<PAGE>
As filed with the Securities and Exchange Commission on April 23, 1998
Registration No. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No.
MEDALLION FINANCIAL CORP.
(Exact Name of Registrant as Specified in Charter)
(212) 338-2100
(Area Code and Telephone Number)
437 Madison Avenue, 38th Floor, New York, New York 10022
(Address of Principal Executive Offices)
ALVIN MURSTEIN
Chief Executive Officer
Medallion Financial Corp.
437 Madison Avenue, 38th Floor
New York, New York 10022
(Name and Address of Agent for Service)
Copy To:
CHRISTOPHER E. MANNO, ESQ.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
after the Effective Date of this Registration Statement.
-------------------------------------------------------------------
Calculation of Registration Fee under the Securities Act of 1933:
------------------------------------------------------------------
<TABLE>
<CAPTION>
======================================================================================================================
Proposed Proposed
Title of Securities Amount Being Maximum Maximum Amount of
Being Registered Registered Offering Aggregate Offering Registration
Price Per Share (1) Price Fee (1)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.......... 1,126,535 $29.1875 $32,880,740 $9,700
======================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f) under the Securities Act of 1933 on the basis of the
average high and low prices for the Common Stock on April 17, 1998 as
quoted on the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
CROSS REFERENCE SHEET
(As Required by Rule 481(a))
<TABLE>
<CAPTION>
Item in Parts A and B of Form N-14 Joint Proxy Statement/Prospectus Caption
- --------------------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C>
PART A
Item 1. Beginning of Registration Statement and
Outside Front Cover Page of Prospectus Cover Page
Item 2. Beginning and Outside Back Cover Page Cover Page
of Prospectus
Item 3. Fee Table, Synopsis and Risk Factors Summary; Risk Factors; Fee Table
Item 4. Information About the Transaction Comparison of Investment Objectives and Policies;
The Merger
Item 5. Information About the Registrant Summary; Comparison of Investment Objectives and
Policies; The Merger; Incorporated by Reference
Item 6. Information About the Company Being Acquired Summary; Comparison of Investment Objectives and
Policies; The Merger; Incorporated by Reference
Item 7. Voting Information Summary; The Special Meeting
Item 8. Interest of Certain Persons and Experts The Special Meeting; Experts
Item 9. Additional Information Required for Reoffering Not Applicable
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information about the Registrant Comparison of Stockholder Rights; Incorporated by
Reference
Item 13. Additional Information about the Company Not Applicable.
Being Acquired
Item 14. Financial Statements Incorporated by Reference
PART C
Item 15. Indemnification Indemnification
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
</TABLE>
PARTS A and B
Pursuant to the General Instructions to Form N-14, all information required to
be set forth in Part B: Statement of Additional Information has been included in
Part A: Prospectus. All Items required to be included in Part C are set forth
under the appropriate item, so numbered, in Part C of this Registration
Statement.
Pursuant to Rule 411 under the Securities Act of 1933, as amended, and Rule 0-4
and 8b-23 under the Investment Company Act of 1940, as amended, the information
required to be included in Item 6 of Part A of this Form N-14 Registration
Statement is incorporated by reference to Capital Dimensions, Inc.'s Form 10 as
filed with the Securities and Exchange Commission on June 19, 1997 and amended
on Form 10/A as filed on June 26, 1997 (File No. 000-22721).
<PAGE>
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 __, 1998, at _____ 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
May __, 1998
<PAGE>
CAPITAL DIMENSIONS, INC.
7831 Glenroy Road, Suite 480
MINNEAPOLIS, MINNESOTA 55439
_______________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE __, 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 ___________, June __, 1998 at _______ 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 May __, 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
May __, 1998
<PAGE>
SUBJECT TO COMPLETION -- DATED APRIL 23, 1998
CAPITAL DIMENSIONS, INC. MEDALLION FINANCIAL CORP.
7831 Glenroy Road, Suite 480 437 Madison Avenue
MINNEAPOLIS, MN 55439 New York, NY 10022
(612) 854-3007 (212)328-2100
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
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 __, 1998, at ____ 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 45.6% of the outstanding
shares of CDI Common Stock as of May __, 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
<PAGE>
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 last reported sale price of Medallion Common Stock on the Nasdaq National
Market on April 22, 1998 was $30.375 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 May __, 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
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 May __, 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 public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and may be available 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. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Judiciary Plaza, Washington, D.C. 20549. 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; and
2. Medallion's Preliminary Proxy Statement on Schedule 14A, as filed with
the Commission on April 14, 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 and December 31, 1997; 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.
In addition, all reports and other documents filed by Medallion or CDI
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the consummation of the Merger shall be deemed to
be incorporated by reference herein and to be a part hereof from the date of
filing of such reports and documents. 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>
<CAPTION>
TABLE OF CONTENTS
Page
----
<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..................................................................................................... 4
Listing.................................................................................................................. 4
Appraisal Rights......................................................................................................... 4
Voting Agreements........................................................................................................ 4
Investment Objectives and Policies....................................................................................... 4
Risk Factors............................................................................................................. 5
Dividends and Distributions.............................................................................................. 5
Medallion Common Stock................................................................................................... 5
Comparative Rights of Stockholders....................................................................................... 5
Comparative Per Share Prices............................................................................................. 5
Medallion Summary Historical and Pro Forma Consolidated Financial Information............................................ 7
CDI Summary Historical Consolidated Financial Information................................................................ 9
Certain Federal Income Tax Consequences.................................................................................. 10
Expense Table............................................................................................................ 10
Management of CDI and Medallion.......................................................................................... 12
RISK FACTORS.............................................................................................................. 14
Risk Relating to Integration of CDI and Medallion........................................................................ 14
Interest Rate Spread..................................................................................................... 14
Leverage................................................................................................................. 15
Industry and Geographic Concentration.................................................................................... 16
Reliance on Management................................................................................................... 16
Substantial Influence by Existing Principal Stockholders................................................................. 16
Risk Relating to Integration of Recent Acquisitions...................................................................... 16
Availability of Funds.................................................................................................... 17
Competition.............................................................................................................. 18
Credit Quality........................................................................................................... 18
Portfolio Valuation...................................................................................................... 19
Taxicab Industry Regulation.............................................................................................. 19
Government Regulation of Tobacco Advertising............................................................................. 20
Pass-Through Tax Treatment............................................................................................... 21
Risks Associated with Distribution Requirements and Leverage......................................................... 21
Risks Associated with Diversification Requirements................................................................... 21
Possible Volatility of Stock Price....................................................................................... 22
Dependence on Cash Flow from Subsidiaries................................................................................ 22
Certain Anti-Takeover Provisions......................................................................................... 22
MEDALLION SELECTED CONSOLIDATED FINANCIAL DATA............................................................................ 23
CDI SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA........................................................................ 25
THE CDI SPECIAL MEETING................................................................................................... 27
Purpose of the CDI Special Meeting....................................................................................... 27
Voting Information....................................................................................................... 27
Shareholder and Board Approvals.......................................................................................... 27
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
Quorum and Adjournments............................................................................................... 29
Dissenters' Rights of Appraisal....................................................................................... 29
Minnesota Dissenters' Rights Statute................................................................................ 29
Other Business........................................................................................................ 31
THE MERGER............................................................................................................. 32
General............................................................................................................... 32
Closing Date.......................................................................................................... 32
Background of the Merger; Reasons for the Merger...................................................................... 33
Recommendation of the Board of Directors of CDI....................................................................... 35
Interests of Certain Persons in the Merger............................................................................ 35
The Merger Agreement.................................................................................................. 36
Terms of the Merger................................................................................................. 36
Representations and Warranties...................................................................................... 37
Certain Covenants................................................................................................... 38
No Shopping......................................................................................................... 38
Indemnification..................................................................................................... 39
Conditions.......................................................................................................... 39
Termination; Fees and Expenses...................................................................................... 40
Certain Federal Income Tax Consequences............................................................................... 41
Accounting Treatment.................................................................................................. 42
Certain Legal Matters................................................................................................. 43
Federal Securities Law Consequences................................................................................... 43
Listing............................................................................................................... 44
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES....................................................................... 44
CDI's Investment Objectives, Policies and Restrictions................................................................ 44
Medallion's Investment Objectives, Policies and Restrictions.......................................................... 47
MEDALLION COMMON STOCK PRICES.......................................................................................... 51
DESCRIPTION OF MEDALLION CAPITAL STOCK................................................................................. 51
General............................................................................................................... 51
Common Stock.......................................................................................................... 52
Preferred Stock....................................................................................................... 52
COMPARISON OF STOCKHOLDER RIGHTS....................................................................................... 53
Limitation on Directors' Liabilities.................................................................................. 53
Delaware Law and Certain Provisions of the Certificate of Incorporation and the By-Laws............................... 53
Certain Provisions of Delaware Law Regarding an Interested Stockholder................................................ 54
Minnesota Law Rights of CDI Shareholders.............................................................................. 55
DETERMINATION OF NET ASSET VALUE OF MEDALLION.......................................................................... 56
MEDALLION'S DIVIDEND REINVESTMENT PLAN................................................................................. 57
EQUIVALENT PER SHARE DATA.............................................................................................. 59
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET.................................................................. 60
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME............................................................ 61
LEGAL PROCEEDINGS...................................................................................................... 65
OTHER MATTERS.......................................................................................................... 65
LEGAL MATTERS.......................................................................................................... 65
EXPERTS................................................................................................................ 65
APPENDIX A: AGREEMENT AND PLAN OF MERGER.............................................................................. A-1
APPENDIX B: MINNESOTA DISSENTERS' RIGHTS STATUTES..................................................................... B-1
</TABLE>
(iv)
<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 __, 1998, at
__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 May __, 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 May __, 1998 (the "CDI Record Date") will be entitled to notice
of and to vote at the CDI Special Meeting. On April 21, 1998 there were
1,725,438 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 45.6% 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
-1-
<PAGE>
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."
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 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)
-2-
<PAGE>
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 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 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."
-3-
<PAGE>
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 45.6%, 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.
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,
-4-
<PAGE>
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
other factors 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. 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 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.
For a comparison of the rights of CDI shareholders and the rights of Medallion
stockholders, 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
-5-
<PAGE>
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 April 22) of 1998.
<TABLE>
<CAPTION>
HIGH LOW
1998
- -------------------------------------------------------
<S> <C> <C>
Quarter ended March 31, 1998........................... $29 15/16 $18 7/8
Quarter ended June 30, 1998
(through April 22, 1998)............................... $ 30 1/2 $26 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 April 22, 1998, the last sales price of Medallion Common Stock on the
Nasdaq National Market was $30.375. 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.
-6-
<PAGE>
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
subsidiary(1) ................................................ (63) 203 203
Other income .................................................. 411 980 980
Accretion of negative goodwill ................................ 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 investments, net ............................. 84 144 78
Change in unrealized depreciation of investments(2)............. (46) (25) 1,929
............................................................... -------- -------- --------
Net increase in net assets resulting from
operations(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 debentures ................................... 29,390 27,890 39,876
Total liabilities ............................................. 130,620 176,858 189,363
Total stockholders' equity .................................... 56,487 131,392 148,736
</TABLE>
-7-
<PAGE>
<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 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 the period
indicated, divided by average assets during the stated period.
-8-
<PAGE>
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 Ended Ended
December 31, June 30,(1) June 30, 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...... 300 30 120 120 120 56 60 --
restricted ------- ------ ------ ------- ------- ------- ------- -------
Income (loss) applicable
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
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>
-9-
<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 Ended
December 31, June 30,(1) June 30, 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 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 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.
-10-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Medallion CDI MEDALLION
STOCKHOLDER TRANSACTION EXPENSES (ACTUAL)(1) (ACTUAL)(1) (as adjusted)(1)
<S> <C> <C> <C>
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>
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
-11-
<PAGE>
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,
-12-
<PAGE>
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 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 under the Sub-Advisory Agreement during the year
ended December 31, 1997 and the period ended December 31, 1996 were $225,000 and
$131,250, respectively.
-13-
<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.
-14-
<PAGE>
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, 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:
-15-
<PAGE>
<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.
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, in
February 1998, Medallion announced that it had executed a purchase agreement
pursuant to
-16-
<PAGE>
which it would acquire certain assets and assume 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
-17-
<PAGE>
TCC and Edwards from increasing or refinancing their credit facilities. 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
-18-
<PAGE>
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.
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
-19-
<PAGE>
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 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.
-20-
<PAGE>
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,
-21-
<PAGE>
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
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. 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.
-22-
<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)
STATEMENT OF OPERATIONS DATA
<S> <C> <C>
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
======== ========
December 31, December 31,
BALANCE SHEET DATA (IN THOUSANDS) 1996 1997
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>
-23-
<PAGE>
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
---------- ----------
(Unaudited)
SELECTED FINANCIAL RATIOS AND OTHER DATA
<S> <C> <C>
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 23.75 21.74
investments..............................................
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.
-24-
<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 Ended Ended
December 31, June 30,(1) June 30, 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>
-25-
<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 Ended
December 31, June 30,(1) June 30, 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.
-26-
<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 May __, 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 Record Date consisted of 1,725,438 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 45.6% of
the outstanding CDI Common Stock as of the CDI Record Date).
-27-
<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>
NAME AND ADDRESS Share Ownership of Share Ownership of Share Ownership of
- --------------------------- 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 1,083,425 57.2% 4.6%
as a Group (8 persons)
- ---------------------------
</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.
-28-
<PAGE>
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 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
-29-
<PAGE>
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 (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.
-30-
<PAGE>
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.
-31-
<PAGE>
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 (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."
-32-
<PAGE>
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 1991, 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
-33-
<PAGE>
$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 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
-34-
<PAGE>
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
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.
-35-
<PAGE>
Upon consummation of the Merger Agreement, 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 $180,000.00.
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.
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
-36-
<PAGE>
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
-37-
<PAGE>
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 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")
-38-
<PAGE>
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 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 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
-39-
<PAGE>
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)
-40-
<PAGE>
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 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
-41-
<PAGE>
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;
(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
-42-
<PAGE>
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
-43-
<PAGE>
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. 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
-44-
<PAGE>
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 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,
-45-
<PAGE>
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 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.
-46-
<PAGE>
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.
-47-
<PAGE>
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 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
-48-
<PAGE>
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.
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.
-49-
<PAGE>
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.
-50-
<PAGE>
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 April 22) of 1998.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
1998
- -----
Quarter ended March 31, 1998 $29 15/16 $18 7/8
Quarter ended June 30, 1998
(through April 22, 1998) $30 1/2 $26 5/8
1997
- -------------------------------------------------------
<S> <C> <C>
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 April 22, 1998, the last sales price of Medallion Common Stock on the
Nasdaq National Market was $30.375. 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 22, 1998, there were no shares of Preferred Stock outstanding and
12,882,996 shares of Common Stock outstanding and 30 record holders.
-51-
<PAGE>
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.
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.
-52-
<PAGE>
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 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.
-53-
<PAGE>
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 mergers,
-54-
<PAGE>
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."
-55-
<PAGE>
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. 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.
-56-
<PAGE>
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
-57-
<PAGE>
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 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.
-58-
<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.
-59-
<PAGE>
MEDALLION FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
<TABLE>
<CAPTION>
As of December 31, 1997
-----------------------------------------------------------------
Pro Forma Pro Forma
(In thousands) Medallion CDI Adjustments Combined
<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>
-60-
<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
(In thousands except per share data) Medallion CDI(A) Adjustments Combined
------------------- ----------------- ---------------- ---------------
<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, $ 144 (66) -- 78
net
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
- ---------------
(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).
</TABLE>
-61-
<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
(In thousands except per share data) Medallion(A) CDI(B) Adjustments Combined
-------------------- ---------------- --------------- ---------------
<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).
-62-
<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
(In thousands except per share data) Medallion(A) CDI (B) Adjustments Combined
--------------------- ----------------- ---------------- ---------------
<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).
-63-
<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.
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).
-64-
<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.
-65-
<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>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I. THE MERGER; EFFECT OF MERGER................................................................ 1
Section 1.1. The Merger............................................................................. 1
Section 1.2. Effective Time of the Merger........................................................... 2
Section 1.3. Effects of Merger...................................................................... 2
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........................................ 3
Section 3.1. Conversion of Shares................................................................... 3
Section 3.2. Appraisal Rights....................................................................... 3
Section 3.3. Holdback Shares........................................................................ 4
Section 3.4. Parent to Make Certificates Available.................................................. 5
Section 3.5. Dividends; Transfer Taxes.............................................................. 6
Section 3.6. No Fractional Securities............................................................... 6
Section 3.7. Assumption and Conversion of Company Stock Options..................................... 6
Section 3.8. Closing of Company Transfer Books...................................................... 8
Section 3.9. Stockholder Approval................................................................... 8
Section 3.10. Tax Treatment......................................................................... 8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................. 8
Section 4.1. Execution and Delivery................................................................. 8
Section 4.2. Consents and Approvals................................................................. 9
Section 4.3. No Breach.............................................................................. 9
Section 4.4. Organization, Standing and Authority...................................................10
Section 4.5. Capitalization of the Company..........................................................10
Section 4.6. Options and Other Stock Rights.........................................................11
Section 4.7. Subsidiaries...........................................................................11
Section 4.8. Corporate Records......................................................................12
Section 4.9. Information in Disclosure Documents....................................................12
Section 4.10. SEC Documents; Financial Statements...................................................12
Section 4.11. Liabilities...........................................................................13
Section 4.12. No Material Adverse Change............................................................14
Section 4.13. Compliance with Laws..................................................................14
Section 4.14. Permits...............................................................................14
Section 4.15. Actions and Proceedings...............................................................14
Section 4.16. Contracts and Other Agreements........................................................14
Section 4.17. Investment Portfolio..................................................................18
Section 4.18. Real Property.........................................................................18
Section 4.19. Intellectual Property.................................................................19
Section 4.20. Receivables...........................................................................20
Section 4.21. Banking...............................................................................20
Section 4.22. Liens.................................................................................20
Section 4.23. Employee Benefit Plans................................................................21
Section 4.24. Employee Relations....................................................................22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.25. Insurance.............................................................................23
Section 4.26. Officers, Directors, Employees, Consultants...........................................23
Section 4.27. Transactions with Directors, Officers and Affiliates..................................24
Section 4.28. Operations of the Company.............................................................24
Section 4.29. Brokerage.............................................................................26
Section 4.30. Taxes.................................................................................26
Section 4.31. Execution and Validity of Employment Agreements.......................................27
Section 4.32. Environmental Laws....................................................................28
Section 4.33. Accounting Matters....................................................................29
Section 4.34. Company Action........................................................................29
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............................................29
Section 5.1. Execution and Delivery.................................................................30
Section 5.2. Consents and Approvals.................................................................30
Section 5.3. No Breach..............................................................................30
Section 5.4. SEC Documents; Financial Statements....................................................31
Section 5.5. Shares of Parent Common Stock..........................................................32
Section 5.6. Organization, Standing and Authority of Parent and Sub.................................32
Section 5.7. Capitalization.........................................................................32
Section 5.8. Brokerage..............................................................................33
Section 5.9. Information in Disclosure Documents....................................................33
Section 5.10. No Material Adverse Change............................................................33
Section 5.11. Sub Action............................................................................34
ARTICLE VI. COVENANTS AND AGREEMENTS...................................................................34
Section 6.1. Conduct of Business....................................................................34
Section 6.2. Litigation Involving the Company.......................................................35
Section 6.3. Continued Effectiveness of Representations and Warranties of the Parties...............35
Section 6.4. Corporate Examinations and Investigations..............................................36
Section 6.5. Preparation of Company Restated Financial Statements...................................37
Section 6.6. Registration Statement/Proxy Statement.................................................37
Section 6.7. Compliance with the Securities Act.....................................................38
Section 6.8. Nasdaq Listing.........................................................................38
Section 6.9. Acquisition Proposals..................................................................38
Section 6.10. No Shopping...........................................................................39
Section 6.11. Parent and Sub Approvals..............................................................39
Section 6.12. Company Approvals.....................................................................39
Section 6.13. Distribution..........................................................................39
Section 6.14. Expenses..............................................................................40
Section 6.15. Further Assurances....................................................................40
Section 6.16. Hart-Scott-Rodino.....................................................................40
Section 6.17. SBA Approval..........................................................................41
Section 6.18. Execution of Employment Agreements....................................................41
Section 6.19. Board Attendance Right................................................................41
Section 6.20. Grant of Parent Stock Options.........................................................41
Section 6.21. Employee Matters......................................................................41
Section 6.22. Compliance with Legal Requirements....................................................42
Section 6.23. Indemnification of Company Officers and Directors.....................................42
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER......................42
Section 7.1. Company Stockholder Approval...........................................................42
Section 7.2. Listing of Shares......................................................................42
Section 7.3. Hart-Scott-Rodino......................................................................43
Section 7.4. Effectiveness of Registration Statement................................................43
Section 7.5. SBA Approval...........................................................................43
Section 7.6. Litigation.............................................................................43
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATION OF PARENT AND SUB TO EFFECT THE MERGER............43
Section 8.1. Representations and Covenants..........................................................43
Section 8.2. Absence of Material Adverse Change.....................................................44
Section 8.3. Receipt of Agreements..................................................................44
Section 8.4. Accountant's Letters...................................................................44
Section 8.5. Dissenting Shares......................................................................45
Section 8.6. Opinions of Counsel to the Company.....................................................45
Section 8.7. Tax Opinion............................................................................45
Section 8.8. Termination of Management Agreement....................................................45
Section 8.9. Amendment of Agreements With Holders of Company Stock Options..........................45
Section 8.10. Closing Conditions....................................................................45
ARTICLE IX. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.................45
Section 9.1. Representations and Covenants..........................................................45
Section 9.2. Absence of Material Adverse Change.....................................................46
Section 9.3. Receipt of Agreements..................................................................46
Section 9.4. Accountant's Letter....................................................................46
Section 9.5. Opinion of Counsel to Parent...........................................................46
Section 9.6. Tax Opinion............................................................................46
Section 9.7. Closing Conditions.....................................................................47
ARTICLE X. CLOSING.....................................................................................47
ARTICLE XI. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION................................47
Section 11.1. Survival of Representations and Warranties............................................47
Section 11.2. Indemnification by Company Stockholders...............................................47
ARTICLE XII. TERMINATION OF AGREEMENT..................................................................48
Section 12.1. Termination...........................................................................48
Section 12.2. Effect of Termination.................................................................49
Section 12.3. Termination Expenses..................................................................49
ARTICLE XIII. DEFINITIONS..............................................................................50
Section 13.1. Definitions...........................................................................50
ARTICLE XIV. MISCELLANEOUS.............................................................................56
Section 14.1. Publicity.............................................................................56
Section 14.2. Notices...............................................................................56
Section 14.3. Entire Agreement......................................................................57
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 14.4. Waivers and Amendments; Non Contractual Remedies; Preservation of Remedies; Liability.57
Section 14.5. Governing Law.........................................................................58
Section 14.6. Binding Effect; No Assignment.........................................................58
Section 14.7. Third Party Beneficiaries.............................................................58
Section 14.8. Counterparts..........................................................................58
Section 14.9. Exhibits and Schedules................................................................58
Section 14.10. Headings.............................................................................59
Section 14.11. Submission to Jurisdiction; Venue....................................................59
Section 14.12. Specific Performance..................................................................59
Section 14.13. Severability.........................................................................59
</TABLE>
iv
<PAGE>
Exhibits
- --------
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
- ---------------------------
Section Description
- ------- -----------
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
- --------------------------
Section Description
- ------- -----------
5.6 Parent and Sub Organizational Documents
v
<PAGE>
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.
---------
A-1
<PAGE>
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 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.
A-2
<PAGE>
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 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
A-3
<PAGE>
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.
A-4
<PAGE>
(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 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.
A-5
<PAGE>
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
A-6
<PAGE>
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 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
A-7
<PAGE>
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.
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
A-8
<PAGE>
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
A-9
<PAGE>
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, 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
A-10
<PAGE>
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.
(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.
A-11
<PAGE>
(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
A-12
<PAGE>
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.
(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.
A-13
<PAGE>
(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
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)
A-14
<PAGE>
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
A-15
<PAGE>
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
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
A-16
<PAGE>
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.
A-17
<PAGE>
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, 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
A-18
<PAGE>
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
A-19
<PAGE>
source and object), formulae and techniques used in or necessary for the conduct
of its business (collectively, "Intellectual Property Rights").
(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
A-20
<PAGE>
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 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.
A-21
<PAGE>
(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 have 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
A-22
<PAGE>
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 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.
A-23
<PAGE>
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;
(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,
A-24
<PAGE>
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
A-25
<PAGE>
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 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
A-26
<PAGE>
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
A-27
<PAGE>
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, 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
A-28
<PAGE>
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.
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:
A-29
<PAGE>
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
A-30
<PAGE>
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, 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
A-31
<PAGE>
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
A-32
<PAGE>
Parent's stockholders may vote issued or 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
A-33
<PAGE>
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, 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.
A-34
<PAGE>
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
A-35
<PAGE>
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 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
A-36
<PAGE>
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.
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.
A-37
<PAGE>
(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
A-38
<PAGE>
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 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
A-39
<PAGE>
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 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.
A-40
<PAGE>
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.
A-41
<PAGE>
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 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.
A-42
<PAGE>
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:
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
A-43
<PAGE>
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
A-44
<PAGE>
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.
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
A-45
<PAGE>
(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.
- ---------
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
A-46
<PAGE>
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
A-47
<PAGE>
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.
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
A-48
<PAGE>
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.
(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.
A-49
<PAGE>
ARTICLE XIII.
Definitions
-----------
Section 14. 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.
A-50
<PAGE>
"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.
"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.
A-51
<PAGE>
"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.
"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.
A-52
<PAGE>
"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,
A-53
<PAGE>
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.
"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
A-54
<PAGE>
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.
---
"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.
A-55
<PAGE>
"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
A-56
<PAGE>
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
(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
A-57
<PAGE>
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.
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.
A-58
<PAGE>
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.
[Signature Pages Follow.]
A-59
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein
-------------------------
Name: Andrew Murstein
Title: President
CD MERGER CORP.
By: /s/ Andrew Murstein
-------------------------
Name: Andrew Murstein
Title: President
CAPITAL DIMENSIONS, INC.
By: /s/ Thomas F. Hunt, Jr.
-------------------------
Name: Thomas F. Hunt, Jr.
Title: President
A-60
<PAGE>
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
B-1
<PAGE>
(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.
SUBD. 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 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.
SUBD. 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.
SUBD. 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.
B-2
<PAGE>
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.
SUBD. 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.
SUBD. 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.
SUBD. 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
B-3
<PAGE>
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.
SUBD. 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.
SUBD. 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.
SUBD. 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
B-4
<PAGE>
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
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.
SUBD. 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.
B-5
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Section 145 of the Delaware General Corporation Law grants the Company the
power to indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of Medallion, or is or
was serving at the request of Medallion as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of
Medallion, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, provided, however, no
indemnification shall be made in connection with any proceeding brought by or in
the right of Medallion where the person involved is adjudged to be liable to
Medallion except to the extent approved by a court. Article TENTH of
Medallion's Certificate of Incorporation as currently in effect provides that
Medallion shall, to the fullest extent permitted by the Delaware General
Corporation Law, as amended from time to time, indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he is or was, or
has agreed to become, a director or officer of Medallion, or is or was serving,
or has agreed to serve, at the request of Medallion, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise. The indemnification provided for in
Article TENTH is expressly not exclusive of any other rights to which those
seeking indemnification may be entitled under, any law, agreement or vote of
stockholders or disinterested directors or otherwise, and shall inure to the
benefit of the heirs, executors and administrators of such persons. Article
TENTH permits the Board of Directors to authorize the grant of indemnification
rights to other employees and agents of Medallion and such rights may be
equivalent to, or greater or less than, those set forth in Article TENTH.
Article V, Section 2 of Medallion's By-Laws provides that Medallion shall
have the power to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of Medallion, or is or was serving
at the request of Medallion, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against and incurred by such
person in any such capacity.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
Article NINTH of Medallion's Certificate of Incorporation eliminates a
director's personal liability for monetary damages to Medallion and its
stockholders for breaches of fiduciary duty as a director, except to the extent
that the elimination or limitation of liability is not then permitted under the
Delaware General Corporation Law.
C-1
<PAGE>
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
(1) Medallion Financial Corp. Restated Articles of Incorporation. Filed
as Exhibit 3.1 to Medallion's Annual Report on Form 10-K for the year
ended December 31, 1997 filed on March 31, 1998 (File No. 0-27812) and
incorporated by reference herein.
(2) Medallion Financial Corp. Restated By-laws. Filed as Exhibit b to
Medallion's Registration Statement on Form N-2 filed on February 26,
1996 (File No. 333-1670) and incorporated by reference herein.
(4) Agreement and Plan of Merger, dated as of March 6, 1998, by and among
Medallion Financial Corp., CD Merger Corp. and Capital Dimensions,
Inc. (included as Exhibit A to the Proxy Statement/Prospectus
contained in Part A of this Registration Statement).
(5) Instruments defining rights of security holders -- See Exhibits (1)
and (2).
(6) Sub-Advisory Agreement between Medallion Financial Corp. and FMC
Advisers, Inc. dated May 29, 1996. Filed as Exhibit 10.42 to
Medallion's Annual Report on Form 10-K for the year ended December 31,
1996 filed March 31, 1997 (File No. 0-27812) and incorporated by
reference herein.
(8)(a) Medallion Financial Corp. 1996 Stock Option Plan. Filed as Exhibit
i.1 to Medallion's Registration Statement on Form N-2 (File No. 333-
1670) and incorporated by reference herein.
(8)(b) Medallion Financial Corp. 1996 Non-Employee Directors Stock Option
Plan. to Medallion's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated by reference herein.
(8)(c) Medallion Financial Corp. 401(k) Investment Plan. Filed as Exhibit
i.2 to Medallion's Registration Statement on Form N-2 (File No. 333-
1670) and incorporated by reference herein.
(11) Opinion and Consent of Willkie Farr & Gallagher, counsel to Medallion,
with respect to the legality of shares being registered is to be filed
by amendment.
C-2
<PAGE>
(12) (a) Opinion and Consent of Willkie Farr & Gallagher with respect to tax
matters is to be filed by amendment.
(12) (b) Opinion and Consent of Lindquist & Vennum P.L.L.P., counsel to Capital
Dimensions, Inc., with respect to tax matters is to be filed by
amendment.
(13)(a) Debenture due April 1, 1997 in the amount of $1,500,000 issued by
Edwards Capital Company and payable to Chemical Bank as Trustee under
the Trust Agreement dated January 15, 1987 among the Trustee, the U.S.
Small Business Administration and SBIC Funding Corporation (the "Trust
Agreement"). Filed as Exhibit f.2 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(b) Debenture due June 1, 1998 in the amount of $3,000,000 issued by
Edwards Capital Company and payable to Chemical Bank under the Trust
Agreement. Filed as Exhibit f.3 to Medallion's Registration Statement
on Form N-2 (File No. 333-1670) and incorporated by reference herein.
(13)(c) Debenture due September 1, 2002 in the amount of $3,500,000 issued by
Edwards Capital Company and payable to Chemical Bank as Trustee under
the Amended and Restated Trust Agreement dated March 1, 1990 among the
Trustee, the U.S. Small Business Administration and SBIC Funding
Corporation (the "Amended Trust Agreement"). Filed as Exhibit f.4 to
Medallion's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(d) Debenture due September 1, 2002 in the amount of $6,050,000 issued by
Edwards Capital Company and payable to Chemical Bank under the Amended
Trust Agreement. Filed as Exhibit f.5 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(e) Debenture due June 1, 2004 in the amount of $4,600,000 issued by
Edwards Capital Company and payable to Chemical Bank under the Amended
Trust Agreement. Filed as Exhibit f.6 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(f) Debenture due September 1, 2004 in the amount of $5,100,000 issued by
Edwards Capital Company and payable to Chemical Bank under the Amended
Trust Agreement. Filed as Exhibit f.7 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(g) Letter Agreement, dated September 8, 1992, between the U.S. Small
Business Administration and Edwards Capital Company regarding limit on
C-3
<PAGE>
incurrence of senior indebtedness, as amended on January 17, 1996.
Filed as Exhibit f.8 to Medallion's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein. Letter
dated September 19, 1996 from the U.S. Small Business Administration
to Edwards Capital Corp. amending such Letter Agreement was filed as
Exhibit 4.7 to Medallion's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996 and is incorporated by reference herein.
(13)(h) Debenture due June 1, 2002 in the amount of $5,640,000 issued by
Transportation Capital Corp: and payable to Chemical Bank under the
Amended Trust Agreement. Filed as Exhibit f.10 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(i) Continuing General Security Agreement between NatWest Bank N.A.
(formerly National Westminster Bank USA) and Edwards Capital Company
dated June 17, 1987. Filed as Exhibit k.12 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(j) Term Note in the principal amount of $2,000,000 dated July 16, 1990 as
amended March 27, 1992, July 16, 1993 and July 16, 1995 from Medallion
Funding Corp. payable to NatWest Bank N.A. (formerly National
Westminster Bank USA). Filed as Exhibit k.18 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(k) General Loan and Security Agreement between Sterling National Bank
Trust of New York and Edwards Capital Company dated May 1, 1991.
Filed as Exhibit k.13 to Medallion's Registration Statement on Form N-
2 (File No. 333-1670) and incorporated by reference herein.
(13)(l) General Security Agreement between Israel Discount Bank of New York
and Edwards Capital Company dated May 2, 1991. Filed as Exhibit k.14
to Medallion's Registration Statement on Form N-2 (File No. 333-1670)
and incorporated by reference herein.
(13)(m) Inter-Creditor Agreement among and between Edwards Capital Company and
Bank Hapoalim B.M., Chemical Bank, Israel Discount Bank of New York,
NatWest Bank N.A. (formerly National Westminster Bank USA), Marine
Midland Bank and Sterling National Bank & Trust Company of New York
dated as of May 14, 1991. Filed as Exhibit k.10 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
C-4
<PAGE>
(13)(n) Loan Agreement dated as of March 27, 1992 among Medallion Funding
Corp., the bank's signatory thereto and NatWest Bank N.A. (formerly)
National Westminster Bank USA), as amended March 31, 1993, September
29, 1993, March 31, 1994, September 29, 1995 and March 28, 1996.
Filed as Exhibit k.19 to Medallion's Registration Statement on Form N-
2 (File No. 333-1670) and incorporated by reference herein. Amendment
Five dated January 28, 1997 amending such Loan Agreement was filed as
Exhibit 10.6 to Medallion's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 and is incorporated by reference
herein.
(13)(o) Security Agreement between Medallion Funding Corp. and NatWest Bank
N.A. (formerly National Westminster Bank USA) dated as of March 27,
1992 for the benefit of the banks signatory to the Loan Agreement
dated as of March 27, 1992, among Medallion Funding Corp., the bank's
signatory thereto and NatWest Bank N.A. (formerly National Westminster
Bank USA). Filed as Exhibit k.20 to Medallion's Registration Statement
on Form N2 (File No. 333-1670) and incorporated by reference herein.
(13)(p) Committed Line of Credit Agreement in the principal amount of
$3,000,000 dated as of July 29, 1993, as amended May 31, 1994, October
31, 1994 and September 30, 1995 between Edwards Capital Company and
Bank Hapoalim B.M. Filed as Exhibit k.9 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(q) Promissory Note dated July 31, 1993 in the principal amount of
$5,000,000 from Edwards Capital Company payable to NatWest Bank N.A.
(formerly National Westminster Bank USA) as endorsed by Endorsement
No. 1 dated July 31, 1994 and Endorsement No. 2 dated July 31, 1995.
Filed as Exhibit k.8 to Medallion's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein.
(13)(r) Specialized Small Business Investment Company 3% Preferred Stock
Repurchase Agreement dated as of August 12, 1994 between Medallion
Funding Corp. and the U.S. Small Business Administration. Filed as
Exhibit k.28 to Medallion's Registration Statement on Form N-2 (File
No. 333-1670) and incorporated by reference herein.
(13)(s) Specialized Small Business Investment Company 3% Preferred Stock
Repurchase Agreement dated as March 22, 1995 between Transportation
Capital Corp. and the U.S. Small Business Administration as amended by
letter agreement dated June 1, 1995. Filed as Exhibit k.29 to
Medallion's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
C-5
<PAGE>
(13)(t) Agreement of Merger between Medallion Financial Corp. and Tri-Magna
Corporation, dated December 21, 1995, as amended on February 22, 1996.
Filed as Exhibit k.3(i) to Medallion's Registration Statement on Form
N-2 (File No. 333-1670) and incorporated by reference herein.
(13)(u) Stock Purchase Agreement among Medallion Financial Corp.,
Transportation Capital Corp., LNC Investments, Inc., Leucadia, Inc.
and Leucadia National Corporation, dated February 12, 1996. Filed as
Exhibit k.1 to Medallion's Registration Statement on Form N-2 (File
No. 333-1670) and incorporated by reference herein.
(13)(v) Asset Purchase Agreement between Medallion Financial Corp., and
Edwards Capital Company, dated February 21, 1996. Filed as Exhibit
k.2 to Medallion's Registration Statement on Form N-2 (File No. 333-
1670) and incorporated by reference herein.
(13)(w) Amendment Number 2 to Agreement of Merger between Medallion Financial
Corp. and Tri-Magna Corporation, dated April 26, 1996. Filed as
Exhibit k . 3(ii) to Medallion's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein.
(13)(x) Amendment Number 1 to Stock Purchase Agreement among Medallion
Financial Corp. Transportation Capital Corp., LNC Investments, Inc.,
Leucadia, Inc. and Leucadia National corporation dated April 30, 1996.
Filed as Exhibit k.(i) to Medallion's Registration Statement on Form
N-2 (File No. 333-1670) and incorporated by reference herein.
(13)(y) Amendment Number 1 to Asset Purchase Agreement between Medallion
Financial Corp. and Edwards Capital Company dated April 30, 1996.
Filed as Exhibit k.2(i) to Medallion's Registration Statement on Form
N-2 (File No. 333-1670) and incorporated by reference herein.
(13)(z) Employment Agreement between Medallion Financial Corp. and Alvin
Murstein dated May 29, 1996. Filed as Exhibit 10.19 to Medallion's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and by reference herein.
(13)(aa) Employment Agreement between Medallion Financial Corp. and Andrew
Murstein dated May 29, 1996. Filed as Exhibit 10.20 to Medallion's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and incorporated by reference herein.
(13)(bb) Agreement between Medallion Taxi Media, Inc., See-Level Advertising,
Inc. and See-Level Management, Inc. dated July 25, 1996. Filed as
Exhibit 10.1 to Medallion's Report on Form 10-Q for the quarterly
period ended September 30, 1996 and incorporated herein by reference.
C-6
<PAGE>
(13)(cc) Agreement between Medallion Taxi Media, Inc. and Glenn Grumman dated
July 25, 1996. Filed as Exhibit 10.2 to Medallion's Report on Form
10-Q for the quarterly period ended September 30, 1996 and
incorporated herein by reference.
(13)(dd) Security Agreement dated October 31, 1996 between First Bank of the
Americas and Edwards Capital Corp. Filed as Exhibit 10.23 to
Medallion's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and incorporated by reference herein.
(13)(ee) Master Grid Note (Secured Revolving Line of Credit) dated October 31,
1996 in the amount of $3,000,000 from Edwards Capital Corp. payable to
First Bank of the Americas. Filed as Exhibit 10.24 to Medallion's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and incorporated by reference herein.
(13)(ff) Letter Agreement dated December 1, 1996 between Fleet Bank, N.A. and
Medallion Financial Corp., as amended February 10, 1997. Filed as
Exhibit 10.25 to Medallion's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(gg) Revolving Credit Note dated December 1, 1996 in the amount of
$6,000,000 from Medallion Financial Corp. payable to Fleet Bank, N.A.,
endorsed by Endorsement No. 1 dated February 10, 1997. Filed as
Exhibit 10.26 to Medallion's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(hh) Security Agreement dated December 1, 1996 between Fleet Bank, N.A. and
Medallion Financial Corp. Filed as Exhibit 10.27 to Medallion's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(ii) Revolving Credit Note dated January 28, 1997 in the amount of
$25,000,000 from Medallion Funding Corp. payable to Fleet Bank, N.A.
Filed as Exhibit 10.28 to Medallion's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(jj) Revolving Credit Note dated January 28, 1997 in the amount of
$22,500,000 from Medallion Funding Corp. payable to The First National
Bank of Boston. Filed as Exhibit 10.29 to Medallion's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(kk) Revolving Credit Note dated January 28, 1997 in the amount of
$15,000,000 from Medallion Funding Corp. payable to Harris Trust and
C-7
<PAGE>
Savings Bank. Filed as Exhibit 10.30 to Medallion's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(ll) Revolving Credit Note dated January 28, 1997 in the amount of
$12,500,000 from Medallion Funding Corp. payable to Bank of Tokyo-
Mitsubishi Trust Company. Filed as Exhibit 10.31 to Medallion's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and incorporated by reference herein.
(13)(mm) Revolving Credit Note dated January 28, 1997 in the amount of
$10,000,000 from Medallion Funding Corp. payable to Israel Discount
Bank of New York. Filed an Exhibit 10.32 to Medallion's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(nn) Revolving Credit Note dated January 28, 1997 in the amount of
$10,000,000 from Medallion Funding Corp. payable to European American
Bank. Filed as Exhibit 10.33 to Medallion's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 1996 and incorporated by
reference herein.
(13)(oo) Revolving Credit Note dated January 28, 1997 in the amount of
$10,000,000 from Medallion Funding Corp. payable to Bank Leumi Trust
Company of New York. Filed as Exhibit 10.34 to Medallion's Annual
Report on Form 10K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(pp) Letter Agreement, dated February 21, 1997, between Medallion Funding
Corp. and the U.S. Small Business Administration regarding the
conversion of Medallion Funding Corp. from a specialized small
business investment company to a small business investment company.
Filed as Exhibit 10.35 to Medallion's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(qq) Letter Agreement, dated February 21, 1997, between Transportation
Capital Corp. and the U.S. Small Business Administration regarding the
conversion of Transportation Capital Corp. from a specialized small
business investment company to a small business investment company.
Filed as Exhibit 10.36 to Medallion's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(rr) Agreement between Medallion Taxi Media, Inc. and Metropolitan Taxicab
Board of Trade, Inc. dated March 6, 1997. Filed as Exhibit 10.37 to
C-8
<PAGE>
Medallion's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and incorporated by reference herein.
(13)(ss) Promissory Note from Edwards Capital Company payable to Israel
Discount Bank of New York. Filed as Exhibit k.4 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(tt) Schedule of Promissory Notes from Edwards Capital Company payable to
Israel Discount Bank of New York. Filed as Exhibit k.5 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(uu) Secured Note from Edwards Capital Company payable to Sterling National
Bank & Trust Company of New York. Filed as Exhibit k.6 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(vv) Schedule of Secured Notes from Edwards Capital Company payable to
Sterling National Bank & Trust Company of New York. Filed as Exhibit
k.7 to Medallion's Registration Statement on Form N-2 (File No. 333-
1670) and incorporated by reference herein.
(13)(ww) Medallion Financial Corp. Dividend Reinvestment Plan. Filed as
Exhibit e to Medallion's Registration Statement on Form N-2 (File No.
333-1670) and incorporated by reference herein.
(13)(xx) Letter Agreement dated April 18, 1997 between MFC and The Chase
Manhattan Bank relating to an interest rate cap transaction in the
amount of $10,000,000. Filed as Exhibit 10.1 to Medallion's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1997 and
incorporated by reference herein.
(13)(yy) Letter Agreement dated May 9, 1997 between MFC and Fleet National Bank
("Fleet") relating to an interest rate cap transaction in the amount
of $10,000,000. Filed as Exhibit 10.2 to Medallion's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1997 and
incorporated by reference herein.
(13)(zz) Letter Agreement dated May 12, 1997 between MFC and Fleet relating to
an interest rate cap transaction in the amount of $10,000,000. Filed
as Exhibit 10.3 to Medallion's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997 and incorporated by reference
herein.
C-9
<PAGE>
(13)(aaa) Employment Agreement dated August 29, 1997 between the Company and
Allen S. Greene. Filed as Exhibit 10.1 to Medallion's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1997
and incorporated by reference herein.
(13)(bbb) Asset Purchase Agreement dated as of August 20, 1997 among the
Company, BLI Acquisition Co., LLC, Business Lenders, Inc., Thomas
Kellogg, Gary Mullin, Penn Ritter and Triumph-Connecticut, Limited
Partnership (including all exhibits thereto - schedules omitted).
Filed as Exhibit 10.2 to Medallion's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997 and incorporated by
reference herein.
(13)(ccc) Amended and Restated Loan Agreement, dated as of December 24, 1997, by
and among Medallion Funding Corp., the lenders party thereto, Fleet
Bank, National Association as Swing Line Lender, Administrative Agent
and Collateral Agent and The Bank of New York as Documentation Agent
with Fleet Bank, National Association as Arranger. Filed as Exhibit
10.50 to Medallion's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated by reference herein.
(13)(ddd) Revolving Credit Note dated December 24, 1997 in the amount of
$30,000,000 from Medallion Funding Corp. payable to Fleet Bank,
National Association. Filed as Exhibit 10.51 to Medallion's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated by reference herein.
(13)(eee) Revolving Credit Note dated December 24, 1997 in the amount of
$30,000,000 from Medallion Funding Corp. payable to The Bank of New
York. Filed as Exhibit 10.52 to Medallion's Annual Report on Form 10-K
for the year ended December 31, 1997 and incorporated by reference
herein.
(13)(fff) Revolving Credit Note dated December 24, 1997 in the amount of
$30,000,000 from Medallion Funding Corp. payable to BankBoston, N.A.
Filed as Exhibit 10.53 to Medallion's Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated by reference herein.
(13)(ggg) Revolving Credit Note dated December 24, 1997 in the amount of
$20,000,000 from Medallion Funding Corp. payable to Harris Trust and
Savings Bank. Filed as Exhibit 10.54 to Medallion's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(hhh) Revolving Credit Note dated December 24, 1997 in the amount of
$20,000,000 from Medallion Funding Corp. payable to Bank Tokyo
C-10
<PAGE>
Mitsubishi Trust Company. Filed as Exhibit 10.55 to Medallion's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated by reference herein.
(13)(iii) Revolving Credit Note dated December 24, 1997 in the amount of
$15,000,000 from Medallion Funding Corp. payable to Israel Discount
Bank of New York. Filed as Exhibit 10.56 to Medallion's Annual Report
on Form 10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(jjj) Revolving Credit Note dated December 24, 1997 in the amount of
$15,000,000 Medallion Funding Corp. payable to European American Bank.
Filed as Exhibit 10.57 to Medallion's Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated by reference herein.
(13)(kkk) Revolving Credit Note dated December 24, 1997 in the amount of
$15,000,000 from Medallion Funding Corp. payable to Bank Leumi USA.
Filed as Exhibit 10.58 to Medallion's Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated by reference herein.
(13)(lll) Revolving Credit Note dated December 24, 1997 in the amount of
$20,000,000 from Medallion Funding Corp. payable to The Chase
Manhattan Bank. Filed as Exhibit 10.59 to Medallion's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(mmm) Swing Line Note dated December 24, 1997 in the amount of $5,000,000
from Medallion Funding Corp. payable to Fleet Bank, National
Association. Filed as Exhibit 10.60 to Medallion's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(nnn) Amended and Restated Security Agreement, dated as of December 24,
1997, between Medallion Funding Corp., as Debtor and Fleet Bank, N.A.,
as Agent and Secured Party for the benefit of the Banks and Swing Line
Lender signatory to the Amended and Restated Loan Agreement, dated as
of December 24, 1997, among Medallion Funding Corp., the banks
signatory thereto, the Swing Line Lender, The Bank of New York as
Documentation Agent and Fleet Bank, N.A. as Arranger and Agent and the
Holders of Commercial Paper issued by Medallion on Funding Corp. Filed
as Exhibit 10.61 to Medallion's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated by reference herein.
(13)(ooo) First Amendment, dated as of February 5, 1998, to Amended and Restated
Loan Agreement, dated as of December 24, 1997, by and among Medallion
C-11
<PAGE>
Funding Corp., the lenders party thereto, Fleet Bank, National
Association as Swing Line Lender, Administrative Agent and Collateral
Agent and The Bank of New York as Documentation Agent with Fleet Bank,
National Association as Arranger. Filed as Exhibit 10.62 to
Medallion's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated by reference herein.
(13)(ppp) Amendment No. 1, dated as of March 12, 1998, to Amended and Restated
Security Agreement, dated as of December 24, 1997, between Medallion
Funding Corp., as Debtor and Fleet Bank, N.A., as Agent and Secured
Party for the benefit of the Banks and Swing Line Lender signatory to
the Amended and Restated Loan Agreement, dated as of December 24,
1997, among Medallion Funding Corp., the banks signatory thereto, the
Swing Line Lender, The Bank of New York as Documentation Agent and
Fleet Bank, N.A. as Arranger and Agent and the Holders of Commercial
Paper issued by Medallion Funding Corp. Filed as Exhibit 10.63 to
Medallion's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated by reference herein.
(13)(qqq) Indenture of Lease, dated October 31, 1997, by and between Sage Realty
Corporation, as Agent and Landlord, and Medallion Financial Corp., as
Tenant. Filed as Exhibit 10.64 to Medallion's Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(rrr) Third Amendment, dated December 22, 1997, to Letter Agreement, dated
as of December 1, 1996, between Medallion Financial Corp. and Fleet
Bank, National Association. Filed as Exhibit 10.65 to Medallion's
Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated by reference herein.
(13)(sss) Endorsement No. 3, dated December 22, 1997, to Revolving Credit Note
dated December 1, 1996 in the amount of $6,000,000 from Medallion
Financial Corp. payable to Fleet Bank, N.A. Filed as Exhibit 10.66 to
Medallion's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated by reference herein.
(14)(a) Consent of Arthur Andersen LLP relating to its report concerning
Medallion Financial Corp. dated February 25, 1998 to Medallion's
Annual Report on Form 10-K for the year ended December 31, 1997 filed
on March 31, 1998 (File No. 0-27812) and filed herewith.
(14)(b) Consent of Deloite & Touche LLP relating to the incorporation by
reference of its report, dated August 8, 1997 on the financial
statements of Capital Dimensions, Inc. as of and for the years ended
June 30, 1997 and 1996 from CDI's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 filed on September 29, 1997 and filed
herewith.
(14)(c) Consent of Lurie, Besikof, Lapidus & Co., LLP relating to its report
concerning Capital Dimensions, Inc. dated August 7, 1995 appearing in
CDI's Annual Report on Form 10-K for the fiscal year ended June 30,
1997 filed on September 29, 1997 and filed herewith.
C-12
<PAGE>
(17) Form of Capital Dimensions, Inc. Proxy Card filed herewith.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that:
(a) prior to any public reoffering of the securities registered through the
use of a prospectus which is a part of this registration statement by any person
or party who is deemed to be an underwriter within the meaning of Rule 145(c) of
the Securities Act [17 CFR 230.145], the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(b) every prospectus that is filed under paragraph (a) above will be filed
as a part of an amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any liability under
the 1933 Act, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial bona fide offering
of them.
C-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 22nd day of April 1998.
MEDALLION FINANCIAL CORP.
By: /S/ ALVIN MURSTEIN
--------------------------------------
Alvin Murstein
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacities
and on the dates indicated.
POWER OF ATTORNEY
The undersigned officers and directors of Medallion Financial Corp. hereby
severally constitute and appoint Andrew M. Murstein and Allen S. Greene, and
each of them, attorneys-in-fact for the undersigned, in any and all capacities,
with the power of substitution, to sign any amendments to this Registration
Statement (including post-effective amendments) and any subsequent registration
statement for the same offering which may be filed under Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all interests
and purposes as he might or could do in person, hereby ratifying and confirming
all that each said attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue thereof.
<TABLE>
<CAPTION>
NAME Title Date
---- ----- ----
<S> <C> <C>
/s/ ALVIN MURSTEIN Chairman and Chief Executive April 22, 1998
- ------------------------------------
Alvin Murstein Officer (Principal Executive
Officer)
/s/ DANIEL F. BAKER Treasurer and Chief Financial April 22, 1998
- ------------------------------------
Daniel F. Baker Officer (Principal Financial and
Accounting Officer)
/s/ ANDREW MURSTEIN President and Director April 22, 1998
- ------------------------------------
Andrew Murstein
/s/ MARIO M. CUOMO Director April 22, 1998
- ------------------------------------
Mario M. Cuomo
/s/ FREDERICK S. HAMMER Director April 22, 1998
- ------------------------------------
Frederick S. Hammer
/s/ STANLEY KREITMAN Director April 22, 1998
- ------------------------------------
Stanley Kreitman
/s/ DAVID L. RUDNICK Director April 22, 1998
- ------------------------------------
David L. Rudnick
/s/ BENJAMIN WARD Director April 22, 1998
- ------------------------------------
Benjamin Ward
</TABLE>
C-14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
(1) Medallion Financial Corp. Restated Articles of Incorporation. Filed
as Exhibit 3.1 to Medallion's Annual Report on Form 10-K for the year
ended December 31, 1997 filed on March 31, 1998 (File No. 0-27812) and
incorporated by reference herein.
(2) Medallion Financial Corp. Restated By-laws. Filed as Exhibit b to
Medallion's Registration Statement on Form N-2 filed on February 26,
1996 (File No. 333-1670) and incorporated by reference herein.
(4) Agreement and Plan of Merger, dated as of March 6, 1998, by and among
Medallion Financial Corp., CD Merger Corp. and Capital Dimensions,
Inc. (included as Exhibit A to the Proxy Statement/Prospectus
contained in Part A of this Registration Statement).
(5) Instruments defining rights of security holders -- See Exhibits (1)
and (2).
(6) Sub-Advisory Agreement between Medallion Financial Corp. and FMC
Advisers, Inc. dated May 29, 1996. Filed as Exhibit 10.42 to
Medallion's Annual Report on Form 10-K for the year ended December 31,
1996 filed March 31, 1997 (File No. 0-27812) and incorporated by
reference herein.
(8)(a) Medallion Financial Corp. 1996 Stock Option Plan. Filed as Exhibit
i.1 to Medallion's Registration Statement on Form N-2 (File No. 333-
1670) and incorporated by reference herein.
(8)(b) Medallion Financial Corp. 1996 Non-Employee Directors Stock Option
Plan. to Medallion's Annual Report on Form 10-K/A for the year ended
December 31, 1996 and incorporated by reference herein.
(8)(c) Medallion Financial Corp. 401(k) Investment Plan. Filed as Exhibit
i.2 to Medallion's Registration Statement on Form N-2 (File No. 333-
1670) and incorporated by reference herein.
<PAGE>
(11)(a) Opinion and Consent of Willkie Farr & Gallagher, counsel to Medallion,
with respect to the legality of shares being registered is to be filed
by amendment.
(12)(a) Opinion and Consent of Willkie Farr & Gallagher with respect to tax
matters is to be filed by amendment.
(12)(b) Opinion and Consent of Lindquist & Vennum P.L.L.P., counsel to Capital
Dimensions, Inc., with respect to tax matters is to be filed by
amendment.
(13)(a) Debenture due April 1, 1997 in the amount of $1,500,000 issued by
Edwards Capital Company and payable to Chemical Bank as Trustee under
the Trust Agreement dated January 15, 1987 among the Trustee, the U.S.
Small Business Administration and SBIC Funding Corporation (the "Trust
Agreement"). Filed as Exhibit f.2 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(b) Debenture due June 1, 1998 in the amount of $3,000,000 issued by
Edwards Capital Company and payable to Chemical Bank under the Trust
Agreement. Filed as Exhibit f.3 to Medallion's Registration Statement
on Form N-2 (File No. 333-1670) and incorporated by reference herein.
(13)(c) Debenture due September 1, 2002 in the amount of $3,500,000 issued by
Edwards Capital Company and payable to Chemical Bank as Trustee under
the Amended and Restated Trust Agreement dated March 1, 1990 among the
Trustee, the U.S. Small Business Administration and SBIC Funding
Corporation (the "Amended Trust Agreement"). Filed as Exhibit f.4 to
Medallion's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(d) Debenture due September 1, 2002 in the amount of $6,050,000 issued by
Edwards Capital Company and payable to Chemical Bank under the Amended
Trust Agreement. Filed as Exhibit f.5 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(e) Debenture due June 1, 2004 in the amount of $4,600,000 issued by
Edwards Capital Company and payable to Chemical Bank under the Amended
Trust Agreement. Filed as Exhibit f.6 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(f) Debenture due September 1, 2004 in the amount of $5,100,000 issued by
Edwards Capital Company and payable to Chemical Bank under the Amended
Trust Agreement. Filed as Exhibit f.7 to Medallion's
<PAGE>
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(g) Letter Agreement, dated September 8, 1992, between the U.S. Small
Business Administration and Edwards Capital Company regarding limit on
incurrence of senior indebtedness, as amended on January 17, 1996.
Filed as Exhibit f.8 to Medallion's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein. Letter
dated September 19, 1996 from the U.S. Small Business Administration
to Edwards Capital Corp. amending such Letter Agreement was filed as
Exhibit 4.7 to Medallion's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996 and is incorporated by reference herein.
(13)(h) Debenture due June 1, 2002 in the amount of $5,640,000 issued by
Transportation Capital Corp: and payable to Chemical Bank under the
Amended Trust Agreement. Filed as Exhibit f.10 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(i) Continuing General Security Agreement between NatWest Bank N.A.
(formerly National Westminster Bank USA) and Edwards Capital Company
dated June 17, 1987. Filed as Exhibit k.12 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(j) Term Note in the principal amount of $2,000,000 dated July 16, 1990 as
amended March 27, 1992, July 16, 1993 and July 16, 1995 from Medallion
Funding Corp. payable to NatWest Bank N.A. (formerly National
Westminster Bank USA). Filed as Exhibit k.18 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(k) General Loan and Security Agreement between Sterling National Bank
Trust of New York and Edwards Capital Company dated May 1, 1991.
Filed as Exhibit k.13 to Medallion's Registration Statement on Form N-
2 (File No. 333-1670) and incorporated by reference herein.
(13)(l) General Security Agreement between Israel Discount Bank of New York
and Edwards Capital Company dated May 2, 1991. Filed as Exhibit k.14
to Medallion's Registration Statement on Form N-2 (File No. 333-1670)
and incorporated by reference herein.
(13)(m) Inter-Creditor Agreement among and between Edwards Capital Company and
Bank Hapoalim B.M., Chemical Bank, Israel Discount Bank of New York,
NatWest Bank N.A. (formerly National Westminster Bank USA), Marine
Midland Bank and Sterling National Bank & Trust Company of
<PAGE>
New York dated as of May 14, 1991. Filed as Exhibit k.10 to
Medallion's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(n) Loan Agreement dated as of March 27, 1992 among Medallion Funding
Corp., the bank's signatory thereto and NatWest Bank N.A. (formerly)
National Westminster Bank USA), as amended March 31, 1993, September
29, 1993, March 31, 1994, September 29, 1995 and March 28, 1996.
Filed as Exhibit k.19 to Medallion's Registration Statement on Form N-
2 (File No. 333-1670) and incorporated by reference herein. Amendment
Five dated January 28, 1997 amending such Loan Agreement was filed as
Exhibit 10.6 to Medallion's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 and is incorporated by reference
herein.
(13)(o) Security Agreement between Medallion Funding Corp. and NatWest Bank
N.A. (formerly National Westminster Bank USA) dated as of March 27,
1992 for the benefit of the banks signatory to the Loan Agreement
dated as of March 27, 1992, among Medallion Funding Corp., the bank's
signatory thereto and NatWest Bank N.A. (formerly National Westminster
Bank USA). Filed as Exhibit k.20 to Medallion's Registration Statement
on Form N2 (File No. 333-1670) and incorporated by reference herein.
(13)(p) Committed Line of Credit Agreement in the principal amount of
$3,000,000 dated as of July 29, 1993, as amended May 31, 1994, October
31, 1994 and September 30, 1995 between Edwards Capital Company and
Bank Hapoalim B.M. Filed as Exhibit k.9 to Medallion's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by
reference herein.
(13)(q) Promissory Note dated July 31, 1993 in the principal amount of
$5,000,000 from Edwards Capital Company payable to NatWest Bank N.A.
(formerly National Westminster Bank USA) as endorsed by Endorsement
No. 1 dated July 31, 1994 and Endorsement No. 2 dated July 31, 1995.
Filed as Exhibit k.8 to Medallion's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein.
(13)(r) Specialized Small Business Investment Company 3% Preferred Stock
Repurchase Agreement dated as of August 12, 1994 between Medallion
Funding Corp. and the U.S. Small Business Administration. Filed as
Exhibit k.28 to Medallion's Registration Statement on Form N-2 (File
No. 333-1670) and incorporated by reference herein.
(13)(s) Specialized Small Business Investment Company 3% Preferred Stock
Repurchase Agreement dated as March 22, 1995 between Transportation
Capital Corp. and the U.S. Small Business Administration as amended by
letter agreement dated June 1, 1995. Filed as Exhibit k.29 to
Medallion's
<PAGE>
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(t) Agreement of Merger between Medallion Financial Corp. and Tri-Magna
Corporation, dated December 21, 1995, as amended on February 22, 1996.
Filed as Exhibit k.3(i) to Medallion's Registration Statement on Form
N-2 (File No. 333-1670) and incorporated by reference herein.
(13)(u) Stock Purchase Agreement among Medallion Financial Corp.,
Transportation Capital Corp., LNC Investments, Inc., Leucadia, Inc.
and Leucadia National Corporation, dated February 12, 1996. Filed as
Exhibit k.1 to Medallion's Registration Statement on Form N-2 (File
No. 333-1670) and incorporated by reference herein.
(13)(v) Asset Purchase Agreement between Medallion Financial Corp., and
Edwards Capital Company, dated February 21, 1996. Filed as Exhibit
k.2 to Medallion's Registration Statement on Form N-2 (File No. 333-
1670) and incorporated by reference herein.
(13)(w) Amendment Number 2 to Agreement of Merger between Medallion Financial
Corp. and Tri-Magna Corporation, dated April 26, 1996. Filed as
Exhibit k . 3(ii) to Medallion's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein.
(13)(x) Amendment Number 1 to Stock Purchase Agreement among Medallion
Financial Corp. Transportation Capital Corp., LNC Investments, Inc.,
Leucadia, Inc. and Leucadia National corporation dated April 30, 1996.
Filed as Exhibit k.(i) to Medallion's Registration Statement on Form
N-2 (File No. 333-1670) and incorporated by reference herein.
(13)(y) Amendment Number 1 to Asset Purchase Agreement between Medallion
Financial Corp. and Edwards Capital Company dated April 30, 1996.
Filed as Exhibit k.2(i) to Medallion's Registration Statement on Form
N-2 (File No. 333-1670) and incorporated by reference herein.
(13)(z) Employment Agreement between Medallion Financial Corp. and Alvin
Murstein dated May 29, 1996. Filed as Exhibit 10.19 to Medallion's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and by reference herein.
(13)(aa) Employment Agreement between Medallion Financial Corp. and Andrew
Murstein dated May 29, 1996. Filed as Exhibit 10.20 to Medallion's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and incorporated by reference herein.
<PAGE>
(13)(bb) Agreement between Medallion Taxi Media, Inc., See-Level Advertising,
Inc. and See-Level Management, Inc. dated July 25, 1996. Filed as
Exhibit 10.1 to Medallion's Report on Form 10-Q for the quarterly
period ended September 30, 1996 and incorporated herein by reference.
(13)(cc) Agreement between Medallion Taxi Media, Inc. and Glenn Grumman dated
July 25, 1996. Filed as Exhibit 10.2 to Medallion's Report on Form
10-Q for the quarterly period ended September 30, 1996 and
incorporated herein by reference.
(13)(dd) Security Agreement dated October 31, 1996 between First Bank of the
Americas and Edwards Capital Corp. Filed as Exhibit 10.23 to
Medallion's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and incorporated by reference herein.
(13)(ee) Master Grid Note (Secured Revolving Line of Credit) dated October 31,
1996 in the amount of $3,000,000 from Edwards Capital Corp. payable to
First Bank of the Americas. Filed as Exhibit 10.24 to Medallion's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and incorporated by reference herein.
(13)(ff) Letter Agreement dated December 1, 1996 between Fleet Bank, N.A. and
Medallion Financial Corp., as amended February 10, 1997. Filed as
Exhibit 10.25 to Medallion's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(gg) Revolving Credit Note dated December 1, 1996 in the amount of
$6,000,000 from Medallion Financial Corp. payable to Fleet Bank, N.A.,
endorsed by Endorsement No. 1 dated February 10, 1997. Filed as
Exhibit 10.26 to Medallion's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(hh) Security Agreement dated December 1, 1996 between Fleet Bank, N.A. and
Medallion Financial Corp. Filed as Exhibit 10.27 to Medallion's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(ii) Revolving Credit Note dated January 28, 1997 in the amount of
$25,000,000 from Medallion Funding Corp. payable to Fleet Bank, N.A.
Filed as Exhibit 10.28 to Medallion's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(jj) Revolving Credit Note dated January 28, 1997 in the amount of
$22,500,000 from Medallion Funding Corp. payable to The First National
Bank of Boston. Filed as Exhibit 10.29 to Medallion's Annual Report
on
<PAGE>
Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(kk) Revolving Credit Note dated January 28, 1997 in the amount of
$15,000,000 from Medallion Funding Corp. payable to Harris Trust and
Savings Bank. Filed as Exhibit 10.30 to Medallion's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(ll) Revolving Credit Note dated January 28, 1997 in the amount of
$12,500,000 from Medallion Funding Corp. payable to Bank of Tokyo-
Mitsubishi Trust Company. Filed as Exhibit 10.31 to Medallion's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996 and incorporated by reference herein.
(13)(mm) Revolving Credit Note dated January 28, 1997 in the amount of
$10,000,000 from Medallion Funding Corp. payable to Israel Discount
Bank of New York. Filed an Exhibit 10.32 to Medallion's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(nn) Revolving Credit Note dated January 28, 1997 in the amount of
$10,000,000 from Medallion Funding Corp. payable to European American
Bank. Filed as Exhibit 10.33 to Medallion's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 1996 and incorporated by
reference herein.
(13)(oo) Revolving Credit Note dated January 28, 1997 in the amount of
$10,000,000 from Medallion Funding Corp. payable to Bank Leumi Trust
Company of New York. Filed as Exhibit 10.34 to Medallion's Annual
Report on Form 10K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(13)(pp) Letter Agreement, dated February 21, 1997, between Medallion Funding
Corp. and the U.S. Small Business Administration regarding the
conversion of Medallion Funding Corp. from a specialized small
business investment company to a small business investment company.
Filed as Exhibit 10.35 to Medallion's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(qq) Letter Agreement, dated February 21, 1997, between Transportation
Capital Corp. and the U.S. Small Business Administration regarding the
conversion of Transportation Capital Corp. from a specialized small
business investment company to a small business investment company.
Filed as Exhibit 10.36 to Medallion's Annual Report on Form 10-K/A for
<PAGE>
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
(13)(rr) Agreement between Medallion Taxi Media, Inc. and Metropolitan Taxicab
Board of Trade, Inc. dated March 6, 1997. Filed as Exhibit 10.37 to
Medallion's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and incorporated by reference herein.
(13)(ss) Promissory Note from Edwards Capital Company payable to Israel
Discount Bank of New York. Filed as Exhibit k.4 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(tt) Schedule of Promissory Notes from Edwards Capital Company payable to
Israel Discount Bank of New York. Filed as Exhibit k.5 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(uu) Secured Note from Edwards Capital Company payable to Sterling National
Bank & Trust Company of New York. Filed as Exhibit k.6 to Medallion's
Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
(13)(vv) Schedule of Secured Notes from Edwards Capital Company payable to
Sterling National Bank & Trust Company of New York. Filed as Exhibit
k.7 to Medallion's Registration Statement on Form N-2 (File No. 333-
1670) and incorporated by reference herein.
(13)(ww) Medallion Financial Corp. Dividend Reinvestment Plan. Filed as
Exhibit e to Medallion's Registration Statement on Form N-2 (File No.
333-1670) and incorporated by reference herein.
(13)(xx) Letter Agreement dated April 18, 1997 between MFC and The Chase
Manhattan Bank relating to an interest rate cap transaction in the
amount of $10,000,000. Filed as Exhibit 10.1 to Medallion's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1997 and
incorporated by reference herein.
(13)(yy) Letter Agreement dated May 9, 1997 between MFC and Fleet National Bank
("Fleet") relating to an interest rate cap transaction in the amount
of $10,000,000. Filed as Exhibit 10.2 to Medallion's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1997 and
incorporated by reference herein.
(13)(zz) Letter Agreement dated May 12, 1997 between MFC and Fleet relating to
an interest rate cap transaction in the amount of $10,000,000. Filed
as
<PAGE>
Exhibit 10.3 to Medallion's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997 and incorporated by reference
herein.
(13)(aaa) Employment Agreement dated August 29, 1997 between the Company and
Allen S. Greene. Filed as Exhibit 10.1 to Medallion's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1997
and incorporated by reference herein.
(13)(bbb) Asset Purchase Agreement dated as of August 20, 1997 among the
Company, BLI Acquisition Co., LLC, Business Lenders, Inc., Thomas
Kellogg, Gary Mullin, Penn Ritter and Triumph-Connecticut, Limited
Partnership (including all exhibits thereto - schedules omitted).
Filed as Exhibit 10.2 to Medallion's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997 and incorporated by
reference herein.
(13)(ccc) Amended and Restated Loan Agreement, dated as of December 24, 1997, by
and among Medallion Funding Corp., the lenders party thereto, Fleet
Bank, National Association as Swing Line Lender, Administrative Agent
and Collateral Agent and The Bank of New York as Documentation Agent
with Fleet Bank, National Association as Arranger. Filed as Exhibit
10.50 to Medallion's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated by reference herein.
(13)(ddd) Revolving Credit Note dated December 24, 1997 in the amount of
$30,000,000 from Medallion Funding Corp. payable to Fleet Bank,
National Association. Filed as Exhibit 10.51 to Medallion's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated by reference herein.
(13)(eee) Revolving Credit Note dated December 24, 1997 in the amount of
$30,000,000 from Medallion Funding Corp. payable to The Bank of New
York. Filed as Exhibit 10.52 to Medallion's Annual Report on Form 10-K
for the year ended December 31, 1997 and incorporated by reference
herein.
(13)(fff) Revolving Credit Note dated December 24, 1997 in the amount of
$30,000,000 from Medallion Funding Corp. payable to BankBoston, N.A.
Filed as Exhibit 10.53 to Medallion's Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated by reference herein.
(13)(ggg) Revolving Credit Note dated December 24, 1997 in the amount of
$20,000,000 from Medallion Funding Corp. payable to Harris Trust and
Savings Bank. Filed as Exhibit 10.54 to Medallion's Annual Report on
<PAGE>
Form 10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(hhh) Revolving Credit Note dated December 24, 1997 in the amount of
$20,000,000 from Medallion Funding Corp. payable to Bank Tokyo
Mitsubishi Trust Company. Filed as Exhibit 10.55 to Medallion's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated by reference herein.
(13)(iii) Revolving Credit Note dated December 24, 1997 in the amount of
$15,000,000 from Medallion Funding Corp. payable to Israel Discount
Bank of New York. Filed as Exhibit 10.56 to Medallion's Annual Report
on Form 10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(jjj) Revolving Credit Note dated December 24, 1997 in the amount of
$15,000,000 Medallion Funding Corp. payable to European American Bank.
Filed as Exhibit 10.57 to Medallion's Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated by reference herein.
(13)(kkk) Revolving Credit Note dated December 24, 1997 in the amount of
$15,000,000 from Medallion Funding Corp. payable to Bank Leumi USA.
Filed as Exhibit 10.58 to Medallion's Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated by reference herein.
(13)(lll) Revolving Credit Note dated December 24, 1997 in the amount of
$20,000,000 from Medallion Funding Corp. payable to The Chase
Manhattan Bank. Filed as Exhibit 10.59 to Medallion's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(mmm) Swing Line Note dated December 24, 1997 in the amount of $5,000,000
from Medallion Funding Corp. payable to Fleet Bank, National
Association. Filed as Exhibit 10.60 to Medallion's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(nnn) Amended and Restated Security Agreement, dated as of December 24,
1997, between Medallion Funding Corp., as Debtor and Fleet Bank, N.A.,
as Agent and Secured Party for the benefit of the Banks and Swing Line
Lender signatory to the Amended and Restated Loan Agreement, dated as
of December 24, 1997, among Medallion Funding Corp., the banks
signatory thereto, the Swing Line Lender, The Bank of New York as
Documentation Agent and Fleet Bank, N.A. as Arranger and Agent and the
Holders of Commercial Paper issued by Medallion on Funding Corp. Filed
<PAGE>
as Exhibit 10.61 to Medallion's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated by reference herein.
(13)(ooo) First Amendment, dated as of February 5, 1998, to Amended and Restated
Loan Agreement, dated as of December 24, 1997, by and among Medallion
Funding Corp., the lenders party thereto, Fleet Bank, National
Association as Swing Line Lender, Administrative Agent and Collateral
Agent and The Bank of New York as Documentation Agent with Fleet Bank,
National Association as Arranger. Filed as Exhibit 10.62 to
Medallion's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated by reference herein.
(13)(ppp) Amendment No. 1, dated as of March 12, 1998, to Amended and Restated
Security Agreement, dated as of December 24, 1997, between Medallion
Funding Corp., as Debtor and Fleet Bank, N.A., as Agent and Secured
Party for the benefit of the Banks and Swing Line Lender signatory to
the Amended and Restated Loan Agreement, dated as of December 24,
1997, among Medallion Funding Corp., the banks signatory thereto, the
Swing Line Lender, The Bank of New York as Documentation Agent and
Fleet Bank, N.A. as Arranger and Agent and the Holders of Commercial
Paper issued by Medallion Funding Corp. Filed as Exhibit 10.63 to
Medallion's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated by reference herein.
(13)(qqq) Indenture of Lease, dated October 31, 1997, by and between Sage Realty
Corporation, as Agent and Landlord, and Medallion Financial Corp., as
Tenant. Filed as Exhibit 10.64 to Medallion's Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated by
reference herein.
(13)(rrr) Third Amendment, dated December 22, 1997, to Letter Agreement, dated
as of December 1, 1996, between Medallion Financial Corp. and Fleet
Bank, National Association. Filed as Exhibit 10.65 to Medallion's
Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated by reference herein.
(13)(sss) Endorsement No. 3, dated December 22, 1997, to Revolving Credit Note
dated December 1, 1996 in the amount of $6,000,000 from Medallion
Financial Corp. payable to Fleet Bank, N.A. Filed as Exhibit 10.66 to
Medallion's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated by reference herein.
(14)(a) Consent of Arthur Andersen LLP relating to its report concerning
Medallion Financial Corp. dated February 25, 1998 to Medallion's
Annual Report on Form 10-K for the year ended December 31, 1997 filed
on March 31, 1998 (File No. 0-27812) and filed herewith.
<PAGE>
(14)(b) Consent of Deloite & Touche LLP relating to the incorporation by
reference of its report, dated August 8, 1997 on the financial
statements of Capital Dimensions, Inc. as of and for the years ended
June 30, 1997 and 1996 from CDI's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 filed on September 29, 1997 and filed
herewith.
(14)(c) Consent of Lurie, Besikof, Lapidus & Co., LLP relating to its report
concerning Capital Dimensions, Inc. dated August 7, 1995 appearing in
CDI's Annual Report on Form 10-K for the fiscal year ended June 30,
1997 filed on September 29, 1997 and filed herewith.
(17) Form of Capital Dimensions, Inc. Proxy Card filed herewith.
<PAGE>
Exhibit (14)(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form N-14 of our report, dated
February 28, 1998, included in Medallion Financial Corp.'s Form 10-K for the
year ended December 31, 1997 and to all references to our Firm included in this
Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 16, 1998
<PAGE>
EXHIBIT (14)(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Medallion Financial Corp. on Form N-14 of our report dated August 8, 1997,
(which expresses an unqualified opinion and includes an explanatory paragraph
referring to the uncertainty of the valuation of investment securities) on the
consolidated financial statements of Capital Dimensions, Inc. appearing in
the Annual Report on Form 10-K of Capital Dimensions, Inc. for the year ended
June 30, 1997 and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
April 21, 1998
<PAGE>
Exhibit (14)(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Medallion Financial Corp. on Form N-14 of our report dated August 7, 1995,
appearing in the Annual Report on Form 10-K of Capital Dimensions, Inc. for the
year ended June 30, 1997 and to the reference to us under the heading "Experts"
in the Prospectus, which is part of such Registration Statement.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
April 21, 1998
<PAGE>
EXHIBIT 99.17
CAPITAL DIMENSIONS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR SPECIAL
MEETING OF SHAREHOLDERS TO BE HELD ON JUNE , 1998
--
The undersigned hereby appoints Thomas F. Hunt, Jr. and Dean R.
Pickerell, or either of them, as proxies with full power of substitution to vote
all shares of stock of Capital Dimensions, Inc. ("CDI") of record in the name of
the undersigned at the close of business on May __, 1998 at the Special Meeting
of Shareholders to be held in the first floor conference room at the offices of
the Company, 7831 Glenroy Road, Minneapolis, MN, on June __, 1998, or any and
all adjournments or postponements thereof, hereby revoking all former proxies.
1. PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER BY AND AMONG CDI,
MEDALLION FINANCIAL CORP. ("MEDALLION") AND CD MERGER CORP., A WHOLLY
OWNED SUBSIDIARY OF MEDALLION, DATED AS OF MARCH 6, 1998, AND THE
TRANSACTIONS CONTEMPLATED THEREBY:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon any other
matters coming before the meeting.
THE SHARE(S) REPRESENTED BY THIS PROXY WILL BE VOTED ON PROPOSAL (1) IN
ACCORDANCE WITH THE SPECIFICATION MADE AND "FOR" SUCH PROPOSAL IF THERE IS NO
SPECIFICATION.
, 1998
- ---------------- -------------------------------
Signature
-------------------------------
Signature if held jointly
Please sign exactly as name(s) are shown at left. When
signing as executor, administrator, trustee, or
guardian, give full title as such; when shares have been
issued in names of two or more persons, all should sign.
