<PAGE>
As Filed Pursuant to Rule 497
Registration No. 333-50859
CAPITAL DIMENSIONS, INC.
7831 GLENROY ROAD, SUITE 480
MINNEAPOLIS, MINNESOTA 55439
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Capital Dimensions, Inc. ("CDI" or the "Company") to be held in the first
floor conference room at the offices of the Company, 7831 Glenroy Road,
Minneapolis, Minnesota, on June 15, 1998, at 9:00 a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
March 6, 1998 (the "Merger Agreement"), providing for the merger of CD Merger
Corp., a wholly owned subsidiary of Medallion Financial Corp. ("Medallion"),
with and into CDI (the "Merger"). Upon consummation of the Merger, CDI will
become a wholly owned subsidiary of Medallion, and CDI's shareholders will
become stockholders of Medallion.
Details of the proposed Merger and Merger Agreement are set forth in the
accompanying Joint Proxy Statement/Prospectus which you are urged to read
carefully in its entirety. A copy of the Merger Agreement is attached to the
Joint Proxy Statement/Prospectus as Appendix A.
The Company's Board of Directors has carefully considered and unanimously
approved the proposed Merger and has determined that the Merger is fair to,
and in the best interests of, the Company and its shareholders. Accordingly,
the Board of Directors unanimously recommends that the shareholders vote FOR
the Merger Agreement.
It is important that your shares be represented at the Special Meeting.
Whether or not you expect to attend the Special Meeting in person, please
promptly complete, sign and date the enclosed proxy card and return it in the
enclosed, postage prepaid envelope as promptly as possible.
Sincerely,
Thomas F. Hunt, Jr.
President
June 5, 1998
<PAGE>
CAPITAL DIMENSIONS, INC.
7831 GLENROY ROAD, SUITE 480
MINNEAPOLIS, MINNESOTA 55439
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 15, 1998
----------------
To the shareholders of Capital Dimensions, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Capital
Dimensions, Inc., a Minnesota corporation ("CDI" or the "Company"), will be
held in the first floor conference room at the offices of the Company, 7831
Glenroy Road, Minneapolis, Minnesota, on Monday, June 15, 1998 at 9:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of March 6, 1998 (the "Merger
Agreement"), among CDI, Medallion Financial Corp., a Delaware corporation
("Medallion"), and CD Merger Corp., a Delaware corporation and a wholly
owned subsidiary of Medallion (the "Merger Sub"), pursuant to which, among
other things, the Merger Sub will be merged with and into CDI (the
"Merger"), the separate corporate existence of the Merger Sub will cease
and CDI will be the surviving corporation in the Merger. Upon the
effectiveness of the Merger, CDI will become a wholly owned subsidiary of
Medallion and each outstanding share of common stock, no par value per
share, of CDI (other than shares as to which dissenters' appraisal rights
shall have been properly exercised and perfected under Minnesota law and
shares owned by CDI or any of its subsidiaries) will be exchanged for
shares of common stock of Medallion, all as more fully set forth in the
accompanying Joint Proxy Statement/Prospectus and in the Merger Agreement,
a copy of which is attached thereto as Appendix A.
2. To transact such other business as may properly come before the
Special Meeting and any adjournment thereof.
The Board of Directors of the Company has unanimously approved the proposed
Merger and has determined that the Merger is fair to, and in the best
interests of, the Company and its shareholders. Accordingly, the Board of
Directors unanimously recommends that you vote FOR approval of the Merger
Agreement and the consummation of the transactions contemplated thereby,
including the Merger.
The Board of Directors has fixed the close of business on June 1, 1998, as
the record date for the Special Meeting. Accordingly, only shareholders of
record at the close of business on such date are entitled to notice of, and to
vote at, the Special Meeting and any adjournments thereof. Details of the
Merger and other important information are more fully described in the
accompanying Joint Proxy Statement/Prospectus. Please give this information
your careful consideration.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IT IS
IMPORTANT THAT YOUR INTERESTS BE REPRESENTED AT THE SPECIAL MEETING.
By Order of the Board of Directors,
Brenda L. Leonard,
Vice President and Corporate
Secretary
Minneapolis, Minnesota
June 5, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND IN THE
MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY MEDALLION OR CDI. THIS PROXY STATEMENT/ PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY
OF THE SECURITIES OFFERED BY THIS PROXY STATEMENT/ PROSPECTUS, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE HEREOF OR
INCORPORATED BY REFERENCE HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Medallion and CDI are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the office of
the Commission, Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 or at the following Regional Offices of the Commission:
Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as Medallion and CDI, that
file electronically with the Commission. The Medallion Common Stock is listed
on the Nasdaq National Market. As such, material filed by Medallion can be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement on Form N-14 and exhibits relating
thereto, including any amendments (the "Registration Statement") of which this
Proxy Statement/Prospectus is a part, and which Medallion has filed with the
Commission under the Securities Act. Reference is made to such Registration
Statement for further information with respect to Medallion and the offering
of Medallion Common Stock to be issued in connection with the Merger.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any contract or other document referred to herein are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C.
The information set forth in this Proxy Statement/Prospectus concerning CDI
has been furnished by CDI and has not been independently investigated or
verified by Medallion. Similarly, the information set forth in this Proxy
Statement/Prospectus concerning Medallion has been furnished by Medallion and
has not been independently investigated or verified by CDI.
i
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements in this Proxy Statement/Prospectus under the captions
"Summary," "Risk Factors," "Comparison of Objectives and Policies" and
elsewhere constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of
Medallion or CDI, or industry results, to differ materially from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such risks, uncertainties and other important factors
include, among others: general economic and business conditions; industry
trends; competition; changes in business strategy; availability, terms and
deployment of capital; availability of qualified personnel; changes in, or the
failure or inability to comply with, government regulation; and other factors
referenced in this Proxy Statement/Prospectus. See "Risk Factors." These
forward-looking statements speak only as of the date of this Proxy
Statement/Prospectus. Medallion and CDI each expressly disclaims any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in
Medallion's or CDI's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
INCORPORATION OF DOCUMENTS BY REFERENCE
Medallion hereby incorporates by reference into this Proxy
Statement/Prospectus the following documents previously filed with the
Commission pursuant to the Exchange Act:
1. Medallion's Annual Report on Form 10-K for the year ended December 31,
1997;
2. Medallion's Definitive Proxy Statement on Schedule 14A, as filed with
the Commission on April 29, 1998; and
3. Medallion's Quarterly Report on Form 10-Q for the quarterly fiscal
period ended March 31, 1998, as filed with the Commission on May 15, 1998
and amended on Form 10-Q/A, as filed with the Commission on May 26, 1998.
CDI hereby incorporates by reference into this Proxy Statement/Prospectus
the following documents previously filed with the Commission pursuant to the
Exchange Act:
1. Capital Dimensions, Inc. Annual Report on Form 10-K for the year ended
June 30, 1997;
2. Capital Dimensions, Inc. Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1997, December 31, 1997 and March 31, 1998;
and
3. Capital Dimensions, Inc. Form 10 (File No. 000-22721) as filed with
the Commission on June 19, 1997 and amended on Form 10/A filed with the
Commission on June 26, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement/Prospectus.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................... i
FORWARD LOOKING STATEMENTS................................................. ii
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... ii
SUMMARY.................................................................... 1
General.................................................................... 1
The CDI Special Meeting.................................................. 1
Purpose of the Meeting................................................... 1
Vote Required; Record Date............................................... 1
Recommendation of the Board of Directors of CDI; Reasons for the Merger.... 1
The Merger................................................................. 2
Merger Consideration..................................................... 2
Conditions to the Merger; Termination.................................... 2
Accounting Treatment..................................................... 3
Listing.................................................................. 3
Appraisal Rights......................................................... 3
Voting Agreements........................................................ 3
Interests of Certain Persons in the Merger............................... 3
Investment Objectives and Policies....................................... 4
Risk Factors............................................................. 4
Dividends and Distributions.............................................. 4
Medallion Common Stock................................................... 5
Comparative Rights of Stockholders....................................... 5
Comparative Per Share Prices............................................. 5
Medallion Summary Historical and Pro Forma Consolidated Financial
Information............................................................. 6
CDI Summary Historical Consolidated Financial Information................ 7
Certain Federal Income Tax Consequences.................................. 8
Expense Table............................................................ 9
Management of CDI and Medallion.......................................... 10
RISK FACTORS............................................................... 12
Risk Relating to Integration of CDI and Medallion........................ 12
Interest Rate Spread..................................................... 12
Leverage................................................................. 12
Industry and Geographic Concentration.................................... 13
Reliance on Management................................................... 13
Substantial Influence by Existing Principal Stockholders................. 14
Risk Relating to Integration of Recent Acquisitions...................... 14
Availability of Funds.................................................... 14
Competition.............................................................. 15
Credit Quality........................................................... 15
Portfolio Valuation...................................................... 16
Taxicab Industry Regulation.............................................. 16
Government Regulation of Tobacco Advertising............................. 16
Pass-Through Tax Treatment............................................... 17
Risks Associated with Distribution Requirements and Leverage........... 17
Risks Associated with Diversification Requirements..................... 17
Possible Volatility of Stock Price....................................... 18
Dependence on Cash Flow from Subsidiaries................................ 18
Certain Anti-Takeover Provisions......................................... 18
MEDALLION SELECTED CONSOLIDATED FINANCIAL DATA............................. 19
CDI SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA........................ 21
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE CDI SPECIAL MEETING................................................... 23
Purpose of the CDI Special Meeting...................................... 23
Voting Information.................................................... 23
Shareholder and Board Approvals......................................... 23
Quorum and Adjournments................................................. 24
Dissenters' Rights of Appraisal......................................... 25
Minnesota Dissenters' Rights Statute.................................. 25
Other Business.......................................................... 26
THE MERGER................................................................ 26
General................................................................. 26
Closing Date............................................................ 26
Background of the Merger; Reasons for the Merger........................ 27
Recommendation of the Board of Directors of CDI......................... 29
Interests of Certain Persons in the Merger.............................. 29
The Merger Agreement.................................................... 30
Terms of the Merger................................................... 30
Representations and Warranties........................................ 30
Certain Covenants..................................................... 30
No Shopping........................................................... 31
Indemnification....................................................... 31
Conditions............................................................ 31
Termination; Fees and Expenses........................................ 32
Certain Federal Income Tax Consequences................................. 33
Accounting Treatment.................................................... 34
Certain Legal Matters................................................... 34
Federal Securities Law Consequences..................................... 34
Listing................................................................. 35
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.......................... 35
CDI's Investment Objectives, Policies and Restrictions.................. 35
Medallion's Investment Objectives, Policies and Restrictions............ 37
MEDALLION COMMON STOCK PRICES............................................. 40
DESCRIPTION OF MEDALLION CAPITAL STOCK.................................... 40
General................................................................. 40
Common Stock............................................................ 40
Preferred Stock......................................................... 41
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 41
Limitation on Directors' Liabilities.................................... 41
Delaware Law and Certain Provisions of the Certificate of Incorporation
and the By-Laws........................................................ 41
Certain Provisions of Delaware Law Regarding an Interested Stockholder.. 42
Minnesota Law Rights of CDI Shareholders................................ 43
Determination of Net Asset Value of Medallion........................... 43
MEDALLION'S DIVIDEND REINVESTMENT PLAN.................................... 44
EQUIVALENT PER SHARE DATA................................................. 46
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET..................... 47
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME............... 48
LEGAL PROCEEDINGS......................................................... 53
OTHER MATTERS............................................................. 53
LEGAL MATTERS............................................................. 53
EXPERTS................................................................... 53
APPENDIX A: AGREEMENT AND PLAN OF MERGER.................................. A-1
APPENDIX B: MINNESOTA DISSENTERS' RIGHTS STATUTES......................... B-1
</TABLE>
iv
<PAGE>
CAPITAL DIMENSIONS, INC. MEDALLION FINANCIAL CORP.
7831 GLENROY ROAD, SUITE 437 MADISON AVENUE
480 NEW YORK, NY 10022
MINNEAPOLIS, MN 55439 (212) 328-2100
(612) 854-3007
CAPITAL DIMENSIONS, INC.
PROXY STATEMENT
---------------
MEDALLION FINANCIAL CORP.
PROSPECTUS
This Joint Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to the holders of common stock, no par value per share (the
"CDI Common Stock"), of Capital Dimensions, Inc., a Minnesota corporation
("CDI") in connection with the solicitation of proxies by the Board of
Directors of CDI (the "CDI Board of Directors") for use at the Special Meeting
of Shareholders of CDI to be held in the first floor conference room at the
offices of CDI, 7831 Glenroy Road, Minneapolis, Minnesota on June 15, 1998, at
9:00 a.m. local time, and to any and all adjournments or postponements thereof
(the "CDI Special Meeting").
The Merger. This Proxy Statement/Prospectus relates to the proposed merger
(the "Merger") of CD Merger Corp. ("Merger Sub"), a wholly-owned subsidiary of
Medallion Financial Corp. ("Medallion"), with and into CDI pursuant to an
Agreement and Plan of Merger dated as of March 6, 1998 (the "Merger
Agreement") by and among Medallion, Merger Sub and CDI. Consummation of the
Merger is subject to various conditions, including the affirmative vote of the
holders of a majority of the outstanding shares of CDI Common Stock at the CDI
Special Meeting. Pursuant to certain voting agreements, dated as of March 6,
1998 among Medallion and certain shareholders of CDI, certain CDI shareholders
agreed to vote all such shareholders' shares of CDI Common Stock in favor of
the Merger (786,753 shares of CDI Common Stock, representing 45.3% of the
outstanding shares of CDI Common Stock as of June 1, 1998, the record date for
the CDI Special Meeting). Such shareholders have sole voting and investment
power with respect to all CDI Common Stock held of record by them. The terms
and conditions of the Merger and related transactions are more fully described
in this Proxy Statement/Prospectus and in the Merger Agreement, a copy of
which is attached as Appendix A hereto and is incorporated by reference
herein.
This Proxy Statement/Prospectus also constitutes the Prospectus of Medallion
with respect to the shares of common stock, par value $.01 per share, of
Medallion (the "Medallion Common Stock") to be issued in connection with the
Merger. When the Merger becomes effective, each outstanding share of CDI
Common Stock (other than shares owned by CDI or its subsidiaries, all of which
will be canceled) will be automatically converted (subject to certain
provisions described herein with respect to fractional shares) into and
represent that number of shares of Medallion Common Stock equal to the
quotient obtained by dividing (to five places after the decimal point) (x)
$15.50 by (y) the average closing sale prices per share of Medallion Common
Stock on the Nasdaq National Market for the 20 trading days which immediately
precede the business day immediately preceding the Closing Date, provided,
however, that if such average exceeds $26.00, the divisor shall be $26.00, and
if such average is less than $23.50, the divisor shall be $23.50 (such
quotient, the "Exchange Ratio"). See "The Merger--Exchange Ratio." Medallion
Common Stock is, and the shares of Medallion Common Stock offered hereby will
be, traded on the Nasdaq National Market under the symbol "TAXI." The closing
sale price of Medallion Common Stock on the Nasdaq National Market on May 27,
1998 was $25.625 per share. There is no active public trading market for
shares of CDI Common Stock.
Medallion and CDI are both closed-end, non-diversified management investment
companies. The Board of Directors of CDI has determined that it is in the best
interests of the CDI shareholders that CDI become a wholly owned subsidiary of
Medallion through consummation of the Merger. In reaching that decision, the
Board considered several factors, including the prospects of an offering of
CDI Common Stock through a private placement. See "The Merger--Background of
the Merger; Reasons for the Merger." The Board concluded that, among other
advantages, the Merger would provide enhanced liquidity for CDI shareholders,
increase the availability of additional investment capital and provide CDI
beneficial tax treatment.
Following the Merger, CDI shareholders will become stockholders of
Medallion. This Proxy Statement/Prospectus sets forth concisely the
information that shareholders of CDI should know before voting on the Merger
Agreement and should be retained for future reference.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to CDI shareholders on or about June 5, 1998.
Medallion is treated as a business development company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The principal executive
office of Medallion is located at 437 Madison Avenue, New York, New York
10022.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE EVALUATED IN CONNECTION WITH THE MERGER.
---------------
THE SECURITIES TO BE ISSUED PURSUANT TO THE MERGER HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JUNE 5, 1998.
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. This summary is qualified in its entirety by the
more detailed information contained herein. Shareholders should read the entire
Proxy Statement/Prospectus. Certain capitalized terms in this summary are
defined elsewhere in this Proxy Statement/Prospectus.
GENERAL
The CDI Special Meeting.
This Proxy Statement/Prospectus is being furnished to the shareholders of CDI
in connection with the solicitation by the Board of Directors of CDI of proxies
to be voted at the CDI Special Meeting to be held on June 15, 1998, at 9:00
a.m., local time in the first floor conference room at the offices of CDI, 7831
Glenroy Road, Minneapolis, Minnesota. Holders of record of shares of CDI Common
Stock as of the close of business on June 1, 1998 will be entitled to notice of
and to vote at the Special Meeting, as described elsewhere in this Proxy
Statement/Prospectus.
Purpose of the Meeting
At the CDI Special Meeting, holders of CDI Common Stock will consider and
vote upon a proposal to approve and adopt the Merger Agreement among CDI,
Medallion and Merger Sub, a copy of which is attached as Appendix A to this
Proxy Statement/Prospectus, providing for the Merger of Merger Sub with and
into CDI. As a result of the Merger, CDI will become a wholly owned subsidiary
of Medallion. In the Merger, all outstanding shares of CDI Common Stock will be
converted into shares of Medallion Common Stock. Shareholders of CDI will also
consider and vote upon any other matter that may properly come before the
meeting.
Vote Required; Record Date
The Merger will require approval and adoption of the Merger Agreement by the
affirmative vote of not less than the majority of the outstanding shares of CDI
Common Stock entitled to vote thereon. Holders of CDI Common Stock are entitled
to one vote per share. Only holders of CDI Common Stock at the close of
business on June 1, 1998 (the "CDI Record Date") will be entitled to notice of
and to vote at the CDI Special Meeting. On the CDI Record Date, there were
1,737,438 shares of CDI Common Stock outstanding and entitled to vote. Pursuant
to the Voting Agreements, certain shareholders of CDI have agreed to vote such
shareholders' shares of CDI Common Stock held as of the CDI Record Date in
favor of the Merger (786,753 shares of CDI Common Stock held, representing
approximately 45.3% of the outstanding CDI Common Stock as of the CDI Record
Date). See "The CDI Special Meeting--Shareholder and Board Approvals."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CDI; REASONS FOR THE MERGER
The Board of Directors of CDI believes that the terms of the Merger are fair
to and in the best interests of its shareholders and have by the unanimous vote
approved the Merger Agreement and the related transactions. The CDI Board of
Directors unanimously recommends that its shareholders approve and adopt the
Merger Agreement, as the Merger will allow CDI to be taxed as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), provide liquidity to CDI's shareholders, produce
a higher net price for CDI Common Stock than a private placement and provide
CDI with access to additional investment capital. See "The Merger--
Recommendation of the Board of Directors of CDI" and "Background of the Merger;
Reasons for the Merger."
1
<PAGE>
THE MERGER
Merger Consideration
On the Closing Date of the Merger (the "Closing Date"), each outstanding
share of CDI Common Stock (other than shares owned by CDI or its subsidiary,
all of which will be canceled) will be automatically converted (subject to
certain provisions described herein with respect to fractional shares) into and
represent that number of shares of Medallion Common Stock equal to the quotient
obtained by dividing (to five places after the decimal point) (x) $15.50 by (y)
the average closing sale prices per share of Medallion Common Stock on the
Nasdaq National Market for the 20 trading days which immediately precede the
business day immediately preceding the Closing Date, provided, however, that if
such average exceeds $26.00, the divisor shall be $26.00, and if such average
is less than $23.50, the divisor shall be $23.50 (such quotient, the "Exchange
Ratio"). Cash will be paid in lieu of fractional shares. Upon consummation of
the Merger, Sub will be merged with and into CDI and CDI, as the surviving
corporation in the Merger, will become a wholly owned subsidiary of Medallion.
See "The Merger--The Merger Agreement--Terms of the Merger."
Conditions to the Merger; Termination
The respective obligations of CDI and Medallion to consummate the Merger are
subject to the fulfillment of the following conditions: (a) notices of intent
to exercise dissenters' appraisal rights under Minnesota law shall not have
been received from CDI shareholders holding more than 1% of the total number of
shares of CDI Common Stock outstanding immediately before the Closing Date, (b)
obtaining requisite approval of the holders of CDI Common Stock; (c) the
effectiveness of the Registration Statement which includes this Proxy
Statement/Prospectus; (d) the absence of any order or injunction against the
consummation of the Merger; (e) the receipt of necessary consents,
authorizations, orders and approvals of any governmental commission, board or
other regulatory body; and (f) the approval of the Medallion Common Stock being
issued in the Merger Agreement for listing on the Nasdaq National Market.
The obligations of each of CDI and Medallion to effect the Merger are also
subject to the satisfaction or waiver, in the case of (a) and (e) below, by the
other party prior to the Closing Date of the following conditions: (a) the
other party shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement and the
representations and warranties of the other party set forth in the Merger
Agreement shall be true in all material respects as of the Closing Date; (b)
CDI and Medallion shall have received opinions of their respective counsel that
the Merger will qualify as a tax-free reorganization; (c) Medallion shall have
received a letter from its independent public accountants regarding their
concurrence as to the appropriateness of pooling of interests treatment for the
Merger; (d) CDI shall have received a letter from their independent public
accountants regarding their concurrence as to CDI's ability to be acquired in a
transaction to be accounted for as a pooling of interests; and (e) from the
date of the Merger Agreement through the Closing Date, there shall not have
occurred any change, individually or together with other changes, that has had,
or would reasonably be expected to have, a material adverse change in the
financial condition, business, results of operations or prospects of either CDI
or Medallion and its subsidiaries, taken as a whole.
The Merger Agreement may be terminated at any time prior to the Closing Date,
before or after the approval by the shareholders of CDI: (a) by the mutual
consent of CDI and Medallion; (b) by action of the Board of Directors of either
CDI or Medallion if (i) the Merger shall not have been consummated by June 30,
1998, (ii) the approval of the Merger Agreement by CDI's shareholders shall not
have been obtained, or (iii) a court or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement and
such order, decree, ruling or other action shall have become final and non-
appealable; (c) by action of the Board of Directors of CDI, if (i) in the
exercise of its good faith judgment as to fiduciary duties to its shareholders
imposed by law, the Board of Directors of CDI determines that such
2
<PAGE>
termination is required by reason of an Acquisition Proposal (as defined in the
Merger Agreement), (ii) there has been a breach by Medallion or Merger Sub of
any representation or warranty contained in the Merger Agreement which would
have or would be reasonably likely to have a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities,
or operations of Medallion and its subsidiaries, taken as a whole or (iii)
there has been a material breach by Medallion of any covenant or agreement
contained in the Merger Agreement which is not cured; or (d) by action of the
Board of Directors of Medallion, if (i) the Board of Directors of CDI shall
have withdrawn or modified in a manner adverse to Medallion its approval or
recommendation of the Merger Agreement or the Merger, or shall have recommended
an Acquisition Proposal to CDI shareholders, (ii) there has been a breach by
CDI of any representation or warranty contained in the Merger Agreement which
would have or would be reasonably likely to have a material adverse effect on
the business, properties, assets, prospects, condition (financial or
otherwise), liabilities or results of operations of CDI and to subsidiaries
taken as a whole which is not cured within 15 days after notice thereof is
given by Medallion or (iii) there has been a material breach by CDI of any
covenant or agreement contained in the Merger Agreement which is not cured.
If the Merger Agreement is terminated as a result of the failure to obtain
approval of the Merger by the requisite vote of CDI's shareholders, then, CDI,
within fifteen days of a written request from Medallion, will pay to Medallion
the lesser of $200,000 or Medallion's transaction expenses relating to the
Merger.
If CDI terminates the Merger Agreement because its Board of Directors, in the
exercise of its good faith judgment as to its fiduciary duties to its
shareholders imposed by law, accepts an Acquisition Proposal being made by a
third party for CDI, and within 12 months thereafter such Acquisition Proposal
shall have been consummated, then CDI (or the successor thereto) is required to
pay in cash to Medallion a Termination Fee of $3,000,000, within ten days of a
written demand by Medallion after such consummation.
Certain aspects of the Termination Fee could have the effect of discouraging
a third party from pursuing an acquisition transaction involving CDI. See "The
Merger--The Merger Agreement--Terminations; Fees and Expenses."
Accounting Treatment
It is expected that the Merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. See "The Merger--
Accounting Treatment."
Listing
It is a condition to the Merger that the shares of Medallion Common Stock to
be issued in the Merger be authorized for listing on the Nasdaq National
Market, subject to official notice of issuance. See "The Merger--Listing."
Appraisal Rights
Under Minnesota law, the holders of CDI Common Stock are entitled to certain
appraisal rights in connection with the Merger. See "The Special Meeting--
Dissenters' Rights of Appraisal."
Voting Agreements
As a condition to entering into the Merger Agreement, Medallion required
certain shareholders of CDI to enter into the Voting Agreements pursuant to
which such shareholders agreed to vote their shares of CDI Common Stock held on
the CDI Record Date (equal to approximately 45.3%, or 786,753 shares, of the
issued and outstanding shares of CDI Common Stock as of the CDI Record Date) in
favor of the approval of the Merger.
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors of CDI with
respect to the Merger, holders of CDI Common Stock should be aware that certain
members of CDI's management, some of whom are or were
3
<PAGE>
members of the CDI Board of Directors have certain interests in the Merger, in
addition to those of the shareholders generally. Specifically, upon
consummation of the Merger Messrs. Thomas F. Hunt, Jr., Dean Pickerell and
Stephen A. Lewis will each enter into three year employment agreements with
CDI. See "The Merger--Interests of Certain Persons in the Merger."
Investment Objectives and Policies
Medallion, a closed-end, non-diversified management investment company that
has elected to be treated as a business development company under the
Investment Company Act of 1940, is a specialty finance company with a leading
position in the origination and servicing of loans financing the purchase of
taxicab medallions and related assets. Medallion also originates and services
commercial installment loans financing small businesses in other targeted
industries. Through its subsidiary Business Lenders LLC, Medallion finances
long-term loans to active businesses secured by real estate. The investment
objectives of Medallion are to provide a high level of distributable income,
consistent with preservation of capital, as well as long-term growth of net
asset value. As a "regulated investment company" (RIC) under the Code,
Medallion is not subject to any U.S. federal income tax on investment company
taxable income in any year if it distributes to its stockholders at least 90%
of its investment company taxable income for that taxable year, which
requirement Medallion complies with through payment of quarterly cash
dividends. Stockholders may elect to reinvest distributions. As an adjunct to
its finance business, Medallion operates a taxicab rooftop advertising
business.
CDI, a closed-end, non-diversified management investment company that has
also elected to be treated as a business development company under the
Investment Company Act of 1940, is a specialty finance company licensed by the
U.S. Small Business Administration ("SBA") as a specialized small business
investment company ("SSBIC") that invests in minority-owned small businesses in
a limited number of selected industries it views as under-served by traditional
financing sources. CDI's investments are typically in the form of secured debt
securities with fixed interest rates, accompanied by warrants to purchase
equity interests for a nominal exercise price. CDI's objectives are to achieve
both (i) a high level of interest income from secured debt securities, and (ii)
long-term appreciation of its equity interests in the companies it finances. A
substantial part of CDI's investments are concentrated in the radio broadcast
industry, with the balance principally in the rural telephone industry and the
airport food and beverage service industry. See "Comparison of Investment
Objectives and Policies."
Risk Factors.
Holders of CDI Common Stock, in voting on the Merger, should consider among
others, the following factors: (i) risks relating to integration of CDI and
Medallion; (ii) risks associated with interest rate spread, (iii) leverage,
(iv) industry and geographic concentration of Medallion's loans, (v) reliance
on management and (vi) risks relating to the integration of Medallion's recent
and announced acquisitions. Specifically, Medallion is leveraged as a result of
bank and long-term, subordinated SBA debt and such leverage poses risks, such
as possible higher volatility of both the net asset value of Medallion and the
market price of the Medallion Common Stock. Moreover, Medallion loans
collateralized by New York City taxicab medallions comprised a substantial
portion of Medallion's loan portfolio at December 31, 1997 and, as a result, an
economic downturn in New York City, or its taxicab industry, or escalating
expenses in taxicab operations, could potentially adversely affect the value of
Medallion's collateral. See "Risk Factors."
Dividends and Distributions.
Under Medallion's present policy, it distributes to its stockholders at least
90% of its yearly investment company taxable income in quarterly cash
dividends. Medallion's specialty finance subsidiaries, Medallion Funding Corp.
("MFC"), Transportation Capital Corp. ("TCC"), and Edwards Capital Company
("Edwards") (collectively the "RIC Subsidiaries") have also elected to be
treated as RICs and distribute at least 90% of their
4
<PAGE>
respective investment company taxable income to Medallion. CDI has not
previously paid dividends to its shareholders.
Medallion Common Stock.
There are presently 15,000,000 shares of Medallion Common Stock authorized,
of which, as of April 21, 1998, there were 12,882,996 shares outstanding and an
additional 295,130 shares issuable upon exercise of outstanding options. It is
anticipated that on the Closing Date, approximately 1,028,558 shares of
Medallion Common Stock will be issued to the holders of CDI Common Stock, and
an additional 148,442 shares of Medallion Common Stock will be issuable upon
the exercise of options which were previously exercisable for shares of CDI
Common Stock. Such shares will represent approximately 8.4% of the outstanding
Medallion Common Stock after such issuances. Medallion Common Stock trades on
the Nasdaq National Market under the symbol "TAXI." See "Description of
Medallion Capital Stock."
Comparative Rights of Stockholders.
The rights of CDI shareholders currently are governed by Minnesota law, CDI's
Articles of Incorporation and CDI's By-laws. Upon consummation of the Merger,
shareholders of CDI will become shareholders of Medallion, a Delaware
corporation, and their rights as shareholders of Medallion will be governed by
Delaware law, Medallion's Certificate of Incorporation and Medallion's By-laws.
The rights provided to holders of CDI Common Stock under the Minnesota Business
Corporation Act ("MBCA"), CDI's Articles of Incorporation and CDI's By-Laws do
not differ substantially from those of Medallion's stockholders except in that
(i) CDI's Articles and By-Laws do not require a supermajority vote by
shareholders to take certain actions, (ii) CDI's Articles do not restrict the
terms on which CDI may purchase shares from individuals or entities that
beneficially own 5% or more of CDI's Common Stock, and (iii) CDI's Articles
contain a provision in which CDI "opted out" of Section 302A.673 of the MBCA,
the parallel provision to Section 203 of the DGCL, which prohibits certain
transactions between a Minnesota corporation and an "interested shareholder."
See "Comparison of Stockholder Rights."
Comparative Per Share Prices.
Medallion Common Stock trades on the Nasdaq National Market under the symbol
"TAXI." The following table sets forth the high and low closing sale prices of
the Medallion Common Stock as reported by the Nasdaq National Market for each
of the quarters in the period from May 23, 1996 to December 31, 1997 and for
the first and second quarter (through June 2) of 1998.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1998
Quarter ended March 31, 1998............................... $29 15/16 $18 7/8
Quarter ended June 30, 1998 (through June 2, 1998)......... $30 1/2 $25 5/8
1997
Quarter ended March 31, 1997............................... $19 3/4 $14
Quarter ended June 30, 1997................................ $20 1/8 $16
Quarter ended September 30, 1997........................... $21 3/4 $17 3/4
Quarter ended December 31, 1997............................ $ 23 $20
1996
Period from May 23, 1996 through June 30, 1996............. $13 3/8 $12 1/4
Quarter ended September 30, 1996........................... $15 $10 3/8
Quarter ended December 31, 1996............................ $15 1/4 $12 7/8
</TABLE>
On June 2, 1998, the closing sale price of Medallion Common Stock on the
Nasdaq National Market was $26.00. The public announcement of the Merger
Agreement occurred on March 9, 1998.
5
<PAGE>
There is no active public trading market for shares of CDI Common Stock. The
last known trade for CDI Common Stock was on March 17, 1998 at $14.00 per
share.
Medallion Summary Historical and Pro Forma Consolidated Financial Information.
The following table sets forth certain summary condensed historical financial
data of Medallion and pro forma information giving effect to the Merger as if
it had occurred on January 1, 1997. The table is based on Medallion's
historical financial statements and notes thereto incorporated by reference in
this Proxy Statement Prospectus. See "INCORPORATION OF DOCUMENTS BY REFERENCE."
This information should be read in connection with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Medallion's
financial statements, including the notes thereto, and other information
included in Medallion's Annual Report on Form 10-K incorporated by reference
herein.
<TABLE>
<CAPTION>
MAY 30 TO YEAR ENDED PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Investment income.......... $ 10,412 $ 23,448 $ 25,850
Interest expense........... 5,008 9,210 10,099
------------- ------------- -------------
Net interest income........ 5,404 14,238 15,751
Equity in earnings (losses)
of unconsolidated subsidi-
ary(1).................... (63) 203 203
Other income............... 411 980 980
Accretion of negative good-
will...................... 421 722 722
Gain on sale of loans...... -- 337 337
Operating expenses......... (2,231) (4,797) (6,169)
Amortization of goodwill... (259) (368) (368)
------------- ------------- -------------
Net investment income...... 3,683 11,315 11,456
Realized gain on invest-
ments, net................ 84 144 78
Change in unrealized depre-
ciation of invest-
ments(2).................. (46) (25) 1,929
------------- ------------- -------------
Net increase in net assets
resulting from opera-
tions(3).................. $ 3,721 $ 11,434 $ 13,463
============= ============= =============
Net increase in net assets
resulting from operations
per share(3).............. $ 0.45 $ 1.02 $ 1.10
============= ============= =============
Dividends declared per
share..................... $ 0.41 $ 0.95 $ .81
============= ============= =============
BALANCE SHEET DATA (IN
THOUSANDS)
Investments, net of
unrealized depreciation of
investments............... $ 176,494 $ 288,724 $ 313,254
Total assets............... 189,625 310,045 339,894
Notes payable and demand
notes..................... 96,450 137,750 137,750
Subordinated SBA deben-
tures..................... 29,390 27,890 39,876
Total liabilities.......... 130,620 176,858 189,363
Total stockholders' equi-
ty........................ 56,487 131,392 148,736
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA
Return on assets(4)(5).............................. 3.36% 4.81%
Return on equity(5)(6).............................. 11.29 11.31
Average yield, e.o.p.(7)............................ 10.80 10.02
Average cost of funds, e.o.p.(8).................... 7.11 7.16
Spread, e.o.p.(9)................................... 3.69 3.34
Other income ratio(5)(10)........................... 0.40 0.44
Operating expense ratio(5)(11)...................... 2.02 2.02
Medallion Loans as a percentage of investments...... 76.25 78.26
Commercial Installment Loans as a percentage of in-
vestments.......................................... 23.75 21.74
Investments to assets............................... 93.08 93.49
Equity to assets.................................... 29.79 42.38
Debt to equity...................................... 222.76 134.60
SBA debt to total debt.............................. 23.36 15.77
</TABLE>
6
<PAGE>
- --------
(1) Equity in earnings (losses) of unconsolidated subsidiary represents the
net income (loss) for the period indicated from Medallion's investment in
Media.
(2) Change in unrealized depreciation of investments represents the (increase)
decrease for the period in the unrealized depreciation applied against
Medallion's investments to state them at fair value.
(3) Net increase in net assets resulting from operations is the sum of net
investment income, net realized gains or losses on investments and the
change in unrealized gains or losses on investments.
(4) Return on assets represents net increase in net assets resulting from
operations, for the period indicated, divided by average assets during the
stated period.
(5) Selected financial ratios have been annualized for the period from May 30,
1996 to December 31, 1996.
(6) Return on equity represents net increase in net assets resulting from
operations, for the period indicated, divided by average stockholders'
equity during the stated period.
(7) Average yield, e.o.p. represents the end of period weighted average
interest rate on investments at the date indicated.
(8) Average cost of funds, e.o.p. represents the end of period weighted
average interest rate on debt at the date indicated.
(9) Spread, e.o.p. represents average yield, e.o.p. less average cost of
funds, e.o.p.
(10) Other income ratio represents other income, for the period indicated,
divided by average investments during the stated period.
(11) Operating expense ratio represents operating expenses, for the period
indicated, divided by average assets during the stated period.
CDI Summary Historical Consolidated Financial Information.
The summary statement of operations and balance sheet data set forth below as
of and for the year ended December 31, 1992, the six months ended June 30, 1993
and the years ended June 30, 1994, 1995, 1996 and 1997, are derived from CDI's
audited financial statements. The summary statement of operations and balance
sheet data set forth below as of December 31, 1997 and for the six months ended
December 31, 1996 and 1997 are derived from CDI's unaudited financial
statements, but reflect all adjustments (consisting only of normal recurring
entries) which CDI's management has deemed necessary for an accurate
presentation of such data. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and CDI's financial statements, including the notes thereto, and
other financial information included in CDI's Annual Report on Form 10-K
incorporated by reference herein.
<TABLE>
<CAPTION>
AS OF OR AS OF OR FOR FOR AS OF OR FOR
FOR THE THE SIX MOS. THE SIX MOS. THE SIX MOS.
YEAR ENDED ENDED AS OF OR FOR THE YEAR ENDED JUNE 30, ENDED ENDED
DECEMBER 31, JUNE 30,(1) ----------------------------------------- DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1997 1996 1997
------------ ------------ --------- --------- --------- --------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Interest income.......... $ 855 $460 $ 1,109 $ 1,304 $ 1,573 $ 2,478 $1,022 $ 945
Operating expenses:
Interest expense........ 209 130 278 243 251 519 176 502
General and administra-
tive expense........... 472 263 526 523 630 861 437 619
Other operating
expenses............... 26 67 90 48 51 116 16 268
----- ---- --------- --------- --------- --------- ------ -----
Total operating ex-
penses.................. 707 460 894 813 932 1,496 629 1,389
----- ---- --------- --------- --------- --------- ------ -----
Net operating income..... 148 0 215 490 641 982 393 (444)
Gains (losses) on invest-
ments in small business
concerns:
Realized................ 414 (4) 1,278 3,663 508 (34) 119 87
Unrealized.............. 782 647 (2,288) (1,153) 1,423 1,848 18 124
----- ---- --------- --------- --------- --------- ------ -----
Income (loss) before in-
come taxes(2)........... 1,704 643 (795) 3,001 2,571 2,796 530 (233)
Income taxes............. 2 533 372 1,149 217 --
----- ---- --------- --------- --------- --------- ------ -----
Net income (loss)........ 1,702 643 (795) 2,468 2,199 1,647 313 (233)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AS OF OR AS OF OR FOR FOR AS OF OR FOR
FOR THE THE SIX MOS. THE SIX MOS. THE SIX MOS.
YEAR ENDED ENDED AS OF OR FOR THE YEAR ENDED JUNE 30, ENDED ENDED
DECEMBER 31, JUNE 30,(1) -------------------------------------------- DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1997 1996 1997
------------ ------------ ---------- ---------- ---------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends on preferred
stock to SBA paid or
restricted............ 300 30 120 120 120 56 60 --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) applica-
ble to common stock... $ 1,402 $ 613 $ (915) $ 2,348 $ 2,079 $ 1,591 253 (233)
========== ========== ========== ========== ========== ========== ========== ==========
Diluted earnings per
common share(3)....... $ .78 $ .31 $ (.50) $ 1.18 $ 1.09 $ 0.87 $ 0.15 $ (0.14)
========== ========== ========== ========== ========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstand-
ing(3)................ 1,802,000 1,963,000 1,824,000 1,984,000 1,912,000 1,834,402 1,732,000 1,720,000
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF OR AS OF OR FOR AS OF OR FOR
FOR THE THE SIX MOS. THE SIX MOS.
YEAR ENDED ENDED AS OF OR FOR THE YEAR ENDED JUNE 30 ENDED
DECEMBER 31, JUNE 30,(1) ------------------------------------ DECEMBER 31,
1992 1993 1994 1995 1996 1997 1997
------------ ------------ -------- -------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investments at cost..... $15,474 $15,442 $ 16,083 $ 15,200 $ 17,513 $ 22,074 $21,807
Unrealized appreciation
(depreciation) on
investments, Net....... 2,121 2,769 480 (672) 750 2,598 2,723
------- ------- -------- -------- -------- -------- -------
Investments at estimated
fair value............. 17,594 18,211 16,563 14,528 18,263 24,672 24,530
Cash and cash equiva-
lents.................. 1,145 1,254 1,667 5,975 3,878 4,834 4,137
Total assets............ 19,090 19,727 18,544 21,090 23,360 30,288 29,849
SBA financing........... 3,000 3,476 3,070 2,632 4,168 12,154 11,986
Total liabilities....... 4,067 3,508 3,120 3,197 4,563 12,866 12,505
Redeemable Preferred
Stock.................. 0 3,030 3,150 3,270 3,010 -- --
Total stockholders' eq-
uity................... $15,023 $13,189 $ 12,274 $ 14,263 $ 15,787 $ 17,423 $17,344
OTHER SELECTED DATA:
Number of portfolio
companies at period
end.................... 29 27 22 18 17 17 19
Number of new portfolio
companies.............. 3 -- 5 -- 5 3 4
New advances to portfo-
lio companies.......... $ 2,470 $ 286 $ 1,281 $ 934 $ 6,539 $ 4,586 $ 1,750
Proceeds from liquida-
tion of investments.... 562 381 2,276 3,760 3,896 898 1,292
Estimated fair value of
investment portfolio at
period end............. $17,594 $18,211 $ 16,563 $ 14,528 $ 18,263 $ 24,672 $24,530
</TABLE>
- --------
(1) In 1993, CDI changed its fiscal year end from December 31 to June 30,
resulting in a six-month transition period.
(2) During the year ended December 31, 1992 CDI had negative goodwill
amortization of $359,573, which related to the purchase of CDI in 1987 and
was fully amortized by December 31, 1992.
(3) CDI's Board of Directors approved a 3-for-1 stock split in the form of a
200% dividend effective May 31, 1997 to shareholders of record on the date.
All share and per share amounts have been adjusted to reflect this stock
split.
Certain Federal Income Tax Consequences.
Consummation of the Merger is conditioned upon CDI and Medallion receiving
opinions of their respective counsel to the effect that the Merger will
constitute a tax-free "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, except
as more fully
8
<PAGE>
described under "The Merger--Certain Federal Income Tax Consequences," no gain
or loss will be recognized by CDI shareholders except with respect to cash
received in lieu of fractional shares and no gain or loss will be recognized by
CDI, Medallion or Sub as a result of the Merger.
Expense Table.
The following table lists the costs and expenses with respect to shares of
Medallion and shares of CDI as well as pro forma information for Medallion
Common Stock after giving effect to the Merger. The table is based on the net
asset, fee and expense levels of CDI and Medallion for the year ended December
31, 1997.
<TABLE>
<CAPTION>
MEDALLION CDI MEDALLION
(ACTUAL)(1) (ACTUAL)(1) (AS ADJUSTED)(1)
----------- ----------- ----------------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of
offering price)..................... 5.28% -- 5.28%
Dividend Reinvestment Plan Fees(2)... -- -- --
ANNUAL EXPENSES(3)
(as a percentage of net assets
attributable to Common Stock)
Management Fees(4)................... 0.17 -- 0.15
Interest Payments on Borrowed
Funds(5)............................ 7.01 5.13 6.79
Operating Expenses(6)................ 2.23 7.82 2.88
Other Expenses....................... 1.53 0.10 1.36
----- ----- -----
Total Annual Expenses................ 10.94% 13.05% 11.19%
</TABLE>
- --------
(1) Based on amounts for the year ended December 31, 1997.
(2) The expenses of Medallion's Dividend Reinvestment Plan are included in
stock record expenses, a component of "Other Expenses." The participants in
the Dividend Reinvestment Plan will bear a pro rata share of brokerage
commissions incurred with respect to open market purchases. See
"Medallion's Dividend Reinvestment Plan."
(3) Assumes a net asset value of $149 million, which will be Medallion's
estimated stockholders' equity upon consummation of the Merger. Operating
expenses, interest payments on borrowed funds and other expenses are
calculated on an annualized basis based on the year ended December 31,
1997.
(4) Management expenses consist of fees paid to Medallion's investment adviser,
FMC Advisers, Inc. ("FMC"). See "Comparison of Investment Objectives and
Policies--Medallion's Investment Objectives, Policies and Restrictions--The
Investment Adviser."
(5) Interest payments on borrowed funds consist primarily of interest payable
under credit agreements with banks and on subordinated SBA debentures.
(6) Operating expenses consist primarily of compensation and employee benefits,
data processing, advertising, travel and other marketing expenses,
occupancy costs and other similar expenses.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in Medallion. These amounts assume no increase or
decrease in leverage and payment by Medallion of operating expenses at the
levels set forth in the table above.
An investor would pay the following expenses on a $1,000 investment, assuming
(i) a 5.0% annual return and (ii) reinvestment of all dividends and
distributions at net asset value:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$165 $345 $502 $811
</TABLE>
9
<PAGE>
This example as well as the information set forth in the table above should
not be considered a representation of the future expenses of Medallion. Actual
expenses may be greater or less than those shown. Moreover, while the example
assumes (as required by the Securities and Exchange Commission (the
"Commission")) a 5.0% annual return, Medallion's performance will vary and may
result in a return greater or less than 5.0%. In addition, while the example
assumes reinvestment of all dividends and distributions at net asset value,
participants in Medallion's Dividend Reinvestment Plan will receive shares
purchased by the Dividend Reinvestment Plan Agent at the market price in effect
at the time, which may be at, above or below net asset value. See "Medallion's
Dividend Reinvestment Plan."
The nature of the services for which CDI and Medallion pay management fees is
described below the caption "Comparative Investment Objectives and Policies."
Management of CDI and Medallion.
Prior to March 31, 1997, Capital Dimensions Venture Fund, Inc., CDI's
predecessor company, was a wholly owned subsidiary of an entity formerly known
as Capital Dimensions, Inc. ("CD Parent"). Effective March 31, 1997, CD Parent
and Capital Dimensions Venture Fund, Inc. were merged with CDI being the
surviving entity (the "CDI Merger"). Prior to the CDI Merger, management
services were provided to CDI by CD Parent under a Joint Investment Adviser
Management Agreement (the "Management Agreement"). Under the terms of the CDI
Merger, CD Parent's interest in the Management Agreement was assigned to
Capital Dimensions Management Company, Inc. ("CDMC"). This assignment was
approved by CD Parent stockholders. CDMC is owned and operated by Thomas F.
Hunt, Jr., Dean R. Pickerell, Stephen A. Lewis, Mervin Winston and Brenda L.
Leonard, each of whom is also employed by CDMC.
The monthly management fee paid to CDMC by CDI is one-fourth of one percent
(0.25%) of CDI's average monthly assets (the equivalent of 3% per annum), less
the amount of all payroll and payroll-related expenses paid by CDI. Each of the
employees of CDMC is also employed by CDI. Under the terms of the Merger
Agreement, upon consummation of the Merger, the Management Agreement with CDMC
will be terminated.
Medallion is managed by its executive officers under the supervision of its
Board of Directors. In addition, under the terms of a sub-advisory agreement
(the "Sub-Advisory Agreement") with FMC Advisers, Inc. ("FMC"), upon reasonable
request of Medallion's executive officers, FMC consults with management with
respect to strategic decisions concerning originations, credit quality
assurance, development of financial products, leverage, funding, geographic and
product diversification, the repurchase of participations, acquisitions,
regulatory compliance and marketing.
FMC's principal office is located at 190 Dudley Street, Brookline,
Massachusetts 02146. Myron Cohen, Robert Fanger and Michael Miller control FMC,
in their capacities as officers, directors and stockholders of FMC, and provide
advisory services to Medallion on behalf of FMC. They had served as directors
and executive officers of Medallion's predecessor companies until May 1996.
Unless terminated earlier as described below, the Sub-Advisory Agreement will
remain in effect until May 1998. The term will continue from year to year
thereafter, if approved annually by (i) a majority of Medallion 's
noninterested directors and (ii) the Medallion Board of Directors, or by a
majority of Medallion's outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended. On February 25, 1998, the Medallion
Board of Directors voted to extend the Sub-Advisory Agreement with FMC until
May 1999 under provisions for the continuation of the agreement contained in
it. The Sub-Advisory Agreement is terminable without penalty to Medallion on 60
days' written notice by either party or by vote of a majority of the
outstanding voting securities of Medallion, and will terminate if assigned by
FMC.
Under the Sub-Advisory Agreement, Medallion pays FMC a monthly fee, in
arrears, for services rendered of $18,750. Two trusts affiliated with two
officers, directors and shareholders of Medallion (the "Murstein
10
<PAGE>
Trusts") have agreed to personally assure FMC of payment for the first 48
months of service under the Sub-Advisory Agreement pursuant to an escrow
arrangement under which they have maintained in escrow common stock of
Medallion worth 200% of the advisory fees remaining to be paid by Medallion to
FMC during the first 48 months of service under the Sub-Advisory Agreement,
thereby assuring FMC of the payment of $900,000 in advisory fees. In the event
that Medallion or its stockholders terminate or do not renew the Sub-Advisory
Agreement during this period for any reason other than (i) breach of the Sub-
Advisory Agreement by FMC or (ii) FMC's willful malfeasance, bad faith or gross
negligence, the escrow agent will assign to FMC Medallion Common Stock in
escrow equal in value to the amount of the fees payable over the balance of the
48-month period. If the value of the Medallion Common Stock required to be
deposited in escrow is less than the value of the fees payable, FMC will have
no further recourse against the Murstein Trusts. Under the Sub-Advisory
Agreement, FMC will not be liable for any loss suffered by Medallion, except a
loss resulting from FMC's willful malfeasance, bad faith or gross negligence.
Advisory fees incurred by Medallion under the Sub-Advisory Agreement during
the year ended December 31, 1997 were $225,000. Management fees paid by CDI
under the Management Agreement during the fiscal year ended June 30, 1997 were
$190,000.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, holders of CDI Common Stock should carefully consider
the following risk factors.
This Proxy Statement/Prospectus contains forward-looking statements which
involve risks and uncertainties. Medallion's actual results may differ
significantly from the results discussed in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below.
RISK RELATING TO INTEGRATION OF CDI AND MEDALLION
The realization of certain benefits anticipated as a result of the Merger
will depend in part on the integration of CDI's investment portfolio and
specialty finance business with Medallion and the successful inclusion of
CDI's investment portfolio in Medallion's financing operations. The dedication
of management resources to such integration may detract attention from the
day-to-day business of Medallion and there can be no assurance that there will
not be substantial costs associated with the transition process or that there
will not be other material adverse effects as a result of these integration
efforts. There can be no assurance that CDI's business can be operated
profitably or integrated successfully into Medallion's operations. Such
effects could have a material adverse effect on the financial results of
Medallion.
INTEREST RATE SPREAD
While the taxicab medallion loans and commercial installment loans
originated by Medallion in most cases bear interest at fixed rates, Medallion
finances a substantial portion of such loans by incurring indebtedness with
floating interest rates. As a result, Medallion's interest costs have
increased in the past and could increase in the future during periods of
rising interest rates, which may decrease the interest rate spread and thereby
adversely affect Medallion's profitability. Accordingly, Medallion, like most
financial services companies, faces the risk of interest rate fluctuations.
Accordingly, if recent increases in prevailing interest rates lead to a trend
of higher interest rates, Medallion's interest rate spread could decline.
Although Medallion intends to continue to manage its interest rate risk
through asset and liability management, including the use of interest rate
caps, general rises in interest rates will tend to reduce Medallion's interest
rate spread in the short term. In addition, Medallion relies on its
counterparties to perform their obligations under such interest rate caps.
Furthermore, loans made by Medallion typically may be prepaid by the
borrower upon payment of certain prepayment charges. A borrower is likely to
exercise prepayment rights at a time when the interest rate payable on the
borrower's loan is high relative to prevailing interest rates. In such a lower
interest rate environment, Medallion will have difficulty re-lending such
prepaid funds at comparable rates and, therefore, to the extent that
Medallion's cost of funds is not correspondingly reduced, such a decrease in
market interest rates could adversely affect Medallion.
LEVERAGE
Medallion is leveraged as a result of its bank borrowings and long-term,
subordinated SBA debentures. Leverage poses certain risks for holders of
Medallion Common Stock, including possible higher volatility of both the net
asset value of Medallion and the market price of the Medallion Common Stock.
Since interest is paid to Medallion's creditors before any income is
distributed to Medallion's stockholders, fluctuations in the interest payable
to such creditors affect the yield to holders of Medallion Common Stock. In
addition, income earned by Medallion from operations and lending the proceeds
of borrowings must exceed the interest payable with respect to such borrowings
in order for there to be income available for distribution to stockholders.
The high rate of distribution of investment company taxable income required to
maintain Medallion's tax status as a RIC limits the funds that can be retained
in the business to cover periods of loss, provide for future growth and pay
for extraordinary items. In addition, in the event of a liquidation of
Medallion, Medallion's creditors would have claims on Medallion's assets
superior to the claims of the holders of the Medallion Common Stock.
Furthermore,
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<PAGE>
certain amounts could become payable to the SBA in connection with Medallion's
repurchase, at a discount, of preferred stock from the SBA previously issued
by MFC and TCC, which resulted in a realized gain in retained earnings in the
amount of the repurchase discount. Such discount is being accreted to paid-in
capital on a straight-line basis over 60 months; however, if MFC or TCC is
liquidated or loses its SBA license during the accretion period, the SBA would
have a claim for the remaining unaccreted amount attributable to the
subsidiary liquidating or losing its license.
At December 31, 1997, Medallion had approximately $137.8 million outstanding
under credit facilities with bank syndicates aggregating $228 million. Amounts
outstanding under the revolving lines of credit are secured by all of
Medallion's assets and bear interest at the relevant agent bank's prime rate
or, at Medallion's option, a rate based on LIBOR. At December 31, 1997, the
rates of interest on amounts outstanding under the revolving lines of credit
ranged from 6.89% to 8.50%.
At December 31, 1997, Medallion had borrowed $27.9 million under
subordinated SBA debentures that have fixed rates of interest and
substantially all of which have a ten-year term. On April 7, 1997, Medallion
repaid $1.5 million of debentures. The remaining debentures have maturities
ranging from June 1, 1998 to September 1, 2004 and rates of interest varying
from 5.00% to 9.80% per annum.
At December 31, 1997, the weighted average annual rate of interest on all of
Medallion's borrowings was 7.0%. Based upon that rate, Medallion must achieve
annual returns on investments of at least 4.02% to cover annual interest
payments on the bank and subordinated SBA debentures described above. The
following table illustrates the effect of leverage to a stockholder assuming
Medallion's cost of funds at December 31, 1997 as described above and various
annual rates of return, net of expenses. The calculations set forth in the
table are hypothetical and actual returns may be greater or less than those
appearing below:
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed return on investments (net of
expenses)(1).................................. -10% -5% 0% 5% 10%
Corresponding net income to common
stockholders(1)............................... -37.5% -24.2% 10.9% 2.4% 15.7%
</TABLE>
- --------
(1) Assumes (i) $249.8 million in average assets, (ii) an average cost of
funds of 7.0%, (iii) $145.7 million in average debt outstanding and (iv)
$93.9 million of average stockholders' equity.
INDUSTRY AND GEOGRAPHIC CONCENTRATION
Medallion loans collateralized by New York City taxicab medallions and
related assets comprised a substantial portion of Medallion's loan portfolio
at December 31, 1997. According to TLC data, over the past 20 years New York
City taxicab medallions have appreciated in value an average of 10.2% each
year; however, for sustained periods during that time, medallions declined in
value. Most of Medallion's commercial installment loans have been made to
retail dry cleaning and coin operated laundromat businesses in New York City
and a major portion of Medallion's taxicab advertising revenue is derived from
New York City taxicabs. There can be no assurance that Medallion will be able
to diversify geographically its operations or that an economic downturn in New
York City in general, or in the New York City taxicab, retail dry cleaning or
coin operated laundromat industries in particular, would not have an adverse
impact on Medallion. In addition to expanding geographically, Medallion has
expanded its financing operations through its acquisition in October 1997 of
Business Lenders, Inc., a specialty finance company focusing on long-term
loans to active businesses secured by real estate, and intends to continue to
expand its financing operations to include other industries and financial
products and there can be no assurance that management's experience with its
current lending activities will lead to success with such other industries and
products.
RELIANCE ON MANAGEMENT
The success of Medallion is largely dependent upon the efforts of senior
management. The death, incapacity or loss of the services of such individuals
could have an adverse effect on Medallion and there can be no assurance that
other qualified officers could be hired.
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<PAGE>
SUBSTANTIAL INFLUENCE BY EXISTING PRINCIPAL STOCKHOLDERS
After giving effect to the issuance of Medallion Common Stock in connection
with the Merger, two officers who are also directors of Medallion, together
with entities affiliated with them, will beneficially own approximately 18.62%
of the Medallion Common Stock outstanding. Because of their Medallion Common
Stock ownership, these stockholders, if they were to act together, could
influence the election of all members of Medallion's Board of Directors and
determine some corporate actions after the Merger.
RISK RELATING TO INTEGRATION OF RECENT ACQUISITIONS
On October 31, 1997, Medallion acquired certain assets and assumed certain
liabilities of Business Lenders, Inc., a specialty finance company focusing on
long-term loans to active businesses secured by real estate. In addition, on
May 27, 1998, Medallion acquired certain assets and assumed certain
liabilities of VGI, VGII and Venture Opportunities Corp. ("VOC"), three
lenders under common management involved in the financing of taxicab
medallions and laundry and dry cleaning equipment. By their nature, corporate
acquisitions entail certain risks, including those related to undisclosed
liabilities, the entry into new markets and personnel matters. Difficulties
could also arise integrating the acquired operations or managing problems due
to sudden increases in the size of Medallion's loan portfolio. In such
instances, Medallion might be required to modify its operating systems and
procedures, hire additional staff, obtain and integrate new equipment and
complete other tasks appropriate for the assimilation of new and increased
business activities. There can be no assurance that Medallion would be
successful, if and when necessary, in minimizing these inherent risks or in
establishing systems and procedures which will enable it to effectively
achieve its desired results in respect of any such acquisition.
AVAILABILITY OF FUNDS
Medallion has a continuing need for capital to finance its lending
activities. Because Medallion distributes to its stockholders at least 90% of
its investment company taxable income, such earnings are not available to fund
loan originations. Medallion 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 Medallion could have a material adverse effect
on Medallion.
At December 31, 1997, approximately 16.8% of Medallion's $165.6 million of
outstanding indebtedness consisted of subordinated SBA debentures and
Medallion intends to continue to seek to finance a portion of its business
through SBA funding programs. Although Medallion is not aware of any pending
legislation to eliminate the SBA or to restrict or terminate the specific SBA
programs in which Medallion participates, some members of Congress have called
for reform or elimination of various federally funded programs, including
those of the SBA. Discontinuation, elimination or a significant reduction of
or restriction on financing available to Medallion from the SBA would reduce
Medallion's funding alternatives.
Even if the SBA continues to receive funding and its programs are maintained
in their current form, the financing that the SBA makes available to small
business investment companies ("SBICs") will remain limited and many SBICs
will continue to compete with Medallion for the limited funds that are
available. Although Medallion has obtained substantial financing under SBA
programs in the past, there can be no assurance that Medallion will be able to
obtain its desired level of SBA financing in the future.
In addition to limits on the aggregate amount of SBA financing available,
such financing is restricted in its application. The SBA has informed
Medallion that due to the SBA's concerns regarding the concentration of SBIC
loans in the taxicab industry and the availability of private capital to
finance taxicab related businesses, no additional SBA financing will be made
available to certain SBICs for such loans. As a result, Medallion does not
expect to obtain additional SBA financing to originate additional taxicab
medallion loans.
The SBA also restricts the amount of secured bank debt that SBICs with
outstanding SBA financing may incur. As a result, the SBA could preclude TCC
and Edwards from increasing or refinancing their credit facilities.
14
<PAGE>
Combined with limitations on SBA funding, these restrictions on secured bank
debt could restrict further growth of TCC's and Edwards' loan portfolios.
As a result of these SBA limitations, debt financing from all sources is
effectively limited. To eliminate this funding cap, MFC has repurchased all of
its outstanding subordinated SBA debentures and preferred stock and thereby
terminated SBA limitations on the amount of secured bank debt MFC can incur.
Medallion believes that MFC will be able to obtain more funding from banks
than it was able to previously obtain from both the SBA and banks combined
under SBA limitations, and that this will permit MFC to more effectively
expand its operations. Medallion currently intends to merge TCC and Edwards
into MFC during the second quarter of 1998, subject to SBA approval. In
connection with the merger, MFC will assume TCC's and Edwards' SBA debentures.
Ordinarily this would result in the imposition of limitations on the amount of
third party bank debt that MFC could incur. MFC, however, anticipates entering
into an agreement with the SBA permitting MFC to continue to incur an
unlimited amount of third party bank debt, but providing that the SBA
debentures of TCC and Edwards assumed by MFC will be secured by commercial
installment loans on a basis senior to Medallion's third party bank debt.
There can be no assurance that Medallion will be able to enter into such an
agreement with the SBA on terms acceptable to Medallion. If, however,
Medallion is unable to negotiate such an agreement, then it will not merge MFC
with TCC and Edwards.
On March 13, 1998, MFC established a commercial paper program as an
additional source of liquidity. In connection with such program, MFC obtained
two investment grade ratings for its short term borrowings. MFC began issuing
commercial paper on March 16, 1998 and at March 27, 1998 had $24.6 million
outstanding.
COMPETITION
Banks, credit unions and other finance companies, some of which are SBICs,
compete with Medallion in the origination of taxicab medallion loans and
commercial installment loans. Finance subsidiaries of equipment manufacturers
also compete with Medallion. Many of these competitors have greater resources
than Medallion and certain competitors are subject to less restrictive
regulations than Medallion. As a result, there can be no assurance that
Medallion will be able to continue to identify and complete financing
transactions that will permit it to continue to compete successfully.
Medallion's taxicab rooftop advertising business competes with other taxicab
rooftop advertisers as well as all segments of the out-of-home advertising
industry and other types of advertising media, including cable and network
television, radio, newspapers, magazines and direct mail marketing. Many of
these competitors have greater financial resources than Medallion and offer
several forms of advertising as well as production facilities. There can be no
assurance that Medallion will continue to compete with these businesses
successfully.
CREDIT QUALITY
Medallion's loans are not guaranteed by the SBA. Medallion's borrower base
consists primarily of small business owners that have limited resources. There
is generally no publicly available information about such small business
owners, and Medallion must rely on the diligence of its employees and agents
to obtain information in connection with Medallion's credit decisions. In
addition, these small businesses do not have audited financial statements.
Typically, the success of small businesses and their ability to repay
Medallion's loans are dependent upon the management talents and efforts of one
person or a small group of persons, and the death, disability or resignation
of one or more of these persons could have an adverse impact on their
business. Moreover, small businesses may be more vulnerable to economic
downturns and often need substantial additional capital to expand or compete.
Such companies may also experience substantial variations in operating
results. Lending to small businesses therefore involves a high degree of
business and financial risk, which can result in substantial losses and
accordingly should be considered speculative. In addition, expansion of the
portfolio and increases in the proportion of the portfolio consisting of
commercial installment loans could have an adverse impact on the credit
quality of the portfolio.
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<PAGE>
PORTFOLIO VALUATION
Under the 1940 Act, Medallion's loan portfolio must be recorded at fair
market value or "marked to market." Unlike certain lending institutions,
Medallion is not permitted to establish reserves for loan losses, but adjusts
quarterly the valuation of its portfolio to reflect Medallion's estimate of
the current realizable value of the loan portfolio. Since no ready market
exists for this portfolio, fair market value is subject to the good faith
determination of Medallion's management and the approval of Medallion's Board
of Directors. In determining such value, the directors may take into
consideration various factors such as the financial condition of the borrower,
the adequacy of the collateral and interest rates. For example, in a period of
sustained increases in market rates of interest, the Board of Directors could
decrease its valuation of the portfolio because the portfolio consists
primarily of fixed-rate loans. These fair valuation procedures are designed to
approximate the value that would have been established by market forces and
are therefore subject to uncertainties and variations from reported results.
Based on the foregoing criteria, Medallion determines net unrealized
depreciation of investments or the amount by which Medallion's estimate of the
current realizable value of its portfolio is below its cost basis. At December
31, 1997, Medallion's net increase in unrealized depreciation of investments
was approximately $25,000. Based upon current market conditions and current
loan to value ratios, Medallion's Board of Directors believes that its net
unrealized depreciation of investments is adequate to reflect the fair market
value of the portfolio. Because of the subjectivity of these estimates, there
can be no assurance that in the event of a foreclosure or in the sale of
portfolio loans, Medallion would be able to recover the amounts reflected on
its balance sheet. Further, costs associated with foreclosure proceedings,
such as a 5% New York City transfer tax assessed in connection with every
medallion transfer, may reduce Medallion's expected net proceeds.
TAXICAB INDUSTRY REGULATION
Every city in which Medallion 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 Medallion's then outstanding medallion loans, if any, in
that market. Medallion is unable to forecast with any degree of certainty
whether any potential increases in the supply of medallions will occur.
However, in January 1996, the New York City Council passed a law authorizing
the city to sell up to 400 additional taxicab medallions. The first 133 of
such medallions were sold in May 1996 and an additional 133 were sold in
October 1996 with the balance sold in October 1997.
In New York City, and in other markets where Medallion 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 Medallion and could potentially adversely affect the value
of Medallion's collateral.
GOVERNMENT REGULATION OF TOBACCO ADVERTISING
Historically, a substantial portion of Medallion's taxicab rooftop
advertising revenue has been derived from tobacco products advertising. For
the period commencing May 30, 1996 and ending on December 31, 1997,
approximately 57% of Medallion's taxicab rooftop advertising revenue and 7.53%
of Medallion's overall revenue were derived from such advertising. In August
1996, President Clinton signed an executive order adopting rules proposed by
the FDA restricting the sale and advertising of cigarette and smokeless
tobacco products. Portions of these rules, 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 of tobacco products may be unwilling to
advertise in this format. If the FDA is deemed to have requisite authority to
implement such
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<PAGE>
rules, Medallion believes that these restrictions could have a material
adverse effect upon the taxicab rooftop advertising business of Medallion. In
addition, discussions among the tobacco industry, certain state attorneys
general and certain members of Congress could result in a settlement that
includes a ban on all outdoor advertising of tobacco products.
From time to time there have been legislative initiatives requiring
companies that carry tobacco product advertising to also display anti-smoking
messages. In 1994, the U.S. Court of Appeals for the Second Circuit upheld a
district court ruling which prevented the application of a New York City
ordinance requiring, in certain circumstances, that displays carry anti-
smoking messages. There can be no assurance that there will not be further
such initiatives or that they will be nullified by judicial action.
PASS-THROUGH TAX TREATMENT
Risks Associated with Distribution Requirements and Leverage
Medallion, together with the RIC Subsidiaries, has qualified as a RIC under
Subchapter M of the Code. In any year in which these companies so qualify
under Subchapter M, they generally will not be subject to federal income tax
on investment company taxable income (which includes, among other things,
dividends and interest reduced by deductible expenses) distributed to their
stockholders. To so qualify, these companies must meet certain income,
distribution and diversification requirements. However, because these
companies use leverage, they are subject to certain asset coverage ratio
requirements set forth in the 1940 Act. These asset coverage requirements
could, under certain circumstances, prohibit these companies from making
distributions that are necessary to maintain Subchapter M status. In addition,
the asset coverage and distribution requirements impose significant cash flow
management restrictions on Medallion and limit Medallion's ability to retain
earnings to cover periods of negative income, provide for future growth and
pay for extraordinary items, such as the repayment of principal of debt
incurred by Medallion. Qualification as a RIC under Subchapter M is made on an
annual basis and, although Medallion and the RIC Subsidiaries are qualified as
RICs, no assurance can be given that they will each continue to qualify for
such treatment. If these companies were to elect not to be treated as RICs
under Subchapter M, or were to fail to qualify because the 1940 Act asset
coverage requirements or the payment of extraordinary items precluded
distributions necessary to maintain Subchapter M status or for any other
reason, their respective incomes would become fully taxable and a substantial
reduction in the amount of income available for distribution to Medallion and
its stockholders would result.
The Small Business Investment Act of 1958 and regulations thereunder ("SBA
Regulations") restrict distributions by an SBIC. Consequently, an SBIC which
is also a RIC could be prohibited by SBA Regulations from making the
distributions necessary to qualify as a RIC. Under such circumstances, in
order to comply with the SBA Regulations and the RIC distribution
requirements, the applicable SBIC must request and receive a waiver of the
SBA's restrictions. While the current policy of the SBA's Office of SBIC
Operations is to grant such waivers if the SBIC makes certain offsetting
adjustments to its paid-in capital and surplus accounts, there can be no
assurance that this will continue to be the SBA's policy or that the relevant
SBIC will have adequate capital to make the required adjustments. In the
absence of a waiver, compliance with the SBA Regulations may result in loss of
RIC status and a consequent imposition of an entity-level tax.
Risks Associated with Diversification Requirements
Medallion intends to continue to pursue an expansion strategy in its taxicab
rooftop advertising business and believes that there are growth opportunities
in this market. However, the asset diversification requirements under the Code
could restrict such expansion. These requirements provide, in part, that not
more than 25% of the value of a RIC's total assets may be invested in the
securities (other than U.S. Government securities or securities of other RICs)
of any one issuer or two or more issuers controlled by such RIC which are
engaged in similar or related trades or businesses. Unlike Medallion's
investments in the RIC Subsidiaries, which are not subject to this
diversification test so long as these subsidiaries are RICs, Medallion's
investment in Media is subject to this test. The test is initially calculated
at the time the assets are acquired. At the time of the
17
<PAGE>
commencement of Medallion's operations in May 1996, Media represented less
than 25% of Medallion's assets and the diversification test was satisfied.
Subsequent growth of Media, if internally generated, will not retrigger the
test even if Media represents in excess of 25% of Medallion's assets. However,
under the Code, the test must be reapplied in the event that Medallion makes a
subsequent investment in Media, lends to it or acquires another taxicab
rooftop advertising business. If such aggregate asset value represents more
than 25% of Medallion's total assets at that time, Medallion would fail the
diversification test. If that were to occur, Medallion would lose its RIC
status with the consequences described above. Accordingly, Medallion's
maintenance of RIC status could limit Medallion's ability to expand its
taxicab rooftop advertising business. It will be Medallion's policy to expand
its advertising business through internally generated growth and to only
consider an acquisition if, giving effect to the acquisition, the Code's
diversification requirements would be met.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of Medallion's Common Stock, which is quoted on the Nasdaq
National Market, may be subject to significant fluctuations in response to
quarterly fluctuations in Medallion's revenues and financial results and other
factors. For example, the high and low closing prices for Medallion's Common
Stock in the first fiscal quarter of 1998 were $29.875 (on March 25, 1998) and
$18.875 (on January 12, 1998), respectively. The closing sale price of
Medallion Common Stock on June 2, 1998 was $26.00. In particular, the
realization of any of the risks described in these "Risk Factors" could have a
dramatic and adverse impact on such market price.
DEPENDENCE ON CASH FLOW FROM SUBSIDIARIES
Medallion is a holding company and derives most of its operating income and
cash flow from its subsidiaries. As a result, Medallion relies entirely upon
distributions from its subsidiaries to generate the funds necessary to make
dividend payments and other distributions to its stockholders. Funds are
provided to Medallion by its subsidiaries through dividends and payments on
intercompany indebtedness, but there can be no assurance that such
subsidiaries will be in a position to continue to make such dividend or debt
payments.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of Medallion's Certificate of Incorporation
("Certificate") and the Restated By-Laws (the "By-Laws") may have the effect
of discouraging a third party from making an acquisition proposal for
Medallion and thereby inhibit a change in control of Medallion in
circumstances that could give the holders of the Medallion Common Stock the
opportunity to realize a premium over the then prevailing market price of the
Medallion Common Stock. Such provisions may also adversely affect the market
price for the Medallion Common Stock. In addition, the classification of
Medallion's Board of Directors into three classes may have the effect of
delaying a change in control of Medallion.
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<PAGE>
MEDALLION SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected condensed historical
financial data of Medallion. The table is based on and should be read in
conjunction with Medallion's historical financial statements and notes thereto
incorporated by reference in this Proxy Statement/Prospectus. See
"INCORPORATION OF DOCUMENTS BY REFERENCE." This information should be read in
connection with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Medallion's financial statements, including the
notes thereto, and other information included in Medallion's Annual Report on
Form 10-K incorporated by reference herein.
<TABLE>
<CAPTION>
MAY 30 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Investment income................................... $10,412 $23,448
Interest expense.................................... 5,008 9,210
------- -------
Net interest income................................. 5,404 14,238
Equity in earnings (losses) of unconsolidated
subsidiary (1)..................................... (63) 203
Other income........................................ 411 980
Accretion of negative goodwill...................... 421 722
Gain on sale of loans............................... -- 337
Operating expenses.................................. (2,231) (4,797)
Amortization of goodwill............................ (259) (368)
------- -------
Net investment income............................... 3,683 11,315
Realized gain on investments, net................... 84 144
Change in unrealized depreciation of investments
(2)................................................ (46) (25)
------- -------
Net increase in net assets resulting from operations
(3)................................................ $ 3,721 $11,434
======= =======
Net increase in net assets resulting from operations
per share (3)...................................... $ 0.45 $ 1.02
======= =======
Dividends declared per share........................ $ 0.41 $ 0.95
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS)
Investments
Medallion Loans..................................... $134,615 $225,961
Commercial Installment Loans........................ 41,879 62,763
-------- --------
Investments, net of unrealized depreciation of
investments........................................ 176,494 288,724
Total assets........................................ 189,625 310,045
Notes payable and demand notes...................... 96,450 137,750
Subordinated SBA debentures......................... 29,390 27,890
Total liabilities................................... 130,620 176,858
Total stockholders' equity.......................... 56,487 131,392
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA
Return on assets (4)(5)............................. 3.36% 4.81%
Return on equity (5)(6)............................. 11.29 11.13
Average yield, e.o.p. (7)........................... 10.80 10.02
Average cost of funds, e.o.p. (8)................... 7.11 7.16
Spread, e.o.p. (9).................................. 3.69 3.34
Other income ratio (5)(10).......................... 0.40 0.44
Operating expense ratio (5)(11)..................... 2.02 2.02
Medallion Loans as a percentage of investments...... 76.25 78.26
Commercial Installment Loans as a percentage of
investments........................................ 23.75 21.74
Investments to assets............................... 93.08 93.49
Equity to assets.................................... 29.79 42.38
Debt to equity...................................... 222.76 134.60
SBA debt to total debt.............................. 23.36 15.77
</TABLE>
- --------
(1) Equity in earnings (losses) of unconsolidated subsidiary represents the
net income (loss) for the period indicated from Medallion's investment in
Media.
(2) Change in unrealized depreciation of investments represents the (increase)
decrease for the period in the unrealized depreciation applied against
Medallion's investments to state them at fair value.
(3) Net increase in net assets resulting from operations is the sum of net
investment income, net realized gains or losses on investments and the
change in unrealized gains or losses on investments.
(4) Return on assets represents net increase in net assets resulting from
operations, for the period indicated, divided by average assets during the
stated period.
(5) Selected financial ratios have been annualized for the period from May 30,
1996 to December 31, 1996.
(6) Return on equity represents net increase in net assets resulting from
operations, for the period indicated, divided by average stockholders'
equity during the stated period.
(7) Average yield, e.o.p. represents the end of period weighted average
interest rate on investments at the date indicated.
(8) Average cost of funds, e.o.p. represents the end of period weighted
average interest rate on debt at the date indicated.
(9) Spread, e.o.p. represents average yield, e.o.p. less average cost of
funds, e.o.p.
(10) Other income ratio represents other income, for the period indicated,
divided by average investments during the stated period.
(11) Operating expense ratio represents operating expenses, for period
indicated, divided by average assets at during the stated period.
20
<PAGE>
CDI SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected statement of operations and balance sheet data set forth below
as of and for the year ended December 31, 1993, the six months ended June 30,
1993 and for the years ended June 30, 1994, 1995, 1996 and 1997, are derived
from CDI's audited financial statements. The selected statement of operations
and balance sheet data set forth below as of December 31, 1997 and for the six
months ended December 31, 1996 and 1997 are derived from CDI's unaudited
financial statements, but reflect all adjustments (consisting only of normal
recurring entries) which CDI's management has deemed necessary for an accurate
presentation of such data. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and CDI's financial statements, including the notes thereto, and
other financial information included in CDI's Annual Report on Form 10-K
incorporated by reference herein.
<TABLE>
<CAPTION>
AS OF OR AS OF OR FOR AS OF OR FOR AS OF OR FOR
FOR THE THE SIX MOS. THE SIX MOS. THE SIX MOS.
YEAR ENDED ENDED AS OF OR FOR THE YEAR ENDED JUNE 30, ENDED ENDED
DECEMBER 31, JUNE 30,(1) --------------------------------------------- DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1997 1996 1997
------------ ------------ ---------- ---------- ---------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Interest income........ $ 855 $ 460 $ 1,109 $ 1,304 $ 1,573 $ 2,478 $ 1,022 $ 945
Operating expenses:
Interest expense...... 209 130 278 243 251 519 176 502
General and
administrative
expense.............. 472 263 526 523 630 861 437 619
Other operating
expenses............. 26 67 90 48 51 116 16 268
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses.............. 707 460 894 813 932 1,496 629 1,389
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net operating income... 148 0 215 490 641 982 393 (444)
Gains (losses) on
investments in small
business concerns:
Realized.............. 414 (4) 1,278 3,663 508 (34) 119 87
Unrealized............ 782 647 (2,288) (1,153) 1,423 1,848 18 124
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes (2)...... 1,704 643 (795) 3,001 2,571 2,796 530 (233)
Income taxes........... 2 533 372 1,149 217 --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...... 1,702 643 (795) 2,468 2,199 1,647 313 (233)
Dividends on preferred
stock to SBA paid or
restricted............ 300 30 120 120 120 56 60 --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss)
applicable to common
stock................. $ 1,402 $ 613 $ (915) $ 2,348 $ 2,079 $ 1,591 253 (233)
========== ========== ========== ========== ========== ========== ========== ==========
Diluted Earnings per
common and common
equivalent share (3).. $ .78 $ .31 $ (.50) $ 1.18 $ 1.09 $ 0.87 $ 0.15 $ (0.14)
========== ========== ========== ========== ========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding
(3)................... 1,802,000 1,963,000 1,824,000 1,984,000 1,912,000 1,834,402 1,732,000 1,720,000
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
AS OF OR AS OF OR FOR AS OF OR FOR
FOR THE THE SIX MOS. THE SIX MOS.
YEAR ENDED ENDED AS OF OR FOR THE YEAR ENDED JUNE 30, ENDED
DECEMBER 31, JUNE 30,(1) ---------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1997 1997
------------ ------------ --------- --------- --------- --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investments at cost..... $15,474 $15,442 $ 16,083 $ 15,200 $ 17,513 $ 22,074 $21,807
Unrealized appreciation
(depreciation) on
investments, Net....... 2,121 2,769 480 (672) 750 2,598 2,723
------- ------- --------- --------- --------- --------- -------
Investments at estimated
fair value............. 17,594 18,211 16,563 14,528 18,263 24,672 24,530
Cash and cash
equivalents............ 1,145 1,254 1,667 5,975 3,878 4,834 4,137
Total assets............ 19,090 19,727 18,544 21,090 23,360 30,288 29,849
SBA financing........... 3,000 3,476 3,070 2,632 4,168 12,154 11,986
Total liabilities....... 4,067 3,508 3,120 3,197 4,563 12,866 12,505
Redeemable Preferred
Stock.................. 0 3,030 3,150 3,270 3,010 -- --
Total stockholders'
equity................. $15,023 $13,189 $ 12,274 $ 14,263 $ 15,787 $ 17,423 $17,344
Other Selected Data:
Number of portfolio
companies at period
end.................... 29 27 22 18 17 17 19
Number of new portfolio
companies.............. 3 -- 5 -- 5 3 4
New advances to
portfolio companies.... $ 2,470 $ 286 $ 1,281 $ 934 $ 6,539 $ 4,586 $ 1,750
Proceeds from
liquidation of
investments............ 562 381 2,276 3,760 3,896 898 1,292
Estimated fair value of
investment portfolio at
period end............. $17,594 $18,211 $ 16,563 $ 14,528 $ 18,263 $ 24,672 $24,530
------- ------- --------- --------- --------- --------- -------
</TABLE>
- --------
(1) In 1993, CDI changed its fiscal year end from December 31 to June 30,
resulting in a six-month transition period.
(2) During the year ended December 31, 1992 CDI had negative goodwill
amortization of $359,573, which related to the purchase of CDI in 1987 and
was fully amortized by December 31, 1992.
(3) CDI's Board of Directors approved a 3-for-1 stock split in the form of a
200% dividend effective May 31, 1997 to shareholders of record on the
date. All share and per share amounts have been restated to reflect this
stock split.
22
<PAGE>
THE CDI SPECIAL MEETING
PURPOSE OF THE CDI SPECIAL MEETING
At the CDI Special Meeting, holders of CDI Common Stock will consider and
vote upon a proposal to approve and adopt the Merger Agreement and such other
matters as may properly be brought before the CDI Special Meeting.
THE BOARD OF DIRECTORS OF CDI HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Voting Information
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of CDI for the Special
Meeting. The cost of the solicitation of proxies will be borne by CDI. CDI
will pay brokers, nominees, fiduciaries, or other custodians their reasonable
expenses for sending proxy material to, and obtaining information from,
persons for whom they hold stock of CDI. CDI expects the solicitation of
proxies will be primarily by mail, but directors, officers and other employees
of CDI may also solicit in person, by telephone, or by mail.
Only shareholders of record at the close of business on June 1, 1998 (the
"CDI Record Date"), will be entitled to vote at the Special Meeting. The total
number of shares of stock outstanding and entitled to vote at the meeting as
of the CDI Record Date consisted of 1,737,438 shares of CDI Common Stock. Each
share of CDI Common Stock is entitled to one vote.
If the accompanying proxy is executed and returned in time for the Special
Meeting, the shares covered thereby will be voted in accordance with the
instructions thereon. Any proxy may be revoked at any time before it is voted
by written notice, mailed or delivered to the Secretary of CDI, or by
revocation of a written proxy by request in person at the Special Meeting; but
if not so revoked, the shares represented by such proxy will be voted in the
manner directed by the shareholder. If no direction is made, proxies received
from shareholders will be voted "for" the proposal set forth in the Notice of
Meeting.
SHAREHOLDER AND BOARD APPROVALS
The Merger Agreement is being submitted at the Special Meeting for approval
by the shareholders of CDI. The approval of a majority of the outstanding
shares of CDI is required for the approval of the Merger Agreement.
Abstentions will have the same effect as casting a vote against the Merger
Agreement. The vote of the shareholders of Medallion is not being solicited
because their approval or consent is not required for the Merger to be
consummated.
Pursuant to the Voting Agreements, certain shareholders of CDI have agreed
to vote such shareholders' shares of CDI Common Stock Date in favor of the
Merger (786,753 shares of CDI Common Stock, representing approximately 45.3%
of the outstanding CDI Common Stock as of the CDI Record Date).
23
<PAGE>
On April 1, 1998, the name, address, and share ownership of persons who
beneficially owned 5% or more of the outstanding shares and the members of the
Board of Directors of CDI, and the percentage of shares of Medallion Common
Stock that would be owned by such persons upon consummation of the Merger
based upon their holdings and outstanding shares at April 1, 1998 are as
follows:
<TABLE>
<CAPTION>
SHARE OWNERSHIP OF SHARE OWNERSHIP OF SHARE OWNERSHIP OF
NAME AND ADDRESS CDI(1) CDI BEFORE MERGER MEDALLION AFTER MERGER
- ---------------- ------------------ ------------------ ----------------------
<S> <C> <C> <C>
Thomas F. Hunt, Jr.(2).. 474,203 25.0% 2.0%
555 East 215th
Jordan, MN
Dean R. Pickerell....... 416,550 22.0% 1.8%
15120 Evelyn Lane
Minnetonka, MN 55345
Martin J. Kanter........ 45,000 2.4% *
6624 Dovre Drive
Edina, MN 55436
Dale C. Showers(3)...... 39,000 2.1% *
903 Coventry Place
Edina, MN 55435
Katie G. Pearson........ 6,000 * *
7321 Mariner Drive
Maple Grove, MN 55311
All Officers and
Directors as a Group
(8 persons)............ 1,083,425 57.2% 4.6%
</TABLE>
- --------
*Less than 1%.
(1) Includes the following numbers of shares of CDI Common Stock which may be
issued pursuant to stock options that are exercisable within 60 days of
April 1, 1998 and which will be converted into options covering Medallion
Common Stock: Mr. Hunt, 48,000 shares; Mr. Pickerell, 48,000 shares; and
all directors and officers as a group, 144,000 shares.
(2) Includes 8,000 shares held in trust for Mrs. Hunt by her father of which
Mr. Hunt disclaims beneficial ownership.
(3) Mr. Showers disclaims beneficial ownership with respect to 3,000 shares
owned by his son Thomas Showers.
QUORUM AND ADJOURNMENTS
Under Minnesota law, a quorum is constituted by the presence in person or by
proxy of the holders of more than 50% of the outstanding shares of CDI.
However, if the shares present and entitled to vote on that item of business
would not constitute a quorum for the transaction of business at the meeting,
then the item must be approved by a majority of the voting power of the
minimum number of shares that would constitute such a quorum. Votes cast by
proxy or in person at the Special Meeting will be tabulated by the election
inspectors appointed for the meeting and will determine whether or not a
quorum is present. Proxies properly executed and marked with a negative vote
or an abstention, or broker non-votes, will be considered to be present at the
Special Meeting for the purposes of determining the existence of a quorum for
the transaction of business. Broker non-votes exist where a broker proxy
indicates that the broker is not authorized to vote on a particular proposal.
In the event that a quorum is not present at the Special Meeting, or in the
event that a quorum is present at the Special Meeting but sufficient votes to
approve the Merger Agreement are not received, the persons named as proxies
may propose one or more adjournments of the Special Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative
vote of a majority of those shares affected by the adjournment that are
represented at the Special Meeting in person or by proxy. If a quorum is
present, the persons
24
<PAGE>
named as proxies will vote those proxies that they are entitled to vote FOR
the Merger Agreement in favor of such adjournments, and will vote those
proxies required to be voted AGAINST such proposal against any adjournment.
DISSENTERS' RIGHTS OF APPRAISAL
Under the Minnesota Business Corporation Act ("MBCA"), the holders of CDI
Common Stock are entitled to certain dissenters' appraisal rights with respect
to the Merger. Medallion shall not be obligated to consummate the Merger if
the number of shares of CDI Common Stock for which written demand for payment
has been made pursuant to the Minnesota Dissenters' Right Statute (as defined)
exceeds 1% in the aggregate of the total number of CDI Common Stock
outstanding immediately before the Effective Time. The following is a summary
of the rights of CDI Shareholders who dissent from the Merger. It does not
purport to be complete and is qualified in its entirety by reference to
Sections 302A.471 and 302A.473 of the MBCA (the "Minnesota Dissenters' Rights
Statute," a copy of which is attached as Appendix B hereto).
Minnesota Dissenters' Rights Statute. Under the MBCA, CDI Shareholders have
the right to dissent from the Merger and, subject to certain conditions
provided for under Minnesota law, are entitled to receive payment of the fair
value of their Common Stock. CDI Shareholders will be bound by the terms of
the Merger unless they dissent by complying with all of the requirements of
the Minnesota Dissenters' Rights Statute. Any CDI Shareholder contemplating
exercising the right to demand such payment should carefully review the
Minnesota Dissenters' Rights Statute, a copy of which is included as Appendix
B to this Proxy Statement/Prospectus, and in particular the procedural steps.
A CDI SHAREHOLDER WHO FAILS TO COMPLY WITH THESE PROCEDURAL REQUIREMENTS MAY
LOSE THE RIGHT TO DISSENT.
Set forth below, to be read in conjunction with the full text of the
Minnesota Dissenters' Rights Statute, is a summary of the procedures relating
to the exercise of dissenters' rights by CDI Shareholders.
Any CDI Shareholder who wishes to dissent must deliver to CDI, prior to the
vote on the Merger Agreement, a written notice of intent to demand payment for
such Shareholder's shares if the Merger is effectuated. In addition, such
Shareholder must not vote their shares of CDI Common Stock in favor of the
Merger. A CDI Shareholder who fails to deliver the notice on time or who votes
in favor of the Merger Agreement will not have any dissenters' rights. IF A
CDI SHAREHOLDER RETURNS A SIGNED PROXY BUT DOES NOT SPECIFY A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT OR A DIRECTION TO ABSTAIN, THE PROXY WILL BE
VOTED FOR APPROVAL OF THE MERGER AGREEMENT, WHICH WILL HAVE THE EFFECT OF
WAIVING SUCH SHAREHOLDERS' DISSENTERS' RIGHTS.
If the Merger Agreement is approved by CDI Shareholders, CDI is required to
deliver a written dissenters' notice to all CDI Shareholders who gave timely
notice of intent to demand payment and who did not vote in favor of the Merger
Agreement. The notice must (i) state where the payment demand and certificates
of certificated shares must be sent in order to obtain payment and the date by
which they must be received; (ii) inform Shareholders of uncertificated shares
to what extent transfer of the shares will be restricted after the payment
demand is received; (iii) supply a form for demanding payment and requiring
the dissenting Shareholder to certify the date on which such Shareholder
acquired the shares of CDI Common Stock; and (iv) be accompanied by a copy of
the Minnesota Dissenters' Rights Statute.
A Shareholder who is sent the dissenters' notice described above must demand
payment, deposit such Shareholder's certificates of CDI Common Stock and
complete other information as required by such notice. A Shareholder who
demands payment and deposits their certificates of CDI Common Stock as
requested by the dissenters' notice retains all other rights of a CDI
Shareholder until such rights are canceled by the consummation of the Merger.
CDI may restrict the transfer of uncertificated shares from the date of the
demand for payment until the Merger is consummated; however, the holder of
uncertificated shares retains all other rights of a Shareholder until those
rights are canceled by the consummation of the Merger.
Except for shares of CDI Common Stock acquired by a dissenter after the date
of the first announcement to the public of the Merger, upon the consummation
of the Merger or upon receipt of the payment demand
25
<PAGE>
(whichever is later), CDI must pay each dissenter who complies with the
foregoing requirements the amount CDI estimates to be the fair value of the
dissenter's shares of CDI Common Stock plus accrued interest. The payment must
be accompanied by certain financial information concerning CDI, a statement of
CDI's estimate of the fair value of the shares, an explanation of the method
used to reach the estimate, a brief description of the procedure to be
followed to demand supplemental payment and a copy of the Minnesota
Dissenters' Rights Statute.
A dissenter may notify CDI in writing of the dissenter's own estimate of the
fair value of the dissenter's shares and the amount of interest due, if
different from CDI's estimate, and may demand payment of the dissenter's
estimate, by following the procedures set forth in the Minnesota Dissenters'
Rights Statute.
Any CDI Shareholder contemplating the exercise of dissenters' rights is
urged to review the full text of the Minnesota Dissenters' Rights Statute.
OTHER BUSINESS
The Board of Directors of CDI knows of no other business to be brought
before the Special Meeting. If any other matters come before the Meeting,
proxies that do not contain specific restrictions to the contrary will be
voted on such matters in accordance with the judgment of the persons named as
proxies.
THE MERGER
The following description of the Merger and the Merger Agreement is a
summary and is qualified by reference to the Merger Agreement, a copy of which
is attached to this Proxy Statement/Prospectus as Appendix A and incorporated
herein by reference. Stockholders of CDI and Medallion are urged to read the
Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
approval of the CDI shareholders required therefor is obtained and all other
conditions to the Merger are satisfied or waived. Upon consummation of the
Merger, Sub will be merged with and into CDI, and CDI will become a wholly
owned subsidiary of Medallion.
Upon consummation of the Merger, each outstanding share of CDI Common Stock
(other than shares owned by CDI or its subsidiaries, all of which will be
canceled) will be automatically converted (subject to certain provisions
described herein with respect to fractional shares) into and represent that
number of shares of Medallion Common Stock equal to the quotient obtained by
dividing (to five places after the decimal point) (x) $15.50 by (y) the
average closing sale prices per share of Medallion Common Stock on the Nasdaq
National Market for the 20 trading days which immediately precede the business
day immediately preceding the Closing Date, provided, however, that if such
average exceeds $26.00, the divisor shall be $26.00, and if such average is
less than $23.50, the divisor shall be $23.50. Cash will be paid in lieu of
fractional shares.
Based upon the capitalization of CDI and Medallion as of the CDI Record
Date, the shareholders of CDI will own in the aggregate approximately 7.39% of
the outstanding Medallion Common Stock following consummation of the Merger
assuming that the divisor in the Exchange Ratio is $26.00. Such percentage
could change depending on fluctuations in the trading prices of Medallion
Common Stock and the number of shares of Medallion Common Stock and CDI Common
Stock issued upon exercise of outstanding CDI and Medallion stock options.
CLOSING DATE
The Closing Date of the Merger will occur upon the filing of a Certificate
of Merger with the Secretary of State of the State of Delaware and the
Articles of Merger with the Secretary of State of the State of Minnesota
26
<PAGE>
(collectively, the "Certificates of Merger") or at such later date as is
specified on such certificate. The filing of the Certificates of Merger will
occur as soon as practicable after the satisfaction of the conditions set
forth in the Merger Agreement. The Merger Agreement may be terminated by
either party if the Merger has not been consummated on or before June 30, 1998
and under certain other conditions. See "The Merger Agreement--Conditions" and
"--Termination; Fees and Expenses."
BACKGROUND OF THE MERGER; REASONS FOR THE MERGER
During 1996, CDI's management recognized three problems that needed to be
addressed in the near term: (i) CDI's tax status; (ii) shareholder liquidity;
and (iii) the need for additional investment capital.
CDI acquired certain tax benefits upon the purchase of the business from
Control Data Corporation in December 1987. Additional tax benefits resulted
from losses realized by CDI between 1987 and 1994. By 1996, however, CDI had
applied its tax losses and was paying corporate income taxes under Sub-Chapter
C of the Code. As a result of the increased tax expense, management began to
explore ways for CDI to elect to become a "pass through" tax entity. There
were four alternatives available: (i) converting to a limited partnership;
(ii) converting to a limited liability company; (iii) converting to a
Subchapter S Corporation, or (iv) electing to be treated as a RIC and
qualifying to be taxed under Subchapter M under the Code. After a careful
consultation with and review by CDI's tax advisors, CDI's management
determined to become a RIC and qualify to be taxed under Subchapter M.
During 1996 CDI management also attempted to develop some type of liquidity
for CDI's shareholders, many of whom had held CDI Common Stock since 1987. By
1996, liquidity was limited to a small number of private transactions and
redemption of 275,562 shares of CDI Common Stock by CDI throughout fiscal year
1996. It became evident to CDI management that neither method of achieving
liquidity would provide shareholders with long-term liquidity or maximum
return on investment.
CDI's management was also concerned by the lack of capital available for
investing. Historically, the investments available to CDI were greater than
the capital resources at CDI management's disposal. CDI management estimated
that CDI could invest two or three times its $30 million capital base.
As a result of management's analysis of the tax, liquidity and capital
issues, CDI management decided to approach investment bankers regarding an
initial public offering. In December 1996, CDI's management approached an
investment banking firm about underwriting an initial public offering. After
several planning meetings, and based upon advice of that investment banking
firm, CDI elected to file a Form 10 to become a reporting company under the
Securities Exchange Act of 1934 and to attempt to raise $20 million of new
equity in a private placement as a precursor to a larger initial public
offering. The Form 10 was filed on June 19, 1997, and as a result, CDI was
subsequently qualified as a RIC. A private placement memorandum was completed
on August 8, 1997 and marketing effort was commenced.
On September 5, 1997, discussions began with a group of investors referred
by the investment banking firm who were interested in funding the private
placement. These discussions led to a meeting in Orlando, Florida on September
19, 1997, where CDI made a presentation to two of the three principals of the
group. At the end of September, the group offered to invest $10 million of
equity in CDI at $12.00 per share with an equal number of warrants also priced
at $12.00, and to lend or arrange for CDI to borrow $10 million with warrant
coverage for $5 million of the loan at $12.00 per share. CDI rejected the
offer as insufficient and made a counteroffer based on $15.00 per share with
no warrant coverage. Negotiations with this group then ceased until December
1997.
In October 1997 Medallion became aware, through one of CDI's shareholders,
that CDI was trying to raise capital. On October 31, 1997, Andrew Murstein,
President of Medallion, contacted Thomas Hunt, the President of CDI, and
stated his intention to make a proposal to CDI. This conversation was followed
by a letter, wherein Medallion offered to purchase CDI in a stock for stock
transaction. The significant terms of the offer were: (i) a stock for stock
merger qualifying for "pooling of interests" accounting treatment; (ii)
registered securities for
27
<PAGE>
CDI shareholders which would create immediate liquidity after the merger;
(iii) CDI shares would be priced at $14.00 per share; (iv) CDI's management
would enter into employment and non-compete agreements; (v) Medallion would
invest additional equity and debt in CDI; and (vi) an alternative pricing
mechanism based upon CDI's performance over three years.
As a result of Medallion's offer, a meeting between Andrew Murstein and
CDI's management was set for November 14, 1997 in Minneapolis, Minnesota, to
further discuss the issues relating to a merger. At the November 14 meeting,
the offer was discussed in detail and synergies that might be expected from a
merger were explored. CDI rejected the $14.00 price as insufficient and
Medallion indicated a willingness to be flexible on the price.
On November 21, 1997, Medallion presented CDI's management a revised offer
letter, the material terms of which included CDI share price of $14.92 and six
year employment and non-compete agreements for Thomas Hunt, Dean Pickerell and
Stephen Lewis at their existing pay levels.
On December 5, 1997, CDI sent Medallion a counter proposal, which included:
(i) CDI stock priced at $16.00 per share; (ii) three year employment
agreements for Thomas Hunt, Dean Pickerell and Stephen Lewis at their current
compensation as set forth in CDI's proxy statement (which included salary,
bonus, retirement and taxable benefits) with an additional three years at the
option of Medallion; and (iii) one year non-competes. On December 16, 1997,
Medallion prepared a counter offer which later became the basis for the Merger
Agreement. The pertinent provisions were: (i) CDI share price of $15.50; (ii)
pooling accounting treatment; (iii) three year employment agreements for
Thomas Hunt, Dean Pickerell and Stephen Lewis (with Medallion having the
option to extend the agreements an additional three years) at salary levels
stated in CDI's proxy statement; (iv) non-compete agreements for the remaining
term of any employment agreement provided that if termination was without
cause, there would be a payment for the non-compete; and (v) 119,786 options
to be issued to CDI employees, priced at the market price at the time of issue
and vesting over six years.
In early December 1997, the group referred by the investment banker made
contact once again with CDI and restated its interest in funding the private
placement. On December 17, 1997, a meeting was held where the group made its
final proposal to invest in CDI under the private placement memorandum at a
price of $13.00 per share, which the parties anticipated would lead to a
higher initial public offering price at a later date. At a meeting of CDI's
Board of Directors on January 8, 1998, CDI's Board discussed each offer and,
after weighing the relative merits, decided to give priority to negotiating
with Medallion based upon (i) the higher price; (ii) immediate liquidity for
CDI shareholders; and (iii) the uncertainty of the market and earnings
multiples in a future initial public offering.
Based upon the terms contained in the December 16, 1997 offer from
Medallion, the CDI Board directed management to prepare a merger agreement.
During January 1998, CDI's investment bankers gave CDI an update on progress
in marketing the private placement. Because of the lack of success in finding
investors interested in the private placement, CDI's investment bankers
recommended that CDI proceed with the Merger. In a teleconference between CDI
and Medallion on February 18, 1998, the parties agreed to establish a "collar"
on the price of the Medallion Common Stock for purposes of the Merger.
Agreement was reached to establish the Medallion Common Stock pricing range
for purposes of the Merger at $23.50 to $26.00.
CDI's Board approved the Merger after determining that it was in the best
interests of CDI's shareholders because: (i) the $15.50 per share price
represented a substantial premium over CDI's book value; (ii) CDI's
shareholders would get immediate liquidity; (iii) Medallion's favorable
dividend policy; (iv) Medallion's and its subsidiaries' investment portfolios
gave more diversity to CDI shareholders' holdings; (v) the Merger was a tax-
free reorganization; (vi) Medallion could qualify CDI as a pass-through tax
entity under subchapter M; and (vii) the difficulty in completing the private
placement at a comparable price and in a timely fashion. CDI's Board also took
into account the negative attributes of the Merger, notably the loss of
independence for CDI and the
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potential for a substantially higher price in an initial public offering at a
later date. After considering the several factors described above, CDI's Board
of Directors approved the Merger on February 25, 1998, and the Merger
Agreement was executed on March 6, 1998.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CDI
The CDI Board of Directors believes that the terms of the Merger are fair
to, and in the best interests of, CDI and the CDI shareholders and has
unanimously approved the Merger Agreement and the related transactions.
THE CDI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF CDI
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of CDI with
respect to the Merger, holders of CDI Common Stock should be aware that
certain members of CDI's management, some of whom are or were members of the
CDI Board of Directors have certain interests in the Merger, in addition to
those of the shareholders generally. The Board of Directors of CDI was aware
of these interests when it considered and approved the Merger and the Merger
Agreement.
Upon consummation of the Merger, Messrs. Thomas F. Hunt, Jr., Dean R.
Pickerell and Stephen A. Lewis will each enter into employment agreements with
CDI (collectively, the "Employment Agreements"). The Employment Agreements
each have an initial term of three years and may be extended an additional
three years at Medallion's option.
Each of Messrs. Hunt, Pickerell and Lewis will be subject to a non-
competition clause in favor of Medallion and its subsidiaries for the duration
of the term of the Employment Agreements, which provision shall remain
effective in the event of any termination of employment. In the event that
Messrs. Hunt, Pickerell or Lewis are terminated without cause (as such term is
defined in the Employment Agreements), however, CDI will remain obligated to
pay the base salary stated in their respective Employment Agreement for the
term of the non-competition provision.
Mr. Hunt will be employed as the President of CDI at an initial annual base
salary of $220,000.
Mr. Pickerell will be employed as the Executive Vice President of CDI at an
initial annual base salary of $210,000.
Mr. Lewis will be employed as a Vice President of CDI at an initial annual
base salary of $180,000.
In addition to their respective annual base salary, Messrs. Hunt, Pickerell
and Lewis will each receive $1,000 per month car allowance and be eligible for
all health, dental, retirement and other benefits made available to Medallion
employees.
Pursuant to the Merger Agreement, following consummation of the Merger,
Medallion will, or will cause CDI to, honor in accordance with their terms,
all employment, severance and similar agreements to which CDI or any of its
subsidiaries is a party and all provisions for vested benefits or other vested
amounts earned or accrued through the Closing Date under CDI's benefit plans.
See "--Terms of the Merger."
Medallion will indemnify and hold harmless directors, officers, and agents
of CDI as provided in CDI's Certificate of Incorporation or By-laws, in effect
on the date of the Merger Agreement with respect to matters commencing on the
Closing Date, for a period of six years from the Closing Date.
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THE MERGER AGREEMENT
Terms of the Merger
At the Closing Date:
(i) each share of CDI Common Stock held by CDI or any subsidiary of CDI
on the Closing Date will be canceled, and no payment will be made with
respect thereto;
(ii) each remaining outstanding share of CDI Common Stock will be
converted into that number of shares of Medallion Common Stock determined
by the Exchange Ratio, assuming a value of $15.50 per share of CDI Common
Stock with cash in lieu of fractional shares; and
(iii) each issued and outstanding share of the capital stock of Merger
Sub will be converted into and represent one fully paid and nonassessable
share of common stock, par value $0.01 per share, of the Surviving
Corporation.
As of the Closing Date, present holders of CDI Common Stock will cease to
have any rights as holders of such shares, but will have the rights of holders
of Medallion Common Stock. After the Closing Date, the stock transfer books of
CDI will be closed and there will be no further transfers of CDI Common Stock.
As soon as practicable after the Effective Time and subject to the approval
of Medallion's stockholders, all options (the "CDI Options") outstanding as of
the Closing Date under any CDI stock option plan (collectively, the "CDI Stock
Option Plans"), whether or not then exercisable, will be assumed by Medallion
and converted into and become a right with respect to Medallion Common Stock
to the extent permissible under the Code. Each CDI Option assumed by Medallion
will be exercisable upon the same terms and conditions as under the applicable
CDI Stock Option Plans and applicable option agreements issued thereunder, and
Medallion will assume the CDI Stock Option Plans for such purposes. Pursuant
to the Merger Agreement, from and after the Closing Date, each CDI Option
assumed by Medallion may be exercised solely for Medallion Common Stock, based
on the Exchange Ratio, with a proportional adjustment of the exercise price of
the new option so that the excess of the aggregate fair market value of the
shares subject to each new option immediately after such conversion over the
aggregate exercise price of such new option is equivalent to the excess of the
fair market value of the shares subject to the CDI Stock Option Plans
immediately before such conversion over the aggregate exercise price of such
CDI Stock Option Plans, as required by Section 424(a)(1) of the Code. No CDI
Options will be accelerated by reason of the Merger unless the agreement or
arrangement under which it was granted or by which it is otherwise governed
specifically provides for such acceleration.
Representations and Warranties
The Merger Agreement contains various representations and warranties
relating to, among other things: (a) the due organization, power and standing
of CDI and Medallion and similar corporate matters; (b) the capital structure
of CDI and Medallion; (c) subsidiaries of CDI and Medallion; (d) the
authorization, execution, delivery and enforceability of the Merger Agreement;
(e) conflicts under charters or bylaws, violations of any instruments or law
and required consents or approvals; (f) certain documents filed by each of CDI
and Medallion with the Commission and the accuracy of information contained
therein; (g) the absence of certain changes; (h) CDI's investment portfolio;
(i) CDI's intellectual property; (j) litigation; (k) retirement and other
employee benefit plans of CDI; (l) employee matters involving CDI; (m)
corporate action approving the Merger Agreement; (n) brokers' and finders'
fees with respect to the Merger; (o) compliance with applicable laws; (p)
material liabilities; (q) taxes and tax returns of CDI; (r) material
agreements and contracts; (s) absence of material adverse changes and (t)
accounting matters.
Certain Covenants
CDI has agreed, among other things, prior to the consummation of the Merger,
unless Medallion agrees in writing or as otherwise required or permitted by
the Merger Agreement, to conduct its operations according to its usual,
regular and ordinary course in substantially the same manner as theretofore
conducted and to promptly
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notify Medallion of any action, change or event that has had, or could
reasonably be expected to have, a material adverse effect on the business,
properties, assets, prospects, condition (financial or otherwise), liabilities
or results of operations of CDI and its subsidiaries taken as a whole. In
addition, CDI has agreed that, among other things, prior to the consummation
of the Merger, unless Medallion agrees in writing or as otherwise required or
permitted by the Merger Agreement, it shall not (and shall cause its
subsidiaries not to) (i) amend its certificate of incorporation or bylaws,
(ii) issue any shares of capital stock, effect any stock split or otherwise
change its capitalization, (iii) grant, confer or award any option, warrant,
conversion right or other right to acquire shares of its capital stock, under
its 1997 Stock Option Plan or otherwise, (iv) increase any compensation or
enter into or amend any employment agreement with any of its present or future
officers, directors or employees, except in accordance with pre-existing
contractual provisions and except for annual increases consistent with past
practice, (v) adopt any new employee benefit plan or amend any existing
employee benefit plan, (vi) declare or pay any dividend to its shareholders or
make any other payment on its capital stock, or (vii) acquire or dispose of
any of its assets, subject to certain exceptions.
Each of CDI and Medallion has agreed that, among other things, unless the
other party agrees in writing or as otherwise required or permitted by the
Merger Agreement, it shall not nor shall it permit any of its subsidiaries to
take or cause to be taken any action, whether before or after the Closing
Date, which would disqualify the Merger as a pooling of interests for
accounting purposes or as a tax-free reorganization.
No Shopping
CDI has agreed that it will not, directly or indirectly, initiate, solicit
or knowingly encourage, (including by way of furnishing information) inquiries
or submission of proposals or offers from any person relating to any sale of
all or any portion of the assets, business, properties of, or any equity
interest in, CDI or any business combination with CDI, whether by merger,
consolidation, purchase of assets, tender offer, recapitalization,
liquidation, dissolution or otherwise or any other transaction, the
consummation of which would or could impede, interfere with, prevent or
materially delay the Merger (each, an "Acquisition Proposal"). CDI has also
agreed to notify Medallion immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations
or discussions are sought to be initiated or continued with it, provided that
the Board of Directors of CDI may (i) furnish information to, or enter into
discussions or negotiations with, any person or entity that makes or proposes
to make an unsolicited bona fide proposal to acquire CDI pursuant to a merger,
consolidation, share exchange, business combination, purchase of a substantial
portion of its assets or other similar transaction, if, and only to the extent
that, (a) the Board of Directors of CDI is advised by its legal counsel that
such action is required for the Board of Directors to comply with its
fiduciary duties to shareholders imposed by law, and (b) CDI promptly notifies
Medallion if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, CDI or, to the knowledge of the CDI,
any of CDI's shareholders, and (iii) CDI furnishes to Medallion copies of any
such proposal prior to taking any action described in (i) above.
Indemnification
As provided in the Merger Agreement, Medallion has agreed that all rights to
indemnification existing in favor of the directors, officers or employees of
CDI as provided in CDI's Articles of Incorporation or Bylaws, with respect to
matters commencing on the Closing Date, shall survive the Merger and continue
in full force and effect for a period of not less than six years from the
Closing Date.
Conditions
The respective obligations of CDI and Medallion to consummate the Merger are
subject to the fulfillment of the following conditions, among others: (a) the
written demand for payment pursuant to the Minnesota Dissenters' Rights
Statute shall not have exceeded 1% in the aggregate, of the total number of
shares of CDI Common Stock outstanding immediately before the Closing Date,
(b) the Merger Agreement and the transactions contemplated thereby shall have
been approved and adopted by the requisite vote of the holders of the issued
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and outstanding shares of capital stock of CDI entitled to vote thereon; (c)
the Registration Statement shall have become effective under the Securities
Act and no stop order with respect thereto shall be in effect; (d) none of the
parties to the Merger Agreement shall be subject to any order or injunction
against the consummation of the transactions contemplated by the Merger
Agreement; (e) all consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of the Merger Agreement, including SBA approval, shall have been
obtained or made, and (f) the Medallion Common Stock to be issued to CDI
shareholders in connection with the Merger shall have been approved for
listing on the Nasdaq National Market, subject to official notice of issuance.
The obligations of each of CDI and Medallion to effect the Merger are also
subject to the satisfaction or, in the case of (a) and (e) below, waiver by
the other party prior to the Closing Date of the following conditions, among
others: (a) the other party shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement and the
representations and warranties of the other party and its subsidiaries set
forth in the Merger Agreement shall be true in all material respects as of the
Closing Date; (b) CDI shall have received the opinion of Lindquist & Vennum
P.L.L.P. that the Merger will qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code; (c) Medallion shall have received the
opinion of Willkie Farr & Gallagher that the Merger will qualify as a tax free
reorganization within the meaning of Section 368(a) of the Code; (d) CDI and
Medallion shall have each received a letter from its respective independent
public accountants concurring as to the appropriateness of pooling of
interests accounting for the Merger under APB Opinion No. 16, provided that
the Merger is consummated as contemplated in the Merger Agreement and (e) from
the date of the Merger Agreement through the Closing Date, there shall not
have occurred any change, individually or together with other changes, that
has had, or would reasonably be expected to have, a material adverse change in
the financial condition, business, results of operations or prospects of CDI
and its subsidiaries, taken as a whole.
Termination; Fees and Expenses
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Closing Date, before or after the approval by the
shareholders of CDI: (a) by the mutual consent of CDI and Medallion by action
of their respective Boards of Directors; (b) by action of the Board of
Directors of either CDI or Medallion if the Merger shall not have been
consummated by June 30, 1998, (c) by action of the Board of Directors of CDI,
if (i) in the exercise of its good faith judgment as to its fiduciary duties
to its shareholders imposed by law, the Board of Directors of CDI accepts an
Acquisition Proposal being made for CDI, (ii) there has been a breach by
Medallion or Sub of any representation or warranty contained in the Merger
Agreement which would have or would be reasonably likely to have a material
adverse effect on the business, properties, assets, prospects, condition
(financial or otherwise), liabilities or results of operations of CDI and its
subsidiaries taken as a whole and such breach is not cured within 10 days
after written notice of such breach, (iii) there has been a material breach by
Medallion of any covenant or agreement contained in the Merger Agreement which
is not curable or, if curable, is not cured within 10 days after written
notice of such breach; or (iv) if any of the conditions precedent to CDI's
obligations under the Merger Agreement have not been met or waived by CDI at
such time as any such condition is no longer capable of satisfaction, (d) by
action of the Board of Directors of Medallion, if (i) CDI or holders of CDI
Common Stock who are parties to the Voting Agreement shall have breached any
of their respective obligations under the Voting Agreement in any material
respect and such breach continues for a period of 10 days after the receipt of
notice of the breach from Medallion, or (ii) if any of the conditions
precedent to Medallion's obligations under the Merger Agreement have not been
met or waived by Medallion at such time as any such condition is no longer
capable of satisfaction. If the Merger Agreement is terminated by Medallion
pursuant to clause (d)(ii) above (as a result of CDI, or to CDI's knowledge,
any holder of CDI Common Stock or affiliate of CDI having taken an action
which prevents Medallion from accounting for the Merger as a pooling of
interests) then, CDI shall, within fifteen days of a written demand from
Medallion, pay to Medallion the lesser of $200,000 or Medallion's transaction
expenses relating to the Merger.
If CDI terminates the Merger Agreement because its Board of Directors, in
the exercise of its good faith judgment as to its fiduciary duties to its
shareholders imposed by law, accepts an Acquisition Proposal being
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made by a third party for CDI, and within 12 months thereafter such
Acquisition Proposal shall have been consummated, then CDI (or the successor
thereto) is required to pay in cash to Medallion the Termination Fee of
$3,000,000, within ten days of a written demand by Medallion after such
consummation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger and the CDI Common Stock for shares of Medallion
Common Stock. THIS DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF TAXATION THAT
MAY BE RELEVANT TO PARTICULAR STOCKHOLDERS IN LIGHT OF THEIR PERSONAL
INVESTMENT OR TAX CIRCUMSTANCES, OR TO CERTAIN TYPES OF STOCKHOLDERS
(INCLUDING INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX-
EXEMPT ORGANIZATIONS, FOREIGN CORPORATIONS AND PERSONS WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES) SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL
INCOME TAX LAWS, NOR DOES IT DISCUSS ANY STATE, LOCAL OR FOREIGN TAX
CONSIDERATIONS.
EACH CDI SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX AND
FINANCIAL ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
HOLDER AS A RESULT OF SUCH HOLDER'S OWN PARTICULAR STATUS AND CIRCUMSTANCES,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
Neither Medallion nor CDI has requested or will receive an advance ruling
from the Internal Revenue Service (the "IRS") as to the federal income tax
consequences of the Merger. However, Medallion will receive an opinion of its
counsel, Willkie Farr & Gallagher, and CDI will receive an opinion of its
counsel, Lindquist & Vennum P.L.L.P., relating to the federal income tax
consequences of the Merger. Such opinions will be based upon facts and
assumptions of fact described therein, and upon customary representations
provided by Medallion, Sub, CDI and certain CDI shareholders. Counsels'
opinions will also be based upon the Code, the Treasury Regulations
thereunder, administrative rulings and practice by the IRS, and judicial
authority, in each case existing at the time such opinions are delivered. Any
change in applicable law or pertinent facts could affect the continuing
validity of such opinions and this discussion. In addition, an opinion of
counsel is not binding upon the IRS, and there can be no assurance, and none
is hereby given, that the IRS will not take a position contrary to one or more
positions reflected in counsels' opinions, or that such opinions will be
upheld by the courts if challenged by the IRS. However, Medallion and CDI have
agreed in the Merger Agreement not to take any action which would disqualify
the Merger as a reorganization which is tax-free to the shareholders of CDI
pursuant to Section 368(a) of the Code. If it were determined that the Merger
did not qualify as a reorganization, each CDI shareholder would be required to
recognize gain or loss equal to the difference between such shareholder's tax
basis in the CDI Common Stock and the fair market value of the Medallion
Common Stock received in the Merger.
Based upon and subject to the foregoing, the opinions of counsel will
collectively state, among other matters, that:
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and Medallion, Sub, and CDI will each be a party
to the reorganization within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Medallion, Sub or CDI as a
result of the Merger;
(iii) no gain or loss will be recognized by a CDI shareholder who
receives solely shares of Medallion Common Stock in exchange for CDI Common
Stock;
(iv) the receipt of cash in lieu of fractional shares of Medallion Common
Stock will be treated as if the fractional shares were distributed as part
of the exchange and then were redeemed by Medallion;
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(v) the tax basis of the shares of Medallion Common Stock received by a
CDI shareholder will be equal to the tax basis of the CDI Common Stock
exchanged therefor, excluding any basis allocable to a fractional share of
Medallion Common Stock for which cash is received; and
(vi) the holding period of the shares of Medallion Common Stock received
by a CDI shareholder will include the holding period or periods of the CDI
Common Stock exchanged therefor, provided that such CDI Common Stock was
held as a capital asset by such shareholder within the meaning of Section
1221 of the Code at the Closing Date.
ACCOUNTING TREATMENT
It is expected that the Merger will be accounted for as a pooling of
interests under APB Opinion No. 16 if the Merger is closed and consummated in
accordance with the Merger Agreement. Medallion, Sub and CDI have agreed not
to intentionally take any action that would disqualify treatment of the Merger
as a pooling of interests for accounting purposes.
Under the pooling of interests method of accounting, the historical basis of
the assets and liabilities of Medallion and CDI will be combined at the
Closing Date and carried forward at their previously recorded amounts, the
stockholders' equity accounts of Medallion and CDI will be combined on the
consolidated balance sheet of Medallion and no goodwill or other intangible
assets will be created. Consolidated financial statements of Medallion issued
after the Merger will be restated retroactively to reflect the consolidated
operations of Medallion and CDI as if the Merger had taken place prior to the
periods covered by such consolidated financial statements.
The unaudited pro forma financial information contained in this Proxy
Statement/Prospectus has been prepared using the pooling-of-interests
accounting method to account for the Merger. Consistent with pooling of
interests accounting treatment, the direct costs related to the Merger will be
taken as a non-recurring charge to earnings in the quarter in which the Merger
is consummated.
CERTAIN LEGAL MATTERS
Certain federal or state regulatory requirements or approvals (in addition
to those that arise in connection with the registration of Medallion Common
Stock to be issued in the Merger and the effectiveness of this Proxy
Statement/Prospectus), including approval of the SBA must be complied with or
obtained in connection with the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All Medallion Common Stock issued in connection with the Merger will be
freely transferable, except that any Medallion Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of CDI or Medallion prior to the Merger may be sold by them
only in transactions permitted by the resale provisions of Rule 145 under the
Securities Act with respect to affiliates of CDI, or Rule 144 under the
Securities Act with respect to persons who are or become affiliates of
Medallion, or as otherwise permitted under the Securities Act. Persons who may
be deemed to be affiliates of CDI or Medallion generally include individuals
or entities that control, are controlled by, or are under common control with,
such party and may include certain officers and directors of such party as
well as principal stockholders of such party.
Affiliates may not sell their shares of Medallion Common Stock acquired in
connection with the Merger, except pursuant to an effective registration under
the Securities Act covering such shares or in compliance with Rule 145 (or
Rule 144 under the Securities Act in the case of persons who become affiliates
of Medallion) or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145, for one year
following the Closing Date an affiliate (together with certain related
persons) would be entitled to sell shares of Medallion Common Stock acquired
in connection with the Merger only through unsolicited "broker transactions"
or in transactions directly with a "market maker," as such terms are defined
in Rule 144.
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Additionally, the number of shares to be sold by an affiliate (together with
certain related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed the greater of 1%
of the outstanding shares of Medallion Common Stock or the average weekly
trading volume of such stock during the four calendar weeks preceding such
sale. Rule 145 would only remain available, however, to affiliates if
Medallion remained current with its informational filings with the Commission
under the Exchange Act. Beginning one year after the Closing Date, an
affiliate would be able to sell such Medallion Common Stock without such
manner of sale or volume limitations provided that Medallion was current with
its Exchange Act informational filings and such affiliate was not then an
affiliate of Medallion. Two years after the Closing Date, an affiliate would
be able to sell such shares of Medallion Common Stock without any restrictions
so long as such affiliate had not been an affiliate of Medallion for at least
three months prior thereto. See "The Merger Agreement--Certain Covenants."
LISTING
It is a condition to the Merger that the shares of Medallion Common Stock to
be issued in the Merger be authorized for listing on the Nasdaq National
Market, subject to official notice of issuance.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
CDI'S INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
CDI's investment objectives to achieve both (i) a high level of interest
income from secured debt securities, and (ii) long-term appreciation of its
equity interests in the companies it finances. CDI seeks to achieve these
objectives by investing in minority-owned small businesses in a limited number
of selected industries that it believes are under-served by traditional
financing sources. CDI's investments are typically in the form of secured debt
securities with fixed interest rates, accompanied by warrants to purchase
equity interests for a nominal exercise price.
An important part of CDI's strategy for achieving its objectives is to focus
its investments in selected industries where there are industry specific
factors that limit the risk of CDI losing the principal amount invested in
debt securities, and where there is growth potential in the value of the
Company's equity interests. Based on this strategy, CDI has concentrated its
investments in the radio broadcast industry, and to a lesser extent in the
rural telephone industry and airport food and beverage service industry.
Within these industries CDI seeks to invest in companies which it believes
have significant potential for growth, adequate collateral coverage,
experienced management teams, sophisticated outside equity investors and
profitable operations. To date CDI has found that it has been constrained by
lack of capital rather than lack of investment opportunities.
Operating Strategy
CDI's strategy has evolved since the early 1990s to focus on a limited
number of industries where CDI management can develop specific industry
knowledge and where industry conditions provide: (i) collateral of a type that
allows CDI the opportunity to recover its investment if the portfolio company
fails; (ii) growth potential for significant appreciation of CDI's equity
interests; (iii) a perceived shortage of investment capital on the general
terms offered by CDI; (iv) barriers to entry, such as licenses or franchises,
that limit competition; (v) active and sophisticated equity investors who will
refer pre-screened investment opportunities; and (vi) other sources of
complementary financing (equity capital, senior term debt, lines of credit,
etc.). It is unlikely that all of these factors will be present in any
industry in which CDI invests, and CDI may invest in industries where only a
few of these factors are present.
A substantial part of CDI's investments since the early 1990s have been in
the radio and television broadcast industry, which comprised 69% of CDI's
investment portfolio as of December 31, 1997. CDI has also invested in the
rural telephone industry and the airport food and beverage and retail service
industry, which comprised 15% and 14%, respectively, of the Company's
investment portfolio as of that date. CDI intends to continue
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investing in these three industries, and to identify and develop new
investment opportunities in other selected industries where most of the
industry criteria referred to above are satisfied. To develop new investment
opportunities, CDI intends to expand its referral network of venture
capitalists, minority entrepreneurs, investment bankers, attorneys,
accountants, commercial bankers and business brokers.
CDI's goal is to obtain on average roughly half of its investment return
from interest and fees and the other half from equity appreciation. CDI
typically structures its investments as the purchase at face value of a debt
security which is accompanied by a warrant to acquire a portion of the
portfolio company's capital stock at a nominal exercise price. A typical
investment by CDI has been in the range of $500,000 to $3 million per
portfolio company, though CDI may make both smaller and larger investments.
The promissory notes which CDI purchases typically have a five to seven year
maturity, a fixed interest rate of approximately 12% to 14%, and generally
require payment monthly of interest only, with all principal due at maturity.
These notes are typically collateralized by a security interest in the assets
of the portfolio company, and the indebtedness and security interest may be
either senior or subordinated to indebtedness owed to other creditors. A
personal guaranty by the major stockholder(s) of the portfolio company or
other collateral may also be required. Generally there are no prepayment
penalties and the notes may provide that, in the event of a default, the
applicable interest rate will increase. CDI typically charges an origination
and processing fee of up to 3% of the amount of the note, which is paid by the
portfolio company from the proceeds invested by CDI.
Desired Characteristics of Portfolio Companies
CDI's goal is to invest in companies in its selected industries which meet
most of the following criteria, although all the criteria may not be met in
every instance and their importance may vary depending on the circumstances.
Growth. In addition to generating sufficient cash flow to service the
prospective investment, the potential portfolio company typically should
have a projected annual growth rate for operating income (income before
interest, taxes, depreciation and amortization) of at least 20%, or some
other factor (such as the prospect of upgrading a radio station license) to
increase its equity value. Since CDI's strategy anticipates that
approximately half of CDI's total investment return will derive from the
equity portion of the investment, anticipated growth is a key factor in
CDI's assessment of an investment opportunity.
Liquidation Value of Assets. The expected liquidation value of assets
securing the debt to CDI is an important component in CDI's investment
decision. Liquidation value includes both tangible assets, such as accounts
receivable, inventory, property, plant and equipment, and intangible
assets, such as customer lists, networks, databases, government licenses
and recurring revenue streams.
Sophisticated Equity Investors. A potential portfolio company should have
sophisticated equity investors whose equity position is subordinate to
CDI's right of repayment. These equity investors enhance the due diligence
process and the financial sophistication of the portfolio company and
provide increased controls and a potential source of follow-on capital. The
involvement of sophisticated equity investors tends to increase CDI's
confidence in a potential portfolio company and its management team and the
potential long-term value of the portfolio company.
Experienced Management Teams. CDI seeks potential portfolio companies
with experienced management teams who have a significant ownership interest
and the background necessary to carry out the portfolio company's business
plan.
Positive Cash Flow. CDI generally focuses on potential portfolio
companies that either already have positive cash flow from operations
(income before interest, taxes, depreciation and amortization) or appear to
have strong potential to achieve positive cash flow from operations within
one year. CDI typically will not invest in start-up companies, except where
the expected liquidation value of the assets is sufficient to provide
security for CDI's debt investment and there are prospects for rapid
growth.
Exit Strategy. Prior to making an investment, CDI analyzes the capacity
of the potential portfolio company to repay CDI's debt investment and to
experience a liquidity event that would allow CDI to realize
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value for its equity position. Liquidity events include a public offering,
a sale of the portfolio company or one or more of its key assets, or a
purchase by the portfolio company or other equity holders of CDI's equity
position. CDI's investments are made with the expectation that the debt
investment will be repaid within five to seven years and the equity portion
of the investment will be liquidated for cash within five to ten years.
Prior to March 31, 1997, Capital Dimensions Venture Fund, Inc., CDI's
predecessor company, was a wholly owned subsidiary of an entity formerly known
as Capital Dimensions, Inc. ("CD Parent"). Effective March 31, 1997, CD Parent
and Capital Dimensions Venture Fund, Inc. were merged with CDI being the
surviving entity (the "CDI Merger"). Prior to the CDI Merger, management
services were provided to CDI by CD Parent under a Joint Investment Adviser
Management Agreement (the "Management Agreement"). Under the terms of the CDI
Merger, CD Parent's interest in the Management Agreement was assigned to
Capital Dimensions Management Company, Inc. ("CDMC"). This assignment was
approved by CD Parent stockholders. CDMC is owned and operated by Thomas F.
Hunt, Jr., Dean R. Pickerell, Stephen A. Lewis, Mervin Winston and Brenda L.
Leonard, each of whom is also employed by CDMC.
The monthly management fee paid to CDMC by CDI is one-fourth of one percent
(0.25%) of CDI's average monthly assets (the equivalent of 3% per annum), less
the amount of all payroll and payroll-related expenses paid by CDI. Each of
the employees of CDMC is also employed by CDI. It is intended that all future
officers of CDMC will also be employees of CDI. Under the terms of the Merger
Agreement, upon consummation of the Merger, the Management Agreement with CDMC
will be terminated.
MEDALLION'S INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Medallion's investment objectives are to provide a high level of current
income for its stockholders through quarterly distributions, consistent with
preservation of capital, as well as long term growth of net asset value.
Medallion seeks to achieve its investment objectives by maximizing net
interest income and fee income from operations and expanding operations. There
can be no assurance that Medallion will achieve its investment objectives.
Medallion's only fundamental policies, that is, policies that cannot be
changed without the approval of the holders of a majority of Medallion's
outstanding voting securities, as defined under the 1940 Act, are the
restrictions described in the following seven paragraphs. A "majority of
Medallion's outstanding voting securities" as defined under the 1940 Act means
the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of
the outstanding shares. The other policies and investment restrictions
referred to in this Prospectus, including Medallion's investment objectives,
are not fundamental policies of Medallion and may be changed by Medallion's
Board of Directors without stockholder approval. Unless otherwise noted,
whenever an investment policy or limitation states a maximum percentage of
Medallion's assets that may be invested in any security or other asset, or
sets forth a policy regarding quality standards, such standard or percentage
limitation will be determined immediately after and as a result of Medallion's
acquisition of such security or other asset. Accordingly, any subsequent
change in values, assets, or other circumstances will not be considered when
determining whether the investment complies with Medallion's investment
policies and limitations. Medallion's fundamental policies are as follows:
1. Medallion will at all times conduct its business so as to retain its
status as a business development company under the 1940 Act. In order to
retain that status, Medallion may not acquire any assets (other than non-
investment assets necessary and appropriate to its operations as a business
development company) if, after giving effect to such acquisition, the value
of its "Qualifying Asset," as defined in Section 55(a) of the 1940 Act,
amount to less than 70% of the value of its total assets.
2. BLLC, MFC, TCC, Edwards, and any subsidiaries of Medallion organized
in the future that are SBA licensees, may issue the maximum principal
amount of subordinated SBA debentures and preferred stock permitted under
the SBIA and SBA Regulations. As SBICs, MFC, Edwards and TCC are not
permitted to issue preferred stock to the SBA and the maximum principal
amount of subordinated SBA
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debentures they are each permitted to issue is equal to 300% of their
respective Leveragable Capital (generally non-SBA paid-in capital and paid-
in surplus). In addition, SBA Regulations also limit the aggregate
principal amount of subordinated SBA debentures or "leverage" SBICs under
common control, such as the RIC Subsidiaries, may have outstanding to no
more than $90.0 million. At December 31, 1997, TCC and Edwards had, in
aggregate, $27.9 million in principal amount of subordinated debentures
outstanding. At that date, TCC and Edwards had, in aggregate, $17.6 million
in Leveragable Capital and accordingly the maximum aggregate principal
amount of additional SBA leverage TCC and Edwards could issue on that date
was $24.9 million. At December 31, 1997, MFC had Leveragable Capital of
$44.0 million but had no subordinated SBA debentures outstanding and has no
intention of issuing any; however, MFC reserves the right to issue
subordinated SBA debentures to the maximum extent permitted under the SBIA
or SBA Regulations.
3. Medallion may borrow funds and issue "senior securities" to the
maximum extent permitted under the 1940 Act. As a business development
company, Medallion may issue senior securities if, immediately after such
issuance, the senior securities will have an asset coverage of at least
200%. Under the 1940 Act, subordinated debentures issued to or guaranteed
by the SBA and preferred stock issued to the SBA by the RIC Subsidiaries
may be considered senior securities issued by Medallion requiring asset
coverage of 200%; however, pursuant to an exemptive order of the
Commission, such debentures and preferred stock are exempt from the asset
coverage requirements of the 1940 Act.
4. Medallion will not (i) underwrite securities issued by others (except
to the extent that it may be considered an "underwriter" within the meaning
of the Securities Act in the disposition of restricted securities), (ii)
purchase or sell real estate or real estate mortgage loans unless acquired
as a result of ownership of securities or other instruments (except that
Medallion may purchase and sell real estate or interests in real estate in
connection with the orderly liquidation of investments or the foreclosure
of mortgages held by Medallion), (iii) engage in short sales of securities,
(iv) purchase securities on margin (except to the extent that it may
purchase securities with borrowed money), (v) write or buy put or call
options or (vi) engage in the purchase or sale of commodities or commodity
contracts, including futures contracts (except where necessary in working
out distressed loan or investment situations). Medallion and the RIC
Subsidiaries may purchase interest rate caps and swaps covering up to 100%
of their variable rate debt. In addition, Medallion may sponsor the
securitization of loan portfolios.
5. Medallion and the RIC Subsidiaries may originate loans and loans with
equity features. To the extent permitted under SBA Regulations, Medallion
may also make loans as permitted (i) under Medallion's 1996 Stock Option
Plan (the "1996 Plan") the 1996 Plan, (ii) under the Director Plan and
plans providing for options for disinterested directors that might be
adopted by Medallion in the future and (iii) to officers and directors for
the purchase of Common Stock. Medallion holds all of the outstanding common
stock of the Founding Companies and may organize additional subsidiaries in
the future. Medallion may acquire restricted securities of small
businesses.
6. Each RIC Subsidiary shall not originate loans to, or invest in the
securities of, any entity if, immediately after such loan or investment,
more than 5% of the total assets of the RIC Subsidiary originating such
loan or making such investment (taken at current value) would be loaned to,
or invested in the securities of such entity, or acquire more than 10% of
the outstanding voting securities of any issuer, provided that this
limitation does not apply to obligations issued or guaranteed as to
interest and principal by the U.S. Government or its agencies or
instrumentalities or to repurchase agreements secured by such obligations,
and that up to 25% of each RIC Subsidiary's total assets (at current value)
may be invested without regard to this limitation.
7. Medallion and the RIC Subsidiaries shall lend or invest at least 25.0%
of their total assets (taken at current value) to or in entities primarily
engaged in the taxicab industry and shall not lend or invest more than
25.0% of their total assets (taken at current value) to or in entities
primarily engaged in any other single industry, provided that this
limitation does not apply to obligations issued or guaranteed as to
interest and principal by the U.S. Government or its agencies or
instrumentalities or to repurchase agreements secured by such obligations
or to bank money-market instruments.
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PORTFOLIO TURNOVER
During the year ended December 31, 1994, Medallion originated loans totaling
$61.4 million in aggregate principal amount and experienced prepayments
totaling $60.6 million in aggregate principal amount. During the year ended
December 31, 1995, Medallion originated loans totaling $52.7 million in
aggregate principal amount and experienced prepayments totaling $46.9 million
in aggregate principal amount. During the year ended December 31, 1996,
Medallion originated loans totaling $88.1 million in aggregate principal
amount and experienced prepayments totaling $60.6 million in aggregate
principal amount. During the year ended December 31, 1997, Medallion
originated loans totaling $213.0 million in aggregate principal amount and
experienced prepayments totaling $119.0 million in aggregate principal amount.
All borrowers have the right to prepay loans made by Medallion at any time.
Although Medallion experiences more prepayments when interest rates are
falling and fewer prepayments when interest rates are rising, Medallion is
unable to predict the level of prepayments it will experience during any
period of time.
THE INVESTMENT ADVISER
Medallion is managed by its executive officers under the supervision of its
Board of Directors. In addition, under the terms of a sub-advisory agreement
(the "Sub-Advisory Agreement") between Medallion and FMC, Medallion has
retained FMC to consult with management upon reasonable request in the review
and refinement of Medallion's strategies.
Myron Cohen, Robert Fanger and Michael Miller control FMC and will provide
the advisory services to Medallion on behalf of FMC. They had served as
directors and executive officers of Tri-Magna and MFC since inception and,
along with Alvin Murstein, comprised Tri-Magna's Executive Committee. Messrs.
Cohen, Fanger and Miller ceased to hold their offices with Tri-Magna and MFC
upon the closing of the Acquisitions. Upon the request of the officers of
Medallion, FMC consults with respect to strategic decisions concerning
originations, credit quality assurance, development of financial products,
leverage, funding, geographic and product diversification, the repurchase of
participations, acquisitions, regulatory compliance and marketing.
Under the Sub-Advisory Agreement, Medallion pays FMC monthly in arrears, as
compensation for the services rendered by it, a fee of $18,750. Unless earlier
terminated as described below, the Sub-Advisory Agreement will remain in
effect until May 1998 and from year to year thereafter only if approved
annually by (i) a majority of the non-interested directors of Medallion and
(ii) the Board of Directors, or by a majority of the outstanding voting
securities of Medallion, as defined in the 1940 Act. The Sub-Advisory
Agreement may be terminated without penalty on 60 days' written notice by
either party or by vote of a majority of the outstanding voting securities of
Medallion, as defined in the 1940 Act, and will terminate if assigned. Under
the Sub-Advisory Agreement, FMC will not be liable for any loss suffered by
Medallion, except a loss resulting from FMC's willful malfeasance, bad faith
or gross negligence.
The Murstein Trusts entered into an escrow agreement with FMC on May 29,
1996. Under the escrow agreement, the Murstein Trusts deposited into escrow
163,636 shares of Common Stock. Subject to certain limitations, the Murstein
Trusts agreed to maintain in escrow Common Stock worth 200% of the advisory
fees payable by Medallion under the Sub-Advisory Agreement during the first 48
months of service, thereby assuring FMC of the payment of $900,000 in advisory
fees. In the event that Medallion or its stockholders terminate or do not
renew the Sub--Advisory Agreement during this period for any reason other than
(i) breach of the Sub-Advisory Agreement by FMC or (ii) FMC's willful
malfeasance, bad faith or gross negligence, the escrow agent will assign to
FMC Common Stock in escrow equal in value to the amount of the fees payable
over the balance of the 48--month period. If the value of the Common Stock
required to be deposited in escrow is less than the value of the fees payable,
FMC will have no further recourse against the Murstein Trusts.
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MEDALLION COMMON STOCK PRICES
Medallion Common Stock trades on the Nasdaq National Market under the symbol
"TAXI." The following table sets forth the high and low closing prices of the
Medallion Common Stock as reported by the Nasdaq National Market for each of
the quarters in the two year period ended December 31, 1997 and for the first,
and second quarters (through June 2) of 1998.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1998
Quarter ended March 31, 1998................................. $29 15/16 $18 7/8
Quarter ended June 30, 1998 (through June 2, 1998)........... $30 1/2 $25 5/8
1997
Quarter ended March 31, 1997................................. $19 3/4 $14
Quarter ended June 30, 1997.................................. $20 1/8 $16
Quarter ended September 30, 1997............................. $21 3/4 $17 3/4
Quarter ended December 31, 1997.............................. $23 $20
1996
Period from May 23, 1996 through June 30, 1996............... $13 3/8 $12 1/4
Quarter ended September 30, 1996............................. $15 $10 3/8
Quarter ended December 31, 1996.............................. $15 1/4 $12 7/8
</TABLE>
On June 2, 1998, the last sales price of Medallion Common Stock on the
Nasdaq National Market was $26.00. The public announcement of the Merger
Agreement occurred on March 9, 1998.
There is no active public trading market for shares of CDI Common Stock. The
last known trade for CDI Common Stock was on March 17, 1998 at $14.00 per
share.
DESCRIPTION OF MEDALLION CAPITAL STOCK
GENERAL
The authorized capital stock of Medallion consists of 1,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock") and
15,000,000 shares of Common Stock, par value $.01 per share. Upon completion
of the Merger, assuming that the divisor in the Exchange Ratio is $26.00
Medallion will have outstanding 13,911,554 shares of Common Stock and no
shares of Preferred Stock. As of April 21, 1998, there were no shares of
Preferred Stock outstanding and 12,882,996 shares of Common Stock outstanding
and 30 record holders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of the Common Stock are entitled to such dividends as may be declared
in the discretion of the Board of Directors out of funds legally available
therefor. Holders of Common Stock are entitled to share ratably in the net
assets of Medallion upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock
then outstanding. The holders of Common Stock have no preemptive rights to
purchase shares of stock of Medallion. Shares of Common Stock are not subject
to any redemption provisions and are not convertible into any other securities
of Medallion. All outstanding shares of Common Stock are, and the shares of
Common Stock to be issued pursuant to the Offering will be upon payment
therefor, fully paid and non-assessable.
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PREFERRED STOCK
Subject to the asset coverage requirements of the 1940 Act, Preferred Stock
may be issued from time to time by the Board of Directors as shares of one or
more classes or series. Subject to the provisions of Medallion's Certificate
and limitations prescribed by law, the Board of Directors is expressly
authorized to adopt resolutions to issue the shares, to fix the number of
shares and to change the number of shares constituting any series, and to
provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, in each case without any further action or vote by the
stockholders. Medallion has no current plans to issue any shares of Preferred
Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of Medallion by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of Medallion's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by Medallion may
rank prior to the Common Stock as to dividend rights, liquidation preference
or both, may have full or limited voting rights and may be convertible into
shares of Common Stock. Accordingly, the issuance of shares of Preferred Stock
may discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of material provisions concerning the rights of
holders of Medallion Common Stock, a Delaware corporation, which holders of
CDI Common Stock should consider carefully in evaluating an investment in
Medallion Common Stock.
LIMITATION ON DIRECTORS' LIABILITIES'
Medallion's Certificate of Incorporation provides that no director of
Medallion shall be liable to Medallion or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to Medallion or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or redemptions or
repurchases pursuant to Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of
Medallion and its stockholders (through stockholders' derivative suits on
behalf of Medallion) to recover monetary damages against a director for breach
of fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. These
provisions will not limit the liability of directors under Federal securities
laws.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
THE BY-LAWS
Medallion's Certificate and By-Laws include provisions that could make more
difficult the acquisition of Medallion by means of a merger, tender offer, a
proxy contest or otherwise. These provisions, as described below, are expected
to discourage certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of Medallion
first to negotiate with Medallion. These provisions may also, however, inhibit
a change in control of Medallion in circumstances that could give the holders
of the Common Stock the opportunity to realize a premium over the then
prevailing market price of the Common Stock. In addition, such provisions
could adversely affect the market price for the Common Stock. Medallion
believes that the benefits of increased protection of its potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure Medallion outweigh the disadvantages of discouraging
such
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proposals because, among other things, negotiations with respect to such
proposals could result in an improvement of their terms.
Medallion's Certificate and the By-Laws provide that Medallion's Board of
Directors be divided into three classes of directors, with the term of each
class expiring in a different year. The By-Laws provide that the number of
directors will be fixed from time to time exclusively by the Board of
Directors, but shall consist of not more than 15 nor less than three
directors. A majority of the Board of Directors then in office has the sole
authority to fill any vacancies on the Board. The Certificate provides that
directors may be removed only by the affirmative vote of holders of at least
75% of the voting power of all of the then outstanding shares of stock
entitled to vote generally in the election of directors ("Voting Stock"),
voting together as a single class.
Medallion's Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and prohibits stockholder
action by written consent in lieu of a meeting. Medallion's Certificate and
By-Laws provide that special meetings of stockholders can be called by the
Chairman of the Board of Medallion, pursuant to a resolution approved by a
majority of the total number of directors which Medallion would have if there
were no vacancies on the Board, or by the stockholders owning at least 20% of
the stock entitled to vote at the meeting. The business permitted to be
conducted at any special meeting of stockholders is limited to the business
brought before the meeting by the Chairman of the Board, or at the request of
a majority of the members of the Board, or as specified in the stockholders'
notice of a meeting.
Medallion's By-Laws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of its Board, of candidates for
election as directors and with regard to business brought before an annual
meeting of stockholders of Medallion.
Medallion's Certificate and By-Laws contain provisions requiring the
affirmative vote of the holders of at least 75% of the Voting Stock, voting
together as a single class, to amend certain provisions of the Certificate
relating primarily to anti-takeover provisions and to the limitations on
director liability and to amend the By-Laws.
Medallion's Certificate empowers its Board, when considering a tender offer
or merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. Such factors may include (i)
comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the capital stock, the estimated
current value of Medallion in a freely negotiated transaction, and the
estimated future value of Medallion as an independent entity; (ii) the impact
of such a transaction on the customers and employees of Medallion, and its
effect on the communities in which Medallion operates; and (iii) the ability
of Medallion to fulfill its objectives under applicable statutes and
regulations.
Medallion's Certificate prohibits Medallion from purchasing any shares of
Medallion's stock from any person, entity or group that beneficially owns 5%
or more of Medallion's Voting Stock at a price exceeding the average closing
price for the 20 trading days prior to the purchase date, unless a majority of
Medallion's disinterested stockholders approve the transaction. This
restriction on purchases by Medallion does not apply to any offer to purchase
shares of a class of Medallion's stock which is made on the same terms and
conditions to all holders of that class of stock, to any purchase of stock
owned by such a 5% stockholder occurring more than two years after such
stockholder's last acquisition of Medallion's stock, to any purchase of
Medallion's stock in accordance with the terms of any stock option or employee
benefit plan, or to any purchase at prevailing market prices pursuant to a
stock purchase program.
CERTAIN PROVISIONS OF DELAWARE LAW REGARDING AN INTERESTED STOCKHOLDER
Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates
of such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include
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mergers, consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10% of the consolidated assets of the
corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder becomes an interested stockholder, unless (i)
the business combination is approved by the corporation's board of directors
prior to the date the interested stockholder becomes an interested
stockholder; (ii) the interested stockholder acquired at least 85% of the
voting stock of the corporation (other than stock held by directors who are
also officers or by certain employee stock plans) in the transaction in which
it becomes an interested stockholder; or (iii) the business combination is
approved by a majority of the board of directors and by the affirmative vote
of 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
MINNESOTA LAW RIGHTS OF CDI SHAREHOLDERS
The rights provided to holders of CDI Common Stock under the Minnesota
Business Corporation Act ("MBCA"), CDI's Articles of Incorporation and CDI's
By-Laws do not differ substantially from those of Medallion's stockholders
except in that (i) CDI's Articles and By-Laws do not require a supermajority
vote by shareholders to take certain actions, (ii) CDI's Articles do not
restrict the terms on which CDI may purchase shares from individuals or
entities that beneficially own 5% or more of CDI's Common Stock, and (iii)
CDI's Articles contain a provision in which CDI "opted out" of Section
302A.673 of the MBCA, the parallel provision to Section 203 of the DGCL, which
prohibits certain transactions between a Minnesota corporation and an
"interested shareholder."
DETERMINATION OF NET ASSET VALUE OF MEDALLION
The net asset value per share of Medallion Common Stock is determined
quarterly, as soon as practicable after and as of the end of each calendar
quarter, by dividing the value of total assets minus liabilities and negative
goodwill by the total number of shares of Medallion Common Stock outstanding
on a fully diluted basis at that date.
A substantial portion of Medallion's assets consists of the loans held in
the portfolios of the RIC Subsidiaries. The RIC Subsidiaries' respective
Boards of Directors value their respective loans in connection with their
respective determinations of net asset value. The net asset value per share of
each subsidiary's common stock is determined quarterly, as soon as practicable
after and as of the end of each calendar quarter, by dividing the value of
total assets minus liabilities by the total number of shares outstanding on a
fully diluted basis at that date.
In making its valuation determination, each of the Boards of Directors of
the RIC Subsidiaries adhere to a valuation policy approved by the SBA and
adopted by such Board of Directors. In calculating the value of the relevant
subsidiary's total assets, loans are valued at fair value as determined in
good faith by that subsidiary's Board of Directors. In making such
determinations, the Board of Directors value loans and nonconvertible debt
securities for which there exists no public trading market at cost plus
amortized original issue discount, if any, unless adverse factors lead to a
determination of a lesser value, at which time net unrealized depreciation of
investments would be recognized. Convertible debt securities and warrants are
valued to reflect the worth of the underlying equity security less the
conversion or exercise price. In valuing equity securities for which there
exists no public trading market, investment cost is presumed to represent fair
value except in cases where the valuation policy provides that the Board of
Directors may determine fair value on the basis of (i) financings by
unaffiliated investors, (ii) a history of positive cash flow from operations
for two years using conservative financial measures such as earnings ratios or
cash flow multiples, (iii) the market value of comparable companies which are
publicly traded (discounted for illiquidity) and (iv) other pertinent factors.
A substantial portion of each of the RIC Subsidiaries' assets consists of
loans carried at fair values determined by such subsidiary's Board of
Directors. The determination of fair values involves subjective judgment not
susceptible to substantiation by auditing procedures performed by independent
public accountants.
43
<PAGE>
Accordingly, under current standards, the accountants' opinion on the
Financial Statements included in this Prospectus refers to the uncertainty
with respect to the possible effect on such Financial Statements of such
valuations.
MEDALLION'S DIVIDEND REINVESTMENT PLAN
Pursuant to Medallion's Dividend Reinvestment Plan (the "Reinvestment
Plan"), a Medallion stockholder whose shares are registered in his own name
can have all distributions reinvested in additional shares of Common Stock by
American Stock Transfer & Trust Company (the "Plan Agent") if the stockholder
enrolls in the Reinvestment Plan by delivering an Authorization Form to the
Plan Agent prior to the corresponding dividend declaration date. The Plan
Agent will effect purchases of Common Stock under the Reinvestment Plan in the
open market. Holders of Common Stock who do not elect to participate in the
Reinvestment Plan will receive all distributions in cash paid by check mailed
directly to the stockholder of record (or if the Common Stock is held in
street or other nominee name, then to the nominee) as of the relevant record
date, by the Plan Agent, as dividend disbursing agent. Stockholders whose
shares are held in the name of a broker or nominee or stockholders
transferring such an account to a new broker or nominee should contact the
broker or nominee to determine whether and how they may participate in the
Reinvestment Plan.
The Plan Agent serves as agent for the holders of Common Stock in
administering the Reinvestment Plan. After Medallion declares a dividend, the
Plan Agent will, as agent for the participants, receive the cash payment and
use it to buy Common Stock on the Nasdaq National Market or elsewhere for the
participants' accounts. The price of the shares will be the average market
price at which such shares were purchased by the Plan Agent.
Participants in the Reinvestment Plan may withdraw from the Reinvestment
Plan upon written notice to the Plan Agent. Such withdrawal will be effective
immediately if received not less than ten days prior to a dividend record
date; otherwise, it will be effective the day after the related dividend
distribution date. When a participant withdraws from the Reinvestment Plan or
upon termination of the Reinvestment Plan as provided below, certificates for
whole shares of Common Stock credited to his or her account under the
Reinvestment Plan will be issued and a cash payment will be made for any
fractional share of Common Stock credited to such account.
The Plan Agent will maintain each participant's account in the Reinvestment
Plan and will furnish monthly written confirmations of all transactions in
such account, including information needed by the stockholder for personal and
tax records. Common Stock in the account of each Reinvestment Plan participant
will be held by the Plan Agent in non-certificated form in the name of such
participant. Proxy materials relating to stockholders' meetings of Medallion
will include those shares purchased as well as shares held pursuant to the
Reinvestment Plan.
In the case of participants whose beneficially owned shares are held in the
name of banks, brokers or other nominees, the Plan Agent will administer the
Reinvestment Plan on the basis of the number of shares of Common Stock
certified from time to time by the record holders as the amount held for the
account of such beneficial owners.
The Plan Agent's fees for the handling or reinvestment of dividends and
other distributions will be paid by Medallion. Each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of distributions.
There are no other charges to participants for reinvesting distributions.
Distributions are taxable whether paid in cash or reinvested in additional
shares, and the reinvestment of distributions pursuant to the Reinvestment
Plan will not relieve participants of any U.S. federal income tax or state
income tax that may be payable or required to be withheld on such
distributions.
Experience under the Reinvestment Plan may indicate that changes are
desirable. Accordingly, Medallion reserves the right to amend or terminate the
Reinvestment Plan as applied to any distribution paid subsequent to
44
<PAGE>
written notice of the change sent to all stockholders of Medallion at least 90
days before the record date for such distribution.
The Reinvestment Plan also may be amended or terminated by the Plan Agent by
at least 90 days' written notice to all stockholders of Medallion. All
correspondence concerning the Reinvestment Plan should be directed to, and
additional information can be obtained from, the Plan Agent at 40 Wall Street,
46th floor, New York, New York 10005.
45
<PAGE>
EQUIVALENT PER SHARE DATA
The following table sets forth certain data concerning the historical book
value per share, cash dividends declared per share and income (loss) per share
from continuing operations for Medallion and CDI, respectively, on a pro forma
basis after giving effect to the Merger, as if such transaction had occurred
at the beginning of the period presented. The information should be read in
conjunction with the unaudited Pro Forma Consolidated Condensed Financial
Statements of Medallion contained elsewhere in this Proxy
Statement/Prospectus, the historical financial statements of Medallion
incorporated herein by reference and the historical financial statements of
CDI incorporated by reference herein. The unaudited pro forma equivalent per
share data shows for each share of Medallion Common Stock and CDI Common Stock
before the Merger, and its equivalent position after giving effect to the
Merger.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1997 1996
------ ------
<S> <C> <C>
PER SHARE OF MEDALLION COMMON STOCK:
Income from continuing operations(A):
Historical:
Basic earnings per share..................................... $ 1.03 $ 0.45
Diluted earnings per share................................... 1.02 0.45
Pro forma Medallion and CDI:
Basic earnings per share..................................... 1.11 0.61
Diluted earnings per share................................... 1.10 0.60
Cash dividends declared:
Historical................................................... 0.95 0.41
Equivalent pro forma Medallion and CDI..................... 0.81 0.37
Book Value (as of period end):
Historical................................................... 10.20 6.85
Pro forma Medallion and CDI................................ 10.69 7.87
PER SHARE OF CDI COMMON STOCK:
Income from continuing operations:
Historical, as adjusted(B)
Basic earnings per share..................................... 1.20 1.26
Diluted earnings per share................................... 1.07 1.14
Equivalent pro forma Medallion and CDI(C)
Basic earnings per share..................................... 0.66 0.36
Diluted earnings per share................................... 0.66 0.36
Cash dividends declared:
Historical................................................... -- --
Equivalent pro forma Medallion and CDI(C).................... 0.48 0.22
Book Value (as of period end)
Historical................................................... 10.05 10.00
Equivalent pro forma Medallion and CDI(C).................... 6.41 4.72
</TABLE>
- --------
(A) All 1996 historical amounts for Medallion are for the 7 month period ended
December 31, 1996.
(B) Historical earnings per share, as adjusted, reflected above, do not
include the historical income tax provision for CDI. Actual historical
Basic earnings per share (including income tax provision) was $0.65 per
share in 1997 and $0.92 per share in 1996. Actual historical Diluted
earnings per share (after the provision for income tax) was $0.58 per
share in 1997 and $0.83 per share in 1996.
(C) The equivalent pro forma per share amounts reflected above for CDI are
determined by multiplying the corresponding pro forma amounts per share of
Medallion Common Stock, by the exchange ratio of approximately 0.60 of
Medallion Common Stock in exchange for each share of CDI Common Stock.
46
<PAGE>
MEDALLION FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------
PRO FORMA PRO FORMA
MEDALLION CDI ADJUSTMENTS COMBINED
--------- ------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Investments........................... $288,724 $24,530 $ -- $313,254
Investments in unconsolidated
subsidiary........................... 1,141 -- -- 1,141
-------- ------- ------ --------
Total Investments................. $289,865 24,530 -- $314,395
-------- ------- ------ --------
Cash and Cash Equivalents............. 2,530 4,137 -- 6,667
Accrued interest receivable........... 2,935 -- -- 2,935
Receivable from sale of loans......... 2,863 -- -- 2,863
Fixed assets, net..................... 356 -- -- 356
Goodwill, net......................... 6,083 -- -- 6,083
Servicing fee receivable.............. 1,671 -- -- 1,671
Other assets.......................... 3,742 1,182 -- 4,924
-------- ------- ------ --------
Total assets...................... $310,045 29,849 -- $339,894
======== ======= ====== ========
LIABILITIES
Accounts payable and accrued
expenses............................. $ 6,850 519 -- 7,369
Dividend payable...................... 3,594 -- -- 3,594
Accrued interest payable.............. 774 -- -- 774
Notes payable to banks and demand
notes................................ 137,750 -- -- 137,750
SBA debentures payable................ 27,890 11,986 -- 39,876
-------- ------- ------ --------
Total liabilities................. $176,858 12,505 -- 189,363
-------- ------- ------ --------
Negative goodwill, net................ 1,795 -- -- 1,795
-------- ------- ------ --------
SHAREHOLDERS' EQUITY
Liquidating interest under repurchase
agreement............................ -- 2,066 -- 2,066
Common stock ($.01 par value)......... 129 1,502 (1,492) 139
Capital in excess of par value...... 130,379 9,129 1,492 141,000
Accumulated undistributed income.... 884 4,647 -- 5,531
-------- ------- ------ --------
Total shareholders' equity........ 131,392 17,344 -- 148,736
-------- ------- ------ --------
Total liabilities and
shareholders' equity............. $310,045 $29,849 -- $339,894
======== ======= ====== ========
</TABLE>
47
<PAGE>
MEDALLION FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
MEDALLION CDI(A) ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Investment income................. $23,448 $ 2,402 $ -- $25,850
Investments expense............... 9,210 889 -- 10,099
------- ------- ------- -------
Net Interest Income............... $14,238 1,513 -- $15,751
Equity in earnings (losses) of
unconsolidated subsidiary........ 203 -- -- 203
Other Income...................... 980 -- -- 980
Accretion of negative goodwill.... 722 -- -- 722
Gain on sale of loans............. 337 337
Operating expenses................ (4,797) (1,372) -- (6,169)
Amortization of goodwill.......... (368) -- -- (368)
------- ------- ------- -------
Net investment income............. 11,315 140 -- 11,456
Realized gain (loss) on
investments, net................. $ 144 (66) -- 78
Change in unrealized depreciation
of investments................... (25) 1,954 -- 1,929
------- ------- ------- -------
Net increase in net assets
resulting from operations(A)..... $11,434 2,028 -- 13,463
======= ======= ======= =======
Per Share Date:
Basic earnings per share........ $ 1.03 1.20 -- 1.11
Diluted earnings per share...... $ 1.02 1.07 -- 1.10
Basic weighted average shares... 11,113 1,696 (685)(B) 12,124
Diluted weighted average
shares......................... 11,158 1,889 (763)(B) 12,284
</TABLE>
- --------
(A) For pro forma purposes, historical CDI amounts do not include any income
tax provisions based upon the assumption that CDI would have been
converted to a RIC at the commencement of the pro forma period and
therefore not subject to any income tax provision.
(B) Adjustment amount for Basic comprised of elimination of CDI stock (1,696)
and issuance of Medallion stock (1,011). Adjustment amount for Diluted
comprised of elimination of CDI stock (1,889) and issuance of Medallion
stock (1,126).
48
<PAGE>
MEDALLION FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
----------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
MEDALLION(A) CDI(B) ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Investment income.............. $10,411 $1,881 $ -- $12,292
Investments expense............ 5,008 319 -- 5,327
------- ------ ----- -------
Net Interest Income............ $ 5,403 1,562 -- $ 6,965
Equity in earnings (losses) of
unconsolidated subsidiary..... (63) -- -- (63)
Other Income................... 411 -- -- 411
Accretion of negative
goodwill...................... 421 -- -- 421
Operating expenses............. (2,230) (812) -- (3,042)
Amortization of goodwill....... (259) -- -- 259
------- ------ ----- -------
Net investment income.......... 3,683 750 -- 4,433
Realized gain (loss) on
investments, net.............. 84 474 -- 558
Change in unrealized
depreciation of investments... (46) 804 -- 758
------- ------ ----- -------
Net increase in net assets
resulting from operations(B).. $ 3,721 2,028 -- 5,749
======= ====== ===== =======
Per Share Date:
Basic earnings per share..... $ 0.45 1.26 -- .62
Diluted earnings per share... $ 0.45 1.14 -- .62
Basic weighted average
shares...................... 8,250 1,605 (648)(C) 9,207
Diluted weighted average
shares...................... 8,278 1,772 (716)(C) 9,334
</TABLE>
- --------
(A) The Medallion 1996 Statement of Income is for the period from May 30, 1996
(Commencement of Operations) to December 31, 1996.
(B) For pro forma purposes, historical CDI amounts do not include any income
tax provisions based upon the assumption that CDI would have been
converted to a RIC at the commencement of the pro forma period and
therefore not subject to any income tax provision.
(C) Adjustment amount for Basic comprised of elimination of CDI stock (1,605)
and issuance of Medallion stock (957). Adjustment amount for Diluted
comprised of elimination of CDI stock (1,772) and issuance of Medallion
stock (1,056).
49
<PAGE>
MEDALLION FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
MEDALLION(A) CDI(B) ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Investment income.............. $-- $1,481 $ -- $1,481
Investments expense............ -- 224 -- 224
---- ------ ----- ------
Net Interest Income............ -- 1,257 -- 1,257
Equity in earnings (losses) of
unconsolidated subsidiary..... -- -- -- --
Other Income................... -- -- -- --
Accretion of negative
goodwill...................... -- -- -- --
Operating expenses............. -- (607) -- (607)
Amortization of goodwill....... -- -- -- --
---- ------ ----- ------
Net investment income.......... -- 650 -- 650
Realized gain (loss) on
investments, net.............. -- 3,799 -- 3,799
Change in unrealized
depreciation of investments... -- (649) -- (649)
---- ------ ----- ------
Net increase in net assets
resulting from operations(B).. -- 3,800 -- 3,800
==== ====== ===== ======
Per Share Date:
Basic earnings per share..... -- 2.08 -- 3.49
Diluted earnings per share... -- 1.90 -- 3.19
Basic weighted average
shares...................... -- 1,828 (738)(C) 1,090
Diluted weighted average
shares...................... -- 1,998 (807)(C) 1,191
</TABLE>
- --------
(A) There is no 1995 Statement of Income for Medallion as it commenced
operations on May 30, 1996.
(B) For pro forma purposes, historical CDI amounts do not include any income
tax provisions based upon the assumption that CDI would have been
converted to a RIC at the commencement of the pro forma period and
therefore not subject to any income tax provision.
(C) Adjustment amount for Basic comprised of elimination of CDI stock (1,828)
and issuance of Medallion stock (1,090). Adjustment for Diluted comprised
of elimination of CDI stock (1,998) and issuance of Medallion stock
(1,191).
50
<PAGE>
MEDALLION FINANCIAL CORP
UNAUDITED PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------
BALANCE
NUMBER OF OUTSTANDING
LOANS (IN THOUSANDS) RATE
--------- -------------- -----------
<S> <C> <C> <C>
MEDALLION LOANS: 2 $ 49 5.00-7.00%
22 2,911 6.73-7.77
74 17,713 8.00
22 5,656 8.13
11 2,445 8.20
174 28,470 8.25
12 2,785 8.30-8.38
199 25,906 8.50
141 20,938 8.60-8.75
15 4,063 8.80-8.90
191 23,417 9.00
207 19,029 9.25
183 18,256 9.50
76 6,559 9.60-9.75
6 272 9.80-9.90
253 19,566 10.00
37 3,074 10.25
3 600 10.27-10.28
2 246 10.38
81 4,651 10.50
34 3,311 10.75-10.90
203 10,171 11.00
201 10,708 11.25-11.33
3 323 11.50
3 123 11.75
8 1,045 11.90
116 8,252 12.00
12 1,774 12.25
5 430 12.50
10 973 12.75-12.90
309 12,559 13.00
39 1,684 13.25
46 2,392 13.50
3 148 13.75-13.90
161 6,755 14.00-14.05
82 5,705 14.20-14.50
11 381 14.70-14.84
6 257 14.90-14.95
284 10,907 15.00
8 431 15.20-15.25
16 994 15.50
9 1,044 15.75-15.90
23 1,098 16.00
5 269 16.25
12 392 16.50-16.95
6 286 17.00-17.90
5 215 18.00-18.50
6 168 19.00
----- --------
3,347 289,401
CDI LOANS: 9 7,951 12%
5 6,096 13%
3 3,035 14%
1 368 18%
----- --------
18 17,450
CDI EQUITY INVESTMENTS: 7 4,357 N/A
----- --------
25 21,807
----- -------- -----------
Total................................... 3,372 $311,208 10.02%
----- -------- -----------
Plus: Origination costs, net............ 1,557
--------
Investments at cost..................... 312,765
--------
Less: Unrealized appreciation
(depreciation) on investments--
Medallion.............................. (2,234)
- --CDI Loans............................. (410)
- --CDI Equity Investments................ 3,133
--------
Investment at directors' valuation...... $313,254
--------
</TABLE>
N/A -- Not Applicable
51
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
NOTE 1:
It is contemplated that the pending acquisition will be accounted for as a
pooling of interests. Accordingly, pro forma financial information assumes
that the transaction was consummated as of the beginning of each of the
periods indicated herein. Certain reclassifications have been made to the
accounts of CDI in the accompanying Unaudited Pro Forma Condensed Combining
Balance Sheet and Unaudited Pro Forma Condensed Combined Statements of Income
to conform to the Medallion presentation.
The pro forma financial information does not give effect to any potential
cost savings in connection with the pending acquisition since the Company
anticipates operating CDI in substantially the same manner as prior to the
merger. The Company does not anticipate any economies of scale in acquiring
CDI.
NOTE 2:
The number of shares of Medallion Common Stock to be issued pursuant to the
acquisition of CDI is based upon the number of CDI shares outstanding as of
December 31, 1997, and the exchange ratio of approximately 0.60 shares of
Medallion Common Stock for each share of CDI Common Stock. The excess of the
par value of the Medallion Common Stock to be issued over the par value of the
CDI Common Stock to be acquired has been charged to Additional Paid-In-
Capital.
NOTE 3:
Pro forma earnings per share amounts in the accompanying Unaudited Pro Forma
Condensed Combined Statements of Income are based on the weighted average
number of Basic and Diluted common shares of Medallion and CDI during each
period as adjusted for the exchange ratio of approximately 0.60 (calculated by
dividing $15.50 by $26, as stipulated in the Merger Agreement, based on an
average 20-day closing price of $26).
52
<PAGE>
LEGAL PROCEEDINGS
Medallion and its subsidiaries have been named as defendants in various
legal proceedings incident to its business. Medallion's management intends to
vigorously defend these outstanding claims. In the opinion of such management,
based upon the advice of legal counsel, there is no proceeding pending, or to
the knowledge of management threatened, which if decided adversely to
Medallion, would have a material adverse impact on the Medallion's results of
operations or financial condition.
OTHER MATTERS
It is not expected that any matters other than those described in this Proxy
Statement/Prospectus will be brought before the CDI Special Meeting. If any
other matters are presented, however, it is the intention of the persons named
in the CDI proxy to vote the proxy in accordance with the discretion of the
persons named in such proxy.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities offered
hereby will be passed upon for Medallion by Willkie Farr & Gallagher, New
York, New York. Certain legal matters relating to CDI will be passed upon for
CDI by Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota. Mario M. Cuomo, a
director of Medallion who beneficially owns 4,848 shares of Medallion Common
Stock underlying stock options, is a partner in the law firm of Willkie Farr &
Gallagher.
EXPERTS
The consolidated financial statements of Medallion Financial Corp. included
in Medallion's Annual Report on Form 10-K and incorporated by reference in
this Registration Statement on Form N-14, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of Capital Dimensions, Inc. as of and
for the years ended June 30, 1997 and 1996 incorporated by reference in this
Proxy Statement/Prospectus from Capital Dimensions, Inc.'s Annual Report on
Form 10-K for the year ended June 30, 1997, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report (which report
expresses an unqualified opinion and includes an explanatory paragraph
referring to the uncertainty of the valuation of investment securities) which
is incorporated herein by reference and have been so incorporated in reliance
upon the report of such firm given upon their authority of as experts in
accounting and auditing.
The consolidated statements of operations, changes in stockholders' equity,
and cash flows of Capital Dimensions, Inc. for the year ended June 30, 1995
included in the Annual Report on Form 10-K of Capital Dimensions, Inc. for the
year ended June 30, 1997, and incorporated by reference in this Registration
Statement on Form N-14, have been audited by Lurie, Besikof, Lapidus & Co.,
LLP, independent auditors, as indicated in their report (which report
expressed an unqualified opinion and includes an explanatory paragraph
referring to the uncertainty of the valuation of investment securities), and
have been incorporated by reference in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
53
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 6, 1998
BY AND AMONG
MEDALLION FINANCIAL CORP.,
CD MERGER CORP.,
AND
CAPITAL DIMENSIONS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I. THE MERGER; EFFECT OF MERGER.................................. 1
Section 1.1. The Merger............................................. 1
Section 1.2. Effective Time of the Merger........................... 1
Section 1.3. Effects of Merger...................................... 1
ARTICLE II. THE SURVIVING CORPORATION.................................... 2
Section 2.1. Articles of Incorporation.............................. 2
Section 2.2. By-Laws................................................ 2
Section 2.3. Officers and Directors................................. 2
ARTICLE III. CONVERSION OF SHARES AND EXCHANGE OF STOCK OPTIONS.......... 2
Section 3.1. Conversion of Shares................................... 2
Section 3.2. Appraisal Rights....................................... 2
Section 3.3. Holdback Shares........................................ 3
Section 3.4. Parent to Make Certificates Available.................. 3
Section 3.5. Dividends; Transfer Taxes.............................. 4
Section 3.6. No Fractional Securities............................... 4
Section 3.7. Assumption and Conversion of Company Stock Options..... 4
Section 3.8. Closing of Company Transfer Books...................... 5
Section 3.9. Stockholder Approval................................... 5
Section 3.10. Tax Treatment.......................................... 5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 6
Section 4.1. Execution and Delivery................................. 6
Section 4.2. Consents and Approvals................................. 6
Section 4.3. No Breach.............................................. 6
Section 4.4. Organization, Standing and Authority................... 7
Section 4.5. Capitalization of the Company.......................... 7
Section 4.6. Options and Other Stock Rights......................... 7
Section 4.7. Subsidiaries........................................... 7
Section 4.8. Corporate Records...................................... 8
Section 4.9. Information in Disclosure Documents.................... 8
Section 4.10. SEC Documents; Financial Statements.................... 8
Section 4.11. Liabilities............................................ 9
Section 4.12. No Material Adverse Change............................. 9
Section 4.13. Compliance with Laws................................... 9
Section 4.14. Permits................................................ 9
Section 4.15. Actions and Proceedings................................ 9
Section 4.16. Contracts and Other Agreements......................... 10
Section 4.17. Investment Portfolio................................... 11
Section 4.18. Real Property.......................................... 12
Section 4.19. Intellectual Property.................................. 12
Section 4.20. Receivables............................................ 13
Section 4.21. Banking................................................ 13
Section 4.22. Liens.................................................. 13
Section 4.23. Employee Benefit Plans................................. 13
Section 4.24. Employee Relations..................................... 14
Section 4.25. Insurance.............................................. 15
Section 4.26. Officers, Directors, Employees, Consultants............ 15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 4.27. Transactions with Directors, Officers and Affiliates.. 15
Section 4.28. Operations of the Company............................. 15
Section 4.29. Brokerage............................................. 16
Section 4.30. Taxes................................................. 16
Section 4.31. Execution and Validity of Employment Agreements....... 17
Section 4.32. Environmental Laws.................................... 17
Section 4.33. Accounting Matters.................................... 18
Section 4.34. Company Action........................................ 18
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............. 19
Section 5.1. Execution and Delivery................................ 19
Section 5.2. Consents and Approvals................................ 19
Section 5.3. No Breach............................................. 19
Section 5.4. SEC Documents; Financial Statements................... 20
Section 5.5. Shares of Parent Common Stock......................... 20
Section 5.6. Organization, Standing and Authority of Parent and
Sub.................................................. 20
Section 5.7. Capitalization........................................ 20
Section 5.8. Brokerage............................................. 21
Section 5.9. Information in Disclosure Documents................... 21
Section 5.10. No Material Adverse Change............................ 21
Section 5.11. Sub Action............................................ 21
ARTICLE VI. COVENANTS AND AGREEMENTS.................................... 21
Section 6.1. Conduct of Business................................... 21
Section 6.2. Litigation Involving the Company...................... 22
Section 6.3. Continued Effectiveness of Representations and
Warranties of the Parties............................ 22
Section 6.4. Corporate Examinations and Investigations............. 23
Section 6.5. Preparation of Company Restated Financial Statements.. 23
Section 6.6. Registration Statement/Proxy Statement................ 24
Section 6.7. Compliance with the Securities Act.................... 24
Section 6.8. Nasdaq Listing........................................ 24
Section 6.9. Acquisition Proposals................................. 24
Section 6.10. No Shopping........................................... 24
Section 6.11. Parent and Sub Approvals.............................. 25
Section 6.12. Company Approvals..................................... 25
Section 6.13. Distribution.......................................... 25
Section 6.14. Expenses.............................................. 25
Section 6.15. Further Assurances.................................... 25
Section 6.16. Hart-Scott-Rodino..................................... 25
Section 6.17. SBA Approval.......................................... 26
Section 6.18. Execution of Employment Agreements.................... 26
Section 6.19. Board Attendance Right................................ 26
Section 6.20. Grant of Parent Stock Options......................... 26
Section 6.21. Employee Matters...................................... 26
Section 6.22. Compliance with Legal Requirements.................... 26
Section 6.23. Indemnification of Company Officers and Directors..... 26
ARTICLE VII. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER.................................................. 27
Section 7.1. Company Stockholder Approval.......................... 27
Section 7.2. Listing of Shares..................................... 27
</TABLE>
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Section 7.3. Hart-Scott-Rodino..................................... 27
Section 7.4. Effectiveness of Registration Statement............... 27
Section 7.5. SBA Approval.......................................... 27
Section 7.6. Litigation............................................ 27
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATION OF PARENT AND SUB
TO EFFECT THE MERGER....................................... 27
Section 8.1. Representations and Covenants......................... 28
Section 8.2. Absence of Material Adverse Change.................... 28
Section 8.3. Receipt of Agreements................................. 28
Section 8.4. Accountant's Letters.................................. 28
Section 8.5. Dissenting Shares..................................... 28
Section 8.6. Opinions of Counsel to the Company.................... 28
Section 8.7. Tax Opinion........................................... 28
Section 8.8. Termination of Management Agreement................... 29
Section 8.9. Amendment of Agreements With Holders of Company Stock
Options.............................................. 29
Section 8.10. Closing Conditions.................................... 29
ARTICLE IX. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
EFFECT THE MERGER............................................ 29
Section 9.1. Representations and Covenants......................... 29
Section 9.2. Absence of Material Adverse Change.................... 29
Section 9.3. Receipt of Agreements................................. 29
Section 9.4. Accountant's Letter................................... 29
Section 9.5. Opinion of Counsel to Parent.......................... 29
Section 9.6. Tax Opinion........................................... 30
Section 9.7. Closing Conditions.................................... 30
ARTICLE X. CLOSING...................................................... 30
ARTICLE XI. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION........................................................ 30
Section 11.1. Survival of Representations and Warranties............ 30
Section 11.2. Indemnification by Company Stockholders............... 30
ARTICLE XII. TERMINATION OF AGREEMENT................................... 31
Section 12.1. Termination........................................... 31
Section 12.2. Effect of Termination................................. 31
Section 12.3. Termination Expenses.................................. 31
ARTICLE XIII. DEFINITIONS............................................... 32
Section 13.1. Definitions........................................... 32
ARTICLE XIV. MISCELLANEOUS.............................................. 36
Section 14.1. Publicity............................................. 36
Section 14.2. Notices............................................... 36
Section 14.3. Entire Agreement...................................... 37
Section 14.4. Waivers and Amendments; Non Contractual Remedies;
Preservation of Remedies; Liability.................. 37
Section 14.5. Governing Law......................................... 37
Section 14.6. Binding Effect; No Assignment......................... 37
Section 14.7. Third Party Beneficiaries............................. 37
Section 14.8. Counterparts.......................................... 38
</TABLE>
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Section 14.9. Exhibits and Schedules................................. 38
Section 14.10. Headings............................................... 38
Section 14.11. Submission to Jurisdiction; Venue...................... 38
Section 14.12. Specific Performance................................... 38
Section 14.13. Severability........................................... 38
</TABLE>
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EXHIBITS
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Exhibit A Articles of Incorporation of the Surviving Corporation
Exhibit B By-Laws of the Surviving Corporation
Exhibit C Form of Holdback Escrow Agreement
Exhibit D Forms of Employment Agreements entered into by each of the Named
Executives
Exhibit E Form of Opinion of Lindquist & Vennum P.L.L.P. as Counsel to the
Company
Exhibit F Form of Opinion of Willkie Farr & Gallagher as Counsel to Parent and
Sub
Exhibit G Form of Affiliate Letter
COMPANY DISCLOSURE SCHEDULE
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SECTION DESCRIPTION
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4.4 Foreign Qualification; Organizational Documents
4.5 Stockholders; Option Holders
4.7 Subsidiary Qualification; Subsidiary Organizational Documents;
Investments
4.12 No Material Adverse Change
4.13 Compliance with Laws
4.15 Actions and Proceedings
4.16 Contracts and Other Agreements
4.17 Loan Portfolio
4.18 Real Property
4.21 Bank Accounts
4.23 Employee Benefit Plans
4.25 Insurance
4.26 Officers, Directors, Employees, Consultants
4.27 Transactions with Directors, Officers and Affiliates
4.28 Subsequent Events
4.30 Tax Jurisdictions
PARENT DISCLOSURE SCHEDULE
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SECTION DESCRIPTION
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<C> <S>
5.6 Parent and Sub Organizational Documents
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of March 6,
1998, is made by and among Medallion Financial Corp., a Delaware corporation
("Parent"), CD Merger Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Sub"), and Capital Dimensions, Inc., a Minnesota
corporation (the "Company"). Certain terms used in this Agreement are defined
in Article XIII.
W I T N E S S E T H:
Whereas, Parent and Sub desire to effect a business combination by means of
the merger of Sub with and into the Company;
Whereas, the Board of Directors of Parent and Sub and the stockholder of Sub
and the Board of Directors of the Company have approved the merger of Sub with
and into the Company (the "Merger"), upon the terms and subject to the
conditions set forth herein;
Whereas, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".
Now, Therefore, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I.
The Merger; Effect of Merger
Section 1.1. The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the applicable provisions of the
Delaware General Corporation Law, as amended, and any rules and regulations
thereunder (the "Delaware Corporation Law") and the Minnesota Business
Corporation Act, as amended, and any rules and regulations thereunder (the
"Minnesota Corporation Law"), Sub shall be merged with and into the Company
and the separate existence of Sub shall thereupon cease. The name of the
Company, as the surviving corporation in the Merger (the "Surviving
Corporation"), shall by virtue of the Merger be changed to such name as
Parent, in its sole discretion, may choose and the Articles of Incorporation
of the Company, as the Surviving Corporation, shall be amended so as to be
substantially in the form attached hereto as Exhibit A.
Section 1.2. Effective Time of the Merger. The Merger shall become effective
at such time as a properly executed Certificate of Merger or Articles of
Merger is duly filed with the Secretaries of State of Delaware and Minnesota,
which filing shall be made as soon as practicable following fulfillment or
waiver of the conditions set forth in Articles VII, VIII and IX hereof or such
later time as is specified in such filing (the "Effective Time").
Section 1.3. Effects of Merger.
(a) The Merger shall have the effects set forth in Section 259 of the
Delaware Corporation Law and Section 302A.641 of the Minnesota Corporation
Law.
(b) By virtue of the approval of the Merger by the holders of Company Common
Stock, the holders of all Company Common Stock immediately prior to the
Effective Time (collectively, the "Company Stockholders" or individually, a
"Company Stockholder"), whether or not such stockholder voted in favor of the
Merger, shall
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be deemed to have approved the terms and conditions of this Agreement,
including, but not limited to, Section 3.3 and Article XI of this Agreement,
and the terms of the Holdback Escrow Agreement, which provide for the escrow
of the Escrow Holdback Shares, the appointment of the Indemnification
Representative (as defined in the Holdback Escrow Agreement) and the
indemnification obligations of the Company Stockholders thereunder.
ARTICLE II.
The Surviving Corporation
Section 2.1. Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be amended so as to be substantially in the form
attached hereto as Exhibit A after the Effective Time, and thereafter may be
amended in accordance with their terms and as provided by the Minnesota
Corporation Law, except as provided by Section 6.23 hereof.
Section 2.2. By-Laws. After the Effective Time, the by-laws of the Surviving
Corporation shall be amended so as to be substantially in the form attached as
Exhibit B, and thereafter may be amended in accordance with their terms and as
provided by the Minnesota Corporation Law.
Section 2.3. Officers and Directors. The officers of the Company and the
directors of Sub immediately prior to the Effective Time shall be the officers
and directors of the Surviving Corporation after the Effective Time, in each
case until their respective successors are duly elected and qualified.
ARTICLE III.
Conversion of Shares and Exchange of Stock Options
Section 3.1. Conversion of Shares.
(a) Subject to Sections 3.2 and 3.3 hereof, at the Effective Time, by virtue
of the Merger and without any action on the part of any Company Stockholder:
(1) Conversion of Company Common Stock. Each outstanding share of Company
Common Stock shall be converted into that number of fully paid and
nonassessable shares of Parent Common Stock (or fraction thereof) equal to
the quotient obtained by dividing (to five places after the decimal point)
(x) $15.50 by (y) the average of the closing sale prices per share of
Parent Common Stock on the Nasdaq National Market for the 20 trading days
which immediately precede the Business Day immediately preceding the
Closing Date (the "Determination Period"); provided, however, that if such
average exceeds $26.00, the divisor shall be $26.00, and if such average is
less than $23.50, the divisor shall be $23.50. (such quotient, the
"Exchange Ratio"). If at any time after the commencement of the
Determination Period, but prior to the Effective Time, the outstanding
shares of Parent Common Stock shall be changed into a different number of
shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or
readjustment, or if a stock dividend thereon shall be declared with a
record date within such period, the Exchange Ratio shall be correspondingly
adjusted.
(2) Cancellation of Company Treasury Stock. All shares of Company Common
Stock which are held in the treasury of the Company shall be canceled and
shall cease to exist.
(b) Each issued and outstanding share of capital stock of Sub shall be
converted into one validly issued, fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation.
Section 3.2. Appraisal Rights. Notwithstanding anything in this Agreement to
the contrary, but only in the circumstances and to the extent provided by the
Minnesota Corporation Law, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and that are held by Company
Stockholders who were entitled to but did not vote such shares in favor of the
Merger and who shall have properly and timely
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delivered to the Company a written demand for appraisal of their shares of
Company Common Stock in accordance with Sections 302A.471 and 302A.473 of the
Minnesota Corporation Law ("Dissenting Shares") shall not be converted into
the right to receive, or be exchangeable for, shares of Parent Common Stock.
Instead, the holders thereof shall be entitled to payment of the fair value of
such shares in accordance with the provisions of Sections 302A.471 and
302A.473 of the Minnesota Corporation Law; provided, however, that (i) if any
holder of Dissenting Shares shall subsequently withdraw his demand for payment
of the fair value of such Dissenting Shares or (ii) if any holder fails to
establish and perfect his entitlement to the relief provided in Sections
302A.471 and 302A.473 of the Minnesota Corporation Law, the rights and
obligations of such holder to receive such fair value shall terminate, and
such Dissenting Shares shall thereupon be deemed to have been converted into
the right to receive, and to have become exchangeable for, as of the Effective
Time, shares of Parent Common Stock in accordance with Section 3.1(a) hereof.
The Company shall give Parent prompt notice of any demands received by the
Company for appraisal of Dissenting Shares, and Parent shall have the right to
participate in all negotiations and proceedings with respect to such demands.
Prior to the Effective Time, the Company will not make any payment with
respect to, or settle or offer to settle, the demands of any Dissenting Shares
without the written consent of Parent. The Company shall comply with the
notice provisions of Section 302A.473 of the Minnesota Corporation Law.
Section 3.3. Holdback Shares.
(a) At the Effective Time, shares of Parent Common Stock constituting ten
percent (10%) of the aggregate number of shares of Parent Common Stock into
which each Company Stockholder's certificates of Company Common Stock are
convertible in the Merger pursuant to Section 3.1 hereof (rounded down to the
nearest whole number) (the "Escrow Holdback Shares") shall be deposited in
escrow with an escrow agent mutually agreeable to Parent and the Company
appointed prior to the Closing (the "Holdback Escrow Agent"), to be held and
administered in accordance with the terms and conditions of a Holdback Escrow
Agreement, in substantially the form attached hereto as Exhibit C (the
"Holdback Escrow Agreement"), against which Escrow Holdback Shares Parent or
Sub shall be entitled, in accordance with the terms of the Holdback Escrow
Agreement, to recover (i) Damages (as defined in the Holdback Escrow
Agreement) that may be suffered by Parent or Sub and that are indemnifiable
under Section 11.2 (an "Escrow Claim Event") and (ii) any Cash Distributions
(as defined in the Holdback Escrow Agreement).
(b) Escrow Claim Events shall be made, and may be disputed, in accordance
with the terms and conditions of the Holdback Escrow Agreement. Upon
termination of the escrow, all shares of Parent Common Stock (and any cash)
remaining in escrow shall be released to the persons who immediately prior to
the Effective Time were holders of shares of Company Common Stock in
accordance with the terms of the Holdback Escrow Agreement.
(c) Parent may, in its sole discretion, elect to waive the provisions of
this Section 3.3 at any time prior to the Effective Time.
Section 3.4. Parent to Make Certificates Available.
(a) Prior to the Closing, Parent shall select a person or persons to act as
exchange agent for the Merger (the "Exchange Agent"), which person or persons
shall be reasonably acceptable to the Company. On the Closing Date, Parent
shall deliver to the Exchange Agent, in trust for the benefit of the Company
Stockholders (other than Company Stockholders who hold Dissenting Shares), a
stock certificate (issued in the name of the Exchange Agent or its nominee)
representing the Share Consideration (other than the Escrow Holdback Shares).
As soon as reasonably practicable after the Effective Time but in no event
more than five Business Days after the Effective Time, Parent shall cause the
Exchange Agent to send a notice and a letter of transmittal to each Company
Stockholder advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Exchange Agent for cancellation such
holder's certificates representing Company Common Stock ("Certificates"), in
exchange for the Share Consideration. Each Company Stockholder will be
entitled to receive, upon surrender to the Exchange Agent for cancellation of
one or more Certificates, certificates representing the
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number of shares of Parent Common Stock into which such shares are converted
in the Merger (less the number of the shares of Parent Common Stock
constituting the Escrow Holdback Shares), without consideration of fractional
shares as provided in Section 3.6. Parent Common Stock into which Company
Common Stock shall be converted in the Merger shall be deemed to have been
issued at the Effective Time (the "Share Consideration"). In the event that
any Company Stockholder's Certificates have been lost, stolen or destroyed,
such Company Stockholder will be entitled to receive the Share Consideration
only after providing an affidavit of loss and indemnity bond, in form
satisfactory to the Exchange Agent.
(b) Any Company Stockholder who has not exchanged his Certificates for
Parent Common Stock in accordance with subsection (a) within six months after
the Effective Time shall have no further claim upon the Exchange Agent, and
shall thereafter look only to Parent and the Surviving Corporation for payment
in respect of his shares of Company Common Stock. Until so surrendered,
Certificates shall represent solely the right to receive the Share
Consideration. If any Certificates entitled to payment pursuant to Section 3.1
shall not have been surrendered for such payment prior to such date on which
any payment in respect thereof would otherwise escheat to or become the
property of any Governmental Entity, the shares of Company Common Stock
represented thereby shall, to the extent permitted by applicable law, be
deemed to be canceled and no money or other property will be due to the holder
thereof.
Section 3.5. Dividends; Transfer Taxes. No Distributions that are declared
or made with respect to Parent Common Stock will be paid to persons entitled
to receive certificates representing Parent Common Stock pursuant to this
Agreement until such persons surrender their Certificates. Upon such
surrender, there shall be paid to the person in whose name the certificates
representing such Parent Common Stock shall be issued Distributions which
shall have become payable with respect to such Parent Common Stock in respect
of a record date after the Effective Time. In no event shall the person
entitled to receive such Distributions be entitled to receive interest on such
Distributions. In the event that any certificates for any shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it shall be a
condition of such exchange that the Certificate or Certificates so surrendered
shall be properly endorsed or be otherwise in proper form for transfer
(including signature guarantee) and that the person requesting such exchange
shall pay to the Exchange Agent any transfer or other taxes required by reason
of the issuance of certificates for such shares of Parent Common Stock in a
name other than that of the registered holder of the Certificate surrendered,
or shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of shares of
Company Common Stock for any shares of Parent Common Stock or dividends
thereon delivered to a public official pursuant to any applicable escheat
laws.
Section 3.6. No Fractional Securities. Notwithstanding any other provision
of this Agreement, no certificates or scrip for shares of common stock
representing less than one share of Parent Common Stock shall be issued upon
the surrender for exchange of Certificates pursuant to this Article III and no
Distribution that is declared or made with respect to Parent Common Stock,
stock split or interest shall relate to any fractional security, and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder. Each holder of shares of Company Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Parent Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to (x) such fractional
part of a share of Parent Common Stock multiplied by (y) $15.50.
Section 3.7. Assumption and Conversion of Company Stock Options.
(a) As soon as reasonably practicable after the Effective Time and subject
to the approval of the Company Stock Option Conversion by the holders of
Parent Common Stock, Parent and the Company shall take all action necessary to
cause each issued and outstanding Company Stock Option to be assumed by Parent
and converted without any action on the part of the holder thereof into an
option (a "New Parent Stock Option") to purchase Parent Common Stock (which
shall be an incentive stock option, to the maximum extent permissible under
Sections 422 and 424 of the Code), exercisable for a number of shares of
Parent Common Stock based on the
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Exchange Ratio (rounded down to the nearest whole share), with a proportional
adjustment of the exercise price (rounded up to the nearest whole cent) of the
new option so that the excess of the aggregate fair market value of the shares
subject to each New Parent Stock Option immediately after such conversion over
the aggregate exercise price of such new option is equivalent to the excess of
the fair market value of the shares subject to the Company Stock Option
immediately before such conversion over the aggregate exercise price of such
Company Stock Option, as required by Section 424(a)(1) of the Code (i.e., if
the Exchange Ratio were $24.75, a Company Stock Option to purchase 10,000
shares of Company Common Stock at an exercise price of $4.00 per share would
become a New Parent Stock Option to purchase 6,262 shares of Parent Common
Stock at an exercise price of $6.39 per share). The holders of New Parent
Stock Options will not be given any additional benefits which such holders did
not have under the Company Stock Options, as required by Section 424(a)(2) of
the Code.
(b) Parent shall take all action necessary, in accordance with applicable
law and its Certificate of Incorporation and By-Laws, to present a proposal
regarding the conversion of Company Stock Options into New Parent Stock
Options in accordance with the provisions of this Section 3.7 (the "Company
Stock Option Conversion") to the holders of Parent Common Stock for their
approval at Parent's 1998 annual meeting of stockholders (now scheduled for
June 1998). The Board of Directors of Parent has approved, and will recommend
that the holders of Parent Common Stock approve, the Company Stock Option
Conversion. In the event that the Company Stock Option Conversion is not
approved by the holders of Parent Common Stock at Parent's 1998 annual meeting
of stockholders, Parent shall cause the Company Stock Options to be exchanged
for shares of Parent Common Stock equal to their fair market value, as
determined by an investment banking firm mutually satisfactory to Parent and
the Company. Any shares of Parent Common Stock so exchanged shall be valued at
the Exchange Ratio.
(c) The Company shall not amend or modify any provision of the Company's
1997 Stock Option Plan or the terms of any Company Stock Options granted
thereunder. From the date hereof to the Effective Time, the Company (i) shall
make no further grants under the Company's 1997 Stock Option Plan, including
automatic grants to non-employee directors of the Company and (ii) shall not
alter the terms and conditions of any outstanding Company Stock Options. As
soon as reasonably practicable after approval of the Company Stock Option
Conversion by the holders of Parent Common Stock, Parent shall deliver a
letter to each holder of a Company Stock Option not exercised prior to the
Effective Time evidencing Parent's assumption of such option and the right of
the option holder to purchase the number of shares of Parent Common Stock as
determined under this Section 3.7 and Section 3.1. After the Effective Time
and subject to the approval of the Company Stock Option Conversion, the
Company's 1997 Stock Option Plan shall be continued in effect pursuant to its
terms by Parent subject to amendment, modification or termination as provided
therein, except that the Company's 1997 Stock Option Plan as so continued
shall relate only to the issuance of Parent Common Stock pursuant to New
Parent Stock Options as provided in this Section 3.7.
Section 3.8. Closing of Company Transfer Books. Immediately prior to the
Effective Time, the Company Common Stock transfer books shall be closed and no
transfer of Company Common Stock shall thereafter be made.
Section 3.9. Stockholder Approval. The Company shall take all action
necessary, in accordance with applicable law and its Articles of Incorporation
and By-Laws, to convene a special meeting of the holders of Company Common
Stock (the "Company Meeting") as promptly as practicable for the purpose of
considering and taking action upon this Agreement. The Board of Directors of
the Company has approved the Merger and adopted this Agreement and recommended
that holders of Company Common Stock vote in favor of and approve the Merger
and the adoption of this Agreement at the Company Meeting.
Section 3.10. Tax Treatment. The Merger is intended to constitute a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, and
Parent and the Company shall not report the transaction on any tax return in a
manner or take any action inconsistent therewith.
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ARTICLE IV.
Representations and Warranties of the Company
The Company represents and warrants to Parent and Sub that, except as set
forth in the disclosure schedule attached hereto (the "Company Disclosure
Schedule"), which Company Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Article IV and may be amended from time to time pursuant to the provisions
hereof:
Section 4.1. Execution and Delivery. The Company has the corporate power and
authority to enter into this Agreement and each agreement, document or
instrument contemplated hereby or to be executed in connection herewith to
which the Company is a party (the "Company Documents") and, subject to
approval of this Agreement by the holders of the Company Common Stock, to
carry out its obligations hereunder and thereunder. The execution, delivery
and performance of this Agreement and the Company Documents and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by the Company's Board of Directors. This
Agreement constitutes the valid and binding obligation of the Company and the
Company Documents, when executed and delivered, will constitute the valid and
binding obligations of the Company, in each case enforceable in accordance
with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. Except for the
approval of the holders of a majority of the outstanding shares of Company
Common Stock, no other corporate proceedings on the part of the Company are
necessary after the date of this Agreement to authorize this Agreement and the
Company Documents and the transactions contemplated hereby and thereby.
Section 4.2. Consents and Approvals. The execution and delivery by the
Company of this Agreement and the Company Documents, the performance by the
Company of its obligations hereunder and thereunder, and the consummation by
the Company of the transactions contemplated hereby and thereby, as the case
may be, do not require the Company to obtain any consent, approval or action
of, or make any filing or registration with, or give any notice to, any person
or any Governmental Entity, other than (i) in connection, or in compliance,
with the provisions of the H-S-R Act and the Exchange Act, which will be duly
obtained or made, as the case may be, on or prior to the Closing, and will be
in full force and effect on the Closing Date, (ii) in the case of the
performance by the Company of its obligations hereunder and under the Company
Documents and the consummation by the Company of the transactions contemplated
hereby and by the Company Documents, the approval of the holders of the
Company Common Stock as specified in Section 4.1, (iii) the approval of the
United States Small Business Administration (the "SBA") and (iv) the filing of
the Certificate of Merger or Articles of Merger with the Secretaries of State
of Delaware and Minnesota.
Section 4.3. No Breach. The execution, delivery and performance by the
Company of this Agreement and the Company Documents and the consummation by
the Company of the transactions contemplated hereby and thereby in accordance
with the terms and conditions hereof and thereof will not (i) violate any
provision of the Articles of Incorporation or By-Laws of the Company; (ii)
violate, conflict with or result in the breach of any of the terms of, result
in any modification of the effect of, 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 contract or other agreement or
instrument to which the Company is a party or by or to which the assets or
properties of the Company may be bound or subject; (iii) violate any order,
judgment, injunction, award or decree of any Governmental Entity against, or
binding upon, or any agreement with, or condition imposed by, any Governmental
Entity, binding upon the Company, or upon the securities, assets or business
of the Company; (iv) violate any statute, law or regulation of any
jurisdiction as such statute, law or regulation relates to the Company, or to
the securities, assets or business of the Company; (v) result in the creation
or imposition of any lien or other encumbrance or the acceleration of any
indebtedness or other obligation of the Company; or (vi) result in the breach
of any of the terms or conditions of, constitute a default under, or otherwise
cause a violation of, any Permit of the Company; except in the case of (ii)
through (vi) above, for violations, conflicts, breaches, defaults,
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modifications, impairments, liens or other encumbrances that would not,
individually or in the aggregate, have a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities,
operations or prospects of the Company, or adversely affect the consummation
of the transactions contemplated hereby (a "Company Material Adverse Effect").
Section 4.4. Organization, Standing and Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Minnesota and has all requisite corporate power and
authority to own, lease and operate its assets, properties and business and to
carry on its business as now being conducted or currently proposed to be
conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of such activities make
such qualification necessary, except where the failure to so qualify would
not, individually or in the aggregate, have a Company Material Adverse Effect.
All such jurisdictions are set forth on Section 4.4 of the Company Disclosure
Schedule. The copies of the Articles of Incorporation and By-Laws of the
Company included as part of Section 4.4 of the Company Disclosure Schedule
constitute accurate and complete copies of such organizational instruments and
accurately reflect all amendments thereto through the date hereof.
Section 4.5. Capitalization of the Company. The authorized capital stock of
the Company consists of 9,000,000 shares of Company Common Stock and 1,000,000
shares of Company Preferred Stock. As of the date of this Agreement there were
1,725,438 shares of Company Common Stock and no shares of Company Preferred
Stock outstanding. As of the date hereof, there are no bonds, debentures,
notes or other indebtedness having the right to vote on any matters on which
the Company's stockholders may vote issued or outstanding. Section 4.5 of the
Company Disclosure Schedule sets forth a true and complete list as of the date
indicated of the holders of all (i) outstanding shares of Company Common Stock
and (ii) outstanding Company Stock Options, showing as to each such holder the
number of shares of Company Common Stock, or Company Stock Options so held,
such holder's mailing address and in the case of Company Stock Options, the
date of grant, vesting schedule and exercise price of all such Company Stock
Options. All outstanding shares of Company Common Stock are duly authorized
and are validly issued, fully paid and nonassessable and free of preemptive
rights.
Section 4.6. Options and Other Stock Rights. Except for Company Stock
Options to acquire 249,000 shares of the Company Common Stock, there is no (i)
outstanding option, warrant, call, unsatisfied preemptive right or other
agreement of any kind to purchase or otherwise to receive from the Company any
of the outstanding, authorized but unissued, unauthorized or treasury shares
of Company Common Stock, Company Preferred Stock or any other security of the
Company, (ii) outstanding security of any kind convertible into any security
of the Company, and (iii) outstanding contract or other agreement to purchase,
redeem or otherwise acquire any outstanding shares of Company Common Stock,
Company Preferred Stock or any other security of the Company.
Section 4.7. Subsidiaries.
(a) the Company does not have any direct or indirect Subsidiaries, other
than CDI-LP Holding, Inc. ("CDI-LP"). CDI-LP is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Minnesota and has all requisite corporate power and authority to own,
lease and operate its assets, properties and business and to carry on its
business as now being conducted or proposed to be conducted. CDI-LP is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of such activities make such qualification necessary,
except where the failure to so qualify would not, individually or in the
aggregate, have a Company Material Adverse Effect. All such jurisdictions are
set forth on Section 4.7(a) of the Company Disclosure Schedule. The copies of
the Articles of Incorporation and By-Laws of CDI-LP included as part of
Section 4.7(a) of the Company Disclosure Schedule constitute accurate and
complete copies of such organizational instruments and accurately reflect all
amendments thereto through the date hereof.
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(b) All the outstanding shares of capital stock of CDI-LP are duly
authorized, validly issued, fully paid and nonassessable and owned by the
Company free and clear of any liens, claims or encumbrances. CDI-LP has not
issued any securities in violation of any preemptive or similar rights and
there are no options, warrants, calls, rights or other securities, agreements
or commitments of any character obligating or committing CDI-LP or the Company
to issue, deliver or sell shares of CDI-LP's capital stock or debt securities,
or obligating CDI-LP or the Company to grant, extend or enter into any such
option, warrant, call or other such right, agreement or commitment.
(c) As of the date hereof, except as listed in Section 4.7(c) or Section
4.17 of the Company Disclosure Schedule, the Company has not made any advances
to or investments in, and does not own any securities of or other interests
in, any other person.
Section 4.8. Corporate Records. The Company has heretofore delivered to
Parent true and complete copies of the minute books of the Company and CDI-LP,
all as in effect on the date hereof, which books reflect all actions taken at
all meetings and consents in lieu of meetings of stockholders, and all actions
taken at all meetings and consents in lieu of meetings of the Company's and
CDI-LP's Board of Directors and all committees thereof, respectively.
Section 4.9. Information in Disclosure Documents. None of the information
with respect to the Company or its subsidiaries to be included in (i) the
joint prospectus/proxy statement of the Company and Parent (the "Proxy
Statement") required to be mailed to the stockholders of the Company and
Parent in connection with the Merger and (ii) the Registration Statement to be
filed with the Commission by Parent on Form N-14 under the Securities Act for
the purpose of registering the shares of Parent Common Stock to be issued in
the Merger (the "Registration Statement") will, in the case of the Proxy
Statement or any amendments or supplements thereto, at the time of the mailing
of the Proxy Statement and any amendments or supplements thereto, and at the
time of the Company Meeting, or, in the case of the Registration Statement, at
the time it becomes effective and at the Effective Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; provided,
however, that this provision shall not apply to statements or omissions in the
Registration Statement or Proxy Statement based upon information furnished by
Parent for use therein. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. No representation or warranty made by the Company
contained in this Agreement and no statement contained in any certificate,
list, exhibit or other instrument specified in this Agreement, including
without limitation the Company Disclosure Schedule, as the same may be amended
pursuant to the provisions hereof, contains any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
Section 4.10. SEC Documents; Financial Statements.
(a) The Company has filed and will file with the SEC all forms, reports,
schedules, statements, exhibits and other documents (other than registration
statements on Form S-8 or reports on Form 11-K, in each case relating to
employee benefit plans) (collectively, the "Company SEC Documents") required
to be filed on or before the date hereof or the Closing Date, respectively, by
it under the Securities Act or the Exchange Act. The Company has furnished or
made available to Parent true and correct copies of all Company SEC Documents
filed by the Company since June 1, 1997 and will promptly furnish to Parent
any other Company SEC Document filed by or on behalf of the Company with the
SEC from the date hereof to the Closing Date. At the time filed, the Company
SEC Documents filed by the Company since June 1, 1997 (i) did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading and (ii)
complied in all material respects with the applicable requirements of the
Securities Act or Exchange Act, as the case may be.
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(b) The audited consolidated financial statements of the Company for the
three years ended June 30, 1997, together with the reports and opinions
thereon of Deloitte & Touche LLP and Lurie, Besikof, Lapidus & Co., LLP, and
the unaudited consolidated financial statements of the Company for the six
months ended December 31, 1997 (the "Company Interim Financial Statements"),
which are included in the Company SEC Documents and have previously been
delivered to Parent, are collectively referred to herein as the "Company
Financial Statements". The Company Financial Statements comply as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto; and fairly
present, in all material respects, on a consolidated basis, the financial
position of the Company at, and the results of its operations for, each of the
periods then ended and were prepared in conformity with GAAP applied on a
consistent basis, except as otherwise disclosed therein and, subject, in the
case of the Company Interim Financial Statements, to normal year-end
adjustments, the absence of footnote disclosures, and any other adjustments
described therein.
Section 4.11. Liabilities.
(a) The Company does not have any direct or indirect liability, contingent
or otherwise, that is required by GAAP to be reflected or reserved for on the
financial statements of the Company (collectively, the "Liabilities"), that
was not adequately reflected or reserved against on the Audited Financial
Statements for the period ended June 30, 1997 or on the Company Interim
Financial Statements for the six-month period ended December 31, 1997, other
than (i) liabilities incurred in the ordinary course of business since January
1, 1998 consistent with past practices, or (ii) liabilities permitted by this
Agreement to be incurred in connection with the transactions contemplated by
this Agreement.
(b) No payments are due to the SBA as a result of the transactions
contemplated hereby, including, without limitation, any accrued interest or
dividends resulting from the Company's previous repurchase of its 3% preferred
stock from the SBA.
Section 4.12. No Material Adverse Change. Except as disclosed in Section
4.12 of the Company Disclosure Schedule, since June 30, 1997, there has been
no material adverse change in the management, assets, Liabilities, properties,
business, operations, financial condition, results of operations or prospects
of the Company.
Section 4.13. Compliance with Laws. Except as disclosed in Section 4.13 of
the Company Disclosure Schedule, the Company is not in violation in any
material respect of any applicable order, judgment, injunction, award or
decree, law, ordinance or regulation or any other requirement of any
Governmental Entity applicable to the Company or any of its businesses. The
Company has not received notice that any such violation has been alleged or is
being investigated.
Section 4.14. Permits. The Company has obtained all Permits that are
necessary for the ownership and conduct of its businesses as presently
conducted or currently proposed to be conducted, other than any Permits, the
absence of which would not, individually or in the aggregate, have a Company
Material Adverse Effect; such Permits are in full force and effect and are
sufficient for the ownership and conduct of such businesses as presently
conducted or currently proposed to be conducted; no material violations exist
or have been recorded in respect of any Permit; and no proceeding is pending
or, to the knowledge of the Company, threatened, that would suspend, revoke or
limit any Permit.
Section 4.15. Actions and Proceedings. There are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental Entity against
or involving the Company or any of its directors, officers or employees (in
their capacities as such). Except as disclosed in Section 4.15 of the Company
Disclosure Schedule, as of the date of this Agreement there is no claim,
action, suit, litigation, legal, administrative or arbitration proceeding,
whether formal or informal (including, without limitation, any claim or notice
of intent to institute any matter), which is pending or, to the Company's
knowledge, threatened against or involving the
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Company or any of its directors, officers or employees (in their capacities as
such) or properties, capital stock or assets.
Section 4.16. Contracts and Other Agreements.
(a) Section 4.16 of the Company Disclosure Schedule sets forth as of the
date of this Agreement each contract and other agreement as described below
(whether or not in writing) which is currently in effect (unless indicated
otherwise below) to which the Company is a party or by or to which its assets
or properties are bound, excluding agreements with portfolio companies
included in the Company's investment portfolio:
(i) contracts and other agreements with any current or former officer,
director, employee, consultant, agent or other representative of the
Company, other than pursuant to Plans described in Section 4.23 of the
Company Disclosure Schedule;
(ii) contracts and other agreements with any labor union or association
representing any employee;
(iii) contracts and other agreements for the purchase or sale of
equipment or services, which involve the receipt or payment by the Company
of an amount in excess of $2,000 per month (in the aggregate in the case of
any related series of contracts and other agreements);
(iv) contracts and other agreements for the sale of any of the assets or
properties of the Company or for the grant to any person of any
preferential rights to purchase any of the assets or properties of the
Company, which involve the receipt or payment by the Company of an amount
in excess of $10,000 (in the aggregate in the case of any related series of
contracts and other agreements);
(v) contracts and other agreements calling for an aggregate purchase
price or payments in any one year of more than $10,000 payable by the
Company in any one case (in the aggregate in the case of any related series
of contracts and other agreements);
(vi) contracts and other agreements, whether or not currently in effect,
relating to the acquisition by the Company of any business of, or the
disposition of any business involving the Company to, any other person;
(vii) contracts relating to the disposition or acquisition of any
investment or of any interest in any person, which involved the receipt or
payment by the Company of an amount in excess of $10,000 (in the aggregate
in the case of any related series of contracts and other agreements);
(viii) joint venture and similar agreements which would involve the
receipt or payment by the Company of an amount in excess of $50,000 (in the
aggregate in the case of any related series of contracts or other
agreements);
(ix) contracts and other agreements, whether or not currently in effect,
under which the Company agreed to indemnify any party or to share tax
liability of any party, which could involve the payment by the Company of
an amount in excess of $10,000 (in the aggregate in the case of any related
series of contracts or other agreements);
(x) contracts and other agreements containing covenants of the Company,
or, to the Company's knowledge, its officers, directors or employees, not
to compete in or solicit employees in any line of business or with any
person in any geographical area or covenants of any other person not to
compete with or solicit employees from the Company in any line of business
or in any geographical area;
(xi) contracts and other agreements relating to the making of any loan or
other extension of credit by the Company or of any loan by the Company to a
stockholder, officer or director of the Company or from a stockholder of
the Company to the Company;
(xii) contracts and other agreements relating to the borrowing of money
by, or indebtedness of, the Company or the direct or indirect guaranty by
the Company of any obligation or indebtedness of any other person or
Governmental Entity (other than any accounts receivable or accounts payable
of the Company), including, without limitation, any (a) agreement or
arrangement relating to the maintenance of compensating balances, (b)
agreement or arrangement with respect to lines of credit, (c) agreement to
advance or supply
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funds to any other person other than in the ordinary course of business,
(d) agreement to pay for property, products or services of any other person
even if such property, products or services are not conveyed, delivered or
rendered, (e) keep-well, make-whole or maintenance of working capital or
earnings or similar agreement, and (f) guaranty with respect to any lease
or other similar periodic payments to be made by any such person;
(xiii) contracts and other agreements relating to the provision by or to
the Company of third party management or administration services, which
involve the receipt or payment by the Company of an amount in excess of
$10,000 (in the aggregate in the case of any related series of contracts
and other agreements);
(xiv) each Lease and lease of personal property which requires annual
lease payments in excess of $10,000;
(xv) contracts and other agreements pursuant to which the Company obtains
or grants insurance or reinsurance;
(xvi) contracts and other agreements between the Company and any
Governmental Entity;
(xvii) contracts and other agreements which require payments generated by
a change in control of the Company;
(xviii) contracts and other agreements with any stockholder, director or
officer of the Company; and
(xix) contracts and other agreements, whether or not currently in effect,
relating to disposal of any controlled or hazardous substance or waste.
(b)(c) There have been delivered to Parent prior to the date hereof true and
complete copies of all of the contracts and other agreements set forth in
Section 4.16 of the Company Disclosure Schedule. Each such contract and other
agreement is valid, in full force and effect and binding upon the Company and,
to the Company's knowledge, the other parties thereto in accordance with its
terms, and the Company is not in default in any material respect under any of
them and the Company has no knowledge of any threat of cancellation or
termination thereunder, nor will the consummation of the transactions
contemplated by this Agreement result in a default under any such contract or
other agreement or the right to terminate such contract or other agreement. No
Permits or other documents or agreements with, or issued by or filed with, any
person, have been granted to any other person that provide the right to use
any real or tangible personal property comprising any portion of the assets of
the Company. The Company is not a party to any contract, commitment,
arrangement or agreement which would, following the Closing, restrain or
restrict Parent or any affiliate of Parent, from operating the business of the
Company in the manner in which it is currently operated.
Section 4.17. Investment Portfolio.
(a) The Company's investment portfolio was acquired in the ordinary course
of business, and a true and complete list of the investments in such
portfolio, as of the date hereof, with information included thereon as to the
principal terms of, interest rate, and maturity date thereof, and type and
value of collateral thereon (if any), as of such date, is listed in Section
4.17 of the Company Disclosure Schedule. Except as disclosed in Section 4.17
of the Company Disclosure Schedule, none of the investments included in such
portfolio is in default in the payment of principal or interest or materially
impaired. By virtue of the preemption provisions contained in the Small
Business Investment Act of 1958, the loans included in the Company's
investment portfolio need not comply with the laws and regulations of each of
the various states in which the Company does business or in which the
Company's borrowers are located.
(b) Section 4.17 of the Company Disclosure Schedule sets forth as of the
date of this Agreement each contract and other agreement between the Company
and the portfolio companies in which it has invested. Each such contract and
other agreement is valid, in full force and effect and binding upon the
Company and, to the Company's knowledge, the other parties thereto in
accordance with its terms, and the Company is not in default under any of them
and the Company has no knowledge of any threat of cancellation or termination
thereunder,
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nor will the consummation of the transactions contemplated by this Agreement
result in a default under any such contract or other agreement or the right to
terminate such contract or other agreement.
Section 4.18. Real Property.
(a) Section 4.18 of the Company Disclosure Schedule sets forth a list and
summary description of all leases, subleases, licenses, occupancy agreements
or other agreements, written and oral, together with any amendments or
modifications thereto (each a "Lease" and collectively, the "Leases") with
respect to (A) all real property leased by the Company (whether as lessor or
lessee and including those in the names of nominees or other entities) and
used or occupied in connection with the business of the Company (the "Leased
Real Property") and (B) all real property leased or subleased by the Company,
as lessor or sublessor, to third parties (such Section 4.18 of the Company
Disclosure Schedule to include the date of each Lease, the address of the
respective Leased Real Property, the amount of square feet of such Leased Real
Property, the Lease term commencement date, the Lease term expiration date,
any renewal options and any early termination provisions in each case with
respect to each portion of the Leased Real Property). The Company does not own
any real property.
(b) Each Lease is, with respect to the Company, in full force and effect,
and to the Company's knowledge, is in full force and effect with respect to
each other party thereto. The Company has performed all obligations required
to be performed by it to date under, and is not in default in respect of, any
Lease, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default by the Company. To the knowledge of the
Company, there is no default asserted thereunder by any other party thereto
and there are no unasserted defaults. All rentals and other payments due under
each such Lease have been duly paid.
(c) The Company has not received any notice of any violation of any
applicable building, zoning, land use or other similar statutes, laws,
ordinances, regulations, permits or other requirements (including, without
limitation, the Americans with Disabilities Act) in respect of the Leased Real
Properties, which has not been heretofore remedied, and there does not exist
any such violations which, individually or in the aggregate, could have a
Company Material Adverse Effect. The Company has not received any notice that
any operations on or uses of the Leased Real Properties constitute non-
conforming uses under any applicable building, zoning, land use or other
similar statutes, laws, ordinances, regulations, permits or other
requirements. The Company has no knowledge of nor has received any notice
(other than published notice not actually received) of any pending or
contemplated rezoning proceeding affecting the Leased Real Properties.
(d) The Company has not received notice from any insurance carrier regarding
defects or inadequacies in the Leased Real Properties, which, if not
corrected, would result in termination of the Company's insurance coverage
therefor or an increase in the cost thereof.
(e) To the knowledge of the Company, there is no pending or threatened: (i)
condemnation of any part of the Leased Real Properties by any Governmental
Entity; (ii) special assessment against any part of the Leased Real
Properties; or (iii) litigation against the Company for breach of any
restrictive covenant affecting any part of the Leased Real Properties.
(f) The improvements at the Leased Real Properties are in good condition and
repair, ordinary wear and tear excepted, and have not suffered any casualty or
other damage which has not been repaired.
Section 4.19. Intellectual Property.
(a) The Company owns or otherwise possesses all rights as are necessary to
use, all patents (and applications therefor), patent disclosures, trademarks,
service marks, trade names, registered copyrights (and applications therefor),
inventions, discoveries, processes, know-how, systems, scientific, technical,
engineering and marketing data, software programs and codes (both source and
object), formulae and techniques used in or necessary for the conduct of its
business (collectively, "Intellectual Property Rights").
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(b) The Company has not received notice nor otherwise has reason to know of
any conflict or alleged conflict with the rights of others pertaining to the
Intellectual Property Rights. The Company's business, as presently conducted,
does not infringe upon or violate any intellectual property rights of others.
The Company has the unrestricted right to use, free and clear of any rights or
claims of others, all trade secrets, processes, customer lists and other
rights incident to its businesses as now conducted.
(c) The Company is not currently obligated or under any existing liability
to make royalty or other payments to any owner of, licensor of, or other
claimant to, any patent, trademark, service names, trade names, copyrights, or
other intangible asset, with respect to the use thereof or in connection with
the conduct of its business as now conducted or otherwise. To the Company's
knowledge, no employee of the Company has violated any employment agreement or
proprietary information agreement which he had with a previous employer or any
patent policy of such employer, or is a party to or threatened by any
litigation concerning any patents, trademarks, trade secrets, service names,
trade names, copyrights, licenses and the like.
Section 4.20. Receivables. All accounts receivable and vendor receivables
reflected in the Company Interim Financial Statements, and all accounts
receivable and vendor receivables arising subsequent to December 31, 1997,
represent bona fide transactions that have arisen in the ordinary course of
business, are valid and existing and represent moneys due. The Company has
made and will make adjustments to the carrying value of such receivables
reasonably considered adequate for receivables not collectible in the ordinary
course of its business in accordance with GAAP, consistently applied.
Section 4.21. Banking. Section 4.21 of the Company Disclosure Schedule
contains a complete list of all of the bank accounts and lines of credit owned
or used by the Company, and the names of all persons with authority to
withdraw funds from, or execute drafts or checks on, each such account.
Section 4.22. Liens. The Company has good and marketable title to all of its
respective assets and properties, in each case free and clear of any lien or
other encumbrance, except for (i) liens or other encumbrances securing taxes,
assessments, governmental charges or levies, or the claims of materialmen,
carriers, landlords and like persons, all of which are not yet delinquent or
which are being contested in good faith or (ii) liens or other encumbrances of
a character that do not detract from the value of the property subject thereto
or impair the use of or the access to the property subject thereto, or impair
the operation of the Company or detract from its business.
Section 4.23. Employee Benefit Plans.
(a) Section 4.23(a) of the Company Disclosure Schedule sets forth all
"employee benefit plans", as defined in Section 3(3) of ERISA, and all other
employee benefit arrangements or payroll practices, including, without
limitation, any such arrangements or payroll practices providing severance
pay, sick leave, vacation pay, salary continuation for disability, retirement
benefits, deferred compensation, bonus pay, incentive pay, stock options,
hospitalization insurance, medical insurance, life insurance, scholarships or
tuition reimbursements, maintained by the Company or to which the Company is
obligated to contribute thereunder for current or former employees of the
Company or to which the Company has contributed or has been obligated to
contribute thereunder within the six-year period preceding the date hereof.
Each of the employee benefit plans, practices and arrangements set forth in
Section 4.23 of the Company Disclosure Schedule shall hereafter be referred to
as a "Plan" (or "Plans" as the context may require).
(b) None of the Plans is a "multiemployer plan," as defined in Section 3(37)
of ERISA or a "defined benefit plan," as defined in Section 3(35) of ERISA.
(c) Each of the Plans that are intended to qualify under Section 401(a) of
the Code, and the trusts maintained pursuant thereto, have been determined to
be exempt from federal income taxation under Section 501 of the Code by the
IRS (or remain within the remedial amendment period for obtaining an initial
determination of exemption from tax), and nothing has occurred with respect to
the operation of any such Plan
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which could cause the loss of such qualification or exemption or the
imposition of any liability, penalty or tax under ERISA or the Code.
(d) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under the Plans or
by law to any funds or trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extensions), and all contributions for any period ending on or before the
Effective Time which are not yet due will have been paid or accrued on or
prior to the Effective Time.
(e) There has been no violation of ERISA, the Code or other applicable law
with respect to the filing of applicable reports, documents and notices
regarding the Plans with the Secretary of Labor or the Secretary of the
Treasury, or the furnishing of required reports, documents or notices to the
participants or beneficiaries of the Plans.
(f) True, correct and complete copies of the following documents, with
respect to each of the Plans, have been delivered to Parent by the Company:
(i) all plans and related trust documents, and amendments thereto; (ii) the
most recent IRS Forms 5500; (iii) the last IRS determination letter; and (iv)
summary plan descriptions.
(g) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Plans, the assets of any of the trusts
under such plans or the plan sponsor or the plan administrator, or against any
fiduciary of the Plans with respect to the operation of such Plans (other than
routine benefit claims or actions seeking qualified domestic relations
orders), nor does the Company have knowledge of any threatened claim or
lawsuit.
(h) The Plans have been maintained in accordance with their terms and with
all provisions of ERISA and the Code (including rules and regulations
thereunder) and other applicable federal and state laws and regulations, and
neither the Company nor any "party in interest" or "disqualified person" with
respect to the Plans has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or 4975 of the Code that could result in
liability to the Company or Parent. No fiduciary has any liability for breach
of fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any Plan.
(i) None of the Plans provide retiree life or retiree health benefits except
as may be required under applicable state law, Section 4980B of the Code or
Section 601 of ERISA or at the expense of the participant or the participant's
beneficiary. The Company has complied with the notice and health care
continuation requirements of Section 4980B of the Code and Sections 601
through 608 of ERISA.
(j) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any employee (current, former or retired) of the
Company, (ii) increase any benefits otherwise payable under any Plan or (iii)
result in the acceleration of the time of payment or vesting of any benefits
under any Plan, except for accelerated vesting of Company Stock Options.
Section 4.24. Employee Relations.
(a) The Company is in compliance with all laws regarding employment, wages,
hours, equal opportunity, collective bargaining and payment of social security
and other taxes. The Company is not engaged in any unfair labor practice or
discriminatory employment practice and no complaint of any such practice
against the Company has been filed or, to the Company's knowledge, threatened
to be filed with or by the National Labor Relations Board, the Equal
Employment Opportunity Commission or any other administrative agency, federal
or state, that regulates labor or employment practices, nor is any grievance
filed or, to the Company's knowledge, threatened to be filed, against the
Company by any employee pursuant to any collective bargaining or other
employment agreement to which the Company is a party or is bound. The Company
is in compliance with all applicable foreign, federal, state and local laws
and regulations regarding occupational safety and health standards, and has
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received no complaints from any foreign, federal, state or local agency or
regulatory body alleging violations of any such laws and regulations.
(b) The employment of all persons employed by the Company is terminable at
will without any penalty or severance obligation of any kind on the part of
the employer. All sums due for employee compensation and benefits and all
vacation time owing to any employees of the Company have been duly and
adequately accrued on the accounting records of the Company. All employees of
the Company are either United States citizens or resident aliens specifically
authorized to engage in employment in the United States in accordance with all
applicable laws.
Section 4.25. Insurance. Section 4.25 of the Company Disclosure Schedule
sets forth a list of all policies or binders of errors and omissions, fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the Company (collectively, the "Insurance
Policies"). Such Insurance Policies are in full force and effect and are in
amounts of a nature which are adequate and customary for the Company's
business. In addition, Section 4.25 of the Company Disclosure Schedule sets
forth in respect of the Insurance Policies (i) a description of occurrences
reported involving amounts in excess of $10,000 and (ii) the aggregate amount
paid out under each such policy during the period from January 1, 1995 through
the date hereof. There have been no disputes regarding denial or nonpayment of
claims under any Insurance Policy.
Section 4.26. Officers, Directors, Employees, Consultants. Section 4.26 of
the Company Disclosure Schedule sets forth (i) the name of each officer and
director of the Company and the amount of compensation paid during fiscal 1997
and the amount reasonably expected to be paid during fiscal 1998, (ii) the
name of each other employee or class of employees of the Company who either
(x) received compensation in fiscal 1997 in excess of $50,000 or (y) is
anticipated to receive, based on current compensation levels, compensation in
fiscal 1998 in excess of $50,000, indicating the amount of such compensation
for such persons for fiscal 1997 and fiscal 1998; and (iii) a list of all
employees employed by the Company at January 1, 1998. The Company does not
employ any person as a consultant, whose employment cannot be terminated on
not less than 30 days' notice without penalty.
Section 4.27. Transactions with Directors, Officers and Affiliates. Except
as disclosed in Section 4.27 of the Company Disclosure Schedule, since January
1, 1996, there have been no transactions between the Company and any director,
officer, employee, stockholder or other affiliate of the Company or loans,
guarantees or pledges to, by or for the Company from, to, by or for any of
such persons in excess of $5,000. Since January 1, 1996, other than as
disclosed on Section 4.27 of the Company Disclosure Schedule, none of the
officers, directors or employees of the Company, or any spouse or relative of
any of such persons, has been a director or officer of, or has had any direct
or indirect interest in, any firm, corporation, association or business
enterprise which during such period has been a supplier, customer or sales
agent of the Company or has competed with or been engaged in any business of
the kind being conducted by the Company, except for an investment in less than
5% of the outstanding equity of any such firm, corporation, association or
business enterprise, the equity of which is publicly traded.
Section 4.28. Operations of the Company. Except as disclosed in Section 4.16
or 4.28 of the Company Disclosure Schedule and except as may result from the
transactions contemplated by this Agreement, since June 30, 1997, the Company
has not:
(i) amended its Certificate of Incorporation or by-laws or merged with or
into or consolidated with any other person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to change
in any manner the rights of its outstanding capital stock or the character
of its business;
(ii) issued or sold or purchased, or issued options or rights to
subscribe to, or entered into any contracts or commitments to issue or sell
or purchase, any shares of its capital stock or any of its bonds, notes,
debentures or other evidences of indebtedness, other than (x) options
granted pursuant to the Company's 1997 Stock Option Plan or (y) Company
Common Stock issued upon exercise of Company Stock Options;
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(iii) entered into or amended any agreement with any labor union or
association representing any employee, or, except for Plans referred to in
Section 4.23 of the Company Disclosure Schedule, made any wage or salary
increase or bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, directors, employees,
consultants, agents or other representatives in excess of $10,000, or
commitment or agreement to make or pay the same;
(iv) declared or made any Distributions to any stockholder or made any
direct or indirect redemption, retirement, purchase or other acquisition of
any shares of its capital stock;
(v) made any change in its accounting methods or practices or made any
change in depreciation or amortization policies, except as required by law
or GAAP;
(vi) made any loan or advance to its stockholders or to any of the
directors, officers or employees of the Company, consultants, agents or
other representatives, or otherwise than in the ordinary course of business
made any other loan or advance;
(vii) except in the ordinary course of business consistent with past
practice, (A) entered into any Lease; (B) sold, abandoned or made any other
disposition of any of its assets or properties; (C) granted or suffered any
lien or other encumbrance on any of its assets or properties; (D) entered
into or amended any contract or other agreement to which it is a party, or
by or to which it or its assets or properties are bound or subject which if
existing on the date hereof would need to be disclosed in Section 4.16 of
the Company Disclosure Schedule;
(viii) made or entered into any agreement to make any acquisition of all
or a substantial part of the assets, properties, securities or business of
any other person, other than investments in portfolio companies identified
on Section 4.17 of the Company Disclosure Schedule;
(ix) paid, directly or indirectly, any of its Liabilities before the same
became due in accordance with its terms or otherwise than in the ordinary
course of business;
(x) terminated or failed to renew, or received any written threat (that
was not subsequently withdrawn) to terminate or fail to renew, any contract
or other agreement that is or was material to the assets, liabilities,
properties, business, operations, condition (financial or otherwise),
operations or prospects of the Company;
(xi) made any revaluation of any assets or write-down of the value of any
receivables of the Company in excess of $10,000, other than revaluations of
the Company's investment portfolio on a quarterly basis consistent with
past practice;
(xii) except in the ordinary course of business consistent with past
practice, accelerated the collection, or sale to third parties, of any
receivables of the Company, or delayed the payment of any payables of the
Company;
(xiii) entered into any other contract or other agreement or other
transaction that obligates the Company to pay an amount in excess of
$10,000, which contract is not terminable by the Company upon not more than
30 days' notice; or
(xiv) suffered any damage, destruction or loss, whether covered by
insurance or not, which has had or could have a Company Material Adverse
Effect.
Section 4.29. Brokerage. No broker, agent or finder has acted, directly or
indirectly, for the Company or, to the knowledge of the Company, any of the
Company Stockholders, nor has the Company or, to the knowledge of the Company,
any of the Company Stockholders, incurred any obligation to pay any brokerage
fee, agent's commission or finder's fee or other commission in connection with
the transactions contemplated by this Agreement.
Section 4.30. Taxes.
(a) The Company has duly and timely filed all federal, state, local, foreign
and other tax returns and reports required to be filed by it on or before the
date hereof, and has either (i) paid all Taxes of the Company due and payable
or (ii) has accrued on the consolidated balance sheet of the Company included
in the Company Interim
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Financial Statements previously furnished to Parent (in accordance with GAAP
applied on a basis consistent with that of prior years) all Taxes required to
be accrued by the Company on or before the date hereof. All of such returns or
reports are true, accurate and complete and reflect the Tax liability in all
material respects for which the Company could be held responsible and all
Taxes for which the Company could be held responsible as shown on such returns
or reports as due and payable have been paid.
(b) The Company is not delinquent in the payment of any Taxes for which the
Company could be held responsible, nor has the Company requested any extension
of time within which to file any Tax return which return has not since been
filed, nor has the Company waived or tolled the running of any statute of
limitations with respect to any such Taxes.
(c) No deficiency for any Tax has been threatened, asserted or assessed
against the Company, and there are neither unresolved questions or claims, nor
proceedings or actions pending (including an audit of any tax return filed by
the Company with any federal, state, local or foreign taxing authority),
concerning either the Tax liability of the Company or the collection or
assessment of any Tax for any period for which returns have been filed or were
due.
(d) The Company has delivered to Parent true and correct copies of any filed
tax returns (including information returns and Forms 1120) of the Company
which refer to any period of time from July 1, 1992, through the date of this
Agreement or to any event which occurred during that period of time. The
Company has not filed an election under Section 341(f) of the Code that is
applicable to the Company or any asset held by the Company. In addition, none
of the Company's debt is corporate acquisition indebtedness within the meaning
of Section 279 of the Code. The Company has not agreed, nor is required, to
make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. The Company is not subject to or a member of
any joint venture, partnership or other arrangement or contract which is
treated as a partnership for federal income tax purposes. The Company has
withheld and, if due, paid all Taxes required to have been withheld and, if
due, paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party. There are
no pending claims or assessments for Taxes payable by the Company. Neither the
Company nor any of its affiliates has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(e) Section 4.30 of the Company Disclosure Schedule lists each state in
which the Company is required to file Tax returns.
(f) Except as disclosed in Section 4.30 of the Company Disclosure Schedule,
the amount of the Company's earnings and profits, as defined for purposes of
Subchapter C of the Code, at the end of fiscal year 1997, is set forth on, or
can be determined from the information set forth in, the financial statements
of the Company for the year ended June 30, 1997 and/or the income tax returns
(including information returns and Forms 1120) of the Company through the date
hereof, furnished to Parent by the Company. It is not anticipated that there
will be any change in any such amount other than by virtue of the ordinary
conduct of the Company's business from June 30, 1997 through the date of the
Closing.
(g) The Company intends to elect regulated investment company status under
Subchapter M of the Code for its fiscal year ending June 30, 1998.
Section 4.31. Execution and Validity of Employment Agreements. The Company
is not a party to any contract, commitment, arrangement or agreement which
could, following the Closing, restrain or restrict the parties to the
Employment Agreements from performing their respective obligations thereunder.
Section 4.32. Environmental Laws.
(a) The Company (i) is in compliance in all respects with all Environmental
Laws; (ii) has obtained all necessary Environmental Permits, the failure of
which to obtain could have a Company Material Adverse Effect,
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all of which are in full force and effect; and (iii) is in compliance with all
terms and conditions of such Environmental Permits.
(b) The Company has not violated or done any act which could give rise to
material liability under, and has not otherwise failed to act in a manner
which would expose it to material liability under, any Environmental Law. No
event has occurred which, upon the passage of time, the giving of notice, or
failure to act would reasonably be expected to give rise to material liability
to the Company under any Environmental Law.
(c) To the Company's knowledge, no Hazardous Material has been released,
spilled, discharged, dumped, disposed of, or otherwise come to be located in,
at or beneath any of the Leased Real Property or any properties or assets
formerly owned, operated or otherwise controlled by the Company and used in
the conduct of the Company's business (i) in violation of any Environmental
Law, or (ii) in such manner as would reasonably be expected to cause an
environmental liability of the Company.
(d) To the Company's knowledge, there have been and are no: (i) aboveground
or underground storage tanks; (ii) surface impoundments for Hazardous
Materials; (iii) wetlands as defined under Environmental Law or (iv) asbestos
containing materials or PCBs or PCB-containing equipment, located within any
portion of the Leased Real Property, which individually or in the aggregate
could have a Company Material Adverse Effect.
(e) No liens have been placed upon any Leased Real Property in connection
with any actual or alleged liability under any Environmental Law.
(f) (i) There is no pending or, to the knowledge of the Company, threatened,
claim, litigation or administrative proceeding against the Company arising
under any Environmental Law; (ii) the Company has no ongoing negotiations with
or agreements with any Governmental Entity relating to any Remedial Action or
other environmentally-related claim; (iii) the Company has not submitted
notice pursuant to Section 103 of CERCLA or analogous statute or notice under
any applicable Environmental Law reporting a release of a Hazardous Material
into the environment; and (iv) the Company has not received any notice, claim,
demand, suit or request for information from any Governmental Entity or
private entity with respect to any liability or alleged liability under any
Environmental Law, nor to the knowledge of the Company, has any other entity
whose liability therefor, in whole or in part, may be attributed to the
Company, received such notice, claim, demand, suit or request for information.
Neither the Company, nor to the Company's knowledge, any prior owner or
operator of the Leased Real Property has generated, disposed of, or arranged
for the disposal of any Hazardous Material except in compliance with
Environmental Law.
(g) The Company has not, and, to the knowledge of the Company, no other
entity whose liability therefor, in whole or in part, may be attributed to the
Company has, disposed of any Hazardous Material at any location which is
identified on the current or proposed (i) National Priorities List under 40
C.F.R. 300 Appendix B, (ii) CERCLIS list or (iii) the Leaking Underground
Storage Tank list or any analogous state list.
(h) The Company has provided to Parent all environmental studies and reports
pertaining to the Leased Real Property, the operations conducted thereon and
the Company made by or at the direction of the Company or otherwise in the
Company's possession.
Section 4.33. Accounting Matters. Neither the Company nor, to the knowledge
of the Company, any Company Stockholder or any affiliates thereof, has taken
or agreed to take any action that would prevent Parent from accounting for the
business combination to be effected by the Merger as a "pooling of interests".
Section 4.34. Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of all directors
present (a) determined that the Merger is advisable and fair and in the best
interests of the Company and its stockholders, (b) approved the Merger in
accordance with the provisions of Section 302A.613 of the Minnesota
Corporation Law and (c) recommended the approval of this Agreement and the
Merger by the holders of the Company Common Stock and directed that the Merger
be submitted for consideration by the Company's stockholders at the Company
Meeting.
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ARTICLE V.
Representations and Warranties of Parent and Sub
Parent and Sub represent and warrant to the Company that, except as set
forth in the disclosure schedule attached hereto (the "Parent Disclosure
Schedule"), which Parent Disclosure Schedule and shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article V:
Section 5.1. Execution and Delivery. Each of Parent and Sub has the
corporate power and authority to enter into this Agreement and each agreement,
document or instrument contemplated hereby or to be delivered in connection
herewith to which such person is a party (the "Parent Documents") and to carry
out its respective obligations hereunder and thereunder. The execution,
delivery and performance by Parent and Sub of this Agreement and the Parent
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of Parent and Sub, as applicable (and, in the case of this
Agreement, by the Board of Directors of Sub and by Parent as the sole
stockholder of Sub). This Agreement constitutes the valid and binding
obligation of Parent and Sub and the Parent Documents will constitute the
valid and binding obligations of Parent and Sub, when executed by such person,
in each case, enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought. No other corporate proceedings on the part of Parent or Sub are
necessary to authorize this Agreement or the Parent Documents and the
transactions contemplated hereby and thereby.
Section 5.2. Consents and Approvals. The execution and delivery by Parent
and Sub of this Agreement and the Parent Documents to which such person is a
party, the performance by Parent and Sub of their respective obligations
hereunder and thereunder and the consummation by Parent and Sub of the
transactions contemplated hereby and thereby do not require Parent or Sub to
obtain any consent, approval or action of, or make any filing or registration
with or give any notice to, any Governmental Entity, other than (i) in
connection, or in compliance, with the provisions of the H-S-R Act, the
Securities Act, the Exchange Act and the corporation, securities or blue sky
laws or regulations of various states, all of which will be duly obtained or
made, as the case may be, on or prior to the Closing, and will be in full
force and effect on the Closing Date, (ii) the approval of the SBA, (iii) the
filing of the Certificate of Merger or Articles of Merger with the Secretaries
of State of Delaware and Minnesota and (iv) as to which the failure to so
obtain, file or register would not have a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities,
or operations of Parent and its Subsidiaries, taken as a whole, or prevent the
consummation of the transactions contemplated hereby (a "Parent Material
Adverse Effect").
Section 5.3. No Breach. The execution, delivery and performance by Parent
and Sub of this Agreement and the Parent Documents to which it is a party and
the consummation of the transactions contemplated hereby and thereby in
accordance with the terms and conditions hereof and thereof will not (i)
violate any provision of the Certificate of Incorporation or By-Laws of Parent
or Sub; (ii) violate, conflict with or result in the breach of any of the
terms of, result in any modification of the effect of, 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 contract or other
agreement or instrument to which Parent or Sub is a party or by or to which
the assets or properties of Parent or Sub may be bound or subject; (iii)
violate any order, judgment, injunction, award or decree of any Governmental
Entity against, or binding upon, or any agreement with, or condition imposed
by, any Governmental Entity, binding upon Parent or Sub, or upon the
securities, assets or business of Parent or Sub; (iv) violate any statute, law
or regulation of any jurisdiction as such statute, law or regulation relates
to Parent or Sub, or to the securities, assets or business of Parent or Sub;
(v) result in the creation or imposition of any lien or other encumbrance or
the acceleration of any indebtedness or other obligation of Parent or Sub; or
(vi) result in the breach of any of the terms or conditions of, constitute a
default under, or otherwise cause an impairment of, any Permit of Parent or
Sub; except in the case of (ii) through (vi) for violations, conflicts,
breaches, defaults,
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modifications, impairments, liens or other encumbrances that would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
Section 5.4. SEC Documents; Financial Statements.
(a) Parent has filed and will file with the SEC all forms, reports,
schedules, statements, exhibits and other documents (other than registration
statements on Form S-8 or reports on Form 11-K, in each case relating to
employee benefit plans) (collectively, the "Parent SEC Documents") required to
be filed on or before the date hereof or the Closing Date, respectively, by it
under the Securities Act or the Exchange Act. Parent has furnished or made
available to the Company true and correct copies of all Parent SEC Documents
filed by Parent since December 31, 1996 and will promptly furnish to the
Company any other Parent SEC Document filed by or on behalf of Parent with the
SEC from the date hereof to the Closing Date. At the time filed, the Parent
SEC Documents filed by Parent since December 31, 1996 (i) did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading and (ii)
complied in all material respects with the applicable requirements of the
Securities Act or Exchange Act, as the case may be.
(b) The audited consolidated financial statements of Parent for the period
from May 30, 1996 (commencement of operations) to December 31, 1996, together
with the report and opinion thereon of Arthur Andersen LLP, and the unaudited
consolidated financial statements of Parent for the nine months ended
September 30, 1997 (the "Parent Interim Financial Statements"), which are
included in the Parent SEC Documents and have previously been delivered to the
Company, are collectively referred to herein as the "Parent Financial
Statements". The Parent Financial Statements comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto; and fairly present, in all
material respects, on a consolidated basis, the financial position of Parent
at, and the results of its operations for, each of the periods then ended and
were prepared in conformity with GAAP applied on a consistent basis, except as
otherwise disclosed therein and, subject, in the case of the Parent Interim
Financial Statements, to normal year-end adjustments, the absence of footnote
disclosures, and any other adjustments described therein.
Section 5.5. Shares of Parent Common Stock. The shares of Parent Common
Stock will, when issued and delivered to the Company Stockholders pursuant to
Section 3.1(a), be duly authorized, validly issued, fully paid, non-
assessable, and free of all liens and other encumbrances of any kind or nature
whatsoever.
Section 5.6. Organization, Standing and Authority of Parent and Sub. Each of
Parent and Sub is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, and has all requisite power and authority
to own, lease and operate its assets, properties and businesses and to carry
on its businesses as now being conducted or currently proposed to be
conducted. Parent is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of such activities make
such qualification necessary, except where the failure to so qualify would
not, individually or in the aggregate, have a Parent Material Adverse Effect.
Sub has not engaged in any business (other than certain organizational
matters) since the date of its incorporation. The copies of the Certificate of
Incorporation and By-Laws of Parent and Sub included as part of Section 5.6 of
the Parent Disclosure Schedule constitute accurate and complete copies of such
organizational instruments and accurately reflect all amendments thereto
through the date hereof.
Section 5.7. Capitalization.
(a) The authorized capital stock of Parent consists of 15,000,000 shares of
Parent Common Stock and 1,000,000 shares of preferred stock, par value $.01
per share. As of December 31, 1997, there were 12,880,296 shares of Parent
Common Stock and no shares of preferred stock outstanding and there have been
no material changes in such numbers through the date hereof. As of the date
hereof, there are no bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which Parent's stockholders may vote issued or
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outstanding. All outstanding shares of Parent Common Stock are duly authorized
and are validly issued, fully paid and nonassessable. Except for options to
purchase Parent Common Stock outstanding under Parent's 1996 Stock Option Plan
and 1996 Non-Employee Directors Stock Option Plan, each as amended to date,
there are no options, warrants, calls or other rights, agreements or
commitments presently outstanding obligating Parent to issue, deliver or sell
shares of its capital stock or debt securities, or obligating Parent to grant,
extend or enter into any such option, warrant, call or other such right,
agreement or commitment.
(b) The authorized capital stock of Sub consists of 100 shares of Sub Common
Stock, all of which are duly authorized, validly issued, fully paid and
nonassessable.
Section 5.8. Brokerage. Except for Gelband & Company, Inc., no broker, agent
or finder has acted, directly or indirectly, for Parent or Sub. Except for the
fee due to Gelband & Company, Inc., Parent and Sub have not incurred any
obligation to pay any brokerage fees, agent's commissions or finder's fee or
commission in connection with the transactions contemplated by this Agreement.
Section 5.9. Information in Disclosure Documents. None of the information
supplied by Parent or Sub for inclusion in the Registration Statement and the
Proxy Statement will, in the case of the Proxy Statement or any amendments or
supplements thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, or, in the case of the Registration
Statement, at the time it becomes effective and at the Effective Date, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this provision shall not apply to
statements or omissions in the Registration Statement or Proxy Statement based
upon information furnished by the Company for use therein. The Registration
Statement will comply as to form in all material respects with the provisions
of the Securities Act, and the rules and regulations promulgated thereunder.
The Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. No
representation or warranty made by Parent contained in this Agreement and no
statement contained in any certificate, list, exhibit or other instrument
specified in this Agreement, including without limitation the Parent
Disclosure Schedule, contains any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading.
Section 5.10. No Material Adverse Change. Since December 31, 1996, there has
been no material adverse change in the management, assets, liabilities,
properties, business, operations, financial condition or results of operations
of Parent.
Section 5.11. Sub Action. The Board of Directors of Sub (at a meeting duly
called and held) has by the requisite vote of all directors present approved
the Merger in accordance with the provisions of Section 251 of the Delaware
Corporation Law.
ARTICLE VI.
Covenants and Agreements
Each of Parent, Sub and the Company (as applicable) covenant and agree as
follows:
Section 6.1. Conduct of Business. Prior to the Effective Date, unless Parent
shall otherwise agree in writing:
(a) The Company shall, and shall cause CDI-LP to, carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause CDI-LP to, use their best efforts to preserve intact their present
business organizations, keep available the services of their present
officers and employees and preserve their relationships with customers,
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suppliers and others having business dealings with them to the end that
their goodwill and on-going businesses shall be unimpaired at the Effective
Date, except such impairment as would not have a Company Material Adverse
Effect. The Company shall, and shall cause CDI-LP to, (i) maintain
insurance coverages and its books, accounts and records in the usual manner
consistent with prior practices; (ii) comply in all material respects with
all laws, ordinances and regulations of Governmental Entities applicable to
the Company and CDI-LP; (iii) maintain and keep its properties and
equipment in good repair, working order and condition, ordinary wear and
tear excepted; and (iv) perform in all material respects its obligations
under all contracts and commitments to which it is a party or by which it
is bound, in each case other than where the failure to so maintain, comply
or perform, either individually or in the aggregate, would result in a
Company Material Adverse Effect.
(b) The Company shall not, and shall not permit CDI-LP to, undertake any
of the actions specified in Section 4.28.
(c) The Company shall not, nor shall it permit CDI-LP to, take or cause
to be taken any action, whether before or after the Effective Date, which
would disqualify the Merger as a "pooling of interests" for accounting
purposes or as a "reorganization" within the meaning of Section 368(a) of
the Code.
Section 6.2. Litigation Involving the Company. Prior to the Closing Date,
the Company shall notify Parent of any actions or proceedings of the type
required to be described in Sections 4.15, 4.30 or 4.32 that are threatened or
commenced against the Company, or against any officer or director, property or
asset of the Company, or with respect to the Company's affairs, promptly upon
the Company becoming aware thereof, and of any requests of the Company or, to
the knowledge of the Company, any Company Stockholder, for additional
information or documentary materials by any Governmental Entity in connection
with the transactions contemplated hereby promptly upon the Company becoming
aware thereof. As to compliance with such requests for such information, the
Company shall consult with and obtain the consent of Parent, which consent
shall not be withheld unreasonably; provided that such consent shall be
unnecessary where such information is required by law to be provided.
Section 6.3. Continued Effectiveness of Representations and Warranties of
the Parties. From the date hereof through the Closing Date, (a) the Company
shall use all reasonable efforts to conduct its affairs in such a manner so
that, except as otherwise contemplated or permitted by this Agreement, the
representations and warranties of the Company contained in Article IV shall
continue to be true and correct in all material respects (or in all respects
in the case of any representation or warranty which refers to a Company
Material Adverse Effect or otherwise includes a concept of materiality) on and
as of the Closing Date as if made on and as of the Closing Date, (i) except
that any such representations and warranties that are given as of a particular
date and relate solely to a particular date or period shall be true and
correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Company Material Adverse Effect
or otherwise includes a concept of materiality) as of such date or period, and
(ii) in the case of Section 4.12 only, except for such changes with respect
thereto (x) which are contemplated by this Agreement or (y) which are
attributable to the execution of this Agreement, or the announcement or
contemplation of the transactions proposed herein; (b) Parent and Sub shall
use their respective reasonable efforts to conduct their affairs in such a
manner so that, except as otherwise contemplated or permitted by this
Agreement, the representations and warranties contained in Article V shall
continue to be true and correct in all material respects (or in all respects
in the case of any representation or warranty which refers to a Parent
Material Adverse Effect or otherwise includes a concept of materiality) on and
as of the Closing Date as if made on and as of the Closing Date, (i) except
that any such representations and warranties that are given as of a particular
date and relate solely to a particular date or period shall be true and
correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Parent Material Adverse Effect or
otherwise includes a concept of materiality) as of such date or period, and
(ii) in the case of Section 5.10 only, except for such changes with respect
thereto (x) which are contemplated by this Agreement or (y) which are
attributable to the execution of this Agreement, or the announcement or
contemplation of the transactions proposed herein; (c) the Company shall
promptly notify Parent and Sub of any event, condition or circumstance
occurring from the date hereof through the Closing Date
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of which the Company becomes aware that would cause any material revisions to
the Company Disclosure Schedule provided by the Company pursuant to this
Agreement, or that would constitute a violation or breach of this Agreement by
the Company; and (d) Parent and Sub shall promptly notify the Company of any
event, condition or circumstance occurring from the date hereof through the
Closing Date of which it becomes aware that would cause any material revisions
to the Parent Disclosure Schedule provided by Parent or Sub pursuant to this
Agreement, or that would constitute a violation or breach of this Agreement by
Parent or Sub. No such notification shall be deemed an amendment to the
Disclosure Schedules to this Agreement, except as otherwise provided by this
Agreement.
Section 6.4. Corporate Examinations and Investigations.
(a) As promptly as practicable after the date hereof, but in no event later
than 10 days after the date hereof, the Company shall furnish copies or make
available to Parent all due diligence materials requested by Parent, its legal
counsel or accountants. The Company and CDI-LP shall afford to Parent and to
Parent's accountants, counsel and other representatives full access during
normal business hours (and at such other times as the parties may mutually
agree) throughout the period prior to the Effective Date to all of the
Company's and CDI-LP's properties, books, contracts, commitments, records and
personnel and, during such period, the Company shall furnish promptly to
Parent all information concerning its business (including any applications or
notifications made to or by any Governmental Entity), properties and personnel
as Parent may reasonably request. In addition, the Company shall promptly
deliver to Parent all regulatory reports that are filed with respect to the
Company or CDI-LP and any correspondence between the Company or CDI-LP on the
one hand and any regulatory agency on the other hand.
(b) Parent shall cooperate with the Company as the Company shall reasonably
request in connection with the Company's due diligence review of the Parent,
to the extent necessary to confirm the accuracy of Parent's and Sub's
representations and warranties.
(c) If this Agreement terminates, the parties hereto and their respective
affiliates shall keep confidential and shall not use or retain in any manner
any information or documents obtained from any other party concerning its
assets, liabilities, properties, business or operations, unless readily
ascertainable from public or published information or trade sources or already
known or subsequently developed by it independently of any investigation of
any other party, or received from a third party not under an obligation to
such other party to keep such information confidential.
Section 6.5. Preparation of Company Restated Financial Statements. Promptly
after the execution of this Agreement, the Company shall cause to be prepared
(i) the consolidated balance sheet of the Company and CDI-LP as of December
31, 1997, together with the respective related consolidated statements of
income, shareholders' equity and cash flows for the 12 months ended December
31, 1997 and 1996 and (ii) the information required by Item 301 "Selected
Financial Data" of Regulation S-K of the SEC for the 12 months ended December
31, 1995 and 1994 (the "Company Restated Financial Statements"). The Company
Restated Financial Statements shall be prepared in accordance with GAAP
applied on a basis consistent with that used in, and in accordance with the
same accounting principles applied in, the preparation of the Company
Financial Statements and shall include all information and schedules as are
required by Regulation S-X of the SEC. The Company shall cause Deloitte &
Touche LLP to audit the Company Restated Financial Statements, other than the
Selected Financial Data for 1995 and 1994, and shall cause Deloitte & Touche
LLP to issue, on or prior to the Effective Date, an opinion containing no
qualifications or exceptions with respect to the scope of its audit or
otherwise on the Company Restated Financial Statements that such accountants
have audited the Company Restated Financial Statements in accordance with
generally accepted auditing standards and that the Company Restated Financial
Statements were prepared in accordance with GAAP. The Company shall cause the
Company Restated Financial Statements, together with the opinion of Deloitte &
Touche LLP referenced above, to be delivered to Parent on or prior to the
Effective Date. In connection with the preparation of Parent's securities law
filings, Arthur Andersen LLP shall have access to Deloitte & Touche LLP's work
papers and personnel.
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Section 6.6. Registration Statement/Proxy Statement.
(a) As promptly as practicable after the execution of this Agreement, the
Company and Parent shall prepare and file with the SEC preliminary proxy
materials which shall constitute the preliminary Proxy Statement and a
preliminary prospectus with respect to the Parent Common Stock to be issued in
connection with the Merger. As promptly as practicable after comments are
received from the SEC with respect to the preliminary proxy materials and
after the furnishing by the Company and Parent of all information required to
be contained therein, the Company shall file with the SEC the definitive Proxy
Statement and Parent shall file with the SEC the definitive Proxy Statement
and the Registration Statement and Parent and the Company shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon thereafter as practicable.
(b) Parent and the Company shall make all necessary filings with respect to
the Exemptive Relief under the 1940 Act and shall use all reasonable efforts
to obtain required approvals and clearances with respect thereto.
Section 6.7. Compliance with the Securities Act.
(a) Prior to the Effective Date the Company shall cause to be delivered to
Parent an opinion (satisfactory to counsel for Parent) of Lindquist & Vennum
P.L.L.P., identifying all persons who were, in its opinion, at the time of the
Company Meeting convened in accordance with Section 3.9(a), "affiliates" of
the Company as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act (the "Affiliates").
(b) The Company shall use its best efforts to obtain a written agreement
from each person who is identified as a possible Affiliate in the opinion
referred to in clause (a) above, in the form previously approved by the
parties, that he or she will not offer to sell, sell or otherwise dispose of
any of the Parent Common Stock issued to him or her pursuant to the Merger,
except in compliance with Rule 145 or another exemption from the registration
requirements of the Securities Act. The Company shall deliver such written
agreements to Parent on or prior to the Effective Date. The Company shall use
its best efforts to cause each person who is identified as an Affiliate in
such opinion to deliver to Parent, on or prior to the earlier of (i) the
mailing of the Proxy Statement/Prospectus or (ii) the 30th day prior to the
Effective Date, a written agreement, in substantially the form attached hereto
as Exhibit G, that such Affiliate will not thereafter sell or in any other way
reduce such Affiliate's risk relative to any Parent Common Stock received in
the Merger (within the meaning of the SEC's Financial Reporting Release No. 1,
"Codification of Financing Reporting Policies, " ss. 201.01 (47 F.R. 21030)
(April 15, 1982)), until such time as financial results (including combined
sales and net income) covering at least 30 days of post-merger operations have
been published, except as permitted by Staff Accounting Bulletin No. 76 issued
by the SEC. As soon as is reasonably practicable but in no event later than 45
days after the end of the first fiscal quarter of Parent ending at least 30
days after the Effective Date, Parent will publish results including at least
30 days of combined operations of Parent and the Company as referred to in the
written agreements provided for by this Section 6.7(b).
Section 6.8. Nasdaq Listing. Parent shall use its best efforts to list on
the Nasdaq National Market, the Parent Common Stock to be issued pursuant to
the Merger.
Section 6.9. Acquisition Proposals. The Company will notify Parent promptly
if any inquiries or proposals are received by, any information is requested
from, or any negotiations or discussions are sought to be initiated or
continued with, the Company or, to the knowledge of the Company, any of the
Company Stockholders, in each case in connection with any acquisition,
business combination or purchase of all or any material portion of the assets
of, or any equity interest in, the Company, and will furnish to Parent a copy
of any such proposal received by any of them.
Section 6.10. No Shopping. Subject to the fiduciary duties of the Board of
Directors of the Company, as advised in writing by outside counsel, prior to
the earlier of (i) the Effective Time or (ii) the termination of this
Agreement, the Company shall not, directly or indirectly, through any officer,
director, employee, representative, agent, financial advisor or otherwise (x)
solicit, initiate or knowingly encourage (including by way
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of furnishing information) inquiries or submission of proposals or offers from
any person relating to any sale of all or any portion of the assets, business,
properties of (other than immaterial or insubstantial assets), or any equity
interest in, the Company or any business combination with the Company, whether
by merger, consolidation, purchase of assets, tender offer, recapitalization,
liquidation, dissolution or otherwise or any other transaction, the
consummation of which would or could impede, interfere with, prevent or
materially delay the Merger (each, an "Acquisition Proposal") or (y)
participate in any negotiation regarding, or furnish to any other person any
information with respect to, or otherwise knowingly cooperate in any way with,
or knowingly assist in, facilitate or encourage, any effort or attempt by any
other person to do or seek to do any of the foregoing.
Section 6.11. Parent and Sub Approvals. Parent and Sub shall take all
reasonable steps necessary or appropriate to obtain as promptly as practicable
all necessary approvals, authorizations and consents of any person or
Governmental Entity required to be obtained by Parent and Sub to consummate
the transactions contemplated hereby, and will cooperate with the Company in
seeking to obtain all such approvals, authorizations and consents. Parent and
Sub shall use all reasonable efforts to provide such information to such
persons, bodies and authorities as such persons, bodies or authorities or the
Company may reasonably request.
Section 6.12. Company Approvals. The Company shall take all reasonable steps
necessary or appropriate to obtain as promptly as practicable all necessary
approvals, authorizations and consents of any third party or Governmental
Entity required to be obtained by the Company to consummate the transactions
contemplated hereby and will cooperate with Parent in seeking to obtain all
such approvals, authorizations and consents. The Company shall use all
reasonable efforts to provide such information to such persons, bodies and
authorities as such persons, bodies and authorities or Parent may reasonably
request.
Section 6.13. Distribution. The Company shall not declare, set aside or pay
any Distribution, including any Distribution relating to its C corporation
accumulated earnings and profits, prior to the Effective Time.
Section 6.14. Expenses. Except as otherwise specifically provided herein,
Parent, Sub and the Company shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement
and the transactions contemplated hereby, including, without limitation, all
fees and expenses of investment bankers, agents, representatives, counsel and
accountants ("Transaction Expenses"). In any action, suit or proceeding under
or to enforce any provision of this Agreement, the prevailing party shall be
entitled to recover its reasonable attorney's fees and other out-of-pocket
expenses from the losing party.
Section 6.15. Further Assurances.
(a) Each of Parent, Sub and the Company shall execute such documents and
other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby. Each of Parent, Sub and the Company shall use all reasonable efforts
to cause all actions to effectuate the Closing for which such party is
responsible under this Agreement to be taken as promptly as practicable,
including using all reasonable efforts to obtain all necessary waivers,
consents and approvals (including, but not limited to, filings under the H-S-R
Act and with all applicable Governmental Entities) and to lift any injunction
or other legal bar to the Merger (and, in each case, to proceed with the
Merger as expeditiously as possible). Notwithstanding the foregoing, there
shall be no action required to be taken and no action will be taken in order
to consummate and make effective the transactions contemplated by this
Agreement if such action, either alone or together with another action, would
result in a Company Material Adverse Effect or a Parent Material Adverse
Effect.
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Parent, the Company and the Surviving Corporation
shall take all such necessary action.
Section 6.16. Hart-Scott-Rodino. Each of the Company and Parent (i) shall
use their best efforts to file, and to cause their "ultimate parent entities"
to file, as soon as practicable a "Notification and Report Form For
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Certain Mergers and Acquisitions" under the H-S-R Act with respect to the
Merger and the transactions contemplated hereby, (ii) shall take all other
actions as may be necessary, desirable or convenient to obtain the required
approval under the H-S-R Act and (iii) will comply at the earliest practicable
date with any request for additional information received by it from the FTC
or Justice pursuant to the H-S-R Act.
Section 6.17. SBA Approval. Each of the Company and Parent (i) shall use
their best efforts, and shall take all actions as may be necessary, desirable
or convenient, to obtain the approval of the SBA with respect to the Merger
and the transactions contemplated hereby and (ii) will comply at the earliest
practicable date with any request for additional information received by it
from the SBA.
Section 6.18. Execution of Employment Agreements. Each of the Named
Executives shall execute and deliver an employment agreement as of the date
hereof, in substantially the forms attached hereto as Exhibit D (the
"Employment Agreements"), which Employment Agreements shall become effective
as of the Closing Date.
Section 6.19. Board Attendance Right. From and after the Effective Date, for
as long as any of Named Executives continue to be employed by the Company,
Parent shall permit a designee of the Named Executives, who must be one of the
Named Executives, (the "Management Designee") to attend all meetings of
Parent's Board of Directors. Parent shall provide notice of meetings of the
Board of Directors to the Management Designee at the same time and in the same
manner as it provides to the members of the Board of Directors. The Management
Designee will have no right to vote on any matters which may come before the
Board of Directors.
Section 6.20. Grant of Parent Stock Options. Parent agrees, subject to the
grant by the SEC of exemptive relief under the 1940 Act to permit Parent to
make grants of stock options to employees of its subsidiary companies (the
"Exemptive Relief"), to grant options to purchase 119,786 shares of Parent
Common Stock to employees of the Company at an exercise price of fair market
value of the Parent Common Stock on the date of grant with vesting of one-
sixth of each grant on each of the first six anniversaries of the date of
grant. Parent shall consult with the Named Executives in determining the
allocation of such options among the Company's employees.
Section 6.21. Employee Matters. (a) Parent shall take all actions necessary
or appropriate to permit the employees of the Company and CDI-LP on the
Effective Date to participate after the Effective Date in Parent's employee
benefit programs and to cause the Surviving Corporation to take all actions
necessary or appropriate to adopt Parent's employee benefit programs effective
as of the Effective Date. Parent will cause the Surviving Corporation to give
each employee of the Company and CDI-LP full credit for service with the
Company or its predecessor for purposes of eligibility to participate in,
vesting and payment of benefits under, and eligibility for any subsidized
benefit provided under (but not, except as provided in the preceding clause
for purposes of determining the amount of any benefit under), any Parent
employee benefit plan.
Section 6.22. Compliance with Legal Requirements.
(a) Immediately after the Merger, the Company shall hold at least 90% of the
fair market value of its net assets and at least 70% of the fair market value
of its gross assets held immediately prior to the Merger.
(b) As soon as reasonably practicable after the Effective Time, Parent shall
file with the SEC a registration statement on Form S-8 (the "Form S-8") with
respect to each New Parent Stock Option. Subsequent to the Effective Date,
Parent will use its best efforts to keep the Form S-8 current and effective
under the Securities Act, to the extent required by law.
Section 6.23. Indemnification of Company Officers and Directors. Parent
agrees, for a period of six years following the Effective Time, not to amend
the indemnification provisions set forth in the Certificate of Incorporation
or By-Laws of the Surviving Corporation in a manner that would adversely
affect the rights of the Company's officers, directors and employees to
indemnification thereunder and agrees to cause the Surviving
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Corporation to fulfill and honor such obligations to the maximum extent
permitted by law; provided, however, that nothing in this Section 6.23 shall
prevent Parent from effecting any merger, reorganization or consolidation of
the Surviving Corporation, provided that, Parent agrees to satisfy any amounts
that would have been payable by the Surviving Corporation (or any successor)
and that were not otherwise paid pursuant to the indemnification provisions
set forth in the Certificate of Incorporation or By-Laws of the Surviving
Corporation for a period commencing at the Effective Time and continuing six
years thereafter.
ARTICLE VII.
Conditions Precedent to Each Party's Obligation to Effect the Merger
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing of the following
conditions, any one or more of which may be waived by them, to the extent
permitted by law:
Section 7.1. Company Stockholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved and adopted by the
requisite vote of the Company's stockholders.
Section 7.2. Listing of Shares. The shares of Parent Common Stock issuable
in the Merger shall have been approved for listing on the Nasdaq National
Market.
Section 7.3. Hart-Scott-Rodino. All applicable waiting periods with respect
to any "Notification and Report Form For Certain Mergers and Acquisitions"
required to be filed by Parent, the Company or any of their "ultimate parent
entities" in compliance with the H-S-R Act in connection with the transactions
contemplated hereby shall have passed, or early termination of such waiting
periods shall have been granted.
Section 7.4. Effectiveness of Registration Statement. The Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and remain in effect.
Section 7.5. SBA Approval. The SBA shall have approved the Merger, this
Agreement and the transactions contemplated hereby, including the waiver of
any payments due to the SBA as a result of the Company's previous repurchase
of its 3% preferred stock from the SBA and any accrued interest or dividends
due to the SBA as a result of the transactions contemplated hereby and any
liens on the Company's assets or properties in favor of the SBA.
Section 7.6. Litigation. No action, suit or proceeding shall have been
instituted and be continuing or be threatened by any Governmental Entity to
restrain, modify or prevent the carrying out of the transactions contemplated
hereby; no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger
or limiting or restricting Parent's conduct or operation of the business of
the Company after the Merger shall have been issued; no action, suit or
proceeding seeking any of the foregoing shall have been instituted by any
third party that has or is reasonably likely to materially impair the
Company's or Parent's ability to consummate the transactions contemplated
hereby or have a Company Material Adverse Effect.
ARTICLE VIII.
Conditions Precedent to the Obligation of Parent and Sub to Effect the Merger
The obligation of Parent and Sub to effect the Merger shall be subject to
the satisfaction on or prior to the Closing of the following additional
conditions, any one or more of which may be waived by them, to the extent
permitted by law:
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Section 8.1. Representations and Covenants. The representations and
warranties of the Company contained in this Agreement (including those
contained in the Company Disclosure Schedule, as the same may be amended from
time to time pursuant to the provisions hereof) shall be true and correct in
all material respects (or in all respects in the case of any representation or
warranty which refers to a Company Material Adverse Effect or otherwise
includes a concept of materiality) on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date, (i) except that
any such representations and warranties that are given as of a particular date
and relate solely to a particular date or period shall be true and correct in
all material respects (or in all respects in the case of any representation or
warranty which refers to a Company Material Adverse Effect or otherwise
includes a concept of materiality) as of such date or period, and (ii) in the
case of Section 4.12 only, except for such changes with respect thereto (x)
which are contemplated by this Agreement or (y) which are attributable to the
execution of this Agreement, or the announcement or contemplation of the
transactions proposed herein. The Company and the Company Stockholders who are
parties to a Voting Agreement, dated the date hereof (the "Voting Agreement"),
shall have performed and complied, respectively, in all material respects with
all covenants and agreements required by this Agreement and the Voting
Agreement to be performed or complied with by the Company or such Company
Stockholders on or prior to the Closing Date. The Company shall have delivered
to Parent and Sub certificates, dated the Closing Date, and signed by an
Executive Officer of the Company to the foregoing effect.
Section 8.2. Absence of Material Adverse Change. There shall have been no
material adverse change in the business, operations or financial condition of
the Company, except for such changes with respect thereto (x) which are
contemplated by this Agreement or (y) which are attributable to the execution
of this Agreement, or the announcement or contemplation of the transactions
proposed herein.
Section 8.3. Receipt of Agreements. On the date hereof, Parent shall have
received executed originals of (i) the Voting Agreement and (ii) the
Employment Agreements from each of the Named Executives. At the Closing,
Parent shall have received executed originals of the Holdback Escrow Agreement
among the Company, Parent, the Indemnification Representative, on behalf of
the Company Stockholders, and the other parties thereto.
Section 8.4. Accountant's Letters.
(a) Parent shall have received a letter from Arthur Andersen LLP regarding
the firm's concurrence with Parent management's conclusions as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Agreement.
(b) Parent shall have received a letter of Deloitte & Touche LLP, the
Company's independent auditors, dated a date within two Business Days before
the date on which the Registration Statement shall become effective and
addressed to Parent, in form and substance reasonably satisfactory to Parent
and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement.
Section 8.5. Dissenting Shares. The number of shares of Company Common Stock
for which written demand for payment has been made pursuant to Section
302A.473 of the Minnesota Corporation Law, shall not exceed 1% in the
aggregate, of the total number of shares of Company Common Stock outstanding
immediately before the Effective Time.
Section 8.6. Opinions of Counsel to the Company. Parent shall have received
the opinion of Lindquist & Vennum P.L.L.P., counsel to the Company, dated the
Closing Date, in substantially the form of Exhibit E.
Section 8.7. Tax Opinion. Parent shall have received a favorable opinion of
Willkie Farr & Gallagher, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and that the Company, Parent and Sub will each be a party
to that reorganization within the meaning of Section 368(b) of the Code.
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Section 8.8. Termination of Management Agreement. The Company's management
agreement with Capital Dimensions Management Company, Inc. shall have been
terminated, with no resulting liability to the Company.
Section 8.9. Amendment of Agreements With Holders of Company Stock
Options. Each holder of Company Stock Options which provide for accelerated
vesting upon a change in control of the Company shall have executed an
amendment to his or her stock option agreement to delete such provisions
thereof.
Section 8.10. Closing Conditions. Documentation or other information shall
have been received in a form reasonably satisfactory to Parent and Sub which
evidences that the conditions set forth in this Article VIII have been
satisfied.
ARTICLE IX.
Conditions Precedent to the Obligation of the Company to Effect the Merger
The obligation of the Company to effect the Merger shall be subject to the
satisfaction on or prior to the Closing of the following additional
conditions, any one or more of which may be waived by the Company, to the
extent permitted by law:
Section 9.1. Representations and Covenants. The representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Parent Material Adverse Effect or
that includes a concept of materiality) on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date, (i) except
that any such representations and warranties that are given as of a particular
date and relate solely to a particular date or period shall be true and
correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Parent Material Adverse Effect or
that includes a concept of materiality) as of such date or period, and (ii) in
the case of Section 5.10 only, except for such changes with respect thereto
(x) which are contemplated by this Agreement or (y) which are attributable to
the execution of this Agreement, or the announcement or contemplation of the
transactions proposed herein. Parent and Sub shall have performed and complied
in all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by Parent or Sub on or prior to the
Closing Date. Parent and Sub shall have delivered to the Company certificates
of an Executive Officer of Parent and Sub, dated the Closing Date, to the
foregoing effect.
Section 9.2. Absence of Material Adverse Change. There shall have been no
material adverse change in the business, operations or financial condition of
Parent and its Subsidiaries, taken as a whole, except for such changes with
respect thereto (x) which are contemplated by this Agreement or (y) which are
attributable to the execution of this Agreement or the announcement or
contemplation of the transactions proposed herein.
Section 9.3. Receipt of Agreements. On the date hereof, the Company shall
have received executed originals of the Employment Agreements with the Named
Executives.
Section 9.4. Accountant's Letter. The Company shall have received a letter
from Deloitte & Touche LLP indicating that Deloitte & Touche LLP has performed
certain specified procedures and nothing has come to such firm's attention
which would cause it to believe that matters exist which would preclude Parent
from accounting for the merger as a pooling of interests under Accounting
Principles Board Opinion No. 16 without consideration of the Agreement and any
actions contemplated thereby.
Section 9.5. Opinion of Counsel to Parent. The Company Stockholders shall
have received the opinion of Willkie Farr & Gallagher, counsel to Parent,
dated the date of the Closing, in substantially the form of Exhibit F.
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Section 9.6. Tax Opinion. The Company shall have received a favorable
opinion of Lindquist & Vennum P.L.L.P., counsel to the Company, to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that the
Company, Parent and Sub will each be a party to that reorganization within the
meaning of Section 368(b) of the Code.
Section 9.7. Closing Conditions. Documentation or other information shall
have been received in a form reasonably satisfactory to the Company which
evidences that the conditions set forth in this Article IX have been
satisfied.
ARTICLE X.
Closing
The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of Willkie Farr & Gallagher, 153
East 53rd Street, New York, New York, at 10:00 a.m. local time on the Closing
Date or at such other time and place as the parties may mutually agree.
ARTICLE XI.
Survival of Representations and Warranties; Indemnification
Section 11.1. Survival of Representations and Warranties. Notwithstanding
any right of Parent and Sub to investigate fully the affairs of the Company,
or any right of the Company to investigate fully the accuracy of the
representations and warranties of Parent and Sub, and notwithstanding any
knowledge of facts determined or determinable by Parent, Sub or the Company,
as the case may be, pursuant to such investigation or right of investigation,
Parent, Sub and the Company, as the case may be, have the right to rely fully
upon the representations, warranties, covenants and agreements of the Company,
Parent and Sub, as the case may be, contained in this Agreement. The
representations and warranties of Parent, Sub and the Company and the
covenants to be performed by the Company prior to the Effective Time shall
survive the execution and delivery hereof and the Closing hereunder in
accordance with the applicable statute of limitations, provided, however, that
the representation of the Company contained in Section 4.33 hereof shall
survive only until the Effective Time.
Section 11.2. Indemnification by Company Stockholders.
(a) If the closing of the Merger shall occur, then, subject to the
provisions of this Section 11.2 and the Holdback Escrow Agreement, the Company
Stockholders shall indemnify, defend and hold harmless Parent and Sub, and
each other person, if any, who controls Parent and Sub within the meaning of
the Securities Act, from and against all Damages in accordance with the terms
of, subject to the limitations set forth in and as defined in, the Holdback
Escrow Agreement.
(b) Each Company Stockholder, by virtue of the Merger and this Agreement,
whether or not such holder voted in favor of the Merger, shall be bound by
provisions of this Agreement and the Holdback Escrow Agreement.
(c) In the event that Parent elects, pursuant to Section 3.3(c) hereof, to
waive the escrow arrangements contemplated hereby and by the Holdback Escrow
Agreement, then the indemnification provisions of Section 11.2(a) and (b)
hereof shall automatically be deemed waived and shall be of no force and
effect.
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ARTICLE XII.
TERMINATION OF AGREEMENT
Section 12.1. Termination. This Agreement may be terminated prior to the
Closing as follows:
(a) by either Parent or the Company if the Merger shall not have been
consummated on or before June 30, 1998;
(b) by Parent, within 45 days of the date of this Agreement, if (x)
Parent's management concludes as a result of Parent's legal, business and
financial due diligence review of the Company that the Company's business,
properties, assets, condition (financial or otherwise), liabilities,
operations or prospects are not satisfactory or (y) Parent's Board of
Directors concludes as a result of Parent's legal, business and financial
due diligence review of the Company that (i) any representation or warranty
made by the Company in this Agreement is not true and correct in any
material respect or (ii) the Company has failed to disclose to Parent any
information that could result in a Company Material Adverse Effect and in
each case such untruth or failure (A) is not corrected in an amendment to
the Company Disclosure Schedule delivered by the Company to Parent pursuant
to the provisions of the first sentence of Section 14.4 hereof or (B) is
not cured within 15 days after notice thereof is given by Parent to the
Company; provided, however, that an amendment to the Company Disclosure
Schedule shall not constitute a cure under this clause (B);
(c) by the Company if any of the conditions specified in Article VII or
IX have not been met or waived by the Company at such time as any such
condition is no longer capable of satisfaction;
(d) by Parent if any of the conditions specified in Article VII or VIII
have not been met or waived by Parent at such time as any such condition is
no longer capable of satisfaction;
(e) by Parent if the Company or the Company Stockholders who are parties
to the Voting Agreement shall have breached any of their respective
obligations under Article VI of this Agreement or the Voting Agreement in
any material respect and such breach continues for a period of ten days
after the receipt of notice of the breach from Parent;
(f) by the Company if Parent or Sub shall have breached any of their
respective obligations under Article VI of this Agreement in any material
respect and such breach continues for a period of ten days after the
receipt of notice of the breach from the Company;
(g) by the Company if its Board of Directors, in the exercise of its
fiduciary duties, accepts an Acquisition Proposal; or
(h) at any time on or prior to the Closing Date, by mutual written
consent of Parent, Sub and the Company.
Section 12.2. Effect of Termination. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described above, this
Agreement shall become void and be of no further force and effect, except for
the provisions of this Agreement relating to the obligations of parties under
Sections 6.4(c) 6.14, 6.15, 12.2 and 12.3. None of the parties hereto shall
have any liability in respect to a termination of this Agreement prior to
Closing, except to the extent that termination results from the intentional,
willful or knowing violation of the representations, warranties, covenants or
agreements of such party under this Agreement and except as provided in
Section 12.3 hereof.
Section 12.3. Termination Expenses.
(a) If this Agreement is terminated by Parent pursuant to the provisions of
Section 12.1(b)(y) or (1) pursuant to the provisions of Section 12.1(d) and
(2) the representation made by the Company in Section 4.33 hereof shall have
been breached, the Company shall, within fifteen days of a written demand by
Parent, pay to Parent by wire transfer of immediately available funds the
lesser of $200,000 or the actual amount of Parent's Transaction Expenses.
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(b) If this Agreement is terminated by the Company pursuant to the
provisions of Section 12.1(g) and a definitive agreement with respect to an
Acquisition Proposal is executed, or an Acquisition Proposal is consummated,
at or within 12 months of such Acquisition Proposal, then the Company shall,
within ten days of a written demand by Parent, pay to Parent by wire transfer
of immediately available funds an amount equal to $3,000,000.
ARTICLE XIII.
Definitions
Section 13.1. Definitions. The following terms when used in this Agreement
shall have the following meanings:
"Acquisition Proposal" has the meaning set forth in Section 6.10.
"affiliate" (or "affiliates" as the context may require), with respect to
any person, means any other person controlling, controlled by or under common
control with such person.
"Affiliates" has the meaning set forth in Section 6.7(a).
"Agreement" has the meaning set forth in the preamble.
"Business Day" means any day other than a Saturday or a Sunday, or a day on
which banking institutions in the State of New York are obligated by law or
executive order to close.
"CDI-LP" has the meaning set forth in Section 4.7.
"CERCLA" shall mean the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. ss.ss. 9601 et seq. as amended.
"Certificates" has the meaning set forth in Section 3.4(a).
"Closing" has the meaning set forth in Article X.
"Closing Date" means (a) the third Business Day following the day on which
the last of all conditions to the consummation of the transactions
contemplated hereby (other than conditions which contemplate only delivery or
filing of one or more documents contemporaneously with the Closing) have been
satisfied or waived, or (b) such other date as the parties hereto agree in
writing.
"Code" has the meaning set forth in the recitals.
"Company" has the meaning set forth in the preamble.
"Company Common Stock" means the common stock of the Company, no par value
per share.
"Company Disclosure Schedule" has the meaning set forth in the preamble to
Article IV.
"Company Documents" has the meaning set forth in Section 4.1.
"Company Financial Statements" has the meaning set forth in Section 4.10.
"Company Interim Financial Statements" has the meaning set forth in Section
4.10.
"Company Material Adverse Effect" has the meaning set forth in Section 4.3.
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"Company Meeting" has the meaning set forth in Section 3.9(a).
"Company Preferred Stock" means the preferred stock of the Company.
"Company Restated Financial Statements" has the meaning set forth in Section
6.5.
"Company SEC Documents" has the meaning set forth in Section 4.10.
"Company Stock Option Conversion" has the meaning set forth in Section
3.7(b).
"Company Stock Options" means the options to purchase Company Common Stock
issued under the Company's 1997 Stock Option Plan, as in effect on the date
hereof.
"Company Stockholders" has the meaning set forth in Section 1.3(b).
"contracts and other agreements" mean all contracts, agreements, supply
agreements, undertakings, indentures, notes, bonds, loans, instruments,
leases, mortgages, commitments or other binding arrangements.
"Delaware Corporation Law" has the meaning set forth in Section 1.1.
"Determination Period" has the meaning set forth in Section 3.1.
"Dissenting Shares" has the meaning set forth in Section 3.2.
"Distribution" means any distribution of cash, securities or property on or
in respect of the Company Common Stock, or Parent Common Stock, as the case
may be, whether as a dividend or otherwise.
"Effective Time" has the meaning set forth in Section 1.2.
"Employment Agreements" has the meaning set forth in Section 6.18.
"Environmental Laws" means all federal, state, and local laws, ordinances,
rules, regulations, codes, duties under the common law or orders, including,
without limitation, any requirements imposed under any Permits, licenses,
judgments, decrees, agreements or recorded covenants, conditions, restrictions
or easements, the purpose of which is to protect the environment, human
health, safety or welfare, or which pertain to Hazardous Materials.
"Environmental Permits" shall mean all Permits, licenses, approvals,
authorizations, consents or registrations required under applicable
Environmental Laws in connection with the ownership, use and/or operation by
the Company of its properties.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Claim Event" has the meaning set forth in Section 3.3(a).
"Escrow Holdback Shares" has the meaning set forth in Section 3.3(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the regulations and rulings issued thereunder.
"Exchange Agent" has the meaning set forth in Section 3.4(a).
"Exchange Ratio" has the meaning set forth in Section 3.1(a)(1).
"Executive Officers" means, as to Parent and the Company, respectively, its
chairman of the board, its president, any vice president (executive, senior or
other), secretary, treasurer or chief financial officer, if any, or any other
officer or employee having supervisory responsibility for a principal business
function.
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"Exemptive Relief" has the meaning set forth in Section 6.20.
"Form S-8" has the meaning set forth in Section 6.22.
"FTC" means the Federal Trade Commission or any successor agency or
department.
"GAAP" means generally accepted accounting principles in the United States
of America from time to time in effect.
"Governmental Entities" means (a) any international, foreign, federal,
state, county, local or municipal government or administrative agency or
political subdivision thereof, (b) any governmental agency, authority, board,
bureau, commission, department or instrumentality, (c) any court or
administrative tribunal, (d) any non-governmental agency, tribunal or entity
that is vested by a governmental agency with applicable jurisdiction, or (e)
any arbitration tribunal or other non-governmental authority with applicable
jurisdiction.
"Hazardous Materials" means (i) any substance or material regulated or
identified under Environmental Laws; (ii) gasoline, diesel fuel or other
petroleum hydrocarbons, PCBs or asbestos; or (iii) any pollutant, toxic
substance, or contaminant.
"Holdback Escrow Agent" has the meaning set forth in Section 3.3(a).
"Holdback Escrow Agreement" has the meaning set forth in Section 3.3(a).
"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Insurance Policies" has the meaning set forth in Section 4.25.
"Intellectual Property Rights" has the meaning set forth in Section 4.19(a).
"IRS" means the Internal Revenue Service or any successor agency or
department.
"Justice" means the Antitrust Division of the Department of Justice or any
successor agency or department.
"Leased Real Property" has the meaning set forth in Section 4.18(a).
"Leases" has the meaning set forth in Section 4.18(a).
"Liabilities" has the meaning set forth in Section 4.11.
"lien or other encumbrance" (or "liens or other encumbrances" or "liens or
other encumbrance" or "lien or other encumbrances" as the context may require
or any similar formulation) means any lien, claim, pledge, mortgage,
assessment, security interest, charge, option, right of first refusal,
easement, servitude, adverse claim, transfer restriction under any stockholder
or similar agreement or other encumbrance of any kind.
"Management Designee" has the meaning set forth in Section 6.19.
"Merger" has the meaning set forth in the recitals.
"Minnesota Corporation Law" has the meaning set forth in Section 1.1.
"Named Executive" means each of Thomas F. Hunt, Jr., Dean R. Pickerell and
Stephen A. Lewis.
"New Parent Stock Option" has the meaning set forth in Section 3.7.
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"1940 Act" shall mean the Investment Company Act of 1940, as amended, and
the regulations and rulings issued thereunder.
"Parent" has the meaning set forth in the preamble.
"Parent Common Stock" means the common stock, par value $.01 per share, of
Parent.
"Parent Disclosure Schedule" has the meaning set forth in the preamble to
Article V.
"Parent Documents" has the meaning set forth in Section 5.1.
"Parent Financial Statements" has the meaning set forth in Section 5.4.
"Parent Interim Financial Statements" has the meaning set forth in Section
5.4.
"Parent Material Adverse Effect" has the meaning set forth in Section 5.2.
"Parent SEC Documents" has the meaning set forth in Section 5.4.
"Permits" (or "Permit" as the context may require) mean all licenses,
permits, certificates, certificates of occupancy, orders, approvals,
registrations, authorizations, inspections, qualifications and filings with
and under all federal, state, local or foreign laws and Governmental Entities.
"person" (or "persons" as the context may require) means any individual,
corporation, partnership, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, Governmental Entity or other
entity.
"Plan" or "Plans" has the meaning set forth in Section 4.23(a).
"property" (or "properties" as the context may require) means real, personal
or mixed property, tangible or intangible.
"Proxy Statement" has the meaning set forth in Section 4.9.
"Receiving Party" has the meaning set forth in Section 14.1.
"Registration Statement" has the meaning set forth in Section 4.9.
"Releasing Party" has the meaning set forth in Section 14.1.
"Remedial Action" shall mean any action required to (i) clean up, remove or
treat Hazardous Materials; (ii) prevent a release or threat of release of any
Hazardous Material; (iii) perform pre-remedial studies, investigations or
post-remedial monitoring and care; (iv) cure a violation of Environmental Law
or (v) take corrective action under sections 3004(u), 3004(v) or 3008(h) of
the Resource Conservation Recovery Act, 42 U.S.C. ss.ss. 6901 et seq. or
analogous state law.
"SBA" has the meaning set forth in Section 4.2.
"SEC" means the Securities and Exchange Commission or any successor agency
or department.
"Securities Act" means the Securities Act of 1933, as amended, and the
regulations and rulings issued thereunder.
"Share Consideration" has the meaning set forth in Section 3.4(a).
"Sub" has the meaning set forth in the preamble hereof.
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"Sub Common Stock" means the common stock, par value $.01 per share, of Sub.
"Subsidiaries" (or "Subsidiary" as the context may require), means each
entity as to which a person, directly or indirectly, owns or has the power to
vote, or to exercise a controlling influence with respect to, 50% or more of
the securities of any class of such entity, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election
of directors (or persons performing similar functions) of such entity.
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Taxes" (or "Tax" as the context may require) means all federal, state,
county, local, foreign and other taxes (including, without limitation, income,
intangibles, premium, excise, sales, use, gross receipts, franchise, ad
valorem, severance, capital levy, transfer, employment and payroll-related,
and property taxes, import duties and other governmental charges and
assessments), and includes interest, additions to tax and penalties with
respect thereto.
"Transaction Expenses" has the meaning set forth in Section 6.14.
"Voting Agreement" has the meaning set forth in Section 8.1.
ARTICLE XIV.
Miscellaneous
Section 14.1. Publicity. So long as this Agreement is in effect, prior to
making a press release or other public statement with respect to the
transactions contemplated by this Agreement, any party (a "Releasing Party")
will consult with the other party (the "Receiving Party") and provide such
other party with a draft of such press release, except as may otherwise be
required by law or stock exchange regulations.
Section 14.2. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission or sent by certified, registered, express mail
or nationally recognized courier service, postage prepaid. Any such notice
shall be deemed given when so delivered personally or successfully sent by
facsimile transmission or, if mailed, five days after the date of deposit in
the United States mails, as follows:
(i) if to Parent or Sub to:
Medallion Financial Corp.
437 Madison Avenue
New York, NY 10022
Attention: Andrew Murstein, President
Telecopy No.: (212) 328-2125
and
Medallion Financial Corp.
437 Madison Avenue
New York, NY 10022
Attention: Allen Greene, Chief Operating Officer
Telecopy No.: (212) 328-2125
with a concurrent copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Christopher E. Manno, Esq.
Telecopy No.: (212) 821-8111
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(ii) if to the Company to:
Capital Dimensions, Inc.
7831 Glenroy Road, Suite 480
Minneapolis, MN 55439
Attention: Thomas F. Hunt, Jr., President
Telecopy No.:(612) 831-2945
with, prior to the Closing, a concurrent copy to:
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attention: Richard D. McNeil, Esq.
Telecopy No.: (612) 371-3207
Any party may by notice given in accordance with this Section 14.2 to the
other parties designate another address or person for receipt of notices
hereunder.
Section 14.3. Entire Agreement. This Agreement (including the exhibits and
schedules hereto) and the agreements contemplated hereby contain the entire
agreement among the parties with respect to the subject matter hereof, and
supersede all prior agreements, written or oral, with respect thereto.
Section 14.4. Waivers and Amendments; Non Contractual Remedies; Preservation
of Remedies; Liability. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of waiver, by the
party waiving compliance; provided, however, that the Company may amend the
Company Disclosure Schedule within 15 days of the date of this Agreement
without the consent of Parent. 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
right, power or privilege. The rights and remedies herein provided are
cumulative and, except as provided (i) in Section 12.2 and (ii) if the Closing
occurs, in Section 11.2(a) and the Holdback Escrow Agreement, 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. The limitations on claims set forth
in this Section 14.4 and elsewhere in this Agreement (including Article XI)
and in the Holdback Escrow Agreement shall not apply in the case of fraud on
the part of the Company.
Section 14.5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 14.6. Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns and heirs and legal representatives. Neither this Agreement, nor
any right hereunder, may be assigned by any party without the prior written
consent of the other party hereto.
Section 14.7. Third Party Beneficiaries. Except for Sections 3.7, 6.22(b)
and 6.23, nothing in this Agreement is intended or shall be construed to give
any person, other than the parties hereto, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision
contained herein.
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Section 14.8. 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.
Section 14.9. Exhibits and Schedules. The exhibits and schedules hereto are
a part of this Agreement as if fully set forth herein. All references herein
to Articles, Sections, subsections, clauses, exhibits and schedules shall be
deemed references to such parts of this Agreement, unless the context shall
otherwise require.
Section 14.10. Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
Section 14.11. Submission to Jurisdiction; Venue. Any action or proceeding
against any party hereto with respect to this Agreement shall be brought in
the courts of the State of Delaware or of the United States for the District
of Delaware, and, by execution and delivery of this Agreement, each party
hereto hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. Each
party hereto irrevocably consents to the service of process at any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth in Section 14.2, such service to become effective 30
days after such mailing. Nothing herein shall affect the right of any party
hereto to serve process on any other party hereto in any other manner
permitted by law. Each party hereto irrevocably waives any objection which it
may now have or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Agreement
brought in the courts referred to above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient
forum.
Section 14.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, this being in addition to
any other remedy to which they are entitled at law or in equity.
Section 14.13. Severability. If any court of competent jurisdiction
determines that any provision of this Agreement is not enforceable in
accordance with its terms, then such provision shall be deemed to be modified
so as to apply such provision, as modified, to the protection of the
legitimate interests of the parties hereto to the fullest extent legally
permissible and shall not affect the validity or enforceability of the
remaining provisions of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
Medallion Financial Corp.
/s/ Andrew Murstein
By: _________________________________
Name: Andrew Murstein
Title: President
CD Merger Corp.
/s/ Andrew Murstein
By: _________________________________
Name: Andrew Murstein
Title: President
Capital Dimensions, Inc.
/s/ Thomas F. Hunt, Jr.
By: _________________________________
Name: Thomas F. Hunt, Jr.
Title: President
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APPENDIX B
M.S.A. (S) 302A.471
MINNESOTA STATUTES ANNOTATED
CORPORATIONS
CHAPTER 302A. BUSINESS CORPORATIONS
SHARES; SHAREHOLDERS
CURRENT THROUGH END OF 1997 2ND SP. SESS.
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
Subdivision 1. Actions Creating Rights. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court,
or a disposition for cash on terms requiring that all or substantially all
of the net proceeds of disposition be distributed to the shareholders in
accordance with their respective interests within one year after the date
of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B,
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their
shares.
Subdivision 2. Beneficial Owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the
shares that are beneficially owned by another person but registered in the
name of the shareholder and discloses the name and address of each beneficial
owner on whose behalf the shareholder dissents. In that event, the rights of
the dissenter shall be determined as if the shares as to which the shareholder
has dissented and the other shares were registered in the names of different
shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of
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this section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subdivision 3. Rights not to Apply. (a) Unless the articles, the bylaws, or
a resolution approved by the board otherwise provide, the right to obtain
payment under this section does not apply to a shareholder of the surviving
corporation in a merger, if the shares of the shareholder are not entitled to
be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on an
action described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subdivision 4. Other Rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a
right at law or in equity to have a corporate action described in subdivision
1 set aside or rescinded, except when the corporate action is fraudulent with
regard to the complaining shareholder or the corporation.
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M.S.A. (S) 302A.473
MINNESOTA STATUTES ANNOTATED
CORPORATIONS
CHAPTER 302A. BUSINESS CORPORATIONS
SHARES; SHAREHOLDERS
CURRENT THROUGH END OF 1997 2ND SP. SESS.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subdivision 2. Notice of Action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
Subdivision 3. Notice of Dissent. If the proposed action must be approved by
the shareholders, a shareholder who is entitled to dissent under section
302A.471 and who wishes to exercise dissenters' rights must file with the
corporation before the vote on the proposed action a written notice of intent
to demand the fair value of the shares owned by the shareholder and must not
vote the shares in favor of the proposed action.
Subdivision 4. Notice of Procedure; Deposit of Shares. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have complied
with subdivision 3 and to all shareholders entitled to dissent if no
shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all
other rights of a shareholder until the proposed action takes effect.
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Subdivision 5. Payment; Return of Shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation
estimates to be the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person
who was not a beneficial owner on that date. If the dissenter has complied
with subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for
withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision
4 and require deposit or restrict transfer at a later time.
Subdivision 6. Supplemental Payment; Demand. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the corporation
of the dissenter's own estimate of the fair value of the shares, plus
interest, within 30 days after the corporation mails the remittance under
subdivision 5, and demand payment of the difference. Otherwise, a dissenter is
entitled only to the amount remitted by the corporation.
Subdivision 7. Petition; Determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last
registered office of the constituent corporation was located. The petition
shall name as parties all dissenters who have demanded payment under
subdivision 6 and who have not reached agreement with the corporation. The
corporation shall, after filing the petition, serve all parties with a summons
and copy of the petition under the rules of civil procedure. Nonresidents of
this state may be served by registered or certified mail or by publication as
provided by law. Except as otherwise provided, the rules of civil procedure
apply to this proceeding. The jurisdiction of the court is plenary and
exclusive. The court may appoint appraisers, with powers and authorities the
court deems proper, to receive evidence on and recommend the amount of the
fair value of the shares. The court shall determine whether the shareholder or
shareholders in question have fully complied with the requirements of this
section, and shall determine the fair value of the shares, taking into account
any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The fair value of
the shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which
the fair value of the shares as determined by the court, plus interest,
exceeds the
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amount, if any, remitted under subdivision 5, but shall not be liable to the
corporation for the amount, if any, by which the amount, if any, remitted to
the dissenter under subdivision 5 exceeds the fair value of the shares as
determined by the court, plus interest.
Subdivision 8. Costs; Fees; Expenses. (a) The court shall determine the
costs and expenses of a proceeding under subdivision 7, including the
reasonable expenses and compensation of any appraisers appointed by the court,
and shall assess those costs and expenses against the corporation, except that
the court may assess part or all of those costs and expenses against a
dissenter whose action in demanding payment under subdivision 6 is found to be
arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously,
or not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
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