<PAGE>
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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, 1997
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, 1997:
Class Outstanding Par Value Shares Outstanding
----------------- --------- ------------------
Common Stock............................... $.01 12,866,060
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1
<PAGE>
MEDALLION FINANCIAL CORP.
FORM 10-Q
September 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. Financial Information
Item 1. Basis of Preparation ....................................................................... 3
Medallion Financial Corp. Consolidated Balance Sheets
as of December 31, 1996 and September 30, 1997..................................... 4
Medallion Financial Corp. Consolidated Statement of Operations
for the periods ended September 30, 1997 and 1996.................................. 5
Medallion Financial Corp. Consolidated Statement of
Changes in Stockholders' Equity for the nine months
ended September 30, 1997 .......................................................... 6
Medallion Financial Corp. Consolidated Statement of Cash Flows
for the periods ended September 30, 1997 and 1996.................................. 7
Notes to Consolidated Financial Statements............................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................................. 13
General................................................................................ 13
Consolidated Results of Operations (for the three months
ended September 30, 1997 and 1996)................................................. 16
Consolidated Results of Operations (for the nine months
ended September 30, 1997).......................................................... 19
Asset/Liability Management............................................................. 22
Liquidity and Capital Resources........................................................ 24
Investment Considerations.............................................................. 25
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................................................ 28
Signatures ................................................................................... 29
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. BASIS OF PREPARATION
Medallion Financial Corp. (the "Company") was incorporated in Delaware
in 1995 and commenced operations on May 30, 1996 in connection with the closing
of its initial public offering (the "Initial Offering") and simultaneous
acquisition (the "Acquisitions") of Medallion Funding Corp. ("MFC"), the assets
of Edwards Capital Company, 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 Initial 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 Capital Company, 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. 333-24877) filed in connection with the Company's recent follow-on
public offering which was declared effective on May 12, 1997 (the "Follow-on
Offering").
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, 1997 and the related statements of
operations, changes in stockholders' equity and cash flows for the nine months
ending September 30, 1997. Item 1 also sets forth the audited consolidated
balance sheet of the Company as of December 31, 1996 and the related statements
of operations and cash flows for the period from May 30, 1996 through September
30, 1996. 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 and nine
months ended September 30, 1997. 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, 1997,
the related statements of operations, changes in stockholders' equity and cash
flows for the nine months ended September 30, 1997 and the related statements of
operations and cash flows for the period from May 30, 1996 through 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 three and nine months ended September 30, 1997 and the period
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
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1996 1997
----- ----
<S> <C> <C>
Assets (Unaudited)
Investments (Note 2)
Medallion loans $ 134,614,899 $ 192,017,079
Commercial installment loans 41,925,289 51,790,848
------------- -------------
Gross investments 176,540,188 243,807,927
Unrealized depreciation of investments (46,300) (71,300)
------------- -------------
Net investments 176,493,888 243,736,627
Investment in unconsolidated subsidiary (Note 3) 937,000 1,017,551
------------- -------------
Total investments 177,430,888 244,754,178
Cash 1,664,603 1,658,920
Accrued interest receivable 1,696,584 2,518,669
Fixed assets, net 89,815 127,338
Goodwill, net (Note 2) 6,250,636 5,935,456
Other assets 2,491,974 3,685,650
------------- -------------
Total assets $ 189,624,500 $ 258,680,211
============= =============
Liabilities
Accounts payable and accrued expenses $ 1,844,033 $ 2,356,053
Dividends payable 1,849,225 116,725
Accrued interest payable 1,086,247 1,372,277
Notes payable to banks and demand notes (Note 4) 96,450,000 90,875,000
SBA debentures payable (Note 4) 29,390,000 27,890,000
------------- -------------
Total liabilities 130,619,505 122,610,055
------------- -------------
Negative goodwill, net (Note 2) 2,517,716 1,975,916
------------- -------------
Commitments and contingencies (Note 6) -- --
Stockholders' equity (Note 1)
Preferred Stock (1,000,000 shares of $0.01 par
value stock authorized - none outstanding) -- --
Common stock (15,000,000 shares of $0.01 par
value stock authorized - 8,250,000 and 12,866,060
shares outstanding at December 31, 1996 and
September 30, 1997, respectively) 82,500 128,661
Capital in excess of par value 56,359,555 130,836,145
Accumulated undistributed income 45,224 3,129,434
------------- -------------
Total stockholders' equity 56,487,279 134,094,240
------------- -------------
Total liabilities and stockholders' equity $ 189,624,500 $ 258,680,211
============= =============
Fully diluted number of common shares 12,947,448
=============
Net asset value per share $10.35
======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three Months Three Months Nine Months May 30, 1996
Ended Ended Ended through
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Investment income:
Interest income on $ 5,971,287 $ 4,255,203 $ 16,113,728 $ 5,618,718
investments
Interest income on treasury bills -- 8,419 28,326 37,603
------------ ------------ ------------ ------------
Total investment income 5,971,287 4,263,622 16,142,054 5,656,321
------------ ------------ ------------ ------------
Interest expense:
Notes payable to banks 1,385,984 1,537,102 4,844,742 2,044,738
SBA debentures 551,256 563,168 1,616,832 754,748
------------ ------------ ------------ ------------
Total interest expense 1,937,240 2,100,270 6,461,574 2,799,486
------------ ------------ ------------ ------------
Net interest income 4,034,047 2,163,352 9,680,480 2,856,835
------------ ------------ ------------ ------------
Non-interest income:
Equity in earnings (loss) of
unconsolidated subsidiary 47,749 (22,697) 80,551 6,241
Accretion of negative goodwill 180,600 180,615 541,800 244,984
Other income 265,999 233,948 703,980 291,822
------------ ------------ ------------ ------------
Total non-interest income 494,348 391,866 1,326,331 543,047
------------ ------------ ------------ ------------
Expenses:
Administrative and advisory fees 66,832 56,250 180,723 75,000
Professional fees 157,051 93,476 462,354 152,379
Salaries and benefits 412,784 348,233 1,040,673 446,172
Other operating expenses 444,401 433,266 1,411,385 524,012
Amortization of goodwill 105,060 101,612 315,180 136,632
------------ ------------ ------------ ------------
Total expenses 1,186,128 1,032,837 3,410,315 1,334,195
------------ ------------ ------------ ------------
Net investment income 3,342,267 1,522,381 7,596,496 2,065,687
Change in unrealized depreciation -- -- (25,000) --
Net realized gain on investments 127,783 25,889 154,714 25,889
------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations $ 3,470,050 $ 1,548,270 $ 7,726,210 $ 2,091,576
============ ============ ============ ============
Net increase in net assets resulting from
operations per common share $ 0.27 $ 0.19 $ 0.73 $ 0.25
============ ============ ============ ============
Weighted average shares and common 12,912,842 8,250,000 10,555,726 8,250,000
share equivalents outstanding ============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares of
Common Common Capital in Accumulated
Stock Stock $0.01 Excess of Undistributed
Outstanding Par Value Par Value Income
----------- --------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 8,250,000 $ 82,500 $ 56,359,555 $ 45,224
(Note 1)
Distributable net investment
income -- -- -- 1,799,336
------------ ------------ ------------ ------------
Balance at March 31, 1997 8,250,000 82,500 56,359,555 1,844,560
Distributable net investment -- -- -- 2,481,824
income
Dividends declared on common -- -- -- (1,815,000)
stock ($0.22 per share)
Change in net unrealized -- -- -- (25,000)
depreciation
Issuance of common stock under
offering (Note 1) 4,600,000 46,000 74,293,425 --
------------ ------------ ------------ ------------
Balance at June 30, 1997 12,850,000 128,500 130,652,980 2,486,384
Distributable net investment
income -- -- -- 3,470,050
Dividends declared on common
stock ($0.22 per share) -- -- -- (2,827,000)
Exercise of stock options 16,060 161 183,165 --
------------ ------------ ------------ ------------
Balance at September 30, 1997 12,866,060 $ 128,661 $130,836,145 $ 3,129,434
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Period From
May 30, 1996
Nine Months Ended through
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 7,726,210 $ 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 38,815 7,000
Increase in equity in earnings of unconsolidated subsidiary (80,551) (6,241)
Amortization of goodwill 315,180 136,632
Increase in unrealized depreciation 25,000 --
Increase in accrued interest receivable (822,085) (158,933)
Increase in other assets (1,217,674) (1,879,649)
Increase (decrease) in accounts payable and accrued expenses 512,020 308,722
Accretion of negative goodwill (541,800) (244,984)
Increase (decrease) in accrued interest payable 286,030 (451,501)
------------- -------------
Net cash provided by (used for) operating activities 6,241,145 (197,378)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments (116,661,432) (28,611,154)
Proceeds from sales and maturities of investments 67,625,821 16,249,803
Repurchase of loan participations (18,232,128) --
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 (52,340) (80,119)
------------- -------------
Net cash used for investing activities (67,320,079) (43,663,324)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to banks, net (5,575,000) (9,100,000)
Repayment of SBA debentures (1,500,000) (1,200,000)
Proceeds from public offerings, net of expenses 74,339,425 56,147,056
Proceeds from exercise of stock options 183,326 --
Payment of declared dividends to current stockholders (6,374,500) (542,012)
------------- -------------
Net cash provided by financing activities 61,073,251 45,305,044
------------- -------------
NET INCREASE (DECREASE) IN CASH (5,683) 1,444,342
CASH beginning of period 1,664,603 2,000
------------- -------------
CASH end of period $ 1,658,920 $ 1,446,342
============= =============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 6,175,544 $ 3,308,336
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
7
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(unaudited)
(1) Organization and Structure of Medallion Financial Corp.
The Company is a closed-end management investment company organized as
a Delaware corporation in 1995. The Company has elected to be regulated as a
business development company under the Investment Company Act of 1940, as
amended (the "1940 Act"). On May 29, 1996, the Company completed an initial
public offering (the "Initial Offering") of its common stock, issued and sold
5,750,000 shares at $11.00 per share and split the existing 200 shares of common
stock outstanding into 2,500,000 shares. All share and related amounts in the
accompanying financial statements have been restated to reflect this stock
split. Offering costs incurred by the Company in connection with the sale of
shares totaling $7,102,944 were recorded as a reduction of capital upon
completion of the Initial Offering. These costs were recorded, net of $200,000
payable between the Company and Tri-Magna in accordance with the merger
agreement between the Company and Tri-Magna. In parallel with the Initial
Offering, the Company completed the Acquisitions in which the Company merged
with Tri-Magna; acquired substantially all of the assets and assumed certain
liabilities of Edwards Capital Company, a limited partnership; and acquired all
of the outstanding voting stock of TCC. The assets acquired and liabilities
assumed from Edwards Capital Company, were acquired and assumed by Edwards
Capital Corporation ("Edwards"), a newly formed and wholly-owned subsidiary of
the Company. As a result of the merger with Tri-Magna in accordance with the
Merger Agreement dated December 21, 1995 between the Company and Tri-Magna, MFC
and Media, formerly subsidiaries of Tri-Magna, became wholly-owned subsidiaries
of the Company. In connection with the Acquisitions, the Company applied for and
received the Acquisition Order under the 1940 Act from the Securities and
Exchange Commission. The Company also received approval from the SBA for these
transactions.
MFC, Edwards and TCC are closed-end management investment companies
registered under the 1940 Act and are each licensed as a small business
investment company ("SBIC") by the SBA. As an adjunct to the Company's taxicab
medallion finance business, Media operates a taxicab rooftop advertising
business. Effective January 1, 1997, the Company decided to merge all of the
assets and liabilities of Edwards and TCC into MFC subject to the approval of
the SBA. The Company expects to complete the merger by the end of the fourth
quarter of 1997.
On May 16, 1997, the Company completed the Follow-on Offering and sold
4,600,000 shares at $17.25 per share. Offering costs incurred by the Company in
connection with the sale of shares totaling $5,010,575 were recorded as a
reduction of capital upon completion of the Follow-on Offering.
(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.
8
<PAGE>
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
Initial Offering. These costs were 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 and 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 Company and the Board of
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. Loans are
valued at cost less unrealized depreciation. Any change in the fair value of the
Company's investments as determined by the Board of Directors is reflected in
net unrealized depreciation of investments. Total unrealized depreciation was
$1,568,717 and $1,593,717 on total investments of $176,493,888 and $243,736,627
at December 31, 1996 and September 30, 1997, respectively, of which $1,522,417
existed at the date of the Acquisitions. The Board of Directors have determined
that this valuation approximates fair value.
Net increase in net assets resulting from operations per share is
computed using the weighted average number of shares of common stock and common
stock equivalents outstanding. Common stock equivalents consist primarily of
dilutive outstanding stock options computed under the treasury stock method.
On March 3, 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share." This statement establishes standards
for the computation and presentation of earnings per share and applies to
entities with publicly held common stock or potential common stock. This
statement, which supersedes APB Opinion No. 15, is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
Early adoption is not permitted. This statement when adopted, will require the
restatement of all prior-period earnings per share data presented. Management
expects that the adoption of this new statement will not have a material impact
on the Company's previously disclosed earnings per share.
(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 presented for Media includes the balance sheet as of December 31,
1996 and September 30, 1997 and unaudited statement of operations for the three
and nine months ended September 30, 1997, the three months ended September 30,
1996 and the period from May 30, 1996 through September 30, 1996:
Balance Sheet December 31, 1996 September 30, 1997
------------- ----------------- ------------------
(unaudited)
Cash $ 79,827 $ -
Accounts receivable 307,303 576,278
Equipment, net 976,442 1,444,268
Other 330,839 356,896
---------- ----------
Total assets $1,694,411 $2,377,442
========== ==========
9
<PAGE>
<TABLE>
<S> <C> <C>
Notes payable to parent $ 584,566 $ 951,066
Accrued expenses 64,516 300,496
---------- -----------
Total liabilities 649,082 1,251,562
---------- -----------
Equity 1,001,000 1,001,000
Retained earnings 44,329 124,880
---------- -----------
Total equity 1,045,329 1,125,880
---------- -----------
Total liabilities and
shareholders' equity $1,694,411 $2,377,442
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Period from
Three Months Three Months Nine Months May 30, 1996
Ended Ended Ended through
September 30, September 30, September 30, September 30,
Statement of Operations 1997 1996 1997 1996
- --------------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Advertising revenue $ 725,766 $ 452,943 $1,716,926 $ 604,196
Cost of service 273,812 215,846 690,385 261,274
---------- ---------- ---------- ----------
Gross margin 451,954 237,097 1,026,541 342,922
Other operating expenses 379,205 272,295 920,990 334,181
---------- ---------- ---------- ----------
Income (loss) before taxes 72,749 (35,197) 105,551 8,741
Income taxes 25,000 (12,500) 25,000 2,500
---------- ---------- ---------- ----------
Net Income (loss) $ 47,749 $ (22,697) $ 80,551 $ 6,241
========== ========== ========== ==========
</TABLE>
On March 6, 1997, Media entered into a five-year agreement with the
Metropolitan Taxi Board of Trade, Inc. ("MTBOT") to provide rooftop advertising
on New York City taxicabs affiliated with the MTBOT commencing on September 22,
1997.
10
<PAGE>
(4) Debt
The table below summarizes the various debt agreements the Company had
outstanding at December 31, 1996 and September 30, 1997:
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Notes payable to banks:
Total facilities $107,000,000 $144,500,000
Maturity of facilities 4/97-12/97 10/97-6/99
Total amounts outstanding $ 96,450,000 $ 90,875,000
============ ============
SBA debentures payable $ 29,390,000 $ 27,890,000
============ ============
Maturity 4/97-9/04 6/98-9/04
</TABLE>
Under the revolving credit agreement between MFC and its lenders, as
amended, MFC is required to maintain minimum tangible net assets of $45,000,000
and certain financial ratios. The Company believes that MFC was in compliance
with such requirements at September 30, 1997.
(5) 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 occurred on January 1,
1996:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
<S> <C>
Investment income $ 12,224,362
Net investment income $ 6,473,256
Net increase in net assets
resulting from operations $ 4,547,665
Earnings per share $ 0.55
Pro forma weighted average
shares outstanding 8,250,000
</TABLE>
11
<PAGE>
(6) Subsequent Events
On October 31, 1997, the Company consummated the purchase of
substantially all of the assets and liabilities of Business Lenders, Inc.
through the Company's wholly-owned subsidiary, BLI Acquisition Co., LLC. In
connection with the transaction BLI Acquisition Co., LLC was renamed Business
Lenders, LLC. The acquisition will be accounted for under the purchase method of
accounting and the purchase price paid to Business Lenders, Inc. at the closing
was $1,279,522 in cash plus $1,700,000 in repayment of subordinated debt. These
amounts are based on the September 30, 1997 net book value and are subject to
final adjustment based on the audited balance sheet at October 31, 1997. BLI
Acquisition Co., LLC also assumed approximately $12,500,000 of debt. The balance
of the purchase price is payable pursuant to an earn-out provision based on a
multiple of net after tax earnings over the next 3 years and could result in a
maximum payment of (i) $700,000 during the three months following October 31,
1999 and (ii) $13,450,000, less the amount of cash paid in respect of the net
book value at October 31, 1997, during the three months following October 31,
2000.
On November 5, 1997, MFC declared a dividend payable to the Company in
the amount of $275 per share payable on November 17, 1997 (aggregating
$1,831,225), Edwards declared a dividend payable to the Company in the amount of
$9,000 per share payable on November 17, 1997 (aggregating $900,000) and TCC
declared a dividend payable to the Company in the amount of $3,000 per share
payable on November 17, 1997 (aggregating $300,000). With the proceeds of these
dividends, on November 5, 1997 the Company declared a dividend in the amount of
$0.24 per share (aggregating $3,087,854) payable on December 1, 1997 to the
stockholders of record on November 17, 1997.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in this section should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing in this
Report on Form 10-Q. In addition, this Management's Discussion and Analysis
contains forward-looking statements. These forward-looking statements are
subject to the inherent uncertainties in predicting future results and
conditions. Certain factors that could cause actual results and conditions to
differ materially from those projected in these forward-looking statements are
set forth below in the Investment Considerations section.
General
The Company's principal activity is the origination and servicing of
loans secured by taxicab medallions ("Medallion Loans") and loans to small
businesses secured by equipment and other suitable collateral ("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.
On May 12, 1997, the Company's Registration Statement on Form N-2 was
declared effective and the Company executed an underwriting agreement with
certain underwriters providing for the public offering of 4,600,000 shares of
the Company's Common Stock at a price to the public of $17.25 per share. The
Follow-on Offering closed on May 16, 1997. The net proceeds to the Company from
the offering, after deducting underwriting discounts and other offering expenses
payable by the Company of $5.0 million was $74.3 million. The Company used the
net proceeds to increase its loan portfolio, to repurchase loan participations
that the Company previously sold to third parties and to reduce short-term LIBOR
based debt.
Trend in Loan Portfolio Yield. The Company's investment income is
driven by the principal amount of and yields on Medallion Loans and Commercial
Installment Loans. The following table illustrates the Company's weighted
average portfolio yield at the dates indicated:
13
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1997
----------------- ------------------
Weighted Percentage Weighted Percentage
Average Principal of Total Average Principal of Total
Yield Amounts Portfolio Yield Amounts Portfolio
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Medallion Loan Portfolio 9.92% $134,614,899 76.3% 9.38% $192,017,079 78.8%
Commercial Installment
Loan Portfolio 13.51% 41,925,289 23.7% 13.28% 51,790,848 21.2%
------ ------------ ------ ------ ------------ ------
Total Portfolio 10.80% $176,540,188 100.0% 10.21% $243,807,927 100.0%
====== ============ ====== ====== ============ ======
</TABLE>
The weighted average yield e.o.p. of the Medallion Loan portfolio
decreased 54 basis points from 9.92% at December 31, 1996 to 9.38% at September
30, 1997. Medallion Loans constituted 76.3% of the total portfolio of $176.5
million at December 31, 1996 and 78.8% of the total portfolio of $243.8 million
at September 30, 1997. The yields on the Company's Medallion Loans have been in
a long-term decline. For the nine months ended September 30, 1997, the weighted
average yield of the Medallion Loan portfolio has declined as the Company has
increased the percentage of its Medallion Loan originations which are made to
owners of large taxicab fleets. Such loans reprice more frequently than other
Medallion Loans in the Company's portfolio, thereby reducing the Company's
interest rate risk exposure. In addition, using a portion of the proceeds of the
Follow-on Offering, the Company has repurchased approximately $18.2 million in
such Medallion Loans to large taxicab fleet owners which the Company had
previously participated out to other lenders. The weighted average yield e.o.p.
of the Commercial Installment Loan portfolio decreased 23 basis points from
13.51% at December 31, 1996 to 13.28% at September 30, 1997. As a result of the
decline in the Medallion Loan portfolio yield, coupled with a decline in the
Commercial Installment Loan portfolio yield, the weighted average yield e.o.p.
of the entire portfolio decreased 59 basis points from 10.80% at December 31,
1996 to 10.21% at September 30, 1997.
The decrease in the average yield of the entire portfolio has been
offset in part by the strong growth in the total loan portfolio during the year,
including growth in the Company's portfolio of Commercial Installment Loans,
which historically have been originated at a yield of approximately 350 basis
points higher than Medallion Loans and 500 to 700 basis points higher than the
prevailing Prime Rate. Although the Company has followed a strategy of trying to
shift its portfolio mix towards higher yielding Commercial Installment Loans and
intends to continue to pursue this strategy, this shift was reversed during the
third quarter by higher than expected growth in the Medallion Loan Portfolio
during the period. The percentage of Commercial Installment Loans to the total
portfolio decreased slightly from 23.7%, or $41.9 million, at December 31, 1996
to 21.2%, or $51.8 million at September 30, 1997. The Company intends to try and
continue to increase the percentage of Commercial Installment Loans in the total
portfolio.
Trend in Interest Expense. 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. In recent years, the
Company has 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
14
<PAGE>
qualify under the SBIA and 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 which the Company
attempts to mitigate with certain matching strategies. The Company also expects
that net interest income should increase because bank debt is more readily
available than SBA financing and will thus permit an increase in the size of the
loan portfolio. At December 31, 1996 and September 30, 1997, short-term LIBOR-
based debt constituted 75.1% and 74.2% of total indebtedness, respectively. On
March 26, 1997, the Federal Reserve System increased the federal-funds interest
rate by 25 basis points and, as a result, the prevailing Prime Rate has
increased by 25 basis points. If these increases lead to a trend of higher
interest rates, net interest rate spread could decline at least until the
Company is able to originate new loans at the higher prevailing interest rates.
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 90- and
180-day LIBOR (the "LIBOR Benchmark"). The Company's average cost of funds
e.o.p. increased slightly from 7.11% or 153 basis points over the LIBOR
Benchmark of 5.58% at December 31, 1996 to 7.13%, or 133 basis points over the
LIBOR Benchmark of 5.80% at September 30, 1997. The increase in the Company's
average cost of funds e.o.p. resulted primarily from the increase in the LIBOR
benchmark of 22 basis points offset by a decrease in the premium over LIBOR that
the banks charge the Company.
Taxicab Rooftop Advertising. In connection with its Medallion Loan
finance business, the Company also conducts a taxicab rooftop advertising
business through Media. Media's revenue is affected by the number of taxicab
rooftop advertising displays ("Displays") that it owns and the occupancy rate
and advertising rate of those Displays. At September 30, 1997, Media had
approximately 3,625 installed Displays. On March 6, 1997 Media entered into a
five year agreement with the MTBOT to provide advertising on New York City
taxicabs affiliated with the MTBOT which commenced on September 22, 1997. With
this agreement, Media is the leading taxicab rooftop advertiser in New York
City. 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 Affecting Net Assets. 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 Board of Directors 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 SBIA, 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
15
<PAGE>
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 and
the adequacy of the collateral. 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. Therefore, if
the latest increases in prevailing interest rates lead to a trend of higher
interest rates, net increase in net assets resulting from operations could
decline. Upon the completion of the Acquisitions on May 29, 1996, the Company's
loan portfolio was recorded on the balance sheet at fair market value, which
included $1.5 million of net unrealized depreciation, as estimated by the
Company in accordance with the 1940 Act and the purchase method of accounting.
From December 31, 1996 through September 30, 1997, net unrealized depreciation
of investments increased by $25,000.
Recent Commencement of Operations. The Company commenced operations in
connection with the simultaneous closing of the Initial Offering and the
Acquisitions on May 29, 1996. Prior to that date, the Company had no results of
operations and each of Tri-Magna, Edwards and TCC had been operating
independently of each other. The following discussion under the caption
"Consolidated Results of Operations" sets forth an analysis of the Company's
actual results of operations and assets and liabilities for the three and nine
month periods ended September 30, 1997. All period percentages involving income
statement accounts have been annualized for discussion purposes.
Consolidated Results of Operations
For the Three Months Ended September 30, 1996 and September 30, 1997.
Performance Summary. For the three months ended September 30, 1997, net
investment income has been positively impacted by the strong growth of the
Medallion Loan Portfolio and reduced interest expense. Interest expense for the
period was lower due to reduced short-term debt outstanding as well as a
reduction in the spread over LIBOR on the Company's revolving credit facilities
offset by a slight increase in the LIBOR benchmark e.o.p. of 8 basis points.
Strong portfolio growth was offset by the decline in spread between the average
yield on the entire portfolio and average costs of funds.
Investment Income. Investment income increased $1.7 million or 40.3%
from $4.3 million for the three months ended September 30, 1996 to $6.0 million
for the three months ended September 30, 1997. The Company's investment income
reflects the positive impact of portfolio growth during the three months ended
September 30, 1997. Total 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 compared to
$28.8 million or 13.4% from $215.0 million at June 30, 1997 to $243.8 million at
September 30, 1997. The average portfolio outstanding was $159.0 million, for
the three month period ended September 30, 1996, which produced investment
income of $4.3 million at a weighted average interest rate of 10.82% compared to
an average of $229.4 million for the three-month period ended September 30,
1997, which produced investment income of $6.0 million at a weighted average
interest rate of 10.41%.
Gross loan originations net of participations increased by $23.1
million or 131.3% from $17.6 million for the three-month period ended September
30, 1996 to $40.7 million for the three-
16
<PAGE>
month period ended September 30, 1997. The originations were offset by
prepayments, terminations and refinancings by the Company aggregating $21.2
million for the three month period ended September 30, 1996 compared to $12.0
million for the three month period ended September 30, 1997. Average yield
e.o.p. of the entire portfolio decreased 49 basis points from 10.70% at
September 30, 1996 to 10.21% at September 30, 1997. The decrease in the yield of
the entire loan portfolio was caused by a decrease in the average yield on
Medallion Loans, coupled with a decrease in the average yield on Commercial
Installment Loans and a decrease in the percentage of the portfolio composed of
higher yielding Commercial Installment Loans which historically have been
originated at a yield of approximately 350 basis points higher than Medallion
Loans and 500 to 700 basis points higher than the prevailing Prime Rate. The
average yield e.o.p. of the Medallion Loan portfolio decreased 47 basis points
from 9.85% at September 30, 1996 to 9.38% at September 30, 1997 and the average
yield of the Commercial Installment Loan portfolio decreased 21 basis points
from 13.49% at September 30, 1996 to 13.28% at September 30, 1997. The decrease
in the average yield on Medallion Loans was caused by the reduction of loan
yields at Edwards and MFC, which have increased the percentage of their
Medallion Loan originations which are made to owners of large taxicab fleets.
Such loans reprice more frequently than other Medallion Loans in the Company's
portfolio, thereby reducing the Company's interest rate risk exposure. Moreover,
certain of the loans that the Company originates to large fleet owners are
participated out to other lenders and the Company earns a servicing fee on such
participations. The decrease in the average yield on the Commercial Installment
Loan portfolio was due primarily to an increase in competition and the overall
market trend of lower long-term interest rates. The decrease in average yield
e.o.p. of the entire loan portfolio was offset in part by the strong growth in
the Medallion Loan portfolio during the period. The percentage of the portfolio
composed of Commercial Installment Loans decreased from 22.7% at September 30,
1996 to 21.2% at September 30, 1997. Although the Company continues to try and
shift its portfolio mix towards higher yielding Commercial Installment Loans,
this shift was impacted by higher than expected growth in the Medallion Loan
portfolio during the period. The additional growth was due in part to the
Company's use of a portion of the proceeds from the Follow-on Offering to
repurchase approximately $6.8 million in Medallion Loans to large taxicab fleet
owners which the Company had previously participated out to other lenders.
Interest Expense. The Company's interest expense decreased $163,000 or
7.8% from $2.1 million for the three months ended September 30, 1996 to $1.9
million for the three months ended September 30, 1997. The Company's average
cost of funds e.o.p. increased slightly from 7.12% or 140 basis points over the
LIBOR benchmark of 5.72% at September 30, 1996 to 7.13% or 133 basis points over
the LIBOR benchmark of 5.80% at September 30, 1997. The increase in the average
cost of funds e.o.p. was caused by an 8 basis point increase in the LIBOR
benchmark offset by a reduction in the premium to LIBOR paid by the Company.
Average borrowings decreased $5.8 million or 5.3% from $110.6 million for the
three months ended September 30, 1996, which produced an interest expense of
$2.1 million at a weighted average interest rate of 7.61% to $104.6 million for
the three months ended September 30, 1997 which produced an interest expense of
$1.9 million at a weighted average interest rate of 7.41%. The reduction in the
weighted average interest rates reflects the reduction in the spread over LIBOR
that the Company pays. The weighted average interest rates include commitment
fees and amortization of premiums on existing interest rate cap agreements as a
reflection of total cost of funds borrowed. The percentage of the Company's
short-term LIBOR based indebtedness increased as a percentage of total
indebtedness from 69.9% at September 30, 1996 to 74.2% at September 30, 1997.
Net Interest Income. Net interest income increased $1.8 million or
86.5% from $2.2 million for the three months ended September 30, 1996 to $4.0
million for the three months ended September 30, 1997. Net interest income
reflects the positive impact of the portfolio growth during
17
<PAGE>
the three months ended September 30, 1997 offset by a decrease in the spread
between average yield and average cost of funds. The average spread between the
average yield on the portfolio and the average cost of funds decreased 21 basis
points or 6.5% from 3.21% for the three-month period ended September 30, 1996 to
3.0% for the three-month period ended September 30, 1997.
Equity in Earnings of Unconsolidated Subsidiary. Advertising revenue
increased $273,000 or 60.3% from $453,000 for the three months ended September
30, 1996 to $726,000 for the three months ended September 30, 1997. Display
rental costs increased $58,000 or 27.0% from $216,000 for the three months ended
September 30, 1996 to $274,000 for the three months ended September 30, 1997.
This resulted in a gross margin of approximately $237,000 or 52.3% of
advertising revenue for the three months ended September 30, 1996 compared to
$452,000 or 62.3% for the three months ended September 30, 1997. The number of
Displays owned by Media increased 1,505 or 71.0% from 2,120 at September 30,
1996 to 3,625 at September 30, 1997. Operating costs increased $107,000 or 39.3%
from $272,000 for the three months ended September 30, 1996 to $379,000 for the
three months ended September 30, 1997. Media generated an net operating loss of
$23,000 for the three-month period ended September 30, 1996 compared to net
income of $48,000 for the three-month period ended September 30, 1997, which is
recorded as equity in earnings or losses of unconsolidated subsidiary on the
Company's statement of operations as a result of increases in the number of
Displays owned and occupancy rates. Display occupancy increased from 87.8% for
the three months ended September 30, 1996 to 97.9% for the three months ended
September 30 1997.
Other Income. The Company's other income increased $32,000 or 13.7%
from $234,000 for the three months ended September 30, 1996 to $266,000 for the
three months ended September 30, 1997. Other income was primarily derived from
late charges, prepayment fees and miscellaneous income. Prepayment fees are
heavily influenced by the level and volatility of interest rates and
competition.
Non-Interest Expenses. The Company's non-interest expenses increased
$153,000 or 14.8% from $1,033,000 for the three months ended September 30, 1996
to $1,186,000 for the three months ended September 30, 1997. Other operating
expenses increased $11,000 or 2.5% from $433,000 for the three months ended
September 30, 1996 to $444,000 for the three months ended September 30, 1997.
Salaries and benefits increased $65,000 or 18.7% from $348,000 for the three
months ended September 30, 1996 to $413,000 for the three months ended September
30, 1997. Professional fees increased $64,000 or 68.8% from $93,000 for the
three months ended September 30, 1996 to $157,000 for the three months ended
September 30, 1997. Investment advisory fees increased $11,000 or 19.6% from
$56,000 for the three months ended September 30, 1996 to $67,000 for the three
months ended September 30, 1997. The operating expense ratio decreased to 2.06%
for the three-month period ended September 30, 1997 from 2.30% for the three-
month period ended September 30, 1996, on an annualized basis. The Company
believes that operating expenses as a percentage of average assets will continue
to decline as the loan portfolio increases due to economies of scale.
Amortization of Goodwill and Accretion of Negative Goodwill. The
amortization of goodwill was $102,000 for the three months ended September 30,
1996 and $105,000 for the three months ended September 30, 1997, and relates to
$6.5 million of goodwill generated in the acquisitions of Edwards and TCC.
Goodwill is the amount by which the cost of acquired businesses exceeds the fair
value of the net assets acquired. Goodwill is being amortized on a straight-line
basis over 15 years. 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
18
<PAGE>
the acquisition of Tri-Magna and is being amortized on a straight-line basis
over four years.
Net Realized Gain/Loss on Investments. The Company had an increase in
realized net gain on investments of $102,000 from $26,000 for the three months
ended September 30, 1996 to $128,000 for the three months ended September 30,
1997. The majority of the increase resulted from the gain on the valuation of a
warrant issued by a radio station of $250,000 which was subsequently sold,
offset by write-offs of certain uncollectible equipment secured loans totaling
$125,000.
Net Investment Income. Net investment income earned increased $1,820,000 or
119.5% from $1,522,000 for the three-month period ended September 30, 1996 to
$3,342,000 for the three months ended September 30, 1997. The increase was
attributable to the positive impact of portfolio growth offset by a decrease in
the spread between average yield and average cost of funds.
Net Increase in Net Assets Resulting from Operations. Net increase in
net assets resulting from operations increased $1,922,000 or 124.2% from
$1,548,000 for the three months ended September 30, 1996 to $3,470,000 for the
three months ended September 30, 1997. The increase was attributable to the
positive impact of portfolio growth offset by a decrease in the spread between
average yield and average cost of funds. Return on assets and return on equity
for the three months ended September 30, 1997, on an annualized basis, were 6.3%
and 10.9%, respectively, compared to 3.6% and 10.8% for the three months ended
September 30, 1996.
Consolidated Results of Operations
For the Nine Months Ended September 30, 1997.
Performance Summary. For the nine months ended September 30, 1997,
investment income has been positively impacted by the strong growth of the
entire loan portfolio. Interest expense for the period reflected an increase in
the LIBOR benchmark e.o.p. of 22 basis points, slightly offset by the repayment
of amounts outstanding under the Company's revolving credit facilities. Strong
portfolio growth offset by the decline in spread between the average yield on
the entire portfolio and the average of costs of funds contributed to the $7.6
million of net investment income earned during the period.
Investment Income. Investment income for the nine months ended
September 30, 1997 was $16.1 million. The Company's investment income reflects
the positive impact of portfolio growth during the period. Total portfolio
growth was $67.3 million or an increase of 38.1% from $176.5 million at December
31, 1996 to $243.8 million at September 30, 1997. The average portfolio
outstanding during the nine-month period ended September 30, 1997 was $204.9
million which produced investment income of $16.1 million at a weighted average
interest rate of 10.50%.
Gross loan originations net of participations during the nine-month
period ended September 30, 1997 was $116.7 million offset by prepayments,
terminations and refinancings by the Company aggregating $67.6 million. In
addition, during the nine-month period ended September 30, 1997, the Company
repurchased approximately $18.2 million in Medallion Loans previously
participated out to other lenders. Average yield e.o.p. of the entire portfolio
decreased 59 basis points from 10.80% at December 31, 1996 to 10.21% at
September 30, 1997. The decrease in the yield of the entire loan portfolio was
caused by a decrease in the average yield on Medallion Loans coupled with a
decrease in the average yield on Commercial Installment Loans and a decrease in
the percentage of the portfolio composed of higher yielding Commercial
Installment Loans which historically have been originated at a yield of
approximately 350 basis points higher than Medallion Loans and 500 to 700 basis
points higher than the prevailing Prime Rate. The average yield e.o.p. of the
Medallion Loan portfolio decreased 54 basis points from 9.92% at December 31,
1996 to 9.38% at September
19
<PAGE>
30, 1997 and the average yield of the Commercial Installment Loan portfolio
decreased 23 basis points from 13.51% at December 31, 1996 to 13.28% at
September 30, 1997. The decrease in the average yield on Medallion Loans was
caused by a reduction in loan yields at Edwards and MFC, which have increased
the percentage of their Medallion Loan originations which are made to owners of
large taxicab fleets. Such loans reprice more frequently than other Medallion
Loans in the Company's portfolio, thereby reducing the Company's interest rate
risk exposure. Moreover, certain of the loans that the Company originates to
large fleet owners are participated out to other lenders and the Company earns a
servicing fee on such participations. The decrease in the average yield on the
Commercial Installment Loan portfolio was due primarily to an increase in
competition and the overall market trend of lower long-term interest rates. The
percentage of the portfolio composed of higher yielding Commercial Installment
Loans decreased from 23.7% at December 31, 1996 to 21.2% at September 30, 1997.
Although the Company continues to follow a strategy of trying to shift its
portfolio mix towards higher yielding Commercial Installment Loans, this shift
was reversed by higher than expected growth in the Medallion Loan portfolio
during the period. The additional growth in the Medallion Loan portfolio was due
in part to the Company's use of a portion of the proceeds from the Follow-on
Offering to repurchase approximately $18.2 million in Medallion Loans to large
taxicab fleet owners which the Company had previously participated out to other
lenders.
Interest Expense. The Company's interest expense was $6.5 million for
the nine months ended September 30, 1997. The Company's average cost of funds
e.o.p. increased from 7.11% or 153 basis points over the LIBOR benchmark of
5.58% at December 31, 1996 to 7.13% or 133 basis points over the LIBOR benchmark
of 5.80% at September 30, 1997. The increase in the average cost of funds e.o.p.
was caused by a 22 basis point increase in the LIBOR benchmark offset by a
reduction in the premium to LIBOR paid by the Company. The Company's net
borrowings at the end of the period, however, decreased by $7.0 million or 5.5%
from $125.8 million at December 31, 1996 to $118.8 million at September 30,
1997. The decreased borrowings were the result of the use of proceeds from the
Follow-on Offering to reduce short-term LIBOR based debt. The percentage of the
Company's short-term LIBOR based indebtedness decreased as a percentage of total
indebtedness from 74.9% at December 31, 1996 to 74.2% at September 30, 1997.
Average borrowings during the nine months ended September 30, 1997 were $117.6
million which produced an interest expense of $6.5 million at a weighted average
interest rate of 7.33%. The weighted average interest rate of 7.33% includes
commitment fees and amortization of premiums on existing interest rate cap
agreements as a reflection of total cost of funds borrowed.
Net Interest Income. Net interest income was $9.7 million for the nine
months ended September 30, 1997. Net interest income reflects the positive
impact of the portfolio growth coupled with a slight decrease in the average
cost of funds offset by a decrease in the spread between average yield and
average cost of funds. The average spread between the average yield on the
portfolio and the average cost of funds during the nine-month period ended
September 30, 1997 was 3.17%.
Equity in Earnings of Unconsolidated Subsidiary. For the nine months
ended September 30, 1997, Media generated advertising revenue of $1,717,000 and
incurred Display rental costs of approximately $690,000, resulting in a gross
margin of approximately $1,027,000 or 59.8% of advertising revenue. The number
of Displays owned by Media were approximately 3,625 at September 30, 1997. For
the nine months ended September 30, 1997, operating expenses were $921,000 and
Media generated after tax net income of $81,000 which is recorded as equity in
earnings of unconsolidated subsidiary on the Company's statement of operations
as a result of increases in the number of Displays owned and occupancy rates.
Display occupancy increased from
20
<PAGE>
64% at December 31, 1996 to 97.8% at September 30, 1997. Media's operating
expenses increased with the addition of a new salesman and a controller.
Other Income. The Company derived $704,000 in other income, or 0.34% of
investments for the nine months ended September 30, 1997. Other income was
primarily derived from late charges, prepayment fees and miscellaneous income.
Prepayment fees are heavily influenced by the level and volatility of interest
rates and competition.
Non-Interest Expenses. The Company had non-interest expenses of $3.4
million for the period. Approximately $1,041,000, or 30.6% of non-interest
expenses, were related to salaries and benefits, $462,000, or 13.6%, consisted
of professional fees and $181,000, or 5.3% consisted of investment advisory
fees. The operating expense ratio was 2.1% for the nine-month period ended
September 30, 1997. The Company believes that operating expenses as a percentage
of average assets will decline as the loan portfolio increases due to economies
of scale.
Amortization of Goodwill and Accretion of Negative Goodwill. The
amortization of goodwill of $315,000 for the nine months ended September 30,
1997 relates to $6.5 million of goodwill generated in the acquisitions of
Edwards and TCC. Goodwill is the amount by which the cost of acquired businesses
exceeds the fair value of the net assets acquired. Goodwill is being amortized
on a straight-line basis over 15 years. 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 and is being amortized on a straight-line basis over four years.
Net Realized Gain/Loss on Investments. The Company realized a net gain
on investments of $155,000 during the nine months ended September 30, 1997. The
gain was the result of the sale of foreclosed real estate previously written
down for a gain of $28,000, recoveries in the amount of $6,000 on certain loans
secured by radio dispatch and broadcast equipment and other assets used in
connection with livery taxicab services previously written off and the valuation
of a common stock warrant in a radio station for a gain of $250,000, which was
subsequently sold, offset by write-offs of $133,000 related to foreclosures on
various equipment secured loans.
Net Investment Income. Net investment income earned during the
nine-month period ended September 30, 1997 was $7.6 million reflecting the
positive impact of portfolio growth offset by a decline in the average cost of
funds offset by a decrease in the spread between average yield and average cost
of funds.
Net Increase in Net Assets Resulting from Operations. Net increase in
net assets resulting from operations was $7.7 million for the nine months ended
September 30, 1997 and reflects portfolio growth offset by a decrease in the
spread between average yield and average cost of funds. Return on assets and
return on equity for the nine months ended September 30, 1997, on an annualized
basis, were 4.7% and 12.1%, respectively.
Asset/Liability Management
Interest Rate Sensitivity. The Company, like other financial
institutions, is subject to interest rate risk to the extent its
interest-earning assets (consisting of Medallion Loans and Commercial
Installment Loans) reprice on a different basis over time in comparison to its
interest-bearing liabilities (consisting primarily of credit facilities with
bank syndicates and subordinated
21
<PAGE>
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.
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. Accordingly, if
the latest increases in prevailing interest rates like that caused by a 25 basis
point increase in the federal-funds rate lead to a trend of higher interest
rates, net interest rate spread could decline at least until the Company is able
to originate new loans at the higher prevailing interest rates.
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 1996, the period between the origination and final payments of all
Medallion Loans originated by MFC 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 consisting primarily of
subordinated SBA debentures. The Company has entered into interest rate cap
agreements to limit the Company's interest rate exposure as summarized below:
<TABLE>
<CAPTION>
Effective Maturity
Amount Rate Date Date
------ ---- ---- ----
<S> <C> <C> <C>
$20,000,000 7.0% 11/16/95 11/16/97
$10,000,000 6.0% 4/21/97 4/21/98
$10,000,000 7.0% 5/13/97 5/13/99
$10,000,000 6.5% 5/13/97 5/13/98
7.0% 5/13/98 11/13/99
</TABLE>
Total premiums of $195,500 paid under the agreements are being
amortized over the respective terms of the agreements. In addition, the Company
manages its exposure to increases in market rates of interest by incurring fixed
rate indebtedness, such as subordinated SBA debentures.
22
<PAGE>
The Company currently has outstanding subordinated SBA debentures in the
principal amount of $27.9 million with a weighted average rate of interest of
7.91%. At September 30, 1997, these debentures constituted 22.7% of the
Company's total indebtedness.
The Company will seek to manage interest rate risk by evaluating and
purchasing, if appropriate, additional derivatives, originating adjustable-rate
loans, incurring fixed-rate indebtedness 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 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, 1997, 76.5% of the Company's $118.8 million of
debt consisted of bank debt, substantially all of which was at variable
effective rates of interest with a weighted average rate of 6.89% or 161 basis
points below the Prime Rate and 23.5% consisted of subordinated SBA debentures
with fixed rates of interest with a weighted average rate of 7.91%. 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 possible additional
SBA funding, an additional $53.6 million of debt was available at September 30,
1997 at variable effective rates of interest averaging below the Prime Rate
under the Company's $144.5 million revolving credit facilities with banks.
The following table illustrates the Company's and each of the
subsidiaries' sources of available funds and amounts outstanding under credit
facilities at September 30, 1997.
<TABLE>
<CAPTION>
The
Company MFC Edwards TCC Total
------- --- ------- --- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash........................................ $ 230 $ 857 $ -- $ 572 $ 1,659
Revolving lines of credit................... 7,500 125,000 12,000 -- 144,500
Amounts available......................... -- 51,225 2,400 -- 53,625
Amounts outstanding....................... 7,500 73,775 9,600 -- 90,875
Average interest rate............... 6.91% 6.89% 6.98% -- 6.89%
Maturity............................ 12/97 6/99 10/97-12/97 -- 10/97-6/99
Term loans................................ -- -- -- -- -- (1)
Interest rate...................... -- -- -- -- --
Maturity........................... -- -- -- -- --
SBA debentures............................ -- -- 22,250 5,640 27,890
Average interest rate.............. -- -- 7.88% 8.00% 7.91%
Maturity........................... -- -- 6/98-9/04 6/02 6/98-9/04
Total cash and remaining amounts
available under credit facilities...... 230 52,082 2,400 572 55,284
Total debt outstanding...................... $ 7,500 $ 73,775 $ 31,850 $ 5,640 $118,765
</TABLE>
23
<PAGE>
- --------------------
(1) On July 31, 1997, the Company's $2.0 million term loan matured
and was paid in full.
Loan amortization and prepayments also provide a source of funding for
the Company. Prepayments on loans are influenced significantly by general
interest rates, Medallion Loan market rates, economic conditions and
competition. Medallion Loan prepayments have slowed since early 1994, initially
because of increases, and then stabilization, in the level of interest rates and
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 makes limited use of SBA funding and will seek such funding
only when advantageous. Since May 30, 1996, the Company has expanded its loan
portfolio, reduced its level of SBA financing and increased its level of bank
funding.
Media funds its operations through internal cash flow and inter-company
debt. Media is not a RIC and, therefore, is able to retain earnings to finance
growth.
The Company believes that anticipated borrowings from the SBA and the
increased amounts available under the Company's credit facility after repayment
of a substantial portion of amounts outstanding thereunder from proceeds of the
Company's Follow-on Offering and cash flow from operations (after distributions
to stockholders) will be adequate to fund the continuing operations of the
Company's loan portfolio and advertising business for the foreseeable future. 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 debt and (to the extent permitted and advantageous) to use SBA
financing, and to issue, in public or private transactions, its equity and debt
securities. The Company is currently exploring such external financing
possibilities and MFC is exploring establishing a commercial paper program and
money market loan program. The issuance of commercial paper and money market
loans will be contingent upon MFC maintaining its investment grade rating, among
other conditions, and no assurance can be given that MFC will be able to
establish such a program. The availability and terms of any additional financing
will depend upon market, regulatory and other conditions and there can be no
assurance that such additional financing will be available on terms acceptable
to the Company.
The Company expects to incur costs during the next two to three years
as it addresses the impact of the year 2000 on its information systems.
According to published reports, certain information systems, primarily computer
software programs, cannot properly recognize and process date sensitive
information for the year 2000 and beyond. The Company is evaluating its systems
to determine whether they are year 2000 compliant and is in the process of
addressing this issue. Accordingly, management has not yet estimated the cost of
this effort.
Recent Acquisitions
On October 31, 1997, the Company consummated the purchase of
substantially all of the assets and liabilities of Business Lenders, Inc.
through the Company's wholly-owned subsidiary, BLI Acquisition Co., LLC. In
connection with the transaction BLI Acquisition Co., LLC was renamed Business
Lenders, LLC. The acquisition was accounted for under the purchase method of
accounting and the purchase price paid to Business Lenders, Inc. at the closing
was $1,279,522 in cash plus $1,700,000 in repayment of subordinated debt. These
amounts are based on the September 30, 1997 net book value and are subject to
final adjustment based on the audited balance sheet at October 31, 1997. BLI
Acquisition Co., LLC also assumed approximately $12,500,000 of debt. The balance
of the purchase price is payable pursuant to an earn-out provision based on a
multiple of net after tax earnings over the next 3 years and could result in a
maximum payment of (i) $700,000 during the three months following October 31,
1999 and (ii) $13,450,000, less the amount of cash paid in respect of the net
book value at October 31, 1997, during the three months following October 31,
2000.
24
<PAGE>
Investment Considerations
The following are certain of the factors which could affect the
Company's future results. They should be considered in connection with
evaluating forward-looking statements contained in this Management's Discussion
and Analysis and elsewhere in this Report and otherwise made by or on behalf of
the Company since these factors, among others, could cause actual results and
conditions to differ materially from those projected in these forward-looking
statements.
Interest Rate Spread. The Company's net interest income is largely
dependent upon achieving a positive interest rate spread and other factors.
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.
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 distributes to its shareholders at least 90%
of its investment company taxable income, such earnings are not available to
fund loan originations.
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.
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.
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. 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 could potentially adversely affect the value
of the Company's collateral.
Government Regulation of Tobacco Advertising. Currently, 50% of the
Company's taxicab rooftop advertising revenue is derived from tobacco products
advertising. In August 1996, President Clinton signed an executive order
adopting rules proposed by the U.S. Food and Drug Administration (the "FDA")
restricting the sale and advertising of cigarette and smokeless tobacco
products. Certain of these regulations which include provisions prohibiting the
placement of tobacco product advertising within 1,000 feet of playgrounds and
schools only apply to stationery advertising such as placards and billboards
and, accordingly, do not restrict taxicab rooftop
25
<PAGE>
advertising. Certain other of these regulations, however, which limit tobacco
products advertising to a format consisting of black text on a white background
and require the inclusion of a statement which identifies the product as "a
nicotine-delivery device for persons over 18" apply to taxicab rooftop
advertising. Certain advertisers may be unwilling to advertise in this format;
accordingly, these restrictions, which become effective on August 28, 1997,
could have an adverse effect upon the taxicab rooftop advertising business of
the Company. On April 25, 1997, however, a federal district court in Greensboro,
North Carolina ruled that the FDA does not have the authority to restrict such
advertising. The FDA has indicated that it will appeal the decision. If the FDA
is successful in its appeal, the Company believes that these restrictions could
have an adverse effect upon the taxicab rooftop advertising business of the
Company. In addition, in June 1997 several of the major tobacco companies in the
U.S. and certain state attorney generals reached agreement on a proposed
settlement of litigation between such parties. The terms of this proposed
settlement include a ban on all outdoor advertising of tobacco products
commencing nine months after finalization of the settlement. The settlement,
however, is subject to several conditions, the most notable of which is the
enactment of legislation by the federal government. At this time, it is
uncertain when a definitive settlement will be reached, if at all, or what the
terms of any such settlement will be. A reduction in taxicab rooftop advertising
by the tobacco industry could cause an immediate reduction in the Company's
taxicab rooftop advertising revenues and may simultaneously increase the
Company's available inventory. An increase in available inventory could result
in the Company reducing its rates or limiting its ability to raise rates for
some period of time. If the tobacco litigation settlement were to be finalized
in its current form and if the Company were unable to replace revenues from
tobacco advertising with revenues from other sources, such settlement could have
an adverse effect upon the Company's taxicab rooftop advertising business.
In addition the states of Florida and Mississippi have entered into
separate settlements of litigation with the tobacco industry. These settlements
are not conditioned on federal government approval and provide for the
elimination of all outdoor advertising of tobacco products. If similar
settlements occur in jurisdictions where the Company operates such settlements
could adversely affect the Company's taxicab rooftop advertising business.
26
<PAGE>
PART II
OTHER INFORMATION
<TABLE>
<S> <C>
(a) Exhibits.
10.1 Employment Agreement dated August 29, 1997
between the Company and Allen S. Greene.
10.2 Asset Purchase Agreement dated as of August 20, 1997 among the
Company, BLI Acquisition Co., LLC, Business Lenders, Inc.,
Thomas Kellogg, Gary Mullin, Penn Ritter and
Triumph-Connecticut, Limited Partnership (including all
exhibits thereto - schedules omitted).
27 Financial Data Schedule
(b) Reports on Form 8-K.
</TABLE>
27
<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 13, 1997 By: /s/ Daniel F. Baker
-----------------------------
Daniel F. Baker
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
28
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT BETWEEN
MEDALLION FINANCIAL CORP.
AND
ALLEN S. GREENE
This employment agreement dated as of August 29, 1997 is by and between
Medallion Financial Corp., a Delaware corporation (the "Company"), and Allen S.
Greene, an individual residing at 100 Minnisink Road, Short Hills, New Jersey
07078 (the "Executive").
1. Employment. The Company shall employ the Executive, and the Executive
-----------
agrees to serve the Company, on the terms and conditions set forth herein.
The executive shall serve as Senior Executive Vice President and Chief
Operating Officer of the Company and shall be based at the Company's
headquarters in New York City. The Executive hereby accepts such employment
hereunder, except for absences occasioned by illness and reasonable
vacation periods, and agrees to undertake the duties and responsibilities
inherent in such position and such other duties and responsibilities as the
Company shall from time to time reasonably assign to him. Subject to the
general direction of the Board of Directors of the Company or any person to
whom the Board delegates its authority, the Executive shall use his best
efforts, including the highest standards of professional competence and
integrity, and shall devote his full business time and effort to the
performance of his duties hereunder. The Executive shall not engage in any
other business activity except that the Executive may engage from time to
time in such personal investment activities as do not interfere with his
day to day responsibilities to the Company. The Executive shall be allowed
to serve as a member of outside Boards of Directors with the prior approval
of the Chief Executive Officer of the Company.
2. Compensation and Benefits.
--------------------------
2.1 Salary. During the Term (as defined below) of this Agreement, the
-------
Executive shall be paid a salary at the rate of $225,000 per annum
("base salary"), payable as customarily paid by the Company. During
the Term of this agreement, Executive's base salary shall be reviewed
at least annually, the next such review will be made no later than
August 29, 1998 and thereafter by August 29 of each succeeding year.
The Company, in its sole discretion, may increase, but not decrease
the base salary. For purposes of this agreement any increased rate of
base salary shall become the base salary.
2.2 Bonus. In addition to his base salary, the Executive may be
------
entitled to bonuses at times and amounts determined in the discretion
of the Board of Directors of the Company.
<PAGE>
2.3 Benefits. The Executive shall be entitled to participate in all
---------
employee benefit programs or plans maintained by the company from time
to time on the same basis as other similarly situated executive
employees of the Company. If the Executive elects not to participate
in any health, life, disability or other insurance plan provided by
the Company, the Company will pay or reimburse the Executive for the
direct premium cost of Executive's participation in any other similar
plan outside the Company, up to a maximum amount equal to the
incremental cost that would have been incurred by the Company if the
Executive had chosen to participate in the Company plan. The Company
will pay or reimburse the lease cost of the automobile currently
leased by the Executive and upon expiration or termination of the
lease will continue to provide the Executive with a suitable
automobile for his business or and personal use. The Company will pay
or reimburse all maintenance, insurance, garage and other operating
expenses of the auto currently leased by Executive or any replacement
provided by the Company hereunder. The Executive will be entitled to 5
weeks paid vacation per year or such greater amount if similar
executives are entitled to more.
2.4 Reimbursement of Expenses. The Company shall reimburse the
--------------------------
Executive in accordance with its general reimbursement policies for
all ordinary and necessary expenses incurred by the executive on
behalf of the Company upon the presentation of appropriate supporting
documentation.
2.5 Stock Options. Pursuant to a Stock Option Agreement in customary
---------------
form, the Company will grant to the executive pursuant and subject to
its 1996 Stock Option Plan, stock options to purchase up to 125,000
shares of the Company's common stock. The options shall have a term of
10 years, and shall vest over 5 years in equal installments at the end
of each full year, subject to earlier vesting under the circumstances
described in section 3 below or such earlier date as the Board of
Directors may designate.
3. Term; Termination; Rights upon Termination.
-------------------------------------------
3.1 Term. The term (the "Term") of employment of the Executive hereunder
-----
shall commence as of the date first written and shall continue until
December 31, 1999 unless terminated earlier in accordance with the
provisions hereof, with one year being added at December 31, 1998 and
each December 31 thereafter.
3.2 Termination. The Company may at any time, upon 30 days written
------------
notice, terminate the employment of the Executive under this Agreement
with or without cause. The Executive may at any time, upon 30 days
written notice, terminate his employment under this Agreement with or
without reason. The rights and obligations of the parties upon any
termination of the Executive's employment shall be as set forth in
Section 3.3. The employment of Executive shall be deemed to have been
terminated by the Company for purposes of this agreement (except for
cause or following a change in control which are
-2-
<PAGE>
covered in other Sections of this agreement) upon any material change
by the Company in Executive's function, duties, or responsibilities,
which change would cause Executive's position with the Company to
become one of lesser responsibility, importance, or scope from the
position described in section 1. For purposes of this Agreement the
term "Cause" shall mean (i) any act of dishonesty or gross and willful
misconduct with respect to the Company, including without limitation,
fraud or theft, on the part of the Executive,(ii) conviction of the
Executive for a felony, or (iii) the Executive's failure to perform
his assigned duties hereunder after notice and a 30 day opportunity to
cure.
3.3 Rights Upon Termination. In the event that:
------------------------
(a) The employment of the Executive is terminated by the Company for any
reason other than cause, then, for the remainder of the then current
term of employment hereunder, (i) the Company shall pay to the
Executive, at the time otherwise due under Section 2, all the base
salary at the rate in effect at the time of termination, (ii) the
Company shall provide to the Executive all Benefits described in
Section 2, and (iii) the stock options described in Section 2 shall
all vest immediately. The obligations of the Company pursuant to this
Section 3.3(a) shall be in lieu of any other rights of the Executive
hereunder to compensation or benefits in respect of any period before
or after the date of such termination.
(b) The Executives employment terminates by reason of death or disability,
then the Company shall pay and provide to the Executive or Executive's
estate or other successor in interest at the time otherwise due under
Section 2 all base salary and benefits due to the Executive under
Section 2 through the end of the 6/th/ month after the month in which
the termination occurs, but reduced in the case of disability by any
payments received under any disability plan, program or policy paid
for by the Company. The stock options described in Section 2 shall
vest immediately. The obligations of the Company pursuant to this
Section 3.3 (b) shall be in lieu of any other rights of the Executive
hereunder to compensation or benefits in respect of any period before
or after the date of such termination and in lieu of any severance
payment, and no other compensation of any kind or any other amounts
shall be due to the Executive by the Company under this agreement. For
purposes of this Agreement, the term "permanent disability" shall mean
the Executive's failure to perform the services contemplated by this
agreement as a result of his physical or mental illness or incapacity
for a period of 6 consecutive months, or a total of 240 days in any
365 day period.
(c) The employment of the Executive is terminated by the Company for
cause, or by the Executive, the Executive shall not be entitled to
compensation or benefits granted hereunder beyond the date of the
termination of the Executive's employment.
-3-
<PAGE>
(d) Upon the occurrence of a Change in Control as defined in Section 7,
the Company shall pay Executive or in the event of his subsequent
death, his beneficiary, or his estate, as the case may be, as
severance pay or liquidated damages, or both a sum equal to 2.99
times: the sum of (i) Executive's base salary in effect immediately
prior to the Change in Control plus (ii) the bonus paid to Executive
as to the fiscal year prior to the Change in Control, or if a bonus
has been paid as to the fiscal year in which the Change of Control
occurs, such bonus, whichever is greater. The foregoing
severance/liquidated damages payment(s) shall be made to the
Executive's surviving spouse, or if no surviving spouse, to his
estate, in the event that the Company enters into an agreement as to a
Change in Control of the Company, and Executive shall die after such
agreement is executed but prior to consummation of the Change in
Control, which payments shall commence upon, and shall be contingent
upon, the actual consummation of the Change in Control. At the
election of the Executive, which election is to be made by January 31
of each year and is irrevocable for the year in which made (and once
payments commence), such payment may be made in a lump sum or paid in
equal bi-weekly (or as frequently as the Company generally pays its
employees) installments following the Executive's termination. In the
event that no election is made, payment to the Executive will be made
on a bi-weekly basis (or as frequently as the Company generally pays
its employees) during the remaining term of the agreement. Such
payments shall not be reduced in the event Executive obtains other
employment following termination. Also upon the occurrence of a Change
of Control followed by the executives termination the Company will
continue all benefits described in section 2 for a period of 36
months.
(e) Notwithstanding the preceding paragraphs of this Section 3(d) in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive under said paragraph would be deemed to include an
"excess parachute payment under section 280G of the Code or any
successor thereto, and
(ii) If such termination benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to (3) times Executives "base amount",
as determined in accordance with said Section 280G, and the Non-
Triggering Amount would be greater than the aggregate value of
the termination benefits (without such reduction) minus the
amount of tax required to be paid by Executive thereon by Section
4999 of the Code, then the termination benefits shall be reduced
to the Non-Triggering Amount. The allocation of the reduction
required hereby among the termination benefits provided by the
preceding paragraph of this Section 3(d) shall be determined by
Executive.
-4-
<PAGE>
4. Proprietary Information.
------------------------
4.1 The Executive agrees that all information, whether or not in writing,
of a private, secret or confidential nature concerning the business or
financial affairs (collectively, "Proprietary Information"), of the
Company and its subsidiaries (collectively, for purposes of this
Section 4, the "Company") is and shall be the exclusive property of
the Company. By way of illustration, but not limited, Proprietary
Information may include inventions, products, processes, methods,
techniques, projects, developments, plans, research data, financial
data, personnel data, and lists of borrowers, advertisers, fleet and
taxi owners. The Executive will not disclose any Proprietary
Information to others outside the Company or use the same for any
unauthorized purposes without written approval by the Company, either
during or after employment, unless and until such Proprietary
Information has become public knowledge without fault of Executive.
4.2 The Executive agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, or other written, photographic, or
other tangible material containing Proprietary Information, whether
created by the Executive or others, which shall come into his custody
or possession, shall be and are the exclusive property of the Company
to be used by the Executive only in the performance of his duties for
the Company.
4.3 The Executive agrees that his obligation not to disclose or use
information and records of the type set forth herein also extends to
such types of information, records and tangible property of borrowers,
advertisers, fleet and taxi owners or other third parties who may have
disclosed or entrusted the same to the Company or to the Executive in
the course of the Company's' business.
5. Other Agreements. The Executive hereby represents that he is not bound
-----------------
by the terms of any agreement with any previous employer or other party to
refrain from competing, directly or indirectly, with the business of such
previous employment or any other party. The Executive further represents
that his performance of all the terms of this Agreement and as an employee
of the Company does not and will not breach any agreements to keep in
confidence proprietary information, knowledge or data acquired by him in
confidence or in trust prior to his employment with the Company.
6. Non-Solicitation. The Executive agrees that during the term of the
-----------------
Executive's employment with the Company and for a period of one year
thereafter, the Executive shall not directly or indirectly recruit, solicit
or otherwise induce or attempt to induce any employees of the Company or
any of its subsidiaries to leave their employment.
7. Change in Control Protection. For purposes of this Agreement, a
-----------------------------
"Change in Control" of the Company shall mean a change in control of a
nature that would be required to be reported in response to item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended, or any similar
-5-
<PAGE>
item, schedule or form, whether or not the Company is then subject to such
reporting requirement.
8. Miscellaneous.
--------------
8.1 Notices. All notices required or permitted under this agreement shall
--------
be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed if to the Executive, at the address shown above
and if to the Company at its principal place of business at 205 East 42/nd/
Street, New York, New York 10017, or at such other address or addresses as
either party shall designate to the other in accordance with this Section
8.1.
8.2 Pronouns. Wherever the context may require, any pronouns used in this
---------
Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include plural,
and vice versa.
8.3 Entire Agreements. This Agreement constitutes the entire agreement
------------------
between the parties and supercedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
8.4 Amendment. This Agreement may be amended or modified only by a
----------
written instrument executed by both the Company and the Executive.
8.5 Governing Law. This Agreement shall be construed, interpreted and
--------------
enforced in accordance with the laws of the State of Delaware.
8.6 Successors and Assigns. This Agreement shall be binding upon and to
-----------------------
the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however,
that the obligations of the Executive are personal and shall not be
assigned by him.
8.7 Waivers. No delay or omission by the Company in exercising any rights
--------
under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be
effective only in this instance and shall not be construed as a bar or
waiver of any right on any other occasion.
8.8 Captions. The captions of the sections of this Agreement are for
---------
convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
8.9 Severability. In case any provision of this Agreement shall be
-------------
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
-6-
<PAGE>
8.10 Specific Enforcement. The parties acknowledge that the Executive's
---------------------
breach of the provisions of Section 4 and 6 of this Agreement will cause
irreparable harm to the Company. It is agreed and acknowledged that the
remedy of damages will not be adequate for the enforcement of such
provisions and that such provisions may be enforced by equitable relief,
including injunctive relief, which relief shall be cumulative and in
addition to any other relief to which the Company may be entitled.
9. Arbitration. Any claims, controversies, demands, disputes or differences
------------
between or among the parties hereto or any persons bound hereby arising out of,
or by virtue of, or in connection with, or otherwise relating to this Agreement
shall be submitted to and settled by arbitration conducted in New York, New York
before one or three arbitrators each of which shall be knowledgeable in
employment law. Such arbitration shall otherwise be conducted in accordance with
the rules then obtaining of the American Arbitration Association. The parties
hereto agree to share equally the responsibility for all fees of the
arbitrators, abide by any decision rendered as final and binding, and waive the
right to appeal the decision or otherwise submit the dispute to a court of law
for a jury or non-jury trial. The parties hereto specifically agree that neither
party may appeal or subject the award or decision of any such arbitrator(s) to
appeal or review in any court of law or in equity or by any other tribunal,
arbitration system or otherwise. Judgment upon any award granted by such an
arbitrator(s) may be enforced in any court having jurisdiction thereof. The
successful party to the arbitration shall be entitled to reimbursement of fees
and expenses from the losing party in an amount not to exceed $50,000.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above
MEDALLION FINANCIAL CORP.
By: /s/ Alvin Murstein
------------------
Title: Chairman and CEO
----------------
EXECUTIVE
By: /s/ Allen S. Greene
-------------------
ALLEN S. GREENE
-7-
<PAGE>
Exhibit 10.2
=====================================================
ASSET PURCHASE AGREEMENT
among
MEDALLION FINANCIAL CORP.,
BLI ACQUISITION CO., LLC,
BUSINESS LENDERS, INC.,
THOMAS KELLOGG,
GARY MULLIN,
PENN RITTER
AND
TRIUMPH - CONNECTICUT, LIMITED PARTNERSHIP
_____________________________
Dated as of August 20, 1997
_____________________________
=====================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<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 Post-Closing Adjustment............................................ 4
1.5 Earn-Out Payments.................................................. 5
1.6 Transfer of Purchased Assets....................................... 6
1.7 Delivery of Records and Contracts.................................. 6
1.8 MFC Designees...................................................... 6
1.9 Closing............................................................ 7
1.10 Further Assurances................................................. 7
1.11 Allocation of Purchase Price....................................... 7
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF BLI, THE KEY
EMPLOYEES AND TRIUMPH...................................................... 7
2.1 Organization....................................................... 7
2.2 Authorization and Validity of the Agreement........................ 8
2.3 Ownership.......................................................... 8
2.4 Subsidiaries and Other Affiliates.................................. 8
2.5 Certificate of Incorporation and Bylaws; Books and Records......... 8
2.6 Financial Statements............................................... 9
2.7 Absence of Undisclosed Liabilities................................. 9
2.8 No Material Adverse Change......................................... 9
2.9 Tax Matters........................................................ 11
2.10 Compliance with Laws............................................... 11
2.11 Consents; No Breach................................................ 13
2.12 Actions and Proceedings............................................ 13
2.13 Contracts and Other Agreements..................................... 12
2.14 Real Property; Leases.............................................. 15
2.15 Tangible Property.................................................. 15
2.16 Proprietary Rights................................................. 15
2.17 Title to Assets; Liens; Sufficiency................................ 15
2.18 Accounts and Notes Receivable...................................... 15
2.19 Borrowers.......................................................... 16
2.20 Employee Benefit Plans............................................. 17
2.21 Employee Relations................................................. 17
2.22 Relationships with Affiliates...................................... 18
2.23 Insurance.......................................................... 18
2.24 Banking Relationships.............................................. 18
2.25 Brokerage.......................................................... 18
2.26 Hazardous Materials................................................ 18
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
2.27 Full Disclosure.................................................... 19
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC.............................. 20
3.1 Organization....................................................... 20
3.2 Authority to Execute and Perform Agreement......................... 20
3.3 Brokerage.......................................................... 20
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 Confidentiality; No Publicity...................................... 23
4.6 Exclusive Dealing.................................................. 24
4.7 Non-Competition.................................................... 24
4.8 Change of Name..................................................... 24
4.9 Option Pool........................................................ 24
4.10 Bonus Plan......................................................... 25
4.11 Post Closing Conduct............................................... 25
4.12 Board of Directors................................................. 25
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE................................................................... 26
5.1 Representations, Warranties and Covenants; No Material Adverse
Change............................................................. 26
5.2 Updated Financial Statements....................................... 26
5.3 Opinion of Counsel to BLI.......................................... 26
5.4 Consents, Permits, and Approvals................................... 26
5.5 Non-Competition Agreements......................................... 27
5.6 Employment and Consulting Agreements............................... 27
5.7 Instruments of Transfer............................................ 27
5.8 Change of Name..................................................... 27
5.9 Adverse Proceedings................................................ 27
5.10 Certificates....................................................... 27
5.11 Approval of Documentation.......................................... 27
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF BLI, THE KEY EMPLOYEES AND TRIUMPH TO CLOSE................................. 27
6.1 Representations, Warranties and Covenants.......................... 27
6.2 Employment and Consulting Agreements............................... 28
6.3 Instrument of Assumption of Liabilities............................ 28
6.4 Opinion of Counsel to MFC.......................................... 28
6.5 Adverse Proceedings................................................ 28
6.6 Certificates....................................................... 28
6.7 Voting Agreement................................................... 28
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
6.8 Approval of Documentation.......................................... 28
6.9 Consents, Permits, and Approvals................................... 28
SECTION 7 - INDEMNIFICATION.................................................... 29
7.1 Survival........................................................... 29
7.2 Obligation of BLI, the Key Employees and Triumph to Indemnify...... 29
7.3 Obligation of MFC to Indemnify..................................... 29
7.4 Notice and Defense of Claims....................................... 29
7.5 Payment; Setoff.................................................... 30
7.6 Limitation on Indemnification...................................... 30
SECTION 8 - TERMINATION OF AGREEMENT........................................... 31
8.1 Termination........................................................ 31
8.2 Effect of Termination.............................................. 31
SECTION 9 - MISCELLANEOUS...................................................... 32
9.1 Notices............................................................ 32
9.2 Entire Agreement................................................... 33
9.3 Expenses........................................................... 33
9.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
Remedies........................................................... 34
9.5 Governing Law...................................................... 34
9.6 Binding Effect; No Assignment...................................... 34
9.7 Variations in Pronouns............................................. 34
9.8 Counterparts....................................................... 34
9.9 Exhibits and Schedules............................................. 34
9.10 Headings........................................................... 34
</TABLE>
(iii)
<PAGE>
EXHIBITS
A Instrument of Assumption of Liabilities
B Bill of Sale and Assignment
C-1 Kellogg Non-Competition Agreement
C-2 Mullin Non-Competition Agreement
C-3 Ritter Non-Competition Agreement
D Opinion of Counsel to Business Lenders, Inc.
E-1 Kellogg Employment Agreement
E-2 Mullin Employment Agreement
E-3 Ritter Employment Agreement
F Consulting Agreement
G Opinion of Palmer & Dodge LLP
H Voting Agreement
SCHEDULES
1.1.A Purchased Assets
1.1.B Excluded Assets
1.2 Assumed Liabilities
1.3.2 Net Book Value Certificate
1.3.3 Net After Tax Earnings Calculation Formula
1.11 Allocation of the Purchase Price
(iv)
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of August 20, 1997 is by and among
Medallion Financial Corp. ("MFC"), a Delaware corporation, BLI Acquisition Co.,
---
LLC, a Delaware limited liability company and wholly-owned subsidiary of MFC
("Acquisition Co."), Business Lenders, Inc. ("BLI"), a Connecticut corporation,
- ----------------- ---
Thomas Kellogg, Gary Mullin, Penn Ritter (collectively, the "Key Employees") and
-------------
Triumph -Connecticut, Limited Partnership ("Triumph"), a Connecticut limited
-------
partnership.
WITNESSETH
WHEREAS, MFC wishes to purchase, and BLI desires to sell, substantially all
of the assets and business of BLI, for the consideration set forth below and the
assumption of certain of BLI's liabilities set forth below, subject to the terms
and conditions of this Agreement (the "Acquisition").
-----------
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 1.9), BLI 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 BLI 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 BLI for the payment thereof, equipment, furnishings, supplies,
contract rights, licenses and permits, intellectual property rights, books,
records, accounts and the exclusive right to use the name "Business Lenders,
Inc.," 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 2.17); excluding only assets set
forth or described on Schedule 1.1.B ("Excluded Assets"). The Key Employees and
-------------- ---------------
Triumph shall use their best efforts to cause BLI to comply with its
undertakings, obligations and other agreements under this Agreement and to
consummate the transactions contemplated thereby. The properties, assets,
rights, interests and business of BLI 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
held or used by BLI in the conduct of its business as currently conducted.
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 BLI described on Schedule 1.2 which are to be performed after
------------
the Closing Date (the "Assumed
-------
<PAGE>
Liabilities"). The liabilities identified on Schedule 1.2 as "Subordinated Note
- ----------- ------------
Advances" shall not exceed $1,700,000 and such amount shall be paid by MFC in
full at the Closing (the "Subordinated Note Advance Payment"). The Assumed
---------------------------------
Liabilities will include, to the extent included on Schedule 1.2, the
obligations of BLI under loans originated in the ordinary course of BLI's
business and outstanding on the Closing Date and commitments to make such loans.
MFC shall not assume or agree to perform, pay or discharge, or have any
liability for, and BLI shall remain unconditionally liable for and shall
discharge, all obligations, liabilities and commitments of BLI, of any kind or
nature, known or unknown, fixed or contingent, other than the Assumed
Liabilities, including, without limitation: (a) any liability of BLI incurred in
connection with this Agreement and the transactions provided for herein,
including brokerage, accounting and counsel fees, transfer and other taxes, and
expenses pertaining to its liquidation or the performance by BLI of its
obligations hereunder, (b) any liability or obligation of BLI arising out of any
contract or agreement, (c) any obligations to BLI's employees, including without
limitation, any pension, retirement, or profit-sharing plan or trust and any
severance payment obligation, (d) any litigation, proceeding, claim by any
person or entity or other obligation of BLI relating to its business or
operations or to the Purchased Assets, whether or not such litigation,
proceeding, claim or obligation is pending, threatened, or asserted before, on,
or after the Closing Date, (e) Taxes (as defined in Section 2.9) whether
relating to periods before or after the Closing Date, (f) liabilities or
obligations to the U.S. Small Business Administration (the "SBA") or the State
---
of Connecticut Department of Banking (the "CDOB") other than as described on
----
Schedule 1.2, and (g) 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 or the CDOB. The assumption of the Assumed Liabilities by MFC hereunder
shall not enlarge any rights of third parties under contracts or arrangements
with MFC or BLI. Nothing herein shall prevent MFC from contesting in good faith
any of the Assumed Liabilities.
1.3 Purchase Price and Payment. The purchase price (the "Purchase Price")
-------------------------- --------------
for the Purchased Assets shall consist of:
(i) an amount, payable to BLI in cash on the Closing Date (as defined
in Section 1.9), equal to the Net Book Value of the Acquired Net
Assets (as defined in subsection 1.3.1) on the Closing Date,
which amount shall be subject to adjustment pursuant to Section
1.4;
(ii) if Acquisition Co.'s average annual Net After Tax Earnings (as
defined in subsection 1.3.3) for the two-year period commencing
with the last day of the month in which the Closing Date occurs
(the "Determination Date") and ended on the second anniversary of
------------------
the Determination Date is greater than $800,000, an amount
payable in cash (the "Year Two Payment"), which shall not be less
----------------
than $0.00, equal to the lesser of (a) $700,000, or (b) 35% of
Acquisition Co.'s average annual Net After Tax Earnings for the
two-year period commencing with the Determination Date and ended
on the second anniversary thereof; and
2
<PAGE>
(iii) an amount payable in cash (the "Year Three Payment," and
------------------
collectively with the Year Two Payment the "Earn-Out
--------
Payments"), which shall not be less than $0.00, equal to the
--------
product of the number specified in column two of the table
below multiplied by Acquisition Co.'s average annual Net After
Tax Earnings for the three-year period commencing with the
Determination Date and ended on the third anniversary thereof,
minus (a) amounts paid under subsections (i) and (ii) of this
Section 1.3, and (b) 50% of the Subordinated Note Advance
Payment if Acquisition Co.'s average annual Net After Tax
Earnings for the period commencing with the Determination Date
and ended on the third anniversary thereof is greater than
$1,000,000 and 100% of the Subordinated Note Advance Payment if
Acquisition Co.'s average annual Net After Tax Earnings for the
period commencing with the Determination Date and ended on the
third anniversary thereof is less than or equal to $1,000,000:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Cumulative
Average Net Maximum Maximum
After Tax Earnings Multiple Payment Payment
------------------------- -------- -------- -------
<S> <C> <C> <C>
$1,000,000 or less 5 $ 5,000,000
$1,000,001 to 2,000,000 5 5,000,000 $10,000,000
$2,000,001 to $2,500,000 3 1,500,000 11,500,000
$2,500,001 to $3,000,000 4 2,000,000 13,500,000
over $3,000,000 5 $ 1,500,000 $15,000,000
</TABLE>
1.3.1 The "Net Book Value of the Acquired Net Assets" shall mean the
-----------------------------------------
sum of (a) "Total Assets" (which is net of "Discount on Retained Loans"), less
"Total Liabilities," plus (b) 50% of the Discount on Retained Loans on the
unguaranteed loans which have been retained by BLI in their entirety, as those
terms are used in BLI's financial statements, all as determined in accordance
with generally accepted accounting principles applied consistently with BLI's
past practice, including, without limitation, as BLI has historically accounted
for valuations, reserves, allowances and write-offs and accruals.
1.3.2 The Net Book Value of the Acquired Net Assets shall be
determined and paid at the Closing on the basis of the computation made by BLI
in accordance with this Agreement, and reasonably acceptable to MFC, as of the
Closing Date and set forth in the unaudited valuation certificate of BLI
prepared in accordance with Schedule 1.3.2 hereto (the "Preliminary Closing Date
-------------- ------------------------
Net Book Value Certificate") and derived from the unaudited statement of
- --------------------------
condition of BLI as of the Closing Date prepared by BLI in accordance with
generally accepted accounting principles applied consistently with BLI's past
practice (the "Preliminary Closing Date Balance Sheet"). The Preliminary
--------------------------------------
Closing Date Net Book Value Certificate and the Preliminary Closing Date Balance
Sheet shall be accompanied by a certificate of BLI, the Key Employees and
Triumph representing and warranting that they have been prepared from, and in
accordance with, generally accepted accounting principles
3
<PAGE>
applied consistently with BLI's past practice and present fairly the financial
position of BLI reflected therein as of the date thereof.
1.3.3 "Net After Tax Earnings" shall mean the amount properly shown
----------------------
as "Net Income" on Acquisition Co.'s statement of operations as of the date of
determination determined in accordance with generally accepted accounting
principles applied consistently with BLI's past practice, and adjusted for (a)
amortization over 12 years, commencing on the Determination Date, of the
goodwill arising in connection with the Acquisition determined in a manner
consistent with the calculation of the Purchase Price as set forth in Section
1.3(iii) and (b) a tax provision calculated at a corporate tax rate of 41% which
assumes for purposes of this calculation that amortization of goodwill is
deductible (calculated in accordance with the method set forth on Schedule 1.3.3
--------------
hereto). In addition, Net After Tax Earnings shall be appropriately adjusted to
the extent that Acquisition Co. holds rather than sells the guaranteed portion
of the loans that it originates. Such adjustment, if required, will be made at
least quarterly, and will adjust (i) gain on sale as if guaranteed portions of
loans had been sold at prevailing market terms, (ii) interest income to reduce
interest which would not have been received if the guaranteed portions of such
loans were sold, (iii) servicing income and the excess servicing asset, and (iv)
interest expense relating to financing of the guaranteed portions. Such
accounting adjustments will be made using the guidelines of EITF 88-11 and FAS
125.
1.4 Post-Closing Adjustment.
-----------------------
1.4.1 Not later than 45 days after the Closing Date, MFC shall cause
its auditors to deliver to each party a valuation certificate of the Net Book
Value of the Acquired Net Assets as of the Closing Date as provided in Section
1.3 (such valuation certificate as corrected pursuant to subsection 1.4.2, the
"Final Closing Date Net Book Value Certificate"). The Final Closing Date Net
- ----------------------------------------------
Book Value Certificate shall be prepared in accordance with this Agreement and
audited in accordance with generally accepted auditing standards applied
consistently with BLI's past practice, without any adjustments caused by the
acquisition of the Purchased Assets and the assumption of the Assumed
Liabilities by MFC and shall be certified without qualification by MFC's
auditors. The expenses of such audit shall be borne by BLI.
1.4.2 BLI, the Key Employees and Triumph shall have 30 days after
receipt of the Final Closing Date Net Book Value Certificate and first access to
MFC's auditor's work papers prepared in connection therewith to assert any
disagreement with such items by written notice to MFC which specifies the nature
of the disagreement. If the parties are unable to resolve any disagreement
within 30 days of such notice, an independent accounting firm of national
reputation shall be chosen by the parties. Such accounting firm shall review
and resolve the disputed items and deliver a report of its conclusions which
shall be final and binding. The expenses of such firm shall be borne equally by
MFC, on one hand, and BLI and Triumph, on the other hand. If the report of the
independent accounting firm indicates that a correction should be made to the
previously delivered Final Closing Date Net Book Value Certificate, such
correction shall be made and the Final Closing Date Net Book Value
4
<PAGE>
Certificate, as corrected, shall be the Final Closing Date Net Book Value
Certificate for purposes of this Agreement.
1.4.3 If the Net Book Value of the Acquired Net Assets determined as
of the Closing Date computed on the basis of the Final Closing Date Net Book
Value Certificate is greater than the Net Book Value of the Acquired Net Assets
computed on the basis of the Preliminary Closing Date Net Book Value Certificate
and the Preliminary Closing Date Balance Sheet, the amount of such excess shall
be paid within three business days by MFC to BLI.
1.4.4 If the Net Book Value of the Acquired Net Assets determined as
of the Closing Date computed on the basis of the Final Closing Date Net Book
Value Certificate is less than the Net Book Value of the Acquired Net Assets
computed on the basis of the Preliminary Closing Date Net Book Value Certificate
and the Preliminary Closing Date Balance Sheet, the amount of such deficiency
shall be paid within three business days to MFC by BLI, or, jointly and
severally to the extent that they have received portions of the Purchase Price,
Triumph and the Key Employees or, at MFC's option, such deficiency or a portion
thereof shall be offset against the unpaid amount of the Purchase Price.
1.5 Earn-Out Payments.
-----------------
1.5.1 On the last day of the first full calendar quarter following
the first, second and third anniversaries of the Determination Date, MFC will
prepare and deliver to the Key Employees and Triumph MFC's calculation of Net
After Tax Earnings for the fiscal years ended on such dates (together with
supporting work papers related to such calculation), as well as a written notice
setting forth MFC's calculation of the amount payable pursuant to subsections
1.3(ii) and (iii) as the Earn-Out Payments.
1.5.2 Within 20 days after the Key Employees' and Triumph's receipt
of MFC's calculations of Net After Tax Earnings for the applicable fiscal year
and the resulting Earn-Out Payment, the Key Employees and Triumph will provide
MFC with written notice, indicating whether the Key Employees and Triumph agree
or disagree with MFC's calculations. If the Key Employees and Triumph dispute
MFC's calculations, such notice will reflect the Key Employees' and Triumph's
calculation of Net After Tax Earnings for such fiscal year and/or the resulting
Earn-Out Payment. If the Key Employees and Triumph agree with MFC's
calculations of Net After Tax Earnings for the applicable fiscal year and the
resulting Earn-Out Payment or if the Key Employees and Triumph fail to deliver
to MFC such written notice within such 20-day period, MFC's calculations of Net
After Tax Earnings for the applicable fiscal year and the resulting Earn-Out
Payment will be deemed final.
1.5.3 Within 10 days after MFC's receipt of any notice of
disagreement with MFC's calculations of Net After Tax Earnings for the
applicable fiscal year and the resulting Earn-Out Payment, MFC, the Key
Employees and Triumph will begin good faith negotiations to resolve such
disagreement. If MFC, the Key Employees and Triumph are unable to resolve such
disagreement within 10 days after such negotiations begin, such
5
<PAGE>
disagreement will be submitted to an independent accounting firm of national
reputation chosen by the parties (the "Settlement Auditor") for resolution.
------------------
MFC, the Key Employees and Triumph will cooperate with the Settlement Auditor
and will proceed in good faith to cause the Settlement Auditor to resolve such
disagreement within 30 days after such disagreement is submitted to the
Settlement Auditor. MFC, on one hand, and the Key Employees and Triumph
(jointly and severally), on the other hand, will each pay one-half of the fees
and expenses of the Settlement Auditor.
1.5.4 The Settlement Auditor's resolution of any such disagreement
will be reflected in a written report which will be delivered promptly to, and
will be final and binding upon, MFC, the Key Employees and Triumph.
1.5.5 Within 10 days after the earlier to occur of (i) the parties'
agreement with respect to the Net After Tax Earnings and resulting Earn-Out
Payment for a fiscal year, or (ii) the delivery of the report of the Settlement
Auditor as provided in subsection 1.5.4 hereof, MFC will pay to the Key
Employees and Triumph the Earn-Out Payment, if any, for such fiscal year as is
due pursuant to Section 1.3(ii) or (iii), as the case may be.
1.6 Transfer of Purchased Assets. At the Closing, BLI shall execute and
----------------------------
deliver to MFC a Bill of Sale and Assignment 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 be necessary and effective to
transfer to MFC title to all the Purchased Assets. Such 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 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 any Encumbrances.
1.7 Delivery of Records and Contracts. At the Closing, BLI shall deliver
---------------------------------
or cause to be delivered or made available 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. BLI shall also deliver or make
available to MFC at the Closing all of BLI's business records, tax returns,
books, papers, files and data relating to the Purchased Assets and Assumed
Liabilities and its business and operations and BLI shall take all requisite
steps to put MFC in actual possession and operating control of the Purchased
Assets, business and operations of BLI. MFC shall maintain all such records for
as long as any party is obligated to provide indemnification pursuant to Section
7 hereof and the Key Employees and Triumph shall have access to all such records
during such time.
1.8 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.
6
<PAGE>
Notwithstanding the foregoing, MFC shall at all times remain responsible to BLI
for the performance of all obligations of MFC to BLI hereunder.
1.9 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 Palmer & Dodge LLP, One Beacon Street, Boston,
Massachusetts on a date (the "Closing Date") mutually agreeable to the parties,
------------
but not later than December 31, 1997, unless otherwise agreed by the parties.
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.
1.10 Further Assurances. At any time and from time to time after the
------------------
Closing, at MFC's request without further consideration (except reimbursement in
full for any previously approved, reasonable and documented out-of-pocket
expenses incurred directly in connection with such request), BLI, the Key
Employees and Triumph 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 Purchased Assets, to put MFC
in actual possession and operating control of the assets, properties and
business of BLI, to assist MFC in exercising all rights with respect thereto,
and to carry out the purpose and intent of this Agreement.
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 Section 1.4. Neither MFC nor BLI,
the Key Employees or Triumph 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.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF BLI, THE KEY EMPLOYEES AND TRIUMPH
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, BLI,
the Key Employees and Triumph jointly and severally represent and warrant to MFC
as set forth below:
2.1 Organization. BLI is a Connecticut corporation duly organized,
------------
validly existing and in good standing under the laws of Connecticut 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. BLI is
qualified or is otherwise authorized to transact business in each jurisdiction
in which such qualification or authorization is required by law, all of which
jurisdictions are identified in Section 2.1 of the Disclosure Schedule. BLI is
-----------
7
<PAGE>
licensed and in good standing as a Connecticut "business and industrial
development company" pursuant to regulations adopted by the CDOB under
Connecticut General Statutes (S)(S)36a-625 et seq., and is a participant in good
-------
standing under the SBA's guaranteed loan program administered under Section 7(a)
of the Small Business Act of 1953.
2.2 Authorization and Validity of the Agreement. Subject to obtaining the
-------------------------------------------
approvals identified in Section 2.2 of the Disclosure Schedule, each of BLI, the
-----------
Key Employees and Triumph 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 duly authorized by all necessary action on the part of BLI, the Key
Employees and Triumph. 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
BLI, the Key Employees and Triumph, as the case may be, 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 Ownership. The Key Employees and Triumph own of record and
---------
beneficially, in the aggregate, not less than ninety percent (90%) of the issued
and outstanding capital stock of BLI. All of the issued and outstanding shares
of the capital stock of BLI are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. A true, complete and correct list
of the stockholders of BLI is set forth in Section 2.3 of the Disclosure
-----------
Schedule.
2.4 Subsidiaries and Other Affiliates. BLI 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.
2.5 Certificate of Incorporation and Bylaws; Books and Records. BLI has
----------------------------------------------------------
heretofore delivered to MFC (i) a true and correct copy of each of its
Certificate of Incorporation and Bylaws as in effect on the date hereof and (ii)
its corporate minute books. The record books of BLI contain true and complete
records of all actions and consents of the Board of Directors and the
stockholders of BLI since the time of its formation and accurately reflect all
transactions referred to in such actions and consents. The general ledgers and
books of account of BLI 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 and with all procedures
required by applicable laws and regulations, including specifically all
regulations, policies and procedures of the SBA and the CDOB.
8
<PAGE>
2.6 Financial Statements.
--------------------
(a) BLI has previously delivered to MFC the audited statement of
condition and statement of operations of BLI at and for the fiscal year ended
June 30, 1996 (the "Audited Financial Statements").
----------------------------
(b) BLI has also previously delivered to MFC the unaudited statement
of condition and statement of operations at and for the nine-month period ended
March 31, 1997 (the "Current Financial Statements").
----------------------------
(c) Prior to the Closing, pursuant to Section 4.1.1, BLI will deliver
to MFC the statements of condition and statements of operations at and for the
periods ended subsequent to the date hereof and prior to the Closing Date (the
"Updated Financial Statements").
- -----------------------------
All of the foregoing are referred to collectively as the "BLI Financial
-------------
Statements." The BLI Financial Statements have been (or, in the case of the
- ----------
Updated Financial Statements and the Preliminary Closing Date Balance Sheet will
be) prepared from and in accordance with the books and records of BLI, have been
(or will be) prepared in accordance with generally accepted accounting
principles applied consistently with past practices, have been (or will be)
certified, in the case of audited financial statements, without qualification by
BLI's independent public accountants and, in the case of the unaudited financial
statements, by BLI's chief financial officer, present (or will present) fairly
the financial position and results of operation of BLI as of the date and for
the period indicated, and reflect (or will reflect) adequate reserves for all
reasonably anticipated material losses, costs and expenses.
2.7 Absence of Undisclosed Liabilities. As at June 30, 1996, BLI 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 June 30,
1996 balance sheet included in the Audited Financial Statements that were not
adequately reflected or reserved against on such balance sheet. BLI has no such
liabilities, except as and to the extent (i) adequately reflected and reserved
against in the June 30, 1996 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.
2.8 No Material Adverse Change. Except as set forth in Section 2.8 of the
-------------------------- -----------
Disclosure Schedule, since June 30, 1996, there has not been:
(i) any material adverse change in the assets, liabilities, condition
(financial or otherwise), results of operation, business or prospects of
BLI or any
9
<PAGE>
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
BLI, in the manner of keeping the books, accounts or records of BLI, or in
any accounting method or practice of BLI;
(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 BLI, other than in the
usual and ordinary course of business;
(iv) any transaction, commitment, contract or agreement entered into
by BLI, or any relinquishment or abandonment by BLI 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 BLI (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 BLI or its business or on the Purchased Assets;
(vi) any new material obligation or liability of BLI for borrowed
money;
(vii) any acquisition by BLI (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 BLI of any of its
securities or any declaration, setting aside or payment of any dividend or
distribution of any kind to any stockholder of BLI except for the payment
by BLI of dividends on its shares of Preferred Stock, without par value,
(the "BLI Preferred"), solely in additional shares of BLI Preferred to
-------------
Triumph in accordance with past practice, the Note, Warrant and Stock
Purchase Agreement (the "BLI Triumph Purchase Agreement") between BLI and
------------------------------
Triumph dated as of September 1, 1994 and BLI's Certificate of
Incorporation (provided that such dividends shall not increase the Purchase
Price);
(ix) any loan or advance by BLI to any stockholder, director, 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 BLI
to any officer, director, employee or consultant, other than regularly
scheduled increases
10
<PAGE>
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 officer, director, employee or consultant of BLI.
2.9 Tax Matters.
-----------
2.9.1 BLI has paid or caused to be paid 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 BLI through the date hereof whether disputed or not. The provisions
for 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 BLI in respect of its assets, properties, business and operations
as at the Closing Date and for all prior periods. 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 BLI, the Key Employees or
Triumph, threatened to be asserted against BLI by any taxing authority and BLI,
the Key Employees and Triumph know of no grounds for any such assertion.
2.9.2 BLI 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 BLI 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 BLI and no audit or
other examination of any Tax return of BLI is in progress and BLI 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 BLI is in force, and no waiver or
agreement by BLI 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 BLI does not file reports or returns that BLI is or may be
subject to taxation by that jurisdiction. There are no Encumbrances on any of
the assets of BLI that arose in connection with any failure (or alleged failure)
to pay any Taxes.
2.10 Compliance with Laws.
--------------------
2.10.1 BLI and the Key Employees have not been and are 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,
11
<PAGE>
court or arbitrator relating to BLI or its business or assets, including,
without limitation, regulations and requirements of the SBA and the CDOB, and,
in the case of the Key Employees, relating to BLI or its business or assets or
their performance of services on behalf of BLI. BLI and the Key Employees have
been and are in full compliance with all of the foregoing that are applicable to
them or BLI or its business or assets. BLI and the Key Employees have never
received notice of, and there has never been any citation, fine or penalty
imposed or asserted against BLI or the Key Employees for, any such violation or
alleged violation.
2.10.2 Set forth in Section 2.10 of the Disclosure Schedule is a
------------
correct and complete list of all of the licenses, permits, certificates,
franchises, orders, authorizations or approvals of any federal, state, local or
foreign governmental or regulatory body, including, but not limited to,
authorizations and licenses issued by the SBA or the CDOB (collectively,
"Permits") that are material to the conduct of BLI's business and the uses of
- --------
its assets. Correct and complete copies of such Permits have been delivered by
BLI to MFC. BLI holds all Permits necessary to operate its business as
presently conducted and as currently contemplated to be 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 Purchased Assets to MFC. 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 BLI, the Key
Employees or Triumph, threatened to revoke or limit any Permit, and BLI, the Key
Employees and Triumph know of no grounds for any such revocation or limitation.
2.10.3 BLI has timely filed with the SBA and the CDOB all reports
required to be filed. BLI has previously delivered to MFC correct and complete
copies of such reports. All information required to be included in such reports
is included therein and all such information is true, correct and complete in
all respects.
2.11 Consents; No Breach. All consents, permits, authorizations and
-------------------
approvals from any person or entity, including without limitation, the SBA and
the CDOB, that are required pursuant to applicable law, or agreement or
otherwise in connection with the execution, delivery and performance of this
Agreement by BLI, the Key Employees or Triumph are set forth on Section 2.11 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 Bylaws of BLI
or the Certificate of Limited Partnership or Agreement of Limited Partnership of
Triumph; (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 BLI, the Key Employees or Triumph is a party or to
which BLI, the Key Employees or Triumph or any of their respective 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 BLI, the Key Employees of Triumph or their respective securities,
properties, assets or business; (iv) violate any Permit; (v) require
12
<PAGE>
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 BLI; or (vii) give rise to any obligation to make any payment or
give rise to any other obligation to the SBA or the CDOB.
2.12 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 BLI or any of its assets or
properties. Except as set forth in Section 2.12 of the Disclosure Schedule,
------------
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 BLI, the Key Employees or Triumph, threatened against or involving
BLI or any of its assets or properties. To the best knowledge of BLI, the Key
Employees or Triumph, there is no fact, event or circumstance that reasonably
could be expected to give rise to any such action, suit, claim, proceeding or
investigation.
2.13 Contracts and Other Agreements. Section 2.13 of the Disclosure
------------------------------ ------------
Schedule sets forth a correct and complete list of all of the following
contracts and other agreements to which BLI 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 stockholder, director, officer, employee, consultant,
agent or other representative of BLI, the Key Employees or Triumph 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 BLI 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 BLI 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 BLI 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 BLI agrees to act as
surety or guarantor for or to indemnify any party or to share the tax
liability of any party;
13
<PAGE>
(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 BLI and any successor or assignee of BLI 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;
(x) contracts, stipulations or agreements with the SBA or the CDOB;
(xi) contracts and other agreements containing obligations or
liabilities of any kind to stockholders or holders of other securities of
BLI 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 BLI 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 BLI in any line
of business;
(xiii) contracts and other agreements relating to the acquisition by
BLI 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 BLI of more than $10,000;
(xvii) contracts under which BLI will acquire or has acquired
ownership of, or license to, intangible property, including software;
(xviii) leases, subleases or other agreements under which BLI 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 BLI's business or prospects, condition, financial or otherwise,
or any of the assets or properties of BLI.
14
<PAGE>
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 2.13 of the Disclosure
------------
Schedule. All of such contracts and other agreements are valid, subsisting, in
full force and effect, binding upon BLI, and to the best knowledge of BLI, the
Key Employees and Triumph, binding upon the other parties thereto in accordance
with their terms, and BLI 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 in default under any of them, nor, to the best knowledge of BLI,
the Key Employees and Triumph, 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.
2.14 Real Property; Leases. BLI 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 2.14
------------
of the Disclosure Schedule sets forth a correct and complete list of all leases
of real property to which BLI is a party (collectively, "Leases"). True,
------
correct and complete copies of the Leases and all amendments, modifications and
supplemental agreements thereto have been delivered by BLI 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. 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.
2.15 Tangible Property. Set forth in Section 2.15 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 BLI ("Tangible Property"). BLI 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
BLI 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.
2.16 Proprietary Rights. BLI 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 is set forth in Section 2.16 of the Disclosure Schedule.
------------
BLI, the Key Employees and Triumph are not aware of any claim by any third party
that the business of BLI as currently conducted or proposed to be conducted
infringes upon the proprietary rights of others, nor has BLI received any notice
or claim from any third party of such
15
<PAGE>
infringement. BLI, the Key Employees and Triumph are 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. BLI 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. To the best knowledge of BLI, the Key
Employees and Triumph, none of the activities of the employees of BLI on behalf
of BLI violates any agreements or arrangements which any such employees have
with former employers.
2.17 Title to Assets; Liens; Sufficiency. BLI 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 balance sheet
included in the Current Financial Statements (and, when delivered, the balance
sheets included in the Updated Financial Statements), 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 balance sheet included in the
Current Financial Statements, and (iii) other matters set forth in Section 2.17
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 BLI in the conduct of its
business, and the Purchased Assets include all rights and property necessary to
the continued conduct of BLI's business in the manner in which it is presently
conducted.
2.18 Accounts and Notes Receivable. Set forth in Section 2.18 of the
----------------------------- ------------
Disclosure Schedule is a correct and complete description of all accounts and
notes receivable of BLI. BLI 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 BLI, represent valid and enforceable obligations due to
BLI, have been and are subject to no set-off or counter-claim, and have been
collected or are fully collectible in the ordinary course of business of BLI in
the aggregate recorded amounts thereof in accordance with their terms. BLI has
no accounts or notes receivable from any person, firm or corporation which is
affiliated with BLI, the Key Employees or Triumph or from any director, officer
or employee of any of them. Each loan originated by BLI and currently
outstanding has been guaranteed by the SBA in an amount not less than 70% of the
initial principal amount thereof.
2.19 Borrowers. Section 2.19 of the Disclosure Schedule sets forth the
--------- ------------
names and addresses of all parties that are currently borrowers of BLI
(collectively, the "Borrowers") and BLI has provided MFC with correct and
---------
complete copies or descriptions of all current agreements with such Borrowers.
Except as set forth in the Disclosure Schedule, BLI, the Key Employees and
Triumph believe that the relationships of BLI with its Borrowers are good
commercial working relationships which are not in arrears as to principal or
interest, stop accrual, work out, liquidation or litigation. Except at the
request of BLI, no current
16
<PAGE>
Borrower of BLI has canceled or otherwise terminated or notified BLI of its
intention to cancel or otherwise terminate its current relationship with BLI.
2.20 Employee Benefit Plans. Section 2.20 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 BLI, copies of which have been previously furnished by BLI to MFC.
BLI does not maintain or contribute to any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and BLI has not incurred any material liability
under Sections 4062, 4063 or 4201 of ERISA. Each Plan maintained by BLI 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. 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 BLI, the Key Employees and Triumph, 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 BLI 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
BLI. 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.
2.21 Employee Relations. BLI has approximately 25 full-time equivalent
------------------
employees and generally enjoys good employer-employee relations. None of BLI's
employees are represented by any labor union. BLI 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 BLI 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 BLI's normal policies). Correct and complete information as to
all current employees or consultants of
17
<PAGE>
BLI including, in each case, name, current job title and annual rate of
compensation has been provided by BLI to MFC.
2.22 Relationships with Affiliates. No stockholder, officer or director of
-----------------------------
BLI or Triumph has (directly or indirectly) any interest in (i) any property or
assets of BLI (except in the case of the Key Employees and Triumph, as a
stockholder), (ii) any competitor or customer of BLI (except for the ownership
of less than one percent (1%) of the capital stock of any publicly-traded
company that is such a competitor or customer), (iii) any supplier or lender to
BLI, or (iv) any party to any material contract or agreement with BLI.
2.23 Insurance. Section 2.23 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 BLI 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 BLI, are in conformity with the requirements of all leases, credit
facilities or other agreements to which BLI 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 BLI is not in default with respect to
any provision contained in any such policy or binder nor has BLI 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. BLI 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 by BLI to MFC.
2.24 Banking Relationships. Section 2.24 of the Disclosure Schedule sets
--------------------- ------------
forth (i) a correct and complete list of each bank or similar financial
institution in which BLI 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 BLI with banks or similar financial institutions.
2.25 Brokerage. No broker, finder, agent or similar intermediary has acted
---------
on behalf of BLI, the Key Employees or Triumph 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 BLI, the Key Employees or Triumph.
2.26 Hazardous Materials. BLI has never generated, used or handled any
-------------------
Hazardous Materials (as defined below), nor has BLI treated, stored or disposed
of any Hazardous Materials at any site owned or leased by BLI or shipped any
Hazardous Materials
18
<PAGE>
for treatment, storage or disposal at any other site or facility. No other
person has ever generated, used, handled, stored or disposed of any Hazardous
Materials at any site owned or premises leased by BLI during the period of BLI's
ownership or lease, nor has there been or is there threatened any release of any
Hazardous Materials on or at any such site or premises. To the best of BLI's,
the Key Employees' or Triumph's knowledge, no other person has ever generated,
used, handled, stored or disposed of any Hazardous Materials at any site in
which BLI 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 that could have a material adverse effect on BLI or Acquisition Co. BLI
does not presently own, operate, lease or use, nor has it previously owned,
operated, leased, or used any site on which underground storage tanks are or
were located. Except as set forth in Section 2.26 of the Disclosure Schedule,
------------
BLI, the Key Employees and Triumph have no notice that any Hazardous Materials
have ever been generated, used, handled, stored or disposed of at any site in
which BLI presently holds any mortgage or similar interest, or shipped from any
such site for treatment, storage or disposal at any other site or facility in a
manner that could have a material adverse effect on BLI or Acquisition Co. No
lien has ever been imposed by any governmental agency on any property, facility,
machinery, or equipment owned, operated, leased or used by BLI nor are any such
liens currently in place on any property, facility, machinery or equipment in
which BLI holds any mortgage, lien, or similar interest in connection with the
presence of any Hazardous Materials.
For purposes of this Section 2.26, "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. BLI has provided to MFC copies of all documents, records and information
available to BLI concerning any environmental or health and safety matter
relevant to BLI, whether generated by BLI 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.
2.27 Full Disclosure. All documents and other papers delivered by or on
---------------
behalf of BLI, the Key Employees or Triumph, in connection with this Agreement
and the transactions contemplated hereby are true, complete and authentic. No
representation, warranty or statement of BLI, the Key Employees or Triumph, 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 BLI
that has not been disclosed to MFC in this Agreement or the Schedules that
materially adversely affects, or is likely to affect materially and adversely,
the assets, properties, business, operations or condition (financial or
otherwise) or prospects of BLI.
19
<PAGE>
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC
MFC and Acquisition Co. each represents and warrants severally to BLI as
follows:
3.1 Organization. MFC is a corporation duly incorporated, 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 and Acquisition Co. is
a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware with full 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. Each of MFC and
------------------------------------------
Acquisition Co. has the power and authority required to enter into, execute and
deliver this Agreement and each agreement, document and instrument delivered
pursuant to this Agreement to which it is a party 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 action on the part of MFC and Acquisition Co. This
Agreement and each agreement, document and instrument executed and delivered
pursuant to this Agreement to which MFC or Acquisition Co. is a party
constitutes, or when executed and delivered will constitute, valid and binding
obligations of MFC and Acquisition Co., as the case may be, enforceable in
accordance with their terms, subject to the General Limitations.
3.3 Brokerage. Other than Veral & Co., L.L.P. ("Veral"), no broker,
--------- -----
finder, agent or similar intermediary has acted on behalf of MFC in connection
with this Agreement or the transactions contemplated hereby, and except for fees
payable to Veral, 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 or Acquisition Co.
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, BLI shall observe, and the Key Employees and Triumph shall use
best efforts to cause BLI to observe, the following covenants:
20
<PAGE>
4.1.1 Affirmative Covenants Pending Closing. BLI will and the Key
-------------------------------------
Employees and Triumph will use best efforts to cause BLI to:
(i) Preservation of Personnel. Use best efforts to preserve
-------------------------
intact BLI's business organization and keep available the services of BLI'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 BLI's 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 BLI'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 2.13 of the Disclosure
------------
Schedule;
(iv) Preservation of Business Relationships. Use best efforts to
--------------------------------------
maintain BLI's existing relationships with suppliers, customers, lenders,
and others, including the SBA and the CDOB;
(v) Approvals and Authorizations. Use best efforts to obtain at
----------------------------
their expense all authorizations, consents, permits and approvals of all
parties (including the SBA and the CDOB) 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 2.6, and permit MFC's
auditors access to BLI's auditor's work papers prepared in connection
therewith, and provide MFC with such other financial statements, auditors'
work papers and other financial reports concerning BLI as MFC may
reasonably request;
(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 BLI, the Key Employees and
Triumph herein accurate and complete as if such information had been known
on the date hereof;
(viii) Compliance. Comply with all applicable laws, regulations
----------
and other governmental requirements (except where noncompliance would not
have a
21
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material adverse effect on BLI's financial condition, results of
operations, assets, business or prospects) and all contracts, commitments
and obligations; and
(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.
4.1.2 Negative Covenants Pending Closing. BLI will not and the Key
----------------------------------
Employees and Triumph will use best efforts to cause BLI to not:
(i) Disposition of Assets. Sell or transfer, or mortgage, pledge
---------------------
or create or permit to be created any Encumbrance on any of BLI's 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 BLI 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 employee, agent or
consultant of BLI, 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 of BLI;
(iv) Distributions. Declare or pay any dividend or other
-------------
distribution to the stockholders of BLI, or issue, sell, transfer,
purchase, redeem or otherwise acquire any stock of BLI, except BLI may
continue to pay dividends on the BLI Preferred, payable solely in
additional shares of BLI Preferred to Triumph in accordance with past
practice, the BLI-Triumph Purchase Agreement and BLI's Certificate of
Incorporation (provided that such dividends shall not increase the Purchase
Price);
(v) Certificate of Incorporation and Bylaws. Take or permit any
---------------------------------------
action to amend its Certificate of Incorporation or Bylaws;
(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, MFC shall be
-------------------------------
entitled, through its employees and representatives, to have such access to the
assets, properties, records, business and operations of BLI as is reasonably
necessary or appropriate in connection with MFC's investigation of BLI with
respect to the transactions contemplated hereby. Any such investigation and
examination shall be conducted at reasonable times and
22
<PAGE>
under reasonable circumstances so as to minimize any disruption to or impairment
of BLI's business and BLI shall cooperate fully therein. No investigation by
MFC shall diminish or obviate any of the representations, warranties, covenants
or agreements of BLI, the Key Employees or Triumph contained in this Agreement.
In order that MFC may have full opportunity to make such investigation, BLI
shall furnish the representatives of MFC during such period with all such
information and copies of such documents concerning the affairs of BLI 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.
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. In addition, each of
the Key Employees and Triumph shall use its best efforts to cause BLI 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 the Key Employees'
or Triumph's control or capable of influence by any of them, BLI does not breach
any of its representations, warranties, covenants and agreements hereunder, to
the end that the transactions contemplated by this Agreement shall be fully
carried out in a timely fashion. BLI and MFC shall each cooperate with each
other in completing applications for any SBA and CDOB approvals required to be
obtained for MFC's purchase of the Purchased Assets and assumption of the
Assumed Liabilities.
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 Confidentiality; No Publicity. MFC and its affiliates will treat all
-----------------------------
material non-public information ("Confidential Information") concerning BLI as
------------------------
confidential and will not use or disclose such information for any purpose other
than in connection with the Acquisition, except for any disclosure which is
required by law. BLI and its affiliates, including the Key Employees and
Triumph, will treat all Confidential Information concerning MFC and its
affiliates as confidential and will not use such information for any purpose
other than in connection with the Acquisition, except for any disclosure which
is required by law. The term "Confidential Information" does not include any
information which (i) at the time of disclosure or thereafter is generally
available to and known to the public (other than as a result of a violation of
this Agreement or any other obligation of confidentiality); (ii) was available
to the recipient on a nonconfidential basis from a source other than the
discloser hereunder, provided that the source is not known by the recipient to
be bound by a confidentiality agreement with the discloser or otherwise subject
to another contractual, legal or fiduciary obligation of confidentiality to the
discloser; or (iii) has been independently
23
<PAGE>
acquired or developed by the recipient without violating any obligations under
this letter or any other obligation of confidentiality.
Neither BLI, Triumph nor the Key Employees will 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
the Acquisition or this Agreement and its contents (including the identities of
the parties), without the approval of MFC at any time, except as is required by
law or is required in connection with the Acquisition, and in such event BLI,
Triumph and the Key Employees shall use all reasonable efforts to permit MFC an
opportunity to review any such release or statement prior to dissemination. In
the event that MFC proposes to issue a press release with respect to the
Acquisition or this Agreement and its contents, it will give BLI and Triumph the
opportunity to comment on such press release and will consider such comments
prior to its release.
4.6 Exclusive Dealing. BLI, the Key Employees and Triumph 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 BLI
(excluding the sale of loans or participations in the ordinary course of BLI's
business) or any merger or other business combination with BLI (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. BLI will promptly notify MFC of any such proposal, offer, inquiry
or other contact relating to any proposed Acquisition Transaction.
4.7 Non-Competition. At the Closing, each of the Key Employees will enter
---------------
into separate Non-Competition Agreements (the "Non-Competition Agreements") with
--------------------------
MFC substantially in the form attached hereto as Exhibits C-1, C-2 and C-3.
-------------------------
4.8 Change of Name. Prior to or on the Closing Date, BLI shall execute,
--------------
deliver, and file all documents and take such other actions as may be required
to change its name, effective at the Closing, to another name bearing no
similarity to "Business Lenders, Inc." BLI 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 BLI
will not use the name "Business Lenders, Inc." or any variants thereof or names
similar thereto.
4.9 Option Pool. MFC will establish a pool of options exercisable for
-----------
90,000 shares of MFC's Common Stock, par value $.01 per share (the "MFC Stock"),
---------
for grant to the officers, directors and employees of Acquisition Co. MFC's
Board of Directors, or the Compensation Committee thereof, will consider the
recommendations of the Key Employees in establishing which employees and
officers will receive such grants and the number of shares underlying each
grant. The Key Employees acknowledge and agree that no individual will receive
options exercisable for more than 10,000 shares of MFC Stock in any year. MFC
agrees that it will initially grant options exercisable for 30,000 shares of MFC
Stock on
24
<PAGE>
the later of (i) the date MFC's stockholders approve such grant, which the Key
Employees understand will occur no earlier than MFC's 1998 annual meeting of
stockholders, and (ii) the receipt of any required approval of the Securities
and Exchange Commission (the "Initial Date of Grant"). Thereafter, MFC agrees
---------------------
that it will grant options exercisable for an additional 30,000 shares of MFC
Stock on each of the first and second anniversaries of the Initial Date of
Grant. Each option will vest (a) on the third anniversary of the date of grant
or (b) in the case of each of the Key Employees, automatically in the event of
termination of employment without "cause," as defined in such employee's
employment agreement. Each option will have an exercise price equal to the
closing price of the MFC Stock on such date of grant. The numbers of shares
underlying the options granted on the Initial Date of Grant shall be subject to
increase on a percentage basis that is equal to the percentage increase in the
price of MFC's Common Stock between the Closing Date and the Initial Date of
Grant; provided, however, that in the event that MFC's Board of Directors does
-------- -------
not approve such additional grant of options, Acquisition Co. shall pay each
individual that received options on the Initial Date of Grant an amount in cash
that is equal to the product of the number of shares underlying the options that
such individual received on the Initial Date of Grant multiplied by the increase
in the price of MFC's Common Stock between the Closing Date and the Initial Date
of Grant.
4.10 Bonus Plan. Acquisition Co. will establish a bonus plan for its
----------
employees which shall remain in place at least until the third anniversary of
the Determination Date and shall provide for the distribution of up to 10% of
Net After Tax Earnings to such employees. In determining the amount payable
under the plan and the recipients of such payments, Acquisition Co. agrees that
it will consider the recommendations of the Key Employees.
4.11 Post Closing Conduct. MFC agrees that, consistent with its fiduciary
--------------------
duties to its stockholders, regulatory obligations and its overall profitability
and business objectives, it will support the operations and development of
Acquisition Co. after the Closing Date consistent with a business plan and
operating budget developed by MFC, the Key Employees and Triumph prior to the
Closing Date. MFC's support will include: (i) seeking to minimize expenses at
Acquisition Co. by providing Acquisition Co. with access to MFC's third party
service providers and (ii) providing capital to Acquisition Co. MFC further
agrees that any intercompany charges allocated to Acquisition Co. will relate
only to services actually provided. In addition, MFC agrees that the Key
Employees shall have the authority to sell up to 50% of the unguaranteed portion
of the loans on BLI's books on the Closing Date or originated by Acquisition Co.
at any time, on commercially reasonable terms, after the Closing Date and until
the third anniversary of the Determination Date. The Key Employees agree that
any sales in excess of such 50% threshold, or any sales made at less than 100%
of the principal amount thereof, shall require the prior approval of MFC.
4.12 Board of Directors. Until the earlier of (a) the third anniversary of
------------------
the Determination Date, and (b) the termination of each of the employment
agreements described in Section 5.6, MFC agrees to vote all of its membership
interests in Acquisition Co. and to take such other actions as are necessary, so
as to fix the number of members of the Board of Directors of Acquisition Co. at
nine directors, and to elect and thereafter continue in office
25
<PAGE>
as directors of Acquisition Co. five directors designated by MFC and four
directors designated by the Key Employees and Triumph. The Board will be given
access to information concerning the performance of Acquisition Co. (actual and
as restated for purposes of the Purchase Price calculation) and will review and
determine strategic plans and budgets for Acquisition Co. In the event Triumph
does not have a representative on the Board of Directors, Triumph shall be
permitted, to the extent not prohibited under applicable law, to send one non-
voting observer to each meeting of the Board of Directors, and such observer
shall be entitled to receive any and all correspondence and communications
between MFC and the Board of Directors, including all written consents and other
material distributed.
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; No Material Adverse Change.
--------------------------------------------------------------------
The representations and warranties of BLI, the Key Employees and Triumph
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).
BLI, the Key Employees and Triumph 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; and there shall have been no material
adverse change in the business, properties, prospect or condition (financial or
otherwise) of BLI. BLI, the Key Employees and Triumph shall have delivered to
MFC a certificate, dated the Closing Date, to the foregoing effect, as
applicable.
5.2 Updated Financial Statements. MFC shall have received from BLI (i)
----------------------------
unaudited quarterly financial statements for each of the fiscal quarters between
the date hereof and the Closing Date within 45 days of the end of each such
fiscal quarter and (ii) audited financial statements for each fiscal year ending
after the date hereof within 90 days of the end of such fiscal year.
5.3 Opinion of Counsel to BLI. MFC shall have received an opinion of
-------------------------
Tyler Cooper & Alcorn LLP, counsel to BLI, the Key Employees and Triumph, dated
the Closing Date, substantially in the form of Exhibit D hereto and otherwise in
---------
form and substance reasonably acceptable to MFC and its counsel.
5.4 Consents, Permits, and Approvals. All consents, permits, licenses,
--------------------------------
authorizations and approvals required to permit the consummation by BLI, the Key
26
<PAGE>
Employees and Triumph of the transactions contemplated by this Agreement and the
continued operation by MFC of the business of BLI in the manner conducted prior
to the Closing including, without limitation, that of the SBA and the CDOB, and
those set forth in Section 2.11 of the Disclosure Schedule, shall have been
------------
obtained, and confirmation thereof shall have been provided to MFC.
5.5 Non-Competition Agreements. The Non-Competition Agreements shall have
--------------------------
been executed and delivered by the Key Employees.
5.6 Employment and Consulting Agreements. Each of the Key Employees shall
------------------------------------
have executed and delivered to MFC Employment Agreements (the "Employment
----------
Agreements"), substantially in the forms attached as Exhibits E-1, E-2 and E-3
- ---------- -------------------------
hereto, and George Ritter shall have executed and delivered to MFC a Consulting
Agreement (the "Consulting Agreement"), substantially in the form attached as
--------------------
Exhibit F hereto.
- ---------
5.7 Instruments of Transfer. BLI shall have delivered or caused to be
-----------------------
delivered to MFC a Bill of Sale and Assignment in conformity with Section 1.6.
5.8 Change of Name. BLI shall have provided to MFC confirmation
--------------
satisfactory to MFC and its counsel of the change of name provided for in
Section 4.8.
5.9 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 BLI following the Closing.
5.10 Certificates. BLI shall have furnished MFC with such certificates of
------------
public officials and other third parties as may be reasonably requested by MFC.
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.
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF BLI, THE KEY EMPLOYEES AND TRIUMPH TO CLOSE
Each obligation of BLI, the Key Employees and Triumph 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 BLI, the Key Employees and
Triumph):
6.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of MFC contained in this Agreement shall have been true and correct
when made
27
<PAGE>
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 BLI, the Key Employees and Triumph a certificate,
dated the Closing Date, to the foregoing effect.
6.2 Employment and Consulting Agreements. The parties thereto shall have
------------------------------------
executed and delivered the Employment Agreements and the Consulting Agreement.
6.3 Instrument of Assumption of Liabilities. MFC shall have executed and
---------------------------------------
delivered to BLI an Instrument of Assumption of Liabilities in conformity with
Section 1.2.
6.4 Opinion of Counsel to MFC. BLI, the Key Employees and Triumph shall
-------------------------
have received an opinion of Palmer & Dodge LLP, counsel to MFC, dated the
Closing Date, substantially in the form of Exhibit G hereto and otherwise in
---------
form and substance reasonably acceptable to BLI, the Key Employees, Triumph and
their counsel.
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 carrying out of the transactions contemplated hereby.
6.6 Certificates. MFC shall have furnished BLI with such certificates of
------------
public officials and other third parties as may be reasonably requested by BLI.
6.7 Voting Agreement. Alvin Murstein, the Alvin Murstein Second Family
----------------
Trust and the Andrew Murstein Family Trust shall have executed and delivered a
Voting Agreement, substantially in the form attached as Exhibit H hereto.
---------
6.8 Approval of Documentation. All certificates, instruments, opinions
-------------------------
and other documents delivered or to be delivered to BLI, the Key Employees and
Triumph hereunder shall be reasonably satisfactory to BLI, the Key Employees and
Triumph and their counsel in all respects.
6.9 Consents, Permits, and Approvals. All consents, permits, licenses,
--------------------------------
authorizations and approvals required to permit the consummation by MFC and
Acquisition Co. of the transactions contemplated by this Agreement and the
continued operation by MFC and Acquisition Co. of the business of BLI in the
manner conducted prior to the Closing including, without limitation, that of the
SBA and the CDOB, shall have been obtained, and confirmation thereof shall have
been provided to BLI, the Key Employees and Triumph.
28
<PAGE>
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 until the last day of the first full calendar quarter
following the second anniversary of the Determination Date (the "Expiration
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, and (ii) any claims asserted prior to the Expiration Date, which
shall survive until finally resolved and satisfied in full, provided that such
claims shall have been asserted in accordance with this Section 7 prior to the
Expiration Date.
7.2 Obligation of BLI, the Key Employees and Triumph to Indemnify. Each
-------------------------------------------------------------
of the Key Employees and Triumph shall jointly and severally indemnify and hold
harmless each of MFC and Acquisition Co. (and their respective directors,
officers, employees, agents, affiliates and assigns (collectively,
"Indemnification Affiliates")) 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 the Key Employees
or Triumph contained herein or in any certificate or other document, instrument
or agreement delivered pursuant hereto. BLI shall indemnify and hold harmless
each of MFC and Acquisition Co. (and their respective Indemnification
Affiliates) 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 BLI 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 each of BLI and Triumph (and their respective Indemnification
Affiliates) and each of the Key Employees 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.
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
29
<PAGE>
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
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; Setoff. Any 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. Notwithstanding the
foregoing, MFC shall be entitled to set off any amounts due it as an indemnified
party against any amounts otherwise due from MFC to BLI, the Key Employees or
Triumph pursuant to the terms of this Agreement.
7.6 Limitation on Indemnification. The right to indemnification under
-----------------------------
this Section 7 shall be subject to the following terms:
7.6.1 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
$50,000 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.
7.6.2 The maximum aggregate indemnification amount that shall be due
under Section 7.2 from the Key Employees and Triumph shall not in any event
exceed, in the aggregate, the Purchase Price plus the Subordinated Note Advance
Payment. In addition, the maximum indemnification amount that shall be due
under Section 7.2 from each of the Key Employees shall not in any event exceed
the amount of the Purchase Price paid or payable to such Key Employee and the
maximum indemnification amount that shall be due under
30
<PAGE>
Section 7.2 from Triumph shall not in any event exceed the amount of the
Purchase Price paid or payable to Triumph plus the Subordinated Note Advance
Payment.
SECTION 8 - TERMINATION OF AGREEMENT
8.1 Termination. This Agreement may be terminated prior to the Closing as
-----------
follows:
(i) at the election of BLI, the Key Employees or Triumph 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 BLI, the Key Employees or Triumph
of such breach of representation, warranty, covenant or agreement, cured such
breach;
(ii) at the election of MFC upon written notice to BLI, the Key
Employees and Triumph if BLI, the Key Employees or Triumph has breached any
representation, warranty, covenant or agreement contained in this Agreement and
has not, within twenty (20) business days of receipt by BLI, the Key Employees
and Triumph 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; or
(iv) by any party if the Acquisition has not been consummated by
December 31, 1997, unless otherwise agreed by 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 Section 4.5 ("Confidentiality; No Publicity"), Section 7
-----------------------------
("Indemnification"), this Section 8, and Section 9.3 ("Expenses"), which shall
--------------- --------
survive and continue in effect. 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, however, that nothing
-------- -------
contained in this Section 8.2 shall relieve any party of any liability for any
breach or default hereunder occurring prior to such termination.
31
<PAGE>
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, three (3) days after the date of deposit in the United States mails,
as follows:
(i) if to MFC or Acquisition Co., to:
Medallion Financial Corp.
205 East 42nd Street
New York, NY 10017
Attention: Andrew Murstein, President and
Chief Operating Officer
Fax: (212) 983-0351
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Steven N. Farber
Fax: (617) 227-4420
(ii) if to BLI:
Business Lenders, Inc.
15 Lewis Street
Hartford, CT 06103
Attention: Thomas Kellogg
Fax: (860) 244-9303
with a copy to:
Tyler Cooper & Alcorn
CityPlace - 35th Floor
Hartford, Connecticut 06103
Attention: William W. Bouton III
Fax: (860) 725-6210
(iii) if to Thomas Kellogg:
32
<PAGE>
Thomas Kellogg
12 Governor's Row
West Hartford, CT 06117
(iv) if to Gary Mullin:
Gary Mullin
564 Lamplight Lane
Orange, CT 06477
(v) if to Penn Ritter:
Penn Ritter
14 Birch Road
West Hartford, CT 06119
(vi) if to Triumph:
Triumph Capital
City Place I, 35th Floor
Hartford, CT 06103
Attention: John M. Chapman, Managing Director
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.
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. BLI shall bear the
costs of obtaining the SBA and CDOB consents required hereunder provided that
any licensing fee payable to the CDOB in connection with the issuance of a new
license to MFC shall be payable by MFC. Notwithstanding the foregoing, if MFC
does not complete the transaction because of a material misrepresentation in any
materials provided to MFC by BLI, Triumph or any of the Key Employees, BLI will
pay MFC $10,000 in addition to any amounts payable under Section 7.2.
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,
33
<PAGE>
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 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 no 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 (i) by operation
of law, (ii) by MFC to any of its affiliates in accordance with Section 1.8
hereof or (iii) by BLI to a liquidating trust, provided, however that such
liquidation trust shall also assume all of BLI's liabilities and obligations
hereunder and such assignment shall not relieve any party of any obligations
hereunder or impair any rights of MFC or Acquisition Co., including, without
limitation, rights to indemnification and set off under Section 7 hereof.
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.
34
<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
---------------------
BLI ACQUISITION CO., LLC
By: /s/ Andrew Murstein
---------------------
BUSINESS LENDERS, INC.
By: /s/ Thomas Kellogg
--------------------
Thomas Kellogg
President
/s/ Thomas Kellogg
--------------------
Thomas Kellogg
/s/ Gary Mullin
-----------------
Gary Mullin
/s/ Penn Ritter
-----------------
Penn Ritter
TRIUMPH CAPITAL
By: /s/ John M. Chapman
---------------------
John M. Chapman
Managing Director
35
<PAGE>
Exhibit A
---------
INSTRUMENT OF ASSUMPTION OF LIABILITIES
---------------------------------------
This Instrument of Assumption of Liabilities dated October 31, 1997, is
made by Medallion Financial Corp., a Delaware corporation ("MFC"), in favor of
---
Business Lenders, Inc., a Connecticut corporation ("BLI"). 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 August 20, 1997 by and among MFC, BLI, BLI
Acquisition Co., LLC, Triumph-Connecticut Limited Partnership, Thomas O.
Kellogg, Gary Mullin and Penn Ritter, as amended by Amendment No. 1 thereto
dated as of October 22, 1997 (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, BLI has agreed to sell,
assign, transfer, convey, and deliver to MFC and MFC has agreed to purchase, the
Purchased Assets;
WHEREAS, in partial consideration therefor, MFC has agreed to assume
certain specified liabilities of BLI.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, MFC hereby agrees as follows:
1. MFC hereby assumes and agrees to perform, pay and discharge, when due,
the liabilities, obligations and commitments of BLI which are described on
Schedule 1.2 to the Purchase Agreement and referred to in the Purchase Agreement
- ------------
as the "Assumed Liabilities". Without otherwise limiting the foregoing, MFC
assumes and agrees that it shall be liable to the SBA for any and all SBA
Obligations and agrees that it shall purchase the loan to Linda B's Restaurant,
Inc., as described in and pursuant to Amendment No. 1 to the Purchase Agreement.
2. MFC hereby covenants and agrees that it will, at the request of BLI 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 MFC 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 MFC to perform, pay or discharge
any obligation, liability or commitment expressly assumed by MFC herein so long
as MFC 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 MFC of its obligation
to indemnify and hold harmless BLI from any Assumed Liabilities being so
contested.
<PAGE>
4. Nothing herein shall be deemed to deprive MFC of any defenses, set-offs
or counterclaims which BLI may have had or which MFC shall have with respect to
any of the obligations, liabilities and commitments hereby assumed (the
"Defenses and Claims"). BLI hereby transfers, conveys and assigns to MFC all
- --------------------
Defenses and Claims and agrees to cooperate with MFC 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 MFC in connection with such Defenses and Claims.
5. MFC, by its execution of this Instrument of Assumption of Liabilities,
and BLI, 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, MFC and BLI have caused this instrument to be duly
executed as of and on the date first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
---------------------
BUSINESS LENDERS, INC.
By: /s/ Thomas Kellogg
--------------------
-2-
<PAGE>
Exhibit B
---------
BILL OF SALE AND ASSIGNMENT
---------------------------
This Bill of Sale dated October 31, 1997 is executed and delivered by
Business Lenders, Inc., a Connecticut corporation ("BLI"), to Medallion
---
Financial Corp., a Delaware corporation ("MFC"). 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 August 20,
1997, as amended by Amendment No. 1 thereto dated as of October 22, 1997, by and
among BLI, MFC, BLI Acquisition Co., LLC, Triumph-Connecticut Limited
Partnership, Thomas Kellogg, Gary Mullin and Penn Ritter (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, BLI has agreed to sell,
assign, transfer, convey and deliver to MFC, and MFC has agreed to purchase, the
Purchased Assets.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, BLI hereby agrees as follows:
1. BLI hereby sells, assigns, transfers, conveys, and delivers to MFC, its
successors and assigns, to have and to hold forever, the Purchased Assets.
2. BLI hereby covenants and agrees that it will, at the request of MFC 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, MFC, 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 MFC in actual possession and operating control
thereof, to assist MFC in exercising all rights with respect thereto and to
carry out the purpose and intent of the Purchase Agreement.
3. BLI does hereby irrevocably constitute and appoint MFC, its successors
and assigns, its true and lawful attorney, with full power of substitution, in
its name or otherwise, and on behalf of BLI, 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.
<PAGE>
4. This sale, transfer, conveyance and assignment has been executed and
delivered by BLI in accordance with the Purchase Agreement and is expressly made
subject to (i) Permitted Encumbrances and (ii) those liabilities, obligations
and commitments which MFC has assumed and agreed to pay, perform and discharge
pursuant to a certain Instrument of Assumption of Liabilities executed by MFC of
even date herewith.
5. BLI, by its execution of this Bill of Sale, and MFC, 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, BLI and MFC have caused this instrument to be duly
executed under seal as of and on the date first above written.
BUSINESS LENDERS, INC.
By: /s/ Thomas Kellogg
--------------------
ACCEPTED:
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
---------------------
-2-
<PAGE>
Exhibit C-1
-----------
NON-COMPETITION AGREEMENT
-------------------------
This Agreement dated October 31, 1997 is by and among Medallion Financial
Corp., a Delaware corporation ("MFC"), BLI Acquisition Co., LLC, a Delaware
---
limited liability company ("Acquisition Co.") and Thomas O. Kellogg (the
---------------
"Executive") residing at 12 Governor's Row, West Hartford, Connecticut 06117.
- ----------
This Agreement is entered into pursuant to Section 4.7 of that certain
Asset Purchase Agreement dated August 20, 1997, as amended, (the "Purchase
--------
Agreement") by and among MFC, Acquisition Co., Business Lenders, Inc. ("BLI"),
- --------- ---
Triumph-Connecticut Limited Partnership, Executive, Gary Mullin and Penn Ritter,
pursuant to which MFC and Acquisition Co. are purchasing from BLI substantially
all of the assets of BLI. The parties desire to assure to MFC and Acquisition
Co. the benefits of the assets purchased by MFC and Acquisition Co. pursuant to
the Purchase Agreement.
Capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Employment Agreement dated as of October 31, 1997 by and
among Acquisition Co. and Executive.
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 date hereof and until
-----------------------
the earlier of (i) termination of Executive's employment in accordance with
Section 3.1 of the Purchase Agreement, and (ii) the Initial Termination Date,
unless the Company has provided Executive with an Extension Notice, then the
Second Termination Date, Executive will not, directly or indirectly:
(a) as proprietor, partner, stockholder, member, manager, officer,
employee, consultant, director, joint venturer, investor, lender, or in any
other capacity whatsoever (except through the ownership of less than one percent
(1.0%) of the capital stock of any publicly-traded company), engage, in any
geographic market, in the business of marketing, soliciting, making or selling
loans guaranteed by the Small Business Administration or any other business
engaged in by the Company while the Executive was employed by the Company or its
predecessor and which competes with the business of the Company; or
(b) hire or recruit any employee of the Company or MFC or solicit or
induce, or attempt to induce, any employee or consultant of the Company or MFC
to terminate his or her relationship with the Company or MFC; or
(c) call upon, solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any customer, licensee, vendor, collaborator,
corporate partner, or prospective customer, licensee, collaborator or corporate
partner, of the Company or MFC.
<PAGE>
2. Remedies. The parties agree that in the event of any breach of any
--------
provision of this Agreement, the damage to MFC and Acquisition Co. 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 and Acquisition Co. 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 and Acquisition Co. shall be entitled to full
indemnification from the Executive for any such breach, including, without
limitation, attorneys' fees and costs of suit.
3. Severability. The Executive acknowledges and agrees that the foregoing
------------
agreements of the Executive are reasonable in duration and scope and geographic
area and are reasonably necessary for the protection of MFC's and Acquisition
Co.'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. 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.
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.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
----------------------------
Name: Andrew Murstein
Title: President
BLI ACQUISITION CO., LLC
By: /s/ Gary D. Mullin
----------------------------
Name: Gary D. Mullin
Title: Executive Vice President
/s/ Thomas O. Kellogg
-------------------------------
Thomas O. Kellogg
-3-
<PAGE>
Exhibit C-2
-----------
NON-COMPETITION AGREEMENT
-------------------------
This Agreement dated October 31, 1997 is by and among Medallion Financial
Corp., a Delaware corporation ("MFC"), BLI Acquisition Co., LLC, a Delaware
---
limited liability company ("Acquisition Co.") and Gary Mullin (the "Executive")
--------------- ---------
residing at 564 Lamplight Lane, Orange, Connecticut 06477.
This Agreement is entered into pursuant to Section 4.7 of that certain
Asset Purchase Agreement dated August 20, 1997, as amended, (the "Purchase
--------
Agreement") by and among MFC, Acquisition Co., Business Lenders, Inc. ("BLI"),
- --------- ---
Triumph-Connecticut Limited Partnership, Executive, Gary Mullin and Penn Ritter,
pursuant to which MFC and Acquisition Co. are purchasing from BLI substantially
all of the assets of BLI. The parties desire to assure to MFC and Acquisition
Co. the benefits of the assets purchased by MFC and Acquisition Co. pursuant to
the Purchase Agreement.
Capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Employment Agreement dated as of October 31, 1997 by and
among Acquisition Co. and Executive.
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 date hereof and until
-----------------------
the earlier of (i) termination of Executive's employment in accordance with
Section 3.1 of the Purchase Agreement, and (ii) the Initial Termination Date,
unless the Company has provided Executive with an Extension Notice, then the
Second Termination Date, Executive will not, directly or indirectly:
(a) as proprietor, partner, stockholder, member, manager, officer,
employee, consultant, director, joint venturer, investor, lender, or in any
other capacity whatsoever (except through the ownership of less than one percent
(1.0%) of the capital stock of any publicly-traded company), engage, in any
geographic market, in the business of marketing, soliciting, making or selling
loans guaranteed by the Small Business Administration or any other business
engaged in by the Company while the Executive was employed by the Company or its
predecessor and which competes with the business of the Company; or
(b) hire or recruit any employee of the Company or MFC or solicit or
induce, or attempt to induce, any employee or consultant of the Company or MFC
to terminate his or her relationship with the Company or MFC; or
(c) call upon, solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any customer, licensee, vendor, collaborator,
corporate partner, or prospective customer, licensee, collaborator or corporate
partner, of the Company or MFC.
<PAGE>
2. Remedies. The parties agree that in the event of any breach of any
--------
provision of this Agreement, the damage to MFC and Acquisition Co. 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 and Acquisition Co. 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 and Acquisition Co. shall be entitled to full
indemnification from the Executive for any such breach, including, without
limitation, attorneys' fees and costs of suit.
3. Severability. The Executive acknowledges and agrees that the foregoing
------------
agreements of the Executive are reasonable in duration and scope and geographic
area and are reasonably necessary for the protection of MFC's and Acquisition
Co.'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. 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.
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.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
---------------------
Name: Andrew Murstein
Title: President
BLI ACQUISITION CO., LLC
By: /s/ Thomas O. Kellogg
-----------------------
Name: Thomas O. Kellogg
Title: President & CEO
/s/ Gary Mullin
--------------------
Gary Mullin
-3-
<PAGE>
Exhibit C-3
-----------
NON-COMPETITION AGREEMENT
-------------------------
This Agreement dated October 31, 1997 is by and among Medallion Financial
Corp., a Delaware corporation ("MFC"), BLI Acquisition Co., LLC, a Delaware
---
limited liability company ("Acquisition Co.") and Penn Ritter (the "Executive")
--------------- ---------
residing at 14 Birch Road, West Hartford, Connecticut 06117.
This Agreement is entered into pursuant to Section 4.7 of that certain
Asset Purchase Agreement dated August 20, 1997, as amended, (the "Purchase
--------
Agreement") by and among MFC, Acquisition Co., Business Lenders, Inc. ("BLI"),
- --------- ---
Triumph-Connecticut Limited Partnership, Executive, Gary Mullin and Penn Ritter,
pursuant to which MFC and Acquisition Co. are purchasing from BLI substantially
all of the assets of BLI. The parties desire to assure to MFC and Acquisition
Co. the benefits of the assets purchased by MFC and Acquisition Co. pursuant to
the Purchase Agreement.
Capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Employment Agreement dated as of October 31, 1997 by and
among Acquisition Co. and Executive.
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 date hereof and until
-----------------------
the earlier of (i) termination of Executive's employment in accordance with
Section 3.1 of the Purchase Agreement, and (ii) the Initial Termination Date,
unless the Company has provided Executive with an Extension Notice, then the
Second Termination Date, Executive will not, directly or indirectly:
(a) as proprietor, partner, stockholder, member, manager, officer,
employee, consultant, director, joint venturer, investor, lender, or in any
other capacity whatsoever (except through the ownership of less than one percent
(1.0%) of the capital stock of any publicly-traded company), engage, in any
geographic market, in the business of marketing, soliciting, making or selling
loans guaranteed by the Small Business Administration or any other business
engaged in by the Company while the Executive was employed by the Company or its
predecessor and which competes with the business of the Company; or
(b) hire or recruit any employee of the Company or MFC or solicit or
induce, or attempt to induce, any employee or consultant of the Company or MFC
to terminate his or her relationship with the Company or MFC; or
(c) call upon, solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any customer, licensee, vendor, collaborator,
corporate partner, or prospective customer, licensee, collaborator or corporate
partner, of the Company or MFC.
<PAGE>
2. Remedies. The parties agree that in the event of any breach of any
--------
provision of this Agreement, the damage to MFC and Acquisition Co. 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 and Acquisition Co. 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 and Acquisition Co. shall be entitled to full
indemnification from the Executive for any such breach, including, without
limitation, attorneys' fees and costs of suit.
3. Severability. The Executive acknowledges and agrees that the foregoing
------------
agreements of the Executive are reasonable in duration and scope and geographic
area and are reasonably necessary for the protection of MFC's and Acquisition
Co.'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. 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.
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.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
-------------------
Name: Andrew Murstein
Title: President
BLI ACQUISITION CO., LLC
By: /s/ Thomas O. Kellogg
---------------------
Name: Thomas O. Kellogg
Title: President & CEO
/s/ Penn Ritter
--------------------
Penn Ritter
-3-
<PAGE>
Exhibit D
---------
Form of Opinion of Tyler, Cooper & Alcorn
1. BLI is duly organized, validly existing and in good standing as a
corporation under the laws of the State of Connecticut with all requisite
corporate power and authority to own, lease and operate its assets and to carry
on its business as now being conducted. To the best of our knowledge, BLI is
duly qualified to transact business and is in good standing as a foreign
corporation in each jurisdiction where the character of its activities requires
such qualification.
2. Triumph is validly existing and in good standing as a limited
partnership under the laws of the State of Connecticut with full power and
authority to own, lease and operate its assets and to carry on its business as
now being conducted.
3. BLI is licensed and in good standing as a Connecticut "business and
industrial development company" pursuant to regulations adopted by the CDOB
under Connecticut General Statutes (S)(S)36a-625 et seq., and is a participant
-------
in good standing under the SBA's guaranteed loan program administered under
Section 7(a) of the Small Business Act of 1953.
4. Each of BLI and Triumph has all requisite power and authority to
execute and deliver the Agreement and to perform its obligations thereunder.
The execution, delivery and performance of the Agreement by each of BLI and
Triumph and the consummation of the transactions contemplated thereby have been
duly authorized by all necessary action. The Agreement has been duly and
validly executed and delivered by each of BLI, Triumph and the Key Employees and
(assuming due authorization, execution and delivery thereof by MFC and
Acquisition Co.) constitutes the legal, valid and binding obligation of each of
BLI, Triumph and the Key Employees enforceable against each of them 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 and except that rights to indemnification thereunder may be
limited by federal or state securities laws or public policy relating thereto.
5. The execution and delivery of the Agreement by BLI, Triumph and the Key
Employees, the consummation of the transactions contemplated thereby and
compliance with any of the provisions thereof will not conflict with or violate
(i) any of the terms, conditions or provisions of the certificate of
incorporation or by-laws of BLI or the certificate of limited partnership or
agreement of limited partnership of Triumph, (ii) any of the terms, conditions
or provisions of any document, agreement or other instrument to which BLI,
Triumph or any of the Key Employees is a party or by which any of them is bound
of which we are aware, (iii) any Connecticut, Delaware corporate or federal law
or regulation, (iv) any judgment,
<PAGE>
writ, injunction, decree, order or ruling of any court or governmental authority
binding on BLI, Triumph or the Key Employees 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 BLI 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 registration or filing with any Connecticut, Delaware corporate or federal
governmental authority is required in connection with the execution and delivery
by BLI, Triumph or the Key Employees of the Agreement or the consummation of the
transactions contemplated thereby.
7. Except as set forth in Section 2.12 of the Disclosure Schedule, to our
knowledge, there is no litigation, proceeding or governmental investigation
pending or overtly threatened against BLI.
-2-
<PAGE>
Exhibit E-1
-----------
EMPLOYMENT AGREEMENT
This Agreement dated as of October 31, 1997 is between BLI Acquisition Co.,
LLC (the "Company"), a Delaware limited liability company, and Thomas O. Kellogg
-------
(the "Executive") residing at 12 Governor's Row, West Hartford, Connecticut
---------
06117. The execution and delivery of this Agreement is a condition precedent to
the obligation of the Company to execute and deliver that certain Asset Purchase
Agreement (the "Purchase Agreement") dated as of August 20, 1997, as amended, by
------------------
and among the Company, Medallion Financial Corp. ("Medallion") Business Lenders,
---------
Inc., Triumph-Connecticut Limited Partnership, the Executive, Gary Mullin and
Penn Ritter (the "Purchase Agreement").
------------------
Capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Purchase Agreement.
In order to preserve the value of the Purchased Assets, the Company desires
to employ the Executive and to protect the Company's confidential information
after the purchase of assets.
Accordingly, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF EXECUTIVE.
1.1 Employment. Subject to the terms and conditions of this Agreement,
----------
the Company agrees to employ Executive, and Executive agrees to serve the
Company, as President of the Company reporting to the Board of Directors of the
Company (the "Board") with all the powers typically incident to that office and
-----
necessary to the convenient and effective discharge of the duties thereof and
with such specific duties appropriate for an executive officer of the Company
with that office and as may be assigned to the Executive from time to time by
the Board for the period commencing on the date hereof and terminating on the
third anniversary thereof (the "Initial Termination Date") unless earlier
------------------------
extended or terminated as herein provided. The Company shall have the option,
exercisable in its sole discretion at any time prior to 30 days before the
Initial Termination Date by written notice to the Executive (the "Extension
---------
Notice"), to extend the Executive's period of employment for an additional term
- ------
commencing on the Initial Termination Date and ending on a date specified by the
Company in the Extension Notice which shall not be later than two years after
the Initial Termination Date (the "Second Termination Date"). The Executive
-----------------------
shall devote all of his business time, labor, skill, undivided attention and
best ability to the performance of his duties hereunder in a manner which will
faithfully and diligently further the business and interests of the Company.
During the Executive's period of employment, the Executive shall not directly or
indirectly pursue any other business activity without the Company's prior
written consent. Neither the Company nor Executive shall have any obligation to
continue employment after the term hereof. If Executive remains employed after
the term hereof, Executive's employment and compensation shall be at will and
may be
<PAGE>
terminated, with or without cause and with or without notice, at any time at the
option of the Company or Executive.
SECTION 2. COMPENSATION.
For all services to be rendered by Executive to the Company pursuant to
this Agreement, the Company shall pay to and provide the Executive with the
following compensation and benefits:
2.1 Base Salary and Bonus. The Company shall pay to Executive (i) a base
---------------------
salary at the rate of $150,000 per year (the "Base Salary"), payable in
-----------
substantially equal monthly installments, subject to annual review by the Board
for increases and (ii) such incentive bonuses as may be determined by the Board
from time to time ("Incentive Bonus") in accordance with the bonus plan to be
---------------
established by the Company pursuant to the Purchase Agreement. In the event
that the Company does not meet profit projections established by Medallion, the
Company, Executive and other members of management of the Company set forth in
the Company's business plan for any fiscal year ending during Executive's term
of employment, Executive's Base Salary shall be subject to reduction by the
Company to $125,000 per year.
2.2 Participation in Benefit Plans. Executive shall be entitled to
------------------------------
participate in all employee benefit plans or programs of Medallion that
Medallion has established and makes available to all of its full-time employees.
The Company and Medallion do not guarantee the adoption or continuance of any
particular employee benefit plan or program during the term of this Agreement,
and Executive's participation in any such plan or program shall be subject to
the provisions, rules and regulations applicable thereto. Executive shall be
entitled to vacation each year for a period of four weeks during which
compensation shall be paid in full, with any additional vacation time to be
allowed only in accordance with applicable Company policy.
2.3 Expenses. The Company shall reimburse Executive for ordinary,
--------
reasonable, necessary and documented business expenses in accordance with the
general corporate policy of the Company from time to time in effect and shall
lease an automobile for Executive.
2.4 Parking. The Company will provide to the Executive, at the Company's
-------
expense, parking at or near the Company's office.
SECTION 3. TERMINATION.
3.1 Early Termination. Executive's employment hereunder shall terminate
-----------------
prior to the expiration of the term specified in Section 1.1:
(a) by the Company upon Executive's death or inability by reason of
physical or mental impairment to perform substantially all of Executive's
services as contemplated herein for 90 days or more within any six-month period
("Disability");
----------
-2-
<PAGE>
(b) by Executive in the event of (i) relocation of the principal offices of
the Company to a location outside the State of Connecticut or beyond a 25 mile
radius of Hartford, Connecticut, (ii) a material adverse change in the
Executive's working conditions as they relate to his supervisory
responsibilities, (iii) a material adverse change in the Executive's entire
employee benefit and perquisite package, unless such change applies to all of
the Company's and Medallion's employees, and (iv) a material breach by the
Company of its obligations under this Agreement that is not cured within thirty
days after written notice of such breach in reasonable detail is given to the
Company by Executive; or
(c) by the Company for cause ("Cause") in the event of (i) Executive's
-----
willful failure to follow the reasonable directions of the Board or otherwise
perform Executive's duties hereunder (other than as a result of physical or
mental impairment) for five days after written notice of such failure in
reasonable detail is given to Executive by the Company, (ii) intentional or
grossly negligent conduct by Executive that is injurious to the Company as
reasonably determined by the Board which conduct continues for five days after
written notice of such conduct in reasonable detail is given to Executive by the
Board, (iii) conduct by Executive that is intended to be injurious to the
Company as reasonably determined by the Board, (iv) Executive's conviction of or
a plea of nolo contendere to (A) a felony or (B) a misdemeanor which involves an
act against the Company or which involves moral turpitude or which otherwise
materially adversely affects the Company or its business or reputation, (v)
Executive's violation of (A) a federal or state banking or securities law or
regulation which materially adversely affects the Company or its business or
reputation or (B) the Small Business Act of 1953 or regulations thereunder, or
(vi) the issuance of an order, judgment or decree (not reversed, suspended or
vacated) of any court of competent jurisdiction or governmental agency having
regulatory or supervisory jurisdiction over the Company or the Executive (or
both), enjoining or otherwise prohibiting the Executive from engaging in any
conduct or activity that forms a material part of the Executive's duties, or
enjoining or otherwise prohibiting the Company's employment of the Executive.
3.2 Payment.
-------
(a) If Executive's employment is terminated pursuant to Section 3.1(b)
above or without Cause prior to the Initial Termination Date, unless the Company
has provided Executive with an Extension Notice, then the Second Termination
Date, the Company will pay Executive a lump sum payment equal to the present
value of Executive's then current Base Salary through the Initial Termination
Date, unless the Company has provided Executive with an Extension Notice, then
the Second Termination Date.
(b) If Executive's employment is terminated for any reason other than as
set forth in Section 3.2(a) (including without limitation pursuant to Sections
3.1(a) or (c) above), the Company will pay Executive an amount equal to
Executive's then current Base Salary through the date of termination. As used
herein, the "present value" shall be determined by assuming that the amount
determined above is paid in equal installments at the end of each month and
discounting such amount to the date of termination of employment at the lowest
prime rate published in the Wall Street Journal for the first day of the
calendar month in which such termination occurs, absent manifest error in the
printing thereof.
-3-
<PAGE>
SECTION 4. CONFIDENTIAL INFORMATION, INVENTIONS AND COMPETITION.
4.1 Confidential Information. During the course of Executive's
------------------------
employment, Executive may have become or will become aware of information
relating to the operations or business affairs of the Company or Medallion that
is treated by the Company or Medallion as confidential or proprietary
("Confidential Information"). Executive acknowledges that the Company or
- --------------------------
Medallion, as the case may be, is and shall at all times remain the sole owner
of the Confidential Information and of all intellectual property rights relating
thereto and Executive agrees not to publish or otherwise disclose or make
available to any third party any Confidential Information and not to use any
Confidential Information for Executive's own benefit or for the benefit of any
other third party. Upon termination of this Agreement, or at any time upon the
Company's or Medallion's request, Executive will return to the Company or
Medallion, as the case may be, all copies of Confidential Information in
Executive's possession or under Executive's control.
Confidential Information does not include information which (a) is at the
time of disclosure or later becomes publicly known under circumstances involving
no breach of this agreement by Executive, (b) is generally disclosed to third
parties by the Company or Medallion without restriction on such third parties,
or (c) is required to be disclosed by a governmental authority or by order of a
court of competent jurisdiction, provided that such disclosure is subject to all
available protection and reasonable advance notice is given to the Company or
Medallion, as the case may be.
4.2 Ownership of Inventions. Any invention, discovery, new product or
-----------------------
business opportunity made, discovered or reduced to practice by Executive
(whether alone or with others) in the course of performing services for the
Company or arising directly from Confidential Information acquired by Executive
("Invention") will be the exclusive property of the Company, and the Company may
---------
use or pursue any of them without restriction or additional compensation to
Executive.
To the extent any Invention results in a patentable, copyrightable or other
proprietary invention, Executive hereby assigns and agrees to assign to the
Company all of Executive's right, title and interest in and to any such
invention. Executive agrees to cooperate fully in obtaining patent, copyright
or other proprietary protection for any such invention, all in the name of the
Company and at the Company's cost and expense, and to execute and deliver all
requested applications, assignments and other documents and take such other
measures as the Company may reasonably request in order to perfect and enforce
the Company's rights therein (including transfer of possession to the Company of
all inventions embodied in tangible materials).
4.3 Noncompetition. Until the earlier of (i) termination of Executive's
--------------
employment in accordance with Section 3.1, and (ii) the Initial Termination
Date, unless the Company has provided Executive with an Extension Notice, then
the Second Termination Date, Executive will not directly or indirectly (unless
approved by the Board):
(a) as proprietor, partner, stockholder, member, manager, officer,
employee, consultant, director, joint venturer, investor, lender, or in any
other capacity
-4-
<PAGE>
whatsoever (except through the ownership of less than one percent (1.0%) of the
capital stock of any publicly-traded company), engage, in any geographic market,
in the business of marketing, soliciting, making or selling loans guaranteed by
the Small Business Administration or any other business engaged in by the
Company while the Executive was employed by the Company or its predecessor and
which competes with the business of the Company; or
(b) hire or recruit any employee of the Company or Medallion or solicit or
induce, or attempt to induce, any employee or consultant of the Company or
Medallion to terminate his or her relationship with the Company or Medallion; or
(c) call upon, solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any customer, licensee, vendor, collaborator,
corporate partner, or prospective customer, licensee, collaborator or corporate
partner, of the Company or Medallion.
SECTION 5. MISCELLANEOUS.
5.1 Remedies. Executive agrees that the restrictions contained in this
--------
Agreement are necessary for the protection of the business and goodwill of the
Company and are reasonable for such purpose. Executive agrees that any breach
of this Agreement will cause the Company substantial and irreparable damage and,
therefore, in the event of any such breach, in addition to such other remedies
as may be available, the Company shall have the right to cease making any
payments hereunder and to seek specific performance and injunctive relief.
5.2 Arbitration. The parties hereto will attempt to resolve any
-----------
controversy, claim or dispute arising under this Agreement promptly by
negotiations between the parties. If any party reaches the conclusion that the
controversy, claim or dispute cannot be resolved by unassisted negotiations,
such party may request that such controversy, claim or dispute by settled by
binding arbitration administered by the American Arbitration Association in
accordance with its commercial arbitration rules and procedures, as in effect on
the date of the commencement of arbitration proceedings. The arbitral tribunal
shall consist of three members, with the claimant and respondent each appointing
one arbitrator, and with the party-appointed arbitrators appointing the third,
neutral arbitrator. The arbitrators selected pursuant to this provision shall
be qualified by training, education, and experience to rule on the issues
presented, and the chairperson of the tribunal shall be a lawyer experienced in
the litigation of employment disputes. The arbitration shall be held in New
York, New York. The award shall be in writing and shall state the reasoning on
which the award rests. A judgment on the award may be entered in any court of
competent jurisdiction. The parties further agree that if a dispute is
submitted to arbitration, the prevailing party shall be entitled to recover from
the non-prevailing party the reasonable attorneys' fees incurred by the
prevailing party in connection with the matter which is the subject of such
proceeding.
5.3 Notices. Any notice or other communication hereunder shall be in
-------
writing and shall be deemed given when so delivered in person, by overnight
courier (with receipt
-5-
<PAGE>
confirmed) or by facsimile transmission (with receipt confirmed by telephone or
by automatic transmission report) or on the third business day after being sent
by registered or certified mail (postage prepaid, return receipt requested),
addressed, if to the Company, to Andrew Murstein, President and Chief Operating
Officer, Medallion Financial Corp., 205 East 42nd Street, New York, NY 10017
(Fax 212-983-0351), or to such other address as the Company may designate in
writing at any time or from time to time to the Executive, and if to the
Executive, to the most recent address on file with the Company.
5.4 Integration. This Agreement is the entire agreement of the parties
-----------
with respect to the subject matter hereof and supersedes any prior agreement or
understanding relating to Executive's employment with or compensation by the
Company, including without limitation, the Employment Agreement between Business
Lenders, Inc. and the Executive dated September 7, 1994, which shall be deemed
terminated as of the date hereof. This Agreement may not be amended,
supplemented or otherwise modified except in writing signed by the parties
hereto.
5.5 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their successors, assigns, heirs and
personal representatives.
5.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
5.7 Severability. If any provision hereof shall for any reason be held to
------------
be invalid or unenforceable in any respect, such invalidity or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision had not been included
herein. If any provision hereof shall for any reason be held by a court to be
excessively broad as to duration, geographical scope, activity or subject
matter, it shall be construed by limiting and reducing it to make it enforceable
to the extent compatible with applicable law as then in effect.
5.8 Governing Law. This Agreement shall be governed by the laws of New
-------------
York without regard to its conflict of law provisions.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the date first stated above.
BLI ACQUISITION CO., LLC
By: /s/ Gary D. Mullin
--------------------
Executive Vice President
EXECUTIVE:
/s/ Thomas O. Kellogg
--------------------------
Thomas O. Kellogg
-7-
<PAGE>
Exhibit E-2
-----------
EMPLOYMENT AGREEMENT
This Agreement dated as of October 31, 1997 is among BLI Acquisition Co.,
LLC (the "Company"), a Delaware limited liability company, and Penn Ritter (the
-------
"Executive") residing at 14 Birch Road, West Hartford, Connecticut 06117. The
---------
execution and delivery of this Agreement is a condition precedent to the
obligation of the Company to execute and deliver that certain Asset Purchase
Agreement (the "Purchase Agreement") dated as of August 20, 1997, as amended, by
------------------
and among the Company, Medallion Financial Corp. ("Medallion") Business Lenders,
---------
Inc., Triumph-Connecticut Limited Partnership, the Executive, Gary Mullin and
Thomas O. Kellogg (the "Purchase Agreement").
------------------
Capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Purchase Agreement.
In order to preserve the value of the Purchased Assets, the Company desires
to employ the Executive and to protect the Company's confidential information
after the purchase of assets.
Accordingly, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF EXECUTIVE.
1.1 Employment. Subject to the terms and conditions of this Agreement,
----------
the Company agrees to employ Executive, and Executive agrees to serve the
Company, as Executive Vice President of the Company reporting to the Board of
Directors of the Company (the "Board") with all the powers typically incident to
-----
that office and necessary to the convenient and effective discharge of the
duties thereof and with such specific duties appropriate for an executive
officer of the Company with that office and as may be assigned to the Executive
from time to time by the Board for the period commencing on the date hereof and
terminating on the third anniversary thereof (the "Initial Termination Date")
------------------------
unless earlier extended or terminated as herein provided. The Company shall
have the option, exercisable in its sole discretion at any time prior to 30 days
before the Initial Termination Date by written notice to the Executive (the
"Extension Notice"), to extend the Executive's period of employment for an
- -----------------
additional term commencing on the Initial Termination Date and ending on a date
specified by the Company in the Extension Notice which shall not be later than
two years after the Initial Termination Date (the "Second Termination Date").
-----------------------
The Executive shall devote all of his business time, labor, skill, undivided
attention and best ability to the performance of his duties hereunder in a
manner which will faithfully and diligently further the business and interests
of the Company. During the Executive's period of employment, the Executive
shall not directly or indirectly pursue any other business activity without the
Company's prior written consent. Neither the Company nor Executive shall have
any obligation to continue employment after the term hereof. If Executive
remains employed after the term hereof, Executive's employment and
<PAGE>
compensation shall be at will and may be terminated, with or without cause and
with or without notice, at any time at the option of the Company or Executive.
SECTION 2. COMPENSATION.
For all services to be rendered by Executive to the Company pursuant to
this Agreement, the Company shall pay to and provide the Executive with the
following compensation and benefits:
2.1 Base Salary and Bonus. The Company shall pay to Executive (i) a base
---------------------
salary at the rate of $135,000 per year (the "Base Salary"), payable in
-----------
substantially equal monthly installments, subject to annual review by the Board
for increases and (ii) such incentive bonuses as may be determined by the Board
from time to time ("Incentive Bonus") in accordance with the bonus plan to be
---------------
established by the Company pursuant to the Purchase Agreement. In the event
that the Company does not meet profit projections established by Medallion, the
Company, Executive and other members of management of the Company set forth in
the Company's business plan for any fiscal year ending during Executive's term
of employment, Executive's Base Salary shall be subject to reduction by the
Company to $110,000 per year.
2.2 Participation in Benefit Plans. Executive shall be entitled to
------------------------------
participate in all employee benefit plans or programs of Medallion that
Medallion has established and makes available to all of its full-time employees.
The Company and Medallion do not guarantee the adoption or continuance of any
particular employee benefit plan or program during the term of this Agreement,
and Executive's participation in any such plan or program shall be subject to
the provisions, rules and regulations applicable thereto. Executive shall be
entitled to vacation each year for a period of four weeks during which
compensation shall be paid in full, with any additional vacation time to be
allowed only in accordance with applicable Company policy.
2.3 Expenses. The Company shall reimburse Executive for ordinary,
--------
reasonable, necessary and documented business expenses in accordance with the
general corporate policy of the Company from time to time in effect.
2.4 Parking. The Company will provide to the Executive, at the Company's
-------
expense, parking at or near the Company's office.
SECTION 3. TERMINATION.
3.1 Early Termination. Executive's employment hereunder shall terminate
-----------------
prior to the expiration of the term specified in Section 1.1:
(a) by the Company upon Executive's death or inability by reason of
physical or mental impairment to perform substantially all of Executive's
services as contemplated herein for 90 days or more within any six-month period
("Disability");
----------
-2-
<PAGE>
(b) by Executive in the event of (i) relocation of the principal offices of
the Company to a location outside the State of Connecticut or beyond a 25 mile
radius of Hartford, Connecticut, (ii) a material adverse change in the
Executive's working conditions as they relate to his supervisory
responsibilities, (iii) a material adverse change in the Executive's entire
employee benefit and perquisite package, unless such change applies to all of
the Company's and Medallion's employees, and (iv) a material breach by the
Company of its obligations under this Agreement that is not cured within thirty
days after written notice of such breach in reasonable detail is given to the
Company by Executive; or
(c) by the Company for cause ("Cause") in the event of (i) Executive's
-----
willful failure to follow the reasonable directions of the Board or otherwise
perform Executive's duties hereunder (other than as a result of physical or
mental impairment) for five days after written notice of such failure in
reasonable detail is given to Executive by the Company, (ii) intentional or
grossly negligent conduct by Executive that is injurious to the Company as
reasonably determined by the Board which conduct continues for five days after
written notice of such conduct in reasonable detail is given to Executive by the
Board, (iii) conduct by Executive that is intended to be injurious to the
Company as reasonably determined by the Board, (iv) Executive's conviction of or
a plea of nolo contendere to (A) a felony or (B) a misdemeanor which involves an
act against the Company or which involves moral turpitude or which otherwise
materially adversely affects the Company or its business or reputation, (v)
Executive's violation of (A) a federal or state banking or securities law or
regulation which materially adversely affects the Company or its business or
reputation or (B) the Small Business Act of 1953 or regulations thereunder, or
(vi) the issuance of an order, judgment or decree (not reversed, suspended or
vacated) of any court of competent jurisdiction or governmental agency having
regulatory or supervisory jurisdiction over the Company or the Executive (or
both), enjoining or otherwise prohibiting the Executive from engaging in any
conduct or activity that forms a material part of the Executive's duties, or
enjoining or otherwise prohibiting the Company's employment of the Executive.
3.2 Payment.
-------
(a) If Executive's employment is terminated pursuant to Section 3.1(b)
above or without Cause prior to the Initial Termination Date, unless the Company
has provided Executive with an Extension Notice, then the Second Termination
Date, the Company will pay Executive a lump sum payment equal to the present
value of Executive's then current Base Salary through the Initial Termination
Date, unless the Company has provided Executive with an Extension Notice, then
the Second Termination Date.
(b) If Executive's employment is terminated for any reason other than as
set forth in Section 3.2(a) (including without limitation pursuant to Sections
3.1(a) or (c) above), the Company will pay Executive an amount equal to
Executive's then current Base Salary through the date of termination. As used
herein, the "present value" shall be determined by assuming that the amount
determined above is paid in equal installments at the end of each month and
discounting such amount to the date of termination of employment at the lowest
prime rate published in the Wall Street Journal for the first day of the
calendar month in which such termination occurs, absent manifest error in the
printing thereof.
-3-
<PAGE>
SECTION 4. CONFIDENTIAL INFORMATION, INVENTIONS AND COMPETITION.
4.1 Confidential Information. During the course of Executive's
------------------------
employment, Executive may have become or will become aware of information
relating to the operations or business affairs of the Company or Medallion that
is treated by the Company or Medallion as confidential or proprietary
("Confidential Information"). Executive acknowledges that the Company or
- --------------------------
Medallion, as the case may be, is and shall at all times remain the sole owner
of the Confidential Information and of all intellectual property rights relating
thereto and Executive agrees not to publish or otherwise disclose or make
available to any third party any Confidential Information and not to use any
Confidential Information for Executive's own benefit or for the benefit of any
other third party. Upon termination of this Agreement, or at any time upon the
Company's or Medallion's request, Executive will return to the Company or
Medallion, as the case may be, all copies of Confidential Information in
Executive's possession or under Executive's control.
Confidential Information does not include information which (a) is at the
time of disclosure or later becomes publicly known under circumstances involving
no breach of this agreement by Executive, (b) is generally disclosed to third
parties by the Company or Medallion without restriction on such third parties,
or (c) is required to be disclosed by a governmental authority or by order of a
court of competent jurisdiction, provided that such disclosure is subject to all
available protection and reasonable advance notice is given to the Company or
Medallion, as the case may be.
4.2 Ownership of Inventions. Any invention, discovery, new product or
-----------------------
business opportunity made, discovered or reduced to practice by Executive
(whether alone or with others) in the course of performing services for the
Company or arising directly from Confidential Information acquired by Executive
("Invention") will be the exclusive property of the Company, and the Company may
---------
use or pursue any of them without restriction or additional compensation to
Executive.
To the extent any Invention results in a patentable, copyrightable or other
proprietary invention, Executive hereby assigns and agrees to assign to the
Company all of Executive's right, title and interest in and to any such
invention. Executive agrees to cooperate fully in obtaining patent, copyright
or other proprietary protection for any such invention, all in the name of the
Company and at the Company's cost and expense, and to execute and deliver all
requested applications, assignments and other documents and take such other
measures as the Company may reasonably request in order to perfect and enforce
the Company's rights therein (including transfer of possession to the Company of
all inventions embodied in tangible materials).
4.3 Noncompetition. Until the earlier of (i) termination of Executive's
--------------
employment in accordance with Section 3.1, and (ii) the Initial Termination
Date, unless the Company has provided Executive with an Extension Notice, then
the Second Termination Date, Executive will not directly or indirectly (unless
approved by the Board):
(a) as proprietor, partner, stockholder, member, manager, officer,
employee, consultant, director, joint venturer, investor, lender, or in any
other capacity
-4-
<PAGE>
whatsoever (except through the ownership of less than one percent
(1.0%) of the capital stock of any publicly-traded company), engage, in any
geographic market, in the business of marketing, soliciting, making or selling
loans guaranteed by the Small Business Administration or any other business
engaged in by the Company while the Executive was employed by the Company or its
predecessor and which competes with the business of the Company; or
(b) hire or recruit any employee of the Company or Medallion or solicit or
induce, or attempt to induce, any employee or consultant of the Company or
Medallion to terminate his or her relationship with the Company or Medallion; or
(c) call upon, solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any customer, licensee, vendor, collaborator,
corporate partner, or prospective customer, licensee, collaborator or corporate
partner, of the Company or Medallion.
SECTION 5. MISCELLANEOUS.
5.1 Remedies. Executive agrees that the restrictions contained in this
--------
Agreement are necessary for the protection of the business and goodwill of the
Company and are reasonable for such purpose. Executive agrees that any breach
of this Agreement will cause the Company substantial and irreparable damage and,
therefore, in the event of any such breach, in addition to such other remedies
as may be available, the Company shall have the right to cease making any
payments hereunder and to seek specific performance and injunctive relief.
5.2 Arbitration. The parties hereto will attempt to resolve any
-----------
controversy, claim or dispute arising under this Agreement promptly by
negotiations between the parties. If any party reaches the conclusion that the
controversy, claim or dispute cannot be resolved by unassisted negotiations,
such party may request that such controversy, claim or dispute by settled by
binding arbitration administered by the American Arbitration Association in
accordance with its commercial arbitration rules and procedures, as in effect on
the date of the commencement of arbitration proceedings. The arbitral tribunal
shall consist of three members, with the claimant and respondent each appointing
one arbitrator, and with the party-appointed arbitrators appointing the third,
neutral arbitrator. The arbitrators selected pursuant to this provision shall
be qualified by training, education, and experience to rule on the issues
presented, and the chairperson of the tribunal shall be a lawyer experienced in
the litigation of employment disputes. The arbitration shall be held in New
York, New York. The award shall be in writing and shall state the reasoning on
which the award rests. A judgment on the award may be entered in any court of
competent jurisdiction. The parties further agree that if a dispute is
submitted to arbitration, the prevailing party shall be entitled to recover from
the non-prevailing party the reasonable attorneys' fees incurred by the
prevailing party in connection with the matter which is the subject of such
proceeding.
5.3 Notices. Any notice or other communication hereunder shall be in
-------
writing and shall be deemed given when so delivered in person, by overnight
courier (with receipt
-5-
<PAGE>
confirmed) or by facsimile transmission (with receipt confirmed by telephone or
by automatic transmission report) or on the third business day after being sent
by registered or certified mail (postage prepaid, return receipt requested),
addressed, if to the Company, to Andrew Murstein, President and Chief Operating
Officer, Medallion Financial Corp., 205 East 42nd Street, New York, NY 10017
(Fax 212-983-0351), or to such other address as the Company may designate in
writing at any time or from time to time to the Executive, and if to the
Executive, to the most recent address on file with the Company.
5.4 Integration. This Agreement is the entire agreement of the parties
-----------
with respect to the subject matter hereof and supersedes any prior agreement or
understanding relating to Executive's employment with or compensation by the
Company, including without limitation, the Employment Agreement between Business
Lenders, Inc. and the Executive dated September 7, 1994, which shall be deemed
terminated as of the date hereof. This Agreement may not be amended,
supplemented or otherwise modified except in writing signed by the parties
hereto.
5.5 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their successors, assigns, heirs and
personal representatives.
5.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
5.7 Severability. If any provision hereof shall for any reason be held to
------------
be invalid or unenforceable in any respect, such invalidity or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision had not been included
herein. If any provision hereof shall for any reason be held by a court to be
excessively broad as to duration, geographical scope, activity or subject
matter, it shall be construed by limiting and reducing it to make it enforceable
to the extent compatible with applicable law as then in effect.
5.8 Governing Law. This Agreement shall be governed by the laws of New
-------------
York without regard to its conflict of law provisions.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the date first stated above.
BLI ACQUISITION CO., LLC
By: /s/ Thomas O. Kellogg
-----------------------
President and Chief Executive Officer
EXECUTIVE:
/s/ Gary Mullin
--------------------
Penn Ritter
-7-
<PAGE>
Exhibit E-3
-----------
EMPLOYMENT AGREEMENT
This Agreement dated as of October 31, 1997 is among BLI Acquisition Co.,
LLC (the "Company"), a Delaware limited liability company, and Penn Ritter (the
-------
"Executive") residing at 14 Birch Road, West Hartford, Connecticut 06117. The
---------
execution and delivery of this Agreement is a condition precedent to the
obligation of the Company to execute and deliver that certain Asset Purchase
Agreement (the "Purchase Agreement") dated as of August 20, 1997, as amended, by
------------------
and among the Company, Medallion Financial Corp. ("Medallion") Business Lenders,
---------
Inc., Triumph-Connecticut Limited Partnership, the Executive, Gary Mullin and
Thomas O. Kellogg (the "Purchase Agreement").
------------------
Capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Purchase Agreement.
In order to preserve the value of the Purchased Assets, the Company desires
to employ the Executive and to protect the Company's confidential information
after the purchase of assets.
Accordingly, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF EXECUTIVE.
1.1 Employment. Subject to the terms and conditions of this Agreement,
----------
the Company agrees to employ Executive, and Executive agrees to serve the
Company, as Executive Vice President of the Company reporting to the Board of
Directors of the Company (the "Board") with all the powers typically incident to
-----
that office and necessary to the convenient and effective discharge of the
duties thereof and with such specific duties appropriate for an executive
officer of the Company with that office and as may be assigned to the Executive
from time to time by the Board for the period commencing on the date hereof and
terminating on the third anniversary thereof (the "Initial Termination Date")
------------------------
unless earlier extended or terminated as herein provided. The Company shall
have the option, exercisable in its sole discretion at any time prior to 30 days
before the Initial Termination Date by written notice to the Executive (the
"Extension Notice"), to extend the Executive's period of employment for an
- -----------------
additional term commencing on the Initial Termination Date and ending on a date
specified by the Company in the Extension Notice which shall not be later than
two years after the Initial Termination Date (the "Second Termination Date").
-----------------------
The Executive shall devote all of his business time, labor, skill, undivided
attention and best ability to the performance of his duties hereunder in a
manner which will faithfully and diligently further the business and interests
of the Company. During the Executive's period of employment, the Executive
shall not directly or indirectly pursue any other business activity without the
Company's prior written consent. Neither the Company nor Executive shall have
any obligation to continue employment after the term hereof. If Executive
remains employed after the term hereof, Executive's employment and
<PAGE>
compensation shall be at will and may be terminated, with or without cause and
with or without notice, at any time at the option of the Company or Executive.
SECTION 2. COMPENSATION.
For all services to be rendered by Executive to the Company pursuant to
this Agreement, the Company shall pay to and provide the Executive with the
following compensation and benefits:
2.1 Base Salary and Bonus. The Company shall pay to Executive (i) a base
---------------------
salary at the rate of $135,000 per year (the "Base Salary"), payable in
-----------
substantially equal monthly installments, subject to annual review by the Board
for increases and (ii) such incentive bonuses as may be determined by the Board
from time to time ("Incentive Bonus") in accordance with the bonus plan to be
---------------
established by the Company pursuant to the Purchase Agreement. In the event
that the Company does not meet profit projections established by Medallion, the
Company, Executive and other members of management of the Company set forth in
the Company's business plan for any fiscal year ending during Executive's term
of employment, Executive's Base Salary shall be subject to reduction by the
Company to $110,000 per year.
2.2 Participation in Benefit Plans. Executive shall be entitled to
------------------------------
participate in all employee benefit plans or programs of Medallion that
Medallion has established and makes available to all of its full-time employees.
The Company and Medallion do not guarantee the adoption or continuance of any
particular employee benefit plan or program during the term of this Agreement,
and Executive's participation in any such plan or program shall be subject to
the provisions, rules and regulations applicable thereto. Executive shall be
entitled to vacation each year for a period of four weeks during which
compensation shall be paid in full, with any additional vacation time to be
allowed only in accordance with applicable Company policy.
2.3 Expenses. The Company shall reimburse Executive for ordinary,
--------
reasonable, necessary and documented business expenses in accordance with the
general corporate policy of the Company from time to time in effect.
2.4 Parking. The Company will provide to the Executive, at the Company's
-------
expense, parking at or near the Company's office.
SECTION 3. TERMINATION.
3.1 Early Termination. Executive's employment hereunder shall terminate
-----------------
prior to the expiration of the term specified in Section 1.1:
(a) by the Company upon Executive's death or inability by reason of
physical or mental impairment to perform substantially all of Executive's
services as contemplated herein for 90 days or more within any six-month period
("Disability");
----------
-2-
<PAGE>
(b) by Executive in the event of (i) relocation of the principal offices of
the Company to a location outside the State of Connecticut or beyond a 25 mile
radius of Hartford, Connecticut, (ii) a material adverse change in the
Executive's working conditions as they relate to his supervisory
responsibilities, (iii) a material adverse change in the Executive's entire
employee benefit and perquisite package, unless such change applies to all of
the Company's and Medallion's employees, and (iv) a material breach by the
Company of its obligations under this Agreement that is not cured within thirty
days after written notice of such breach in reasonable detail is given to the
Company by Executive; or
(c) by the Company for cause ("Cause") in the event of (i) Executive's
-----
willful failure to follow the reasonable directions of the Board or otherwise
perform Executive's duties hereunder (other than as a result of physical or
mental impairment) for five days after written notice of such failure in
reasonable detail is given to Executive by the Company, (ii) intentional or
grossly negligent conduct by Executive that is injurious to the Company as
reasonably determined by the Board which conduct continues for five days after
written notice of such conduct in reasonable detail is given to Executive by the
Board, (iii) conduct by Executive that is intended to be injurious to the
Company as reasonably determined by the Board, (iv) Executive's conviction of or
a plea of nolo contendere to (A) a felony or (B) a misdemeanor which involves an
act against the Company or which involves moral turpitude or which otherwise
materially adversely affects the Company or its business or reputation, (v)
Executive's violation of (A) a federal or state banking or securities law or
regulation which materially adversely affects the Company or its business or
reputation or (B) the Small Business Act of 1953 or regulations thereunder, or
(vi) the issuance of an order, judgment or decree (not reversed, suspended or
vacated) of any court of competent jurisdiction or governmental agency having
regulatory or supervisory jurisdiction over the Company or the Executive (or
both), enjoining or otherwise prohibiting the Executive from engaging in any
conduct or activity that forms a material part of the Executive's duties, or
enjoining or otherwise prohibiting the Company's employment of the Executive.
3.2 Payment.
-------
(a) If Executive's employment is terminated pursuant to Section 3.1(b)
above or without Cause prior to the Initial Termination Date, unless the Company
has provided Executive with an Extension Notice, then the Second Termination
Date, the Company will pay Executive a lump sum payment equal to the present
value of Executive's then current Base Salary through the Initial Termination
Date, unless the Company has provided Executive with an Extension Notice, then
the Second Termination Date.
(b) If Executive's employment is terminated for any reason other than as
set forth in Section 3.2(a) (including without limitation pursuant to Sections
3.1(a) or (c) above), the Company will pay Executive an amount equal to
Executive's then current Base Salary through the date of termination. As used
herein, the "present value" shall be determined by assuming that the amount
determined above is paid in equal installments at the end of each month and
discounting such amount to the date of termination of employment at the lowest
prime rate published in the Wall Street Journal for the first day of the
calendar month in which such termination occurs, absent manifest error in the
printing thereof.
-3-
<PAGE>
SECTION 4. CONFIDENTIAL INFORMATION, INVENTIONS AND COMPETITION.
4.1 Confidential Information. During the course of Executive's
------------------------
employment, Executive may have become or will become aware of information
relating to the operations or business affairs of the Company or Medallion that
is treated by the Company or Medallion as confidential or proprietary
("Confidential Information"). Executive acknowledges that the Company or
- --------------------------
Medallion, as the case may be, is and shall at all times remain the sole owner
of the Confidential Information and of all intellectual property rights relating
thereto and Executive agrees not to publish or otherwise disclose or make
available to any third party any Confidential Information and not to use any
Confidential Information for Executive's own benefit or for the benefit of any
other third party. Upon termination of this Agreement, or at any time upon the
Company's or Medallion's request, Executive will return to the Company or
Medallion, as the case may be, all copies of Confidential Information in
Executive's possession or under Executive's control.
Confidential Information does not include information which (a) is at the
time of disclosure or later becomes publicly known under circumstances involving
no breach of this agreement by Executive, (b) is generally disclosed to third
parties by the Company or Medallion without restriction on such third parties,
or (c) is required to be disclosed by a governmental authority or by order of a
court of competent jurisdiction, provided that such disclosure is subject to all
available protection and reasonable advance notice is given to the Company or
Medallion, as the case may be.
4.2 Ownership of Inventions. Any invention, discovery, new product or
-----------------------
business opportunity made, discovered or reduced to practice by Executive
(whether alone or with others) in the course of performing services for the
Company or arising directly from Confidential Information acquired by Executive
("Invention") will be the exclusive property of the Company, and the Company may
---------
use or pursue any of them without restriction or additional compensation to
Executive.
To the extent any Invention results in a patentable, copyrightable or other
proprietary invention, Executive hereby assigns and agrees to assign to the
Company all of Executive's right, title and interest in and to any such
invention. Executive agrees to cooperate fully in obtaining patent, copyright
or other proprietary protection for any such invention, all in the name of the
Company and at the Company's cost and expense, and to execute and deliver all
requested applications, assignments and other documents and take such other
measures as the Company may reasonably request in order to perfect and enforce
the Company's rights therein (including transfer of possession to the Company of
all inventions embodied in tangible materials).
4.3 Noncompetition. Until the earlier of (i) termination of Executive's
--------------
employment in accordance with Section 3.1, and (ii) the Initial Termination
Date, unless the Company has provided Executive with an Extension Notice, then
the Second Termination Date, Executive will not directly or indirectly (unless
approved by the Board):
(a) as proprietor, partner, stockholder, member, manager, officer,
employee, consultant, director, joint venturer, investor, lender, or in any
other capacity
-4-
<PAGE>
whatsoever (except through the ownership of less than one percent
(1.0%) of the capital stock of any publicly-traded company), engage, in any
geographic market, in the business of marketing, soliciting, making or selling
loans guaranteed by the Small Business Administration or any other business
engaged in by the Company while the Executive was employed by the Company or its
predecessor and which competes with the business of the Company; or
(b) hire or recruit any employee of the Company or Medallion or solicit or
induce, or attempt to induce, any employee or consultant of the Company or
Medallion to terminate his or her relationship with the Company or Medallion; or
(c) call upon, solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any customer, licensee, vendor, collaborator,
corporate partner, or prospective customer, licensee, collaborator or corporate
partner, of the Company or Medallion.
SECTION 5. MISCELLANEOUS.
5.1 Remedies. Executive agrees that the restrictions contained in this
--------
Agreement are necessary for the protection of the business and goodwill of the
Company and are reasonable for such purpose. Executive agrees that any breach
of this Agreement will cause the Company substantial and irreparable damage and,
therefore, in the event of any such breach, in addition to such other remedies
as may be available, the Company shall have the right to cease making any
payments hereunder and to seek specific performance and injunctive relief.
5.2 Arbitration. The parties hereto will attempt to resolve any
-----------
controversy, claim or dispute arising under this Agreement promptly by
negotiations between the parties. If any party reaches the conclusion that the
controversy, claim or dispute cannot be resolved by unassisted negotiations,
such party may request that such controversy, claim or dispute by settled by
binding arbitration administered by the American Arbitration Association in
accordance with its commercial arbitration rules and procedures, as in effect on
the date of the commencement of arbitration proceedings. The arbitral tribunal
shall consist of three members, with the claimant and respondent each appointing
one arbitrator, and with the party-appointed arbitrators appointing the third,
neutral arbitrator. The arbitrators selected pursuant to this provision shall
be qualified by training, education, and experience to rule on the issues
presented, and the chairperson of the tribunal shall be a lawyer experienced in
the litigation of employment disputes. The arbitration shall be held in New
York, New York. The award shall be in writing and shall state the reasoning on
which the award rests. A judgment on the award may be entered in any court of
competent jurisdiction. The parties further agree that if a dispute is
submitted to arbitration, the prevailing party shall be entitled to recover from
the non-prevailing party the reasonable attorneys' fees incurred by the
prevailing party in connection with the matter which is the subject of such
proceeding.
5.3 Notices. Any notice or other communication hereunder shall be in
-------
writing and shall be deemed given when so delivered in person, by overnight
courier (with receipt
-5-
<PAGE>
confirmed) or by facsimile transmission (with receipt confirmed by telephone or
by automatic transmission report) or on the third business day after being sent
by registered or certified mail (postage prepaid, return receipt requested),
addressed, if to the Company, to Andrew Murstein, President and Chief Operating
Officer, Medallion Financial Corp., 205 East 42nd Street, New York, NY 10017
(Fax 212-983-0351), or to such other address as the Company may designate in
writing at any time or from time to time to the Executive, and if to the
Executive, to the most recent address on file with the Company.
5.4 Integration. This Agreement is the entire agreement of the parties
-----------
with respect to the subject matter hereof and supersedes any prior agreement or
understanding relating to Executive's employment with or compensation by the
Company, including without limitation, the Employment Agreement between Business
Lenders, Inc. and the Executive dated September 7, 1994, which shall be deemed
terminated as of the date hereof. This Agreement may not be amended,
supplemented or otherwise modified except in writing signed by the parties
hereto.
5.5 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their successors, assigns, heirs and
personal representatives.
5.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
5.7 Severability. If any provision hereof shall for any reason be held to
------------
be invalid or unenforceable in any respect, such invalidity or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision had not been included
herein. If any provision hereof shall for any reason be held by a court to be
excessively broad as to duration, geographical scope, activity or subject
matter, it shall be construed by limiting and reducing it to make it enforceable
to the extent compatible with applicable law as then in effect.
5.8 Governing Law. This Agreement shall be governed by the laws of New
-------------
York without regard to its conflict of law provisions.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the date first stated above.
BLI ACQUISITION CO., LLC
By: /s/ Thomas O. Kellogg
-----------------------
President and Chief Executive Officer
EXECUTIVE:
/s/ Penn Ritter
--------------------
Penn Ritter
-7-
<PAGE>
Exhibit F
---------
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, dated as of October 31, 1997 is by and between
BLI Acquisition Co., LLC, a Delaware limited liability company ("Acquisition
-----------
Co."), and George J. Ritter (the "Consultant").
- --- ----------
WHEREAS, the parties have entered into an Asset Purchase Agreement dated as
of August 20, 1997, as amended, by and among Medallion Financial Corp.,
Acquisition Co., Business Lenders, Inc. ("BLI"), Triumph - Connecticut Limited
---
Partnership, Thomas Kellogg, Gary Mullin and Penn Ritter pursuant to which
Acquisition Co. will acquire substantially all of the assets of BLI; and
WHEREAS, the Consultant desires to advise Acquisition Co. and Acquisition
Co. desires to obtain the services of the Consultant; and
WHEREAS, the Consultant and Acquisition Co. agree that certain information
regarding Acquisition Co.'s business planning and marketing strategies and other
proprietary information of Acquisition Co. relating to the services and business
of Acquisition Co. that the Consultant knows or may obtain should be used
exclusively for the benefit of Acquisition Co. and may not be disclosed to any
person or entity other than Acquisition Co.;
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
1. Consultant's Services. Acquisition Co. hereby retains the Consultant,
---------------------
and the Consultant hereby agrees to perform for Acquisition Co., certain
consulting and advisory services outlined below (the "Services"), upon the terms
--------
and conditions set forth in this Agreement. The Services shall consist of
general business and business development advice, provided in consultation with
the senior management of Acquisition Co.
The Consultant shall promptly respond by telephone to requests by
Acquisition Co. for consultation and advice pursuant hereto and shall devote
such time as is reasonable to perform such Services. The parties understand and
agree that the Consultant has and will continue to have an active role in
numerous other business activities which occupy the majority of his business
time and that such other business activities will not be limited pursuant to
this Agreement or the relationship created hereby, provided, however, that such
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other business activities shall not compete with the business of Acquisition Co.
2. Compensation and Expenses. For the performance of the Services to be
-------------------------
rendered to Acquisition Co. during the term of this Agreement, Acquisition Co.
shall pay a fee at the annual rate of Thirty Thousand Dollars ($30,000) payable
in substantially equal monthly installments ("Fee"). Acquisition Co. shall
---
reimburse the Consultant for all
<PAGE>
authorized ordinary, reasonable, necessary and documented expenses incurred by
the Consultant in accordance with the general corporate policy of Acquisition
Co. Consultant will be separately compensated for specific business solely
initiated and referred to Acquisition Co. by the Consultant as may be negotiated
between the parties from time to time.
3. Term. The term of this Agreement and the Consultant's Services
----
hereunder shall commence as of the date of this Agreement and shall continue in
effect for a period of three (3) years (the "Consulting Term").
---------------
4. Termination.
-----------
4.1 Early Termination. This Agreement may be terminated prior to the
-----------------
expiration of the term specified in Section 3:
(a) by Acquisition Co. upon Consultant's death or inability by reason of
physical or mental impairment to perform substantially all of the Services as
contemplated herein for 90 days or more within any six-month period
("Disability");
----------
(b) by Consultant in the event of a material breach by Acquisition Co. of
its obligations under this Agreement that is not cured within thirty days after
written notice of such breach in reasonable detail is given to Acquisition Co.
by Consultant; or
(c) by Acquisition Co. for cause ("Cause") in the event of (i) Consultant's
-----
willful failure to perform Consultant's duties hereunder (other than as a result
of physical or mental impairment) for five days after written notice of such
failure in reasonable detail is given to Consultant by Acquisition Co., (ii)
intentional or grossly negligent conduct by Consultant that is injurious to
Acquisition Co. as reasonably determined by the Board which conduct continues
for five days after written notice of such conduct in reasonable detail is given
to Consultant by the Board, (iii) conduct by Consultant that is intended to be
injurious to Acquisition Co. as reasonably determined by the Board, (iv)
Consultant's conviction of or a plea of nolo contendere to (A) a felony or (B) a
misdemeanor which involves an act against Acquisition Co. or which involves
moral turpitude or which otherwise materially adversely affects Acquisition Co.
or its business or reputation, (v) Consultant's violation of (A) a federal or
state banking or securities law or regulation which materially adversely affects
Acquisition Co. or its business or reputation or (B) the Small Business Act of
1953 or regulations thereunder which materially adversely affects Acquisition
Co. or its business or reputation, or (vi) the issuance of an order, judgment or
decree (not reversed, suspended or vacated) of any court of competent
jurisdiction or governmental agency having regulatory or supervisory
jurisdiction over Acquisition Co. or the Consultant (or both), enjoining or
otherwise prohibiting the Consultant from engaging in any conduct or activity
that forms a material part of the Consultant's duties, or enjoining or otherwise
prohibiting Acquisition Co.'s employment of the Consultant.
-2-
<PAGE>
4.2 Payment.
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(a) If Consultant's employment is terminated pursuant to Section 4.1(b)
above or without Cause prior to the end of the Consulting Term, Acquisition Co.
will pay Consultant a lump sum payment equal to the present value of
Consultant's Fee through the end of the Consulting Term.
(b) If Consultant's employment is terminated for any reason other than as
set forth in Section 4.2(a) (including without limitation pursuant to Sections
4.1(a) or (c) above), Acquisition Co. will pay Consultant an amount equal to
Consultant's Fee earned through the date of termination.
As used herein, the "present value" shall be determined by assuming that
the amount determined above is paid in equal installments at the end of each
month and discounting such amount to the date of termination of employment at
the lowest prime rate published in the Wall Street Journal for the first day of
the calendar month in which such termination occurs, absent manifest error in
the printing thereof.
5. Independent Contractor. It is specifically understood and agreed that
----------------------
during the term of this Agreement the Consultant's relationship to Acquisition
Co. will be that of an independent contractor and that neither this Agreement
nor the Services to be rendered hereunder shall for any purpose whatsoever or in
any way or manner create an employer-employee relationship between the parties.
Accordingly, the Consultant shall have sole and exclusive responsibility for the
payment of all federal, state and local income taxes and for all employment and
disability insurance, Social Security and other similar taxes with respect to
any compensation provided hereunder. The Consultant is not authorized to bind
Acquisition Co.
6. Amendments; Entire Agreement. This Agreement may not be amended, nor
----------------------------
shall any waiver, change, modification, consent or discharge be effected, except
by an instrument in writing executed by or on behalf of the party or parties
against whom enforcement of any amendment, waiver, change, modification, consent
or discharge is sought. The parties hereto agree that this Agreement and all
other agreements of a date even herewith constitute the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings among them as to such subject matter; and there
are no restrictions, agreements, arrangements, oral or written, between the
parties relating to the subject matter hereof which are not fully expressed or
referred to herein.
7. Gender. Whenever used herein, the singular number shall include the
------
plural, the plural shall include the singular, and the use of any gender shall
include all genders.
8. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been given when delivered or three (3) days
after mailing if mailed by first-class, registered or certified mail, postage
prepaid, addressed (a) if to the Consultant, 180 Fern Street, West Hartford,
Connecticut 06119, (b) if to Acquisition Co., as provided in the Purchase
Agreement (including copies as therein provided), or to such other
-3-
<PAGE>
person(s) at such address(es) as either party may furnish in writing to the
other parties hereto.
9. Successors and Assigns. This Agreement shall not be assignable by
----------------------
either party without the prior written consent of the other party. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, and is not intended and shall not
be construed to create any rights in or to be enforceable by any other person.
10. Section Headings. The headings contained in this Agreement are for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the law (other than the law governing conflict of
law questions) of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as a sealed instrument as of the date first above written.
BLI ACQUISITION CO., LLC
By: /s/ Thomas O. Kellogg
-----------------------
CONSULTANT
/s/ George J. Ritter
-------------------------
George J. Ritter
-4-
<PAGE>
Exhibit G
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Telephone: (617) 573-0100 Facsimile: (617) 227-4420
Form of Opinion of Palmer & Dodge LLC
October 31, 1997
Business Lenders, Inc. Triumph-Connecticut Limited Partnership
15 Lewis Street City Place I, 35th Floor
Hartford, CT 06103 Hartford, CT 06103
Thomas Kellogg Penn Ritter
12 Governor's Row 14 Birch Road
West Hartford, CT 06447 West Hartford, CT 06119
Gary Mullin
564 Lamplight Lane
Orange, CT 06447
Gentlemen:
We have acted as counsel for Medallion Financial Corp. ("MFC"), a Delaware
---
corporation, in connection with the Asset Purchase Agreement dated as of August
20, 1997, as amended by Amendment No. 1 dated as of October 22, 1997 (the
"Agreement"), among MFC, BLI Acquisition Co., LLC, Business Lenders, Inc.
- ----------
("BLI"), Triumph-Connecticut Limited Partnership, Thomas Kellogg, Gary Mullin
---
and Penn Ritter, providing for the purchase by MFC of substantially all the
assets of BLI and the assumption by MFC of certain of the liabilities of BLI.
This opinion is furnished to you pursuant to Section 6.4 of the Agreement.
Terms used in this opinion that are defined in the 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 (other than the Small Business Act of
1953, as amended, and the Small Business Investment Act of 1958, as amended, and
the rules and procedures promulgated thereunder, as to which we express no
opinion) and the Delaware General Corporation Law (the "DGCL"). In addition, we
----
render this opinion as if the 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 reviewed original, photostatic or certified copies of all corporate
records, certificates of public officials, certificates of corporate officers of
MFC and such other
<PAGE>
Business Lenders, Inc.
October 31, 1997
Page 2
instruments, documents and agreements as we have deemed relevant and necessary
as a basis for the opinions hereinafter set forth. As to various questions of
fact material to our opinion,we also have relied upon representations made in or
pursuant to the Agreement and inquiries made of officers of MFC. We have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as copies.
References in this opinion to the phrase "to our knowledge" and words of
like import mean the actual knowledge of the lawyers of this firm responsible
for preparing this opinion after inquiry of such lawyers in the firm and review
of such documents in our possession as they considered appropriate but without
any independent investigation.
Based on the foregoing, but subject to the assumptions and qualifications
set forth herein, we are of the opinion that:
1. MFC is validly existing and in good standing as a corporation 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
conducted, and to execute and deliver the Agreement and to perform its
obligations thereunder.
2. Acquisition Co. is validly existing and in good standing as a limited
liability company 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 conducted, and to execute and deliver the Agreement and to
perform its obligations thereunder.
3. The execution and delivery by each of MFC and Acquisition Co. of the
Agreement and the performance by MFC and Acquisition Co. of their respective
obligations thereunder have been duly authorized by all necessary action on the
part of MFC and Acquisition Co., respectively. The Agreement has been duly
executed and delivered by each of MFC and Acquisition Co. and constitutes
(assuming due authorization, execution and delivery thereof by BLI, Triumph and
the Key Employees) the valid and binding obligation of each of MFC and
Acquisition Co., enforceable against each of them 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
and except that rights to indemnification thereunder may be limited by federal
or state securities laws or public policy relating thereto.
4. The execution and delivery of the Agreement by each of MFC and
Acquisition Co., the consummation of the transactions contemplated thereby and
compliance with any of the provisions thereof will not conflict with or violate
(i) any of the terms, conditions or
<PAGE>
Business Lenders, Inc.
October 31, 1997
Page 3
provisions of the certificate of incorporation or by-laws of MFC or the
certificate of formation of Acquisition Co., (ii) any of the terms, conditions
or provisions of any document, agreement or other instrument to which MFC or
Acquisition Co. is a party or by which any of them is bound of which we are
aware, (iii) any Delaware corporate or federal law or regulation, (iv) any
judgment, writ, injunction, decree, order or ruling of any court or governmental
authority binding on MFC or Acquisition Co. 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 MFC or Acquisition Co. pursuant to any document, agreement or
instrument referred to in clause (ii) above.
5. No approval or consent of, or registration or filing with, any
governmental or regulatory body is required to be obtained or made by MFC or
Acquisition Co. in connection with the execution, delivery and performance by
MFC or Acquisition Co., respectively, of the Agreement other than those which
have been obtained or made.
6. To the best of our knowledge, there are no actions or proceedings
pending or threatened against or involving MFC or Acquisition Co. or any of
their assets seeking to restrain, modify or prevent the carrying out of the
transactions contemplated by the Agreement.
This opinion is furnished to you solely for your use in connection with the
Closing under the Agreement on the date hereof, and may not be relied upon by
any other person without our prior written consent.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE>
Exhibit H
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VOTING AGREEMENT
----------------
This Voting Agreement is entered into by Alvin Murstein, Andrew Murstein,
the Alvin Murstein Second Family Trust and the Andrew Murstein Family Trust
pursuant to that certain Asset Purchase Agreement dated as August 20, 1997, as
amended, by and among Medallion Financial Corporation ("MFC"), BLI Acquisition
Co., LLC ("Acquisition Co."), Business Lenders, Inc., Triumph-Connecticut
Limited Partnership, Thomas Kellogg, Gary Mullin and Penn Ritter (the "Purchase
Agreement").
All capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Purchase Agreement.
THE UNDERSIGNED hereby agree that they will vote, or cause to be voted, all
shares of Common Stock of MFC which any of them now owns or hereafter acquires
by any means, including without limitation by purchase, upon conversion or
exercise of convertible securities, assignment or operation of law, or as a
result of any stock dividend, stock split, reorganization, reclassification,
whether voluntary or involuntary, or other similar transaction, or by purchase,
assignment or operation of law, for the establishment of a pool of options
exercisable for 90,000 shares of Common Stock of MFC for grant to officers,
directors and employees of Acquisition Co. in accordance with Section 4.9 of the
Purchase Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of October
31, 1997.
/s/ Alvin Murstein
-------------------------------------
Alvin Murstein
/s/ Andrew Murstein
-------------------------------------
Andrew Murstein
<PAGE>
ALVIN MURSTEIN SECOND FAMILY TRUST
By:/s/ Alvin Murstein, Trustee
-----------------------------------
Alvin Murstein, Trustee
By:/s/ Amie Murstein, Trustee
-----------------------------------
Amie Murstein, Trustee
ANDREW MURSTEIN FAMILY TRUST
By:/s/ Andrew Murstein, Trustee
-----------------------------------
Andrew Murstein, Trustee
By:/s/ Barbara Murstein, Trustee
-----------------------------------
Barbara Murstein, Trustee
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FIANANCIAL STATEMENTS AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS
ON FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 243,807,927
<INVESTMENTS-AT-VALUE> 243,736,627
<RECEIVABLES> 2,518,669
<ASSETS-OTHER> 1,658,920
<OTHER-ITEMS-ASSETS> 10,765,995
<TOTAL-ASSETS> 258,680,211
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122,610,055
<TOTAL-LIABILITIES> 122,610,055
<SENIOR-EQUITY> 128,661
<PAID-IN-CAPITAL-COMMON> 130,836,145
<SHARES-COMMON-STOCK> 12,866,060
<SHARES-COMMON-PRIOR> 8,250,000
<ACCUMULATED-NII-CURRENT> 3,129,434
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 71,300
<NET-ASSETS> 134,094,240
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,142,054
<OTHER-INCOME> 1,326,331
<EXPENSES-NET> 3,410,315
<NET-INVESTMENT-INCOME> 7,596,496
<REALIZED-GAINS-CURRENT> 154,714
<APPREC-INCREASE-CURRENT> 25,000
<NET-CHANGE-FROM-OPS> 7,726,210
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,642,000
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,616,060
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 69,055,711
<ACCUMULATED-NII-PRIOR> 543,306
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 180,723
<INTEREST-EXPENSE> 6,461,574
<GROSS-EXPENSE> 9,871,889
<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> 10.35
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
