<PAGE>
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-27812
MEDALLION FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE No. 04-3291176
(State of Incorporation) (IRS Employer Identification No.)
205 East 42nd Street, New York, New York 10017
(Address of principal executive offices) (Zip Code)
(212) 682-3300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of Common Stock outstanding at the latest practicable date,
October 31, 1996:
<TABLE>
<CAPTION>
Class Outstanding Par Value Shares Outstanding
----------------- ----------- ------------------
<S> <C> <C>
Common Stock............................ $.01 8,250,000
</TABLE>
===============================================================================
<PAGE>
MEDALLION FINANCIAL CORP.
FORM 10-Q
September 30, 1996
INDEX
Page
----
PART I. Financial Information
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Basis of Preparation of Financial Information.................. 3
Medallion Financial Corp. Consolidated Balance Sheets
as of September 30, 1996 and December 31, 1995.......... 4
Medallion Financial Corp. Consolidated Statement of
Operations for the three months ended September 30, 1996
and the period commencing with the Company's inception
on May 29, 1996 and ending September 30, 1996........... 5
Medallion Financial Corp. Consolidated Statement of
Shareholders' Equity for the period commencing with
the Company's inception on May 29, 1996 and ending
September 30, 1996...................................... 6
Medallion Financial Corp. Consolidated Statement of Cash
Flows for the period commencing with the Company's
inception on May 29, 1996 and ending September 30, 1996. 7
Notes to Consolidated Financial Statements................. 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 13
General.................................................... 13
Results of Operations (for the three months ended
September 30, 1996)..................................... 15
Results of Operations (for the period commencing with
the Company's inception on May 29, 1996 and ending
on September 30, 1996).................................. 17
Asset/Liability Management................................. 18
Liquidity and Capital Resources............................ 19
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................... 22
Signatures ....................................................... 23
</TABLE>
-2-
<PAGE>
BASIS OF PREPARATION
Medallion Financial Corp. (the "Company") was incorporated in Delaware
in 1995 and commenced operations on May 29, 1996 in connection with the closing
of its initial public offering (the "Offering") and simultaneous acquisition
(the "Acquisitions") of Medallion Funding Corp. ("MFC"), Edwards Capital Company
("Edwards"), Transportation Capital Corp. ("TCC") and Medallion Taxi Media, Inc.
("Media"). Media and MFC were subsidiaries of Tri-Magna Corporation ("Tri-
Magna") which was merged into the Company. The Company's acquisition of these
businesses in connection with the Offering and the resulting two-tier structure
were effected pursuant to an order of the Securities and Exchange Commission
(the "Commission") (Release No. I.C. 21969, May 21, 1996) (the "Acquisition
Order") and the approval of the U.S. Small Business Administration (the "SBA").
A detailed description of the Company, MFC, Edwards, TCC and Media may be found
in the Acquisition Order and the Company's Registration Statement (the
"Registration Statement") on Form N-2 (File No. 333-1670) filed in connection
with the Offering and declared effective on May 22, 1996.
The financial information included in this report is divided into two
sections. The first section, Item 1, includes the unaudited consolidated
balance sheet of the Company as of September 30, 1996 and the related statements
of operations, shareholders' equity and cash flows for the period commencing
with the Company's inception on May 29, 1996 and ending September 30, 1996.
Item 1 also sets forth the unaudited consolidated statement of operations for
the three months ended September 30, 1996 and the audited consolidated balance
sheet of the Company as of December 31, 1995. The second section, Item 2,
consists of Management's Discussion and Analysis of Financial Condition and
Results of Operations and sets forth an analysis of the financial information
included in Item 1 for the three months ended September 30, 1996 as well as the
period commencing May 29, 1996 and ending September 30, 1996. All references to
shares and per share amounts in this report reflect a 12,500-for-one stock split
effected on May 29, 1996.
The consolidated balance sheet of the Company as of September 30, 1996,
the related statements of operations, shareholders' equity and cash flows for
the period commencing May 29, 1996 and ending September 30, 1996 and the
consolidated statement of operations for the three months ended September 30,
1996 included in Item 1 have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
the accompanying consolidated financial statements include all adjustments
(consisting of normal, recurring adjustments) necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the period commencing May 29, 1996 and ending September 30, 1996
and the three months ended September 30, 1996 are not necessarily indicative of
the results of operations for the full year or any other interim period. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Registration Statement.
-3-
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 and DECEMBER 31, 1995
<TABLE>
<CAPTION>
September 30, December 31,
-------------- ------------
1996 1995
-------------- ------------
<S> <C> <C>
(Unaudited)
Assets
Investments
Medallion loans $125,039,421 $ -
Commercial installment loans 36,766,027 -
------------ --------
Gross investments 161,805,448 -
Unrealized depreciation of investments - -
------------ --------
Net investments 161,805,448 -
Investment in unconsolidated subsidiary (Note 3) 6,241 -
------------ --------
Total investments 161,811,689 -
Cash and cash equivalents 1,446,342 2,000
Accrued interest receivable 1,554,207 -
Fixed assets, net 87,506 -
Goodwill, net (Note 2) 6,133,709 -
Other assets 3,550,443 716,217
------------ --------
Total assets $174,583,896 $718,217
============ ========
Liabilities
Accounts payable and accrued expenses $ 1,781,252 $716,217
Dividends payable 116,725 -
Accrued interest payable 1,188,026 -
Notes payable to banks and demand notes (Note 4) 81,300,000 -
SBA debentures payable (Note 5) 29,263,100 -
Negative goodwill, net (Note 2) 2,694,161 -
------------ --------
Total liabilities $116,343,264 $716,217
------------ --------
Stockholders' equity
Preferred Stock (1,000,000 shares of $.01 par - -
value stock authorized - none outstanding)
Common stock (15,000,000 shares of $.01 par 82,500 2
value stock authorized - 8,250,000 and
2,500,000 shares outstanding at
September 30, 1996 and December 31, 1995,
respectively (Note 1)
Capital in excess of par value (Note 1) 56,066,556 1,998
Accumulated undistributed income 2,091,576 -
------------ --------
Total stockholders' equity 58,240,632 2,000
------------ --------
Total liabilities and stockholders' equity $174,583,896 $718,217
============ ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND THE PERIOD COMMENCING WITH THE COMPANY'S INCEPTION
ON MAY 29, 1996 AND ENDING SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Period Commencing
Three Months Ended May 29, 1996 and Ending
September 30, 1996 September 30, 1996
------------------- -----------------------
<S> <C> <C>
Investment income:
Interest income on investments $4,255,203 $5,618,718
Interest income on treasury bills 8,419 37,603
---------- ----------
Total investment income 4,263,622 5,656,321
---------- ----------
Interest expense:
Notes payable to bank 1,537,102 2,044,738
SBA debentures 563,168 754,748
---------- ----------
Total interest expense 2,100,270 2,799,486
---------- ----------
Net interest income 2,163,352 2,856,835
---------- ----------
Non-interest income:
Equity in earnings (losses)
of unconsolidated subsidiary (22,697) 6,241
Accretion of negative goodwill 180,615 244,984
Other Income 233,948 291,822
---------- ----------
Total non-interest income 391,866 543,047
---------- ----------
Expenses:
Professional fees 149,726 227,379
Salaries and benefits 348,233 446,172
Other operating expenses 433,266 524,012
Amortization of goodwill 101,612 136,632
---------- ----------
Total expenses 1,032,837 1,334,195
---------- ----------
Net investment income 1,522,381 2,065,687
Change in net unrealized depreciation - -
Net realized gain on investments 25,889 25,889
---------- ----------
Net increase in net assets
resulting from operations $1,548,270 $2,091,576
========== ==========
Net increase in net assets
resulting from operations per share $ 0.19 $0.25
========== ==========
Weighted average shares outstanding 8,250,000 8,250,000
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-5-
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD COMMENCING WITH THE COMPANY'S INCEPTION
ON MAY 29, 1996 AND ENDING SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Shares of Common Capital
Common Stock Stock in Excess Accumulated
Outstanding $.01 Par of Par Undistributed
Value Value Income
---------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at May 29, 1996 8,250,000 $ 82,500 $56,066,556 -
Distributable net investment income - - - $ 2,091,576
Dividends paid common - - - -
Change in unrealized depreciation - - - -
------------ --------- ----------- -------------
Balance at September 30, 1996 8,250,000 $82,500 $56,066,556 $2,091,576
============ ========= =========== =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-6-
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD COMMENCING WITH THE COMPANY'S INCEPTION
ON MAY 29, 1996 AND ENDING SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Period Commencing
May 29, 1996 and Ending
September 30, 1996
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net increase in net assets resulting from operations $ 2,091,576
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by (used for) operating activities:
Depreciation and amortization 7,000
Increase in equity in earnings (losses) of unconsolidated subsidiary (6,241)
Amortization of goodwill 136,632
Decrease (increase) in accrued interest receivable (158,933)
Decrease (increase) in other assets (1,879,649)
Increase (decrease) in accounts payable and accrued expenses 308,722
Accretion of negative goodwill (244,984)
Increase (decrease) in accrued interest payable (451,501)
------------
Net cash provided by (used for) operating $ (197,378)
activities ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments $(28,611,154)
Proceeds from sales and maturities of investments 16,249,803
Payment for purchase of Tri-Magna, net (11,848,283)
Payment for purchase of Edwards (15,624,995)
Payment for purchase of TCC, net (3,748,576)
Capital expenditures (80,119)
------------
Net cash provided by (used for) investing activities $(43,663,324)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to banks $ (9,100,000)
Repayment of notes payable to SBA (1,200,000)
Payment of declared dividends to former shareholders (542,012)
Proceeds from initial public offering, net of expenses 56,147,056
------------
Net cash provided by (used for) financing activities $ 45,305,044
------------
NET INCREASE (DECREASE) IN CASH $ 1,444,342
CASH and CASH EQUIVALENTS, beginning of period 2,000
------------
CASH and CASH EQUIVALENTS, end of period $ 1,446,342
============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 3,308,336
============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-7-
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD COMMENCING WITH THE COMPANY'S INCEPTION
ON MAY 29, 1996 AND ENDING SEPTEMBER 30, 1996
(Continued)
(Unaudited)
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
In conjunction with the Acquisitions, liabilities were assumed as follows:
<TABLE>
<CAPTION>
Tri-Magna Edwards TCC
----------- ----------- -----------
<S> <C> <C> <C>
Fair value of assets acquired $99,488,871 $51,356,894 $16,357,376
Cash paid 13,378,000 15,624,995 10,545,759
----------- ----------- -----------
Liabilities assumed $86,110,871 $35,731,899 $ 5,811,617
=========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-8-
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(1) Formation of Medallion Financial Corp.
The Company is a closed-end management investment company and has elected
to be regulated as a business development company under the Investment company
Act of 1940, as amended (the "1940 Act"). The Company was organized as a
Delaware corporation in 1995. On May 29, 1996, the Company issued and sold
5,750,000 shares of common stock at $11.00 per share and split the existing 200
shares of common stock outstanding into 2,500,000 shares. In parallel with the
Offering, the Company merged with Tri-Magna, acquired substantially all of the
assets of Edwards, and acquired all of the outstanding voting stock of TCC. As
a result of the merger with Tri-Magna, the Company also acquired Tri-Magna's
wholly-owned subsidiaries, MFC and Media. As a prerequisite to the
Acquisitions, the Company applied for and received the Acquisition Order under
the 1940 Act from the Commission. The Company engages 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.
Tri-Magna was a closed-end management investment company registered under
the 1940 Act and was the sole shareholder of MFC and 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 U.S. Small
Business Administration (the "SBA"). As an adjunct to the Company's finance
business, Media operates a taxicab rooftop advertising business. MFC and Media
are wholly-owned subsidiaries of the Company.
Edwards, a wholly-owned subsidiary of the Company, is licensed as a small
business investment company ("SBIC") by the SBA and is registered as a closed-
end management investment company under the 1940 Act.
TCC, a wholly-owned subsidiary of the Company, is licensed as an SSBIC by
the SBA and is registered as a closed-end management investment company, under
the 1940 Act.
(2) Summary of Significant Accounting Policies
The Acquisitions were accounted for under the purchase method of
accounting. Under this accounting method, the Company has recorded as its cost
the fair value of the acquired assets and assumed liabilities. The difference
between the cost of acquired companies and the sum of the fair values of
tangible and identifiable intangible assets less liabilities assumed was
recorded as goodwill or negative goodwill.
Deferred offering costs incurred by the Company in connection with the sale
of shares were recorded as a reduction of capital upon completion of the
Offering. These costs were
-9-
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 1996
recorded net of $200,000 payable by Tri-Magna in accordance with the merger
agreement between the Company and Tri-Magna.
Under the 1940 Act, the Small Business Investment Act of 1958 and
regulations thereunder (the "SBIA"), 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 factors including the financial condition of the borrower, the
adequacy of the collateral, and the relationships between market interest rates
and portfolio interest rates and maturities. Any change in the fair value of
the Company's investments as determined by the directors is reflected in net
unrealized depreciation of investments. Loans were valued at cost and there was
no unrealized depreciation of investments at September 30, 1996. The directors
have determined that this valuation approximates fair value.
(3) Investment in Unconsolidated Subsidiary
The Company's investment in Media is accounted for under the equity method
because as a non-investment company, Media cannot be consolidated with the
Company which is an investment company under the 1940 Act. Financial
information for Media for the three months ended September 30, 1996 and the
period commencing with the Company's acquisition of Media on May 29, 1996 and
ending on September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Period Ended
September 30,
Balance Sheet 1996
------------- --------------
<S> <C>
Cash $ 139,239
Accounts receivable 259,528
Equipment, net 1,020,592
Other 349,000
----------
Total assets $1,768,359
==========
Notes payable parent $1,684,079
Accrued expenses 77,039
----------
Total liabilities 1,761,118
----------
Common stock 1,000
Retained earnings 6,241
----------
Total equity 7,241
----------
Total liabilities and
shareholders equity $1,768,359
==========
</TABLE>
<TABLE>
<CAPTION>
Period
Commencing
Three May 29, 1996
Months Ended and Ending
Statement September 30, September 30,
of operations 1996 1996
- -------------------------- ------------- -------------
<S> <C> <C>
Advertising revenue $452,943 $604,196
Cost of service 215,846 261,274
-------- --------
Gross margin 237,097 342,922
Other operating expenses 272,295 334,182
-------- --------
Income (loss) before taxes (35,197) 8,741
Income tax provision (benefit) (12,500) 2,500
-------- --------
Net Income (loss) $(22,697) $ 6,241
======== ========
</TABLE>
-10-
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 1996
On July 25, 1996, Media, acquired all of the assets of See-Level
Management, Inc. and See-Level Advertising, Inc. for $700,000. The assets
represent 450 taxicab rooftop advertising display units and certain contracts
for advertising and fleet rental. The sellers also entered into noncompete and
consulting agreements with the Company for a period of thirty months. The
purchase was funded from intercompany debt.
(4) Notes Payable to Banks
On June 28, 1996, MFC increased the amount of its revolving credit
agreement to $85,000,000 from $78,000,000. Previously, MFC had extended this
credit facility until June 30, 1997 pursuant to a Renewal and Extension
Agreement dated March 29, 1996.
(5) SBA Debentures Payable
On September 2, 1996, Edwards paid upon maturity two debentures totaling
$1,200,000 in principal amount. The SBA also increased the senior secured third
party debt limit to $12,700,000 from $11,500,000. This limit is the principal
amount of debentures that will be subordinated to senior secured third-party
debt.
(6) Pro Forma Results of Operations
The unaudited pro forma combined financial information for the nine months
ended September 30, 1996 is presented as follows assuming the formation of the
Company and the Acquisitions described in Note 1 have occurred on January 1 of
each respective fiscal year:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Investment income $12,224,362 $11,662,273
Net investment income 6,473,256 6,066,527
Net increase in net assets resulting
from operations $ 4,547,665 $ 4,298,095
=========== ===========
Earnings per share $ 0.55 $ 0.52
=========== ===========
Pro forma weighted average
Shares outstanding 8,250,000 8,250,000
=========== ===========
</TABLE>
(7) Subsequent Events
On October 31, 1996, Edwards increased its line of credit by $5,500,000
through the addition of two banks to its syndicate of lenders and the Company
extended its $2,000,000 revolving line of credit to September 30, 1997.
-11-
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 1996
On November 6, 1995, MFC declared a dividend payable to the Company in the
amount of $130 per share payable on November 6, 1996 (aggregating $865,670),
Edwards declared a dividend payable to the Company in the amount of $3,500 per
share payable on November 6, 1996 (aggregating $350,000) and TCC declared a
dividend payable to the Company in the amount of $4,500 per share payable on
November 6, 1996 (aggregating $450,000). With the proceeds of these dividends,
on November 6, 1996 the Company declared a dividend in the amount of $.20 per
share (aggregating $1,650,000) payable on November 26, 1996 to the shareholders
of record on November 12, 1996.
As a result of recent amendments to the SBIA, MFC and TCC will be permitted to
lend to any small business concern as defined in the SBIA rather than being
restricted, as is currently the case, to financing small business concerns that
are at least 50% owned and managed by persons deemed to be socially or
economically disadvantaged. MFC and TCC will be permitted to make such loans as
soon as they amend their charters and intend to do so in the near future.
-12-
<PAGE>
ITEM 2. 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 Consolidated
Financial Statements and Notes thereto appearing in this report.
The Company's principal activity is the origination and servicing of loans
financing the purchase of taxicab medallions and related assets ("Medallion
Loans") and commercial installment loans financing small businesses in other
targeted industries ("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 origination's exceed the prevailing prime rate of
interest charged by major commercial banks (the "Prime Rate") has been in a
long-term decline. However, since December 1994 the average yield of the
combined Medallion Loan and Commercial Installment Loan portfolios has slightly
increased. Weighted average yield at September 30, 1996 was 10.70% for the
entire portfolio. The increase in average yield is the result of continued
stabilization in market interest rates for Medallion Loans, which began in July
1994, combined with the maturity or prepayment of older, lower interest rate
loans and originations of newer, higher interest rate loans that have
constituted a greater proportion of the portfolio and the shifting in portfolio
mix towards a higher percentage of Commercial Installment Loans. These loans
historically have had a yield of approximately 350 basis points higher than the
Company's Medallion Loans and 500 to 700 basis points higher than the Prime
Rate.
The Medallion Loans represented 77.3% of the total portfolio or $125.0
million at September 30, 1996. The weighted average yield of the Medallion Loan
portfolio was 9.85% at September 30, 1996. From inception of its business in
1979 through 1995, the period between the origination and final payment of all
Medallion Loans originated by MFC (formerly a wholly-owned subsidiary of Tri-
Magna) has been estimated by the Company to be 29 months. The Company believes
that this time period varies to some extent as a
-13-
<PAGE>
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. Commercial Installment Loans had a weighted average yield of
13.49% and represented 22.7% of the total portfolio or $36.8 million at
September 30, 1996. 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 U.S. Small Business Administration (the "SBA"). Recently, the
Company has generally reduced its reliance on SBA financing and increased the
relative proportion of bank debt to total liabilities. SBA financing can offer
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 the Small
Business Investment Act of 1958 (the "SBIA") and the regulations thereunder
("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
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 increase in the size of the loan portfolio. At
September 30, 1996, short-term LIBOR-based debt constituted 73% 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 30-180
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"). At September 30, 1996, the
Company's average cost of funds, e.o.p. was 7.12%, or 140 basis points over the
LIBOR Benchmark of 5.72%.
In connection with its Medallion Loan finance business, the Company also
conducts a taxicab rooftop advertising business through Media. Media began
operations in November 1994. Media's revenue is affected by the number of
taxicab rooftop advertising displays ("Displays") that it owns and the occupancy
rate of those Displays. At September 30, 1996, Media had 2,120 installed
Displays, 450 of which were acquired in connection with the acquisition of the
assets of See-Level Advertising, Inc. and See Level Management, Inc.
-14-
<PAGE>
which closed on July 25, 1996. 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
Securities and Exchange Commission regulations prohibit the consolidation of
non-investment companies, such as Media, with investment companies, such as the
Company.
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 Investment Company Act of
1940, as amended (the "1940 Act"), the SBIA and 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 of Edwards, TCC and Tri-Magna's
subsidiaries, MFC and Media (collectively, the "Founding Companies"), on May 29,
1996, the Company's loan portfolio was 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 believes that there was no change in
the fair market value of the loan portfolio between May 29, 1996 and September
30, 1996.
Prior to the Acquisitions, the Company had no results of operations and
each of Tri-Magna, Edwards and TCC had been operating independently of each
other.
Results of Operations
For the three months Ended September 30, 1996.
Performance Summary. Net increase in net assets resulting from operations
was $1,548,000 for the three months ended September 30, 1996. This amount
represents the earnings of the Company for the three months ended September 30,
1996. The Company did not have operations prior to May 29, 1996; therefore,
there is no prior comparable period.
Net Interest Income. Net interest income was $2,163,000 for the three
months ended September 30, 1996. The average interest rate spread was 3.10% and
the Company's investment income was $4,264,000. The Company's portfolio growth
was $5.7 million or 3.6% from $156.2 million at June 30, 1996 to $161.8 million
at September 30, 1996. The
-15-
<PAGE>
average portfolio yield was 10.70% for the three months ended September 30,
1996. Medallion Loans had a weighted average yield of 9.85% and represented
approximately 77.3% of the total portfolio at September 30, 1996. Commercial
Installment Loans had a weighted average yield of 13.49% and represented
approximately 22.7% of the total portfolio at September 30, 1996.
The Company's interest expense was $2,100,000 for the three months ended
September 30, 1996. The average interest rate on borrowings was 7.50% for the
three months ended September 30, 1996. The Company's average cost of funds,
e.o.p. was 7.12% or 140 basis points over the LIBOR Benchmark of 5.72%. The
Company's net borrowings increased $0.5 million or 0.4% from $110.1 million at
June 30, 1996 to $110.6 million at September 30, 1996.
Equity in Earnings of Unconsolidated Subsidiary. Advertising revenue
generated by Media was $453,000, for the three months ended September 30, 1996
and the number of Displays owned by Media on such date was 2,120. Display
rental cost was $216,000 resulting in a gross margin of $237,000, or 52.2%, for
the three months ended September 30, 1996. Display occupancy was 65% for the
three months ended September 30, 1996. Net loss generated by Media was $22,700
for the three months ended September 30, 1996. Media's net loss is recorded as
equity in earnings of unconsolidated subsidiary on the Company's statement of
operations. The loss primarily resulted from the write-off of accounts
receivable in the amount of $64,000 due under an advertising contract with Kiwi
International Airlines which filed for bankruptcy protection on October 1, 1996.
The Company does not believe any of the amounts owed by Kiwi will be collected.
The net loss was also the result of reduced Display occupancy rates. The number
of Displays owned by Media increased from 1,670 at June 30, 1996 to 2,120 at
September 30, 1996.
Other Income. The Company's other income was $233,900 for the three months
ended September 30, 1996.
Accretion of Negative Goodwill. Negative goodwill is the excess of fair
market value of net assets of an acquired business over the cost basis of such
business. Negative goodwill of $2.9 million was generated in the acquisition of
Tri-Magna.
Non-Interest Expenses. The Company's non-interest expense was $1,033,000
for the three months ended September 30, 1996. The Company will seek to reduce
non-interest expense as a percentage of assets by consolidating the operations
of the Company, 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. There was a realized gain of $26,000 during the
three months ended September 30, 1996. The gain was the result of recoveries on
certain radio loans previously written off. Upon completion of the Acquisitions
on May 29, 1996, the Company's loan
-16-
<PAGE>
portfolio was 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. For the three months ended September 30, 1996 there was no change
in unrealized depreciation of investments.
Results of Operations
For the Period Commencing May 29, 1996 and Ending September 30, 1996.
Performance Summary. Net increase in net assets resulting from operations
was $2,092,000 for the period ended September 30, 1996. This amount represents
the earnings of the Company from the commencement of operations on May 29, 1996
through September 30, 1996; therefore, there is no prior comparable period.
Net Interest Income. Net interest income was $2,857,000 for the period
ended September 30, 1996. The average interest rate spread was 3.23% and the
Company's investment income was $5,656,000. The Company's portfolio growth was
$12.4 million or 8.4% from $149.4 million at May 29, 1996 to $161.8 million at
September 30, 1996. The average portfolio yield was 10.71% for the period ended
September 30, 1996. Medallion Loans had a weighted average yield of 9.85% and
represented approximately 77.3% of the total portfolio at September 30, 1996.
Commercial Installment Loans has a weighted average yield of 13.49% and
represented approximately 22.7% of the total portfolio at September 30, 1996.
The Company's interest expense was $2,799,000 for the period ended
September 30, 1996. The average interest rate on borrowings was 7.48% for the
period ended September 30, 1996. The Company's average cost of funds, e.o.p.
was 7.12% or 140 basis points over the LIBOR Benchmark of 5.72%. Although the
portfolio grew, the Company's net borrowings decreased $10.2 million or 8.4%
from $120.8 million at May 29, 1996 to $110.6 million at September 30, 1996.
The decreased borrowings were the result of the repayment of LIBOR-based debt
with the proceeds from the Offering.
Equity in Earnings of Unconsolidated Subsidiary. Advertising revenue
generated by Media was $604,000, for the period ended September 30, 1996 and the
number of Displays owned by Media on that date was 2,120. Display rental cost
was $261,000 resulting in a gross margin of $343,000, or 56.8%, for period ended
September 30, 1996. Display occupancy was 65% for the period ended September
30, 1996. Net income generated by Media was $6,241 for the period ended
September 30, 1996. Media's net income is recorded as equity in earnings of
unconsolidated subsidiary on the Company's statement of operations.
Other Income. The Company's other income was $291,800 for the period ended
September 30, 1996.
Accretion of Negative Goodwill. Negative goodwill is the excess of fair
market value of net assets of an acquired business over the cost basis of such
business. Negative goodwill of $2.9 million was generated in the acquisition of
Tri-Magna.
-17-
<PAGE>
Non-Interest Expenses. The Company's non-interest expense was $1,334,000
for the period ended September 30, 1996. The Company will seek to reduce non-
interest expense as a percentage of assets by consolidating the operations of
the Company, 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. There was a realized gain of $26,000 during the
period ended September 30, 1996. The gain was the result of recoveries on
certain radio loans previously written off. Upon completion of the Acquisitions
on May 29, 1996, the Company's loan portfolio was 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. From that date through September 30,
1996 there was no change in unrealized depreciation of investments.
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).
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 in 1979 through 1995,
the period between the origination and final payments of all Medallion Loans
originated by MFC (formerly a wholly-owned subsidiary of 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.
-18-
<PAGE>
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
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.
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 regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended,
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, 1996, 73% of the Company's $110.6 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 7.4%. 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. In
addition to SBA funding, an additional $17.2 million of debt was available at
September 30, 1996 at variable effective rates of interest averaging below the
Prime Rate under the Company's $96.5 million bank credit facilities. On October
31, 1996, Edwards increased its line of credit by $5,500,000 and the Company
extended its $2,000,000 revolving line of credit to September 30, 1997.
The following table illustrates the Company's and each of the Founding
Companies' sources of available funds and amounts outstanding under credit
facilities at September 30, 1996.
-19-
<PAGE>
<TABLE>
<CAPTION>
Medallion
Financial
Corp. MFC Edwards TCC Total
------- ----------- ----------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents... $ 1 $ 1,002 $ 163 $ 280 $ 1,446
Revolving lines of credit... 2,000 85,000 9,500 -- 96,500
Amounts available......... 600 16,400 200 -- 17,200
Amounts outstanding....... 1,400 68,600 9,300 -- 79,300
Average interest rate.... 7.98% 6.99% 7.02%
Maturity................. 9/97 6/97 4/97-7/97
Term loans.................. -- 2,000 2,000
Interest rate............. -- 7.50%
Maturity.................. -- 7/97
SBA debentures.............. 23,750 5,513 29,263
Average interest rate..... 7.95% 5.00%
Maturity.................. 4/97-9/04 6/02
Total cash and remaining
amounts available under
credit facilities.......... 601 17,402 363 280 18,646
Total debt outstanding...... $ 1,400 $ 70,600 $ 33,050 $ 5,513 $ 110,563
</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, initially because of increases, and then stabilization,
in the level of interest rates which have caused a decrease in Medallion Loan
refinancing activity and also more recently because of an increase in the
percentage of the Company's Medallion Loans which are refinanced with the
Company rather than through other sources of financing.
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, 1996, SBA financing represented 27% of total
debt. 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 funds its operations through internal cash flow and intercompany
debt. Media is not a RIC and, therefore, is able to retain earnings to finance
growth.
The Company believes that the net proceeds of its initial public 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
-20-
<PAGE>
and advertising business through at least the third quarter of 1997. 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.
-21-
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Agreement between Medallion Taxi Media, Inc., See Level
Advertising, Inc. and See Level Management, Inc., dated
July 25, 1996
10.2 Agreement between Medallion Taxi Media, Inc. and Glenn
Gruman, dated July 25, 1996
27 Financial Data Schedules
(b) Reports on Form 8-K.
No reports on Form 8-K were filed.
-22-
<PAGE>
MEDALLION FINANCIAL CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDALLION FINANCIAL CORP.
Date: November 11, 1996 By: /s/ Daniel F. Baker
-------------------------------------
Daniel F. Baker
Chief Financial Officer
-23-
<PAGE>
SETTLEMENT AGREEMENT
--------------------
This Agreement is made this 25th day of July 1996, by and between Medallion
Taxi Media, Inc., a New York corporation with offices at 205 East 42nd Street,
New York, New York ("MTM or "Buyer") and See Level Advertising, Inc. and See
Level Management, Inc., New York corporations, with offices c/o Glenn Gruman,
215 East 68th Street, New York, New York (collectively "See Level" or "Seller").
RECITAL
-------
WHEREAS, MTM and See Level are presently parties to a litigation pending in
the Supreme Court of the State of New York in and for the County of New York
under Index No. 96-600739 (the "Litigation"); and
WHEREAS, MTM and See Level desire to settle and resolve all of the
outstanding disputes between them in the Litigation and provide for MTM to
acquire certain assets relating to Seller's taxi-top advertising business (the
"Business") on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the parties hereby agree as follows:
1. Settlement of Litigation: Simultaneously with the execution of this
--------------------------
Agreement, See Level and MTM shall fully settle and resolve the Litigation and
all other claims and disputes between them, whether asserted or unasserted, by
executing and
<PAGE>
delivering: (i) mutual general releases, in the forms annexed hereto as
Exhibits 1(a), (b), (c) and (d); and (ii) a stipulation discontinuing the
Litigation between MTM and See Level with prejudice, in the form annexed hereto
as Exhibit 2.
2. Sale of Assets: In consideration of MTM's payment of $427,000.00, by
--------------
bank or certified check, simultaneously with the execution of this Agreement,
MTM shall buy and See Level shall sell, assign, transfer and convey to MTM all
of its right, title and interest in and to the following assets (the "Assets"),
which Assets shall be delivered to MTM free and clear of any and all security
interests, liens and encumbrances of any kind or description whatsoever (the
"Liens"): (a) 450 illuminated taxi-top advertising displays (the "Signs")
properly and legally installed on the taxis bearing the New York City taxi
medallion numbers listed on Schedule A attached hereto; (b) contracts with taxi
fleet operators (the "Operators") listed on Schedule B attached hereto (the
"Contracts"); (c) any and all agreements with advertisers (the "Advertising
Contracts") respecting the placement of advertisements on the Signs, subject to
MTM's acceptance of the terms and conditions of any such agreements; and (d) the
tradenames, trademarks and servicemarks "See Level Advertising" and "See Level
Management" and any other similar marks associated or used with the operation of
the Assets (the "Trademarks"). Simultaneously with the execution of this
Agreement, See Level shall deliver the Assets to MTM along with
- 2 -
<PAGE>
the following documents to MTM evidencing the transfer of the Assets to MTM:
(i) a bill of sale for the Signs, in the form annexed hereto as Exhibit 3; (ii)
assignment of the Contracts, in the form annexed hereto as Exhibit 4; (iv)
letters to the Operators advising them of MTM's acquisition of the Signs and See
Level's assignment of the Contracts, in the form annexed hereto as Exhibit 5;
(iii) assignments of the Advertising Contracts, if any, in the form annexed
hereto as Exhibit 6; and (iv) assignments of the Trademarks, in the forms
annexed hereto as Exhibits 7 (a) and (b). In addition, upon execution of this
Agreement, See Level's attorney shall deliver to MTM an undertaking to file
within two (2) business days name change amendments to the certificates of
incorporation with respect to all See Level entities, in the forms annexed
hereto as Exhibits 8 (a) and (b). The parties hereto acknowledge that any
claims and/or causes of action that See Level may have against any third parties
and any revenue due See Level that remains outstanding as of the date hereof,
other than revenues attributable to the Advertising Contracts being assigned
pursuant to Exhibit 6 hereto, are not part of the Assets nor are these claims
and revenues being sold or transferred pursuant to this Agreement, and that See
Level shall retain full rights to the aforementioned claims and revenues.
3. Non-Competition Agreement: For a period of two and one-half (2 1/2)
-------------------------
years (i.e., 912 calendar days) from the date of
- 3 -
<PAGE>
the execution of this Agreement, See Level shall not engage in, directly or
indirectly, as principal, agent, employee, consultant or otherwise in the taxi-
top advertising business: (a) in metropolitan areas in the United States of
America in which MTM conducts business or; (b) in metropolitan areas in the
United States with populations of 1,000,000 persons or more, including, without
limitation, the following United States greater metropolitan areas: New York,
Boston, Atlanta, Chicago, Miami, Los Angeles and Philadelphia. The terms of
this paragraph shall survive the closing.
4. Right of First Refusal: MTM shall have a right of first refusal to
----------------------
purchase any taxi-top advertising business that See Level may establish outside
of the United States and seek to sell within two and one-half (2 1/2) years
(i.e., 912 calendar days) from the date hereof (the "New Business"). In the
event that See Level establishes any New Business and See Level receives a bona
fide written offer to purchase the New Business or substantially all of its
assets from a third party (the "Offer"), which See Level has decided to accept,
MTM shall have the right to purchase the New Business on the same terms and
conditions as set forth in the Offer. Within ten (10) days of receipt of the
Offer, See Level shall provide MTM with a true copy of the Offer, by certified
mail, return receipt requested, and within thirty (30) days of MTM's receipt of
said Offer from See Level, MTM may exercise its right of first refusal by
- 4 -
<PAGE>
notifying See Level, in writing, of its intention to purchase the New Business
on the same terms and conditions set forth in the Offer and delivering its check
for ten percent (10%) of the purchase price set forth in the Offer, which shall
be held in escrow by See Level's attorneys pending execution of a formal
contract of sale embodying the terms of the Offer. If MTM does not timely
exercise its right of first refusal, See Level may sell the New Business
strictly in accordance with the terms of the Offer to the third party offeror.
If no such sale is consummated within sixty (60) days of the expiration of the
thirty (30) day period, then See Level may not sell the New Business without
complying with the terms and provisions set forth above. The terms of this
paragraph shall survive the closing.
5. Indemnification Agreement: See Level shall indemnify, defend and hold
-------------------------
MTM harmless from and against any and all claims, actions, damages, judgments,
costs and expenses (including reasonable attorneys' fees and disbursements)
incurred by MTM: (a) arising solely out of any claims asserted by any person or
entity relating to the operation, maintenance and ownership of the Assets prior
to the date of the closing of the Settlement Agreement; and (b) as a result of
or attributable to any misrepresentation or breach of any representation,
warranty, covenant, or agreement herein (including, without limitation,
provisions on applicable bulk transfer laws) given or made by
- 5 -
<PAGE>
Seller. Notwithstanding the foregoing, See Level's indemnity with respect to
any claim asserted by Metrometer against MTM shall be limited as follows: (i)
See Level shall pay all damages, judgments, costs and expenses awarded to
Metrometer against MTM up to $50,000.00, exclusive of legal fees; and (ii) in
the event Metrometer commences an action against both MTM and See Level, See
Level shall pay for its counsel to make a dispositive motion on MTM's behalf; in
the event such motion is not successful, MTM shall be responsible for its own
legal fees in connection with all further proceedings in any such action
commenced by Metrometer. MTM shall indemnify, defend and hold See Level
harmless from and against any and all claims, actions, damages, judgments, costs
and expenses (including reasonable attorneys' fees and disbursements) incurred
by See Level up to $50,000, arising solely out of any claims against See Level
relating to the assignment of the advertising contract annexed as Schedule A to
Exhibit 6 hereto (the "Advertising Contract"). Notwithstanding the foregoing
MTM has no duty to indemnify or defend See Level with respect to any claims
asserted against it for fraud or misrepresentation in connection with the
Advertising Contract.
6. Representations: See Level warrants and represents that as of the date
---------------
hereof and at all times prior to See Level's delivery of the Assets to MTM:
- 6 -
<PAGE>
(a) See Level is not and has not been at any time in default under the
terms of the Contracts;
(b) all payments due under the Contracts have been made by See Level as of
each of the due dates set forth in the Contracts;
(c) the Assets are owned by See Level and are not encumbered by any Liens;
(d) no consents are required for the transfer of the Assets to MTM;
(e) the Contracts are in full force and effect;
(f) to the best of See Level's knowledge, the Advertising Contracts, if
any, are in full force and effect;
(g) See Level has the full right and authority to sell, assign, transfer
and convey the Assets;
(h) the Signs are in good condition and are capable of being used for
their intended purposes without the necessity of material repairs;
(i) the See Level entities are corporations duly organized and validly
existing under the laws of the State of New York, are duly qualified to do
business in the State of New York, and have full power and authority to carry on
current business and to own, use and sell their respective assets and
properties;
(j) See Level's boards of directors and shareholders have authorized the
execution and delivery of this Agreement to Buyer and the carrying out of its
provisions. At Closing, Seller shall
- 7 -
<PAGE>
furnish Buyer with duly certified copies of such resolutions in the forms
annexed hereto as Exhibits 9 (a) and (b);
(k) Neither the execution and delivery of this Agreement, nor the
consummation by Seller of any of the transactions contemplated hereby, will
result in a breach of any statute or regulation, or of any administrative order
or decree; nor will such compliance conflict with or result in the breach of any
term, provision, covenant or condition of any agreement or other instrument to
which See Level is a party or by which it may be bound, or, which with the
giving of notice or lapse of time, or both, may constitute an event of default
thereunder;
(l) Other than the Litigation, no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation is pending, or to
See Level's knowledge is threatened against See Level or See Level's Assets,
which may materially or adversely affect See Level's financial condition or the
conduct of See Level's Business. In addition, there is no outstanding judgment,
decree, or order against See Level which affects See Level in any way;
(m) See Level has filed with the appropriate governmental agencies all
required tax returns and tax reports. See Level has not executed any waiver or
waivers which would have the effect of extending any applicable statute of
limitations with respect to its income tax liabilities, if any. See Level has
paid all applicable taxes, assessments, fees, and other governmental
- 8 -
<PAGE>
charges levied upon its assets and income, other than those not yet due and
payable or delinquent. See Level has not had its federal income tax returns
audited by the Internal Revenue Service;
(n) See Level warrants and represents that the original purchase price of
the Signs was $170,000, net of sales taxes; and
(o) The advertising contract annexed as Schedule A to Exhibit 6 herein was
prepared by the advertiser on the advertiser's pre-printed contract form and
delivered to See Level; See Level executed said advertising contract and
delivered same to the advertiser; and to the best of See Level's knowledge, said
advertising contract is thus valid and binding; the advertiser thereunder has a
net worth in excess of $10,000,000; the term of said advertising contract is for
a period of not less than 90 days, commencing on September 15, 1996, for 450
Signs per month; and the monthly gross billings to be derived under said
advertising contract is not less than $72,450 per month.
Such representations shall survive the closing. Notwithstanding any of the
foregoing, it is expressly understood that See Level makes no representation as
to the assignability of the Contracts or the Advertising Contracts.
7. Bulk Sales Law: The parties hereby waive See Level's compliance with
--------------
the provisions of the New York Uniform Commercial Code-Bulk Transfers Law. See
Level shall hold a sufficient amount of the net cash proceeds in trust to pay
all its creditors
- 9 -
<PAGE>
as and when their claims come due, and hold and save MTM harmless against any
loss, damage, or expense, including reasonable attorneys' fees and court costs,
incurred by MTM as a result of or attributable to the parties' failure to
comply with such provisions. The terms of this paragraph shall survive the
closing.
8. Brokerage: Each party represents and warrants to the other that no
---------
broker is entitled to any commission, or similar fee, in connection with the
making and carrying out of this Agreement. The terms of this paragraph shall
survive the closing.
9. Sales Taxes: All sales taxes which may be payable in connection with
-----------
the transfer of any assets to be transferred to MTM hereunder shall be borne
solely by MTM, which shall timely make all necessary filings with respect to any
such taxes. MTM shall hold See Level and Glenn Gruman harmless with respect to
any such taxes. The terms of this paragraph shall survive the closing.
10. Further Assurances: The parties acknowledge and warrant that they
------------------
shall at their own expense promptly execute and deliver all further instruments
and documents provided by the other party that are reasonable, and take all
further reasonable action that may be necessary or that may be reasonably
requested in order to effectuate this Agreement. The terms of this paragraph
shall survive the closing.
- 10 -
<PAGE>
11. Consultation with Counsel: Each of the parties hereto acknowledges
-------------------------
and warrants: (i) that each party has carefully and completely read this
Agreement; (ii) that each party has consulted with his counsel in regard to
negotiating and executing this Agreement; (iii) that such counsel has explained
in detail and fully the terms of this Agreement and the annexed schedules and
exhibits to each of them and the effect of said terms and documents; (iv) that
each party fully understands all the terms and provisions hereof; and (v) that
each party has knowingly and voluntarily executed this Agreement.
12. Jointly Drafted Agreement: It is specifically understood and agreed
-------------------------
by and between the parties that the within Agreement and the schedules and
exhibits thereto are the result of extensive negotiations between the parties.
It is understood and agreed that all parties shall be deemed to have drawn these
documents to avoid any negative inference by any court as against the preparer
of the documents. This Agreement and the schedules and exhibits thereto shall
be binding upon each and all of the respective parties, their heirs, assigns,
executors, administrators, successors-in-interest, partners, employees, agents,
officers, shareholders and directors.
13. Entire Agreement: This Agreement, as well as the schedules and
----------------
exhibits referenced herein, together with the Settlement Agreement executed
simultaneously herewith by and between MTM and Glenn Gruman and the exhibits
annexed thereto,
- 11 -
<PAGE>
constitute the entire agreement between the parties and any prior agreements,
understandings, or memoranda, shall be merged into said documents.
14. Modifications: This Agreement, as well as the schedules and exhibits
-------------
referenced herein, may not be changed except by another agreement in writing,
fully executed by all parties hereto, their respective heirs, successors and/or
assigns. The parties herein agree that their counsel shall be authorized to
enter into such modifications on their behalf.
15. Provisions Severable: If any provision in this Agreement or the
--------------------
schedules and exhibits referenced herein is declared invalid by any court,
tribunal or administrative agency, then such provision shall be deemed
automatically adjusted to conform to the requirements for validity as declared
at such time, and as so adjusted shall be deemed a provision respectively of
this Agreement or the schedules and exhibits referenced herein, as though
originally included herein. If any invalidated provision is of such a nature
that it cannot be so adjusted, then the same shall be deleted and shall not
effect the remaining provisions of this Agreement, and to this end the
provisions of this Agreement are intended to be and shall be severable.
16. Choice of Law: This Agreement shall be construed in accordance with
--------------
the laws of the State of New York, without giving effect to the choice of law
rules thereof.
- 12 -
<PAGE>
17. Assignment: This Agreement may not be assigned by either party
-----------
hereto, except with the prior written consent of the other party hereto.
18. Notices: Any communication required or permitted by this Agreement
--------
shall be in writing and shall be deemed to have been given when mailed by
registered or certified mail, return receipt requested, or when delivered or
otherwise actually received at the following addresses, or to such other
addresses as the parties may communicate from time to time to each other through
written notice:
If to MTM:
---------
Medallion Taxi Media, Inc.
205 East 42/nd/ Street
New York, New York 10017
Attention: Mr. Andrew Murstein
With a required copy to:
Dreyer and Traub LLP
101 Park Avenue
New York, New York 10178
Attention: Mitchel A. Maidman, Esq.
If to See Level:
---------------
c/o Glenn Gruman
215 East 68th Street
New York, New York 10021
With a required copy to:
David Leffler, Esq.
292 Madison Avenue
New York, New York 10017
19. Confidentiality Provision: See Level represents and warrants that
-------------------------
absent the prior written consent of MTM it shall
- 13 -
<PAGE>
keep the terms, conditions and provisions of this Agreement, and the fact that
this Agreement was entered into by and between the parties, completely
confidential, and it shall not in any way disclose, divulge or reveal same to
any person, entity or governmental agency, except for fiduciaries who are under
Gruman's and/or See Level's control and who agree to be bound by the terms of
this provision, until August 31, 1996, or at such time and only to the extent
that the terms hereof become publicly known from a source other than See Level
or Glenn Gruman. In the event of a breach of this provision, MTM may seek
monetary damages and equitable relief against Gruman and See Level. In the
event Gruman and/or See Level are compelled by some form of process to disclose
the terms of this Agreement, Gruman and/or See Level shall provide MTM with
notice by mail and telecopier of the subpoena or other form of process within
three (3) days of receipt of such subpoena or process, or one (1) day before the
subpoena or process is returnable if the subpoena or process is received less
than three (3) days before it is returnable, advising MTM where and when the
subpoena or process is returnable, who has made the request and enclosing a copy
of the subpoena or process with such notice. Gruman and See Level shall
cooperate with MTM in any motion to quash such subpoena or process, or in any
such similar proceeding that MTM may choose or undertake.
- 14 -
<PAGE>
20. Counterparts: The parties hereto agree that this Agreement may be
------------
signed in counterparts and that the signed counterparts shall together be deemed
an original.
21. Section Headings: Section headings are for convenient reference only
----------------
and shall not affect the meaning or have any bearing on the interpretation of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
SEE LEVEL MANAGEMENT, INC. SEE LEVEL ADVERTISING, INC.
By: /s/ Glenn Gruman By: /s/ Glenn Gruman
------------------------ -------------------------
Glenn Gruman, Pres. Glenn Gruman, Pres.
MEDALLION TAXI MEDIA, INC.
By: /s/ Berton Miller
------------------------
Berton Miller, C.O.O.
and Executive Vice President
- 15 -
<PAGE>
Gruman-2.Sa
SETTLEMENT AGREEMENT
--------------------
This Agreement is made this 25th day of July 1996, by and between Medallion
Taxi Media, Inc., a New York corporation with offices at 205 East 42nd Street,
New York, New York ("MTM"), and Glenn Gruman, an individual residing at 215 East
68th Street, New York, New York ("Gruman").
RECITAL
-------
WHEREAS, MTM and Gruman are presently parties to a litigation pending in
the Supreme Court of the State of New York in and for the County of New York
under Index No. 96-600739 (the "Litigation"); and
WHEREAS, MTM has entered into a Settlement Agreement of even date herewith
with See Level Advertising, Inc. and See Level Management, Inc. (collectively,
"See Level") (the "See Level Settlement Agreement"), pursuant to which MTM has
agreed to resolve the Litigation as between them and pursuant to which MTM
acquired certain assets from See Level (the "Assets"); and
WHEREAS, Gruman is See Level's sole shareholder and desires to settle and
resolve all of the outstanding disputes between himself and MTM in the
Litigation, and to provide for Gruman to be retained as a consultant to MTM on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the parties hereby agree as follows:
<PAGE>
1. Settlement of Litigation: Simultaneously with the execution of this
------------------------
Agreement, Gruman and MTM shall fully settle and resolve the Litigation and all
other claims and disputes between them, whether asserted or unasserted, by
executing and delivering: (i) mutual general releases, in the form annexed
hereto as Exhibits 1(a) and (b); and (ii) a stipulation discontinuing the
Litigation between MTM and Gruman with prejudice, in the form annexed hereto as
Exhibit 2.
2. Consulting Agreement: Upon execution of the Settlement Agreement,
--------------------
MTM shall retain Gruman as its consultant for a period of two and one-half (2
1/2) years (i.e., 912 calendar days), and MTM shall pay Gruman the sum of
$173,000, by bank or certified check. During the ninety (90) days following
execution of this Agreement, Gruman shall be available to consult with MTM, on a
daily basis, for no more than two hours per day, Monday-Friday, between the
hours of 9:00 a.m. and 5:00 p.m. either: (i) by telephone; or (ii) in person, at
the offices of MTM (but not more than two days per week) on such days as are
mutually agreed to by the parties, and to engage in all reasonable efforts to
accomplish the tasks necessary to insure the orderly transfer of the Assets to
MTM and the operation of the Assets by MTM, including, without limitation,
representing MTM at MTM's direction in MTM's communications with: (i) the
Operators; (ii) the advertisers under the Advertising Contracts transferred to
See Level pursuant to the See Level Settlement Agreement; and (iii) the
potential maintenance contractor for the
-2-
<PAGE>
Signs, Metrometer Shop, Inc. ("Metrometer"). Thereafter, Gruman shall be
available to consult with MTM from time to time, on reasonable prior notice to
Gruman and at regular business hours mutually convenient to Gruman and MTM, but
in no event more than four (4) hours per month. During this consulting period,
Gruman shall refrain from taking any action, directly or indirectly, which may
be injurious to MTM's goodwill or reputation in the taxi-top and outdoor
advertising industry.
3. Non-Competition Agreement: In consideration of MTM's payment of
-------------------------
$100,000 by bank or certified check simultaneously with the execution of this
Agreement, for a period of two and one-half (2 1/2) years (i.e., 912 calendar
days) from the date of the execution of this Agreement, Gruman shall not engage
in, directly or indirectly, as principal, agent, employee, consultant or
otherwise in the taxi-top advertising business: (a) in metropolitan areas in
the United States of America in which MTM conducts business; or (b) in
metropolitan areas in the United States with populations of 1,000,000 persons or
more, including, without limitation, the following United States greater
metropolitan areas: New York, Boston, Atlanta, Chicago, Miami, Los Angeles and
Philadelphia.
4. Right of First Refusal: MTM shall have a right of first refusal to
----------------------
purchase any taxi-top advertising business that See Level may establish outside
of the United States and seeks to sell within two and one-half (2 1/2) years
(i.e., 912 calendar days) from the date hereof (the "New Business"). In the
event
-3-
<PAGE>
that See Level establishes any New Business and See Level receives a bona fide
written offer to purchase the New Business or substantially all of its assets
from a third party (the "Offer"), which See Level has decided to accept, MTM
shall have the right to purchase the New Business on the same terms and
conditions as set forth in the Offer. Within ten (10) days of receipt of the
Offer, See Level shall provide MTM with a true copy of the Offer, by certified
mail, return receipt requested, and within thirty (30) days of MTM's receipt of
said Offer from See Level, MTM may exercise its right of first refusal by
notifying See Level, in writing, of its intention to purchase the New Business
on the same terms and conditions set forth in the Offer and delivering its check
for ten percent (10%) of the purchase price set forth in the Offer, which shall
be held in escrow by See Level's attorneys, pending execution of a formal
contract of sale embodying the terms of the Offer. If MTM does not timely
exercise its right of first refusal, See Level may sell the New Business
strictly in accordance with the terms of the Offer, to the third party offeror.
If no such sale is consummated within sixty (60) days of the expiration of the
thirty (30) day period, then See Level may not sell the New Business without
complying with the terms and provisions set forth above.
5. Further Assurances: The parties acknowledge and warrant that they
------------------
shall at their own expense promptly execute and deliver all further instruments
and documents provided by the
-4-
<PAGE>
other party that are reasonable, and take all further reasonable action that may
be necessary or that may be reasonably requested in order to effectuate this
Agreement. The terms of this paragraph shall survive the closing.
6. Consultation with Counsel: Each of the parties hereto acknowledges
-------------------------
and warrants: (i) that each party has carefully and completely read this
Agreement; (ii) that each party has consulted with his counsel in regard to
negotiating and executing this Agreement; (iii) that such counsel has explained
in detail and fully the terms of this Agreement and the annexed exhibits to each
of them and the effect of said terms and documents; (iv) that each party fully
understands all the terms and provisions hereof; and (v) that each party
knowingly and voluntarily executed this Agreement.
7. Jointly Drafted Agreement: It is specifically understood and agreed
-------------------------
by and between the parties that the within Agreement and exhibits thereto are
the result of extensive negotiations between the parties. It is understood and
agreed that all parties shall be deemed to have drawn these documents to avoid
any negative inference by any court as against the preparer of the documents.
This Agreement and the exhibits thereto shall be binding upon each and all of
the respective parties, their heirs, assigns, executors, administrators,
successors-in-interest, partners, employees, agents, officers, shareholders and
directors.
-5-
<PAGE>
8. Entire Agreement: This Agreement, as well as the exhibits referenced
----------------
herein, together with the Settlement Agreement executed simultaneously herewith
by and between MTM and See Level and the exhibits annexed thereto, constitute
the entire agreement between the parties and any prior agreements,
understandings, or memoranda, shall be merged into said documents.
9. Modifications: This Agreement, as well as the exhibits referenced
-------------
herein, may not be changed except by another agreement in writing, fully
executed by all parties hereto, their respective heirs, successors and/or
assigns. The parties herein agree that their counsel shall be authorized to
enter into such modifications on their behalf.
10. Provisions Severable: If any provision in this Agreement or the
--------------------
exhibits referenced herein is declared invalid by any Court, tribunal or
administrative agency, then such provision shall be deemed automatically
adjusted to conform to the requirements for validity as declared at such time,
and as so adjusted shall be deemed a provision respectively of this Agreement or
the exhibits referenced herein, as though originally included herein. If any
invalidated provision is of such a nature that it cannot be so adjusted, then
the same shall be deleted and shall not effect the remaining provisions of this
Agreement, and to this end the provisions of this Agreement are intended to be
and shall be severable.
-6-
<PAGE>
11. Choice of Law: This Agreement shall be construed in accordance with
--------------
the laws of the State of New York, without giving effect to the choice of law
rules thereof.
12. Assignment: This Agreement may not be assigned by either party
-----------
hereto, except with the prior written consent of the other party hereto.
13. Notices: Any communication required or permitted by this Agreement
--------
shall be in writing and shall be deemed to have been given when mailed by
registered or certified mail, return receipt requested, or when delivered or
otherwise actually received at the following addresses or to such other
addresses as the parties may communicate from time to time to each other through
written notice:
If to MTM:
---------
Medallion Taxi Media, Inc.
205 East 42/nd/ Street
New York, New York 10017
Attention: Mr. Andrew Murstein
With a required copy to:
Dreyer and Traub LLP
101 Park Avenue
New York, New York 10178
Attention: Mitchel A. Maidman, Esq.
If to Gruman:
------------
Glenn Gruman
215 East 68th Street
New York, New York 10021
With a required copy to:
David Leffler, Esq.
292 Madison Avenue
New York, New York 10017
-7-
<PAGE>
14. Confidentiality Provision: Gruman represents and warrants that he
-------------------------
shall keep the terms, conditions and provisions of this Agreement, and the fact
that this Agreement was entered into by and between the parties, completely
confidential, and he shall not in any way disclose, divulge or reveal same to
any person, entity or governmental agency, except for fiduciaries who are under
Gruman's and/or See Level's control and who agree to be bound by the terms of
this provision, until August 31, 1996, or at such time and only to the extent
that the terms hereof become publicly known from a source other than See Level
or Glenn Gruman. In the event of a breach of this provision, MTM may seek
monetary damages and equitable relief against Gruman and See Level. In the
event Gruman and/or See Level are compelled by some form of process to disclose
the terms of this Agreement, Gruman and/or See Level shall provide MTM with
notice by mail and telecopier of the subpoena or other form of process within
three (3) days of receipt of such subpoena or process, or one (1) day before the
subpoena or process is returnable if the subpoena or process is received less
than three (3) days before it is returnable, advising MTM where and when the
subpoena or process is returnable, who has made the request and enclosing a copy
of the subpoena or process with such notice. Gruman and See Level shall
cooperate with MTM in any motion to quash such subpoena or process, or in any
such similar proceeding that MTM may choose or undertake.
-8-
<PAGE>
15. Counterparts: The parties hereto agree that this Agreement may be
------------
signed in counterparts and that the signed counterparts shall together be deemed
an original.
16. Section Headings: Section headings are for convenient reference only
----------------
and shall not affect the meaning or have any bearing on the interpretation of
any provision of this Agreement.
17. Survival Provision: The provisions of this Agreement shall survive
------------------
the closing of the See Level Settlement Agreement and any other agreements
executed herewith in connection with the settlement of the Litigation.
IN WITNESS WHEREOF, the parties have respectively executed this Agreement
on the day and year first above written.
MEDALLION TAXI MEDIA, INC.
/s/ Glenn Gruman
By: -------------------
Berton Miller, C.O.O. GLENN GRUMAN
and Executive Vice President
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY FOR THE PERIOD COMMENCING MAY 29, 1996 AND
ENDING SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-29-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 161,811,689
<INVESTMENTS-AT-VALUE> 161,811,689
<RECEIVABLES> 1,554,207
<ASSETS-OTHER> 3,550,443
<OTHER-ITEMS-ASSETS> 7,667,557
<TOTAL-ASSETS> 174,583,896
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116,343,264
<TOTAL-LIABILITIES> 116,343,264
<SENIOR-EQUITY> 82,500
<PAID-IN-CAPITAL-COMMON> 56,066,556
<SHARES-COMMON-STOCK> 8,250,000
<SHARES-COMMON-PRIOR> 2,500,000
<ACCUMULATED-NII-CURRENT> 2,091,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 58,240,632
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,656,321
<OTHER-INCOME> 543,047
<EXPENSES-NET> 1,334,195
<NET-INVESTMENT-INCOME> 2,065,687
<REALIZED-GAINS-CURRENT> 25,889
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,091,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,250,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 58,238,632
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 75,000
<INTEREST-EXPENSE> 2,799,486
<GROSS-EXPENSE> 4,133,681
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
