFC's prior consent the existence or terms of this Agreement or any other aspect
of the proposed sale and purchase of the Purchased Assets except to Edward's
advisers, to obtain required consents and as may be required by law, but only
after prior written notice to MFC. MFC will not discuss this Agreement or the
proposed sale and purchase of the Purchased Assets with the Taxi and Limousine
Commission of the City of New York, or any bank lenders to or customers of
Edwards or any broker or other persons in the New York City taxicab industry,
without Edward's prior written consent. The provisions of this Section 4.5
shall survive any termination of this Agreement.
-23-
<PAGE>
The term "Confidential Information" shall be deemed to include all
------------------------
information provided to MFC by Edwards concerning Edwards as well as all notes,
analyses, compilations, studies, interpretations or other documents prepared by
MFC which contain, reflect or are based upon, in whole or in part, the
information furnished to MFC pursuant hereto. The term "Confidential
Information" does not include any information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of its disclosure by MFC), (ii) was available to MFC on
a nonconfidential basis from a source other than Edwards or any of its
affiliates or their advisors, provided that source is not known by MFC to be
bound by a confidentiality agreement with Edwards or otherwise subject to
another contractual, legal or fiduciary obligation of confidentiality to Edwards
or any other party or (iii) has been independently acquired or developed by MFC
without violating any of its obligations under this Agreement.
4.6 Exclusive Dealing. Prior to termination of this Agreement in
-----------------
accordance with its terms, Edwards will not, directly or indirectly (i) solicit,
initiate or encourage discussions with or submission of proposals or offers from
any person or entity relating to a possible acquisition of all or any material
portion of the assets of or partnership interests in Edwards or any merger or
other business combination with Edwards (an "Acquisition Transaction"), or (ii)
-----------------------
participate in any discussions or negotiations regarding, or furnish any
information with respect to, or facilitate or encourage, any effort or attempt
by any other person or entity to do or seek any Acquisition Transaction.
Edwards will promptly notify MFC of any such proposal, offer, inquiry or other
contact relating to any proposed Acquisition Transaction.
4.7 Escrow Agreement. At or before the Closing MFC and Edwards will enter
----------------
into the Escrow Agreement with the Escrow Agent substantially in the form
attached hereto as Exhibit C.
---------
4.8 Non-Competition. At or before the Closing each of the parties
---------------
identified in Section 5.4 will enter into separate Non-Competition Agreements
with MFC substantially in the form attached hereto as Exhibit D.
---------
4.9 Other Acquisitions. Following the execution of this Agreement MFC
------------------
shall proceed diligently and in good faith and use all reasonable efforts to
complete the acquisition of Tri-Magna and TCC (the "Other Acquisitions").
------------------
4.10 Change of Name. Prior to or on the Closing Date, Edwards shall
--------------
execute, deliver, and file all documents and take such other actions as may be
required to change its name, effective at or prior to the Closing, to another
name bearing no similarity to "Edwards Capital Company". Edwards hereby
appoints MFC as its attorney-in-fact to execute and file any documents that may
be necessary to effect or confirm such change of name after the Closing. From
and after the Closing Edwards will not use the name "Edwards Capital Company" or
any variants thereof or names similar thereto.
-24-
<PAGE>
4.11 Edwards Office Sublease. MFC agrees to remove within 30 days of the
-----------------------
Closing, at MFC's cost and expense, all of the Purchased Assets from the
premises currently occupied by Edwards and covered by the Sublease Agreement
(the "Sublease"), dated April 1, 1992, by and between Herrick, Feinstein LLP and
--------
Edwards. If MFC fails to comply with this provision, Edwards shall have the
right, at its sole discretion, either (i) to place all of such Purchased Assets
in storage at MFC's expense or (ii) to treat such property as abandoned,
permitting Edwards to have such property removed from the premises and sold for
the benefit of Edwards, in either case with the right to receive payment from
MFC (or the escrow fund in the event of a default by MFC) for the actual net
costs and expenses of Edwards attributable to such procedure. MFC further
agrees during such 30 days, to abide by the terms of the Sublease and to pay the
rent for such premises for such period, both as applicable to Edwards under the
terms of the Sublease, as MFC would have been obligated to do had MFC assumed
the Sublease.
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE
Each obligation of MFC to be performed at the Closing is subject to the
fulfillment, at or prior to the Closing Date, of the following conditions
(unless waived in writing by MFC):
5.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Edwards contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date (with such exceptions as may be
permitted under or contemplated by this Agreement or the Disclosure Schedule).
Edwards shall have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or complied
with by it on or prior to the Closing. Edwards shall have delivered to MFC a
certificate, dated the Closing Date, to the foregoing effect, as applicable.
5.2 Opinion of Counsel to Edwards. MFC shall have received an opinion of
-----------------------------
Herrick, Feinstein, counsel to Edwards, dated the Closing Date, substantially in
the form of Exhibit E hereto.
---------
5.3 Consents, Permits, and Approvals. All consents, permits, licenses,
--------------------------------
authorizations and approvals required to permit the consummation by Edwards and
MFC of the transactions contemplated by this Agreement and, assuming that MFC
has adequate financing, the continued operation by MFC of the Business in the
manner conducted prior to the Closing (including, without limitation, those set
forth in Section 2.10 of the Disclosure Schedule and Section 3.3 of the MFC
------------ -----------
Disclosure Schedule) shall have been obtained, and confirmation of those not
within the control of MFC shall have been provided to MFC.
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<PAGE>
5.4 Non-Competition Agreement. Separate Non-Competition Agreements,
-------------------------
substantially in the form attached as Exhibit D hereto, shall have been executed
---------
and delivered by Edwards, the General Partner, and the affiliate of Edwards
identified in Exhibit D.
5.5 Escrow Agreement. The Escrow Agreement shall have been executed and
----------------
delivered by all parties thereto.
5.6 Instruments of Transfer. Edwards shall have delivered or caused to be
-----------------------
delivered to MFC instruments of transfer in conformity with Section 1.7.
-----------
5.7 Other Acquisitions. MFC shall have consummated the Other Acquisitions
------------------
or be in a position to consummate the Other Acquisitions concurrently with or
reasonably concurrently with the Closing.
5.8 Financing. MFC shall have completed its proposed public offering or
---------
otherwise shall have obtained and have available financing sufficient to
consummate the purchase of the Purchased Assets and the Other Acquisitions.
5.9 1940 Act; SBA. MFC or such subsidiary as MFC may designate to
-------------
purchase the Purchased Assets shall be registered under the Investment Company
Act of 1940 as a Closed-End Investment Company and shall be licensed as an SBIC
by the SBA.
5.10 Change of Name. Edwards shall have provided to MFC confirmation
--------------
satisfactory to MFC and its counsel of the change of name provided for in
Section 4.10.
5.11 Adverse Proceedings. No action, suit or proceeding shall have been
-------------------
instituted or threatened before any court or governmental or regulatory body by
any agency of any government or any other third party seeking to restrain,
modify or prevent the carrying out of the transactions contemplated hereby, or
which might affect the right and ability of MFC to own the Purchased Assets and
operate the business of Edwards following the Closing.
5.12 Certificates. Edwards shall have furnished MFC with such certificates
------------
of public officials and other third parties as may be reasonably requested by
MFC.
5.13 Approval of Documentation. All certificates, instruments, opinions
-------------------------
and other documents delivered or to be delivered to MFC hereunder shall be
reasonably satisfactory to MFC and its counsel in all material respects.
5.14 Minimum Net Book Value. Net Book Value on the Closing Date shall not
----------------------
be less than $7,700,000.
-26-
<PAGE>
SECTION 6 - CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF EDWARDS TO CLOSE
Each obligation of Edwards to be performed at the Closing is subject
to the fulfillment at or prior to the Closing Date of the following conditions
(unless waived in writing by Edwards):
6.1 Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of MFC contained in this Agreement shall have been true and
correct when made and shall be true and correct on and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date
(with such exceptions as may be permitted under or contemplated by this
Agreement). MFC shall have performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing. MFC shall have delivered to Edwards a certificate,
dated the Closing Date, to the foregoing effect.
6.2 Consideration. MFC shall have executed and delivered to Edwards
-------------
an Instrument of Assumption of Liabilities and shall have paid the Purchase
Price in conformity with Sections 1.2 and 1.3, respectively.
6.3 Opinion of Counsel to MFC. Edwards shall have received an
-------------------------
opinion of Palmer & Dodge, counsel to MFC, dated the Closing Date, substantially
in the form of Exhibit F hereto and otherwise in form and substance reasonably
---------
acceptable to Edwards and its counsel.
6.4 Consents, Permits, and Approvals. The consents, permits,
--------------------------------
licenses, authorizations and approvals required to permit the consummation by
Edwards and MFC of the transactions contemplated by this Agreement set forth in
Section 2.10 of the Disclosure Schedule and Section 3.3 of the MFC Disclosure
- ------------ -----------
Schedule shall have been obtained, and confirmation of those not within the
control of Edwards shall have been provided to Edwards. The consent of the SBA
shall have released Edwards from all liability to the SBA on account of the
Edwards' SBA guaranteed debentures included in the Assumed Liabilities and the
consent of the banks under the bank participation agreements included in the
Assumed Liabilities shall have released Edwards from all liability and
obligations thereunder arising subsequent to the Closing.
6.5 Novation of Bank Loans. Edwards shall have been released from
----------------------
liability under the bank loans included in the Assumed Liabilities or MFC shall
have consented to the repayment of such bank loans and waived the limitation on
the Purchase Price adjustment under Section 1.4 resulting from such repayment.
6.6 Escrow Agreement. The Escrow Agreement
----------------
shall have been executed and delivered by all parties thereto.
-27-
<PAGE>
6.7 Adverse Proceedings. No action, suit or proceeding shall have
-------------------
been instituted or threatened before any court or governmental or regulatory
body by any agency of any government or any other third party seeking to
restrain, modify or prevent the carrying out of the transactions contemplated
hereby.
6.8 Certificates. MFC shall have furnished Edwards with such
------------
certificates of public officials and other third parties as may be reasonably
requested by Edwards.
6.9 Approval of Documentation. All certificates, instruments,
-------------------------
opinions and other documents delivered or to be delivered to Edwards hereunder
shall be reasonably satisfactory to Edwards and its counsel in all material
respects.
SECTION 7 - INDEMNIFICATION
7.1 Survival. Notwithstanding any right of any party to fully
--------
investigate the affairs of the other party and notwithstanding any knowledge of
facts determined or determinable by such party pursuant to such investigation or
right of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party in
this Agreement or in any certificate, financial statement or other document
delivered by any party pursuant hereto. All such representations, warranties,
covenants and agreements shall survive the execution and delivery hereof and the
Closing hereunder for a period ending on March 31, 1997. The indemnification
rights set forth in this Section 7 shall constitute the sole and exclusive
remedy of the parties hereto after the Closing Date for any breach by the other
party of any representation, warranty or covenant contained herein or in any
certificate or other instrument delivered pursuant hereto, other than for a
fraudulent or intentional breach.
7.2 Obligation of Edwards to Indemnify. Edwards agrees to indemnify
----------------------------------
and hold harmless MFC (and its respective directors, officers, employees,
agents, affiliates and assigns) from and against all losses, liabilities,
damages, deficiencies, costs or expenses, including interest and penalties
imposed or assessed by any judicial or administrative body, any Taxes and
reasonable attorneys' fees, whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing ("Losses") based upon, arising out of or otherwise in respect of any
------
inaccuracy in, or breach of, any representation, warranty or covenant of Edwards
contained herein or in any certificate or other document, instrument or
agreement delivered pursuant hereto.
7.3 Obligation of MFC to Indemnify. MFC agrees to indemnify and hold
------------------------------
harmless Edwards (and its partners, employees, agents, affiliates and assigns
and directors, officers and shareholders of its corporate general partner) from
and against all Losses based upon, arising out of or otherwise in respect of (i)
any inaccuracy in, or breach of, any representation, warranty or covenant of MFC
contained herein or in any certificate or other
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<PAGE>
document, instrument or agreement delivered pursuant hereto, (ii) the conduct of
the business following the Closing (other than to the extent arising from any
misrepresentation or breach of warranty by Edwards hereunder) or (iii) any
untrue statement or alleged untrue statement of any material fact in the
registration statement or prospectus filed or used in connection with MFC's
public offering, including without limitation any combining and combined
financial statements of MFC, except for information provided by Edwards.
7.4 Notice and Defense of Claims. Promptly after receipt of notice
----------------------------
of any claim, liability or expense for which a party seeks indemnification
hereunder, such party shall give written notice thereof to the indemnifying
party, but such notification shall not be a condition to indemnification
hereunder except to the extent of actual prejudice to the indemnifying party.
The notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within 30 days after receiving such notice the indemnifying party
gives written notice to the indemnified party stating that it intends to defend
against such claim, liability or expense at its own cost and expense, then
defense of such matter, including selection of counsel (subject to the consent
of the indemnified party which consent shall not be unreasonably withheld),
shall be by the indemnifying party and the indemnified party shall make no
payment on such claim, liability or expense as long as the indemnifying party is
conducting a good faith and diligent defense. Notwithstanding the foregoing,
the indemnified party shall at all times have the right to fully participate in
such defense at its own expense directly or through counsel; provided, however,
if the named parties to the action or proceeding include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for the indemnified party selected by
it shall be paid by the indemnifying party. If no such notice of intent to
dispute and defend is given by the indemnifying party, or if such diligent good
faith defense is not being or ceases to be conducted, the indemnified party
shall, at the expense of the indemnifying party, undertake the defense of such
claim, liability or expense with counsel selected by the indemnified party, and
shall have the right to compromise or settle the same exercising reasonable
business judgment. The indemnified party shall make available all information
and assistance that the indemnifying party may reasonably request and shall
cooperate with the indemnifying party in such defense.
7.5 Payment. Any payments to which any indemnified party is entitled
-------
pursuant to Section 7.2 shall be made by the Escrow Agent out of funds held
under the Escrow Agreement to the extent such payments are provided for
thereunder and sufficient funds are available to the Escrow Agent to make such
payments. All such payments which are not made by the Escrow Agent and all
other payments to which any indemnified party is entitled to under this Section
7 shall be made promptly by the indemnifying party in cash or by certified check
or wire transfer of immediately available funds to an account designated by the
indemnified party.
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<PAGE>
7.6 Limitations on Indemnification. Notwithstanding the foregoing,
------------------------------
the right to indemnification under this Section 7 shall be subject to the
following terms:
(a) No indemnification shall be payable pursuant to Section 7.2 or
Section 7.3 unless and until the amount of all claims for indemnification
pursuant to the applicable Section exceeds $100,000 in the aggregate, whereupon
indemnification pursuant to such Sections shall be payable for all such claims
without any deduction.
(b) No indemnification shall be payable pursuant to Section 7.2 or
Section 7.3 after April 30, 1997, (the "Expiration Date"), except with respect
---------------
to claims made prior to the Expiration Date but not then resolved.
(c) In determining the amount of any indemnity, there shall be taken
into account any tax benefit, insurance proceeds or other similar recovery or
offset realized, directly or indirectly, by the party to be indemnified.
SECTION 8 - TERMINATION OF AGREEMENT
8.1 Termination. This Agreement may be terminated prior
-----------
to the Closing as follows:
(i) at the election of Edwards upon written notice to MFC if MFC has
breached any representation, warranty, covenant or agreement contained in this
Agreement and has not, within twenty (20) business days of receipt by MFC of
written notice from Edwards of such breach of representation, warranty, covenant
or agreement, cured such breach;
(ii) at the election of MFC upon written notice to Edwards if Edwards
has breached any representation, warranty, covenant or agreement contained in
this Agreement and has not, within twenty (20) business days of receipt by
Edwards of written notice from MFC of such breach of representation, warranty,
covenant or agreement, cured such breach;
(iii) at any time on or prior to the Closing Date by written
agreement of the parties hereto;
(iv) at the election of MFC upon written notice to Edwards at any time
within twenty (20) days after the date hereof if MFC is not satisfied with the
results of its evaluation of the Business based on the information regarding
Edwards' customers and bank loan and participation agreements and arrangements
made available to MFC less than five business days prior to the execution of
this Agreement; or
-30-
<PAGE>
(v) by any party if, without fault of such party, the Closing shall
not have occurred by April 30, 1996, which date may be extended by mutual
agreement of the parties.
8.2 Effect of Termination. If this Agreement is terminated and the
---------------------
transactions contemplated hereby are not consummated as provided above, this
Agreement shall become null and void and be of no further force or effect, other
than the provisions of this Section 8, Section 9.3 ("Expenses"), Section 4.5
--------
("No Publicity/Confidentiality"), and Section 7 ("Indemnification") which shall
- ------------------------------ ---------------
survive and continue in effect in accordance with their respective terms, and
(notwithstanding Section 7.1) each and every representation and warranty
contained in this Agreement or any Schedule hereto, or any certificate, document
or other instrument delivered by the parties in connection herewith, shall
expire and none of the parties hereto shall have any further liability with
respect to any such representation or warranty; provided that nothing contained
in this Section 8.2 shall relieve any party of any liability for any willful or
fraudulent breach or default hereunder occurring prior to such termination.
SECTION 9 - MISCELLANEOUS
9.1 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, two (2) days after the date of deposit in the United States mails, as
follows:
(i) if to MFC, to:
Medallion Financial Corp.
205 East 42nd Street
New York, NY 10017
Attention: Andrew Murstein
Fax: (212) 983-0351
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Attention: Steven N. Farber, Esquire
Fax: (617) 227-4420
-31-
<PAGE>
(ii) if to Edwards:
Harvard Servicing Corp.
c/o Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Edward M. Abramson
Fax: (212) 889-7577
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Michael Heitner, Esquire
Fax: (212) 889-7577
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9.2 Entire Agreement. This Agreement contains the entire agreement
----------------
among the parties with respect to the purchase of the Purchased Assets and
related transactions, and supersedes all prior agreements, written or oral, with
respect thereto. Nothing herein shall affect the confidentiality agreement
provided by MFC's auditors to Edwards.
9.3 Expenses. Whether or not the transactions contemplated hereby
--------
are consummated, each of the parties hereto shall bear its own costs and
expenses (including fees and expenses of legal counsel) in connection with the
negotiation, preparation, execution, review and delivery of this Agreement and
the consummation of the transactions contemplated hereby, except as otherwise
specifically provided herein. MFC shall bear the costs of obtaining SBA consent
required hereunder.
9.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
-----------------------------------------------------------------
Remedies. This Agreement may be amended, superseded, canceled, renewed or
- --------
extended, and the terms hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any waiver on
the part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity.
The rights and remedies of any party based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty, covenant
or agreement contained in this Agreement shall in no way be limited by
-32-
<PAGE>
the fact that the act, omission, occurrence or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be the subject
matter of any other representation, warranty, covenant or agreement contained in
this Agreement (or in any other agreement between the parties) as to which there
is not inaccuracy or breach.
9.5 Governing Law. This Agreement shall be governed by and
-------------
construed, interpreted and enforced in accordance with the laws of the State of
New York.
9.6 Binding Effect; No Assignment. This Agreement shall be binding
-----------------------------
upon and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law or by MFC to any of its affiliates, provided that any such assignment shall
not relieve MFC of its liability hereunder.
9.7 Variations in Pronouns. All pronouns and any variations thereof
----------------------
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
9.8 Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
9.9 Exhibits and Schedules. The Exhibits and Schedules are a part of
----------------------
this Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and the Schedules shall be deemed references to
such parts of this Agreement, unless the context shall otherwise require.
9.10 Headings. The headings in this Agreement are for reference
--------
only, and shall not affect the interpretation of this Agreement.
-33-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first above written.
MEDALLION FINANCIAL CORP.
By:/s/ Andrew Murstein
----------------------------------
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
----------------------------------
By
-34-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first above written.
MEDALLION FINANCIAL CORP.
By:
--------------------------------
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
/s/ Edward Abramson
-----------------------------------
By
-35-
<PAGE>
Exhibit A
---------
INSTRUMENT OF ASSUMPTION OF LIABILITIES
---------------------------------------
This Instrument of Assumption of Liabilities dated _______ ___, 1996, is
made by Medallion Financial Corp., a Delaware corporation (the "Buyer"), in
favor of Edwards Capital Company, a New York limited partnership (the "Seller").
All capitalized words and terms used in this Instrument of Assumption of
Liabilities and not defined herein shall have the respective meanings ascribed
to them in the Asset Purchase Agreement dated as of February ___, 1996 between
the Seller and the Buyer (the "Purchase Agreement"). All schedules to the
Purchase Agreement which are referred to herein are incorporated herein by
reference.
WHEREAS, pursuant to the Purchase Agreement, the Seller has agreed to sell,
assign, transfer, convey, and deliver to the Buyer and the Buyer has agreed to
purchase, the Purchased Assets;
WHEREAS, in partial consideration therefor, the Buyer has agreed to assume
certain specified liabilities of the Seller.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Buyer hereby agrees as
follows:
1. The Buyer hereby assumes and agrees to perform, pay and discharge,
when due, the liabilities, obligations and commitments of the Seller which are
described on Schedule 1.2 to the Purchase Agreement and referred to in the
------------
Purchase Agreement as the "Assumed Liabilities".
2. The Buyer hereby covenants and agrees that it will, at the request of
the Seller and without consideration, execute and deliver, and will cause its
employees to execute and deliver, such other instruments of assumption and
performance, and take such other action as may be reasonably necessary to cause
the Buyer to more effectively assume and perform the Assumed Liabilities and to
carry out the purpose and intent of the Purchase Agreement.
3. Nothing contained herein shall require the Buyer to perform, pay or
discharge any obligation, liability or commitment expressly assumed by the Buyer
herein so long as the Buyer in good faith contests or causes to be contested the
amount or validity thereof and has posted any bonds or other surety required in
connection therewith, provided that the foregoing shall not relieve the Buyer of
its obligation to indemnify and hold harmless the Seller from any Assumed
Liabilities being so contested.
4. Nothing herein shall be deemed to deprive the Buyer of any defenses,
set-offs or counterclaims which the Seller may have had or which the Buyer shall
have with respect to any of the obligations, liabilities and commitments hereby
assumed (the "Defenses and Claims"). The Seller hereby transfers, conveys and
assigns to the Buyer all Defenses and
-36-
<PAGE>
Claims and agrees to cooperate with the Buyer to maintain, secure, perfect and
enforce such Defenses and Claims, including the signing of any documents, the
giving of any testimony or the taking of any such other action as is reasonably
requested by the Buyer in connection with such Defenses and Claims.
5. The Buyer, by its execution of this Instrument of Assumption of
Liabilities, and the Seller, by its acceptance of this Instrument of Assumption
of Liabilities, each hereby acknowledges and agrees that neither the
representations and warranties nor the rights and remedies of either party under
the Purchase Agreement shall be deemed to be enlarged, modified or altered in
any way by such execution and acceptance of this instrument.
IN WITNESS WHEREOF, the Buyer and the Seller have caused this instrument to
be duly executed as of and on the date first above written.
BUYER:
MEDALLION FINANCIAL CORP.
By:_________________________________
SELLER:
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
By: _________________________________
-37-
<PAGE>
Exhibit B
---------
BILL OF SALE
------------
This Bill of Sale dated _______ ___, 1996 is executed and delivered by
Edwards Capital Company, a New York limited partnership (the "Seller"), to
Medallion Financial Corp., a Delaware corporation (the "Buyer"). All
capitalized words and terms used in this Bill of Sale and not defined herein
shall have the respective meanings ascribed to them in the Asset Purchase
Agreement dated as of February ___, 1996 among the Seller and Buyer (the
"Purchase Agreement"). All schedules to the Purchase Agreement which are
referred to herein are incorporated herein by reference.
WHEREAS, pursuant to the Purchase Agreement, the Seller has agreed to sell,
assign, transfer, convey and deliver to the Buyer, and the Buyer has agreed to
purchase, the Purchased Assets.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Seller hereby agrees as
follows:
1. The Seller hereby sells, assigns, transfers, conveys, and delivers to
the Buyer, its successors and assigns, to have and to hold forever, the
Purchased Assets.
2. The Seller hereby covenants and agrees that it will, at the request of
the Buyer and without further consideration, execute and deliver, and will cause
its employees to execute and deliver, such other instruments of sale, transfer,
conveyance and assignment, and take such other action as may reasonably be
necessary to more effectively sell, transfer, convey, assign and deliver to, and
vest in, the Buyer, its successors and assigns, good, clear, record and
marketable title to the Purchased Assets hereby sold, transferred, conveyed,
assigned and delivered, or intended so to be, and to put the Buyer in actual
possession and operating control thereof, to assist the Buyer in exercising all
rights with respect thereto and to carry out the purpose and intent of the
Purchase Agreement.
3. The Seller does hereby irrevocably constitute and appoint the Buyer,
its successors and assigns, its true and lawful attorney, with full power of
substitution, in its name or otherwise, and on behalf of the Seller, or for its
own use, to claim, demand, collect and receive at any time and from time to time
any and all assets, properties, claims, accounts and other rights, tangible or
intangible, hereby sold, transferred, conveyed, assigned and delivered, or
intended so to be, and to prosecute the same at law or in equity and, upon
discharge thereof, to complete, execute and deliver any and all necessary
instruments of satisfaction and release.
4. This sale, transfer, conveyance and assignment has been executed and
delivered by the Seller in accordance with the Purchase Agreement and is
expressly made subject to (i) Permitted Encumbrances and (ii) those liabilities,
obligations and commitments
-38-
<PAGE>
which the Buyer has assumed and agreed to pay, perform and discharge pursuant to
a certain Instrument of Assumption of Liabilities executed by the Buyer of even
date herewith.
5. The Seller, by its execution of this Bill of Sale, and the Buyer, by
its acceptance of this Bill of Sale, each hereby acknowledges and agrees that
neither the representations and warranties nor the rights and remedies of any
party under the Purchase Agreement shall be deemed to be enlarged, modified or
altered in any way by this instrument.
IN WITNESS WHEREOF, the Seller and the Buyer have caused this instrument to
be duly executed under seal as of and on the date first above written.
SELLER:
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
By:_________________________________
ACCEPTED:
BUYER:
MEDALLION FINANCIAL CORP.
By:______________________________
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Exhibit C
---------
ESCROW AGREEMENT
----------------
ESCROW AGREEMENT, dated ________ ___, 1996, among Medallion Financial
Corp., a Delaware corporation ("MFC"), Edwards Capital Company, a New York
---
limited partnership ("Edwards"), and _________________________, as escrow agent
-------
(the "Escrow Agent").
------------
WHEREAS, MFC and Edwards are parties to an Asset Purchase Agreement, dated
as of February __, 1996 (the "Purchase Agreement"), pursuant to which MFC is
------------------
acquiring from Edwards substantially all of the assets of Edwards; and
WHEREAS, the Purchase Agreement provides for the payment and delivery by
MFC of money into the escrow hereby established, to be held and dealt with by
the Escrow Agent as herein provided;
NOW THEREFORE, the parties agree as follows:
The Purchase Agreement is by this reference incorporated herein and made a
part of this Agreement to the same extent as if its terms were fully set forth
herein. Terms defined in the Purchase Agreement shall have their defined
meanings when used herein unless the context otherwise requires.
1. Establishment of the Escrow Fund.
--------------------------------
1.1. Deposit of Escrow Fund. Simultaneously with the execution and
----------------------
delivery of this Agreement, in partial satisfaction of payment of the Purchase
Price under the Purchase Agreement, MFC is depositing with the Escrow Agent the
sum of One Million Five Hundred Thousand Dollars ($1,500,000) against which MFC
may make Claims (as defined below) in accordance with this Agreement. All such
deposits as from time to time invested and reinvested as herein provided, less
any distributions pursuant to Sections 4.3. and 5.3, shall be referred to herein
as the "Escrow Fund." The Escrow Agent will hold, invest and dispose of the
-----------
Escrow Fund, and any accretions thereto or income with respect thereto, in
accordance with the terms and conditions hereof.
1.2. Definition of Claims. Subject to Article IV below, MFC shall be
--------------------
entitled to make claims against the Escrow Fund in accordance with the terms
hereof based upon a claim under the post closing adjustment provisions of the
Purchase Agreement (Section 1.6), or the indemnification provisions of the
Purchase Agreement (Section 7.2) (all such claims being referred to herein as a
"Claim").
-----
1.3. Reduction in Deposit. Upon receipt of written notice from Edwards
--------------------
and MFC that the post closing adjustments under the Purchase Agreement (Section
1.6) have been made, or that no such adjustments are required, the Escrow Agent
shall promptly
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<PAGE>
distribute any amount in excess of One Million Dollars ($1,000,000) then in the
Escrow Fund to Edwards. Edwards and MFC agree to promptly give such notice upon
completion of the post closing adjustment procedures set forth in Section 1.6 of
the Purchase Agreement.
2. Investment of the Escrow Fund. All funds deposited in the Escrow Fund
-----------------------------
during the term of this Agreement shall be invested in U.S. Treasury Bills
having a maturity not later than the Distribution Date (as herein defined) or as
Edwards and MFC shall otherwise mutually direct, and pending such investment the
funds shall be held by the Escrow Agent in one or more segregated interest-
bearing bank accounts insured by the Federal Deposit Insurance Corporation.
3. Distribution of Income. Any income of the Escrow Fund, shall be
----------------------
accumulated and paid over by the Escrow Agent pro rata to Edwards and MFC (based
---------
on the respective portions of the Escrow Fund paid to Edwards and MFC) as soon
as practicable following the distribution of all of the Escrow Fund.
4. Procedure with Respect to Claims.
--------------------------------
4.1. Claims by MFC. If MFC has a Claim, then MFC shall give written
-------------
notice thereof (a "Claim Notice") to Edwards and the Escrow Agent.
------------
Notwithstanding any provision contained herein to the contrary, any and all
Claims against the Escrow Fund may only be made prior to the Distribution Date
(as defined below), and any Claim Notice delivered after the Distribution Date
shall not be valid and shall have no force or effect.
4.2. Edwards's Response to a Claim by MFC. Within 30 days after receipt
------------------------------------
of any Claim Notice (the "Specified Period") asserting a claim as set forth
------------------
under Section 4.1., Edwards shall, by written notice to MFC, with a copy to the
Escrow Agent, (a) concede liability in whole or in part; or (b) deny liability
in whole or in part. Failure by Edwards to reply within the Specified Period
shall be deemed an agreement that the amount specified in the Claim Notice is
properly payable to MFC.
4.3. Payment of Claims. The Escrow Agent shall make payment to MFC from
-----------------
the Escrow Fund (a) following any concession of liability, in whole or in part,
pursuant to Section 4.2 to the extent of the liability conceded; (b) following
receipt by the Escrow Agent of joint written instructions from MFC and Edwards
directing that such a payment be made to MFC; or (c) as directed by a final
order of a court of competent jurisdiction; provided, that such order is not
subject to further appeal or other appellate review.
4.4. Claims in Excess of the Escrow Fund. If at any time during the
-----------------------------------
period that this Agreement is in effect the amount of any payment required to be
made by the Escrow Agent to MFC pursuant to Section 4.3, exceeds the total
amount then held in the Escrow Fund, then the Escrow Agent, upon receiving
written instructions from the Seller and the Buyer, shall pay to MFC the entire
amount of such fund. Notwithstanding any such payment but subject to the terms
and conditions of the Purchase Agreement, the rights of
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<PAGE>
MFC under the Purchase Agreement shall not be satisfied or extinguished to the
extent any Claim is not satisfied by payment of the amounts described hereunder,
and MFC shall be entitled to recover the balance of any amounts owed to it
thereunder, subject to the conditions set forth in the Purchase Agreement.
5. Distributions to Edwards from the Escrow Fund.
---------------------------------------------
5.1. Distribution of the Escrow Fund to Edwards. Subject to the
------------------------------------------
provisions of this Section 5, on April 30, 1997 (the "Distribution Date"), the
-------------------
Escrow Agent shall distribute to Edwards an amount (such amount being referred
to herein as the "Distribution Amount") equal to the remaining principal amount
of the Escrow Fund, less all Claims made by MFC then pending against the Escrow
Fund. If any Claims by MFC are at such time pending against the Escrow Fund, the
balance of the Escrow Fund above the Distribution Amount, if any, shall be
distributed to Edwards promptly following such time as all Claims by MFC against
the Escrow Fund have been finally resolved.
5.2. Distribution Notice. The Escrow Agent shall give MFC and Edwards
-------------------
15 days prior written notice (the "Distribution Notice") of any pending
-------------------
distribution pursuant to Section 5.1. Within 12 days after receipt of such
notice, MFC shall, by notice to the Escrow Agent with a copy to Edwards (a
"Distribution Reply"), state (a) its agreement that the amount specified in the
- -------------------
Distribution Notice (or any lesser portion thereof) is properly distributable to
Edwards; or (b) that it disputes the amount is properly distributable to Edwards
and the reasons therefor which disputes shall relate only to claims which have
theretofore been made by MFC. Failure by MFC to give a Distribution Reply
within the specified period shall be deemed an agreement that the amount
specified in the Distribution Notice is properly distributable to Edwards.
5.3. Payment of Distributions. If MFC gives notice of any dispute
------------------------
pursuant to Section 5.2 relating to the Distribution Notice, the parties shall
attempt to resolve such dispute as promptly as possible. The Escrow Agent shall
make distributions of the Escrow Fund pursuant to this Section 5 to Edwards (a)
promptly following agreement by MFC pursuant to Section 5.2 to such
distribution; (b) promptly following receipt by the Escrow Agent of joint
written instructions from MFC and Edwards directing that such a payment be made
to Edwards; or (c) as directed by a final order of a court of competent
jurisdiction; provided, that such order is not subject to further appeal or
other appellate review.
6. Termination. This Agreement shall terminate upon the distribution of
-----------
all of the Escrow Fund and all other sums held by the Escrow Agent pursuant to
this Agreement.
7. Duties of the Escrow Agent.
--------------------------
7.1. Reliance. The Escrow Agent may rely upon, and shall be protected
--------
in acting or refraining from acting upon, any written notice, instruction or
request furnished to
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<PAGE>
it hereunder and believed by it to be genuine and to have been signed or
presented by the proper party or parties.
7.2. Good Faith. MFC and Edwards shall indemnify the Escrow Agent and
----------
hold it harmless against any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection with this
Agreement, including the costs and expenses incurred in defending any such claim
of liability. The Escrow Agent may consult with its own counsel, and shall have
full and complete authorization and protection for any action taken or suffered
in good faith and in accordance with the opinion of such counsel.
8. Resignation and Termination of the Escrow Agent.
-----------------------------------------------
8.1. Resignation. The Escrow Agent may resign at any time by giving 30
-----------
days' notice of such resignation to MFC and Edwards. Thereafter, the Escrow
Agent shall have no further obligation thereunder except to hold the Escrow Fund
as depository. In such event the Escrow Agent shall not take any action until
MFC and Edwards have designated a banking corporation, trust company, attorney
or other person as successor Escrow Agent. Upon receipt of such instructions,
the Escrow Agent shall promptly deliver the Escrow Fund to such successor Escrow
Agent and shall thereafter have no further obligations hereunder.
8.2. Termination. MFC and Edwards together may terminate the
-----------
appointment of the Escrow Agent hereunder upon notice specifying the date upon
which such termination shall have effect. In the event of such termination,
MFC and Edwards shall within 30 days of such notice jointly appoint a successor
Escrow Agent and the original Escrow Agent shall turn over to such successor
Escrow Agent all funds in the Escrow Fund and any other amounts held by it
pursuant to this Agreement. Upon receipt of the funds and other amounts and
execution and delivery of a counterpart hereof, the successor Escrow Agent
shall thereupon be bound by all of the provisions hereof.
9. Fees and Expenses of Escrow Agent. MFC shall pay, when due, all of the
---------------------------------
Escrow Agents fees for the Escrow Agent's services hereunder, and all expenses,
disbursements and advances (including reasonable attorneys' fees) incurred in
carrying out the Escrow Agent's duties hereunder.
10. Miscellaneous.
-------------
10.1. Notices. Any notice or other communication required or which may
-------
be given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid, and shall be deemed given when so
delivered personally, telegraphed, telexed, or sent by facsimile transmission
or, if mailed, four days after the date of mailing, addressed to MFC and Edwards
at their respective addresses set forth in the Purchase Agreement, and if to the
Escrow Agent, as follows:
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<PAGE>
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notice.
10.2. Entire Agreement. This Agreement has been executed and delivered
----------------
pursuant to the Purchase Agreement and as such contains the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
10.3. Waivers and Amendments. This Agreement may be amended, modified,
----------------------
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived only by a written instrument signed by the parties or, in the case
of a waiver, the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
10.4. Governing Law. This Agreement shall be governed by and construed,
-------------
interpreted and enforced in accordance with the laws of the State of New York.
10.5. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties and their respective successors and legal
representatives. This Agreement is not assignable except by operation of law.
10.6. Further Assurances. Each of the parties shall execute such
------------------
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby.
10.7. Counterparts. This Agreement 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.
10.8. Headings. The headings in this Agreement are for reference
--------
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
MEDALLION FINANCIAL CORP.
By:_____________________________
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
By: ____________________________
[ ], as
Escrow Agent
By:_____________________________
Title:
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<PAGE>
Exhibit D
---------
NON-COMPETITION AGREEMENT
-------------------------
This Agreement dated _________ ___, 1996 is by and between Medallion
Financial Corp., a Delaware corporation ("MFC"), and
______________________________________ (the "Covenantor").
This Agreement is entered into pursuant to an Asset Purchase Agreement
dated February __, 1996 (the "Purchase Agreement") among MFC and Edwards Capital
Company, a New York limited partnership ("Edwards"), pursuant to which MFC is
purchasing from Edwards substantially all of the assets of Edwards. The parties
desire to assure to MFC the benefits of the assets purchased by MFC pursuant to
the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, the parties agree as follows:
1. Covenant Not to Compete. Subject to the last paragraph of this
-----------------------
section, commencing as of the Closing Date (as defined in the Purchase
Agreement) and continuing for a period of three years thereafter, the Covenantor
will not, directly or indirectly, whether on its own account or as a
shareholder, partner, joint venturer, director, officer, employee, consultant,
advisor, and/or agent of any other person or entity:
(a) own, manage, operate, control, finance, promote, or engage in any
business involving the financing of taxicabs or taxicab
medallions or the making of loans secured by taxicab medallions
("Medallion Lending") in any geographic market in which MFC or
its affiliates is or then proposes to be engaged;
(b) solicit the employment of or hire or attempt to hire any person
who was employed by Edwards within 90 days prior to the date
hereof, or encourage or attempt to induce any such employee to
terminate his or her employment with MFC or its affiliates for
any reason; or
(c) call upon or solicit any Medallion Lending customer of MFC or its
affiliates who was a Medallion Lending customer of Edwards within
12 months prior to the date hereof with a view to doing Medallion
Lending business in any geographic market of MFC or its
affiliates.
[The covenant set forth above in this Section 1 shall not be violated by
and shall not prevent the Covenantor from (i) owning less than one percent (1%)
of the capital stock of any publicly-traded company or (ii) being affiliated as
a shareholder or director with New York Federal Savings Bank (the "Bank") and
acting in such capacity, regardless of whether
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<PAGE>
or not the Bank engages in Medallion Lending, and nothing herein shall in any
way restrict or bind the Bank. Covenantor represents that, to the best of his
knowledge, the Bank is not now engaged in and has no plans to engage in the
Medallion Lending business.]*
2. Confidentiality. Covenantor agrees to keep confidential and not use
---------------
or disclose to others, including the Bank, any confidential information of
Edwards relating to the business and assets of Edwards purchased by MFC,
including without limitation customer lists.
3. Remedies. The parties agree that in the event of any breach of any
--------
provision of this Agreement, the damage to MFC will be substantial, although
difficult to ascertain, and there can be no adequate remedy at law for such
breach, and therefore, upon any such breach or any threat thereof, MFC shall be
entitled, in addition to all other rights and remedies it may have at law, to
specific performance, injunctive and other equitable relief. MFC shall be
entitled to full indemnification from Covenantor for any such breach, including,
without limitation, attorneys' fees and costs of suit.
4. Severability. Covenantor acknowledges and agrees that the foregoing
------------
agreements of Covenantor are reasonable in duration and scope and geographic
area and are reasonably necessary for the protection of MFC's interests under
the Purchase Agreement. The parties agree and intend that the foregoing
agreements shall be deemed to be a series of separate covenants and agreements,
one for each and every county or other political subdivision of each State of
the United States and each and every political subdivision of each and every
country outside the United States where the foregoing agreements are intended to
be effective. In the event that in any judicial proceeding any court determines
that the duration or scope or geographic area of any of the foregoing agreements
are unreasonable and to that extent unenforceable, the parties intend and agree
that the foregoing agreements shall remain in full force and effect for the
greatest time period, the greatest scope and the greatest geographic area that
would not render them unenforceable.
5. Successors & Assigns. This Agreement shall be binding upon and inure
--------------------
to the benefit of the parties hereto and their respective successors and
assigns.
6. Governing Law. This Agreement shall be governed by, and construed,
-------------
interpreted and enforced in accordance with, the laws of the State of New York.
7. Counterparts. This Agreement may be executed by the parties hereto
------------
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
- ----------------
* Applicable to Edward M. Abramson.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
MEDALLION FINANCIAL CORP.
By:______________________________
COVENANTOR:
______________________________
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<PAGE>
Exhibit E
---------
Form of Herrick, Feinstein Opinion
_________ , 1996
Medallion Financial Corporation
205 East 42nd Street
New York, NY 10017
Ladies and Gentlemen:
We have acted as counsel for Edwards Capital Company (the "Seller") a New
------
York limited partnership, in connection with the Asset Purchase Agreement dated
as of February ___, 1996 (the "Agreement") between the Seller and Medallion
---------
Financial Corp. (the "Purchaser"), a Delaware corporation, providing for the
---------
purchase by the Purchaser of substantially all of the assets of the Seller and
the assumption by the Purchaser of certain of the liabilities of the Seller.
This opinion is furnished to you pursuant to Section 5.2 of the Agreement.
Terms used in this opinion that are defined in the Agreement are used herein as
so defined.
We have examined such documents, records and matters of law and made such
other investigation as we have deemed necessary for purposes of this opinion,
including inquiry of such lawyers in our firm and review of such documents in
our possession which relate to the transactions contemplated by the Agreement as
we have considered appropriate, but we have not made inquiry of all lawyers in
our firm or undertaken a complete review of materials in our files. As to
questions of fact material to our opinion, we have relied, without independent
investigation, upon the representations and warranties made in or pursuant to
the Agreement and upon certificates of officers of the Seller and of its general
partner, Harvard Servicing Corp. (the "General Partner"), a New York
---------------
corporation. We have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the original of all documents submitted to us as
copies. We have further assumed, without independent investigation but with
your permission, that: (i) the Purchaser is duly organized, validly existing,
in good
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<PAGE>
Medallion Financial Corporation
__________, 1996
Page 2
standing under the laws of the State of Delaware and has the full corporate
power to enter into the Agreement and to all other agreements and documents
executed and delivered by the Purchaser in connection with the Agreement; (ii)
the execution and delivery of the Agreement and all other documents and
instruments executed and delivered by the Purchaser in connection with the
Agreement have been duly authorized by all necessary corporate actions and
proceedings on the part of the Purchaser; and (iii) the Agreement and all other
documents and instruments executed by the Purchaser in connection with the
Agreement have been duly executed and delivered by the Purchaser and constitute
the valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with their respective terms.
In rendering this opinion, we are acting solely in our capacity as counsel
to the Seller. Any references in this opinion to matters "with which we are
familiar," or that are "known to us" or statements made "to our knowledge" or
any similar qualification relating to our knowledge refer only to the actual
present knowledge of attorneys of our firm who have been involved as such in
rendering this opinion or otherwise engaged in representing the Seller.
Based on the foregoing, but subject to the assumptions and qualifications
set forth herein, we are of the opinion that:
1. The Seller is validly existing and in good standing as a limited
partnership under the laws of the State of New York with full power and
authority to own, lease and operate its assets and to carry on its business as
now being conducted, and to execute and deliver the Agreement and to perform its
obligations thereunder.
2. The General Partner is validly existing and in good standing as a
corporation under the laws of the State of New York with full corporate power
and authority to act as general partner of the Seller.
3. The execution and delivery by the Seller of the Agreement and the
performance by the Seller of its obligations thereunder have been duly
authorized by all necessary action on the part of the Seller and by all
necessary corporate action on the part of the General Partner. The Agreement
has been duly executed and delivered by the Seller and assuming the receipt of
all required consents and approvals set forth in the Agreement or the Schedules
thereto, the Agreement constitutes (assuming due authorization, execution and
delivery thereof by the Purchaser) the valid and binding obligation of the
Seller, enforceable against the Seller in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws of general application affecting the
rights and remedies of creditors, or general principles of equity.
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<PAGE>
Medallion Financial Corporation
__________, 1996
Page 3
4. Assuming the receipt of all required consents and approvals set forth
in the Agreement or the Schedules thereto have been obtained, the execution and
delivery by the Seller of the Agreement and the performance by it of its
obligations thereunder will not violate or contravene any provision of the
Seller's Certificate of Limited Partnership and Agreement of Limited Partnership
or of the articles of incorporation or by-laws of the General Partner or, to our
knowledge, violate, conflict with or result in a breach of any agreement to
which the Seller or the General Partner is, to our knowledge, a party or to
which either of them or their assets are bound or subject.
5. To our knowledge, assuming the receipt of all required consents and
approvals set forth in the Agreement or the Schedules thereto have been
obtained, no approval or consent of, or registration or filing with, any
governmental or regulatory body is required to be obtained or made by the Seller
or the General Partner, to our knowledge, in connection with the execution,
delivery and performance by the Seller of the Agreement other than those which
have been obtained or made.
6. To our knowledge without investigation, there are no actions or
proceedings pending or threatened against or involving the Seller or the General
Partner or any of their assets seeking to restrain, modify or prevent the
carrying out of the transactions contemplated by the Agreement.
7. Upon consummation of the transactions contemplated by the Agreement in
accordance with its terms including, without limitation, payment of the Purchase
Price to the Seller, the Purchaser will have acquired all of the Seller's right,
title and interest in and to the Purchased Assets contemplated to be acquired by
the Purchaser under the Agreement.
We have advised you that partners of this law firm or the principals of
professional corporations which are partners of this firm, as well as family
members and affiliates thereof, are limited partners and shareholders of the
corporate general partner of the Seller.
We are members of the Bar of the State of New York and do not express any
opinion as to matters governed by any laws other than the internal laws of the
State of New York and the federal laws of the United States. As to matters
which relate to laws of any other state or jurisdiction, we have assumed, with
your permission, that to the extent any other state's or jurisdiction's laws are
involved, such laws are the same as the law of the State of New York. We
express no opinion as to the effect of any future amendments, changes, additions
or modifications of any laws, and we assume no obligation to update or
supplement this letter to reflect any facts or circumstances which may come to
our attention in the future or any change in law which may occur in the future.
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<PAGE>
Medallion Financial Corporation
__________, 1996
Page 4
The foregoing opinions are limited to the matter stated in this letter and
no opinion shall be implied or inferred beyond the matters expressly stated.
These opinions (i) are rendered solely for your benefit, (ii) may not be relied
on by any other person or entity, (iii) may not be used or distributed to any
other person or entity, (iv) may not be reproduced, or referred to or quoted in
any financial statements, notes to financial statements, offering materials,
disclosure materials or similar printed matter, and (v) may not be used in
connection with any further or subsequent transactions involving the Purchaser
without our prior written consent.
Very truly yours,
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<PAGE>
AMENDMENT NUMBER 1
TO
AGREEMENT OF MERGER
This Amendment Number 1 to Agreement of Merger is entered into this 22nd
day of February, 1996 by and between Medallion Financial Corp. ("MFC"), a
Delaware corporation, and Tri-Magna Corporation ("TMC"), a Delaware corporation.
Reference is hereby made to the Agreement of Merger dated December 21, 1995
between MFC and TMC (the "Merger Agreement"), pursuant to which TMC shall be
merged with and into MFC. Capitalized terms used in this Amendment that are not
defined herein shall have the same meanings as contained in the Merger
Agreement.
MFC and TMC desire to amend the Merger Agreement in order to extend certain
times for performance set forth in Section 7.1 of the Merger Agreement.
Accordingly, in consideration of the mutual promises and covenants contained in
the Agreement, as amended hereby, MFC and TMC hereby agree as follows:
1. The date "January 31, 1996" in subparagraph (d)(i) of Section 7.1 is
hereby deleted and replaced with "February 29, 1996".
2. The date "March 31, 1996" in subparagraph (g) of Section 7.1 is hereby
deleted and replaced with "the earlier of May 31, 1996 and sixty (60)
days after the notice of meeting of stockholders of TMC to approve the
Merger as contemplated by Section 4.6 is first sent or given to the
TMC stockholders".
Entire Agreement. The Merger Agreement, as amended hereby, remains in full
----------------
force and effect and embodies the entire agreement and understanding between the
parties thereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter.
Counterparts. This Amendment may be executed simultaneously in any
------------
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal as of the day and year first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
----------------------
TRI-MAGNA CORPORATION
By: /s/ Maric Russo
----------------------
<PAGE>
================================================================================
AGREEMENT OF MERGER
between
MEDALLION FINANCIAL CORP.
and
TRI-MAGNA CORPORATION
_____________________________
Dated as of December 21, 1995
_____________________________
================================================================================
<PAGE>
Table of Contents
SECTION 1 - THE MERGER....................................... 1
1.1 The Merger................................... 1
1.2 Effective Time............................... 1
1.3 Effects of the Merger........................ 2
1.4 Certificate of Incorporation and Bylaws...... 2
1.5 Directors and Officers....................... 2
1.6 Conversion of Stock.......................... 2
1.7 Closing of TMC Transfer Books................ 2
1.8 Dissenting Shares............................ 2
1.9 Exchange of TMC Stock........................ 3
(a) MFC to Make Merger Consideration
Available............................... 3
(b) Exchange Procedures...................... 3
1.10 No Stockholder Liabilities................... 4
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TMC............ 4
2.1 Organization and Qualification............... 4
2.2 Subsidiaries and Other Affiliates............ 4
2.3 Capitalization............................... 4
2.4 Authority to Execute and Perform Agreements.. 5
2.5 Financial Statements......................... 5
2.6 No Material Adverse Change................... 5
2.7 Consents; No Breach.......................... 6
2.8 Actions and Proceedings...................... 6
2.9 Certain Transactions......................... 6
2.10 Brokerage.................................... 6
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC............ 7
3.1 Organization................................. 7
3.2 Authority to Execute and Perform Agreement... 7
3.3 Consents; No Breach.......................... 7
3.4 Actions and Proceedings...................... 7
3.5 Brokerage.................................... 7
SECTION 4 - COVENANTS AND AGREEMENTS......................... 8
4.1 Conduct of Business.......................... 8
4.2 Corporate Examinations and Investigations.... 10
4.3 Consummation of Agreement.................... 10
4.4 Further Assurances........................... 10
4.5 No Publicity/Confidentiality................. 11
4.6 Stockholder Approval......................... 11
4.7 Exclusive Dealing............................ 12
4.8 Filings Under HSR Act........................ 13
4.9 Other Acquisitions........................... 13
(i)
<PAGE>
4.10 Indemnification and D&O Insurance............ 13
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE................................. 13
5.1 Representations, Warranties and Covenants.... 13
5.2 Opinion of Counsel to TMC.................... 14
5.3 Consents, Permits, and Approvals............. 14
5.4 Approval by TMC Stockholders................. 14
5.5 Other Acquisitions........................... 14
5.6 Financing.................................... 14
5.7 1940 Act; SBA................................ 14
5.8 Adverse Proceedings.......................... 14
5.9 Certificates................................. 14
5.10 Dissenting Shares............................ 14
5.11 Approval of Documentation.................... 14
SECTION 6 - CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF TMC.................................... 15
6.1 Representations, Warranties and Covenants.... 15
6.2 Opinion of Counsel to MFC.................... 15
6.3 Fairness Opinion............................. 15
6.4 Approval by TMC Stockholders................. 15
6.5 Adverse Proceedings.......................... 15
6.6 Certificates................................. 15
6.7 Approval of Documentation.................... 15
SECTION 7 - TERMINATION OF AGREEMENT......................... 16
7.1 Termination.................................. 16
7.2 Effect of Termination........................ 16
SECTION 8 - MISCELLANEOUS.................................... 17
8.1 Notices...................................... 17
8.2 Entire Agreement............................. 18
8.3 Expenses..................................... 18
8.4 Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies........... 19
8.5 Investigation; No Survival................... 19
8.6 Governing Law................................ 19
8.7 Binding Effect; No Assignment................ 19
8.8 Variations in Pronouns....................... 20
8.9 Counterparts................................. 20
8.10 Exhibits and Disclosure Schedule............. 20
8.11 Headings..................................... 20
(ii)
<PAGE>
EXHIBITS
A - Opinion of Counsel to TMC
B - Opinion of Counsel to MFC
SCHEDULES
Disclosure Schedule
Schedule A
Schedule B
Schedule C
(iii)
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER dated as of December 21, 1995 is between Medallion
Financial Corp. ("MFC"), a Delaware corporation, and Tri-Magna Corporation
("TMC"), a Delaware corporation.
WITNESSETH
WHEREAS, TMC is a closed-end, management investment company, registered
under the Investment Company Act of 1940 (the "Act"), and owns all the
outstanding common stock of Medallion Funding Corp. ("Medallion Funding"), a New
York corporation licensed as a Specialized Small Business Investment Company (an
"SSBIC") and registered as a closed-end investment company under the Act, and
Medallion Taxi Media, Inc., a New York corporation providing taxicab rooftop
advertising (collectively, the "Subsidiaries").
WHEREAS, MFC is a private company organized by certain directors and
officers of TMC to be a diversified, closed-end, management investment company,
which desires to acquire TMC as part of a plan involving the acquisition by MFC
of other companies and a public offering of the common stock of MFC to fund each
such acquisition, and TMC desires to be so acquired;
WHEREAS, the acquisition will take the form of a merger of TMC with and into
MFC on the terms and subject to the conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein, the parties hereto
agree as follows:
SECTION 1 - THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and
----------
in accordance with the Delaware General Corporation Law (the "DGCL"), TMC shall
be merged with and into MFC (the "Merger"). The Merger shall occur at the
Effective Time (as defined herein). Following the Merger, MFC shall continue as
the surviving corporation (the "Surviving Corporation"), and the separate
corporate existence of TMC shall cease.
1.2 Effective Time. As soon as practicable after satisfaction or waiver
--------------
of all conditions to the Merger, the parties shall cause a certificate of merger
(the "Certificate of Merger") to be filed and recorded in accordance with
Section 251 of the DGCL and shall take all such further actions as may be
required by law to make the Merger effective. The Merger shall be effective at
such time as the Certificate of Merger is filed with the Secretary of State of
Delaware in accordance with the DGCL or at such later time as is specified in
the Certificate of Merger (the "Effective Time"). Immediately prior to the
filing of the Certificate of Merger, a closing (the "Closing") will be held at
the offices of Palmer & Dodge, One Beacon Street, Boston, Massachusetts (or such
other place as the parties may agree) for the purpose of confirming satisfaction
or waiver of all conditions to the Merger.
<PAGE>
The Closing shall take place within five business days after the satisfaction or
waiver of all conditions to the Merger (other than those to be performed at the
Closing).
1.3 Effects of the Merger. The Merger shall have the effects set forth in
---------------------
Sections 259, 260 and 261 of the DGCL.
1.4 Certificate of Incorporation and Bylaws. The Certificate of
---------------------------------------
Incorporation and By-laws of MFC, in each case as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation immediately after the Effective Time.
1.5 Directors and Officers. The directors and officers of MFC immediately
----------------------
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation immediately after the Effective Time, each to hold office in
accordance with their respective terms.
1.6 Conversion of Stock.
-------------------
(a) At the Effective Time, by virtue of the Merger and without any action on
the part of MFC or TMC.
(i) Each share of common stock, $.01 par value, of TMC ("TMC Stock")
outstanding immediately prior to the Effective Time, other than (A) shares held
by TMC as treasury stock or shares held by any subsidiary of TMC and (B)
Dissenting Shares (as defined in Section 1.8), shall be converted into and
become the right to receive $20.00 in cash (the "Merger Consideration").
(ii) Each share of common stock, $.01 par value, of MFC ("MFC Stock")
outstanding immediately prior to the Effective Time shall remain outstanding as
common stock of the Surviving Corporation.
1.7 Closing of TMC Transfer Books. At the Effective Time, the stock
-----------------------------
transfer books of TMC shall be closed and no transfer of TMC Stock shall
thereafter be made. If, after the Effective Time, certificates representing
shares of TMC Stock are presented to the Surviving Corporation, they shall be
cancelled and exchanged for the Merger Consideration.
1.8 Dissenting Shares.
-----------------
(a) Shares of TMC Stock held by a stockholder who has properly exercised
dissenter's rights with respect thereto in accordance with Section 262 of the
DGCL (collectively, the "Dissenting Shares") shall not be converted into Merger
Consideration. From and after the Effective Time, a stockholder who has
properly exercised such dissenter's rights shall no longer retain any rights of
a stockholder of TMC or the Surviving Corporation, except those provided under
the DGCL.
(b) TMC shall give MFC (i) prompt notice of any written demands under
Section 262 of the DGCL with respect to any shares of TMC Stock, any withdrawal
of any such
-2-
<PAGE>
demands and any other instruments served pursuant to the DGCL and received by
TMC and (ii) the right to participate in all negotiations and proceedings with
respect to any demands under Section 262 with respect to any shares of TMC
Stock. TMC shall cooperate with MFC concerning, and shall not, except with the
prior written consent of MFC, voluntarily make any payment with respect to, or
offer to settle or settle, any such demands.
1.9 Exchange of TMC Stock. To effect the exchange of TMC Stock for the
---------------------
Merger Consideration:
(a) MFC to Make Merger Consideration Available. At or prior to the Closing,
------------------------------------------
MFC shall deposit, or shall cause to be deposited, with a bank or trust company
selected by MFC (and reasonably acceptable to TMC) (the "Exchange Agent"), for
the benefit of the holders of certificates of TMC Stock (the "Certificates"),
for exchange in accordance with this Section 1.9, cash which constitutes the
Merger Consideration (such cash being hereinafter referred to as the "Exchange
Fund") to be paid pursuant to this Agreement in exchange for outstanding shares
of TMC Stock. The Exchange Fund may be invested for the benefit of MFC only in
short-term securities with maturities adequate to make payments upon surrender
of the Certificates in the form of "sweep" funds of the Exchange Act, U.S.
Government obligations or repurchase agreements secured by U.S. Government
obligations.
(b) Exchange Procedures.
-------------------
(i) As soon as practicable after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each holder of record of a
Certificate or Certificates at the Effective Time a form letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent) containing instructions for use in effecting the surrender of
the Certificates. TMC shall have the right to approve the form of the letter of
transmittal, which approval shall not unreasonably be withheld.
(ii) Upon surrender of a Certificate for exchange and cancellation to
the Exchange Act, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a check representing the amount of cash
which such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of this Agreement and the Certificate so
surrendered shall forthwith be cancelled. No interest will be paid or accrued
on the cash payable to holders of Certificates.
(iii) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of TMC for 180 days after the Closing Date shall be paid to the
Surviving Corporation. Any stockholders of TMC who have not theretofore
complied with this Section 1.9 shall thereafter look only to the Surviving
Corporation for payment of their cash in respect of each share of TMC Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding the foregoing, none of MFC, TMC,
the Surviving Corporation, the Exchange Agent nor any other person shall be
liable to any former holder of shares of TMC Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
-3-
<PAGE>
(iv) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate, the cash deliverable
in respect thereof pursuant to this Agreement.
1.10 No Stockholder Liabilities. The transactions contemplated under this
--------------------------
Agreement will be without recourse to the stockholders of TMC, and upon
consummation of the Merger, the TMC's stockholders will have no obligation or
liabilities of any kind to MFC with respect to this Agreement or the Merger.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TMC
Except as set forth on the disclosure schedule delivered to MFC on the date
hereof (the "Disclosure Schedule"), the section numbers of which are numbered to
correspond to the section numbers of this Agreement to which they refer, TMC
represents and warrants to MFC as set forth below:
2.1 Organization and Qualification. Each of TMC and the Subsidiaries is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has full corporate power and lawful
authority to own, lease and operate its assets, properties and business and to
carry on its business as now being and as heretofore conducted. Each of TMC and
the Subsidiaries is qualified or is otherwise authorized to transact business as
a foreign corporation in each jurisdiction (in the United States and outside of
the United States) in which such qualification or authorization is required by
law, all of which jurisdictions are identified on the Disclosure Schedule.
2.2 Subsidiaries and Other Affiliates. Except for the Subsidiaries, TMC
---------------------------------
does not have any subsidiary or directly or indirectly own or have any
investment in any of the capital stock of, or any other interest in, and is not
a party to a partnership or joint venture with, any other person or entity.
Section 2.2 of the Disclosure Schedule correctly sets forth the authorized
capital stock of each Subsidiary, the number of shares outstanding and the
number of shares held by TMC and by the U.S. Small Business Administration (the
"SBA"). All the shares of capital stock or other ownership interest of a
Subsidiary that are owned by TMC are owned free and clear of any liens, claims,
charges, restrictions or other encumbrances ("Encumbrances"). There is no
agreement to which TMC or any Subsidiary is subject with respect to the
issuance, sale, or voting of issued or unissued shares of the capital stock of
such Subsidiary.
2.3 Capitalization. TMC's authorized capital stock consists of 1,000,000
--------------
shares of common stock, $.01 par value, of which 668,900 shares have been issued
and are outstanding as of the date hereof. All the issued and outstanding
shares of the TMC Stock and the capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable, free of any
preemptive right, and with no personal liability
-4-
<PAGE>
attaching to the ownership thereof. There are no options, warrants, calls,
preemptive rights or commitments of any character relating to the authorized but
unissued capital stock or treasury stock or any other equity security of TMC or
any Subsidiary or any securities or obligations convertible into or exchangeable
for or giving any person any right to subscribe for or acquire from TMC or any
Subsidiary any shares of the capital stock of TMC or any Subsidiary, nor are
there any stock appreciation rights, limited rights or other similar rights or
obligations of TMC or any Subsidiary exercisable upon any circumstance,
including upon a change in control of TMC or any Subsidiary.
2.4 Authority to Execute and Perform Agreements. TMC has the full legal
-------------------------------------------
right and power and, subject to the approval of the Merger by the stockholders
of TMC and to the receipt of all Required Approvals (as defined in Section 2.7)
all authority and approvals required to enter into, execute and deliver this
Agreement and each agreement, document and instrument contemplated by this
Agreement, to consummate the transactions contemplated hereby and thereby and to
perform fully its obligations hereunder and thereunder. The execution, delivery
and performance of this Agreement and each such other agreement, document and
instrument and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of TMC and by a
special committee of such Board consisting of directors unaffiliated with MFC
(the "Special Committee") and, except for the approval of the TMC stockholders,
no other corporate proceedings are necessary to consummate the Merger. The
Special Committee has received the opinion, dated within five business days
prior to the date of the Board of Director's and Special Committee's
authorization, of Gruntal & Co., Incorporated to the effect that the Merger is
fair to the holders of TMC Stock from a financial point of view, and such
opinion (a copy of which has been delivered to MFC) has not been withdrawn,
revoked or modified. This Agreement and each agreement, document and instrument
executed and delivered pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of TMC, enforceable
in accordance with their terms.
2.5 Financial Statements. TMC has previously delivered to MFC the audited
--------------------
consolidated financial statements of TMC at and for the fiscal year ended March
31, 1995 (the "Audited Financial Statements") and the unaudited consolidated
balance sheet of TMC and related statements of operations and cash flows at and
for the six month period ended September 30, 1995 (the "Current Financial
Statements'). Prior to the Closing, pursuant to Section 4.1.1, TMC will deliver
to MFC the unaudited consolidated balance sheet of TMC and related statements of
operations and cash flow at and for the period ended on a date not more than
thirty days prior to the Closing Date (the "Updated Financial Statements"). All
of the foregoing are referred to collectively as the "TMC Financial Statements".
The TMC Financial Statements have been (or will be) prepared in accordance with
generally accepted accounting principles applied consistently with past
practices and present (or will present) fairly the consolidated financial
position and results of operation of TMC as of the date and for the period
indicated.
2.6 No Material Adverse Change. Since September 30, 1995, there has not
--------------------------
been any material adverse change in the assets, liabilities, condition
(financial or otherwise), results of operation, business or prospects of TMC or
any of the Subsidiaries or any
-5-
<PAGE>
occurrence or circumstance which reasonably could be expected to result in such
a material adverse change.
2.7 Consents; No Breach. The execution, delivery and performance of
-------------------
this Agreement and the consummation of the transactions contemplated hereby will
not (i) violate any provision of the Certificate of Incorporation or By-laws of
TMC or any Subsidiary; (ii) violate, conflict with or result in the breach of
any of the terms or conditions of, result in modification of the effect of, or
otherwise give any other contracting party the right to terminate, or constitute
(or with notice or lapse of time or both constitute) a default under, any
instrument, contract or other agreement to which TMC or any Subsidiary is a
party or to which TMC or any Subsidiary or any of its assets or properties is
bound or subject; (iii) violate any statute, law or regulation of any
jurisdiction or any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body applicable to or binding upon TMC
or any Subsidiary or its securities, properties, assets or business; (iv)
violate any license, permit or approval of any governmental or regulatory body,
including without limitation the SBA; (v) require any filing with, notice to, or
approval or consent of any foreign, federal, state, local or other governmental
or regulatory body or any other person or entity other than those set forth on
Section 2.7 of the Disclosure Schedule (the "Required Approvals"); (vi) result
in the creation of any Encumbrance on the assets or properties of TMC or any
Subsidiary; or (vii) give rise to any obligation to make any payment or give
rise to any other obligation to the SBA under agreements or arrangements
pertaining to the shares of Medallion Funding's Preferred Stock held by the SBA.
2.8 Actions and Proceedings. There are no outstanding orders, judgments,
-----------------------
injunctions, awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against or involving TMC or any Subsidiary or any of its
securities, assets, or properties and no actions, suits or claims or legal,
judicial, administrative or arbitral proceedings or, to the best knowledge of
TMC, investigations (whether or not the defense thereof or liabilities in
respect thereof are covered by insurance) pending or, to the best knowledge of
TMC, threatened, against or involving TMC or any Subsidiary challenging the
validity or propriety of any of the transactions contemplated by this Agreement.
2.9 Certain Transactions. TMC acknowledges that it has been informed that
--------------------
(i) Alvin Murstein, an officer, director and stockholder of Tri-Magna, and
Andrew Murstein, an employee and stockholder of Tri-Magna, are affiliates of MFC
and (ii) upon the Closing, Myron Cohen, Robert Fanger and Michael Miller, who
are officers, directors and stockholders of TMC, may, directly or through an
entity owned by them, enter into an advisory agreement with MFC, pursuant to
which they or their entity may receive payments from MFC of $900,000, payable in
cash, or such other amounts as MFC and such persons, may agree.
2.10 Brokerage. No broker, finder, agent or similar intermediary has acted
---------
on behalf of TMC in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with, or any action taken by TMC or any
Subsidiary.
-6-
<PAGE>
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC
MFC represents and warrants to TMC as follows:
3.1 Organization. MFC is a corporation duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its assets and to carry on its
business as now being and as heretofore conducted.
3.2 Authority to Execute and Perform Agreement. MFC has the corporate
------------------------------------------
power and authority required to enter into, execute and deliver this Agreement
and each agreement, document and instrument delivered by MFC pursuant to this
Agreement and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement and each such other agreement, document
and instrument and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of MFC. This Agreement and each agreement, document and instrument executed and
delivered pursuant to this Agreement constitutes, or when executed and delivered
will constitute, valid and binding obligations of MFC, enforceable in accordance
with their terms.
3.3 Consents; No Breach. All consents, permits, authorizations and
-------------------
approvals from any person or entity that are required pursuant to applicable
law, or agreement or otherwise in connection with the execution, delivery and
performance of this Agreement by MFC have been, or will be prior to the Closing,
obtained. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) violate any
provision of the Certificate of Incorporation or By-laws of MFC; (ii) violate,
conflict with or result in the breach of any of the terms or conditions of,
result in modification of the effect of, or otherwise give any other contracting
party the right to terminate, or constitute (or with notice or lapse of time or
both constitute) a default under, any instrument, contract or other agreement to
which MFC is a party or to which MFC or any of its assets or properties is bound
or subject; or (iii) violate any statute, law or regulation of any jurisdiction
or any order, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body applicable to or binding upon MFC or its
securities, properties, assets or business.
3.4 Actions and Proceedings. There are no outstanding orders, judgments,
-----------------------
injunctions, awards or decrees of any court, governmental or regulatory body or
arbitration tribunal, against or involving MFC and no actions, suits or claims
or legal, judicial, administrative or arbitral proceedings or, to the best
knowledge of MFC, investigations (whether or not the defense thereof or
liabilities in respect thereof are covered by insurance) pending or, to the best
knowledge of MFC, threatened, against or involving MFC challenging the validity
or propriety of any of the transactions contemplated by this Agreement.
3.5 Brokerage. No broker, finder, agent or similar intermediary has acted
---------
on behalf of MFC in connection with this Agreement or the transactions
contemplated hereby,
-7-
<PAGE>
and there are no brokerage commissions, finders' fees or similar fees or
commissions payable in connection therewith based on any agreement, arrangement
or understanding with or any action taken by MFC.
SECTION 4 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
4.1 Conduct of Business. Except with the prior written consent of MFC or
-------------------
as otherwise contemplated herein, during the period from the date hereof to the
Closing Date, TMC shall observe the following covenants:
4.1.1 Affirmative Covenants Pending Closing. TMC will and, to the
-------------------------------------
extent applicable, will cause each Subsidiary to:
(i) Preservation of Personnel. Use its best efforts to preserve
-------------------------
intact the business organization of TMC and each Subsidiary and keep
available the services of the present employees of TMC and each Subsidiary;
(ii) Insurance. Keep in effect casualty, public liability,
---------
worker's compensation and other insurance policies in amount and scope of
coverage comparable to those in effect at the date of this Agreement;
(iii) Preservation of the Business; Maintenance of Properties,
--------------------------------------------------------
Contracts. Use its best efforts to preserve its business, advertise,
---------
promote and market its services in accordance with past practices, keep its
properties intact, preserve its goodwill, maintain all physical properties
in good condition and working order and in such operating condition as will
permit the continued conduct of the business of TMC and each Subsidiary on
a basis consistent with past practice, and perform and comply in all
material respects with the terms of all contracts and agreements which are
material to the business of TMC or any Subsidiary or which, if not complied
with, would have a material adverse effect on the business, prospects or
financial condition of TMC or any Subsidiary;
(iv) Preservation of Business Relationships. Use best efforts
--------------------------------------
to maintain TMC's and each Subsidiary's existing relationships with
suppliers, customers, lenders, and others, including the SBA;
(v) Approvals and Authorizations. Use best efforts to obtain
----------------------------
all authorizations, consents, permits and approvals of all parties
(including the SBA and the Securities and Exchange Commission (the "SEC")
under the Act) necessary to permit the consummation of the transactions
contemplated by this Agreement;
(vi) Financial Reports. Deliver to MFC, prior to the Closing,
-----------------
the Updated Financial Statements described in Section 2.5, and provide MFC
with such other financial statements and other financial reports concerning
TMC and the
-8-
<PAGE>
Subsidiaries as may be required in connection with a public offering of MFC
Stock or as MFC may otherwise from time to time reasonably request;
(vii) Compliance. Comply with all applicable laws, regulations
----------
and other governmental requirements and all contracts, commitments and
obligations.
(viii) Ordinary Course of Business. Operate its business
---------------------------
diligently and solely in the ordinary course and substantially in the same
manner as it has been operated in the past.
(ix) Public Offering. Make available appropriate financial and
---------------
other information concerning TMC and the Subsidiaries for incorporation in,
and otherwise cooperate with MFC in connection with the preparation of, a
registration statement for a public offering of MFC Stock, including any
required audited financial statements.
4.1.2 Negative Covenants Pending Closing. TMC will not and, to the
----------------------------------
extent applicable, will not permit any Subsidiary to:
(i) Disposition of Assets. Sell or transfer, or mortgage,
---------------------
pledge or create or permit to be created any Encumbrance on any of its
assets or properties other than sales or transfers in the ordinary course
of business;
(ii) Liabilities. Incur any obligation or liability other than
-----------
in the ordinary course of business consistent with past practice, incur any
indebtedness for borrowed money, enter into any contracts or commitments
involving payments to or by TMC or any Subsidiary of $50,000 or more, or
cancel any debts or claims other than in the ordinary course of business;
(iii) Compensation. Change the compensation or fringe benefits
------------
of or make any bonus or similar payments to any officer, employee, agent or
consultant, except for ordinary merit compensation increases for employees
(other than officers) in accordance with past practice, or enter into or
modify any benefit plan or any employment, severance or other agreement
with any officer, director, employee or consultant;
(iv) Capital Stock. Make any change in the number of shares of
-------------
its capital stock authorized, issued or outstanding or grant or accelerate
the exerciseability of any option, warrant or other right to purchase, or
to convert any obligation into, shares of its capital stock, or declare or
pay any dividend or other distribution with respect to any shares of its
capital stock, or issue, sell, transfer, purchase or redeem any shares of
its capital stock, provided that the foregoing shall not restrict:
(1) TMC from declaring and paying dividends to its
stockholders from current earnings (reduced by any non-deductible
amounts payable by TMC pursuant to Section 8.3(i) or (iii)) in
-9-
<PAGE>
accordance with TMC's customary practices and to the extent
necessary to preserve its tax status as a "regulated investment
company" under Subchapter M of the Code (which may include a
special dividend of such earnings (as so reduced) paid prior to
the Closing);
(2) Transactions between TMC and any Subsidiary or between
Subsidiaries; and
(3) Medallion Funding from purchasing or redeeming its
Preferred Stock held by the SBA at a price which, without the
approval of MFC, shall not exceed 35% of the par value of such
stock.
(v) Charter and By-laws. Take any action to amend TMC's
-------------------
Certificate of Incorporation or By-laws or the charter or by-laws of any
Subsidiary;
(vi) Acquisitions. Make any material acquisition of property
------------
other than in the ordinary course of business consistent with past
practice.
4.2 Corporate Examinations and Investigations. Prior to the Closing, MFC
-----------------------------------------
shall be entitled, through its employees and representatives, to have such
access to the assets, properties, records, business and operations of TMC and
the Subsidiaries as is reasonably necessary or appropriate in connection with
MFC's investigation of TMC and the Subsidiaries with respect to the transactions
contemplated hereby. Any such investigation and examination shall be conducted
at reasonable times and under reasonable circumstances so as to minimize any
disruption to or impairment of TMC's or a Subsidiary's business and TMC shall
and shall cause each Subsidiary to cooperate fully therein. Except as set forth
in Section 8.5, no investigation by MFC shall diminish or obviate any of the
representations, warranties, covenants or agreements of TMC contained in this
Agreement. In order that MFC may have full opportunity to make such
investigation, TMC shall and shall cause each Subsidiary to furnish the
representatives of MFC during such period with all such information and copies
of such documents concerning the affairs of TMC and the Subsidiaries as such
representatives may reasonably request and cause its officers, employees,
consultants, agents, accountants and attorneys to cooperate fully with such
representatives in connection with such investigation.
4.3 Consummation of Agreement. Each party shall use its respective best
-------------------------
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement and to ensure that to the extent within
its control or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Closing, all to the end that the transactions contemplated by this
Agreement shall be fully carried out in a timely fashion.
4.4 Further Assurances. Each of the parties shall execute such documents,
------------------
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
-10-
<PAGE>
4.5 No Publicity/Confidentiality. No party shall issue any press release
----------------------------
or make any public statement, announcement or filing, or make any other
statement or disclosure to any third party not an affiliate of such party, with
respect to this Agreement and its contents (including the identities of the
parties hereto), without the approval of the other parties at any time, except
as is required by applicable law in the opinion of counsel for the party
required to make the release or statement, or is required in connection with
MFC's financing of the Merger and the Other Acquisitions (as defined in Section
4.9), including a public offering of shares of MFC Stock ("MFC's Financing"),
and in such event such party shall use all reasonable efforts to permit the
other parties an opportunity to review any such release or statement prior to
dissemination.
Confidential Information (as defined below) obtained by MFC during the
course of its due diligence examination of the books and records of TMC and the
Subsidiaries will be used solely in connection with the Merger and not in any
way directly or indirectly detrimental to TMC or any Subsidiary and such
information will be kept confidential by MFC, except for such disclosure as may
be required in connection with MFC's Financing, and then upon advice of counsel
in consultation with TMC.
The term "Confidential Information" shall be deemed to include all
information provided to MFC by TMC concerning TMC or any Subsidiary as well as
all notes, analyses, compilations, studies, interpretations or other documents
prepared by MFC which contain, reflect or are based upon, in whole or in part,
the information furnished to MFC pursuant hereto. The term "Confidential
Information" does not include any information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of its disclosure by MFC) or (ii) was available to MFC
on a nonconfidential basis from a source other than TMC or any of its affiliates
or their advisors, provided that source is not known by MFC to be bound by a
confidentiality agreement with TMC or a Subsidiary or otherwise subject to
another contractual, legal or fiduciary obligation of confidentiality to TMC or
a Subsidiary or any other party.
The parties agree that money damages would not be a sufficient remedy for
any breach of the agreements contained in this Section 4.5 and that the parties
each shall be entitled to specific performance and injunctive relief as remedies
of any such breach. Such remedies shall not be deemed to be the exclusive
remedies for a breach of this Section 4.5 but shall be in addition to all other
remedies available at law or equity.
4.6 Stockholder Approval. TMC shall, in accordance with applicable law
--------------------
and its Certificate of Incorporation and By-laws:
(i) duly hold a meeting of its stockholders on a timely basis;
(ii) on a timely basis (A) prepare a proxy statement in
compliance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Regulation 14A thereunder with respect to the
meeting of stockholders (the "Proxy Statement") and, after
consultation with MFC, respond promptly to any comments made by the
SEC with respect to the Proxy Statement and any
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<PAGE>
preliminary version thereof, and (B) cause the Proxy Statement to be
mailed to its stockholders;
(iii) subject to their fiduciary duties under applicable law as
advised in writing by independent legal counsel, include in the Proxy
Statement the recommendation of its Board of Directors and the Special
Committee that stockholders of TMC vote in favor of the adoption of
this Agreement and the Merger; and
(iv) use reasonable efforts to obtain the necessary approvals by
its stockholders of this Agreement and the transactions contemplated
hereby.
The Proxy Statement at the time the Proxy Statement is mailed, at the time
of the meeting of TMC's stockholders to vote on this Agreement and at the
Effective Time will comply as to form in all material respects with the
applicable provisions of the Exchange Act, and the rules and regulations
thereunder, and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading (subject, if required, to a reasonable period of time to
amend or supplement the Proxy Statement).
TMC's obligations hereunder are subject to MFC promptly furnishing TMC with
the information relating to MFC that is required under applicable law for
inclusion in the Proxy Statement, which information MFC represents and warrants
to TMC shall not contain any statement which, at the time and in light of the
circumstances under which it is furnished, is false or misleading with respect
to any material fact or omits to state any material fact required to be stated
therein or necessary in order to make the information furnished therein not
false or misleading at the time the Proxy Statement is mailed to the
stockholders of TMC, at the time of the meeting of TMC stockholders and at the
Effective Time (subject, if required, to a reasonable period of time to amend or
supplement such information).
4.7 Exclusive Dealing. TMC will not, directly or indirectly, (i) solicit,
-----------------
initiate or encourage discussions with or submission of proposals or offers from
any person or entity other than MFC relating to a possible acquisition of all or
any material portion of the assets or capital stock of TMC or any merger or
other business combination with TMC (an "Acquisition Transaction"), or (ii)
except to the extent reasonably required by fiduciary obligations under
applicable law as advised in writing by independent legal counsel, participate
in any discussions or negotiations regarding, or furnish any information with
respect to, or facilitate or encourage, any effort or attempt by any other
person or entity to do or seek any Acquisition Transaction. TMC will promptly
notify MFC of any such proposal, offer, inquiry or other contact relating to any
proposed Acquisition Transaction.
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<PAGE>
4.8 Filings Under HSR Act. If and to the extent required under the Hart-
---------------------
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
each of MFC and TMC shall file with the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division") a
premerger notification form and any supplemental information (other than
privileged information) which may be requested in connection therewith pursuant
to the HSR Act, which filings and supplemental information will comply in all
material respects with the requirements of the HSR Act. Each of TMC and MFC
shall cooperate fully with the other in connection with the preparation of such
filings and shall use best efforts to respond to any requests for supplemental
information from the FTC or the Antitrust Division and to the extent desirable,
to obtain early termination of any waiting period applicable to the Merger under
the HSR Act.
4.9 Other Acquisitions. Following the execution of this Agreement, MFC
------------------
shall proceed diligently and in good faith and use all reasonable efforts to
negotiate and complete the acquisition of Transportation Capital Corp., Edwards
Capital Company and Vango Media, Inc. (the "Other Acquisitions").
4.10 Indemnification and D&O Insurance. After the Effective Time, the
---------------------------------
Surviving Corporation shall indemnify and hold harmless each former director and
officer of TMC with respect to actions taken or omitted to be taken prior to the
Effective Time, to the extent such person is entitled to indemnification under
the Certificate of Incorporation and By-laws of TMC as in effect on the date
hereof, to the fullest extent permitted by Delaware law. TMC or the Surviving
Corporation shall exercise the right and pay the required premium under TMC's
directors' and officers' liability insurance policy in effect on the date of
this Agreement, or obtain comparable coverage under a policy of such other
responsible carrier as may be reasonably satisfactory to the parties, to
maintain for a period of one year after the Effective Time coverage for claims
which may be made with respect to causes of action that arise out of acts or
omissions occurring on or before the Effective Time.
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE
Each obligation of MFC to be performed at the Closing is subject to the
fulfillment, at or prior to the Closing Date, of the following conditions
(unless waived in writing by MFC):
5.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of TMC contained in this Agreement shall have been true and correct
in all material respects when made and shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date (with such exceptions as may be permitted
under or contemplated by this Agreement or the Disclosure Schedule and except to
the extent that TMC can demonstrate that MFC or its affiliates knew that a
representation or warranty was untrue when made). TMC shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the
Closing. TMC shall have delivered to MFC a certificate, dated the Closing Date,
to the foregoing effect.
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<PAGE>
5.2 Opinion of Counsel to TMC. MFC shall have received an opinion of
-------------------------
Nutter, McClennen & Fish, special counsel to TMC and the Special Committee,
dated the Closing Date, substantially in the form of Exhibit A hereto and
otherwise in form and substance reasonably acceptable to MFC and its counsel.
5.3 Consents, Permits, and Approvals. All consents, permits, licenses,
--------------------------------
authorizations and approvals, including all Regulatory Approvals, required to
permit the consummation by TMC of the transactions contemplated by this
Agreement and the continued operation of the business of TMC in the manner
conducted prior to the Closing, including without limitation those set forth on
Section 2.7 of the Disclosure Schedule, shall have been obtained, and
confirmation thereof shall have been provided to MFC.
5.4 Approval by TMC Stockholders. This Agreement and the Merger shall
----------------------------
have been approved by the requisite vote of TMC's stockholders in accordance
with the DGCL and TMC's Certificate of Incorporation and By-laws.
5.5 Other Acquisitions. MFC shall have consummated the Other Acquisitions
------------------
or be in a position to consummate the Other Acquisitions concurrently with or
reasonably concurrently with the Closing.
5.6 Financing. MFC shall have obtained and have available financing
---------
sufficient to consummate the Merger and the Other Acquisitions.
5.7 1940 Act; SBA. Medallion Funding shall be registered under the
-------------
Investment Company Act of 1940 as a Closed-End Investment Company and shall be
licensed as an SSBIC by the SBA.
5.8 Adverse Proceedings. No action, suit or proceeding shall have been
-------------------
instituted or threatened before any court or governmental or regulatory body by
any agency of any government or any other third party seeking to restrain,
modify or prevent the carrying out of the transactions contemplated hereby, or
which might affect consummation of the Merger and the right and ability of MFC
to operate the business of TMC and each of the Subsidiaries following the
Closing.
5.9 Certificates. TMC shall have furnished MFC with such certificates of
------------
public officials and other third parties as may be reasonably requested by MFC.
5.10 Dissenting Shares. Immediately prior to the Closing not more than ten
-----------------
percent (10%) of the shares of TMC Stock shall be Dissenting Shares or shall be
entitled to become Dissenting Shares.
5.11 Approval of Documentation. All certificates, instruments, opinions
-------------------------
and other documents delivered or to be delivered to MFC hereunder shall be
reasonably satisfactory to MFC and its counsel in all respects.
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<PAGE>
SECTION 6 - CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF TMC
Each obligation of TMC to be performed at the Closing is subject to the
fulfillment at or prior to the Closing Date of the following conditions (unless
waived in writing by TMC):
6.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of MFC contained in this Agreement shall have been true and correct
in all material respects when made and shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date (with such exceptions as may be permitted
under or contemplated by this Agreement). MFC shall have performed and complied
in all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the Closing.
MFC shall have delivered to TMC a certificate, dated the Closing Date, to the
foregoing effect.
6.2 Opinion of Counsel to MFC. TMC shall have received an opinion of
-------------------------
Palmer & Dodge, counsel to MFC, dated the Closing Date, substantially in the
form of Exhibit B hereto and otherwise in form and substance reasonably
acceptable to TMC and its counsel.
6.3 Fairness Opinion. In the event the Special Committee elects to bring
----------------
down such opinion to the date of mailing of the Proxy Statement, TMC shall have
received an opinion from Gruntal & Co., Incorporated, dated within five business
days prior to the date on which the Proxy Statement is mailed, in form and
substance satisfactory to the Special Committee, stating that the terms of the
Merger are fair to the holders of TMC Stock from a financial point of view.
6.4 Approval by TMC Stockholders. This Agreement and the Merger shall
----------------------------
have been approved by the requisite vote of TMC's stockholders in accordance
with the DGCL and TMC's Certificate of Incorporation and By-laws.
6.5 Adverse Proceedings. No action, suit or proceeding shall have been
-------------------
instituted or threatened before any court or governmental or regulatory body by
any agency of any government or any other third party seeking to restrain,
modify or prevent the consummation of the Merger.
6.6 Certificates. MFC shall have furnished TMC with such certificates of
------------
public officials and other third parties, as may be reasonably requested by TMC.
6.7 Approval of Documentation. All certificates, instruments, opinions
-------------------------
and other documents delivered or to be delivered to TMC hereunder shall be
reasonably satisfactory to TMC and its special counsel in all respects.
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<PAGE>
SECTION 7 - TERMINATION OF AGREEMENT
7.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time as follows:
(a) at the election of TMC upon written notice to MFC, if MFC has
materially breached any representation, warranty, covenant or agreement
contained in this Agreement and has not, within twenty (20) business days of
receipt by MFC of written notice from TMC of such breach of representation,
warranty, covenant or agreement, cured such breach;
(b) at the election of MFC upon written notice to TMC, if TMC has
materially breached any representation, warranty, covenant or agreement
contained in this Agreement (other than a representation or warranty which TMC
can demonstrate MFC or its affiliates knew was untrue when made) and has not,
within twenty (20) business days of receipt by TMC of written notice from MFC of
such breach of representation, warranty, covenant or agreement, cured such
breach;
(c) by either party if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree or ruling shall have become final and nonappealable;
(d) by TMC's Board of Directors or Special Committee if (i) by January
31, 1996, MFC shall not have filed a registration statement with the SEC
relating to MFC's Financing or otherwise provided evidence reasonably
satisfactory to TMC of MFC's Financing or (ii), as a result of an offer of an
Acquisition Transaction obtained without violating Section 4.7, it determines,
upon the written advice of independent legal counsel, that it is required by
fiduciary obligations under applicable law to terminate this Agreement;
(e) by MFC if TMC's Board of Directors or Special Committee (i) fails
to include in the Proxy Statement its recommendation that TMC stockholders vote
in favor of the adoption of this Agreement, (ii) withdraws its recommendation
that stockholders vote in favor or (iii) makes a favorable recommendation
regarding an Acquisition Transaction;
(f) at any time on or prior to the Effective Time by written agreement
of the parties hereto; or
(g) by either party if, without fault of such party, the Effective
Time shall not have occurred by March 31, 1996, which date may be extended by
mutual agreement of the parties.
7.2 Effect of Termination. If this Agreement is terminated and the
---------------------
transactions contemplated hereby are not consummated as provided above, this
Agreement shall become null and void and be of no further force or effect, other
than the provisions of this Section 7, Section 8.3 ("Expenses") and Section 4.5
("No Publicity/Confidentiality") which shall survive and continue in effect, and
each and every representation and warranty contained in
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<PAGE>
this Agreement or any Schedule hereto, or any certificate, document or other
instrument delivered by the parties in connection herewith, shall expire and
none of the parties hereto shall have any further liability with respect to any
such representation or warranty; provided that nothing contained in this Section
7.2 shall relieve either party of any liability for any willful breach or
default hereunder occurring prior to such termination except as set forth in
Section 8.5.
SECTION 8 - MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, two (2) days after the date of deposit in the United States mails, as
follows:
(i) if to MFC, to:
Medallion Financial Corp.
205 East 42nd Street
New York, NY 10017
Attention: Mr. Andrew Murstein
Fax: (212) 983-0351
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Attention: Steven N. Farber, Esquire
Fax: (617) 227-4420
(ii) if to TMC, to:
Stanley Kreitman
Chairman, Special Committee
150 East 52nd Street
New York, NY 10022
Fax: (212) 755-0517
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<PAGE>
with a copy to:
Nutter, McClennen & Fish
One International Place
Boston, MA 02110
Attention: Michael J. Bohnen, Esq.
Fax: (617) 973-9748
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
8.2 Entire Agreement. This Agreement contains the entire agreement among
----------------
the parties with respect to the transactions contemplated hereunder, and
supersedes all prior agreements, written or oral, with respect thereto.
8.3 Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, each of the parties hereto shall bear its own costs and expenses
(including fees and expenses of legal counsel) in connection with the
negotiation, preparation, execution, review and delivery of this Agreement and
the consummation of the transactions contemplated hereby. Notwithstanding the
foregoing:
(i) The expenses set forth on Schedule A shall be the sole and
exclusive responsibility of TMC.
(ii) The expenses set forth on Schedule B shall be the sole and
exclusive responsibility of MFC.
(iii) TMC shall be responsible for paying or reimbursing MFC for the
expenses set forth on Schedule C, up to a maximum amount equal to the
lesser of (i) $200,000 or (ii) one-third of the aggregate amount of such
expenses. MFC shall obtain the prior approval of the Special Committee
before incurring or entering into binding commitments with respect to such
expenses, and shall keep TMC reasonably informed as such expenses are
incurred.
(iv) If TMC's Board of Directors or Special Committee has terminated
this Agreement pursuant to Section 7.1(d)(ii) or MFC has terminated this
Agreement pursuant to Section 7.1(e) and, in each case, prior to such
termination or within twelve (12) months thereafter, (A) TMC shall have
entered into an agreement to engage in an Acquisition Transaction with any
person other than MFC or (B) the Board of Directors or Special Committee of
TMC shall have approved an Acquisition Transaction or recommended that
shareholders of TMC approve or accept any Acquisition Transaction with any
person other than MFC, then TMC shall be responsible for paying or
reimbursing MFC for all of the expenses set forth in Schedules B and C
within five (5) business days after demand therefor; provided that the
aggregate amount of expenses to be so paid or reimbursed for which TMC is
not otherwise responsible shall not exceed $650,000.
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<PAGE>
8.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
-----------------------------------------------------------------
Remedies. This Agreement may be amended, superseded, canceled, renewed or
- --------
extended, and the terms hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance; provided, however, that after adoption of this Agreement by the
stockholders of TMC, without the further approval of the stockholders of TMC, no
amendment may be made that (a) alters or changes the amount or kind of
consideration to be received as provided in Section 1.6 or (b) alters or changes
any of the terms and conditions of this Agreement if such alteration or change
would materially adversely affect the stockholders of TMC. No delay on the part
of any party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such right,
power or privilege, preclude any further exercise thereof or the exercise of any
other such right, power or privilege. The rights and remedies herein provided
are cumulative and, subject to the limitations contained in Sections 7.2 and
8.5, are not exclusive of any rights or remedies that any party may otherwise
have at law or in equity. The rights and remedies of any party based upon,
arising out of or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is not inaccuracy or breach.
8.5 Investigation; No Survival. Without regard to any right of any party
--------------------------
to fully investigate the affairs of the other party and notwithstanding any
knowledge of facts determined or determinable by such party pursuant to such
investigation or right of investigation, each party has the right to rely fully
upon the representations, warranties, covenants and agreements of each other
party in this Agreement or in any certificate, financial statement or other
document delivered by any party pursuant hereto. Notwithstanding the foregoing,
neither TMC nor any of its stockholders, directors or officers shall have any
liability to MFC for any breach of a representation, warranty, covenant or
agreement other than, in the case of TMC, a willful breach or default which is
not known by or attributable to an affiliate of MFC. None of the
representations, warranties, covenants and agreements shall survive the Merger,
except the covenants of MFC and the Surviving Corporation contained in Section
1.9 ("Exchange of TMC Stock") and Section 4.10 ("Indemnification and D&O
Insurance").
8.6 Governing Law. This Agreement shall be governed by and construed,
-------------
interpreted and enforced in accordance with the laws of the State of Delaware.
8.7 Binding Effect; No Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable except by operation of law
or by MFC to any of its affiliates. This Agreement does not create any rights
on the part of any person other than the parties and their respective successors
and permitted assigns.
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<PAGE>
8.8 Variations in Pronouns. All pronouns and any variations thereof refer
----------------------
to the masculine, feminine or neuter, singular or plural, as the context may
require.
8.9 Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.10 Exhibits and Disclosure Schedule. The Exhibits, Disclosure Schedule
--------------------------------
and other Schedules are a part of this Agreement as if fully set forth herein.
All references herein to Sections, subsections, clauses, Exhibits, the
Disclosure Schedule and other Schedules shall be deemed references to such parts
of this Agreement, unless the context shall otherwise require.
8.11 Headings. The headings in this Agreement are for reference only, and
--------
shall not affect the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
----------------------
TRI-MAGNA CORPORATION
By: /s/ Marie Russo
----------------------
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<PAGE>
Exhibit A
Form of Nutter, McClennen & Fish Opinion
, 1996
Medallion Financial Corp.
We have acted as special counsel to the Special Committee in connection
with the execution and delivery of the Agreement of Merger dated October ,
1995, (the "Merger Agreement") between Medallion Financial Corp. (the
"Purchaser") and Tri-Magna Corporation, a Delaware Corporation (the "Company").
This opinion is furnished to you pursuant to Section 5.2 of the Merger
Agreement. Capitalized terms used but not defined in this opinion shall have the
meanings attributed to them in the Merger Agreement.
In connection with the opinion, we have examined:
(i) the Merger Agreement;
(ii) a copy of the Certificate of Incorporation of the Company on file
in the Office of the Secretary of State of the State of Delaware, as certified
by said Secretary;
(iii) a certificate of legal existence and good standing for the Company
issued on ___, 1996 by said Secretary;
(iv) a certificate of an officer of the Company pursuant to Section 5.1
of the Merger Agreement; and
(v) a certificate of the Secretary of the Company, certifying as to
(a) resolutions of the Board of Directors and the stockholders of the Company
authorizing the execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby, (b) the incumbency and
signatures of certain officers of the Company and (c) the By-laws of the
Company, as now in effect;
(vi) [other documents].
Based solely upon the foregoing, and subject to the further
qualifications set forth at the end of this opinion, having regard for legal
considerations we deem relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
2. The Company has corporate power and authority necessary to enter
into the Merger Agreement and to carry out the terms thereof.
3. The execution and delivery by the Company of the Merger Agreement
and the
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<PAGE>
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, and is enforceable against the Company in accordance
with its terms.
4. The execution and delivery by the Company of the Merger Agreement
and the performance by it of its obligations thereunder, will not violate or
contravene any provision of the Company's Certificate of Incorporation or
By-Laws.
5. Upon filing the Certificate of Merger in accordance with the
Delaware General Corporation Law ("DGCL"), and assuming that all necessary
corporate action has been taken by the Purchaser, the merger provided for in the
Merger Agreement shall become legally effective in accordance with the terms of
the Merger Agreement and the DGCL.
Our opinions set forth above are subject to the following
qualifications:
(A) As to questions of fact material to the opinions rendered
herein, we have relied upon certificates of public officials, certificates of
officers of the Company, the representations and warranties of the Company
contained in the Merger Agreement, or other evidence satisfactory to us, and,
except as expressly set forth herein, we have not made any independent review or
investigation. We have assumed that, with respect to certain dated certificates
and/or certified copies described herein, no act or event has occurred between
the dates thereof and the date hereof that would in any way affect any of the
matters opined upon or that would in any manner alter such certificate or
certified copies.
(B) For the purpose of this opinion, we have assumed that the
Purchaser has all requisite power and authority and has taken all necessary
corporate and other action to enter into the Merger Agreement and to effect the
transactions contemplated thereby. We have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to the originals of all documents submitted to us as copies, the
authenticity of the originals of such copies, and the accuracy and completeness
of all records and documents made available to us.
(C) The opinions expressed herein are qualified to the extent
that validity and enforceability of the provisions of the Merger Agreement may
be subject to or limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws of general application relating
to or affecting the rights and/or remedies of creditors and by the exercise of
judicial discretion in accordance with general equitable principals (whether
such enforceability is considered in an action in equity or at law).
Furthermore, no opinion is expressed as to whether any provisions of the Merger
Agreement are specifically enforceable in equity.
(D) We have made such examination of Delaware corporate law as
we have deemed relevant for the purpose of this opinion, but we have not made an
independent review or investigation of the laws of any other state or
jurisdiction and express no opinion as to the laws of any such state or
jurisdiction. We express no opinion with respect to any state or federal
antitrust law or the anti-fraud provisions of state or federal securities laws.
<PAGE>
This opinion is being furnished only to you and is solely for your
benefit. This opinion may not be used, circulated or quoted for any other
purpose or relied upon by any other person without out prior written consent.
Very truly yours,
Nutter, McClennen & Fish
<PAGE>
Exhibit B
Form of Palmer & Dodge Opinion
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
_________ , 1996
Tri-Magna Corporation
205 East 42nd Street
New York, NY 10017
Ladies and Gentlemen:
We have acted as counsel for Medallion Financial Corp. (the "Purchaser"), a
Delaware corporation, in connection with the Agreement of Merger dated as of
December 21, 1995 (the "Merger Agreement") between the Purchaser and Tri-Magna
Corporation (the "Seller"), a Delaware corporation, providing for the merger of
the Seller into the Purchaser (the "Merger"). This opinion is furnished to you
pursuant to Section 6.2 of the Merger Agreement. Terms used in this opinion
that are defined in the Merger Agreement are used herein as so defined.
This opinion is limited to the laws of the Commonwealth of Massachusetts,
the Federal laws of the United States and the Delaware General Corporation Law
(the "DGCL"). In addition, we render this opinion as if the Merger Agreement
were governed by the laws of the Commonwealth of Massachusetts, notwithstanding
its recitation that it is governed by the laws of the State of Delaware.
We have examined such documents, records and matters of law and made such
other investigation as we have deemed necessary for purposes of this opinion,
including inquiry of such lawyers in our firm and review of such documents in
our possession which relate to the transactions contemplated by the Merger
Agreement as we have considered appropriate, but we have not made inquiry of all
lawyers in our firm or undertaken a complete review of materials in our files.
As to questions of fact material to our opinion, we have relied upon the
representations made in or pursuant to the Merger Agreement and upon
certificates of officers of the Purchaser.
-24-
<PAGE>
Based on the foregoing, but subject to the assumptions and qualifications
set forth herein, we are of the opinion that:
1. The Purchaser is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware.
2. The Purchaser has the corporate power and authority to execute and
deliver the Merger Agreement and to carry out the terms thereof.
3. The execution and delivery by the Purchaser of the Merger Agreement and
the performance by the Purchaser of its obligations thereunder have been duly
authorized by all necessary corporate action on the part of the Purchaser. The
Merger Agreement has been duly executed and delivered by the Purchaser and
constitutes (assuming due authorization, execution and delivery thereof by the
Seller) the valid and binding obligation of the Purchaser, enforceable against
the Purchaser in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws of general application affecting the rights and remedies of
creditors, or general principles of equity.
4. The execution and delivery by the Purchaser of the Merger Agreement and
the performance by it of its obligations thereunder will not violate or
contravene any provision of the certificate of incorporation or by-laws of the
Purchaser.
5. Except for the filing of the certificate of merger in accordance with
the DGCL, no approval or consent of, or registration or filing with, any
governmental or regulatory body is required to be obtained or made by the
Purchaser in connection with the execution, delivery and performance by the
Purchaser of the Merger Agreement other than those which have been obtained or
made.
6. Upon the filing of the certificate of merger in accordance with the
DGCL (and assuming that all necessary corporate action has been taken by the
Seller), the Merger shall become legally effective in accordance with the terms
of the Merger Agreement and the DGCL.
This opinion is furnished to you solely for your use in connection with the
closing under the Merger Agreement on the date hereof, and may not be relied
upon by any other person without our prior written consent.
Very truly yours,
Palmer & Dodge
-25-
<PAGE>
[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
registration statement on Form N-2 of our report dated February 21, 1996, on our
audit of the balance sheet of Medallion Financial Corp., and to all references
to our Firm included in this registration statement.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
<PAGE>
[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
registration statement on Form N-2 of our report dated November 8, 1995 (except
with respect to the matter discussed in Note 12, as to which the date is
February 12, 1996), on our audit of the financial statements of Transportation
Capital Corp. and to all references to our Firm included in this registration
statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
<PAGE>
[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
registration statement on Form N-2 of our report dated December 14, 1995 (except
with respect to the matter discussed in Note 8, as to which the date is February
21, 1996), on our audit of the financial statements of Edwards Capital Company
and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
<PAGE>
[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
registration statement on Form N-2 of our report dated November 6, 1995 (except
with respect to the matter discussed in Note 11, as to which the date is
December 21, 1995), on our audit of the financial statements of Tri-Magna
Corporation and Subsidiaries and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form N-2 of our
report dated October 24, 1995, on our audits of the financial statements and
financial statement schedules of Transportation Capital Corp. We also consent
to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
New York, NY
February 26, 1996
<PAGE>
[Friedman Alpren & Green LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Form N-2 of our report dated January 28, 1995 included in or made a part of this
registration statement.
/s/ FRIEDMAN ALPREN & GREEN LLP
New York, New York
February 23, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 718,217
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