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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-27812
MEDALLION FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3291176
(State of Incorporation) (IRS Employer Identification No.)
437 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 328-2100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The approximate aggregate market value of common equity held by non-affiliates
of the Registrant as of March 20, 1997 was approximately $245 million based on
the average bid and ask prices of the Registrant's Common Stock on the Nasdaq
National Market as of the close of business on March 20, 1997. There were
12,882,996 shares of the Registrant's Common Stock outstanding as of March 20,
1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be held on June 11, 1998, which Definitive Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Registrant's fiscal year-end of December 31, 1997, are
incorporated by reference into Part III of this Form 10-K.
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MEDALLION FINANCIAL CORP.
1997 FORM 10-K ANNUAL REPORT
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I......... 3
Item 1. Business of the Company............................................................... 18
Item 2. Properties............................................................................ 18
Item 3. Legal Proceedings..................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders................................... 18
PART II........ 20
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.............. 20
Item 6. Selected Financial Data............................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 42
Item 8. Financial Statements and Supplementary Data........................................... 42
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
42
PART III....... 43
Item 10. Directors and Executive Officers of the Registrant.................................... 43
Item 11. Executive Compensation................................................................ 43
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 43
Item 13. Certain Relationships and Related Transactions........................................ 43
PART IV........ 43
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 43
</TABLE>
2
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PART I
ITEM 1. BUSINESS OF THE COMPANY
GENERAL
Medallion Financial Corp. ("Medallion Financial") acquired on May 29, 1996 the
specialty finance businesses conducted by Tri-Magna Corporation ("Tri-Magna"),
Edwards Capital Company (collectively with its successor, Edwards Capital Corp.,
"Edwards") and Transportation Capital Corp. ("TCC" and, collectively with Tri-
Magna and Edwards, the "Founding Companies") as well as the taxicab rooftop
advertising business conducted by Tri-Magna. Tri-Magna had conducted its
specialty finance and taxicab rooftop advertising businesses through its wholly
owned subsidiaries, Medallion Funding Corp. ("MFC") and Medallion Media, Inc.
("Media"), respectively, and references herein to Tri-Magna include such
subsidiaries unless the context indicates otherwise. Prior to the closing of
the acquisitions of the Founding Companies (the "Acquisitions"), Medallion
Financial had no operations. On October 31, 1997, Medallion Financial's
subsidiary, Business Lenders, LLC ("BLLC"), acquired certain assets and assumed
certain liabilities of Business Lenders, Inc. ("Business Lenders"). BLLC
operates as a specialty finance company focusing on long-term loans to active
businesses secured by real estate. Medallion Financial is a business
development company under the Investment Company Act of 1940, as amended (the
"1940 Act").
---------------
UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES HEREIN TO THE "COMPANY"
INCLUDE MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES COLLECTIVELY AND
REFERENCES HEREIN TO "MEDALLION FINANCIAL" REFER TO MEDALLION FINANCIAL CORP.
ALONE.
---------------
The Company operates a specialty finance business and its principal focus is
the origination and servicing of loans financing the purchase of taxicab
medallions and related assets ("Medallion Loans"). As an adjunct to its finance
business, the Company also operates a taxicab rooftop advertising business. The
Company has been engaged in taxicab medallion lending since 1979 and has
developed a leading position in the industry. The Company also originates and
services commercial installment loans, financing small business in targeted
industries outside of the taxicab industry ("Commercial Installment Loans"). The
Company intends to use the expertise it has developed in its areas of
concentration to further expand the range of financial products it offers as
well as the industries and geographic areas it services. Through its subsidiary
BLLC, the Company is licensed by the U.S. Small Business Administration (the
"SBA") to operate in the Section 7(a) loan program and lends to active
businesses secured by assets and or real estate also referred to as Commercial
Installment Loans.
The Company believes its taxicab rooftop advertising business is one of the
largest providers in the nation of this segment of the out-of-home advertising
industry. At December 31, 1997, the Company had approximately 3,500 installed
taxicab rooftop advertising displays ("Displays"). The Company sells advertising
space to advertising agencies and companies promoting products. Currently, the
Company provides such advertising in New York City and Boston and intends to
expand to other major metropolitan areas.
Medallion Financial is a closed-end, non-diversified management investment
company under the 1940 Act. The investment objectives of the Company are to
provide a high level of distributable income, consistent with preservation of
capital, as well as long-term growth of net asset value. The Company is managed
by its executive officers under the supervision of its Board of Directors and
has retained FMC Advisers, Inc. ("FMC") as an investment adviser. The
principals of FMC had served as directors and executive officers of Tri-Magna
and MFC since inception of these businesses until their acquisition by the
Company on May 29, 1996. The Company has elected to be treated as a business
development company under the 1940 Act. In addition, it has elected to be
treated for tax purposes as a regulated investment company (a "RIC") under the
Internal Revenue Code of 1986, as amended (the "Code"). As a RIC, the Company
will not be subject to U.S. federal income tax on any investment company taxable
income (which includes, among other things, dividends and interest reduced by
deductible expenses) that it distributes to its stockholders if at least 90% of
its investment company taxable income for that taxable year is distributed. The
Company pays quarterly cash dividends to comply with this requirement.
Stockholders can elect to reinvest distributions. Medallion Financial's
specialty finance subsidiaries, MFC, TCC and 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 the Company.
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The following chart illustrates the organizational structure of the Company:
Medallion Financial Corp.
("Medallion Financial")
. RIC
. BDC
<TABLE>
<S> <C> <C> <C> <C>
Medallion Funding Edwards Capital Transportation Business Medallion Taxi
Corp. Corp. Capital Corp. Lenders LLC. Media, Inc.
("MFC") ("Edwards") ("TCC") ("BLLC") ("Media")
. RIC . RIC . RIC . 7a Lender . Taxicab
. SBIC . SBIC . SBIC advertising
business
. C Corporation
</TABLE>
BDC Business Development Company under the 1940 Act ("BDC").
RIC Regulated Investment Company under the Code.
SBIC Small Business Investment Company licensed by the SBA.
7a Lender Participating lender under the SBA's Section 7(a) loan program.
MFC and Media. Prior to their acquisition by the Company, MFC and Media were
wholly owned subsidiaries of Tri-Magna which merged into the Company in
connection with the closing of Medallion Financial's acquisition of MFC and
Media on May 29, 1996. Tri-Magna was a closed-end, management investment
company registered under the 1940 Act. Management of the Company had operated
Tri-Magna and its subsidiaries since they were organized. MFC was incorporated
in 1979 and is a closed-end, management investment company registered under the
1940 Act. Before the termination of the SBA's Specialized Small Business
Investment Company ("SSBIC") program in September 1996, MFC was the largest
SSBIC in the nation. Following the termination of the SSBIC program, MFC was
converted to a Small Business Investment Company ("SBIC") under an agreement
with the SBA entered into in February 1997 (the "MFC Conversion Agreement").
Operating primarily in New York City, MFC is a well established Medallion
lender and has diversified its operations by developing a department that
originates Commercial Installment Loans. As an SSBIC, MFC was restricted to
financing small business concerns owned and managed by persons deemed to be
socially or economically disadvantaged ("Disadvantaged Borrowers"). As an SBIC,
MFC is permitted to lend to any small business meeting the size and eligibility
requirements established by the SBA, subject to certain restrictions contained
in the MFC Conversion Agreement. Accordingly, MFC now has a significantly larger
borrower base and performs its credit analyses based solely on economic
criteria. Although Edwards and TCC are also SBICs, unlike Edwards and TCC, MFC
does not have SBA leverage outstanding and it is not, therefore, subject to SBA
restrictions on the amount of third-party indebtedness it may incur.
Media, which was incorporated in 1994, provides taxicab rooftop advertising
and has initiated a plan to become a national provider of such advertising.
Media currently provides such advertising in New York City and Boston and
intends to both expand within its existing markets and enter other major
metropolitan markets. In furtherance of its expansion efforts, Media acquired
450 additional installed Displays in New York City in connection with the
acquisition of the assets of See-Level Advertising, Inc. and See-Level
Management, Inc. on July 25, 1996. In addition, on March 6, 1997, Media entered
into an agreement with The Metropolitan Taxi Board of Trade, Inc. (the "MTBOT")
to provide advertising on over 1,600 New York City taxicabs owned by members of
the MTBOT commencing on September 22, 1997. The effect of this agreement
increased the number of taxicabs Media currently has under contract in New York
City from approximately 1,700 to approximately 3,300. The agreement with MTBOT
has made Media the leading taxicab rooftop advertiser in New York City and one
of the largest in the nation. Media also has 200 Displays in the Boston area.
Edwards Capital Corp. Edwards is a closed-end, management investment company
registered under the 1940 Act and is licensed as an SBIC by the SBA. Operating
almost exclusively in New York City, Edwards is a well-established medallion
lender. Edwards' predecessor, Edwards Capital Company, was organized in 1979
and had operated as a privately held limited partnership from 1981 until the
Company's subsidiary, Edwards, acquired substantially all of its assets and
assumed substantially all of its liabilities on May 29, 1996. Edward is
registered as a closed-end, management investment company under the 1940 Act. In
the second quarter of 1998,
4
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the Company intends to merge Edwards into MFC to increase MFC's capital and
simplify the Company's corporate structure, subject to SBA approval.
Transportation Capital Corp. TCC is a closed-end, management investment
company registered under the 1940 Act. TCC is a well-established and
geographically diverse medallion lender with a market presence in Boston,
Cambridge, Chicago and New York City. TCC was incorporated in 1979 and prior to
its acquisition by the Company, was a wholly owned indirect subsidiary of
Leucadia National Corporation. Like MFC, TCC was licensed as an SSBIC before
the modification of the SSBIC program and is now licensed as an SBIC under the
terms of an agreement with the SBA entered into in February 1997 (the "TCC
Conversion Agreement"). Accordingly, like MFC, TCC is now permitted to make
loans to borrowers other than Disadvantaged Borrowers, subject to certain
restrictions contained in the TCC Conversion Agreement. In the second quarter
of 1998, the Company intends to merge TCC into MFC to increase MFC's capital and
simplify the Company's corporate structure, subject to SBA approval.
Business Lenders LLC. BLLC is a Delaware limited liability company (LLC).
BLLC is licensed by the State of Connecticut Department of Banking as a business
and industrial development corporation and is also licensed by the SBA as a
participating lender in the SBA's Section 7(a) loan program. As a Section 7(a)
lender, the Company is eligible to make loans guaranteed by the SBA to small
businesses meeting certain size and other eligibility requirements of the SBA.
BLLC makes secured loans to small businesses in principal amounts ranging from
$10,000 to $1,100,000 with terms of up to 25 years. These loans are made both on
a guaranteed basis under the SBA's Section 7(a) loan program (with guarantees
ranging from 68.2% to 80%) and on an unguaranteed basis independent of the
Section 7(a) program by participating with Medallion Financial. On October 31,
1997, BLLC purchased the assets and assumed certain liabilities of Business
Lenders.
Recent Acquisitions. On February 4, 1998, Medallion Financial announced that
it had executed a purchase agreement pursuant to 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. VOC is an SBIC.
On March 9, 1998, Medallion Financial announced that it had executed an
agreement to acquire Capital Dimensions, Inc., a Minneapolis-based SSBIC focused
on providing small business loans throughout the United States, in a stock for
stock merger expected to be accounted for as a "pooling of interests." Both
transactions are subject to certain regulatory and other approvals, while the
CDI acquisition is subject to satisfactory completion of Medallion's due
diligence. The Company expects both acquisitions to close during the second
quarter of 1998.
GROSS LOAN PORTFOLIO SUMMARY DATA
The following table classifies the Company's loans outstanding as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31, 1997 Weighted
NUMBER AVERAGE MATURITY BALANCE
Type of Loans of Loans Interest Rate Date Outstanding
- ------------- --------------- --------------------- --------------- ------------------
<S> <C> <C> <C> <C>
New York City Medallion Loans............. 1757 9.02% 1/98-6/22 $204,514,675
Other Medallion Loans..................... 511 11.80% 1/98-6/07 21,446,574
----- ----- ---------- ------------
All Medallion Loans..................... 2,268 9.28% 1/98-6/22 225,961,249
Dry cleaners and laundromats.............. 768 13.19% 1/98-6/05 41,033,760
Other..................................... 315 11.54% 1/98-3/23 23,963,154
----- ----- ------------
Total..................................... 3,351 10.03% 1/98-3/23 $290,958,163
===== ===== ========== ============
December 31, 1996 Weighted
NUMBER AVERAGE MATURITY BALANCE
Type of Loans of Loans Interest Rate Date Outstanding
- ------------- --------------- -------------------- --------------- ------------------
New York City Medallion Loans............. 1,354 9.72% 1/97-12/15 $124,759,130
Other Medallion Loans..................... 277 12.51% 1/97-2/02 9,855,769
----- ----- ---------- ------------
All Medallion Loans..................... 1,631 9.92% 1/97-12/15 134,614,899
Dry cleaners and laundromats.............. 599 13.70% 1/97-9/05 34,080,398
Other..................................... 140 12.67% 1/97-10/02 7,844,891
----- ----- ------------
Total..................................... 2,370 10.80% 1/97-12/15 $176,540,188
===== ===== ========== ============
</TABLE>
5
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MEDALLION LENDING
INDUSTRY OVERVIEW
The New York City Market. A New York City taxicab medallion represents the
only license to operate a taxicab and accept street hails in New York City. As
reported by the Taxi and Limousine Commission ("TLC"), individual (owner-driver)
medallions currently sell for approximately $234,000 and corporate medallions
currently sell for approximately $260,000. According to TLC data, over the past
20 years, medallions have appreciated in value an average of 10.2% each year.
The TLC estimates that in 1993 New York City taxicabs transported approximately
226 million people and collected in excess of $1.0 billion in gross revenue.
Taxicabs play a prominent role in intra-Manhattan travel. According to the TLC,
taxicabs transported 154% more passengers than Manhattan buses in 1993. In
addition, taxicabs provided 34% of all intra-Manhattan passenger trips taken in
1993 by subway, bus, livery car or taxicab. Between 1977 and 1993, taxicab
ridership for intra-Manhattan travel increased by 42%, while citywide bus
ridership declined by 40%. The Company believes that much of the popularity of
taxicabs can be attributed to the difficulty and expense Manhattan residents
encounter in maintaining a private automobile in Manhattan.
The number of taxicab medallions is limited by law and until recently no new
medallions had been issued since 1937. 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, an
additional 133 were sold in October 1996, and the balance were sold in October
1997. The Company believes that the auctions have provided it with additional
opportunities because it has financed the purchase of a large number of the
medallions sold at auction. As a result of the limited supply of medallions, an
active market for medallions has developed. The Company estimates that the
total value of all New York City medallions exceeds $3.0 billion. The law
limiting the number of medallions also stipulates that the ownership for the
12,053 medallions outstanding at December 31, 1997 shall remain divided into
5,086 owner-driver or individual medallions and 6,967 fleet or corporate
medallions. Corporate medallions are more valuable because they can be
aggregated by businesses and leased to drivers and operated for more than one
shift.
Based upon TLC statistics, the Company estimates that from 1989 through 1993
the number of taxicab medallions sold each year ranged from approximately 500 to
850, divided roughly equally between corporate and individual medallions. The
purchase of a taxicab medallion is frequently financed with a loan and, in
addition, there is an active refinancing market for such loans. Assuming that
approximately 75% of the purchase price of corporate medallions and
approximately 75% of the purchase price of individual medallions are typically
financed, the dollar volume of New York City financing of medallion sales would
range from approximately $72 million to $124 million a year. The Company
believes that the dollar volume of the refinancing market exceeds the dollar
volume of financing of medallion sales.
A prospective medallion owner must qualify under the medallion ownership
standards set and enforced by the TLC. These standards prohibit individuals
with criminal records from owning medallions, require that the funds used to
purchase medallions be derived from legitimate sources and mandate that taxicab
vehicles and meters meet TLC specifications. In addition, before the TLC will
approve a medallion transfer, the TLC requires a waiver from the seller's
insurer stating that there are no outstanding claims for personal injuries in
excess of insurance coverage. After the sale is approved, the owner's taxicab
is subject to quarterly TLC inspections.
The Boston and Cambridge Markets. The Company estimates that Boston
medallions currently sell for approximately $125,000. The number of Boston
medallions had been limited by law since 1930 to 1,525 medallions. In 1993,
however, the Massachusetts legislature authorized the Boston Hackney Carriage
Bureau, which regulates the issuance of new medallions, to issue 300 additional
medallions, but the Bureau has only issued 40 additional medallions which are
restricted to "wheelchair accessible" taxicabs. The Company estimates that the
total value of all Boston medallions and related assets is approximately $190
million. In addition, the Company estimates Cambridge medallions currently sell
for approximately $90,000. The number of Cambridge medallions has been limited
to 248 since 1945 by a Cambridge city ordinance; accordingly, the Company
estimates that the total value of all Cambridge medallions and related assets is
approximately $22 million.
The Chicago Market. Based on the Company's experience, Chicago medallions
currently sell for approximately $55,000. Pursuant to a 1988 municipal
ordinance, the number of outstanding medallions, currently is capped at 5,700,
has increased steadily from 4,600 in 1988. The Company estimates that the total
value of all Chicago medallions and related assets is approximately $313
million.
6
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MARKET POSITION
The Company has originated and serviced Medallion Loans since 1979 and has
established a leading position in this industry. The Company's management has a
long history of owning, managing and financing taxicab fleets, taxicab
medallions and corporate car services. Medallion Loans collateralized by New
York City taxicab medallions and related assets comprised 90.5% of the value of
the Company's Medallion Loan portfolio at December 31, 1997. The balance
consisted of Medallion Loans collateralized by Boston, Chicago, Cambridge,
Newark, Baltimore and Hartford taxicab medallions. The Company believes that
there are significant growth opportunities in these and other metropolitan
markets nationwide.
Most New York City medallion transfers are handled through approximately 31
medallion brokers who are licensed by the TLC. In addition to brokering
medallions, these brokers also arrange TLC documentation, insurance, vehicles
and meters as well as financing. The Company has excellent relations with many
of the most active of these brokers and regularly receives referrals from them.
However, the Company receives most of its referrals from a small number of
brokers.
LOAN PORTFOLIO
Medallion Loans comprised approximately 78.3% of the Company's loan portfolio
at December 31, 1997. On that date, the Company had 2,268 Medallion Loans
outstanding ranging from $300 to $560,000 in principal amount outstanding with
an average principal amount outstanding of $99,600 and an aggregate principal
amount outstanding of $226.0 million. These loans generally require equal
monthly payments covering accrued interest and amortization of principal over a
ten to fifteen year schedule subject to a balloon payment of all outstanding
principal after four or five years. More recently, the Company has begun to
originate loans with one to four year interest rate maturities. Borrowers may
prepay Medallion Loans upon payment of a fee ranging from 0 to 90 days'
interest. The Company generally retains the Medallion Loans it originates. The
Company believes that this weighted average time period varies to some extent as
a function of changes in interest rates because borrowers are more likely to
exercise prepayment rights in a decreasing interest rate environment when the
interest rate payable on the borrower's loan is high relative to prevailing
interest rates and are less likely to repay in a rising interest rate
environment. At December 31, 1997, substantially all of the Company's Medallion
Loans were secured by first security interests in taxicab medallions and related
assets. The Company originates Medallion Loans at an approximate average loan-
to-value ratio of 75%. The Company has recourse against the direct and indirect
owners of the medallion through personal guarantees. Although personal
guarantees increase the commitment of borrowers to repay their loans, there can
be no assurance that the assets available under personal guarantees would, if
required, be sufficient to satisfy the obligations secured by such guarantees.
The Company believes that its Medallion Loan portfolio is of high credit
quality because medallions have generally increased in value and are easy to
repossess and resell in an active market. While loans in the portfolio of MFC
have been from time to time in arrears or default, MFC never experienced a loss
of principal on any of the $309.0 million in aggregate principal amount of
Medallion Loans it originated during the period from 1979 through December 31,
1997. In addition, from the date of the Acquisitions through the date of this
Report, Edwards and TCC have not lost any principal on the loans that were
outstanding during this time. In the event of defaults by borrowers, the
medallions collateralizing such loans have been seized and, when such loans have
not been brought current, readily sold in the active market for medallions at
prices at or in excess of the amounts due.
COMMERCIAL INSTALLMENT LOANS
OVERVIEW
MFC began Commercial Installment Loan operations in 1987 to diversify its loan
portfolio which, prior to that time, consisted almost entirely of Medallion
Loans. MFC chose to concentrate these operations on originating loans secured
by retail dry cleaning and coin operated laundromat equipment because of certain
characteristics similar to medallion lending that make these industries
attractive candidates for profitable lending. These factors include the
following (i) relatively high fixed rates of interest ranging from approximately
400 to 700 basis points over the prevailing prime rate of interest charged by
major commercial banks (the "Prime Rate") at the time of origination, (ii) low
historical repossession rates, (iii) vendor recourse, (iv) significant equity
investments by borrowers, (v) an active market for repossessed equipment, (vi) a
small average loan size of $60,000 and (vii) collateral service life that is
frequently twice as long as the term of the loans. The Company estimates that
there are approximately 4,000 retail dry cleaners and approximately 3,000
laundromats in the New York City metropolitan area. Specialization in these
industries has permitted relatively low administrative costs because
documentation
7
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and terms of credit are standardized. Moreover, the consistency among the loans
has facilitated simplified credit review and portfolio analysis.
BLLC lends primarily to businesses secured by assets and or real estate
throughout the New England and the New York area under the SBA's Section 7(a)
loan program. BLLC's loans are typically secured by assets or real estate, have
floating interest rates tied to a spread over the prime rate, and are guaranteed
by the SBA, up to a maximum guarantee of $750,000. Additionally, a liquid market
exists for the sale of the guaranteed portion of the loans. The Company believes
that the floating rate nature of these loans is beneficial for its interest rate
exposure management.
The Company believes that other niche industries with similar characteristics
will provide additional loan portfolio growth opportunities. Building on the
success of MFC's Commercial Installment Loan operations, the Company has
continued to expand its lending activities in this area through BLLC, Edwards,
TCC and Medallion Financial itself.
LOAN PORTFOLIO
Commercial Installment Loans comprised 21.7% of the Company's loan portfolio
at December 31, 1997. These loans finance either the purchase of the equipment
and related assets necessary to open a new business or the purchase or
improvement of an existing business. The Company has originated Commercial
Installment Loans in principal amounts ranging from $5,000 to $1,700,000. These
loans are generally retained by the Company and typically have maturities
ranging from one to ten years. At December 31, 1997, there were 1,083
Commercial Installment Loans outstanding with a balance of $62.8 million. Loans
to dry cleaners and laundromats represented 67.1% of the aggregate principal
amount of Commercial Installment Loans outstanding at December 31, 1997. The
remaining Commercial Installment Loans are spread among other industries
including: food service, real estate and radio broadcast licenses.
Commercial Installment Loans made by the Company typically require equal
monthly payments covering accrued interest and amortization of principal over a
four to five year term and generally can be prepaid with a fee ranging from 0
to 90 days' interest. At December 31, 1997, the Company's Commercial
Installment Loans had a weighted average interest rate of 12.60%. The term of,
and interest rate charged on, the Company's outstanding loans are subject to SBA
Regulations. Under SBA Regulations, the maximum rate of interest permitted on
loans originated by the Company is 19.0%. Unlike Medallion Loans, for which
competition precludes the Company from charging the maximum rate of interest
permitted under SBA Regulations, the Company is able to charge the maximum rate
on certain Commercial Installment Loans and anticipates that Medallion Financial
will be able to continue to charge in excess of the maximum rate since Medallion
Financial is not subject to regulation by the SBA. The weighted average rate of
interest on Commercial Installment Loans exceeded the weighted average rate of
interest on Medallion Loans by 334 basis points at December 31, 1997. The
Company believes that the increased yield on Commercial Installment Loans
compensates for their higher risk relative to Medallion Loans and further
illustrates the benefits of diversification.
The Company generally originates Commercial Installment Loans at an
approximate average loan to value ratio of 70-75%. Substantially all of the
Company's Commercial Installment Loans are collateralized by first security
interests in the assets being financed by the borrower. At December 31, 1997,
67.1% of the aggregate principal outstanding in the Company's Commercial
Installment Loan portfolio was secured by first security interests in retail dry
cleaning and coin operated laundromat equipment and the balance, 32.9%, was
secured by real estate, food service equipment, radio broadcast licenses and
other equipment. In addition, the Company requires the principals of borrowers
to personally guarantee loans. Further more, equipment vendors sometimes
provide full and partial recourse guarantees on loans.
MARKETING, ORIGINATION AND LOAN APPROVAL PROCESS
The Company and its subsidiaries employ 25 loan originators that originate
Medallion Loans and Commercial Installment Loans. The Company's loan officers
regularly receive referrals from medallion brokers and make use of an extensive
referral network in the retail dry cleaning and coin operated laundromat
industry. Equipment vendors are the single most important source of Commercial
Installment Loan referrals and the Company attributes its excellent relations
with these vendors in part to its success in financing the purchase of retail
dry cleaning and coin operated laundromat equipment.
8
<PAGE>
Each loan application is individually reviewed through analysis of a number of
factors, including loan-to-value ratios, a review of the borrower's credit
history, public records, personal interviews, trade references and personal
inspection of the premises and TLC approval, if applicable. The Company also
requires each applicant to provide personal and corporate tax returns and
premises leases or property deeds. The Company's senior management
establishes loan origination criteria. Loans that conform to such criteria may
be processed by a loan officer and non-conforming loans must be approved by the
Chief Executive Officer or the Chief Operating Officer
GROSS LOANS RECEIVABLE
The following table sets forth the Company's gross loans receivable:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Loans Receivable
BLLC........................ $ 14,019 5%
Medallion Financial......... $ 14,640 8% 48,560 17
Tri-Magna (MFC)............. $ 82,014 57% $ 90,343 62% $ 96,956 64% 99,662 57 158,345 54
Edwards..................... 44,141 30 43,487 30 43,799 29 46,630 26 59,882 21
TCC......................... 18,074 13 10,981 8 9,797 7 15,608 9 10,152 3
-------- --- -------- --- -------- --- -------- --- -------- ---
Total...................... $144,229 100% $144,811 100% $150,552 100% $176,540 100% $290,958 100%
</TABLE>
LOAN ACTIVITY
The following table sets forth the Company's loans originated, renewed and
repaid on a combined basis for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1996 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
(in thousands)
Loans originated................................. $ 52,714 $ 88,070 $ 212,978
Loan participations repurchased.................. - - 22,537
Loan repayments (including renewals)............. (46,983) (60,569) (122,370)
Decrease (increase) in unrealized depreciation... 195 9 (790)
Loans (written off) recovered, net............... 11 5 (125)
-------- -------- ---------
Increase (decrease) in loans receivable-net...... 5,937 27,515 112,230
Loans receivable-net (beginning of period)....... 143,042 148,979 176,494
-------- -------- ---------
Loans receivable-net (end of period)............. $148,979 $176,494 $ 288,724
======== ======== =========
</TABLE>
DELINQUENCY AND LOAN LOSS EXPERIENCE
Under the Company's collection policy, when a borrower fails to make a
required monthly payment, the borrower is notified by mail after approximately
10 days, and a collection officer generally contacts the borrower if the payment
remains unpaid after 10 additional days. The Company generally follows a
practice of discontinuing the accrual of interest income on Commercial
Installment Loans which are in arrears as to interest payments for a period in
excess of 90 days. The Company delivers a default notice and begins foreclosure
and liquidation proceedings when management determines that pursuit of these
remedies is the most appropriate course of action in the circumstances.
At December 31, 1997, the Company had 80 loans with an aggregate principal
balance of $15.8 million, or 5.5% of the portfolio, which were delinquent for 90
days or more, compared to 88 loans with an aggregate principal balance of $8.4
million or 4.8% of the portfolio, which were delinquent for 90 days or more at
December 31, 1996. The Company considers a loan to be delinquent if the borrower
fails to make payments for 30 days or more; however, the Company may agree with
a borrower that cannot make payments in accordance with the original loan
agreement to modify the payment terms of the loan. Based upon the Company's
assessment of its collateral position, the Company anticipates that a
substantial portion of the principal amount of its delinquent loans would be
collected upon foreclosure of such loans, if necessary. There can be no
assurance, however, that the collateral securing such loans will be adequate in
the event of foreclosure.
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<PAGE>
The Company monitors delinquent loans for possible exposure to loss. In its
analysis, the Company reviews various factors, including the value of the
collateral securing the loan and the borrower's prior payment history. Based
upon these factors and the Company's analysis of the yield and maturity of loans
in the portfolio relative to current and projected market interest rates, the
Company determines net unrealized depreciation of investments or the amount by
which the Company's estimate of the current realizable value of its portfolio is
below the cost basis thereof.
The following table sets forth the Company's unrealized depreciation of
investments and the loan loss experience on a combined basis:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1995 1996 1997
----------------- ------------------ ----------------
<S> <C> <C> <C>
(in thousands)
Balance, beginning of year................................... $1,768 $1,573 $1,569
Change in unrealized depreciation of investments............. (145) (9) 790
Realized loan losses......................................... (62) 0 (125)
Recoveries................................................... 12 5 0
Interest income received..................................... -- -- --
------ ------ ------
Balance, end of year......................................... $1,573 $1,569 $2,234
====== ====== ======
</TABLE>
CUSTODIAL SERVICES
Fleet Bank N.A. acts as the custodian of all of the Company's portfolio
assets, except that BLLC's portfolio assets are held by Colsen Services, Inc.
TAXICAB ROOFTOP ADVERTISING
Media provides taxicab rooftop advertising which is a relatively undeveloped
segment of the out-of-home advertising industry. Out-of-home advertising
includes (i) traditional outdoor advertising, such as billboards and posters,
(ii) transit advertising, such as taxicabs, buses, bus shelters, subway,
commuter train and airport advertising and (iii) in-store point of sale
advertising. The Company entered this business in November 1994 with the
organization of Media and since that time the business has grown rapidly. In
July 1996, the Company acquired See-Level Advertising, Inc., a taxicab rooftop
advertising firm with 450 Displays in New York City. Additionally, under an
agreement with MTBOT, the Company has added an additional 1,600 Displays to the
number under contract in New York City. Media intends to continue to expand
this business through internally generated growth and additional acquisitions of
taxicab rooftop advertising businesses.
The Company currently provides taxicab rooftop advertising in New York City
and Boston and intends to expand its operations to other major metropolitan
areas. The Company's goal is to become the leading national provider of taxicab
rooftop advertising by establishing a presence in several major U.S.
metropolitan markets. The Company believes that no provider currently operates
nationwide. On December 31, 1997, the Company had approximately 3,500
installed Displays.
Each Display is attached to the rooftop of a taxicab by the Company and the
Company also performs all ongoing Display maintenance and repair. The Display
remains the property of the Company. The Display serves as a platform or frame
for advertising copy which is preprinted on vinyl sheets with adhesive backing
and provided by the advertiser. The advertising copy adheres to the Display and
is illuminated whenever the taxicab is in operation. The vinyl sheet is durable
and is generally left on the Display for up to 90 days. The advertising copy is
replaced at the advertiser's discretion and cost when advertising campaigns
change. The standard size of the vinyl advertising copy, 14 inches high and 48
inches long, was designed to be proportionally similar to "bulletins" or
"billboards" to permit advertisers to conveniently translate billboard copy to
Display copy.
Generally, the Company enters into agreements with taxicab associations,
fleets or individuals to lease taxicab rooftop space for five-year terms. The
Company markets the Displays to companies promoting products, advertising
agencies and outdoor advertising buying agencies. Advertising contracts
generally vary from 30 days to one year and provide for monthly payments by the
advertiser. The Company's advertising accounts have in the past included: Donna
Karan; Armani Eyewear; Armani Exchange; Fleet Bank N.A.; Discover Card; The New
York Times; Continental Airlines; Philip Morris Tobacco Corp.; Helmut Lang; Old
Navy; Ringling Bros. Barnum & Bailey Combined Shows, Inc.; Luxottica Group
S.P.A.; R. J. Reynolds Tobacco Company; and Brown & Williamson Tobacco
Corporation.
10
<PAGE>
The Company believes the inherent in-motion nature of taxicabs and their
concentration and distribution throughout densely populated metropolitan areas
enhance their effectiveness as an advertising medium. Displays can be placed
throughout an area, effectively covering the population and providing continuous
exposure. Moreover, taxicab rooftop advertising is not zoned out of any of the
areas in New York City, such as Park Avenue and Central Park, where stationary
advertising is generally prohibited. Unlike other forms of transit advertising
in New York City such as buses, bus shelters and subway and commuter train
stations, which are prohibited from advertising tobacco products, taxicabs are
not restricted by New York City from advertising tobacco products. In addition,
the Company believes that taxicab rooftop advertising compares favorably with
other forms of outdoor advertising, which in general have among the lowest cost-
per-thousand impressions or "CPM," a standard measurement of effectiveness among
media, of all advertising media.
Currently, approximately 57% of Media's taxicab rooftop advertising revenue is
derived from tobacco products advertising. Various federal, state and local
government agencies, including the U.S. Food and Drug Administration (the "FDA")
have from time to time proposed regulations restricting the sale and advertising
of cigarette and smokeless tobacco products. Additionally, various tobacco
companies have voluntarily proposed eliminating outdoor tobacco advertising in
exchange for immunity from class action suits. Accordingly, such regulations or
voluntary restrictions could have an adverse effect upon the taxicab rooftop
advertising business of the Company. The Company believes, however, that it
could replace some of the revenue which may be lost due to the loss of tobacco
taxicab rooftop advertising.
SOURCES OF FUNDS
OVERVIEW
The Company funds its operations through credit facilities with bank
syndicates and, to a lesser degree, through fixed rate, long-term subordinated
debentures issued to or guaranteed by the SBA. The determination of funding
sources is established by the Company's management, based upon an analysis of
the respective financial and other costs and burdens associated with funding
sources. In addition, SBA financing subjects its recipients to limits on the
amount of secured bank debt they may incur. Accordingly, the Company plans to
limit its use of SBA funding and will seek such funding only when advantageous.
At December 31, 1997, 83.2% of the Company's $165.6 million of debt consisted of
bank debt, substantially all of which was at variable effective rates of
interest averaging below the Prime Rate and 16.8% of the Company's debt
consisted of subordinated SBA debentures, with fixed rates of interest with a
weighted average rate of 7.91%. An additional $90.3 million of debt was
available at December 31, 1997 at variable effective rates of interest averaging
below the Prime Rate under the Company's $228.0 million in bank credit
facilities.
The Company funds its fixed rate loans with variable rate bank debt and fixed
rate subordinated SBA debentures. The mismatch between maturities and interest-
rate sensitivities of these balance sheet items results in interest rate risk.
The Company seeks to manage its exposure to increases in market rates of
interest to an acceptable level by (i) purchasing interest rate caps to hedge a
portion of its variable rate debt against increases in interest rates, (ii)
incurring fixed-rate debt and (iii) originating adjustable rate loans.
Nevertheless, the Company accepts varying degrees of interest rate risk
depending on market conditions and believes that the resulting asset/liability
interest rate mismatch results in opportunities for higher net interest income.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management."
MEDALLION FINANCIAL FUNDING
Medallion Financial has a $25 million revolving line of credit with a bank. At
December 31, 1997, $16.1 million was outstanding under this facility, bearing
interest at an average rate of 7.06%. Medallion Financial is in the process of
increasing and extending the existing line of credit beyond its current maturity
of April 30, 1998.
EDWARDS FUNDING
Edwards has an $8.0 million revolving line of credit with two banks. At
December 31, 1997, $6.4 million was outstanding under this facility, bearing
interest at the rate of 7.26%. Under an agreement with the SBA, Edwards is
restricted from borrowing more than $12.7 million in bank debt without the prior
approval of the SBA. These agreements mature on April 30, 1998.
As an SBIC, Edwards is eligible to obtain low cost financing from the SBA
through the issuance of SBA debentures. Edwards has debentures outstanding in
the principal amount of $22.3 million at December 31, 1997.
11
<PAGE>
Edwards intends to seek to issue additional SBA debentures only if interest
rates are favorable. SBA Regulations limit the amount of subordinated SBA
debentures or "leverage" SBICs may issue. Generally, under SBA Regulations, the
maximum principal amount of subordinated SBA debentures Edwards is permitted to
issue is equal to 300% of its private or non-SBA paid-in capital and paid-in
surplus ("Leveragable Capital"). SBA Regulations generally also limit the
aggregate amount of leverage SBICs under common control, such as Edwards, MFC
and TCC, have outstanding to no more than $90 million. Accordingly, Edwards, MFC
and TCC collectively may not issue subordinated SBA debentures in an aggregate
amount that exceeds $90 million and at December 31, 1997, the aggregate amount
outstanding was $27.9 million. The interest rates payable on outstanding
subordinated SBA debentures at December 31, 1997 ranged from 7.15% to 9.80% with
a weighted average of 7.91%.
At December 31, 1997, Edwards had Leveragable Capital of $9.6 million and had
issued $22.3 million in principal amount of subordinated SBA debentures that
carry fixed rates of interest and have ten-year terms. These debentures have
maturities ranging from June 1, 1998 to September 1, 2004 and rates of interest
varying from 7.15% to 9.80% per annum. Subject to the limitations discussed
above, Edwards was eligible on December 31, 1997, to issue $6.5 million in
aggregate principal amount of additional subordinated SBA debentures.
MFC FUNDING
MFC intends to rely on its bank credit facilities rather than on SBA financing
to fund its operations. MFC has a credit facility with a bank syndicate
consisting of an $195 million revolving line of credit. Amounts outstanding
under the revolving line of credit bear interest at the agent bank's prime rate
or, at MFC's option, a rate based on LIBOR. At December 31, 1997, the average
interest rate was 6.97%, which was 153 basis points below the Prime Rate and 113
basis points above the 90-day LIBOR as of such date. The revolving line of
credit is secured by all of MFC's assets and matures on June 30, 1999. As of
December 31, 1997, there was an outstanding balance of $115.3 million under the
revolving line of credit.
SBA financing is limited and so long as an SBIC has SBA financing outstanding,
the SBA restricts the amount of secured bank debt that such SBIC may have
outstanding. As a result of these SBA limitations, debt financing from all
sources is effectively limited. To eliminate this funding cap, MFC has
repurchased all of its outstanding subordinated SBA debentures and preferred
stock and thereby terminated SBA limitations on the amount of secured bank debt
MFC can incur. The Company 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. The Company 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 the Company's third party bank debt.
There can be no assurance that the Company will be able to enter into such an
agreement with the SBA on terms acceptable to the Company. If, however, the
Company 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.
TCC FUNDING
Prior to its conversion to an SBIC on February 21, 1997, TCC was eligible to
obtain low cost financing from the SBA through the issuance of subordinated SBA
debentures and the issuance of non-voting cumulative preferred stock to, or
guaranteed by, the SBA. As of December 31, 1997, TCC had $5.6 million of
subordinated SBA debentures outstanding and no preferred stock outstanding. At
December 31, 1997 the interest rate payable on subordinated SBA debentures was
8.00%. As a result of an SBA subsidy program available to SSBICs, the effective
interest rate on subordinated debentures issued by TCC prior to its conversion
to an SBIC is 3.00% below the stated interest rate for the first five years such
debentures are outstanding. As an SBIC, TCC is no longer eligible to issue non-
voting cumulative preferred stock. TCC is, however, still eligible to obtain low
cost financing from the SBA through the issuance of subordinated SBA debentures,
but the interest on such debentures will not be subsidized by the SBA. SBA
Regulations limit the amount of subordinated SBA debentures or "leverage" SBICs
12
<PAGE>
may issue and the "300% of leveragable capital" and the $90 million limit on the
aggregate amount of leverage permitted for SBICs under common control referred
to above also apply.
At December 31, 1997, TCC had Leveragable Capital of $7.5 million and had
issued $5.6 million in principal amount of subordinated SBA debentures that have
fixed rates of interest, ten-year terms and may be prepaid after five years
without penalty. The interest rate payable on these debentures is 8.00% per
annum and they mature on June 1, 2002. Future issuances of subordinated SBA
debentures by TCC, including any refinancing or rollover of currently
outstanding subordinated SBA debentures, are also limited by the SBA to the
aggregate amount of TCC's outstanding non-Medallion Loans and the aggregate
amount of non-Medallion Loans originated in connection with such financing. At
December 31, 1997, TCC had $4.2 million in principal amount of non-Medallion
Loans outstanding. Subject to the foregoing limitations, TCC was eligible on
December 31, 1997, to issue $16.8 million of additional subordinated SBA
debentures.
Preferred Stock Repurchase Agreements
MFC and TCC have repurchased all of their previously issued preferred stock
from the SBA for an aggregate price of $4.4 million, representing a discount of
65% from the original aggregate issuance price of $12.6 million. The repurchase
price discount of $8.2 million reflects the below market 3% dividend rate and
the fact that the preferred stock was not subject to mandatory redemption at any
time. The repurchase has resulted in the termination of SBA limits on the
amount of secured bank debt that MFC can incur and a realized gain in retained
earnings in the amount of the repurchase discount which is being accreted to
paid-in capital on a straight-line basis over 60 months, commencing August 12,
1994. If MFC or TCC were to liquidate or lose its SBA license during the
accretion period, the SBA would receive the remaining unaccreted amount of the
realized gain attributable to the subsidiary liquidating or losing its license.
The Company anticipates entering into an agreement with the SBA permitting the
proposed merger of TCC into MFC without triggering repayment of TCC's
liquidating interest. There can be no assurance that the Company will be able
to enter into such an agreement with the SBA on terms acceptable to the Company.
If, however, the Company is unable to negotiate such an agreement, then it will
not merge MFC with TCC. At December 31, 1997, the aggregate remaining
unaccreted amount of the realized gain for MFC and TCC was $2.9 million.
THE COMPANY'S OPERATION AS A RIC
The Company has elected to be taxed as a RIC under Sections 851 through 855
under the Code. The Company intends, during this and subsequent taxable years,
to operate in a manner that permits it to satisfy the requirements or taxation
as a RIC under the applicable provisions of the Code, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified.
The sections of the Code relating to qualification and operation as a RIC are
highly technical and complex. The following sets forth the material aspects of
the Code sections that govern the federal income tax treatment of a RIC and its
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations thereunder, and administrative and judicial
interpretations thereof.
In brief, if certain detailed conditions of the Code are met, business
development companies, such as Medallion Financial, that otherwise would be
treated for federal income tax purposes as corporations are generally not taxed
at the corporate level on their "investment company taxable income" that is
currently distributed to stockholders. This treatment substantially eliminates
the "double taxation" (i.e., taxation at both the corporate and stockholder
levels) that generally results from the use of corporate investment vehicles. A
RIC is, however, generally subject to federal income tax at regular corporate
rates on undistributed investment company taxable income.
Furthermore, in order to avoid a 4% nondeductible federal excise tax on
undistributed income and capital gains, the Company must distribute (or be
deemed to have distributed) by December 31 of each year at least 98% of its
ordinary income for such year, at least 98% of its capital gain net income
(which is the excess of its capital gain over its capital loss and is generally
computed on the basis of the one-year period ending on October 31 of such year)
and any amounts that were not distributed in the previous calendar year and on
which no income tax has been paid.
If the Company fails to qualify as a RIC in any year, it will be subject to
federal income tax as if it were a domestic corporation, and its stockholders
will be taxed in the same manner as stockholders of ordinary corporations. In
this event, the Company could be subject to potentially significant tax
liabilities and the amount of cash available for distribution to its
stockholders could be reduced.
13
<PAGE>
The Code defines the term "RIC" to include a domestic corporation that has
elected to be treated as a business development company under the 1940 Act and
meets certain requirements. These requirements include that (a) the company
derive at least 90% of its gross income for each taxable year from dividends,
interest, interest payments with respect to securities loans and gains from the
sale or other disposition of stocks or securities or foreign currencies, or
other income derived from its business of investing in such stocks, securities
or currencies; (b) the company derives less than 30% of its gross income for
each taxable year from the sale or other disposition of any of the following
that are held for less than three months: (i) stock or securities and (ii)
certain other financial interests (the "short-short test"); and (c) the company
diversifies its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets is represented by (A)
cash, and cash items (including receivables), U.S. Government securities and
securities of other RICs, and (B) other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the value of the total
assets of the company and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of total
assets is invested in the securities (other than U.S. Government securities or
securities of other RICs) of any one issuer or two or of more issuers controlled
by the company and engaged in the same, similar or related trades or businesses.
The foregoing diversification requirements under the Code could restrict the
Company's expansion of its taxicab rooftop advertising business.
Furthermore, in order to qualify as a RIC under the Code, each taxable year, a
company also must distribute to its stockholders at least 90% of (a) its
investment company taxable income and (b) the excess of its tax-exempt interest
income over certain disallowed deductions.
Provided that the Company satisfies the above requirements, neither the
investment company taxable income it distributes to stockholders nor any net
capital gain that is distributed to stockholders should subject the Company to
federal income tax. Investment company taxable income and/or net capital gains
that are retained by the Company should be subject to federal income tax at
regular corporate income tax rates; provided, however, that to the extent that
the Company retains any net long-term capital gains, it may designate them as
"deemed distributions" and pay a tax thereon for the benefit of its
stockholders. The Company currently intends to continue to distribute to its
stockholders for each of its taxable years substantially all of its investment
company taxable income and may or may not distribute any capital gains.
If the Company acquires debt obligations that were originally issued at a
discount, or that bear interest rates that do not call for payments at fixed
rates (or certain "qualified variable rates") at regular intervals over the life
of the obligation, it will be required to include as interest income each year a
portion of the "original issue discount" that accrues over the life of the
obligation regardless of whether it receives the income, and it will be
obligated to make distributions accordingly. In this event, the Company may
borrow funds or sell assets to meet the distribution requirements. However,
under the 1940 Act, the Company will not be permitted to make distributions to
stockholders while senior securities are outstanding unless it meets certain
asset coverage requirements. If the Company is unable to make the required
distributions, it may be subject to the nondeductible 4% excise tax or it may
fail to qualify as a RIC. Furthermore, the SBA restricts the distributions that
may be made to an amount equal to undistributed net realized earnings less the
allowance for unrealized loan losses (which in the case of the Company is
included in unrealized depreciation).
As long as the Company qualifies as a RIC, distributions made to its taxable
domestic stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net long-term capital gain for the taxable year) without regard
to the period for which the stockholder has held its stock. Corporate
stockholders, however, are subject to tax on capital gain dividends at the same
rate as ordinary income. To the extent that the Company makes distributions in
excess of current and accumulated earnings and profits, these distributions are
treated first as a tax-free return of capital to the stockholder, reducing the
tax basis of a stockholder's Common Stock by the amount of such distribution
(but not below zero), with distributions in excess of the stockholder's tax
basis taxable as capital gains (if the Common Stock is held as a capital asset).
In addition, any dividends declared by the Company in October, November or
December of any year and payable to a stockholder of record on a specific date
in any such month shall be treated as both paid by the Company and received by
the stockholder on December 31 of such year, provided that the dividend is
actually paid by the Company during January of the following calendar year.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company.
14
<PAGE>
If the Company chooses to retain and pay tax on any net capital gain rather
than distribute such gain to its stockholders, the Company will designate such
deemed distribution in a written notice to stockholders prior to the expiration
of 60 days after the close of the taxable year. Each stockholder would then be
treated for federal income tax purposes as if the Company had distributed to
such stockholder on the last day of its taxable year the stockholder's pro rata
share of the net long-term capital gain retained by the Company and the
stockholder had paid its pro rata share of the taxes paid by the Company and
reinvested the remainder in the Company.
In general, any loss upon a sale or exchange of Common Stock by a stockholder
who has held such stock for six months or less (after applying certain holding
period rules) will be treated as long-term capital loss, to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gains.
THE COMPANY'S OPERATION AS A BDC
As a BDC, the Company is subject to regulation under the 1940 Act. The 1940
Act contains prohibitions and restrictions relating to transactions between
investment companies and their affiliates, principal underwriters and affiliates
of those affiliates or underwriters. In addition, the 1940 Act provides that
the Company may not change the nature of its business so as to cease to be, or
to withdraw its election as, a BDC unless so authorized by the vote of a
"majority of the Company's outstanding voting securities," as defined under the
1940 Act.
The Company is permitted, under specified conditions, to issue multiple
classes of indebtedness and one class of stock (collectively, "senior
securities," as defined under the 1940 Act) senior to the shares of Common Stock
if the Company's asset coverage of such indebtedness and all senior securities
is at least 200% immediately after each such issuance. Subordinated SBA
debentures guaranteed by or issued to the SBA by the RIC Subsidiaries, are not
subject to this asset coverage test. In addition, while senior securities are
outstanding, provision must be made to prohibit the declaration of any dividend
or other distribution to stockholders (except stock dividends) or the repurchase
of such securities or shares unless the Company meets the applicable asset
coverage ratios at the time of the declaration of the dividend or distribution
or repurchase.
Under the 1940 Act, a BDC may not acquire any asset other than assets of the
type listed in Section 55(a) of the 1940 Act ("Qualifying Assets") unless, at
the time the acquisition is made, certain Qualifying Assets represent at least
70% of the value of the company's total assets. The principal categories of
Qualifying Assets relevant to the business of the Company are the following:
(1) Securities purchased in transactions not involving a public offering
from the issuer of such securities, which issuer is an eligible portfolio
company. An "eligible portfolio company" is defined in the 1940 Act as
any issuer which:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than an SBIC wholly-owned by the
BDC; and
(c) satisfies one or more of the following requirements:
(i) the issuer does not have a class of securities with respect to
which a broker or dealer may extend margin credit; or
(ii) the issuer is controlled by a BDC and the BDC has an affiliated
person serving as a director of issuer;
(iii) the issuer has total assets of not more than $4 million and
capital and surplus (shareholders' equity less retained earnings)
of not less than $2 million, or such other amounts as the
Securities and Exchange Commission may establish by rule or
regulation; or
(iv) issuer meets such other requirements as the Commission may
establish from time to time by rule or regulation;
(2) Securities for which there is no public market and which are purchased
in transactions not involving a public offering from the issuer of such
securities where the issuer is an eligible portfolio company which is
controlled by the BDC;
15
<PAGE>
(3) Securities received in exchange for or distributed on or with respect
to securities described in (1) or (2) above, or pursuant to the
exercise of options, warrants or rights relating to such securities;
and
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a BDC must have been organized (and have its principal place of
business) in the United States for the purpose of making investments in the
types of securities described in (1) or (2) above. In order to count securities
as Qualifying Assets for the purpose of the 70% test, the BDC must either
control the issuer of the securities or must make available to the issuer of the
securities significant managerial assistance; except that, where the business
development company purchases such securities in conjunction with one or more
other persons acting together, one of the other persons in the group may make
available the required managerial assistance. The Company believes that the
common stock of MFC, Edwards, TCC and Media are Qualifying Assets.
REGULATION OF THE COMPANY BY THE SBA
Edwards is an SBIC and as explained in further detail below, MFC and TCC were
formerly SSBICs that were converted to SBICs under conversion agreements entered
into with the SBA in February 1997. The SBIA authorizes the organization of
SBICs as vehicles for providing equity capital, long term financing and
management assistance to small business concerns. A small business concern, as
defined in the SBIA and the SBA Regulations, is a business that is independently
owned and operated and which is not dominant in its field of operation. In
addition, at the end of each fiscal year, at least 20% of the total amount of
loans made since April 25, 1994 by each SBIC and SSBIC must be made to a
subclass of small business concerns that (i) have a net worth, together with any
affiliates, of $6.0 million or less and average annual net income after U.S.
federal income taxes for the preceding two years of $2.0 million or less
(average annual net income is computed without the benefit of any carryover
loss), or (ii) satisfy alternative criteria under SBA Regulations that focus on
the industry in which the business is engaged and the number of persons employed
by the business or its gross revenues. SBA Regulations also prohibit an SBIC
from providing funds to a small business concern for certain purposes, such as
relending and reinvestment.
Prior to the enactment of the Small Business Programs Improvement Act of 1996
(the "Improvement Act"), the SBIA authorized the organization of SSBICs as
vehicles for providing the same forms of assistance that SBICs provide, except
that SSBIC were limited to loans to small business concerns which were at least
50% owned and managed by persons whose participation in the free enterprise
system is hampered because of social or economic disadvantages. "Disadvantaged
Borrowers" include African Americans, Asian Sub-Continent Americans, Eskimos,
Hispanic Americans, Native Americans, Vietnam War era veterans and other groups
identified by the SBA. Such small business concerns were required to either (i)
have a tangible net worth, together with any affiliates, of $18.0 million or
less and an average annual net income after U.S. federal income taxes for the
preceding two years of $6.0 million or less (average annual net income is
computed without the benefit of any carryover loss), or (ii) satisfy alternative
criteria under the SBA Regulations that focus on the industry in which the
business is engaged and the number of persons employed by the business or its
gross revenues.
The Improvement Act, which became effective on September 30, 1996, effectively
terminated the SSBIC program by repealing the provisions of the SBIA which
authorized SSBICs. Following the enactment of the Improvement Act and
termination of the SSBIC program, the SBA established procedures for existing
SSBICs to convert to SBICs. In February 1997, MFC and TCC each entered into an
agreement with the SBA whereby MFC and TCC were converted to SBICs, subject to
certain conditions imposed by the SBA. Under the MFC Conversion Agreement with
the SBA, MFC is authorized to make loans to borrowers other than Disadvantaged
Borrowers provided that, at the time of such loan, MFC has in its portfolio
outstanding loans to Disadvantaged Borrowers with an aggregate cost basis equal
to or exceeding the value of the unamortized repurchase discount under the
preferred stock repurchase agreement between MFC and the SBA. At December 31,
1997 the amount of such unamortized repurchase discount was $3.1 million and MFC
had outstanding loans to Disadvantaged Borrowers with an aggregate cost basis
equal to approximately $100.5 million. Likewise, under the TCC Conversion
Agreement with the SBA, TCC is authorized to make loans to persons other than
Disadvantaged Borrowers provided that, at the time of such loan, TCC has in its
portfolio loans outstanding to Disadvantaged Borrowers with an aggregate cost
basis equal to the sum of (i) the principal amount of TCC's outstanding
subordinated SBA debentures which are subsidized by the SBA; (ii) the value of
the unamortized repurchase discount under the
16
<PAGE>
preferred stock repurchase agreement between TCC and the SBA; and (iii) the
amount of any unamortized preferred stock dividends under the preferred stock
purchase agreement. At December 31, 1997, (i) the principal amount of TCC's
outstanding subsidized SBA debentures was $5.6 million, (ii) the amount of the
unamortized repurchase discount was $990,000, and (iii) the amount of
unamortized preferred stock dividends was $116,525, for a sum total of
approximately $6.7 million. At December 31, 1997, TCC had outstanding loans to
Disadvantaged Borrowers with an aggregate cost basis of $9.5 million. On
February 18, 1998, TCC repaid its unamortized preferred stock dividend to the
SBA, which repayment was triggered by TCC's payment of cash dividends to
Medallion Financial.
Under current SBA Regulations and subject to local usury laws, the maximum
rate of interest that MFC, TCC or Edwards may charge may not exceed the higher
of (i) 19% and (ii) the sum of (a) the higher of (I) that company's weighted
average cost of qualified borrowings, as determined under SBA Regulations, or
(II) the current subordinated SBA debenture rate, plus (b) 11%, rounded off to
the next lower eighth of one percent. At December 31, 1997, the maximum rate of
interest permitted on loans originated by the RIC Subsidiaries is 19%. At
December 31, 1997, the Company's outstanding Medallion Loans had a weighted
average rate of interest of 9.28% and outstanding Commercial Installment Loans
had a weighted average rate of interest of 12.60%. SBA Regulations also require
that each loan originated by an SBIC have a term of between 5 years and 20
years; however, loans to Disadvantaged Borrowers may be for a minimum of four
years.
The SBA restricts the ability of SBICs to repurchase their capital stock, to
retire their subordinated SBA debentures and to lend money to their officers,
directors and employees or invest in affiliates thereof. The SBA also
prohibits, without prior SBA approval, a "change of control" or transfers which
would result in any person (or group of persons acting in concert) owning 10% or
more of any class of capital stock of an SBIC. A "change of control" is any
event which would result in the transfer of the power, direct or indirect, to
direct the management and policies of an SBIC, whether through ownership,
contractual arrangements or otherwise.
Under SBA Regulations, without prior SBA approval, loans by licensees with
outstanding SBA leverage to any single small business concern may not exceed 20%
of an SBIC's Leveragable Capital. Under the terms of their respective
conversion agreements with the SBA, however, MFC and TCC are authorized to make
loans to Disadvantaged Borrowers in amounts not exceeding 30% of their
respective Leveragable Capital.
SBICs must invest funds that are not being used to make loans in investments
permitted under SBA Regulations. These permitted investments include direct
obligations of, or obligations guaranteed as to principal and interest by, the
government of the United States with a term of 15 months or less and deposits
maturing in one year or less issued by an institution insured by the FDIC. The
percentage of an SBIC's assets so invested will depend on, among other things,
loan demand, timing of equity infusions and SBA funding and availability of
funds under credit facilities.
SBICs may purchase voting securities of small business concerns in accordance
with SBA Regulations. SBA Regulations prohibit SBICs from controlling a small
business concern except where necessary to protect an investment. SBA
Regulations presume control when SBICs purchase (i) 50% or more of the voting
securities of a small business concern if the small business concern has less
than 50 stockholders or (ii) more than 20% (and in certain situations up to 25%)
of the voting securities of a small business concern if the small business
concern has 50 or more stockholders.
COMPETITION
Banks, credit unions and finance companies, some of which are SBICs, compete
with the Company in originating Medallion Loans and Commercial Installment
Loans. Finance subsidiaries of equipment manufacturers also compete with the
Company in originating Commercial Installment Loans. Many of these competitors
have greater resources than the Company and certain competitors are subject to
less restrictive regulations than the Company. As a result, there can be no
assurance that the Company will be able to identify and complete the financing
transactions that will permit it to compete successfully. The Company's taxicab
rooftop advertising business competes with other taxicab rooftop advertisers, as
well as all segments of the out-of-home advertising industry and other types of
advertising media, including cable and network television, radio, newspapers,
magazines and direct mail marketing. Many of these competitors have greater
financial resources than the Company and offer several forms of advertising as
well as production facilities.
17
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company employed a total of 86 persons. The
Company believes that its relations with all of its employees are good, but that
its future success will depend, in part, on its ability to continue to recruit,
retain and motivate qualified personnel at all levels.
ITEM 2. PROPERTIES
The Company leases approximately 17,000 square feet of office space in New
York City for its corporate headquarters under a lease expiring in June 2006.
The Company also leases office space for loan origination offices in Boston, MA,
Chicago, IL, Hartford, CT, Southbury, CT, Clifton, NJ, Providence, RI,
Rochester, NY, Scottsdale, AZ, Wellesley, MA and West Berlin, NJ.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries have been named as defendants in various
legal proceedings incident to its business. Management intends to vigorously
defend these outstanding claims. In the opinion of management, based upon the
advice of legal counsel, there is no proceeding pending, or to the knowledge of
management threatened, which in the event of an adverse decision would result in
a material adverse impact on the Company's results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME Age Position(S) Held With the Company
<S> <C> <C>
Alvin Murstein*..................... 63 Chairman, Chief Executive Officer and Director
Andrew Murstein*.................... 33 President and Director
Allen S. Greene*.................... 51 Senior Executive Vice President and Chief Operating Officer
Daniel F. Baker*.................... 34 Treasurer and Chief Financial Officer
Marie Russo*........................ 73 Senior Vice President and Secretary
Michael J. Kowalsky*................ 54 Executive Vice President
</TABLE>
- ----------------
An asterisk (*) indicates an "interested person" as such term is defined in
Section 2(a)(19) of the 1940 Act.
Each officer's term extends until the first meeting of the Board of Directors
following the next annual meeting of stockholders and until his or her successor
is elected and qualified.
Alvin Murstein has been Chairman of the Board of Directors of Medallion
Financial since its founding in 1995 and has been Chief Executive Officer of
Medallion Financial since February 1996. Mr. Murstein has also been Chairman of
the Board of Directors and Chief Executive Officer of MFC since its founding in
1979 and of Media since its founding in 1994. Mr. Murstein has been Chairman of
the Board of Directors and Chief Executive Officer of Edwards and TCC since June
1996. He served as Chairman of the Board of Directors and Chief Executive
Officer of Tri-Magna from its founding in 1989 until its acquisition by the
Company in May 1996. Mr. Murstein received a B.A. and an M.B.A. from New York
University and has been an executive in the taxicab industry for over 40 years.
Mr. Murstein has served on the Board of Directors of the Strober Organization,
Inc., a building supply company, since 1988. Alvin Murstein is the father of
Andrew Murstein.
Andrew Murstein has been President of Medallion Financial since its inception
in 1995 and President of Media from its inception. Mr. Murstein has also been a
Director of Medallion Financial, MFC, Edwards and TCC since October 1997. He
served as Tri-Magna's Director of New Business Development from 1994 until its
acquisition by the Company in May 1996. Mr. Murstein received a B.A. in
economics, cum laude, from Tufts University and an M.B.A. in finance from New
York University. Mr. Murstein serves on the New York City Private Industry
18
<PAGE>
Council. Andrew Murstein is the son of Alvin Murstein, and is the third
generation of his family to be active in the taxicab industry.
Allen S. Greene has been Senior Executive Vice President and Chief Operating
Officer of Medallion Financial since August 1997. Prior to joining the Company,
Mr. Greene was President, Director and Chief Executive Officer of Ryan Beck &
Co., a full service securities and investment banking firm, from 1994 to 1997.
From 1990 through 1994, Mr. Greene was Chairman, Director, Chief Executive
Officer and President of Valley Savings Bank and its parent, VSB Bancorp. Mr.
Greene also served as a director of Elmwood Bancorp and its subsidiary Elmwood
Federal Savings Bank from 1989 to 1994 and Tri-Magna and MFC from 1991 to 1994.
Mr. Greene is also a licensed New York State real estate broker. Mr. Greene
received both a B.B.A. and an M.B.A. from the City University of New York.
Daniel F. Baker has been Treasurer and Chief Financial Officer of Medallion
Financial since February 1996. Mr. Baker has also been Treasurer and Chief
Financial Officer of MFC, Edwards, TCC and Media since June 1996. Mr. Baker also
served as Tri-Magna's Vice President of Finance from 1992 until its acquisition
by the Company in May 1996. From 1989 through 1991, he was Controller of Tri-
Magna and from 1988 through 1991 he was Controller of MFC. Prior to joining MFC,
Mr. Baker was employed by Arthur Andersen LLP. Mr. Baker received a B.S. in
accounting from Husson College.
Marie Russo has been Senior Vice President and Secretary of Medallion
Financial since February 1996. Ms. Russo has also been Senior Vice President
and Secretary of MFC, Edwards and TCC since June 1996. Ms. Russo served as Vice
President of Operations of Tri-Magna from 1989 until its acquisition by the
Company in May 1996. From 1989 to 1996, she was Vice President of MFC and from
1983 to 1986, she was Controller of MFC. Ms. Russo received a B.S. in
accounting from Hunter College.
Michael J. Kowalsky has been Executive Vice President of Medallion Financial
since May 1996. Mr. Kowalsky has been President of MFC and Edwards since June
1996. He also served as Chief Operating Officer of Edwards from 1992 until June
1996. Prior to joining Edwards in 1990, Mr. Kowalsky was a Senior Vice
President at General Cigar Co. Inc., a cigar manufacturing company. Mr.
Kowalsky received a B.A. and M.A. in economics from the University of Kentucky
and an M.B.A. from the New York University Graduate School of Business.
19
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock commenced trading on May 23, 1996 on the Nasdaq
National Market under the symbol "TAXI." As of March 20, 1998, there were
approximately 650 holders of record of the Company's Common Stock.
The following table sets forth for the periods indicated, the range of high
and low closing prices for the Company's Common Stock on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
YEAR ENDED DECEMBER 31, 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
YEAR ENDED DECEMBER 31, 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 November 26, 1996, the Company paid its first quarterly cash dividend of
$0.20 per share of Common Stock. The Company has paid quarterly dividends since
that time, and currently anticipates that it will continue to pay quarterly cash
dividends on the Common Stock. There can be no assurance, however, that the
Company will have sufficient earnings to pay such dividends in the future.
ITEM 6. SELECTED FINANCIAL DATA
On May 29, 1996, Medallion Financial acquired each of the Founding Companies.
Prior to this acquisition, each of the Founding Companies had been operating
independently of each other and Medallion Financial had no operations.
Accordingly, the following Selected Financial Data is comprised of two major
sections.
The first section, Consolidated Selected Financial Data, presents consolidated
audited financial data of the Company for the year ending December 31, 1997 and
the period commencing May 30, 1996 and ending December 31, 1996 and is derived
from the actual financial position and results of operation of the Company as
set forth in the audited Consolidated Financial Statements of the Company
included as Item 8 in this Annual Report on Form 10-K.
The second section of the following discussion presents the Historical
Selected Financial Data of each of the Founding Companies. The Historical
Selected Financial Data for the fiscal years ended December 31, 1995 and the
period ended May 29, 1996, have been derived from audited financial statements
included in this Annual Report on Form 10-K. The Historical Selected Financial
Data for Edwards and TCC have been reclassified to permit a presentation that is
consistent with the investment company status they acquired upon completion of
the Acquisitions. The Historical Selected Financial Data for the fiscal years
ended December 31, 1992 for Edwards and 1993 for each of the Founding Companies
have been derived from their respective audited financial statements not
included in this Annual Report on Form 10-K. The Historical Selected Financial
Data for the fiscal year ended December 31, 1992 for Tri-Magna and TCC have been
derived from their respective unaudited financial statements not included in
this Annual Report on Form 10-K. These unaudited financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all
20
<PAGE>
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations of the Founding
Companies for the period presented.
The Selected Financial Data provided herein should be read in conjunction with
the financial statements of Medallion Financial, Tri-Magna, Edwards and TCC,
including the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this Annual Report on
Form 10-K.
21
<PAGE>
MEDALLION FINANCIAL CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
FROM MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996 AND FOR
THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
May 30 To Year Ended
DECEMBER 31, DECEMBER 31,
1996 1997
--------------------- --------------------
STATEMENT OF OPERATIONS DATA (in thousands except per share amounts)
<S> <C> <C>
Investment income...................................................... $ 10,412 $ 23,446
Interest expense....................................................... 5,008 9,209
-------- --------
Net interest income.................................................... 5,404 14,237
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.................................................. - 336
Operating expenses..................................................... (2,231) 4,797
Amortization of goodwill............................................... (259) 368
-------- --------
Net investment income.................................................. 3,683 11,314
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 $1.03
======== ========
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...................................................... 130,619 176,858
Total stockholders' equity............................................. 56,487 131,392
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
--------------------- --------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA (UNAUDITED)
<S> <C> <C>
Return on assets(4)(5)................................................. 3.36% 4.81%
Return on equity(5)(6)................................................. 11.29 8.70
Average yield, e.o.p.(7)............................................... 10.80 10.58
Average cost of funds, e.o.p.(8)....................................... 7.11 7.24
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......................................................... 222.76 126.65
SBA debt to total debt................................................. 23.36 15.77
</TABLE>
22
<PAGE>
MEDIA (1)
<TABLE>
<CAPTION>
MAY 30 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---------------- ---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Advertising revenue............................... $1,095,346 $3,070,119
Cost of services.................................. 499,135 1,204,892
---------- ----------
Gross margin...................................... 596,211 1,865,227
Other operating expenses.......................... 659,211 1,499,803
---------- ----------
Income (losses) before taxes...................... (63,000) 365,424
Income taxes...................................... - 162,000
---------- ----------
Net income (loss)................................. $ (63,000) $ 203,424
========== ==========
</TABLE>
(1) Equity in earnings (losses) of unconsolidated subsidiary represents the net
income (loss) for the period indicated from the Company's investment in
Media.
(2) Change in unrealized depreciation of investments represents the (increase)
decrease for the period in the unrealized depreciation applied against the
Company's investments to state them at fair value.
(3) 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 year or period indicated, divided by total assets at
December 31, 1996 and 1997, respectively.
(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 year or period indicated, divided by total stockholders'
equity at December 31, 1996 and 1997, respectively.
(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 year or period
indicated, divided by investments at December 31, 1996 and 1997,
respectively.
(11) Operating expense ratio represents operating expenses, for the year or
period indicated, divided by total assets at December 31, 1996 and 1997,
respectively.
23
<PAGE>
SELECTED FINANCIAL DATA (3)
TRI-MAGNA
(MFC, BUT NOT MEDIA, IS CONSOLIDATED WITH TRI-MAGNA)
<TABLE>
<CAPTION>
January 1
YEAR ENDED DECEMBER 31, To
---------------------------------------------------------- May 29,
1992 1993 1994 1995 1996
------------- ------------- ------------- ------------- ---------------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Investment income................................. $ 7,953 $ 8,333 $ 8,820 $ 9,803 $ 4,423
Interest expense.................................. 3,509 3,661 4,756 6,034 2,517
------- ------- ------- ------- -------
Net interest income............................... 4,444 4,672 4,064 3,769 1,906
Equity in earnings (losses) of unconsolidated
subsidiary(1).................................... -- -- 18 126 (53)
Other income...................................... 632 541 519 446 148
Total non-interest expense........................ 2,754 3,097 2,700 2,615 1,816
Dividends paid on minority interest 277 277 277 208 --
------- ------- ------- ------- -------
Net investment income............................. 2,045 1,839 1,624 1,518 185
Realized gain (loss) on investments, net.......... (223) (115) (22) 61 --
Change in unrealized depreciation of
investments(2)................................... ------------ (53) 58 (140) --
125 ------- ------- ------- -------
-------
Net increase in net assets resulting from
operations....................................... ============ ======= ======= ======= $ 185
$ 1,947 $ 1,671 $ 1,660 $ 1,439 =======
======= ======= ======= =======
SELECTED FINANCIAL RATIOS AND OTHER DATA(3)
Return on average assets(4)(5).................... 2.81% 2.12% 1.88% 1.50% 1.86%
Return on average equity(5)(6).................... 17.67 15.29 15.29 12.97 16.93
Interest rate spread
Average yield(5)(7).............................. 12.11 10.99 10.20 10.61 11.00
Average cost of funds(5)(8)...................... 7.44 6.09 7.00 8.26 7.56
Spread(9)........................................ 4.67 4.90 3.20 2.35 3.44
Other income to average assets(5)................. 0.91 0.69 0.59 0.47 0.36
Non-interest expense to average assets(5)(10)...
3.97 3.92 3.05 2.73 2.98
Weighted average assets........................... $69,401 $78,921 $88,414 $96,189 $99,197
Weighted average investments(11).................. 65,673 75,790 86,496 92,433 96,479
Weighted average equity........................... 11,019 10,931 10,855 11,094 10,897
Weighted average debt............................. 47,160 60,160 67,955 73,063 79,912
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,(3)
--------------------------------------------------------- MAY 29,
1992 1993 1994 1995 1996(3)
------------ -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Medallion Loans as a percentage of investments.... 81.0% 81.0% 72.4% 68.4% 67.9%
Commercial Installment Loans as a percentage of
investments...................................... 19.0 19.0 27.6 31.6 32.1
Investments to assets............................. 93.8 96.4 96.7 96.3 97.0
Equity to assets.................................. 15.0 12.9 11.8 17.4 16.7
Debt to equity(12)................................ 259 315 356 464 482
SBA debt to total debt............................ 23.8 19.8 17.5 -- --
</TABLE>
24
<PAGE>
TRI-MAGNA
<TABLE>
<CAPTION>
December 31,
-------------- May 29,
1992 1993 1994 1995 1996
----------- -------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
Investments
Medallion Loans......................................... $56,460 $66,437 $65,424 $66,338 $64,934
Commercial Installment Loans............................ 13,325 15,577 24,918 30,619 31,598
Unrealized depreciation of investments.................... (775) (828) (770) (910) (910)
------- ------- ------- ------- -------
Investments, net of unrealized depreciation of
investments............................................. 69,010 81,186 89,572 96,047 95,622
Total assets.............................................. 73,603 84,239 92,590 99,788 98,605
Notes payable............................................. 40,000 50,700 59,025 80,295 79,395
Subordinated SBA debentures............................... 12,500 12,500 12,500 -- --
Total liabilities......................................... 53,341 64,171 72,480 82,474 82,116
Minority interest......................................... 9,234 9,234 9,234 -- --
Total stockholders' equity................................ 11,027 10,834 10,876 17,314 16,489
</TABLE>
MEDIA(1)
<TABLE>
<CAPTION>
NOVEMBER 22 TO YEAR ENDED DECEMBER JANUARY 1 TO
DECEMBER 31, 31, MAY 29,
1994 1995 1996
------------------------- -------------------- -----------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Advertising revenue $227,756 $1,542,013 $671,148
Cost of services 83,341 483,721 283,891
Gross margin 144,415 1,058,292 387,257
Other operating expenses 126,036 829,293 455,278
Income (losses) before taxes 18,379 228,999 (68,021)
Income taxes -- 103,043 (14,999)
Net income (loss) $ 18,379 $ 125,956 $(53,022)
</TABLE>
(1) Equity in earnings (losses) of unconsolidated subsidiary represents the net
income (loss) for the period earned by Tri-Magna from its investment in
Media.
(2) Change in unrealized depreciation of investments represents the (increase)
decrease for the period in the unrealized depreciation applied against Tri-
Magna's investments to state them at fair value.
(3) Unaudited.
(4) Return on average assets is calculated as the net increase in net assets
resulting from operations (excluding Merger Related Costs) divided by the
weighted average assets for the period.
(5) Selected financial ratios are annualized for the period from January 1,
1996 to May 29, 1996.
(6) Return on average equity is calculated as the net increase in net assets
resulting from operations (excluding Merger Related Costs) divided by the
weighted average equity for the period.
(7) Average yield is calculated as gross investment income for the period
divided by the weighted average investments for the period.
(8) Average cost of funds is calculated as interest expense for the period
divided by the weighted average debt for the period.
(9) Spread is calculated as the difference between average yield and average
cost of funds.
(10) Non-interest expense to average assets is calculated as the total non-
interest expense (excluding Merger Related Costs) divided by the weighted
average assets for the period.
(11) Investments consists of the Tri-Magna's loan portfolio and excludes cash
and cash equivalents and Tri-Magna's investment in Media.
(12) Debt to equity is defined as total debt divided by total stockholders
equity and minority interest.
25
<PAGE>
EDWARDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------- JANUARY 1 TO
MAY 29,
1992 1993 1994 1995 1996
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
STATEMENT OF OPERATIONS DATA
Investment income.............................................. $ 5,444 $ 4,955 $ 4,334 $ 4,317 $ 1,727
Interest expense............................................... 2,873 2,741 2,765 2,748 1,098
------- ------- ------- ------- -------
Net interest income............................................ 2,571 2,214 1,569 1,569 629
Other income................................................... 412 476 620 443 129
Total non-interest expense..................................... 1,512 1,022 1,108 885 660
Income tax expense............................................. 73 51 21 40 16
------- ------- ------- ------- -------
Net investment income.......................................... 1,398 1,617 1,060 1,087 82
Realized gain (loss) on investments, net....................... (13) -- -- -- --
------- ------- ------- ------- -------
Net increase in net assets resulting from
operations before extraordinary items........................ 1,385 1,617 1,060 1,087 82
Extraordinary items(1)......................................... -- -- (526) -- --
------- ------- ------- ------- -------
Net increase in net assets resulting
from operations.............................................. $ 1,385 $ 1,617 $ 534 $ 1,087 $ 82
======= ======= ======= ======= =======
SELECTED FINANCIAL RATIOS AND OTHER DATA(2)
Return on average assets(3)(4)................................. 3.19% 3.60% 2.35% 2.42% 2.28%
Return on average partners' capital(4)(5)...................... 16.47 17.51 11.69 12.29 11.38
Interest rate spread...........................................
Average yield(4)(6)....................................... 13.10 11.51 10.06 9.92 9.40
Average cost of funds(4)(7)............................... 8.14 7.97 7.97 7.96 7.54
Spread(8)................................................. 4.96 3.54 2.09 1.96 1.86
Other income to average assets(4).............................. 0.95 1.06 1.38 0.99 0.68
Non-interest expense to average assets(4)(9)................... 3.48 2.27 2.46 1.98 1.63
Weighted average assets........................................ $43,465 $44,953 $45,025 $44,829 $45,543
Weighted average investments(10)............................... 41,567 43,047 43,074 43,508 44,103
Weighted average partners' capital............................. 8,409 9,235 9,064 8,846 9,112
Weighted average debt.......................................... 35,275 34,385 34,690 34,535 34,947
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(2)
-------- MAY 29,
1992 1993 1994 1995 1996 (2)
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Medallion Loans as a percentage of investments................ 98.3% 98.3% 98.3% 98.6% 98.7%
Commercial Installment Loans as a percentage
of investments.............................................. 1.7 1.7 1.7 1.4 1.3
Investments to assets......................................... 96.7 97.0 97.5 97.1 96.7
Partners' capital to assets................................... 20.1 21.0 19.2 20.2 19.8
Debt to partners' capital(11)................................. 382 365 408 382 385
SBA debt to total debt........................................ 73.2 71.6 71.4 71.7 71.2
</TABLE>
26
<PAGE>
EDWARDS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JANUARY 1 TO
MAY 29,
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
Investments
Medallion Loans.................................. $42,301 $43,383 $42,740 $43,177 $43,921
Commercial Installment Loans..................... 719 758 747 622 589
Unrealized depreciation of investments................ (50) (43) (20) (20) (20)
------- ------- ------- ------- -------
Investments, net of unrealized depreciation
of investments...................................... 42,970 44,098 43,467 43,779 44,490
Total assets.......................................... 44,430 45,476 44,574 45,084 46,001
Notes payable and demand notes........................ 9,125 9,900 10,000 9,850 10,100
Subordinated SBA debentures........................... 24,950 24,950 24,950 24,950 24,950
Total liabilities..................................... 35,511 35,926 35,998 35,967 36,894
Total partners' capital............................... 8,919 9,551 8,576 9,117 9,107
</TABLE>
(1) Edwards incurred a prepayment premium of $526,000 in connection with
its refinancing of $4.6 million and $5.1 million of subordinated SBA
debentures on June 29, 1994 and September 28, 1994, respectively.
(2) Unaudited.
(3) Return on average assets is calculated as the net increase in net assets
resulting from operations before extraordinary items (excluding legal fees
related to sale of assets) divided by the weighted average
assets for the period.
(4) Selected financial ratios are annualized for the period from January 1,
1996 to May 29, 1996.
(5) Return on average partners' capital is calculated as the net increase in net
assets resulting from operations before extraordinary items (excluding
legal fees related to partners' capital for the period. sale of assets)
divided by the weighted average
(6) Average yield is calculated as gross investment income for the period
divided by the weighted average investments for the period.
(7) Average cost of funds is calculated as interest expense for the period
divided by the weighted average debt for the period.
(8) Spread is calculated as the difference between average yield and average
cost of funds.
(9) Non-interest expense to average assets is calculated as the total non-
interest expense (excluding legal fees related to sale of assets) divided by
the weighted average assets for the period.
(10) Investments consists of Edwards' loan portfolio and excludes cash and cash
equivalents.
(11) Debt to partners' capital is defined as total debt divided by total
partners' capital.
27
<PAGE>
TCC
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------- JANUARY 1 TO
MAY 29,
1992 1993 1994 1995 1996
----------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
(unaudited)
STATEMENT OF OPERATIONS DATA
Investment income.................................. $ 3,944 $ 3,110 $ 2,217 $ 1,836 $ 682
Interest expense................................... 1,538 1,064 709 450 148
------- ------- ------- ------- -------
Net interest income................................ 2,406 2,046 1,508 1,386 534
Total non-interest expense......................... 1,038 1,269 711 760 260
Income tax expense (benefit)(1).................... 74 (983) 653 381 128
------- ------- ------- ------- -------
Net investment income, adjusted for taxes(2)....... 1,294 1,760 144 245 146
Realized gain (loss) on investments................ (646) (69) (144) (50) 5
Change in unrealized depreciation of investments(3)
---------- ------- ------- ------- -------
-- 232 790 335 30
------- ------- ------- ------- -------
Net increase (decrease) in net assets resulting
from operations.................................. $ 648 $ 1,923 $ 790 $ 530 $ 181
======= ======= ======= ======= =======
SELECTED FINANCIAL RATIOS AND OTHER DATA(4)
Return on average assets(5)(6)..................... 2.46% 8.36% 3.90% 2.91% 2.56%
Return on average common equity(6)(7).............. 14.73 33.84 11.22 6.74 5.23
Interest rate spread...............................
Average yield(6)(8)........................... 15.90 15.77 13.86 13.58 12.95
Average cost of funds(6)(9)................... 8.56 8.10 7.60 6.14 5.58
Spread(10).................................... 7.34 7.67 6.26 7.44 7.37
Non-interest expense to average assets(6).......... 3.94 5.51 3.51 4.18 3.67
Weighted average assets............................ $26,338 $23,011 $20,260 $18,183 $16,983
Weighted average investments(11)................... 24,235 18,994 14,442 10,389 9,745
Weighted average common equity..................... 4,398 5,683 7,042 7,859 8,312
Weighted average debt.............................. 17,967 13,133 9,330 7,330 6,368
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,(4) MAY 29,
-----------------------------
1992 1993 1994 1995 1996(4)
----- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Medallion Loans as a percentage of investments..... 81.6% 85.4% 80.1% 81.5% 76.0%
Commercial Installment Loans as a percentage
of investments................................... 18.4 14.6 19.9 18.5 24.0
Loans to assets.................................... 74.4 75.6 52.8 52.6 56.3
Equity to assets................................... 33.2 46.5 57.1 60.2 63.7
Debt to equity(12)................................. 192 107 73 64 53
SBA debt to total debt............................. 73.4 100.0 100.0 100.0 100.0
</TABLE>
28
<PAGE>
TCC
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- MAY 29,
1992 1993 1994 1995 1996
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(unaudited)
(dollars in thousands)
BALANCE SHEET DATA
Investments............................................
Medallion Loans................................... $16,471 $15,433 $ 8,796 $ 7,988 $ 7,543
Commercial Installment Loans...................... 3,721 2,641 2,185 1,808 2,381
Unrealized depreciation of investments................. (2,000) (1,768) (978) (642) (612)
------- ------- ------- ------- -------
Investments, net of unrealized depreciation of
investments.......................................... 18,192 16,306 10,003 9,154 9,312
Cash and cash equivalents.............................. 5,790 3,911 8,199 7,781 6,797
Total assets........................................... 24,453 21,569 18,951 17,416 16,551
Notes payable and demand notes......................... 4,132 -- -- -- --
SBA debentures......................................... 11,405 10,730 7,930 6,730 5,640
Total liabilities...................................... 16,348 11,541 8,129 6,937 6,008
Total stockholders' equity............................. 8,105 10,028 10,822 10,479 10,543
</TABLE>
(1) Income tax expense (benefit) includes income tax provision (benefit) on
investment income, realized losses on investments and change in unrealized
depreciation of investments. See note (2).
(2) Net investment income has been adjusted by combining TCC's income tax
provision (benefit) in order to present TCC's financial statements on a
comparable basis to the other Founding Companies.
(3) Change in unrealized depreciation of investments represents the (increase)
decrease for the period in the unrealized depreciation applied against
TCC's investments to state them at fair value.
(4) Unaudited.
(5) Return on average assets is calculated as the net increase (decrease) in net
assets resulting from operations divided by the weighted average assets for
the period.
(6) Selected financial ratios are annualized for the period from January 1,
1996 to May 29, 1996.
(7) Return on average common equity is calculated as the net increase in net
assets resulting from operations divided by the weighted average equity for
the period.
(8) Average yield is calculated as gross investment income excluding interest
income on cash and cash equivalents for the period divided by the weighted
average investments for the period.
(9) Average cost of funds is calculated as interest expense for the period
divided by the weighted average debt for the period.
(10) Spread is calculated as the difference between average yield and average
cost of funds.
(11) Investments consists of TCC's loan portfolio and excludes cash and cash
equivalents.
(12) Debt to equity is defined as total debt divided by total stockholders'
equity and minority interests.
29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing in this Annual
Report on Form 10-K. In addition, this Management's Discussion and Analysis
contains forward-looking statements. These forward-looking statements are
subject to the inherent uncertainties in predicting future results and
conditions. Certain factors that could cause actual results and conditions to
differ materially from those projected in these forward-looking statements are
set forth below in the Investment Considerations section.
GENERAL
The Company's principal activity is the origination and servicing of Medallion
Loans and Commercial Installment Loans. The earnings of the Company depend
primarily on its level of net interest income, which is the difference between
interest earned on interest-earning assets consisting primarily of Medallion
Loans and Commercial Installment Loans, and the interest paid on interest-
bearing liabilities consisting primarily of credit facilities with bank
syndicates and subordinated debentures issued to or guaranteed by the SBA. Net
interest income is a function of the net interest rate spread, which is the
difference between the average yield earned on interest-earning assets and the
average interest rate paid on interest-bearing liabilities, as well as the
average balance of interest-earning assets as compared to interest-bearing
liabilities. Net interest income is affected by economic, regulatory and
competitive factors that influence interest rates, loan demand and the
availability of funding to finance the Company's lending activities. The
Company, like other financial institutions, is subject to interest rate risk to
the degree that its interest-earning assets reprice on a different basis than
its interest-bearing liabilities.
Trend in Loan Portfolio Yield. The Company's investment income is driven by
the principal amount of and yields on Medallion Loans and Commercial Installment
Loans. The following table illustrates the Company's weighted average portfolio
yield at the dates indicated:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
Weighted Percentage Weighted Percentage
Average Principal of Total Average Principal Of Total
Yield Amounts Portfolio Yield Amounts Portfolio
--------- ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Medallion Loan Portfolio 9.92% $134,614,899 76.3% 9.28% $225,961,249 78.3%
Commercial Installment Loan Portfolio 13.51 41,878,989 23.7 12.60 62,763,197 21.7
------------ ----- ------------ -----
Total Portfolio 10.80 $176,493,888 100.0% 10.02 $288,724,446 100.0%
============ ===== ============ =====
</TABLE>
The weighted average yield e.o.p. of the Medallion Loan portfolio decreased 64
basis points from 9.92% at December 31, 1996 to 9.28% at December 31, 1997.
Medallion Loans constituted 76.3% of the total portfolio of $176.5 million at
December 31, 1996 and 78.3% of the total portfolio of $288.7 million at December
31, 1997./1/ The weighted average yield e.o.p. of the entire portfolio
decreased 78 basis points from 10.80% at December 31, 1996 to 10.02% at December
31, 1997. The decrease in the average yield on Medallion Loans was caused by a
reduction in loan yields due to lower long-term interest rates and competition.
To offset the resulting decline in investment income, the Company increased its
Medallion Loan portfolio by continuing to buyback loan participations previously
sold to third parties of approximately $22.5 million and expanding lending. The
Company also increased the origination of loans with shorter interest rate
maturity dates, thereby reducing the Company's interest rate risk exposure.
From inception of its business in 1979 through 1996, the period between the
origination and final payment of all Medallion Loans originated by MFC has been
estimated by the Company to be 29 months. The Company believes that this time
period varies to some extent as a function of changes in interest rates because
borrowers are more likely to exercise prepayment rights in a decreasing interest
rate
- ---------------
/1/ e.o.p. or "end of period," indicates that a calculation is made at the date
indicated rather than for the period then ended.
30
<PAGE>
environment when the interest rate payable on the borrower's loan is high
relative to prevailing interest rates and are less likely to prepay in a rising
interest rate environment.
The Company had been shifting the portfolio mix toward a higher percentage of
Commercial Installment Loans, which historically have had a yield of
approximately 350 basis points higher than the Company's Medallion Loans and 500
to 700 basis points higher than the Prime Rate; however, the Medallion Loan
portfolio grew faster than anticipated. The weighted average yield e.o.p. of
the Commercial Installment Loan portfolio decreased 89 basis points from 13.51%
at December 31, 1996 to 12.60% at December 31, 1997. In addition, the percentage
of the entire portfolio composed of Commercial Installment Loans decreased from
23.7%, or $41.9 million, at December 31, 1996 to 21.7%, or $62.7 million, at
December 31, 1997. The large decline in the commercial portfolio yield is the
result of the acquisition of the Business Lenders portfolio of approximately
$9.9 million of floating rate loans tied to prime at an average yield of 11.05%.
This purchase shifts the average yield on commercial loans lower; however,
interest rate exposure is mitigated by the floating rate nature of these loans.
The Company intends to continue to increase the percentage of Commercial
Installment Loans in the total portfolio and increase the origination of
floating rate loans.
Trend in Interest Expense. The Company's interest expense is driven by the
interest rate payable on the Company's LIBOR-based short-term credit facilities
with bank syndicates and, to a lesser degree, fixed-rate, long-term subordinated
debentures issued to or guaranteed by the SBA. In recent years, the Company has
reduced its reliance on SBA financing and increased the relative proportion of
bank debt to total liabilities. SBA financing can offer very attractive rates,
but such financing is restricted in its application and its availability is
uncertain. In addition, SBA financing subjects its recipients to limits on the
amount of secured bank debt they may incur. Accordingly, the Company plans to
continue to limit its use of SBA funding and will seek such funding only when
advantageous, such as when SBA financing rates are particularly attractive, and
to fund loans that qualify under the SBIA and the SBA regulations promulgated
thereunder ("SBA Regulations") through subsidiaries already subject to SBA
restrictions. The Company believes that its transition to financing its
operations primarily with short-term LIBOR-based bank debt has generally
decreased its interest expense thus far, but has also increased the Company's
exposure to the risk of increases in market interest rates which the Company
attempts to mitigate with certain matching strategies. The Company also expects
that net interest income should increase because bank debt is more available
than SBA financing and will thus permit an increase in the size of the loan
portfolio. At December 31, 1996 and December 31, 1997, short- term LIBOR-based
debt constituted 75.1% and 83.2% of total debt, respectively.
The Company's cost of funds is primarily driven by (i) the average maturity of
debt issued by the Company, (ii) the premium to LIBOR paid by the Company on its
LIBOR-based debt, and (iii) the ratio of LIBOR-based debt to SBA financing. The
Company incurs LIBOR-based debt for terms generally ranging from 30-180 days.
The Company's subordinated debentures issued to or guaranteed by the SBA
typically have terms of ten years. The Company's cost of funds reflects
fluctuations in LIBOR to a greater degree than in the past because LIBOR-based
debt has come to represent a greater proportion of the Company's debt. The
percentage of the Company's total indebtedness composed of LIBOR-based
indebtedness has increased from 75.1% at December 31, 1996 to 83.2% at December
31, 1997.
The Company measures its cost of funds as its aggregate interest expense for all
MAY 29,of its interest-bearing liabilities divided by the face amount of such
liabilities. The Company analyzes its cost of funds in relation to the average
of the 90- and 180-day LIBOR (the "LIBOR Benchmark"). The Company's average
cost of funds e.o.p. increased from 7.11% or 153 basis points over the LIBOR
Benchmark of 5.58% at December 31, 1996 to 7.16%, or 133 basis points over the
LIBOR Benchmark of 5.83% at December 31, 1997.
Taxicab Rooftop Advertising. In connection with its Medallion Loan finance
business, the Company also conducts a taxicab rooftop advertising business
through Media, which began operations in November 1994. Media's revenue is
affected by the number of Displays that it owns and the occupancy rate and
advertising rate of those Displays. At December 31, 1997, Media had
approximately 3,500 installed Displays, 450 of which were acquired in connection
with the acquisition of the assets of See Level Advertising, Inc. and See Level
Management,
31
<PAGE>
Inc. on July 25, 1996. In addition, on March 6, 1997, Media entered into an
agreement with the MTBOT to provide advertising on over 1,600 New York City
taxicabs affiliated with the MTBOT commencing on September 22, 1997. The effect
of that agreement increased the number of taxicabs Media has under contract for
rooftop advertising in New York City from approximately 1,700 to approximately
3,300. With this agreement, Media is the leading taxicab rooftop advertiser in
the city. Media also has 200 Displays in the Boston area. The Company expects
that Media will continue to expand its operations. Although Media is a wholly
owned subsidiary of the Company, its results of operations are not consolidated
with the Company because Securities and Exchange Commission regulations prohibit
the consolidation of non-investment companies, such as Media, with investment
companies, such as the Company.
Factors Affecting Net Assets. Factors that affect the Company's net assets
include net realized gain/loss on investments and change in net unrealized
depreciation of investments. Net realized gain/loss on investments is the
difference between the proceeds derived upon foreclosure of a loan and the cost
basis of such loan. Change in net unrealized depreciation of investments is the
amount, if any, by which the Company's estimate of the fair value of its loan
portfolio is below the cost basis of the loan portfolio. Under the 1940 Act and
the Small Business Investment Act of 1954, as amended (the "SBIA"), the
Company's loan portfolio must be recorded at fair market value or "marked to
market." Unlike certain lending institutions, the Company is not permitted to
establish reserves for loan losses, but adjusts quarterly the valuation of its
loan portfolio to reflect the Company's estimate of the current realizable value
of the loan portfolio. Since no ready market exists for the Company's loans,
fair market value is subject to the good faith determination of the Company. In
determining such value, the Company takes into consideration factors such as the
financial condition of its borrowers and the adequacy of its collateral. Any
change in the fair value of portfolio loans as determined by the Company is
reflected in net unrealized depreciation of investments and affects net increase
in net assets resulting from operations but has no impact on net investment
income or distributable income. Upon the completion of the Acquisitions on May
29, 1996, the Company's loan portfolio was recorded on the balance sheet at fair
value, which included $1.5 million of net unrealized depreciation, as estimated
by the Company in accordance with the 1940 Act and the purchase method of
accounting. For the year ended December 31, 1997, there was a $25,000 increase
in net unrealized depreciation of investments. In connection with the Business
Lenders portfolio acquisition, the Company recorded the investments on the
balance sheet at fair value, which included $400,000 of net unrealized
depreciation.
Recent Commencement of Operations. The Company commenced operations in
connection with the simultaneous closing of its initial public offering and the
Acquisitions on May 29, 1996. Prior to that date, the Company had no results of
operations and each of Medallion Financial, Tri-Magna, Edwards and TCC had been
operating independently of each other. The following discussion under the
caption "Consolidated Results of Operations" sets forth an analysis of the
Company's actual results of operations and assets and liabilities for the year
ending December 31, 1997 and the period commencing May 30, 1996 and ending
December 31, 1996. The historical financial condition and results of operations
of each of Tri-Magna, Edwards and TCC for the period commencing January 1, 1996
and ending May 29, 1996 and the years ended December 31, 1995 are then
discussed. All period percentages involving income statement accounts have been
annualized for discussion purposes.
CONSOLIDATED RESULTS OF OPERATIONS
For the Year Ending December 31, 1997.
Performance Summary. For the year ended December 31, 1997, investment income
has been positively impacted by the strong growth of the entire loan portfolio.
Interest expense for the period reflected an increase in the LIBOR benchmark
e.o.p. of 25 basis points, slightly offset by a decrease in the spread over
LIBOR charged by the banks in the Company's revolving credit facilities. Strong
portfolio growth offset by the decline in spread between the average yield on
the entire portfolio and the average of costs of funds contributed to the $11.3
million of net investment income earned during the year ended December 31, 1997.
Investment Income. Investment income for the year ended December 31, 1997 was
$23.4 million. The Company's investment income reflects the positive impact of
portfolio growth during the period. Total portfolio
32
<PAGE>
growth was $112.2 million or an increase of 63.6% from $176.5 million at
December 31, 1996 to $288.7 million at December 31, 1997. The average portfolio
outstanding during the year ended December 31, 1997 was $221.6 million, which
produced investment income of $23.4 million at a weighted average interest rate
of 10.58%. Gross loan originations net of participations during the year ended
December 31, 1997 were $213.0 million offset by prepayments, terminations and
refinancings by the Company aggregating $119.0 million. In addition, during the
year ended December 31, 1997, the Company repurchased approximately $22.5
million in Medallion Loans previously participated out to other lenders. Average
yield e.o.p. of the entire portfolio decreased 78 basis points from 10.80% at
December 31, 1996 to 10.02% at December 31, 1997. The decrease in the yield of
the entire loan portfolio was caused by a decrease in the average yield on
Medallion Loans coupled with a decrease in the average yield on Commercial
Installment Loans and a decrease in the percentage of the portfolio composed of
higher yielding Commercial Installment Loans which historically have been
originated at a yield of approximately 350 basis points higher than Medallion
Loans and 500 to 700 basis points higher than the prevailing Prime Rate. The
average yield e.o.p. of the Medallion Loan portfolio decreased 64 basis points
from 9.92% at December 31, 1996 to 9.28% at December 31, 1997 and the average
yield of the Commercial Installment Loan portfolio decreased 89 basis points
from 13.51% at December 31, 1996 to 12.62% at December 31, 1997. The decrease in
the average yield on Medallion Loans was caused by a reduction in loan yields
due to lower long-term interest rates and competition. To offset the resulting
decline in investment income, the Company increased its Medallion Loan portfolio
by continuing to buyback loan participations previously sold to third parties
and expanding lending. The Company also increased the origination of loans with
shorter interest rate maturity dates, thereby reducing the Company's interest
rate risk exposure. The percentage of the portfolio composed of higher yielding
Commercial Installment Loans decreased from 23.7% at December 31, 1996 to 22.3%
at December 31, 1997. Although the Company continues to follow a strategy of
trying to shift its portfolio mix towards higher yielding Commercial Installment
Loans, this shift was reversed by higher than expected growth in the Medallion
Loan portfolio during the year. The large decline in the commercial portfolio
yield is the result of the acquisition of the Business Lenders portfolio of
approximately $9.9 million of floating rate loans tied to prime at an average
yield of 11.05%. This purchase shifts the average yield on commercial yields
lower, however, interest rate exposure is mitigated by the floating rate nature
of these loans. The additional growth in the Medallion Loan portfolio was due in
part to the Company's use of a portion of the proceeds from its 1997 equity
offering to repurchase approximately $22.5 million in Medallion Loans which the
Company had previously participated out to other lenders.
Interest Expense. The Company's interest expense was $9.2 million for the
year ended December 31, 1997. The Company's average cost of funds e.o.p.
increased from 7.11% or 153 basis points over the LIBOR benchmark of 5.58% at
December 31, 1996 to 7.16% or 131 basis points over the LIBOR benchmark of 5.83%
at December 31, 1997. The increase in the average cost of funds e.o.p. was
caused by a 25 basis point increase in the LIBOR benchmark offset by a reduction
in the premium to LIBOR paid by the Company. The Company's net borrowings at
the end of the year, increased by $39.8 million or 31.6% from $125.8 million at
December 31, 1996 to $165.6 million at December 31, 1997. The increased
borrowings were used to fund portfolio growth and the acquisition of BLLC. The
percentage of the Company's short-term LIBOR based indebtedness increased as a
percentage of total indebtedness from 75.1% at December 31, 1996 to 83.2% at
December 31, 1997. Average borrowings during the year ended December 31, 1997
were $127.2 million, which produced an interest expense of $9.2 million at a
weighted average interest rate of 7.24%. The weighted average interest rate of
7.24% includes commitment fees and amortization of premiums on existing interest
rate cap agreements as a reflection of total cost of funds borrowed. The
Company anticipates a reduction in cost of funds during 1998 for the following
reasons: the use of commercial paper that MFC began selling on March 16, 1998,
a reduction in the spread over LIBOR that banks charge MFC for borrowings that
became effective on December 24, 1997 and the repayment of a $3 million
debenture payable to the SBA on June 1, 1998 at an interest rate of 9.80%.
Net Interest Income. Net interest income was $14.2 million for the year ended
December 31, 1997. Net interest income reflects the positive impact of the
portfolio growth coupled with a slight increase in the average cost of funds
offset by a decrease in the spread between average yield and average cost of
funds. The average spread between the average yield on the portfolio and the
average cost of funds during the year ending December 31, 1997 was 3.34%.
33
<PAGE>
Equity in Earnings of Unconsolidated Subsidiary. For the year ended December
31, 1997, Media generated advertising revenue of $3,070,000 and incurred Display
rental costs of approximately $1,205,000, resulting in a gross margin of
approximately $1,865,000 or 60.7% of advertising revenue. The number of
Displays owned by Media were approximately 3,500 at December 31, 1997. For the
year ended December 31, 1997, operating expenses were $1,500,000 and Media
generated net income of $203,000 which is recorded as equity in earnings or
losses of unconsolidated subsidiary on the Company's statement of operations.
Display occupancy increased from 64.0% at December 31, 1996 to 100.0% at
December 31, 1997. The average for the year was 84.6%.
Other Income. The Company derived $980,000 in other income, or 0.44% of
average investments for the year ended December 31, 1997. Other income was
primarily derived from late charges, prepayment fees and miscellaneous income.
Prepayment fees are heavily influenced by the level and volatility of interest
rates and competition.
Gain on Sale of Loans. The Company derived gains on the sale of loans of
$336,000, or 0.15% of average investments for the year ended December 31, 1997.
The gains were the result of the sale of approximately $5,415,000 of the
guaranteed portions of the SBA Section 7a loans originated by BLLC since its
acquisition on October 31, 1997. BLLC retains the servicing rights to these
loans and receives a service fee of approximately 1.5% on the outstanding
balance of each loan. This additional income is reflected as an enhancement to
the average yield. At December 31, 1997, BLLC serviced approximately $52.5
million for third parties.
Non-Interest Expenses. The Company had non-interest expenses of $5.2 million
for the year ended December 31, 1997. Approximately $1,797,000, or 34.8% of
non-interest expenses, were related to salaries and benefits, $761,000, or
14.7%, consisted of professional fees and $226,000, or 4.4% consisted of
investment advisory fees. The operating expense ratio was 2.02% for the year
ended December 31, 1997. The Company believes that operating expenses as a
percentage of average assets will decline as the loan portfolio increases due to
economies of scale.
Amortization of Goodwill and Accretion of Negative Goodwill. The amortization
of goodwill of $368,000 for the year ended December 31, 1997 relates to $6.5
million of goodwill generated in the acquisitions of Edwards and TCC. Goodwill
is the amount by which the cost of acquired businesses exceeds the fair value of
the net assets acquired. Goodwill is being amortized on a straight-line basis
over 15 years. Negative goodwill is the excess of fair market value of net
assets of an acquired business over the cost basis of such business. Negative
goodwill of $2.9 million was generated in the acquisition of Tri-Magna and is
being amortized on a straight-line basis over four years.
Net Realized Gain/Loss on Investments. The Company realized a net gain on
investments of $144,000 during the year ended December 31, 1997. The gain was
the result of the sale of warrants on a radio station for a gain of $257,000,
recoveries in the amount of $12,000 on certain loans secured by radio dispatch
and broadcast equipment and other assets used in connection with livery taxicab
services previously written off, offset by write-offs of $125,000 related to
foreclosures on various equipment secured loans.
Net Investment Income. Net investment income earned during the year ended
December 31, 1997 was $11.3 million reflecting the positive impact of portfolio
growth offset by an increase in the average cost of funds resulting in a
decrease in the spread between average yield and average cost of funds.
Net Increase in Net Assets Resulting from Operations. Net increase in net
assets resulting from operations was $11.4 million for the year ended December
31, 1997 and reflects portfolio growth offset by a decrease in the spread
between average yield and average cost of funds. Return on assets and return on
equity for the year ended December 31, 1997, on an annualized basis, were 4.81%
and 8.70%, respectively.
34
<PAGE>
For the Period Commencing May 30, 1996 and Ending December 31, 1996.
Performance Summary. Since the Company's initial offering closed on May 29,
1996, investment income was positively impacted by the strong growth of the
entire loan portfolio which was primarily driven by an increase in the
percentage of the portfolio composed of higher yielding Commercial Installment
Loans. Interest expense for the period reflected an increase in the LIBOR
benchmark e.o.p. of eleven basis points and growth in net borrowings offset by a
nine basis point decrease in the spread over LIBOR charged by the Company's
banks. The positive trend in the spread between the average yield on the entire
portfolio and the average of costs of funds contributed to the $3.7 million of
net investment income earned during the period.
Investment Income. Investment income for the period was $10.4 million. The
Company's investment income reflects the positive impact of portfolio growth
during the period. Total portfolio growth was $27.1 million or 18.1% from
$149.4 million at May 30, 1996 to $176.5 million at December 31, 1996.
Investment income also reflects the positive impact of increases in the average
yield of the entire portfolio. Average yield e.o.p. of the entire portfolio
increased 17 basis points from 10.63% at May 30, 1996 to 10.80% at December 31,
1996. The increase was caused by (i) a slight increase in the average yield on
Commercial Installment Loans and a shift in the portfolio mix toward a higher
percentage of Commercial Installment Loans which historically have been
originated at a yield of approximately 350 basis points higher than Medallion
Loans and 500 to 700 basis points higher than the prevailing Prime Rate, and
(ii) a slight increase in the average yield on Medallion Loans caused by
stabilization, after a sustained period of declines, in market rates for
Medallion Loans. The average yield e.o.p. of the Medallion Loan portfolio
increased eight basis points from 9.84% at May 30, 1996 to 9.92% at December 31,
1996 and the average yield of the Commercial Installment Loan portfolio
increased nine basis points from 13.42% at May 30, 1996 to 13.51% at December
31, 1996. The percentage of the portfolio composed of Commercial Installment
Loans increased from 22.1% at May 30, 1996 to 23.7% at December 31, 1996.
Interest Expense. The Company's interest expense was $5.0 million for the
period. The Company's average cost of funds e.o.p. increased from 7.09% or 162
basis points over the LIBOR Benchmark of 5.47% at May 30, 1996 to 7.11% or 153
basis points over the LIBOR Benchmark of 5.58% at December 31, 1996. The
increase in the average cost of funds e.o.p. was caused by an 11 basis point
increase in the LIBOR Benchmark, which was offset by a nine basis point decrease
in the spread over the LIBOR Benchmark charged by the Company's banks. The
Company's net borrowings increased $4.8 million or 4.0% from $121.0 million at
May 30, 1996 to $125.8 million at December 31, 1996. Interest expense also rose
due to increased commitment fees paid to banks to establish larger credit
facilities. The increased borrowings were incurred to fund portfolio growth and
all related to LIBOR-based indebtedness which increased as a percentage of the
Company's total indebtedness from 70.4% at May 30, 1996 to 75.1% at December 31,
1996.
Net Interest Income. Net interest income was $5.4 million for the period. Net
interest income reflects the positive impact of a 15 basis point increase in
spread e.o.p. which increased from 3.54% at May 30, 1996 to 3.69% at December
31, 1996. The increase reflects a 17 basis point increase from May 30, 1996 to
December 31, 1996 in the average yield e.o.p. of the entire portfolio offset by
a two basis point increase in the average cost of funds e.o.p. from May 30, 1996
to December 31, 1996.
Equity in Earnings of Unconsolidated Subsidiary. For the period, Media
generated advertising revenue of $1.1 million and incurred Display rental costs
of approximately $500,000, resulting in a gross margin of approximately $600,000
or 54.4% of advertising revenue. The number of Displays owned by Media increased
from 1,670 at May 30, 1996 to approximately 2,000 at December 31, 1996 as a
result of an acquisition in July 1996. For the period, operating expenses were
$659,000 and Media generated a net loss of $63,000 that is recorded as equity in
earnings or losses of unconsolidated subsidiary on the Company's statement of
operations. The loss primarily resulted from reduced Display occupancy rates and
the Company's decision to maintain goodwill with the taxicab owners from whom it
leases taxicab rooftop space by making lease payments to such owners for
unoccupied Displays that are not otherwise required. Display occupancy declined
from 73% at May 30, 1996 to 64% at December 31, 1996. The loss also resulted
from the write-off of accounts receivable in the amount of $64,000 due under an
advertising contract with a client, which filed for bankruptcy protection and
costs associated with expansion into new markets.
35
<PAGE>
Other Income. The Company derived $411,000 in other income, or 0.23% of
investments for the period. Other income was primarily derived from late
charges, prepayment fees and miscellaneous income. Prepayment fees are heavily
influenced by the level and volatility of interest rates and competition.
Non-Interest Expenses. The Company had non-interest expenses of $2.2 million
for the period. Approximately $780,000, or 35.4% of non-interest expenses, was
related to salaries and benefits, $410,000, or 18.6%, consisted of professional
fees, $162,000, or 7.4% consisted of investment advisory fees. The operating
expense ratio was 2.02% from May 30, 1996 to December 31, 1996, on an annualized
basis, reflecting consolidation of the Company's operations, efficiencies of
scale and elimination of redundant services, facilities and functions. The
Company believes that operating expenses as a percentage of average assets will
decline as the loan portfolio increases due to economies of scale.
Amortization of Goodwill and Accretion of Negative Goodwill. The amortization
of goodwill of $259,000 for the period relates to $6.5 million of goodwill
generated in the acquisitions of Edwards and TCC. Goodwill is the amount by
which the cost of acquired businesses exceeds the fair value of the net assets
acquired. Goodwill is being amortized on a straight-line basis over 15 years.
Negative goodwill is the excess of fair market value of net assets of an
acquired business over the cost basis of such business. Negative goodwill of
$2.9 million was generated in the acquisition of Tri-Magna and is being
amortized on a straight-line basis over four years.
Net Realized Gain/Loss on Investments The Company realized a net gain on
investments of $84,000 during the period. The gain was the result of the sale
of securities underlying a warrant for a gain of $157,000 and recoveries in the
amount of $32,000 on certain radio loans previously written off, offset by the
write off of certain equipment loans in the amount of $105,000.
Net Investment Income. Net investment income earned during the period was
$3.7 million reflecting the positive impact of portfolio growth and slightly
improved portfolio yield.
Net Increase in Net Assets Resulting from Operations. Net increase in net
assets resulting from operations was $3.7 million for the period and reflects
portfolio growth and favorable spread e.o.p. Return on assets and return on
equity from May 30, 1996 to December 31, 1996, on an annualized basis, were
3.36% and 11.29%, respectively, for the period ending December 31, 1996.
TRI-MAGNA RESULTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MAY 29, 1996
Net Interest Income. Net interest income increased during the period due to
the higher average yield of the entire portfolio. The increased yield was
primarily driven by increases in the yields of the Medallion Loan and Commercial
Installment Loan portfolios during the period and an increase in the proportion
of the portfolio composed of Commercial Installment Loans. Interest expense
remained even during the period.
Equity in Earnings (Losses) of Unconsolidated Subsidiary. During the period,
Media generated a net loss of $53,000 that is recorded as equity in earnings or
losses of unconsolidated subsidiary on Tri-Magna's statement of operations. The
loss was in part due to an increase in expenses associated with the opening of a
maintenance facility and Media's expansion into other markets.
Other Income. Other income decreased during the period primarily due to
decreased income from the receipt of prepayment fees and late charges.
Non-interest Expense. Tri-Magna's non-interest expense increased during the
period primarily as a result of direct costs incurred in connection with the
merger of Tri-Magna and Medallion Financial.
36
<PAGE>
Net Realized Gain/Loss on Investments and Change in Net Unrealized
Depreciation of Investments. During the period, Tri-Magna did not incur any
realized gains or losses on investments and there was no change in net
unrealized deprecation of investments.
EDWARDS HISTORICAL RESULTS OF OPERATIONS
For the Period from January 1, 1996 to May 29, 1996
Net Interest Income. Net interest income increased slightly over the period
because of portfolio growth of $711,000 or 2.0%. This increase in interest
income was partially offset by an increase in Edwards' interest expense caused
by an increase in bank debt of $250,000 or 2.5%.
Other Income. Other income decreased during the period primarily due to a
reduction in the receipt of prepayment fees and late charges.
Non-interest Expense. Edwards' non-interest expense increased during the
period as a result of an increase in professional fees related to the sale of
Edward's assets to Medallion Financial.
Net Realized Gain/Loss on Investments. During the period, Edwards did not
incur any realized gains or losses on investments because Edwards' portfolio
consists almost entirely of Medallion Loans.
TCC HISTORICAL RESULTS OF OPERATIONS
For the Period from January 1, 1996 to May 29, 1996
Net Interest Income. Net interest income increased during the period
primarily because of portfolio growth of $128,000 or 1.3%. Interest expense
decreased marginally during the period as a result of a decrease in the
principal amount of debentures payable to the SBA in the amount of $1,090,000.
The SBA debentures repaid by TCC had higher interest rates than the debentures
remaining outstanding.
Non-interest Expense. TCC's non-interest expense decreased slightly during
the period because of a reduction in operating overhead instituted in
anticipation of the acquisition by the Company.
Net Realized Gain/Loss on Investments and Change in Net Unrealized
Depreciation of Investments. TCC realized a gain on investments of $5,000. Net
unrealized depreciation of investments decreased $30,000. These gains were a
result of an overall improvement in investment collateral value.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity. The Company, like other financial institutions, is
subject to interest rate risk to the extent its interest-earning assets
(consisting of Medallion Loans and Commercial Installment Loans) reprice on a
different basis over time in comparison to its interest-bearing liabilities
(consisting primarily of credit facilities with bank syndicates and subordinated
SBA debentures).
A relative measure of interest rate risk can be derived from the Company's
interest rate sensitivity gap. The interest rate sensitivity gap represents the
difference between interest-earning assets and interest-bearing liabilities that
mature and/or reprice within specified intervals of time. The gap is considered
to be positive when repriceable assets exceed repriceable liabilities and
negative when the inverse situation exists. A relative measure of interest rate
sensitivity is provided by the cumulative difference between interest sensitive
assets and interest sensitive liabilities for a given time interval expressed as
a percentage of total assets.
37
<PAGE>
SCHEDULE OF PRINCIPAL PAYMENTS AS OF DECEMBER 31, 1997
The following schedule of principal payments sets forth at December 31, 1997
the amount of interest-earning assets and interest-bearing liabilities maturing
or repricing within the time periods indicated. The principal amount of
Medallion Loans and Commercial Installment Loans are assigned to the time frames
in which such principal amounts are contractually obligated to be paid. The
Company has not reflected an assumed annual prepayment rate for Medallion Loans
or Commercial Installment Loans in this table.
The Company's interest rate sensitive assets were $291.9 million and interest
rate sensitive liabilities were $165.6 million at December 31, 1997. The one
year cumulative interest rate gap was negative $64.7 million, or 22.2% of
interest rate sensitive assets.
SCHEDULE OF PRINCIPAL PAYMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
MORE THAN 1 MORE THAN 2 MORE THAN 3 MORE THAN 5
LESS THAN AND LESS THAN AND LESS THAN AND LESS THAN AND LESS THAN
1 YEAR 2 YEARS 3 YEARS 5 YEARS 6 YEARS THEREAFTER TOTAL
---------- -------------- ------------- ------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Earning Assets
Medallion Loans
and Commercial
Fixed rate
Installment Loans $ 47,052 $ 41,594 $56,605 $101,590 $ 5,234 $ 10,827 $262,902
Variable rate
Installment Loans 26,498 - - - - - 26,498
Cash and cash
equivalents 2,530 -- -- -- -- -- 2,530
-------- ------------- ------------- -------- ------------- -------- --------
Total 76,080 41,594 56,605 101,590 5,234 10,827 291,930
-------- ------------- ------------- -------- ------------- -------- --------
Liabilities
Revolving line of
credit 137,750 -- -- -- -- -- 137,750
Subordinated SBA
debentures 3,000 -- -- 15,190 -- 9,700 27,890
-------- ------------- ------------- -------- ------------- -------- --------
Total 140,750 -- -- 15,190 -- 9,700 $165,640
-------- ------------- ------------- -------- ------------- -------- --------
Interest rate gap $(64,670) $ 41,594 $56,605 $ 86,400 $ 5,234 $ 1,127 $126,290
======== ============= ============= ======== ============= ======== ========
Cumulative interest
rate gap $(64,670) $(23,076) $33,529 $119,929 $125,163 $126,290
</TABLE>
Having interest-bearing liabilities that mature or reprice more frequently on
average than assets may be beneficial in times of declining interest rates,
although such an asset/liability structure may result in declining net earnings
during periods of rising interest rates. Conversely, having interest-earning
assets that mature or reprice more frequently on average than liabilities may be
beneficial in times of rising interest rates, although this asset/liability
structure may result in declining net earnings during periods of falling
interest rates. The mismatch between maturities and interest rate sensitivities
of the Company's interest-earning assets and interest-bearing liabilities
results in interest rate risk. Abrupt increases in market rates of interest may
have an adverse impact on the Company's earnings.
The effect of changes in market rates of interest is mitigated by regular
turnover of the portfolio. From inception of its business in 1979 through 1996,
the period between the origination and final payments of all Medallion Loans
originated by MFC is estimated by the Company to have been 29 months on a
weighted average basis. Accordingly, the Company anticipates that approximately
40% of the portfolio will mature or be prepaid each year. The Company believes
that the average life of its loan portfolio varies to some extent as a function
of changes in interest rates because borrowers are more likely to exercise
prepayment rights in a decreasing interest rate environment when the interest
rate payable on the borrower's loan is high relative to prevailing interest
rates and are less likely to prepay in a rising interest rate environment.
The Company seeks to manage the exposure of the balance of the portfolio to
increases in market interest rates by entering into interest rate cap agreements
to hedge a portion of its variable-rate debt against increases in interest rates
and by incurring fixed-rate debt consisting primarily of subordinated SBA
debentures. On April 17, 1997
38
<PAGE>
MFC entered into an interest rate cap agreement, limiting the Company's maximum
LIBOR exposure on $10,000,000 of MFC's revolving credit facility to 6.0% until
April 21, 1998. In addition, on May 9, 1997, MFC entered into an interest rate
cap agreement limiting the Company's maximum LIBOR exposure on $10,000,000 of
MFC's revolving credit facility to 6.5% until May 13, 1998 and 7.0% until
November 13, 1999. On May 12, 1997, MFC entered into an interest rate cap
agreement limiting the Company's maximum LIBOR exposure on $10,000,000 of MFC's
revolving credit facility to 7.0% until May 13, 1999. At December 31, 1997,
these caps hedged 21.8% of the Company's LIBOR-based indebtedness. In addition,
the Company manages its exposure to increases in market rates of interest by
incurring fixed rate indebtedness, such as subordinated SBA debentures. The
Company currently has outstanding subordinated SBA debentures in the principal
amount of $27.9 million with a weighted average rate of interest of 7.90%. Of
such debentures, $3.0 million mature on June 1, 1998 at an interest rate of
9.8%. At December 31, 1997, these debentures constituted 16.8% of the Company's
indebtedness.
The Company will seek to manage interest rate risk by evaluating and
purchasing, if appropriate, additional derivatives, originating adjustable-rate
loans, incurring fixed-rate indebtedness and revising, if appropriate, its
overall level of asset and liability matching. Nevertheless, the Company
accepts varying degrees of interest rate risk depending on market conditions and
believes that the resulting asset/liability interest rate mismatch results in
opportunities for higher net interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity are credit facilities with bank syndicates,
fixed rate, long-term subordinated SBA debentures that are issued to or
guaranteed by the SBA and loan amortization and prepayments. As a RIC, the
Company distributes at least 90% of its investment company taxable income;
consequently, the Company primarily relies upon external sources of funds to
finance growth. At December 31, 1997, 83.2% of the Company's $165.6 million of
debt consisted of bank debt, substantially all of which was at variable
effective rates of interest with a weighted average rate of 7.01% or 149 basis
points below the Prime Rate and 16.8% consisted of subordinated SBA debentures
with fixed rates of interest with a weighted average rate of 7.90%. The Company
is eligible to seek SBA funding but plans to continue to limit its use of SBA
funding and will seek such funding only when advantageous, such as when SBA
financing rates are particularly attractive, or to fund loans that qualify under
SBA Regulations through Edwards and TCC which are already subject to SBA
restrictions. In the event that the Company seeks SBA funding, no assurance can
be given that such funding will be obtained. In addition to possible additional
SBA funding, an additional $90.3 million of debt was available at December 31,
1997 at variable effective rates of interest averaging below the Prime Rate
under the Company's $228.0 million bank credit facilities. The Company has
observed a practice of minimizing credit facility fees associated with the
unused component of credit facilities by keeping the unused component as small
as possible and periodically increasing the amounts available under such credit
facilities only when necessary to fund portfolio growth.
39
<PAGE>
The following table illustrates the Company's and each of the subsidiaries'
sources of available funds and amounts outstanding under credit facilities at
December 31, 1997.
<TABLE>
<CAPTION>
Medallion
Financial MFC Edwards TCC BLLC Total
---------- --------- ------------ ------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Cash and cash equivalents............ $ 34 $ 1,213 $ 250 $ 528 $505 $ 2,530
Revolving lines of credit............ 25,000 195,000 8,000 -- -- 228,000
Amounts available.................. 8,900 79,750 1,600 -- -- 90,250
Amounts outstanding................ 16,100 115,250 6.400 -- -- 137,750
Average interest rate............ 7.06% 6.97% 7.26% -- -- 7.01%
Maturity......................... 4/98 6/99 1/98; 4/98 -- -- 1/98-6/99
SBA debentures....................... -- -- 22,250 5,640 -- 27,890
Average interest rate............ -- -- 7.87% 8.00% -- 7.90%
Maturity......................... -- -- 6/98-9/04 6/02 -- 6/98-9/04
Total cash and remaining amounts
available under credit facilities.. 8,934 80,963 1,850 528 505 92,780
Total debt outstanding............... $16,100 $115,250 $ 28,650 $5,640 $ - $ 165,640
</TABLE>
Loan amortization and prepayments also provide a source of funding for the
Company. Prepayments on loans are influenced significantly by general interest
rates, Medallion Loan market rates, economic conditions and competition.
Medallion Loan prepayments have slowed since early 1994, initially because of
increases, and then stabilization, in the level of interest rates and more
recently because of an increase in the percentage of the Company's Medallion
Loans which are refinanced with the Company rather than through other sources of
financing.
The Company makes limited use of SBA funding and will seek such funding only
when advantageous. Since May 30, 1996, the Company has expanded its loan
portfolio, reduced its level of SBA financing and increased its level of bank
funding. At December 31, 1997, SBA financing represented 16.8% of total debt as
compared to 23.4% at December 31, 1996.
Media funds its operations through internal cash flow and inter-company debt.
Media is not a RIC and, therefore, is able to retain earnings to finance growth.
The Company believes that anticipated borrowings from the SBA and under its
bank credit facilities and cash flow from operations (after distributions to
stockholders) will be adequate to fund the continuing operations of the
Company's loan portfolio and advertising business for the foreseeable future. In
addition, in order to provide the funds necessary for the Company's expansion
strategy, the Company expects to incur, from time to time, additional short- and
long-term bank debt and (to the extent permitted and advantageous) to use SBA
leverage, and to issue, in public or private transactions, its equity and debt
securities. The Company is currently exploring such external financing
possibilities and MFC established a commercial paper program on March 13, 1998
permitting maximum borrowings of $195 million in conjunction with MFC's
syndicated credit facilities. The establishment of the commercial paper program
was contingent upon MFC obtaining two investment grade ratings for its short
term borrowings. The issuance of commercial paper can substantially reduce
MFC's cost of funds. At March 27, 1998, MFC had $24.6 million outstanding under
the commercial paper program. The availability and terms of any additional
financing will depend upon market, regulatory and other conditions and there can
be no assurance that such additional financing will be available on terms
acceptable to the Company.
INVESTMENT CONSIDERATIONS
The following are certain of the factors that could affect the Company's
future results. They should be considered in connection with evaluating
forward-looking statements contained in this Management's Discussion and
Analysis and elsewhere in this Annual Report and otherwise made by or on behalf
of the Company since these factors, among others, could cause actual results and
conditions to differ materially from those projected in these forward-looking
statements.
40
<PAGE>
Interest Rate Spread. The Company's net interest income is largely dependent
upon achieving a positive interest rate spread and other factors.
Leverage. The Company's use of leverage poses certain risks for holders of
the Common Stock, including the possibility of higher volatility of both the net
asset value of the Company and the market price of the Common Stock and,
therefore, an increase in the speculative character of the Common Stock.
Availability of Funds. The Company has a continuing need for capital to
finance its lending activities. The Company funds its operations through credit
facilities with bank syndicates and, to a lesser degree, through subordinated
SBA debentures. Reductions in the availability of funds from banks and under
SBA programs on terms favorable to the Company could have a material adverse
effect on the Company. Because the Company distributes to its shareholders at
least 90% of its investment company taxable income, such earnings are not
available to fund loan originations.
Industry and Geographic Concentration. A substantial portion of the Company's
revenue is derived from operations in New York City and these operations are
substantially focused in the area of financing New York City taxicab medallions
and related assets. There can be no assurance that an economic downturn in New
York City in general, or in the New York City taxicab industry in particular,
would not have an adverse impact on the Company.
Reliance on Management. The success of the Company will be largely dependent
upon the efforts of senior management. The death, incapacity or loss of the
services of any of such individuals could have an adverse effect on the Company.
Taxicab Industry Regulation. Every city in which the Company originates
Medallion Loans, and most other major cities in the United States, limit the
supply of taxicab medallions. In many markets, regulation results in supply
restrictions which, in turn, support the value of medallions; consequently,
actions which loosen such restrictions and result in the issuance of additional
medallions into a market could decrease the value of medallions in that market
and, therefore, the collateral securing the Company's then outstanding Medallion
Loans, if any, in that market. The Company is unable to forecast with any
degree of certainty whether any potential increases in the supply of medallions
will occur. In New York City, and in other markets where the Company originates
Medallion Loans, taxicab fares are generally set by government agencies, whereas
expenses associated with operating taxicabs are largely unregulated. As a
consequence, in the short term, the ability of taxicab operators to recoup
increases in expenses is limited. Escalating expenses, therefore, can render
taxicab operation less profitable and make it more difficult for borrowers to
service loans from the Company and could potentially adversely affect the value
of the Company's collateral.
Government Regulation of Tobacco Advertising. Currently, approximately 57% of
Media's taxicab rooftop advertising revenue is derived from tobacco products
advertising. Various federal, state and local government agencies, including
the U.S. Food and Drug Administration (the "FDA") have from time to time
proposed regulations restricting the sale and advertising of cigarette and
smokeless tobacco products. Additionally, various tobacco companies have
voluntarily proposed eliminating outdoor tobacco advertising in exchange for
immunity from class action suits. Accordingly, such regulations or voluntary
restrictions could have an adverse effect upon the taxicab rooftop advertising
business of the Company. The Company believes, however, that it could replace
some of the revenue which may be lost due to the loss of tobacco taxicab rooftop
advertising.
Year 2000. The Company is addressing the Year 2000 problem, which concerns
the inability of systems, primarily computer software programs, to properly
recognize and process date sensitive information relating to the year 2000 and
beyond. The Company, in the ordinary course of business, has for several years
had several information system improvement initiatives underway. These
initiatives include the installation of new accounting software. Management
believes that such initiatives will adequately address the Year 2000 problem,
although there can be no assurance in this regard. Costs related to new
information systems will be capitalized and amortized over their useful lives.
Management does not believe that the other costs associated with addressing the
41
<PAGE>
Year 2000 problem will be material. The Company will continue to address the
Year 2000 issue in connection with its future acquisitions. The ability of
third parties with which the Company transacts business to adequately address
their Year 2000 issues is outside of the Company's control. Failure of such
third parties or the Company to adequately address their respective Year 2000
issues could have a material adverse effect on the Company's financial condition
or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in the response found under Item
14(A)(1) in this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
42
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "Executive
Officers of the Registrant" in Part I hereof and the remainder is incorporated
herein by reference from the discussion responsive thereto under the caption
"Election of Directors" in the Company's Proxy Statement relating to its Annual
Meeting of Stockholders scheduled for June 11, 1998 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Executive Compensation" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Stock Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Certain Transactions" in the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements and financial statement schedules as listed in the
Index to Financial Statements are filed as part of this Annual Report on Form
10-K.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
The Exhibits filed as part of this Annual Report on Form 10-K are listed on
the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
43
<PAGE>
MEDALLION FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
MEDALLION FINANCIAL CORP.
Report of Arthur Andersen LLP, Independent Public Accountants.......... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996........... F-3
Consolidated Statements of Operations for the Year Ended
December 31, 1997 and the Period from May 30, 1996
(Commencement of Operations) to December 31, 1996.................... F-4
Consolidated Statements of Changes in Shareholders' Equity for
the Year Ended December 31, 1997 and the Period from May 30,
1996 (Commencement of Operations) to December 31, 1996............... F-5
Consolidated Statements of Cash Flows for the Year ended December
31, 1997 and the Period from May 30, 1996 (Commencement of
Operations) to December 31, 1996..................................... F-6
Notes to Consolidated Financial Statements............................. F-8
TRI-MAGNA CORPORATION AND SUBSIDIARIES
Report of Arthur Andersen LLP, Independent Public Accountants.......... F-28
Consolidated Balance Sheets as of May 29, 1996 and December 31, 1995... F-29
Statements of Operations for the Period Ended May 29, 1996 and
the year ended December 31, 1995..................................... F-30
Statements of Shareholders' Equity for the Period Ended May 29,
1996 and the year ended December 31, 1995............................ F-31
Consolidated Statements of Cash Flows for the Period Ended May
29, 1996 and the year ended December 31, 1995........................ F-32
Notes to Consolidated Financial Statements............................. F-33
EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP)
Report of Arthur Andersen LLP, Independent Public Accountants.......... F-44
Balance Sheets as of May 29, 1996 and December 31, 1995................ F-45
Statements of Operations for the Period ended May 29, 1996
And the year ended December 31, 1995................................. F-46
Statements of Changes in Partners' Capital for the Period
Ended May 29, 1996 and the year ended December 31, 1995.............. F-47
Statements of Cash Flows for the Period Ended May 29, 1996 for
The year ended December 31, 1995..................................... F-48
Notes to Financial Statements.......................................... F-49
TRANSPORTATION CAPITAL CORP.
Report of Arthur Andersen LLP, Independent Public Accountants.......... F-57
Balance Sheets as of May 29, 1996 and December 31, 1995................ F-58
Statements of Operations for the Period Ended May 29, 1996
and the year ended December 31, 1995................................. F-59
Statements of Changes in Shareholders' Equity for Period
Ended May 29, 1996 and the year ended December 31, 1995.............. F-60
Statements of Cash Flows for the Period Ended May 29, 1996
and the year ended December 31, 1995.................................. F-61
Notes to Financial Statements.......................................... F-62
F-1
<PAGE>
MEDALLION FINANCIAL CORP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Medallion Financial Corp.:
We have audited the accompanying consolidated balance sheets of Medallion
Financial Corp. (a Delaware corporation) and its subsidiaries as of December 31,
1997 and 1996, including the consolidated schedule of investments as of December
31, 1997 and 1996, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the year ended December 31,
1997 and the period from May 30, 1996 (commencement of operations) to December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included the confirmation of certain loans receivable as of December
31, 1997 by correspondence with the borrowers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
As explained in Note 2, investments consist of loans valued at $288,724,446
(93% of total assets) as of December 31, 1997, whose values have been estimated
by the Board of Directors in the absence of readily ascertainable market values.
However, because of the inherent uncertainty of valuation, the Board of
Directors' estimate of values may differ significantly from the values that
would have been used had a ready market for the loans existed, and the
differences could be material.
In our opinion, the consolidated balance sheets referred to above present
fairly, in all material respects, the financial position of Medallion Financial
Corp. and its subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the year ended December 31, 1997 and
the period from May 30, 1996 (commencement of operations) to December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts February 25, 1998
(except for the matters discussed in Note 15
(a) and (c), for which the dates are March
9, 1998 and March 13, 1998, respectively)
F-2
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Investments:
Medallion loans........................ $225,961,249 $134,614,899
Commercial installment loans........... 62,763,197 41,878,989
------------ ------------
Net investments......................... 288,724,446 176,493,888
Investment in unconsolidated subsidiary. 1,140,424 937,000
------------ ------------
Total investments.................. $289,864,870 $177,430,888
------------ ------------
Cash.................................... 2,529,613 1,664,603
Accrued interest receivable............. 2,934,840 1,696,584
Receivable from sale of loans........... 2,862,981 -
Fixed assets, net....................... 356,206 89,815
Goodwill, net........................... 6,082,515 6,250,636
Servicing fee receivable................ 1,671,415 -
Other assets............................ 3,742,204 2,491,974
------------ ------------
Total assets....................... $310,044,644 $189,624,500
============ ============
LIABILITIES
Accounts payable........................ $ 4,410,508 $ 1,491,490
Accrued expenses........................ 2,439,714 352,543
Dividends payable....................... 3,594,402 1,849,225
Accrued interest payable................ 773,194 1,086,247
Notes payable to banks and demand notes. 137,750,000 96,450,000
SBA debentures payable.................. 27,890,000 29,390,000
------------ ------------
Total liabilities.................. 176,857,818 130,619,505
------------ ------------
Negative goodwill, net.................. 1,795,316 2,517,716
------------ ------------
Commitments and contingencies (Note 9)
SHAREHOLDERS' EQUITY
Preferred Stock (1,000,000 shares of - -
$.01 par value stock authorized
none outstanding)
Common stock (15,000,000 shares of $.01 128,803 82,500
par value stock authorized --
12,880,296 and 8,250,000 shares
outstanding at December 31, 1997
and 1996, respectively..................
Capital in excess of par value......... 130,378,936 56,359,555
Accumulated undistributed income....... 883,771 45,224
------------ ------------
Total shareholders' equity......... 131,391,510 56,487,279
------------ ------------
Total liabilities and
shareholders' equity.............. $310,044,644 $189,624,500
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD
FROM MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR MAY 30, 1996 (COMMENCEMENT OF
ENDED OPERATIONS) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ------------------------------
<S> <C> <C>
Investment income:
Interest income on investments......... $23,418,070 $10,374,238
Interest income on U.S. treasury bills. 28,326 37,603
----------- -----------
Total investment income............ 23,446,396 10,411,841
----------- -----------
Interest expense:
Notes payable to bank.................. 7,041,286 3,631,746
SBA debentures......................... 2,168,088 1,376,747
----------- -----------
Total interest expense............. 9,209,374 5,008,493
----------- -----------
Net interest income..................... 14,237,022 5,403,348
----------- -----------
Non-interest income:
Equity in gains (losses) of 203,424 (63,000)
unconsolidated subsidiary.............
Accretion of negative goodwill......... 722,400 421,435
Gain on sale of loans (Note 2)......... 336,300 -
Other Income........................... 980,309 410,991
----------- -----------
Total non-interest income.......... 2,242,433 769,426
----------- -----------
Expenses:
Administration and advisory fees....... 226,086 161,886
Professional fees...................... 761,278 410,420
Salaries and benefits.................. 1,797,473 779,445
Other operating expenses............... 2,012,027 879,187
Amortization of goodwill............... 368,196 259,260
----------- -----------
Total expenses..................... 5,165,060 2,490,198
----------- -----------
Net investment income.................. 11,314,395 3,682,576
Increase in net unrealized (25,000) (46,300)
depreciation on investments...........
Net realized gain on investments....... 144,271 84,447
----------- -----------
Net increase in net assets resulting $11,433,666 $ 3,720,723
from operations....................... =========== ===========
Net increase in net assets resulting
from operations per common share
(Note 2)
Basic................................. $1.03 $0.45
Fully Diluted......................... $1.02 $0.45
Weighted average common shares
outstanding:
Basic Average Shares................... 11,112,849 8,250,000
Fully Diluted Average Shares........... 11,157,544 8,278,524
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM MAY 30, 1996
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OF CAPITAL ACCUMULATED
COMMON STOCK COMMON STOCK IN EXCESS UNDISTRIBUTED
OUTSTANDING $.01 PAR VALUE OF PAR VALUE INCOME
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 (Note 1)... 2,500,000 $ 25,000 $ (23,000) $ --
Issuance of common stock under offering 5,750,000 57,500 56,089,556 --
(Note 1)................................
For the period from May 30, 1996 to
December 31, 1996:
Distributable net investment income.... -- -- -- 3,767,023
Dividends declared on common stock -- -- -- (3,382,500)
($0.41 per share).....................
SOP 93-2 Cumulative reclassification -- -- 292,999 (292,999)
(Note 11)..............................
Change in unrealized depreciation...... -- -- -- (46,300)
---------- -------- ------------ ------------
Balance at December 31, 1996............ 8,250,000 82,500 56,359,555 45,224
Issuance of common stock under offering 4,600,000 46,000 74,293,425 --
(Note 1)................................
Exercise of stock options (Note 7)...... 30,296 303 341,644 --
Distributable net investment income.... -- -- -- 11,458,666
Dividends declared on common stock -- -- -- (11,210,807)
($1.01 per share).....................
SOP 93-2 Cumulative reclassification -- -- (615,688) 615,688
(Note 11)..............................
Change in unrealized depreciation, net. -- -- -- (25,000)
---------- -------- ------------ ------------
Balance at December 31, 1997............ 12,880,296 $128,803 $130,378,936 $ 883,771
========== ======== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD
FROM MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR MAY 30, 1996 (COMMENCEMENT OF
ENDED OPERATIONS) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting $ 11,433,666 $ 3,720,723
from operations........................
Adjustments to reconcile net increase
in net assets resulting from
operations to net cash provided by
operating activities:
Depreciation and amortization......... 80,072 14,500
Increase in equity in (earnings) (203,424) 63,000
losses of unconsolidated subsidiary..
Amortization of goodwill.............. 368,196 259,260
Increase in unrealized depreciation... 25,000 46,300
Increase in accrued interest (1,053,073) (301,310)
receivable...........................
Increase in other assets.............. (1,136,196) (1,933,829)
Increase in accounts payable.......... 1,720,881 300,546
Increase in accrued expenses.......... 2,087,171 70,957
Accretion of negative goodwill........ (722,400) (421,435)
Decrease in receivable from sale of 1,309,168 -
loans................................
Increase in servicing fee receivable.. (131,737) -
Decrease in accrued interest payable.. (313,053) (553,280)
------------- ------------
Net cash provided by operating 13,464,271 1,265,432
activities........................ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Originations of loans (investments).... (212,977,601) (71,419,455)
Proceeds from sales and maturities of 96,546,925 44,323,364
loans (investments)...................
Payment for purchase of Tri-Magna, net. - (11,848,283)
Payment for purchase of Edwards - (15,624,995)
Capital Company.......................
Payment for purchase of TCC, net....... - (3,748,576)
Payment for purchase of BLLC, net...... (1,022,984) -
Capital expenditures for fixed assets.. (161,343) (89,928)
------------- ------------
Net cash used for investing (117,615,003) (58,407,873)
activities........................ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable to banks..... 41,300,000 6,050,000
Repayment of notes payable to SBA...... (1,500,000) (1,200,000)
Payment of declared dividends to - (542,012)
former shareholders...................
Payment of declared dividends to (9,465,630) (1,650,000)
present shareholders..................
Proceeds from public offering of 74,339,425 56,147,056
common stock, net of expenses.........
Proceeds from exercise of stock options. 341,947 -
------------- ------------
Net cash provided by financing 105,015,742 58,805,044
activities........................ ------------- ------------
NET INCREASE IN CASH.................... 865,010 1,662,603
CASH, beginning of period............... 1,664,603 2,000
------------- ------------
CASH, end of period..................... $ 2,529,613 $ 1,664,603
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD
FROM MAY 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996 (CON'T)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR MAY 30, 1996 (COMMENCEMENT OF
ENDED OPERATIONS) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------------------
<S> <C> <C>
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 9,522,427 $ 5,561,773
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND ACTIVITIES
In conjunction with the Acquisitions,
liabilities were assumed as follows:
EDWARDS CAPITAL
TRI-MAGNA COMPANY TCC BLI
------------ ------------------ ------------- -----------
Fair value of assets acquired, other $97,808,510 $51,356,894 $ 9,714,029 $ 1,333,918
than cash............................... ----------- ----------- ----------- -----------
Cash acquired........................... 1,529,717 -- 6,797,183 256,538
Cash paid............................... 13,378,000 15,624,995 10,545,759 1,279,522
----------- ----------- ----------- -----------
Cash paid, net.......................... 11,848,283 15,624,995 3,748,576 1,022,984
=========== =========== =========== ===========
Negative goodwill....................... 2,939,085 -- -- --
----------- ----------- ----------- -----------
Liabilities assumed..................... $83,021,142 $35,731,899 $ 5,965,453 $15,381,827
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) FORMATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES
Medallion Financial Corp. (the Company) is a closed-end management investment
company organized as a Delaware corporation in 1995. The Company has elected to
be regulated as a business development company under the Investment Company Act
of 1940, as amended (the 1940 Act). On May 29, 1996, the Company completed an
initial public offering (the Offering) of its common stock, issued and sold
5,750,000 shares at $11.00 per share and split the existing 200 shares of common
stock outstanding into 2,500,000 shares. All share and related amounts in the
accompanying financial statements have been restated to reflect this stock
split. Offering costs incurred by the Company in connection with the sale of
shares totaling $7,102,944 were recorded as a reduction of capital upon
completion of the Offering. These costs were recorded, net of $200,000 payable
by Tri-Magna Corporation and subsidiaries (Tri-Magna) in accordance with the
Merger Agreement. In parallel with the Offering, the Company merged with Tri-
Magna; acquired substantially all of the assets and assumed certain liabilities
of Edwards Capital Company, a limited partnership; and acquired all of the
outstanding voting stock of Transportation Capital Corp. (TCC) (collectively,
the 1996 Acquisitions) (see Note 3). The assets acquired and liabilities assumed
from Edwards Capital Company were acquired and assumed by Edwards Capital
Corporation (Edwards), a newly formed and wholly owned subsidiary of the
Company. As a result of the merger with Tri-Magna in accordance with the Merger
Agreement dated December 21, 1995 between the Company and Tri-Magna, Medallion
Funding Corp. (MFC) and Medallion Taxi Media, Inc. (Media), formerly
subsidiaries of Tri-Magna, became wholly-owned subsidiaries of the Company.
MFC, Edwards and TCC are closed-end management investment companies registered
under the 1940 Act and are each licensed as a small business investment company
(SBIC) by the SBA. As an adjunct to the Company's taxicab medallion finance
business, Media operates a taxicab rooftop advertising business. Effective
January 1, 1997, the Company decided to merge all of the assets and liabilities
of Edwards and TCC into MFC subject to the approval of the SBA. As of December
31, 1997, the Company is awaiting such approval from the SBA.
On October 31, 1997, the Company consummated the purchase of substantially all
of the assets and liabilities of Business Lenders, Inc. through the Company's
wholly owned subsidiary, BLI Acquisition Co., LLC. In connection with the
transaction, BLI Acquisition Co., LLC was renamed Business Lenders, LLC.
(Business Lenders). Business Lenders is licensed by the SBA under its section 7a
program.
In connection with the 1996 Acquisitions and the Business Lenders Acquisition,
the Company received the Acquisition Orders under the 1940 Act from the
Securities and Exchange Commission, as well as approval from the Small Business
Administration (SBA).
(2) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
The Company primarily engages, directly and/or through its principal
subsidiaries, in the business of making loans to small businesses and, to a
lesser degree, in the business of taxicab rooftop advertising. The Company
originates and services loans financing the purchase of taxicab medallions and
related assets (medallion loans). The Company also originates and services
commercial installment loans to small businesses in other targeted
F-8
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
industries (commercial installment loans) as well as originates and sells loans
guaranteed by the SBA. While medallion and commercial installment loans are
originated substantially in the metropolitan New York and Connecticut areas, the
Company also finances medallion loans in the Boston, Cambridge, Baltimore and
Chicago areas.
(b) Use of Estimates
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and general practices in the investment company
industry. The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reporting and disclosure of assets and liabilities,
including those that are of a contingent nature, at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of Medallion
Financial Corp. and its wholly owned subsidiaries (except for Media). All
references in the notes to the consolidated financial statements for the period
ended December 31, 1996 refer to the period from May 30, 1996 to December 31,
1996, which represents the period from the closing of the Offering and the 1996
Acquisitions to the end of the period. Prior to the 1996 Acquisitions,
Medallion Financial Corp. had no operations and each of the subsidiaries had
been operating independently of each other. All significant intercompany
balances and transactions have been eliminated.
The Company's investment in Media is accounted for under the equity method. As
a non-investment company, Media cannot be consolidated with the Company, which
is an investment company under the 1940 Act. Refer to Note 4 for the
presentation of financial information for Media.
(d) Investment Valuation
The Company's loans, net of participations and any unearned discount, are
considered investments under the 1940 Act and are recorded at fair value. Loans
are valued at cost less unrealized depreciation. Since no ready market exists
for these loans, the fair value is determined in good faith by the Board of
Directors. In determining the fair value, the Company and Board of Directors
consider factors such as the financial condition of the borrower, the adequacy
of the collateral, individual credit risks, historical loss experience and the
relationships between current and projected market rates and portfolio rates of
interest and maturities.
The Company's investments consist primarily of long-term loans to persons
defined by SBA regulations as socially or economically disadvantaged, or to
entities that are at least 50% owned by such persons. Approximately 78% and 76%
of the Company's loan portfolio at December 31, 1997 and 1996, respectively, has
arisen in connection with the financing of taxicab medallions, taxicabs and
related assets, substantially all in the metropolitan New York area. These
loans are secured by the medallions, taxicabs and related assets and are
personally guaranteed by the borrowers, or in the case of corporations,
personally guaranteed by the owners. A portion of the Company's portfolio
represents loans to various commercial enterprises, including dry cleaners,
garages, gas stations and laundromats. These loans are secured by various
equipment and/or real estate and are generally guaranteed by the owners, and in
certain cases, by the equipment dealers. These loans are made primarily in the
metropolitan New York City area. The remaining portion of the Company's
portfolio is from the origination of loans guaranteed by the SBA under its
section 7a program, less the sale of the guaranteed portion of those loans.
Funding for the section 7a program depends on annual appropriations by the U.S.
Congress.
F-9
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(e) Investment Transactions and Income Recognition
The principal portion of loans serviced for others by the Company at December
31, 1997 and 1996 amounted to approximately $ 83,316,000 and $60,160,000,
respectively.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of related loans. At December 31, 1997
and 1996 net deferred costs totaled $1,557,199 and $567,204, respectively.
Amortization expense for the year ended December 31, 1997 and the period ended
December 31, 1996 was $510,272 and 161,977, respectively.
Interest income is recorded on the basis of interest accrued. Loans are
placed on nonaccrual status, with the reversal of all uncollected accrued
interest, when there is doubt as to the collectibility of interest or principal
or if loans are 90 days or more past due, unless they are both fully
collateralized and in the process of collection. Interest received on
nonaccrual loans is recognized as income when collected. At December 31, 1997
and 1996, total nonaccrual loans were $4,295,432 and $2,450,702 respectively.
For the year ended December 31, 1997 and the period ended December 31, 1996, the
amount of interest income on nonaccrual loans that would have been recognized if
the loans had been paying in accordance with their original terms was $ 358,252
and $111,209, respectively.
(f) Loan Sales and Servicing Fee Receivable
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
These standards are based on consistent approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets when control has
been surrendered, and derecognizes distinguishing transfers of financial assets
that are sales from transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and was
applied prospectively by the Company. The adoption of this statement as of
January 1, 1997 did not impact the Company's financial condition or its results
of operation.
Receivable from loans sold and gain on loan sales are attributable to the sale
of commercial loans which have been at least partially guaranteed by the SBA.
The Company recognizes gains or losses from the sale of the SBA guaranteed
portion of a loan at the date of the sales agreement when control of the future
economic benefits embodied in the loan is surrendered. The gains are calculated
in accordance with SFAS No. 125, which requires that the gain on the sale of a
portion of a loan be based on the relative fair market values of the loan sold
and the loan retained. A portion of the gain on commercial loan sales is due to
a servicing fee receivable which represents the present value of the
differential between the servicing fee received by the Company (generally 100 to
200 basis points) and the sum of the Company's costs and a normal profit after
considering the estimated effects of prepayments and defaults. The Company
considers 40 basis points to be its costs plus a normal profit. The discount
rate utilized in calculating the servicing fee receivable approximates the
market rate an investor would demand on a risk-adjusted basis. The servicing fee
receivable is amortized as a charge to non-interest income over the estimated
lives of the underlying loans using the effective interest method. The servicing
fee receivable is carried at the lower of amortized cost or net realizable
value. The carrying value of the servicing fee receivable at December 31, 1997
and 1996 was $1,671,415 and $0, respectively.
An adjustment to the portion of the loan retained is recorded as unearned
discount or premium and is amortized as an adjustment to interest income over
the estimated life of the loan using the effective interest method.
(g) Unrealized Depreciation and Realized Gains/Losses on Investments
The change in unrealized depreciation of investments is the amount by which
the fair value estimated by the Company is less than the cost basis of the loan
portfolio. Realized gains or losses on investments consist of the excess of the
proceeds derived upon foreclosure over the cost basis of a loan, write-offs of
loans or assets acquired in satisfaction of loans, net of recoveries. An
analysis of the unrealized depreciation of investments for the year ended
December 31, 1997 and the period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Balance, beginning of period $1,568,717 $1,522,417
Unrealized depreciation of acquired 400,000 -
subsidiary
Increase in unrealized depreciation 390,000 46,300
Realized losses (125,000) -
---------- ----------
Balance, end of period $2,233,717 $1,568,717
========== ==========
</TABLE>
F-10
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
For the year ended December 31, 1997 and the period ended December 31, 1996,
gross realized gains and losses were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SEVEN MONTHS
DECEMBER 31, 1997 ENDED DECEMBER 31, 1996
REALIZED UNREALIZED REALIZED UNREALIZED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gains on sale of warrants $ 269,271 $ - $ 189,447 $ -
& recoveries
Increase in unrealized - 240,000 - -
gains
Increase in unrealized - (390,000) - (46,300)
losses
Realized losses (125,000) 125,000 (105,000) -
--------- --------- --------- ----------
Net gain (loss) on $ 144,271 $ (25,000) $ 84,447 $(46,300)
investments ========= ========= ========= ==========
</TABLE>
(h) Goodwill
Cost of purchased businesses in excess of the fair value of net assets
acquired (goodwill) is being amortized on a straight-line basis over 15 years.
The excess of fair value of net assets over cost of business acquired (negative
goodwill) is being accreted on a straight-line basis over approximately 4 years.
In 1996, the Company adopted Statement of Financial Accounting Standards(SFAS)
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of." This statement requires a review for impairment of
long-lived assets and certain identifiable intangibles to be held and used by an
entity whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. An impairment would be estimated if
the sum of the expected future cash flows to result from the use and eventual
disposition of the asset is less than the carrying amount of the asset. The
adoption of this statement did not have a significant impact on the Company's
financial position or results of operations.
The Company reviews its goodwill and negative goodwill for events or changes
in circumstances that may indicate that the carrying amount of the assets may
not be recoverable, and if appropriate, reduces the carrying amount through a
charge to income in accordance with SFAS No. 121.
F-11
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(i) Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Fixed assets
are depreciated using the straight-line method to depreciate the cost over their
estimated useful lives, which range from 5 to 10 years.
(j) Federal Income Taxes
It is the Company's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies, which require the
Company, among other things, to distribute at least 90% of its investment
company taxable income to its shareholders. Therefore, no provision for federal
income taxes has been made in the accompanying financial statements.
In 1997, the Company declared quarterly cash dividends totaling $11,210,807,
or $1.01 per share, to shareholders. During the year, the Company's subsidiaries
declared dividends payable to the Company totaling $5,966,464 from Medallion
Funding Corp., $1,729,500 from Transportation Capital Corp. and $2,642,000 from
Edwards Capital Corp. In conjunction with the 1997 equity offering, the Company
contributed $30 million as capital to Medallion Funding Corp.
Media, as a non-investment company, has elected to be taxed as a regular
corporation. Refer to Note (4) for financial information for Media.
(k) Net Increase in Net Assets Resulting from Operations per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". SFAS No. 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
The Company has applied the provisions of SFAS No. 128 retroactively to all
periods presented. In accordance with Staff Accounting Bulletin (SAB) No. 98,
the Company has determined that there were no nominal issuances of common stock
or potential common stock in the period prior to the Company's initial public
offering (IPO). The dilutive effect of potential common shares in 1997,
consisting of outstanding stock options is determined using the treasury method
in accordance with SFAS No. 128. Basic and fully diluted EPS for the year ended
December 31, 1997 and the period ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, excepts per Income Shares Per Share Amount Income Shares Per Share Amount
share amounts)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $11,434 $3,721
Basic EPS
Income available to common stockholders 11,434 11,112,849 $1.03 3,721 8,250,000 $.45
Effect of dilutive options
Stock options 44,695 28,524
Diluted EPS
Income available to common stockholders 11,434 11,157,544 $1.02 3,721 8,278,524 $.45
</TABLE>
F-12
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(l) Stock-Based Compensation
In 1996, the Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," which establishes a fair value-based method of
accounting for stock options and similar equity instruments of employee stock
compensation plans. This statement allows the option of adopting the new fair
value method or to measure compensation cost for those plans using the current
intrinsic value-based method as prescribed by Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." Under this
statement, the use of intrinsic value-based method requires pro forma disclosure
of net income and earnings per share as if the fair value-based method had been
adopted. The Company opted to adopt the pro forma disclosure provisions of SFAS
No. 123. See pro forma information in Note 7.
(m) Interest Rate Caps
Premiums paid for interest rate cap agreements are amortized to interest
expense over the terms of the cap. Unamortized premiums are included in other
assets in the accompanying consolidated balance sheet. Amounts receivable, if
any, under cap agreements are accounted for as a reduction of interest expense.
(n) Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is to become effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 established standards for reporting and display of comprehensive
income and its components. Comprehensive income is the total of net income and
all other nonowner changes in equity. Reclassification of financial statements
of earlier periods presented for comparative purposes is required. The adoption
of this statement is not expected to have a significant impact on the Company's
financial position or results of operations.
(o) Segment Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". This statement establishes the standards
for reporting information about segments in annual and interim financial
statements. SFAS No. 131 introduces a new model for segment reporting: the
"management approach." The management approach is based on the way the chief
operating decision maker organizes segments within a company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure any
manner in which management disaggregates a company. This statement is effective
and will be adopted for the Company's financial statements for the fiscal year
ended December 31, 1998 and requires the restatement of previously reported
segment information for all periods presented.
(p) Reclassifications
Certain reclassifications have been made to prior year balances to conform with
the current year presentation.
F-13
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(3) ACQUISITIONS
Tri-Magna, Edwards Capital Corp. and TCC
On May 30, 1996, the Company completed the acquisition of Tri-Magna, Edwards
Capital Corp and TCC. These acquisitions were accounted for under the purchase
method of accounting (see Note 1). Funds used to finance these acquisitions
were primarily provided through the Company's Revolving Credit Agreements. The
remaining portion of net proceeds were from the initial public offering.
Business Lenders, Inc.
On October 31, 1997, the Company completed its acquisition of certain assets and
the assumption of certain liabilities of Business Lenders Inc., a small business
lender headquartered in Hartford, Connecticut. The transaction was accounted
for under the purchase method of accounting. The balance of the purchase price
is payable pursuant to a contingent earn-out provision based on a multiple of
net after-tax earnings and will approximate $13 million. The purchase price
included approximately $310,000 of acquisition-related expenses associated with
this transaction.
Accordingly, the results of operations for these acquisitions have been included
in the consolidated results of the Company from the date of acquisition. Under
this accounting method, the Company has recorded as its cost the fair value of
the acquired assets and liabilities assumed. The difference between the cost of
acquired companies and the sum of the fair values of tangible and identifiable
intangible assets less liabilities assumed was recorded as goodwill or negative
goodwill.
A summary of the cash consideration and allocation of the purchase price, as of
the acquisition dates, are as follows:
<TABLE>
<CAPTION>
EDWARDS CAPITAL
TRI-MAGNA COMPANY TCC BLI
------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ 1,529,717 $ -- $ 6,797,183 $ 256,538
Investments*............................ 95,621,617 44,510,149 9,312,331 10,153,754
Accrued interest receivable............. 870,073 406,817 118,583 185,183
Goodwill (Negative Goodwill)............ (2,939,085) 6,303,562 206,334 411,680
Other assets............................ 1,316,820 136,366 76,781 5,964,928
Dividends payable....................... (542,012) -- (116,725) --
Notes payable to banks.................. (80,300,000) (10,100,000) -- (12,483,490)
Accounts payable and accrued expenses... (1,360,570) -- (69,660) (1,198,137)
Accrued interest payable................ (818,560) (681,899) (139,068) --
SBA and other debentures payable........ -- (24,950,000) (5,640,000) (1,700,000)
------------ ------------ ----------- ------------
Total acquisition cost.................. $ 13,378,000 $ 15,624,995 $10,545,759 $ 1,590,456
============ ============ =========== ============
*Net of unrealized depreciation of investments of $1,922,417.
</TABLE>
The following unaudited pro forma combined financial information for the years
ended December 31, 1997 and 1996 are presented as follows assuming each of the
acquisitions completed during 1996 and 1997 had occurred as of the beginning of
the period reported.
F-14
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
----------------------- ------------
<S> <C> <C>
Investment income....................... 24,376,248 $17,754,099
Net interest income..................... 14,082,282 9,129,399
Net investment income................... 8,715,484 3,474,259
Net increase in net assets resulting 10,894,726 5,614,445
from operations - basic and fully
diluted................................
Net increase in net assets resulting $0.98 $0.68
from operations per share - basic and
fully diluted..........................
</TABLE>
Such unaudited pro forma combined financial information is not necessarily
indicative of the results of operations that would have actually been reported
had the Offering and the acquisitions occurred on January 1, 1997 or 1996, nor
does it purport to represent the Company's future results of operations. The
pro forma information also does not give effect to any anticipated benefits and
cost reductions nor future corporate costs that are not under contract, in
connection with the transactions.
(4) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
The balance sheets at December 31, 1997 and 1996 for Media, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash.................................... $ 594,377 $ 79,827
Accounts receivable..................... 700,392 307,303
Equipment, net.......................... 1,422,284 976,442
Other................................... 533,541 330,839
---------- ----------
Total assets....................... $3,250,594 $1,694,411
========== ==========
Notes payable to parent................. 1,555,637 584,566
Accounts payable and accrued expenses... 283,915 64,516
Federal income taxes payable............ 162,000 -
---------- ----------
Total liabilities.................. 2,001,552 649,082
Equity.................................. 1,001,000 1,001,000
Retained earnings....................... 248,042 44,329
---------- ----------
Total equity....................... 1,249,042 1,045,329
---------- ----------
Total liabilities and shareholders' $3,250,594 $1,694,411
equity................................. ========== ==========
</TABLE>
The statements of operations of Media (1) for the year ended December 31, 1997
(2) for the period commencing with the Company's acquisition of Media from May
30, 1996 to December 31, 1996 (3) for the five-month period ended May 29, 1996
and (4) for the fiscal year ended December 31, 1995 are as follows:
F-15
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED FIVE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MAY 29, DECEMBER 31,
1997 1996 1996 1995
------------ ------------------- ------------------ ------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Advertising revenue......... $3,070,119 $1,095,346 $671,148 $1,542,013
Cost of services............ 1,204,892 499,135 283,891 483,721
---------- ---------- -------- ----------
Gross margin................ 1,865,227 596,211 387,257 1,058,292
Other operating expenses.... 1,499,803 659,211 455,278 829,293
---------- ---------- -------- ----------
Income (loss) before taxes.. 365,424 (63,000) (68,021) 228,999
Income taxes................ 162,000 -- (14,999) 103,043
---------- ---------- -------- ----------
Net income (loss)........... $ 203,424 $ (63,000) $(53,022) $ 125,956
</TABLE>
On July 25, 1996, Media purchased all of the assets of See-Level Management,
Inc. and See-Level Advertising, Inc. (consisting of 450 taxicab rooftop
advertising display units and certain contracts for advertising and fleet
rental) for $700,000. In addition, the owners of these entities entered into
noncompete and consulting agreements with Media for a period of 2.5 years.
During 1996, the Company contributed $1,000,000 in capital to Media to fund this
purchase. The Company's investment in Media was $1,140,000 and $937,000 at
December 31, 1997 and 1996, respectively. These amounts are comprised of the
initial capital contribution and the results of operations for subsequent
periods.
On March 6, 1997, Media entered into a five-year agreement with the Metropolitan
Taxi Board of Trade, Inc. (MTBOT) to provide rooftop advertising on New York
City taxicabs affiliated with the MTBOT commencing on September 22, 1997. The
agreement calls for fixed payments to the fleets for a two-year period unless
tobacco advertising is banned from cabs by the government.
(5) NOTES PAYABLE TO BANKS AND DEMAND NOTES
Short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
DESCRIPTION 1997 1996
------------- ------------
<S> <C> <C>
Revolving Credit Agreements.. $137,750,000 $94,450,000
Term Loan Agreement.......... - 2,000,000
------------ -----------
Total........................ $137,750,000 $96,450,000
============ ===========
</TABLE>
Borrowings under these agreements are secured by all assets of the Company.
(a) Revolving Credit Agreements
On March 27, 1992 (and as subsequently amended), MFC entered into a committed
revolving credit agreement (the Revolver) with a group of banks. MFC extended
the Revolver until June 30, 1999 at an aggregate credit commitment amount of
$195,000,000 pursuant to the Loan Agreement dated December 24, 1997. The
Revolver may be extended annually thereafter upon the option of the
participating banks and acceptance by MFC. Should any participating bank not
extend its committed amount, the Revolver agreement provides that each bank
shall extend a term loan equal to its share of the principal amount outstanding
of the revolving credit note. Maturity of the term note shall be the earlier of
two years or any other date on which it becomes payable in accordance with the
Revolver agreement. Interest and principal payments are paid monthly. Interest
is calculated monthly at either the bank's prime rate or a rate based on the
adjusted London Interbank Offered Rate of interest (LIBOR) at the option of MFC.
Substantially all promissory notes evidencing MFC's investments are held by a
bank, as collateral agent under the agreement. At December 31, 1997, MFC is
required to pay an annual facility fee of 15 basis points on the unused portion
of the Revolver aggregate
F-16
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
commitment. This amount increases as the debt to equity ratio increases to a
maximum fee of 20 basis points. Commitment fee expense for the year ended
December 31, 1997 and the period ended December 31, 1996 was $288,399 and
$114,528, respectively. Outstanding borrowings under the Revolver were
$115,250,000 and $77,550,000 at weighted average interest rate of 6.97% and
7.10% at December 31, 1997 and 1996, respectively. MFC is required under the
Revolver to maintain minimum tangible net assets of $45,000,000 and certain
financial ratios, as defined therein. The Revolver agreement contains other
restrictive covenants, including a limitation of $500,000 for capital
expenditures. At December 31, 1997 and 1996, MFC was in compliance with all its
debt covenants.
Edwards had $8,000,000 and $15,000,000 in available lines of credit with
several banks at December 31, 1997 and 1996, respectively. These agreements
mature on January 31, 1998 and April 30, 1998, respectively. Interest is
charged at Edwards' option, at either the lenders' prime rate or at a rate based
on the adjusted LIBOR. The amount of borrowings outstanding under the lines of
credit was $6,400,000 and $12,450,000, at a weighted average interest rate of
7.26% and 6.8% at December 31, 1997 and 1996, respectively. Edwards is required
to maintain under a promissory note agreement with one of the two banks; a
minimum tangible net worth plus subordinated debt of $32,000,000. At December
31, 1997 and 1996, Edwards was in compliance with all its debt covenants.
Under an agreement with the SBA, Edwards is restricted from borrowing more
than $12,700,000 in bank debt without the prior approval of the SBA. In
addition, all bank indebtedness is senior to SBA-guaranteed indebtedness
pursuant to the SBA rules and regulations.
On December 1, 1996, the Company entered into a revolving credit agreement
with a bank. On December 22, 1997, the agreement was amended to extend the term
to April 30, 1998 and provides for short-term borrowings up to $25,000,000. The
revolving credit borrowings, at the option of the Company, are at the bank's
prime rate or at a rate based on the adjusted LIBOR. The Company is required to
pay a facility fee of 1/4% of the commitment. Outstanding borrowings under this
agreement were $16,100,000 and $4,450,000 at a weighted average interest rate of
7.06% and 6.84% at December 31, 1997 and 1996, respectively.
The weighted average interest rate for the Company's outstanding borrowings at
December 31, 1997 and 1996 was 7.0%. During the year ended December 31, 1997
and the period ended December 31, 1996, the Company's weighted average
borrowings were $97,423,000 and $82,980,000 with a weighted average interest
rate of 6.78% and 7.50%, respectively. The maximum outstanding borrowings of the
Company were $137,750,000 and $94,550,000 at any month-end during the year ended
December 31, 1997 and the seven-month period ended December 31, 1996,
respectively.
(b) Term Loan Agreement
MFC had an existing term loan agreement (Term Loan) with a bank in the amount
of $2,000,000, all of which was outstanding at December 31, 1996. The Term Loan
was paid off in July 1997. The weighted average interest rate paid on such
borrowings was 7.5% during the period through July 31, 1997 and the seven-month
period ended December 31, 1996.
(c) Interest Rate Cap Agreements
On April 7, 1995, MFC entered into three interest rate cap agreements to
reduce the impact of changes in interest rates on its floating rate long-term
debt. These agreements limit the Company's maximum LIBOR exposure on $20,000,000
of MFC's revolving credit facility to 7.5%. The premiums paid under these
agreements were $46,875, $31,000 and $46,687, respectively. The premiums were
capitalized and amortized over the two-year term of the agreements, which
expired on April 7, 1997. The Company was exposed to credit loss in the event of
nonperformance by the counterparties on these interest rate cap agreements.
F-17
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
On November 16, 1995, MFC entered into three additional interest rate cap
agreements to reduce the impact of changes in interest rates on its floating
rate long-term debt. These agreements limit the Company's maximum LIBOR exposure
on an additional $20,000,000 of its revolving credit facility to 7.0%. The
premiums paid under these agreements were $13,000, $25,000 and $12,500,
respectively. The premiums were capitalized and amortized over the two-year
terms of the agreements, which expired on November 16, 1997. The Company was
exposed to credit loss in the event of nonperformance by the counterparties on
these interest rate cap agreements.
On April 17, 1997, MFC entered into an interest rate cap agreement limiting the
Company's maximum LIBOR exposure on $10,000,000 of MFC's revolving credit
facility to 6.0% until April 21, 1998. In addition, on May 9, 1997, MFC entered
into an interest rate cap agreement limiting the Company's maximum LIBOR
exposure on $10,000,000 of MFC's revolving credit facility to 6.5% until May 13,
1998 and 7.0% until November 13, 1999. On May 12, 1997, MFC entered into an
interest rate cap agreement limiting the Company's maximum LIBOR exposure on
$10,000,000 of MFC's revolving credit facility to 7.0% until May 13, 1999.
Total premiums of $144,000 paid under the agreements are being amortized over
the respective terms of the agreements. The Company is exposed to credit loss in
the event of nonperformance by the counterparties on these interest rate cap
agreements. The Company does not anticipate nonperformance by any of these
parties.
(6) SBA DEBENTURES PAYABLE
Outstanding subordinated debentures are as follows at December 31, 1997 and
1996:
1997 1996
------------ ------------
DUE DATE AMOUNT AMOUNT INTEREST RATE
- ------------------- ------------ ------------ ----------------------------
April 1, 1997 $ - $ 1,500,000 8.95%
June 1, 1998 3,000,000 3,000,000 9.80
June 1, 2002 5,640,000 5,640,000 5.0 (until June 1, 1997 and
8.00% thereafter)
September 1, 2002 3,500,000 3,500,000 7.15%
September 1, 2002 6,050,000 6,050,000 7.15
June 1, 2004 4,600,000 4,600,000 7.80
September 1, 2004 5,100,000 5,100,000 8.20
----------- -----------
$27,890,000 $29,390,000
=========== ===========
The SBA imposes certain restrictions, among others, including transfers of
stock and payments of dividends by its licensees, to which the Company is
subject.
(7) STOCK OPTIONS
The Company has a stock option plan (1996 Stock Option Plan) available to
grant both incentive and nonqualified stock options to employees. The 1996 Stock
Option Plan, which was approved by the Board of Directors and stockholders on
May 22, 1996, provides for the issuance of a maximum of 750,000 shares of common
stock of the Company. At December 31, 1997, 453,918 shares of the Company's
common stock remained available for future grants. The Plan is administered by
the Compensation Committee of the Board of Directors. The option price per share
may not be less than the current market value of the Company's share of common
stock on the date the option is granted. The term and vesting periods of the
options are determined by the Compensation Committee, provided that the maximum
term of an option may not exceed a period of ten years.
A Non-Employee Director Stock Option Plan (the "Director Plan") was also
approved by the Board of Directors and stockholders on May 22, 1996. The
Director Plan provides for the issuance of a maximum of 100,000 shares of common
stock of the Company. At December 31, 1997, 70,656 shares of the Company's
common stock remained available for future grants. The grants of stock options
under the Director Plan are automatic as provided in the Director Plan. The
option price per share may not be less than the current market value of the
Company's common stock on the date the option is granted. Options granted under
the Director Plan are exercisable annually, as defined in the Director Plan. The
term of the options may not exceed five years.
F-18
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The Company records stock compensation in accordance with APB Opinion No. 25
(see Note 2). Had compensation cost for stock options been determined based on
the fair value at the date of grant, consistent with the provisions of SFAS No.
123, the Company's net increase in net assets resulting from operations would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN-MONTH PERIOD ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ------------------------
<S> <C> <C>
Net increase in net assets resulting
from operations:
As reported........................... $11,433,666 $3,720,723
Pro forma............................. $11,260,632 $3,696,480
Net increase in net assets resulting
from operations per share-fully
diluted:
As reported........................... $ 1.02 $ 0.45
Pro forma............................. $ 1.01 $ 0.45
</TABLE>
The following table presents the activity for the stock option program under
the 1996 Stock Option Plan and Director Stock Option Plan for the year ended
December 31, 1997 and the period ended December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER EXERCISE PRICE AVERAGE
OF OPTIONS PER SHARE EXERCISE PRICE
----------- -------------- --------------
Outstanding at December 31, 1995 -- -- --
<S> <C> <C> <C>
Granted........................... 218,389 $11.00-$14.375 $11.52
Canceled.......................... -- -- --
Exercised......................... -- -- --
-------
Outstanding at December 31, 1996.. 218,389 $11.00-$14.375 $11.52
-------
Granted........................... 163,984 $ 17.38-$22.38 $19.54
Canceled.......................... (56,947) $ 11.00-$14.38 $10.99
Exercised......................... (30,296) $ 11.00-$14.38 $11.29
-------
Outstanding at December 31, 1997.. 295,130 $ 11.00-$22.38 $16.07
=======
Options exercisable at:
December 31, 1996............ 7,576 $ 11.00 $11.00
December 31, 1997............ 41,652 $11.00-$14.375 $12.50
</TABLE>
The following table summarizes information regarding options outstanding and
options exercisable at December 31, 1997 under the employee Stock Compensation
Plan and Stock Option Plans for Directors.
F-19
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------------------
Weighted
Weighted average Number average Weighted
Number remaining Weighted exercisable at remaining average
outstanding at contractual life average December 31, contractual exercise
Range of Exercise Prices December 31, 1997 in years exercise price 1997 life in years price
- ------------------------ ----------------- ---------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$11.00 100,002 8.39 11.00 22,728 8.39 11.00
$14.38 16,600 3.85 14.38 16,500 3.85 14.38
$13.75 14,544 3.98 13.75 2,424 3.98 13.75
$17.38 - 20.63 163,984 8.65 19.54 - - -
----------------- ---------------- -------------- -------------- ------------- ------------
295,130 8.06 16.07 41,652 6.33 12.50
================= ================ ============== ============== ============= ============
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1997 and the period ended December 31, 1996 was $4.43 and $3.20 per
share, respectively. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997 and 1996:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
-------- --------
<S> <C> <C>
Risk-free interest rate.... 6.3% 6.4%
Expected dividend yield.... 5.0% 4.6%
Expected life of option in 6.6 5.8
years.....................
Expected volatility........ 42.2% 36.7%
</TABLE>
(8) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
One Month
1996 Quarter Ended Ended June 30 September 30 December 31
- ------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands except per share amounts)
Investment Income 1,392 4,264 4,756
Net Investment Income 543 1,523 1,617
Net Income 543 1,549 1,629
Net Income per common .07 .19 .20
share-basic and diluted
</TABLE>
F-20
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 Quarter Ended March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income 4,885 5,286 5,971 7,304
Net Investment Income 1,768 2,487 3,342 3,717
Net Income 1,799 2,457 3,470 3,708
Net Income per common share - basic and .22 .24 .27 .29
diluted
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
(a) Sub-Advisory Agreement
In May 1996, the Company entered into a sub-advisory agreement (the Sub-
Advisory Agreement) with FMC Advisers, Inc. (FMC) in which FMC provides advisory
services to the Company. Under the Sub-Advisory Agreement, the Company pays FMC
a monthly fee for services rendered of $18,750. FMC will regularly consult with
management of the Company with respect to strategic decisions concerning
originations, credit quality assurance, development of financial products,
leverage, funding, geographic and product diversification, the repurchase of
participations, acquisitions, regulatory compliance and marketing. Unless
terminated earlier as described below, the Sub-Advisory Agreement will remain in
effect for a period of two years until May 1998. The term will continue from
year to year thereafter, if approved annually by (i) a majority of the Company's
noninterested directors and (ii) the Board of Directors, or by a majority of the
Company's outstanding voting securities, as defined in the 1940 Act. The
Sub-Advisory Agreement will be terminable without penalty to the Company on 60
days' written notice by either party or by vote of a majority of the outstanding
voting securities of the Company, and will terminate if assigned by FMC. Two
trusts affiliated with two officers, directors and shareholders of the Company
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 the Company worth 200% of
the advisory fees remaining to be paid by the Company 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. Advisory fees incurred during the year
ended December 31, 1997 and the period ended December 31, 1996 were $ 225,000
and $131,250, respectively.
(b) Employee Agreements
The Company has employment agreements with certain key officers for a term of
five years. Annually, the employment period will renew for a new five-year term
unless prior to the end of the first year, either the Company or the executive
provides notice to the other party of its intention not to extend the employment
period beyond the current five-year term. In the event of a change in control,
as defined, during the employment period, the agreements provide for severance
compensation to the executive in an amount equal to the balance of the salary,
bonus and value of fringe benefits which the executive would be entitled to
receive for the remainder of the employment period.
(c) Other Commitments
In the normal course of business, there are outstanding commitments and
contingent liabilities that are not reflected in the consolidated financial
statements. At December 31, 1997, the Company had unfunded loan commitments of
approximately $12,923,000, which bear interest at rates ranging from 8.25% to
18.00%.
F-21
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Commitments for leased premises expire at various dates through June 30,
2006. At December 31, 1997, minimum rental commitments for noncancelable leases
are as follows:
<TABLE>
<CAPTION>
Dollars
--------------
(in thousands)
--------------
<S> <C>
1998 $ 356,265
1999 311,724
2000 248,982
2001 233,004
2002 and thereafter 1,048,484
----------
Total $2,198,459
----------
</TABLE>
Rent expense for the year ended December 31, 1997 and the period ended December
31, 1996 was $291,730 and $165,002, respectively.
(d) Litigation
The Company and its subsidiaries become defendants to various legal
proceedings arising from the normal course of business. In the opinion of
management, based on the advice of legal counsel, there is no proceeding
pending, or to the knowledge of management threatened, which in the event of an
adverse decision would result in a material adverse impact in the financial
condition or results of operations of the Company.
(10) RELATED PARTY TRANSACTIONS
Certain directors, officers and shareholders of Medallion Financial Corp. are
also directors of wholly owned subsidiaries, MFC, Edwards, TCC, BLI and Media.
Officer salaries are set by the Board of Directors. Directors who are not
officers receive an annual fee of $10,000 plus a fee of $2,000 per meeting.
Directors who are members of the committees of the Board receive $1,000 for each
meeting attended. Total director fees during the period ended December 1997 and
1996 were $79,657 and $37,542, respectively. At December 31, 1997 and 1996,
total officer compensation was $1,182,400 and $588,065, respectively.
(11) SHAREHOLDERS' EQUITY
On May 16, 1997, the Company completed a secondary equity offering and sold
4,600,000 shares at $17.25 per share. Offering costs incurred by the Company in
connection with the sale of shares totaling $5,010,575 were recorded as a
reduction of capital upon completion of the Secondary Equity Offering.
On May 29, 1996, the Company issued and sold 5,750,000 shares at $11.00 per
share in an initial public offering and split the existing 200 shares of common
stock outstanding into 2,500,000 shares. All references to the amount and number
of shares outstanding in the accompanying consolidated financial statements have
been restated to reflect the stock split. The proceeds from the secondary equity
Offering were used to purchase all of the outstanding stock of Tri-Magna and TCC
and acquire substantially all of the assets and assume certain liabilities of
Edwards Capital Company. Refer to Notes 1 and 3 for a discussion of the
secondary equity Offering and the acquisitions.
In 1995, MFC and TCC repurchased and retired all of their previously issued 3%
preferred stock from the SBA at a discount of 65% ($8,201,266) for an aggregate
price of $4,416,067, under the SBA preferred stock repurchase agreements. Under
the repurchase agreements, the SBA retains a liquidating interest in the amount
of the discount on the repurchase, which expires on a straight-line basis over
five years or on a later date if an event of default, as defined in the
agreements, has occurred and such default has not been cured or waived. Upon the
occurrence of any event of default,
F-22
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
the SBA's liquidating interest will become fixed at the level immediately
preceding the event of default and will not accrete further until the default is
cured or waived. In the event of MFC's or TCC's liquidation, the unexpired
portion ($2,940,314 at December 31, 1997) of the liquidating interest becomes
immediately payable to the SBA. The Company does not anticipate the occurrence
of an event that would result in any amount being due to the SBA.
In accordance with Statement of Position 93-2, "Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies," $615,688 was reclassified from capital
in excess of par value to accumulated undistributed income at December 31, 1997.
At December 31, 1996, $292,999 was reclassified from accumulated undistributed
income to capital in excess of par value in the accompanying consolidated
balance sheet. These reclassifications had no impact on the Company's total
shareholders' equity and were designed to present the Company's capital accounts
on a tax basis.
(10) OTHER OPERATING EXPENSES AND OTHER INCOME
The major components of other operating expenses for the year ended December
31, 1997 and the period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Office expenses............. $ 675,122 $254,715
Insurance................... 490,968 254,440
Rent........................ 291,731 165,002
Other....................... 554,206 205,030
---------- --------
$2,012,027 $879,187
========== ========
</TABLE>
The major components OF OTHER INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE PERIOD ENDED DECEMBER 31, 1996 WERE AS FOLLOWS:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Late charge................. $212,139 $123,646
Prepayment.................. 390,511 205,329
Other....................... 343,659 82,016
Loan commitment fee income.. 34,000 -
-------- --------
$980,309 $410,991
======== ========
</TABLE>
(11) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Investment Plan (the 401(k) Plan) which covers all
full- and part-time employees of the Company who have attained the age of 21 and
have a minimum of one-half year of service. Under the 401(k) Plan, an employee
may elect to defer not less than 1% and no more than 15% of the total annual
compensation that would otherwise be paid to the employee, provided, however,
that employees' contributions may not exceed certain maximum amounts determined
under the Internal Revenue Code. Employee contributions are invested in various
mutual funds according to the directions of the employee. The Company can
provide for employer matching contributions, at the discretion of the Board of
Directors, beginning in 1997.
F-23
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about certain financial
instruments, whether assets, liabilities or off-balance-sheet commitments, if
practicable. The following methods and assumptions were used to estimate the
fair value of each class of financial instrument. Fair value estimates that were
derived from broker quotes cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument.
In addition, SFAS 107 excludes certain financial instruments and all non-
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
(a) Investments--As described in Note 2, the carrying amount of investments is
the estimated fair value of such investments.
(b) The fair market value of excess servicing fees receivable is estimated by
expected future service fee income cash flows discounted at a rate that
approximates that currently offered for instruments with similar prepayment
and risk characteristics.
(c) Notes payable to banks and demand notes--Due to the short-term nature of
these instruments, the carrying amount approximates fair value.
(d) Commitments to Extend Credit--The fair value of commitments to extend credit
is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also includes a consideration of the difference
between the current levels of interest rates and the committed rates. At
December 31, 1997 and December 31, 1996, the estimated fair value of these
off-balance-sheet instruments was not material.
(e) Interest Rate Cap Agreements--The fair value is estimated based on market
prices or dealer quotes. At December 31, 1997 and December 31, 1996, the
estimated fair value of these off-balance-sheet instruments were not
materially different.
(f) Debentures Payable to SBA--The fair value of the debentures payable to SBA
is estimated based on current market interest rates for similar debt.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- ---------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Financial Assets:
Investments........................ $288,724 $288,724 $176,494 $176,494
Cash............................... 2,530 2,530 1,665 1,665
Servicing fee receivable........... 1,671 1,671 - -
Financial Liabilities:
Notes payable to banks and demand 137,750 137,750 96,450 96,450
notes.............................
SBA debentures payable............. 27,890 27,890 29,390 29,320
</TABLE>
F-24
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(15) SUBSEQUENT EVENTS
(a) Acquisitions
On February 4, 1998, the Company signed a definitive agreement to acquire VGI,
VGII and Venture Opportunities Corp., an SBIC lender headquartered in New York
City. The transaction included the purchase of most of the assets and assumption
of certain liabilities, aggregating a purchase price of approximately $19
million. This transaction is subject to approval by the SBA and is expected to
close in the second quarter of 1998.
On March 9, 1998, the Company announced the execution of a definitive
agreement to acquire Capital Dimensions, Inc. (CDI), an SSBIC lender,
headquartered in Minneapolis, MN. The transaction is structured as a tax-free
exchange and as a pooling of interests for accounting purposes. Based on the
closing price of the Company's stock on March 8, 1998, the transaction would be
valued at approximately $30 million. The agreement is subject to approval by
the SBA and is expected to close during the second quarter of 1998.
(b) Actions of the Board of Directors
On February 25, 1998, the Board of Directors voted to extend the Sub-Advisory
Agreement with FMC until May 1999 under provisions of the renewal in the
agreement (see Note 8).
(c) Commercial Paper Program
On March 13, 1998, the Company entered into a commercial paper program with
maximum borrowings of $195 million as a supplement to MFC's syndicated credit
facilities. The program is contingent upon the maintenance of investment-grade
ratings from two of the four rating agencies. The program has no specified
maturity and may be terminated at any time.
F-25
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF BALANCE
LOANS OUTSTANDING RATE
--------- -------------- ------------
<S> <C> <C>
2 $ 48,922 5.00-7.00%
22 2,910,738 7.63-7.77
74 17,712,665 8.00
22 5,656,282 8.13
11 2,445,199 8.20
174 28,470,286 8.25
12 2,785,264 8.30-8.38
199 25,905,594 8.50
141 20,937,604 8.60-8.75
15 4,063,370 8.80-8.90
191 23,416,770 9.00
207 19,029,373 9.25
183 18,255,772 9.50
76 6,559,975 9.60-9.75
6 271,618 9.80-9.90
253 19,566,492 10.00
37 3,073,823 10.25
3 600,000 10.27-10.28
2 246,205 10.38
91 4,650,430 10.50
34 3,311,237 10.75-10.90
203 10,170,310 11.00
201 10,707,415 11.25-11.33
3 323,460 11.50
3 122,599 11.75
8 1,045,031 11.90
116 8,252,167 12.00
12 1,773,975 12.25
5 429,568 12.50
10 973,445 12.75-12.90
309 12,558,888 13.00
39 1,683,614 13.25
46 2,392,484 13.50
3 148,178 13.75-13.90
161 6,755,248 14.00-14.05
82 5,705,206 14.20-14.50
11 380,508 14.70-14.84
6 256,502 14.90-14.95
284 10,907,481 15.00
8 430,947 15.20-15.25
16 993,941 15.50
9 1,044,595 15.75-15.90
23 1,098,278 16.00
5 268,661 16.25
12 391,665 16.50-16.95
6 286,355 17.00-17.90
5 215,257 18.00-18.50
6 167,567 19.00
- ---------------------------------------- ------------
Total 3,347 $289,400,967 10.02%
============ -----------
Plus: Origination costs, net 1,557,199
------------
Investments at cost 290,958,163
Less: Unrealized depreciation on
investments (2,233,717)
------------
Investment at directors' valuation $288,724,446
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF BALANCE
LOANS OUTSTANDING RATE
--------- ------------ ---------------
<S> <C> <C>
1 $ 60,754 5.000%
11 548,641 7.000-7.700
19 3,150,172 8.000-8.200
18 1,901,132 8.250
7 487,074 8.300
12 758,448 8.370
6 304,843 8.400-8.440
24 3,205,029 8.500
9 689,313 8.600
10 892,704 8.625
13 376,064 8.700
49 5,379,874 8.750
12 672,116 8.720
108 11,322,414 9.000
2 235,992 9.120
157 15,042,298 9.250
5 1,036,661 9.320-9.380
248 26,661,479 9.500
1 170,000 9.600
94 9,208,547 9.750
29 2,789,612 9.800-9.900
207 18,467,948 10.000
76 6,640,204 10.250
5 462,805 10.370-10.3750
47 4,855,909 10.500
30 2,592,974 10.750
1 50,983 10.900
164 10,290,809 11.000
17 1,483,897 11.250-11.900
107 5,910,504 12.000
11 1,014,949 12.500
3 351,109 12.750-12.950
254 10,113,883 13.000
4 633,040 13.250
56 2,914,663 13.500
5 128,772 13.550-13.750
166 8,044,479 14.000
11 176,089 14.050-14.300
36 3,064,635 14.500
11 354,145 14.750-14.950
262 11,806,060 15.000
11 610,583 15.200-15.250
9 590,210 15.500
8 511,816 15.750-15.950
15 745,357 16.000
5 160,939 16.500
4 202,387 16.640-16.950
1 24,750 17.000
3 193,142 18.000
6 205,193 19.000
----- ------------
Total 2,370 $177,495,401 10.800%
===== ============ --------------
Plus: Origination costs, net 567,204
------------
Investments at cost 178,062,605
Less: Unrealized depreciation on
investments (1,568,717)
------------
Investments at directors' valuation $176,493,888
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Tri-Magna Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Tri-Magna
Corporation (a Delaware corporation) and subsidiaries (collectively referred to
as the Company) as of May 29, 1996 and December 31, 1995, including the
consolidated schedules of investments as of May 29, 1996 and December 31, 1995,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the five-month period ended May 29, 1996 and each of the two
years in the period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 2, the consolidated financial statements include loans
receivable valued at $95,621,617 (97% of total assets) and at $96,046,416 (96%
of total assets) as of May 29, 1996 and December 31, 1995, respectively, whose
values have been estimated by the Board of Directors in the absence of readily
ascertainable market values. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values that
would have been used had a ready market for the loans existed, and the
differences could be material.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tri-Magna
Corporation and subsidiaries as of May 29, 1996 and December 31, 1995, and the
results of their operations and their cash flows for the five-month period ended
May 29, 1996 and each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 26, 1997
F-28
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1995 1996
------------- ------------
<S> <C> <C>
ASSETS
Investments (Note 2)................... $96,956,416 $96,531,617
Less unrealized depreciation on (910,000) (910,000)
investments (Note 6).................. ----------- -----------
96,046,416 95,621,617
Investment in unconsolidated 145,335 92,313
subsidiary (Note 2)...................
Cash................................... 1,177,166 624,617
Accrued interest receivable............ 844,350 870,073
Furniture and fixtures, net............ 87,925 79,124
Other assets........................... 1,486,974 1,316,933
----------- -----------
Total Assets........................... $99,788,166 $98,604,677
=========== ===========
LIABILITIES
Notes payable to banks and demand $80,294,900 $79,394,900
notes (Note 3)........................
Accounts payable and accrued expenses.. 1,290,267 1,360,570
Dividends payable...................... -- 542,012
Accrued interest payable............... 889,147 818,560
----------- -----------
Total Liabilities...................... 82,474,314 82,116,042
----------- -----------
Commitments and Contingencies (Note 9)
Shareholders' Equity (Notes 4 and 5)
Common stock (1,000,000 shares of $.01
par value stock authorized, 668,900 6,689 6,689
shares outstanding at December 31,
1995 and May 29, 1996)................
Capital in excess of par value.......... 10,594,241 10,567,267
Accumulated undistributed income (loss). 710,822 (87,421)
----------- -----------
11,311,752 10,486,535
Restricted capital surplus.............. 6,002,100 6,002,100
----------- -----------
Total Shareholders' Equity.............. 17,313,852 16,488,635
----------- -----------
Total Liabilities and Shareholders' $99,788,166 $98,604,677
Equity................................. =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Investment Income
Interest on investments.............. $8,820,273 $9,802,560 $4,423,396
---------- ---------- ----------
Total Investment Income........... 8,820,273 9,802,560 4,423,396
---------- ---------- ----------
Interest Expense
Interest on SBA debentures........... 974,105 780,254 -
Interest on bank debt (Note 3)....... 3,781,910 5,253,924 2,516,914
---------- ---------- ----------
Total Interest Expense............ 4,756,015 6,034,178 2,516,914
---------- ---------- ----------
Net Interest Income.................. 4,064,258 3,768,382 1,906,482
---------- ---------- ----------
Non-Interest Income
Equity in earnings(losses) of
unconsolidated subsidiary (Note 2) 18,379 125,956 (53,022)
Other income........................... 519,030 446,209 148,125
---------- ---------- ----------
Total Non-Interest Income......... 537,409 572,165 95,103
---------- ---------- ----------
Expenses
Administration and advisory fees..... 33,905 13,149 3,671
Legal and accounting fees............ 367,484 344,311 144,562
Directors' fee (Note 8).............. 76,500 46,000 15,022
Officers' and employees' salaries.... 1,028,627 1,086,569 501,063
Employee benefit plans (Note 7)...... 136,000 70,008 44,000
Merger related costs (Note 5)........ - - 584,000
Other operating expenses............. 1,057,797 1,054,757 524,242
---------- ---------- ----------
Total Expenses.................... 2,700,313 2,614,794 1,816,560
---------- ---------- ----------
Dividends paid on minority interest.. 277,020 207,774 -
---------- ----------
Net Investment Income................ 1,624,334 1,517,979 185,025
---------- ---------- ----------
Realized and Unrealized Gain (Loss) on
Investments
Realized gain (loss) on investments
(Note 6).......................... (21,938) 61,194 -
Change in unrealized depreciation
(Note 6).......................... 58,000 (140,000) -
---------- ---------- ----------
Net Realized and Unrealized Gain
(Loss) on Investments............. 36,062 (78,806) -
---------- ---------- ----------
Net Increase in Net Assets resulting
from Operations...................... $1,660,396 $1,439,173 $ 185,025
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF CAPITAL ACCUMULATED RESTRICTED
COMMON STOCK COMMON STOCK IN EXCESS UNDISTRIBUTED CAPITAL
OUTSTANDING $.01 PAR VALUE OF PAR VALUE INCOME (LOSS) SURPLUS
-------------- -------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.. 665,900 $6,659 $11,227,341 $ (399,918) $ --
Dividends paid, common...... -- -- -- (1,668,050) --
Distributable net income..... -- -- -- 1,602,396 --
Sale of common stock......... 3,000 30 49,470 -- --
Change in unrealized
depreciation................ -- -- -- 58,000 --
-------------- ------------ ----------- ----------- ----------
Balance at December 31, 1994.. 668,900 $6,689 $11,276,811 $ (407,572) $ --
-------------- ------------ ----------- ----------- ----------
Dividends declared,
common...................... -- -- -- (1,003,349) --
Distributable net income..... -- -- -- 1,579,173 --
SOP 93-2 Cumulative
reclassification
(Note 5).................... -- -- (682,570) 682,570 --
Gain on minority interest
buyback (Note 4)............ -- -- -- -- 6,002,100
Change in unrealized
depreciation................ -- -- -- (140,000) --
-------------- ------------ ----------- ----------- ----------
Balance at December 31, 1995.. 668,900 $6,689 $10,594,241 $ 710,822 $6,002,100
-------------- ------------ ----------- ----------- ----------
Dividends declared,
common (Note 5)............. -- -- -- (1,010,242) --
Distributable net
income...................... -- -- -- 185,025 --
SOP 93-2 reclassification
(Note 5).................... -- -- (26,974) 26,974 --
Change in unrealized
depreciation................ -- -- -- -- --
-------------- ------------ ----------- ----------- ----------
Balance at May 29, 1996....... 668,900 $6,689 $10,567,267 $ (87,421) $6,002,100
============== ============ =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
---------------------------- ------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Increase in Net Assets resulting
from Operations......................... $ 1,660,396 $ 1,439,173 $ 185,025
Adjustments to reconcile net income to
net cash provided by
Operating activities:
Depreciation and amortization.......... 64,848 43,594 19,929
Change in unrealized depreciation...... (58,000) 140,000 -
Realized loss (gain) on investments.... 21,938 (61,194) -
(Increase) decrease in investment in
unconsolidated subsidiary.............. (19,379) (125,956) 53,022
(Increase) decrease in accrued (64,697) (66,252) (25,723)
interest receivable...................
Decrease (increase) in other assets.... (99,434) (794,721) 165,111
Increase (decrease) in accounts
payable and accrued expenses........... (90,565) 1,036,580 70,303
Increase (decrease) in dividends
payable minority interest.............. (69,255) (69,255) -
Increase (decrease) in accrued
interest payable....................... 143,725 257,330 (70,587)
------------ ------------ -----------
Net cash provided by operating 1,489,577 1,799,299 397,080
Activities..........................
Cash Flows from Investing Activities:
Increase in investments................ (33,103,213) (30,667,520) (7,252,488)
Proceeds from investment maturities
and terminations....................... 24,753,080 24,114,690 7,677,287
Proceeds from liquidation of other
Assets................................. 414,884 144,100 -
Capital expenditures................... (6,991) (16,378) (6,198)
------------ ------------ -----------
Net cash provide by (used for) (7,942,240) (6,425,108) 418,601
investing activities................
Cash Flows from Financing Activities:
Proceeds from (payments of) notes
payable to banks....................... 8,325,000 21,269,900 (900,000)
Payments of SBA debentures............. - (12,500,000) -
Buyback of minority interest........... - (3,231,900) -
Sale of common stock................... 49,500 - -
Dividends paid on common stock......... (1,668,050) (1,003,349) (468,230)
------------ ------------ -----------
Net cash provided by (used for) 6,706,450 4,534,651 (1,368,230)
financing activities................ ------------ ------------ -----------
Net Increase (Decrease) in Cash 253,787 (91,158) (552,549)
Cash, beginning of period............... 1,014,537 1,268,324 1,177,166
------------ ------------ -----------
Cash, end of period..................... $ 1,268,324 $ 1,177,166 $ 624,617
============ ============ ===========
Supplemental Information:
Cash paid during the period for
interest (Includes dividends paid
on minority interest).................. $ 4,958,565 $ 6,053,877 $ 2,587,501
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 29, 1996
(1) ORGANIZATION
On February 3, 1989, Tri-Magna Corporation, a newly formed Delaware
corporation, (referred to as Tri-Magna or the Parent Company) and its
subsidiary, Medallion Funding Corp. (Medallion) entered into an Agreement and
Plan of Share Exchange (the Share Exchange). Tri-Magna and its wholly-owned
subsidiaries Medallion, F.A.P. Holding Corp. (FAP) and Medallion Taxi Media,
Inc. (Media) are collectively referred to as the Company. Under the Share
Exchange, 100 shares of common stock of the Parent Company were exchanged for
each of the outstanding shares of common stock of Medallion. On May 18, 1989,
the shareholders of Medallion voted in favor of the Share Exchange Plan. This
transaction was accounted for as a pooling of interests.
The Parent Company was formed in January 1989 for the purpose of acquiring all
of the outstanding shares of Medallion common stock pursuant to the Share
Exchange. The Parent Company is a closed-end, diversified management investment
company registered under the Investment Company Act of 1940 (the 1940 Act), and
has elected to be treated as a regulated investment company under the Internal
Revenue Code of 1986, as amended.
Medallion was formed in 1979 for the purpose of operating as a Specialized
Small Business Investment Company (SSBIC), licensed, regulated and financed in
part by the U.S. Small Business Administration (SBA). Medallion was granted a
license to operate as a SSBIC by the SBA on June 23, 1980. On February 2, 1982,
Medallion registered as a closed-end, nondiversified investment company under
the 1940 Act.
On June 22, 1992, Medallion established a wholly-owned subsidiary, FAP. This
subsidiary was established for the purpose of acquiring and managing property
purchased in foreclosure from Medallion.
On August 23, 1994, Media, a New York corporation was formed. Media is engaged
in the outdoor media advertising business and is a wholly-owned subsidiary of
Tri-Magna. On May 29, 1996, Tri-Magna was acquired by Medallion Financial
Corp., pursuant to a merger agreement dated December 21, 1995. Under the merger
agreement, all of the Company's outstanding shares of capital stock was canceled
in exchange for $20.00 per share.
The accompanying consolidated financial statements include the accounts of
Tri-Magna and Medallion after elimination of all intercompany amounts. (See Note
2)
The consolidated balance sheet as of May 29, 1996 and consolidated statements
of operations, shareholders' equity and cash flows for the period ended May 29,
1996 include the accounts of Tri-Magna and Medallion prior to the consummation
of the merger with Medallion Financial Corp. on May 29, 1996.
F-33
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company, which conform with
generally accepted accounting policies and accounting principles and procedures
generally accepted in the investment company industry, include the following:
INVESTMENTS
Medallion's investments consist primarily of long-term loans to persons
defined by SBA regulations as being socially or economically disadvantaged, or
to entities that are at least 50% owned by such persons. Approximately 68% of
Medallion's loan portfolio at December 31, 1995, and May 29, 1996 have arisen in
connection with the financing of taxicab medallions, taxicabs and related
assets, substantially all in the metropolitan New York area. These loans are
secured by the medallions, taxicabs and related assets and are personally
guaranteed by the borrowers, or in the case of corporations, personally
guaranteed by the owners. The remaining portion of Medallion's portfolio
represents loans to various commercial enterprises, including dry cleaners,
garages, gas stations and laundromats. These loans are secured by various
equipment and/or real estate and are generally guaranteed by the owners, and in
certain cases, by the equipment dealers. These loans are made primarily in the
metropolitan New York City area.
Tri-Magna began funding loans in March, 1995. As of December 31, 1995 and May
29, 1996, Tri-Magna has funded 50 loans totaling $4,272,212 and 51 loans
totaling $4,752,212, respectively. Of these amounts, Tri-Magna participated out
a total of $2,538,721 and $2,922,721, respectively.
Under the 1940 Act, the Company's long-term loans are considered investments
and are recorded at their fair value. Since no ready market exists for these
loans, fair value is determined by the Board of Directors in good faith. In
determining fair value, the directors take into consideration the financial
condition of the borrower, the adequacy of the collateral, and the relationships
between market rates and portfolio rates. Loans were valued at cost, less
unrealized depreciation of $910,000 at December 31, 1995 and May 29, 1996. The
directors have determined that this valuation approximates fair value.
The principal portion of loans serviced for others by the Company at December
31, 1995 and May 29, 1996 amounted to approximately $15,799,777 and $20,793,093,
respectively.
The Company offsets loan origination fees against related direct loan
origination costs. The net amount is deferred and amortized over the life of the
loan. At December 31, 1995 and May 29, 1996, the net deferred asset totaled
$293,400 and $324,438, respectively. Amortization expense was $22,117, $84,684
and $83,229 for the years ended December 31, 1994 and 1995, and period ended May
29, 1996, respectively.
F-34
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Tri-Magna owns 100% of the outstanding stock of Media. Tri-Magna's investment
in Media is accounted for under the equity method because as a non-investment
company, Media, cannot be consolidated with an investment company, Tri-Magna.
Financial information for Media is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
------------ -------------
BALANCE SHEET 1995 1996
------------- ------------ -------------
<S> <C> <C>
Cash.................................... $ -- $ 110,182
Accounts receivable..................... 214,238 285,696
Equipment, net.......................... 559,786 526,846
Other................................... 55,720 36,504
-------- ----------
Total Assets............................ $829,744 $ 959,228
======== ==========
Notes payable........................... $275,000 275,000
Notes payable to parent................. - 443,651
Accrued expenses........................ 409,409 148,264
-------- ----------
Total Liabilities....................... 684,409 866,915
-------- ----------
Common stock............................ 1,000 1,000
Retained earnings....................... 144,335 91,313
-------- ----------
Total equity............................ 145,335 92,313
-------- ----------
Total Liabilities and Shareholders $829,744 $ 959,228
equity................................. ======== ==========
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED PERIOD ENDED
STATEMENT OF OPERATIONS DECEMBER 31, DECEMBER 31, MAY 29,
------------ ------------ ------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Advertising revenue $227,756 $1,542,013 $671,148
Cost of services 83,341 483,721 283,891
-------- ---------- --------
Gross margin 144,415 1,058,292 387,257
Other operating expenses 126,036 829,293 455,278
-------- ---------- --------
Income (loss) before taxes 18,379 228,999 (68,021)
Income taxes - 103,043 (14,999)
-------- ---------- --------
Net income (loss) $ 18,379 $ 125,956 $(53,022)
======== ========== ========
</TABLE>
On March 8, 1995, Tri-Magna guaranteed a demand loan for Media. At December
31, 1995 and May 29, 1996, $275,000 was outstanding at an interest rate of 2.00%
over prime or (10.50%) and (10.25%) interest rate, respectively. The loan
matured in June 1996 and was paid in full .
FEDERAL INCOME TAXES
It is the Company's policy to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies, which require the
Company to distribute at least 90% of its investment company taxable income to
its shareholders. Therefore, no provision for federal income tax has been made.
F-35
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAP and Media have elected to be taxed as regular corporations and, for the
year ended December 31, 1995, recorded a provision for income taxes totaling
approximately $103,000. For the period ended May 29, 1996 both entities
incurred operating losses and required no provision for income taxes. The
provision (benefit) for income taxes are reflected in equity in earnings of
unconsolidated subsidiary on the accompanying consolidated statement of
operations.
INCOME RECOGNITION
When, in the judgment of management, collection of any portion of the interest
or principal amount of a receivable is in doubt, accrual of interest income is
discontinued, and interest is recorded when received. At December 31, 1995 and
May 29 , 1996, nonaccrual loans totaled approximately $1,299,357 and $1,903,843,
respectively, and the related foregone interest income amounted to approximately
$218,853 and $106,856, respectively. Additionally, at December 31, 1995 and May
29, 1996, restructured loans totaled approximately $380,002 of which $0 was
included in nonaccrual loans, respectively. Other income on the accompanying
consolidated statements of operations consists of late fees, prepayment
penalties and fee income.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(3) NOTES PAYABLE TO BANKS
At December 31, 1995 and May 29, 1996, the Company had outstanding bank
borrowings under the following agreements:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
DESCRIPTION 1995 1996
----------- -----------
<S> <C> <C>
Revolving Credit Agreement.. $73,150,000 72,250,000
Term Loan Agreements........ 5,231,900 5,231,900
Short-Term Note............. 1,913,000 1,913,000
----------- -----------
Total...................... $80,294,900 $79,394,900
=========== ===========
</TABLE>
Borrowings under these agreements are secured by all assets of the Company.
REVOLVING CREDIT AGREEMENT
On March 27, 1992 (and as subsequently amended), the Company entered into a
committed revolving credit agreement (the Revolver) with a group of banks. The
Company extended the Revolver until June 30, 1997 at an aggregate credit
commitment amount of $78,000,000 pursuant to the Renewal and Extension Agreement
dated March 29, 1996. The Revolver may be extended annually thereafter upon the
option of the participating banks and acceptance by the Company. Should any
participating bank not extend its committed amount, the Revolver agreement
provides that each bank shall extend a term loan equal to its share of the
principal amount outstanding of the revolving credit note.
F-36
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MAY 29, 1996
(3) NOTES PAYABLE TO BANKS (CONTINUED)
Maturity of the term note shall be the earlier of two years or any other date
on which it becomes payable in accordance with the Revolver. Interest and
principal payments are to be made monthly. Interest is calculated monthly at
either the bank's prime rate or a rate based on the adjusted London Interbank
Offered Rate of interest (LIBOR) at the option of the Company. Substantially all
promissory notes evidencing the Company's investments are held by a bank, as
collateral agent under the agreement. Outstanding borrowings under the Revolver
were $73,150,000 and $72,250,000, at December 31, 1995 and May 29, 1996, at an
average interest rate of 7.40% and 6.87%, respectively. During the year ended
December 31, 1995 and for the period ended May 29, 1996, the Company's weighted
average borrowings were approximately $62,203,800 and $73,180,000 and the
maximum outstanding borrowings were $73,150,000 and $74,150,000, respectively.
The weighted average interest rates on the weighted average borrowings were
7.64% and 7.44% during the year ended December 31, 1995 and the period ended May
29, 1996, respectively.
The Company is required to pay an annual facility fee of 1/4% effective
prospectively as of March 28, 1995 on the Revolver aggregate commitment. For the
year ended December 31, 1994 and up through March 27, 1995, the Company was
required to pay an annual facility fee of 3/8%. Additionally, effective
prospectively as of September 29, 1995, the Company is required to pay an
additional annual fee of $62,500.
TERM LOAN AGREEMENTS
At December 31, 1995 and May 29, 1996, the Company had borrowed a total of
$2,000,000 under a term loan agreement (Term Loan) with a bank. The $2,000,000
was outstanding at December 31, 1995 and May 29, 1996. During 1995, the fixed
interest rate of 5.88% was increased to 7.5%. Interest payments are due
quarterly. The weighted average interest rate paid on such borrowings was 6.68%
and 7.50%, during the year ended December 31, 1995 and period ended May 29,
1996, respectively. The total term borrowings outstanding at May 29, 1996 under
this agreement are due in July 1997.
On September 29, 1995, Tri-Magna entered into a $3,231,900 term loan with a
certain bank maturing on May 31, 1996. Interest is paid monthly at the prime
rate. The loan is secured by all assets of Tri-Magna. The proceeds of this loan
were invested in Medallion as a capital contribution to facilitate the
repurchase of its preferred stock from the SBA. (See Notes 4 and 10)
SHORT-TERM NOTE
On December 19, 1994, Tri-Magna entered into a demand promissory note (Demand
Note) with a certain bank. On September 1, 1995, the Demand Note was converted
into a $2,000,000 short-term secured note (Short-Term Note) which matures on
August 31, 1996. Interest is calculated monthly at either the bank's prime rate
or a rate based upon adjusted LIBOR at the option of the Company. Substantially
all promissory notes evidencing Tri-Magna's investments are pledged to the bank
as collateral. The Company is required to pay an annual facility fee of 1/4%
effective prospectively as of September 29, 1995 on the aggregate amount of the
note. Outstanding borrowings under the Short-Term Note were $1,913,000 at
December 31, 1995 and May 29, 1996, at an average interest rate of 7.59% and
6.84%, respectively. During the year ended December 31, 1995 and period ended
May 29, 1996, Tri-Magna's weighted average borrowings were approximately
$1,025,500 and $1,902,820 and the maximum outstanding borrowings were
$1,913,000. The weighted average interest rate on such borrowings was 8.49% and
8.45% during the year ended December 31, 1995 and period ended May 29, 1996,
respectively.
F-37
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(3) NOTES PAYABLE TO BANKS (CONTINUED)
Interest Rate Cap Agreements
On April 7, 1995, the Company entered into three interest rate cap agreements
to reduce the impact of changes in interest rates on its floating rate long-term
debt. These agreements limit the Company's maximum LIBOR exposure on $20,000,000
of its revolving credit facility to 7.5%. The premiums paid under these
agreements were $46,875, $31,000 and $46,687, respectively. The premiums have
been capitalized and are being amortized over the two-year term of the
agreements, which expires on April 7, 1997. The Company is exposed to credit
loss in the event of nonperformance by the counterparties on these interest rate
cap agreements. The Company does not anticipate nonperformance by any of these
parties.
On November 16, 1995, the Company entered into three additional interest rate
cap agreements to reduce the impact of changes in interest rates on its floating
rate long-term debt. These agreements limit the Company's maximum LIBOR exposure
on an additional $20,000,000 of its revolving credit facility to 7.0%. The
premiums paid under these agreements were $13,000, $25,000 and $12,500,
respectively. The premiums have been capitalized and are being amortized over
the two-year terms of the agreements, which expire on November 16, 1997. The
Company is exposed to credit loss in the event of nonperformance by the
counterparties on these interest rate cap agreements. The Company does not
anticipate nonperformance by any of these parties.
(4) MINORITY INTEREST
On September 29, 1995, Medallion repurchased and retired all of its 3%
preferred stock owned by the SBA at a discount of 65%, under an SBA preferred
stock repurchase agreement. The effective date of the buyback was August 12,
1994. The purchase price of the preferred stock was $3,231,900. The amount of
the discount, $6,002,100, was recorded as an increase in capital in an account
separate from other paid-in capital accounts, as restricted capital surplus
account. Under the repurchase agreement, the SBA retains a liquidating interest
in the amount of the discount on the repurchase, which expires on a straight
line basis over five years or on a later date if an event of default, as defined
in the agreement, has occurred and such default has not been cured or waived.
Upon the occurrence of any event of default, the SBA's liquidating interest will
become fixed at the level immediately preceding the event of default and will
not accrete further until the default is cured or waived.
While the liquidating interest expires over a five-year period, the balance in
the restricted capital surplus account remains unchanged in accordance with the
SBA requirements. The SBA requires this treatment because the additional equity
obtained as a result of the repurchase transaction is subject to certain
restrictions that remain even after the liquidated interest has been eliminated.
In the event of Medallion's liquidation, the unexpired portion of the
liquidating interest becomes immediately payable to the SBA.
At December 31, 1995 and May 29, 1996, the unaccreted amount of the SBA's
liquidating interest in the restricted capital surplus was $4,351,523 and
$3,851,348, respectively.
(5) SHAREHOLDERS' EQUITY
As discussed in Note (4), under the terms of the preferred stock repurchase
agreement with the SBA, a change in ownership of the Company could result in the
unexpired portion of the liquidating interest becoming payable to the SBA. This
provision was waived and the merger transaction with Medallion Financial Corp.
was approved by the SBA.
Direct costs associated with the merger agreement with Medallion Financial
Corp., previously deferred by the
F-38
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(5) SHAREHOLDERS' EQUITY(CONTINUED)
Company, were expensed on May 29, 1996. Total direct costs charged to results
of operations were $584,000.
On May 29, 1996, the Company declared an additional and liquidation dividend
of $0.81 per share totaling $542,012, payable on May 29, 1996 to the
shareholders at record as of such date.
In accordance with Statement of Position 93-2, ``Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies,'' a cumulative amount of $709,544 has
been reclassified from capital in excess of par value to accumulated
undistributed income on the accompanying consolidated balance sheets. This
reclassification has no impact on the Company's total shareholders' equity and
is designed to present the Company's capital accounts on a tax basis.
(6) REALIZED LOSSES (GAINS) AND UNREALIZED DEPRECIATION ON INVESTMENTS
A summary of realized losses and unrealized depreciation on investments for
the period ended May 29, 1996 and the years ended December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 29, YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------- -----------
<S> <C> <C> <C>
Balance at Beginning of Period..... $(910,000) $(770,000) $(828,000)
Change in Unrealized Depreciation.. -- (140,000) 58,000
--------- --------- ---------
Balance at End of Period........... $(910,000) $(910,000) $(770,000)
========= ========= =========
</TABLE>
For the period ended May 29, 1996 and the years ended December 31, 1995 and
1994, realized losses and (gains) were $0, $(61,194), and $21,938, respectively.
(7) EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution employee benefit plan, the
Medallion Funding Corp. Profit-Sharing Retirement Plan (the Profit-Sharing
Plan), under which substantially all Tri-Magna and Medallion employees and
officers are covered.
In addition, prior to March 31, 1996, the Company also maintained a defined
contribution employee pension plan, the Medallion Funding Corp. Pension Plan,
(the Pension Plan).
The Company's management acts as trustee of both Plans. Under the
Profit-Sharing Plan, voluntary employee as well as Company contributions are
allowed. Under the Pension Plan, the Company contributed up to 10% of each
participants annual compensation. Total employer contributions to both Plans is
limited to the lesser of 10% of each participant's compensation or $10,000,
annually. On March 31, 1996, the Pension Plan was terminated by the Board of
Directors. The Company contributions, at participants' option were transferred
to other plans.
The expense for employee benefit plans was approximately $70,000, $136,000 and
$44,000 for the years ended December 31, 1995 and 1994 and the period ended May
29, 1996, respectively.
F-39
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(8) TRANSACTIONS WITH RELATED PARTIES
Certain officers and directors of Medallion are also shareholders of TriMagna.
Officers' salaries are set by the Board of Directors. Directors who are not
officers receive a fee of $1,000 per meeting. Directors who are members of
committees receive $500 for each meeting attended. Directors who are members of
the independent committee receive $1,000 for each meeting attended. One loan
receivable has been guaranteed by a related party.
(9) COMMITMENTS AND CONTINGENCIES
At December 31, 1995, and May 29, 1996, the Company's unfunded commitments
were approximately $2,447,800 for 35 loans and $2,958,900 for 29 loans,
respectively, that bear interest at rates ranging from 9.0% to 16.0% and 9.3% to
15.0%, respectively.
The Company has operating lease agreements for its executive and general
offices, expiring in December 1997, as amended. The leases call for an aggregate
annual rental of approximately $235,000, subject to certain escalation clauses.
During the years ended December 31, 1995 and 1994, and period ended May 29,
1996, rental expenses totaled $194,279, $195,777 and $94,422, respectively, and
are included in other operating expenses.
The Company is a party to various legal proceedings arising from the normal
course of business, none of which, in management's opinion, is expected to have
a material adverse impact on the Company's financial position or results of
operations.
(10) SUBSEQUENT EVENTS
On June 28, 1996 and January 28, 1997, Medallion increased the amount
available under the Revolver by $7,000,000 and $20,000,000, respectively. The
aggregate commitments under the Revolver was $85,000,000 and $105,000,000 at
such dates, respectively. Subsequent to the merger of Tri-Magna into Medallion
Financial Corp. on May 29, 1996 the Term Loan of $3,231,900 was paid in full.
The $2,000,000 Short-Term Note was assumed by Medallion Financial Corp. and was
converted into a $5,000,000 revolving credit agreement on December 1, 1996.
As a result of the merger of Tri-Magna into Medallion Financial Corp.,
Medallion became a wholly-owned subsidiary of Medallion Financial Corp. On
February 11, 1997 the SBA approved an amendment to the charters of Medallion and
another wholly-owned subsidiary, Transportation Capital Corp. (TCC), converting
these subsidiaries from SSBICs to SBICs. The conversion eliminates the
restriction for Medallion and TCC to lend only to individuals as being socially
or economically disadvantaged, or to small business concerns that are at least
50% owned by such persons, as defined in the SBIA, subject to certain
restrictions.
Effective January 1, 1997, Medallion Financial Corp. decided to merge all of
the assets and liabilities of TCC into Medallion, subject to the approval of the
SBA. This is expected to occur by the end of the second quarter of 1997.
F-40
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED) MAY 29,1996
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, ``Disclosures About Fair Value of Financial Instruments,''
requires disclosure of fair value information about certain financial
instruments, whether assets, liabilities or off-balance sheet commitments, if
practicable. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments. Fair value estimates which
were derived from broker quotes cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument.
In addition, SFAS 107 excludes certain financial instruments and all non
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
Investments - As described in Note 2, the carrying amount of investments is
the estimated fair value of such investments.
Notes payable to banks and demand notes - Due to the short-term nature of
these instruments, the carrying amount approximates fair value.
Commitments to Extend Credit - The fair value of commitments to extend
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
present creditworthiness of the counterparties. For fixed rate loan commitments,
fair value also includes a consideration of the difference between the current
levels of interest rates and the committed rates. At May 29, 1996, the estimated
fair value of these off-balance sheet instruments was not material.
Interest Rate Cap Agreements - The fair value is estimated based on market
prices or dealer quotes. At May 29, 1996, estimated fair value of these off-
balance sheet instruments was not material.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MAY 29, 1996
--------------------------- -----------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Financial assets:
Investments............. $96,046,416 $96,046,416 $95,621,617 $95,621,617
Financial liabilities:
Notes payable to banks
and demand notes...... $80,294,900 $80,294,900 $79,394,900 $79,394,900
</TABLE>
F-41
<PAGE>
TRI-MAGNA CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
MAY 29, 1996
BALANCE INTEREST
NUMBER OF LOANS OUTSTANDING RATE
2 $ 92,529 5.00%-7.00%
16 3,625,886 8.00
3 287,797 8.25
18 2,783,824 8.50
10 901,136 8.63
12 981,255 8.75
55 6,751,204 9.00
99 8,133,949 9.25
122 14,125,122 9.50
2 114,819 9.63
32 3,825,894 9.75
119 10,989,259 10.00
30 3,236,713 10.25
40 3,994,604 10.50
29 2,628,392 10.75
1 59,382 10.90
43 3,983,410 11.00
6 356,496 11.25-11.50
2 146,961 11.75
53 3,878,890 12.00
7 448,314 12.50
3 369,083 12.75-12.95
99 5,177,644 13.00
2 372,799 13.25
22 1,165,954 13.50
3 46,411 13.75-13.87
97 4,612,518 14.00
4 105,443 14.05-14.30
19 1,163,039 14.50
7 213,388 14.75-14.84
224 9,955,553 15.00
8 687,574 15.20
7 208,929 15.25
5 88,044 15.50
1 100,239 15.75
11 325,999 16.00
5 193,989 16.50-18.00
2 74,737 19.00
----- ------------ -----
Total: 1,220 $ 96,207,179 10.92%
=====
Plus: Loan Origination Costs, Net 324,438
------------
Total Investments at Cost $ 96,531,617
Less: Unrealized depreciation on investments (910,000)
------------
Total Investments at directors' valuation $ 95,621,617
============
F-42
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
BALANCE INTEREST
NUMBER OF LOANS OUTSTANDING RATE
--------------- ----------- ----------
2 $ 101,632 5.00-7.00%
18 3,715,031 8.00
3 298,833 8.25
21 3,279,235 8.50
9 1,331,792 8.75
56 8,152,656 9.00
70 7,111,900 9.25
116 13,814,980 9.50
2 120,696 9.63
24 2,677,911 9.75
150 12,175,743 10.00
33 3,207,015 10.25
1 130,055 10.38
41 4,181,332 10.50
31 2,959,616 10.75
1 65,064 10.90
41 3,930,343 11.00
9 614.874 11.25-11.75
58 4,260,742 12.00
9 490,107 12.50
4 406,362 12.75-12.95
96 5,426,944 13.00
3 630,453 13.25
20 1,114,053 13.50
3 60,526 13.75-13.87
86 4,316,872 14.00
1 41,995 14.05
1 47,046 14.20
1 8,181 14.25
1 16,166 14.30
15 1,000,341 14.50
7 227,427 14.75-14.84
206 9,123,581 15.00
8 723,762 15.20
8 250,164 15.25
7 134,764 15.50
2 101,658 15.63-15.75
8 289,662 16.00
6 123,502 16.25-18.00
----- -----------
Total: 1,178 $96,663,016 10.88%
=====
Plus: Loan Origination Costs,
Net...................... 293,400
-----------
Total Investments at Cost 96,956,416
Less: Unrealized depreciation on investments (910,000)
-----------
Total Investments at directors' valuation $96,046,416
===========
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Edwards Capital Company:
We have audited the accompanying balance sheet of Edwards Capital Company (a
New York limited partnership), including the schedule of loans as of May 29,
1996 and December 31, 1995, and the related statements of operations, changes in
partners' capital and cash flows for the five month period ended May 29, 1996
and the year ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 1, the financial statements include finance receivables
valued at $44,490,149 (97% of total assets) as of May 29, 1996 and at
$43,778,791 (97% of total assets) as of December 31, 1995, the values of which
have been estimated by the General Partner in the absence of readily
ascertainable market values. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values that
would have been used had a ready market for the loans existed, and the
differences could be material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Edwards Capital Company as of
May 29, 1996 and December 31, 1995 and, the results of its operations and its
cash flows for the five month period ended May 29, 1996 and year ended December
31, 1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 26, 1997
F-44
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1995 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash.................................... $ 115,571 $ 437,886
Finance Receivables:
Medallions............................ 43,177,063 43,920,609
Other, less allowance for doubtful 601,728 569,540
accounts of $20,000 in 1995 and 1996.
Accrued Interest Receivable............. 396,000 406,817
Deferred Financing Costs, net of
accumulated amortization of $176,967 353,683 330,000
in 1995 and $200,650 in 1996............
Property and Equipment, at cost, net of
accumulated depreciation and 66,826 60,356
amortization of $133,937 in 1995 and
$140,407 in 1996.......................
Prepaid Expenses and Other Assets..... 373,116 275,681
----------- -----------
Total Assets............................ $45,083,987 $46,000,889
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Bank Loans Payable.................... $ 9,850,000 $10,100,000
Subordinated Debentures Payable....... 24,950,000 24,950,000
Accounts Payable and Accrued Expenses. 1,167,156 1,843,743
----------- -----------
35,967,156 36,893,743
Partners' Capital....................... 9,116,831 9,107,146
----------- -----------
Total Liabilities and Partners' Capital. $45,083,987 $46,000,889
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1995 1996
------------ ------------
<S> <C> <C>
Revenues:
Interest from finance receivables..... $4,316,669 $1,727,102
Other income.......................... 443,190 129,101
---------- ----------
Total Revenues...................... 4,759,859 1,856,203
---------- ----------
Operating Expenses:
Interest on subordinated debentures... 1,993,075 818,707
Interest on bank loans................ 754,404 279,148
Salaries.............................. 354,041 123,244
Employee benefits..................... 33,236 14,572
Payroll and other taxes............... 28,266 14,467
Professional fees..................... 204,071 41,437
Legal fees related to the sale of -- 350,000
assets...............................
Rent.................................. 39,996 16,342
Office expense........................ 42,762 15,204
Computer expense...................... 44,642 14,903
Telephone............................. 9,685 3,860
Entertainment......................... 9,901 2,205
Amortization of deferred financing 53,460 23,683
costs................................
Processing and collection services.... 42,448 28,689
Depreciation and amortization......... 18,292 6,470
New York City unincorporated business 40,111 15,610
tax..................................
Sundry................................ 4,496 5,847
---------- ----------
Total Operating Expenses..... 3,672,886 1,774,388
---------- ----------
Net Income................... $1,086,973 $ 81,815
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1995 1996
------------- -------------
<S> <C> <C>
Cumulative Capital Contributions.. $7,200,000 $7,200,000
========== ==========
SBA Permanent Capital............. $8,400,000 $8,400,000
========== ==========
Balance, Beginning of Period...... $8,576,068 $9,116,831
Net income...................... 1,086,973 81,815
Distributions -
Limited Partners............. (546,210) (91,500)
---------- ----------
Balance, end of period............ $9,116,831 $9,107,146
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 1,086,973 $ 81,815
Adjustments to reconcile net income
to net cash provided by operating
activities --
Amortization of deferred financing 53,460 23,683
costs................................
Depreciation and amortization......... 18,292 6,470
Changes in assets and liabilities --
Accrued interest receivable........... (67,000) (10,817)
Prepaid expenses and other assets..... (247,648) 97,435
Accounts payable and accrued expenses. 118,697 676,587
------------ -----------
Net cash provided by operating 962,774 875,173
activities.............................
Cash flows from investing activities:
Origination of new finance receivables (8,348,655) (2,764,191)
Repayments of finance receivables..... 8,036,706 2,052,833
Purchase of property and equipment.... (9,769) --
------------ -----------
Net cash (used in) provided by (321,718) (711,358)
investing activities................
Cash flows from financing activities:
Proceeds from bank loans.............. 11,925,000 5,900,000
Principal payments of bank loans...... (12,075,000) (5,650,000)
Distributions to limited partners. (546,210) (91,500)
------------ -----------
Net cash used in financing activities... (696,210) 158,500
------------ -----------
Net increase (decrease) in cash......... (55,154) 322,315
Cash, beginning of period............... 170,725 115,571
------------ -----------
Cash, end of period..................... $ 115,571 $ 437,886
============ ===========
Supplemental disclosure of cash flow
information:
Interest paid......................... $ 2,699,890 $ 974,982
============ ===========
New York City unincorporated business
tax.................................. $ 14,058 $ 15,448
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MAY 29, 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Edwards Capital Company (the Partnership) is organized under the laws of the
State of New York as a Small Business Investment Company, subject to the rules
and regulations of the Federal Small Business Administration (the SBA). The
Partnership's principal activity is the financing of loans collateralized by New
York City taxicab medallions.
The Partnership has one General Partner and six classes of limited partners.
Allocations of income or loss and cash distributions are based on formulas, as
set forth in the Partnership Agreement. The formulas utilize the average prime
rate for the year, net cash receipts, as defined, and the weighted average
capital for each class of partner.
On May 29, 1996, substantially all assets and certain liabilities of the
Partnership were acquired by Medallion Financial Corp., pursuant to an asset
purchase agreement dated February 21, 1996, for a purchase price of $15,624,995.
The balance sheet as of May 29, 1996 and statements of operations, changes in
partners' capital and cash flows for the period ended May 29, 1996 included the
accounts of the Partnership prior to the consummation of the sale to Medallion
Financial Corp. on May 29, 1996.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Finance Receivables and the Allowance for Doubtful Accounts
Finance receivables, net of participation sold to others and an allowance for
doubtful accounts, are stated at fair value. The fair value of such loans is
determined in good faith by the General Partner. The allowance for doubtful
accounts is maintained at a level that, in the General Partner's judgment, is
adequate to absorb losses inherent to the portfolio.
Finance receivables collateralized by New York City taxicab medallions are
considered fully collectible, as the value of the collateral is deemed
sufficient to assure full collection in the event of foreclosure. At December
31, 1995 and May 29, 1996, there is an allowance for doubtful accounts on
receivables collateralized by radio rights, as the value of the collateral on
certain loans is deemed insufficient.
The allowance is reviewed and adjusted periodically by the General Partner on
the basis of available information, including the fair value of the underlying
collateral; individual credit risks; past loss experience; the volume,
composition and growth of the portfolio; and current and projected financial and
economic conditions.
F-49
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest is continued to be recognized as income on all finance receivables
that are past due, as to principal and interest, when the value of the
underlying collateral is deemed sufficient to assure full collection of the
principal and associated interest in the event of foreclosure. At December 31,
1995 and May 29, 1996, the value of the underlying collateral on finance
receivables was deemed adequate.
The principal amount of loans serviced for others at December 31, 1995 and May
29, 1996, amounted to approximately $30,995,006 and $ 34,084,479, respectively.
Deferred Financing Costs
Costs incurred in connection with obtaining subordinated debenture financing
have been deferred and are being amortized on the effective interest rate method
over the terms of the loans.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on an
accelerated method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the estimated useful life of the asset or, if
less, the life of the lease.
Origination Fees
Origination fees (included in other income) for loans are deferred and
amortized on a straight-line basis over the terms of the loans. At December 31,
1995, loan origination fees were fully amortized.
Income Taxes
The Partnership is not a taxpaying entity for income tax purposes, and
accordingly, no provision has been made for income taxes. The partners'
allocable shares of the Partnership's taxable income or loss are reportable on
their income tax returns. A provision is made for New York City unincorporated
business tax.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the current year's presentation.
(2) FINANCE RECEIVABLES
Finance receivables are interest-bearing loans that are secured by mortgages
collateralized by New York City taxicab medallion rights, taxicabs or radio
group rights, and the personal guarantees of individuals or stockholders of
corporate borrowers.
F-50
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
Maximum original terms of finance receivables at December 31, 1995 and May 29,
1996 are as follows:
(ROUNDED TO 000'S)
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1995 1996
------------ -----------
<S> <C> <C>
60 months............................... $42,307,000 $39,961,000
84 months............................... 1,027,000 754,000
120 months.............................. 465,000 3,795,000
----------- -----------
$43,799,000 $44,510,000
=========== ===========
Contractual maturities of finance receivables at December 31, 1995 and
May 29, 1996 are approximately as follows:
DECEMBER 31, MAY 29,
1995 1996
----------- -----------
1996 $ 2,623,000 $ 374,000
1997 4,482,000 993,000
1998 7,046,000 3,098,000
1999 15,329,000 13,582,000
2000 11,450,000 14,591,000
Thereafter 2,869,000 11,872,000
----------- -----------
$43,799,000 $44,510,000
=========== ===========
</TABLE>
Actual maturities may differ, as loans are often paid in advance of their
maturities, and loans with participation sold to others contain subordinate
prepayment provisions. During the year ended December 31, 1995 and the period
ended May 29, 1996, the collections of loans and prepayments totaled
approximately $8,037,000 and $2,053,000, respectively.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995 and May
29, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
1995 1996
------------ --------
<S> <C> <C>
Furniture and Equipment......... $162,700 $162,700
Leasehold Improvements.......... 38,063 38,063
-------- --------
200,763 200,763
Less -- Accumulated
Depreciation and Amortization.. 133,937 140,407
-------- --------
$ 66,826 $ 60,356
======== ========
</TABLE>
F-51
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(4) BANK LOANS PAYABLE
The Partnership has lines of credit with four banks totaling $12,500,000, of
which $9,850,000 and $10,100,000 were drawn upon at December 31, 1995 and May
29, 1996, respectively. Interest is charged at the borrower's option, at either
the lender's prime rate or at a rate based on the adjusted London Inter-bank
Offered Rate (LIBOR). Under an agreement with the SBA, Edwards was restricted
from borrowing more than $11.5 million in bank debt without the prior approval
of the SBA.
The average amount of borrowings for the year ended December 31, 1995 and for
the period ended May 29, 1996 was $9,585,000 and $ 9,997,000, respectively.
The loans are secured by all of the Partnership's assets. Under an
inter-creditor agreement, all banks share in the collateral. In addition, all
bank indebtedness is senior to SBA-guaranteed indebtedness pursuant to SBA rules
and regulations.
(5) SUBORDINATED DEBENTURES PAYABLE
Outstanding subordinated debentures, which are guaranteed by the SBA, are as
follows at December 31, 1995 and May 29, 1996:
<TABLE>
<CAPTION>
INTEREST
DUE DATE RATE AMOUNT
- -------- --------- ------
<S> <C> <C>
September 1, 1996.. 8.75% $ 1,200,000
April 1, 1997...... 8.95 1,500,000
June 1, 1998....... 9.80 3,000,000
September 1, 2002.. 7.15 3,500,000
September 1, 2002.. 7.15 6,050,000
June 1, 2004....... 7.80 4,600,000
September 1, 2004.. 8.20 5,100,000
-----------
$24,950,000
===========
</TABLE>
(6) RELATED PARTY TRANSACTIONS
The law firm of Herrick, Feinstein LLP provides legal services to the
Partnership and subleases office space to it under a lease that commenced on
June 1, 1992 and expires on April 30, 1997. The lease requires minimum annual
rental payments of $40,000 and additional rentals based on increases in real
estate taxes and operating expenses over base period amounts. It is cancelable
by the firm upon giving 60 days' notice. Certain principals of the firm are
limited partners of the Partnership and are shareholders of the corporate
General Partner of the Partnership.
F-52
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
Rent expense and legal fees paid and accrued to Herrick, Feinstein LLP for the
years ended December 31, 1995 and period ended May 29, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1995 1996
------------- ------------
<S> <C> <C>
Rent expense.. $ 39,996 $16,342
Legal fees.... 92,501 9,926
-------- -------
$132,497 $26,268
======== =======
</TABLE>
During the year ended December 31, 1995 and the period ended May 29, 1996,
legal fees of $225,000 and $125,000, respectively were incurred and accrued to
Herrick, Feinstein in connection with the sale of assets by the Partnership to
Medallion Financial Corp. These costs were charged to operations on May 29,
1996.
(7) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, there are outstanding commitments and
contingent liabilities that are not reflected in the financial statements.
At December 31, 1995 and May 29, 1996, the Partnership had an operating lease
for office space which expires on April 30, 1997 (Note 6).
There are lawsuits pending against the Partnership in the normal course of
business. Based on its review of current litigation and discussions with legal
counsel, management does not expect that the resolution of such matters will
have a material adverse effect on the Partnership's financial condition or
results of operations.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of fair value information about certain financial instruments,
whether or not recognized on the balance sheet. In addition, SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Therefore, the aggregate fair value amounts presented
do not purport to represent and should not be considered representative of the
underlying market or franchise value of the Partnership. The methods and
assumptions used to estimate the fair value of each class of the financial
instruments are described below:
Finance Receivables -- As described in Note 1, the carrying amount of finance
receivables is the estimated fair value of such loans.
Subordinated Debentures Payable to SBA -- The fair value of the debentures
payable to SBA is estimated based upon current market interest rates for similar
debt.
Banks Loans Payable -- Due to the short-term nature of these instruments, the
carrying amount approximates fair value.
F-53
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Partnership's financial
instruments are as follows:
<TABLE>
<CAPTION>
MAY 29, 1996
CARRYING AMOUNT FAIR VALUE
--------------- -----------
<S> <C> <C>
Financial assets
Finance receivables.............. $44,490,149 $44,490,149
Financial liabilities
Subordinated debentures payable.. 24,950,000 24,950,000
Bank loans payable............... 10,100,000 10,100,000
</TABLE>
F-54
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
MAY 29, 1996
The distribution of loans at May 29, 1996 by rate of interest is as follows:
<TABLE>
<CAPTION>
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
---------- ------------ ---------
<S> <C> <C> <C>
9 $ 532,000 7.70%
5 200,000 8.00
2 300,988 8.20
12 800,000 8.25
13 722,000 8.38
6 239,000 8.40
5 214,473 8.44
4 184,000 8.50
4 161,200 8.60
13 375,000 8.70
15 974,750 8.75
9 507,500 8.88
51 3,485,039 9.00
2 239,768 9.13
15 2,028,924 9.25
2 265,658 9.39
83 8,876,722 9.60
3 789,656 9.63
62 7,584,689 9.75
3 214,887 9.80
1 18,125 9.88
19 2,602,540 9.90
50 6,464,952 10.00
29 3,636,894 10.25
4 476,062 10.38
6 618,236 10.50
9 736,561 11.00
2 185,620 11.25
2 295,394 11.50
2 144,062 11.75
2 363,586 12.00
1 2,033 12.50
2 117,611 13.25
1 36,910 13.50
1 58,196 13.55
1 12,966 14.00
2 44,147 15.00
--- -----------
452 $44,510,149 9.58%
===
Less: Allowance for Doubtful Accounts on
Radio Loans........................... (20,000)
-----------
$44,490,149
===========
</TABLE>
F-55
<PAGE>
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
DECEMBER 31, 1995
The distribution of loans at December 31, 1995 by rate of interest is as
follows:
<TABLE>
<CAPTION>
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ----------- --------
<S> <C> <C> <C>
1 $ 570,207 7.820%
17 1,132,000 8.250
6 239,000 8.300
8 392,000 8.375
7 515,461 8.440
4 200,000 8.490
14 475,750 8.500
4 161,200 8.600
2 368,000 8.750
1 605,265 8.780
9 507,500 8.875
49 2,729,873 9.000
12 746,361 9.125
15 1,957,713 9.250
2 280,012 9.385
65 6,982,190 9.500
6 447,920 9.600
3 793,091 9.625
52 7,336,160 9.750
2 168,256 9.800
15 1,858,397 9.900
49 6,225,055 10.000
41 5,241,320 10.250
5 600,951 10.375
10 862,401 10.500
2 122,266 10.750
12 862,662 11.000
3 191,531 11.250
2 297,291 11.500
4 256,300 11.750
6 373,899 12.000
1 4,110 12.500
2 125,942 13.250
1 36,910 13.500
1 58,196 13.550
1 14,831 14.000
2 11,874 14.500
2 46,896 15.000
--- ----------- ------
438 $43,798,791 9.695%
===
Less Allowance for Doubtful Accounts on Radio Loans
(20,000)
-----------
$43,778,791
===========
</TABLE>
F-56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Transportation Capital Corp.:
We have audited the accompanying balance sheets of Transportation Capital
Corp. (a New York corporation) as of December 31, 1995, and May 29, 1996,
including the schedule of investments other than investments in affiliates and
schedule of loans as of December 31, 1995 and May 29, 1996, the related
statements of operations, changes in shareholders' equity and cash flows for the
year ended December 31, 1995 and the five month period ended May 29, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 1, the financial statements include loans receivable
valued at $9,154,139 (53% of total assets) as of December 31, 1995 and at
$9,312,331 (56% of total assets) as of May 29, 1996, whose values have been
estimated by the Board of Directors in the absence of readily ascertainable
market values. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the loans existed, and the differences could be
material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Transportation Capital Corp. as
of December 31, 1995 and May 29, 1996, and the results of its operations and its
cash flows for the year ended December 31, 1995 and the five month period ended
May 29, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 26, 1997
F-57
<PAGE>
TRANSPORTATION CAPITAL CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, May 29,
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Loans Receivable........................ $ 9,796,728 $ 9,924,748
Allowance for Loan Losses............... (642,589) (612,417)
----------- -----------
Loans receivable, at fair value......... 9,154,139 9,312,331
Cash and Cash Equivalents............... 7,780,717 6,797,183
Accrued Interest Receivable............. 133,722 118,384
Furniture, Fixtures and Leasehold
Improvements, at cost, less accumulated
depreciation $12,256 and $14,122........ 16,253 14,387
Other Assets............................ 72,877 62,394
Deferred Income Taxes................... 257,900 246,365
----------- -----------
Total Assets............................ $17,415,608 $16,551,044
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to the Small
Business Administration................. $ 6,730,000 $ 5,640,000
Accrued interest payable................ 35,071 139,068
Accrued dividend payable................ -- 116,725
Accrued expenses........................ 171,888 111,960
----------- -----------
Total Liabilities....................... 6,936,959 6,007,753
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
3% Cumulative preferred stock, $1,000
par value --
Authorized -- 9,000 shares
Issued and outstanding -- none.......... -- --
Common stock, $.125 par value --
Authorized -- 5,000,000 shares
Issued and outstanding -- 100 shares.... 13 13
Additional paid-in capital............. 7,749,456 7,749,456
Restricted contributed capital surplus.. 2,199,166 2,199,166
Accumulated undistributed net
investment income....................... 5,060,597 5,104,110
Accumulated net realized loan losses.... (4,144,594) (4,141,637)
Net unrealized depreciation on loans... (385,989) (367,817)
----------- -----------
Total Shareholders' Equity.............. 10,478,649 10,543,291
----------- -----------
Total Liabilities and Shareholders' $17,415,608 $16,551,044
Equity................................. =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
----------- ---------
1995 1996
----------- ---------
<S> <C> <C>
Investment Income:
Interest from small business concerns
(net of interest to
participants)........................... $1,411,116 $ 525,883
Interest from treasury bills........... 425,318 156,243
---------- ---------
1,836,434 682,126
---------- ---------
Expenses:
Interest............................. 450,071 148,362
Salaries............................. 227,343 79,899
Legal and other professional fees.... 350,178 131,226
Rent expense......................... 23,999 10,865
General and administrative........... 158,810 37,430
---------- ---------
1,210,401 407,782
---------- ---------
Investment Income Before Income Taxes 626,033 274,344
Income Tax Provision................. (269,723) (114,106)
---------- ---------
Net Investment Income................ 356,310 160,238
---------- ---------
Realized Loan (Losses) Gains Before
Income Taxes......................... (50,055) 5,247
Income Tax Benefit (Provision)....... 22,399 (2,290)
---------- ---------
Net Realized Loan (Losses) Gains..... (27,656) 2,957
---------- ---------
Change in Unrealized Depreciation on
Loans Before Income Taxes.............. 335,261 30,172
Deferred Income Tax Provision........ (133,900) (12,000)
---------- ---------
Net Change in Unrealized Depreciation
on Loans............................. 201,361 18,172
---------- ---------
Increase in Net Assets from $ 530,015 $ 181,367
Operations.......................... ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RESTRICTED
----------------------- ----------- ------------ ADDITIONAL CONTRIBUTED
SHARES SHARES PAID-IN CAPITAL
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL SURPLUS
----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994..... 3,383 1/3 $ 3,383,333 100 $ 13 $6,565,289 $ --
Net investment income.......... -- -- -- -- -- --
Net realized loan losses....... -- -- -- -- -- --
Net change in unrealized
depreciation on loans......... -- -- -- -- -- --
Capital contribution........... -- -- -- -- 310,818 --
Capitalization of
Accumulated undistributed net
investment income.............. -- -- -- -- 873,349 --
Repurchase of 3% preferred
stock......................... (3,383 1/3) (3,383,333) -- -- -- 2,199,166
---------- ----------- ---------- ----------- ------------ -------------
Balance, December 31, 1995..... - $ -- 100 $ 13 $7,749,456 $ 2,199,166
Net investment income.......... -- -- -- -- -- --
Net realized loan gains........ -- -- -- -- -- --
Preferred dividends
declared
Net change in unrealized
depreciation on loans......... -- -- -- -- - --
---------- ----------- ---------- ----------- ------------ -------------
Balance, May 29, 1996.......... -- $ -- 100 $ 13 $7,749,456 $ 2,199,166
========== =========== ========== =========== ============ =============
ACCUMULATED
UNDISTRIBUTED ACCUMULATED NET
NET NET UNREALIZED TOTAL
INVESTMENT REALIZED DEPRECIATION SHAREHOLDERS'
INCOME LOAN LOSSES ON LOANS EQUITY
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994..... $5,577,636 $(4,116,938) $ (587,350) $10,821,983
Net investment income.......... 356,310 -- -- 356,310
Net realized loan losses....... -- (27,656) -- (27,656)
Net change in unrealized
depreciation on loans......... -- 201,361 201,361
Capital contribution........... -- -- -- 310,818
Capitalization of
Accumulated undistributed net
investment income.............. (873,349) -- -- --
Repurchase of 3% preferred
stock.......................... -- -- -- (1,184,167)
---------- ----------- ------------ -------------
Balance, December 31, 1995..... $5,060,597 $(4,144,594) $ (385,989) $10,478,649
Net investment income.......... 160,238 -- -- 160,238
Net realized loan gains........ -- 2,957 -- 2,957
Preferred dividends
declared....................... (116,725) (116,725)
Net change in unrealized
depreciation on loans.......... -- -- 18,172 18,172
---------- ----------- ------------ -------------
Balance, May 29, 1996.......... $5,104,110 $(4,141,637) $ (367,817) $10,543,291
========== =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1995 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Increase in net assets from operations.. $ 530,015 $ 181,367
Adjustments to reconcile increase in
net assets from operations to net cash
provided by
(used for) operating activities
Change in unrealized depreciation on (335,261) (30,172)
loans..................................
Provision for deferred taxes......... 138,300 11,535
Depreciation and amortization........ 14,570 1,866
Realized loan losses................. 50,055 (5,247)
Net change in
Accrued interest
receivable........................ 14,216 15,338
Other assets....................... 116,687 10,483
Accrued interest payable........... (38,317) 103,997
Accrued expenses................... 46,377 (59,928)
------------ -----------
Net cash provided by operating 536,642 229,239
activities......................... ------------ -----------
Cash Flows from Investing Activities:
Principal collected on loans......... 14,820,116 6,510,178
Advances on loans.................... (13,697,563) (6,632,951)
Furniture, fixtures and office
equipment............................ (4,339) --
------------ -----------
Net cash provided by (used for) 1,118,214 (122,773)
investing activities ------------ -----------
Cash Flows from Financing Activities:
Repurchase of preferred stock from (1,184,167) --
SBA
Repayment of debentures payable to (1,200,000) (1,090,000)
SBA.................................
Capital contribution................. 310,818 --
------------ -----------
Net cash used for financing (2,073,349) (1,090,000)
activities...................... ------------ -----------
Net Increase (Decrease) in Cash and
Cash Equivalents........................ (418,493) (983,534)
Cash and Cash Equivalents, Beginning of
Period.................................. 8,199,210 7,780,717
------------ -----------
Cash and Cash Equivalents, End of.
Period.................................. $ 7,780,717 $ 6,797,183
============ ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for -
Interest................................ $ 488,388 $ 44,365
============ ===========
Net income tax payments................. $ 205,322 $ 152,260
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
MAY 29, 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Transportation Capital Corp. (the Company), a New York corporation, was an
indirect wholly owned subsidiary of Leucadia National Corporation (Leucadia) and
is licensed by the Small Business Administration (SBA) to operate as a
specialized small business investment company (SSBIC) under the Small Business
Investment Act of 1958, as amended. Effective on May 29, 1996, the Company was
acquired by Medallion Financial Corp. and registered as a closed-end management
investment under the Investment Company Act of 1940, as amended (the 1940 Act).
The balance sheet as of May 29, 1996 and statements of operations, changes in
shareholders' equity and cash flows for the period ended May 29, 1996 included
the accounts of the Company prior to the consummation of the acquisition by
Medallion Financial Corp. on May 29, 1996.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Loans, net of participation sold to other lenders and an allowance for
possible losses, are stated at fair value. The fair value of such loans is
determined in good faith by the Board of Directors. The allowance for loan
losses is maintained at a level that, in the Board of Director's judgment, is
adequate to absorb losses inherent in the portfolio.
The allowance is reviewed and adjusted periodically by the Board of Directors
on the basis of available information, including the fair value of the
underlying collateral; individual credit risks; past loss experience; the
volume, composition and growth of the portfolio; and current and projected
economic conditions. Assets acquired in satisfaction of loans are carried at
estimated net realizable value.
A fully collateralized loan is placed on nonearning status once it becomes 180
days past due as to principal and interest. Loans that are not fully
collateralized are placed on nonearning status when they are 90 days past due as
to principal or interest. Interest on nonearning loans is recognized as income
when collected.
REALIZED LOAN LOSSES
Realized loan losses consist of write-offs of loans or assets acquired in
satisfaction of loans, net of recoveries.
UNREALIZED DEPRECIATION ON LOANS
All unrealized changes in the value of loans, including the provision for
losses, are included in the caption net change in unrealized depreciation on
loans, which is net of income tax effect. Net unrealized depreciation on loans
at December 31, 1995 and May 29, 1996 is net of deferred income taxes of
$256,600 and $244,600, respectively.
F-62
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of furniture, fixtures, office equipment and
leasehold improvements is computed using straight-line and accelerated methods
at rates adequate to allocate the cost of applicable assets over their estimated
useful lives or, if less, the term of the lease. Depreciation and amortization
amounted to $4,296 and $1,866 for the year ended December 31, 1995 and period
ended May 29, 1996, respectively.
INCOME TAXES
For the period ended May 29, 1996, the Company's results of operations was
reported in the consolidated federal income tax return filed by Leucadia. The
Company and Leucadia were operating under a tax sharing agreement pursuant to
which the Company made payments to (or receives payments from) Leucadia
consisting of the tax liability that the Company would incur if it filed a
separate federal income tax return.
The Company provided for income taxes using the liability method under
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under the liability method, deferred income taxes are provided at
the statutory rates for differences between the tax and accounting bases of
substantially all assets and liabilities and for carryforwards. A valuation
allowance is provided if deferred tax assets are not considered more likely than
not to be realized.
CASH AND CASH EQUIVALENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
loan receivables.
The Company considers short-term instruments with original maturities of three
months or less, measured from their acquisition date, to be cash equivalents.
Cash and cash equivalents consist of cash in banks and U.S. Treasury bills at
market value.
NONCASH INVESTING ACTIVITIES
During the year ended 1995 and period ended May 29, 1996, the Company
refinanced loans amounting to $740,826 and $1,696,715, respectively.
F-63
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(2) LOANS RECEIVABLE
Nonearning and reduced rate loans outstanding were approximately $88,200 and
$86,800 at December 31, 1995 and May 29, 1996, respectively. At December 31,
1995 and May 29, 1996, there were no commitments to loan additional funds to
borrowers whose loans were classified as nonearning or reduced rate.
Transactions in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1995 1996
------------ ------------
<S> <C> <C>
Balance, beginning................... $ 977,850 $642,589
Charge-offs.......................... (61,672) -
Recoveries........................... 11,617 5,247
Interest income deferred (received).. - -
Reduction in allowance............... (285,206) (35,419)
---------- --------
Balance, ending...................... $ 642,589 $612,417
========== ========
</TABLE>
(3) DEBENTURES PAYABLE TO THE SMALL BUSINESS ADMINISTRATION
Debentures payable to the SBA at December 31, 1995 and May 29, 1996 consisted
of subordinated debentures with the following maturities and interest rates
(interest is payable semi-annually):
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT
DECEMBER 31, MAY 29,
1995 1996 DUE DATE INTEREST RATE
- ------------------- ---------- -------- ----------------
<S> <C> <C> <C>
$1,090,000 $ -- 05/07/96 7.375% per annum
5,640,000 5,640,000 06/01/02 5.000% per annum
---------- ---------- through 5/31/97,
$6,730,000 $5,640,000 8% thereafter
========== ==========
</TABLE>
Under the terms of the subordinated debentures, the Company may not repurchase
or retire any of its capital stock, make any distributions to its shareholders
other than dividends out of accumulated undistributed net investment income (as
computed in accordance with SBA regulations) or increase salaries under certain
conditions without the prior written approval of the SBA.
F-64
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(4) SHAREHOLDERS' EQUITY
The Company had an Employee Incentive Stock Option Plan (the Plan), that
expired on February 18, 1996.
On August 14, 1995, the Company repurchased and retired all of its 3%
preferred stock owned by the SBA at a discount of 65% under an SBA 3% preferred
stock repurchase agreement dated March 22, 1995. The purchase price of the
preferred stock was $1,184,167. The funds paid to the SBA were obtained from a
$310,818 capital contribution from the Company's sole shareholder, LNC
Investments, Inc., and a $873,349 capitalization of accumulated undistributed
net investment income, in accordance with Appendix I to Part 107 of the SBA
rules and regulations. As a result, the accumulated undistributed net investment
income was reduced, and the additional paid-in capital was increased by
$873,349; the net effect was the same as if the Company had made a distribution
to its shareholders, who then reinvested the same amount in the Company.
The amount of the discount was recorded as an increase in capital in an
account separate from additional paid-in capital, as restricted contributed
capital surplus account. Under the repurchase agreement, the SBA retains a
liquidating interest in the amount of the discount on the repurchase, which
expires on a straight-line basis over five years or on a later date if an event
of default, as defined in the repurchase agreement, has occurred and such
default has not been cured or waived. Upon the occurrence of any event of
default, the SBA's liquidating interest will become fixed at the level
immediately preceding the event of default and will not amortize further until
the default is cured or waived.
While the liquidating interest expires over a five-year period, the balance in
the restricted contributed capital surplus account remains unchanged in
accordance with the SBA requirements. The SBA requires this treatment because
the additional equity obtained as a result of the repurchase transaction is
subject to certain restrictions that remain even after the liquidating interest
has been eliminated.
In the event of the Company's liquidation, the unexpired portion of the
liquidating interest becomes immediately payable to the SBA. In addition, the
SBA retains a residual interest in the preferred dividends in arrears at March
22, 1995 in the amount of $152,250, which also expires on a straight-line basis
over five years.
On May 29, 1996, all of the outstanding shares of capital stock of the Company
was acquired by Medallion Financial Corp. (Medallion Financial) pursuant to the
stock purchase agreement dated February 12, 1996, for a purchase price of
approximately $10,546,000. The acquisition of the Company by Medallion
Financial was approved by the SBA. Under the terms of the preferred stock
repurchase agreement with the SBA, the change in ownership of the Company
resulted in the unexpired portion of the preferred dividends becoming payable to
the SBA in the amount of $116,725.
At December 31, 1995 and May 29, 1996, the unamortized amount of the SBA's
liquidating interest in the restricted contributed capital surplus was
$1,869,291 and $1,686,028, respectively.
There are 9,000 shares of redeemable preferred stock authorized, of which none
has been issued. Such shares, which may be issued only to the SBA, would have a
par value of $1,000 per share, bear cumulative annual dividends of 4% and would
be required to be redeemed 15 years after issuance.
F-65
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(5) INCOME TAXES
The provisions (benefits) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1995 1996
------------- ------------
<S> <C> <C>
Net investment income --
Current --
Federal................................ $181,347 $ 83,029
State.................................. 83,976 31,577
-------- --------
$265,323 $114,606
-------- --------
Deferred --
Federal................................ 3,400 (400)
State.................................. 1,000 (100)
-------- --------
4,400 (500)
-------- --------
$269,723 $114,106
======== ========
Net realized loan (losses) gains --
Current --
Federal................................ $(14,247) $ 1,431
State.................................. (8,152) 859
-------- --------
$(22,399) $ 2,290
======== ========
Net change in unrealized depreciation
on loans --
Deferred --
Federal................................ $103,700 $ 9,300
State.................................. 30,200 2,700
-------- --------
$133,900 $ 12,000
======== ========
</TABLE>
The following is a reconciliation of income taxes at the expected statutory
federal income tax to the actual income tax provision (benefit):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 29,
1995 1996
------------- ------------
<S> <C> <C>
Net investment Income --
Expected federal income tax......... $212,851 $ 93,277
State income taxes, net of federal... 56,084 21,913
income tax benefit
Other............................... 788 (1,084)
-------- --------
$269,723 $114,106
======== ========
</TABLE>
F-66
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDING
DECEMBER 31, MAY 29,
1995 1996
------------ -------------
<S> <C> <C>
Net realized loan (losses)gains --
Expected federal income tax............ $(17,019) 1,784
State income taxes, net of federal..... (5,380) 567
income tax benefit
Other................................... -- (61)
-------- --------
$(22,399) 2,290
======== ========
Net change in unrealized depreciation
on loans --
Expected federal income tax............ $113,989 10,258
State income taxes, net of federal..... 19,932 1,792
income tax benefit
Other................................... (21) (50)
-------- --------
$133,900 12,000
======== ========
</TABLE>
The principal components of the deferred tax asset at December 31, 1995 and
May 29, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MAY 29, 1996
----------------------------- ----------------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses............... $198,800 $57,800 $256,600 $189,480 $55,120 $244,600
Interest................................ 2,300 600 2,900 2,450 710 3,160
Depreciation............................ (1,300) (300) (1,600) (1,080) (315) (1,395)
-------- ------- -------- -------- ------- --------
$199,800 $58,100 $257,900 $190,850 $55,515 $246,365
======== ======= ======== ======== ======= ========
</TABLE>
The Company believes it is more likely than not that the recorded deferred tax
asset will be realized; such realization is expected to result principally from
taxable income generated by profitable operations.
(6) TRANSACTIONS WITH AFFILIATES
In May 1994, the Company entered into a one-year management agreement with a
subsidiary of Leucadia pursuant to which the subsidiary agreed to perform
certain general, administrative and accounting functions for an annual fee of
$180,000 with subsequent annual increases to be determined according to
increases in the consumer price index. This agreement continued in full force
and effect after the initial one-year term upon approval on an annual basis by
the Company's Board of Directors. This agreement was terminated by both parties,
without payment of any penalty, on May 29, 1996.
Amounts charged to results of operations under this arrangement was $182,815
during the year ended December 31, 1995 and $76,760 during the period ended May
29, 1996.
F-67
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(7) DIRECTORS' AND OFFICERS' COMPENSATION
Directors' Compensation amounted to $3,000, and $1,300 and Officers'
compensation amounted to $182,709 and $58,170, during the year ended
December 31, 1995 and period ended May 29, 1996, respectively.
(8) PENSION PLAN
The Company provided pension benefits to its employees through Leucadia's
defined benefit pension plan, as a result of the merger of the Company's defined
benefit plan into Leucadia's plan effective on December 31, 1994. During the
year ended December 31, 1995 and period ended May 29, 1996, the Company made
contributions to Leucadia's plan based on its allocable share of expenses in the
amounts of $10,676 and $3,750, respectively.
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingent liabilities that are not reflected in the financial statements. At
December 31, 1995 and May 29, 1996, the Company had outstanding loan commitments
of $403,000 and $395,300, respectively, which bear interest at rates ranging
from 12% to 14%. Management does not expect any material losses to result from
these matters.
At December 31, 1995 and May 29, 1996, the Company had operating leases for
office space expiring in August 1996 and future minimum annual rental
commitments were $19,800 and $2,000, respectively. In addition, the Company was
subject to additional rent based upon increases in the Consumer Price Index.
There are various lawsuits pending against the Company. In the opinion of
management, after consultation with counsel, it is remote that losses, if any,
arising from such claims will be material to the financial position or results
of operations of the Company.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of fair value information about certain financial instruments,
whether or not recognized on the balance sheet. Where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In addition, SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Therefore, the
aggregate fair value amounts presented do not purport to represent and should
not be considered representative of the underlying market or franchise value of
the Company.
F-68
<PAGE>
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1996
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The methods and assumptions used to estimate the fair value of each class of
the financial instruments are described below:
Loans Receivable -- As described in Note 1, the carrying amount of loans
receivable is the estimated fair value of such loans.
Cash and Cash Equivalents -- For short-term investments, the carrying amount
approximates fair value.
Debentures Payable to SBA -- The fair value of the debentures payable to SBA
is estimated based upon current market interest rates for similar debt.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MAY 29, 1996
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets --
Loans receivable........... $9,154,139 $9,154,139 $9,312,331 $9,312,331
Cash and cash equivalents.. 7,780,717 7,780,717 6,797,183 6,797,183
Financial liabilities --
Debentures payable to SBA.. 6,730,000 7,189,000 5,640,000 5,954,000
</TABLE>
(11) SUBSEQUENT EVENTS
On February 11, 1997, the SBA approved an amendment to the charter of the
Company, converting the Company from a SSBIC to a SBIC. The conversion
eliminates the restriction for the Company to lend only to individuals as being
socially or economically disadvantaged, or to small business concerns that are
at least 50% owned by such persons, as defined in the SBIA subject to certain
restrictions.
Effective January 1, 1997, Medallion Financial Corp. decided to merge all of
the assets and liabilities of the Company into Medallion Funding Corp., a wholly
owned subsidiary of Medallion Financial Corp., subject to the approval of the
SBA. Medallion Financial Corp. expects to complete the merger by the end of the
second quarter of 1997.
F-69
<PAGE>
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF INVESTMENTS OTHER THAN INVESTMENTS IN AFFILIATES
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MAY 29, 1996
-------------------------------------------- --------------------------------------------
NUMBER NUMBER
OF PRINCIPAL OF PRINCIPAL
LOANS BY COLLATERAL TYPE LOANS BALANCE FAIR VALUE BOOK VALUE LOANS BALANCE FAIR VALUE BOOK VALUE
- -------------------------- ----- ----------- ----------- ----------- ----- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MEDALLIONS
New York.................. 17 $ 797,932 $ 797,932 $ 797,932 12 618,280 618,280 618,280
Boston.................... 80 3,400,557 3,400,557 3,400,557 75 3,131,238 3,131,238 3,131,238
Cambridge................. 45 1,984,198 1,971,598 1,971,598 48 2,291,251 2,287,851 2,287,851
Chicago................... 87 1,647,561 1,647,561 1,647,561 94 2,029,924 2,023,624 2,023,624
Newark.................... 12 158,157 156,836 156,836 8 91,342 91,342 91,342
--- ---------- ---------- ---------- --- ---------- ---------- ----------
Total medallions.......... 241 7,988,405 7,974,484 7,974,484 237 8,162,035 8,152,335 8,152,335
NEW YORK RADIO CARS....... 35 599,694 238,198 238,198 32 535,696 201,605 201,605
MINUTEMAN RECEIVABLES..... 3 1,217,371 950,199 950,199 2 1,231,012 962,386 962,386
OTHERS.................... - -- -- -- -- -- -- --
--- ---------- ---------- ---------- --- ---------- ---------- ----------
Subtotal.................. 279 9,805,470 9,162,881 9,162,881 271 9,928,743 9,316,326 9,316,326
RECEIVABLE FOR
FORECLOSURE EXPENSES...... -- 10,144 10,144 10,144 -- 8,766 8,766 8,766
UNAPPLIED COLLECTIONS..... - (18,886) (18,886) (18,886) -- (12,761) (12,761) (12,761)
--- ---------- ---------- ---------- --- ---------- ---------- ----------
Total loans receivable,
net....................... 279 $9,796,728 $9,154,139 $9,154,139 271 $9,924,748 $9,312,331 $9,312,331
=== ========== ========== ========== === ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statement.
F-70
<PAGE>
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
MAY 29, 1996
It is the Company's policy to make loans to persons who qualify under Small
Business Administration regulations as socially or economically disadvantaged
and to entities which are at least 50%-owned by such persons.
Substantially all of the Company's loans are for the purpose of financing the
purchase of New York City, Boston, Cambridge, Chicago and Newark taxi
medallions, taxi cabs, car radio rights, radio cars and related assets (the
Collateral). It is the Company's policy that these loans are collateralized by a
first priority perfected security interest in the collateral.
The distribution of loans at May 29, 1996 by rate of interest is as follows:
<TABLE>
<CAPTION>
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ----------- ---------
<S> <C> <C>
2 $ 106,941 9.50%
3 119,292 10.00
2 288,838 10.50
28 1,326,481 11.00
38 667,453 12.00
2 52,028 12.50
66 1,793,509 13.00
2 6,978 13.25
47 1,768,645 13.50
3 88,268 13.75
41 1,942,791 14.00
11 157,874 14.25
5 1,265,835 14.50
1 54,236 14.75
13 166,207 15.00
3 19,576 15.75
1 10,609 16.00
2 57,670 16.50
1 35,512 16.75
--- ----------
271 9,928,743 13.08%
=== ==========
RECEIVABLES FOR FORECLOSURE
EXPENSES..................... 8,766
UNAPPLIED COLLECTIONS........ (12,761)
----------
$9,924,748
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE>
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS --(CONTINUED)
MAY 29, 1996
<TABLE>
<CAPTION>
COMPOSITION OF LOAN PORTFOLIO: BALANCE OUTSTANDING PERCENT
------------------- --------
<S> <C> <C>
New York medallions..................... 618,280 6.22%
New York radios and others.............. 535,696 5.40
New York minuteman receivables.......... 1,231,012 12.40
Newark medallions....................... 91,342 0.92
Boston medallions....................... 3,131,238 31.54
Cambridge medallions.................... 2,291,251 23.08
Chicago medallions...................... 2,029,924 20.44
---------- ------
- - Total composition of loan portfolio. $9,928,743 100.00%
========== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
DECEMBER 31, 1995
The distribution of loans at December 31, 1995 by rate of interest is as
follows:
<TABLE>
<CAPTION>
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ------------ ---------
<S> <C> <C>
2.................... $ 115,650 9.50%
3.................... 125,384 10.00
10................... 361,560 11.00
51................... 1,231,411 12.00
2.................... 64,923 12.50
48................... 1,234,511 13.00
4.................... 22,065 13.25
50................... 1,740,372 13.50
5.................... 210,120 13.75
50................... 2,516,760 14.00
18................... 393,213 14.25
6.................... 1,254,777 14.50
1.................... 55,707 14.75
16................... 217,328 15.00
2.................... 65,072 15.50
4.................... 27,918 15.75
1.................... 13,296 16.00
2.................... 61,934 16.50
3.................... 88,006 16.75
1.................... 5,463 17.00
--- ----------
279................... 9,805,470 13.46
=== ==========
RECEIVABLES FOR FORECLOSURE
EXPENSES................................ 10,144
UNAPPLIED COLLECTIONS................... (18,886)
----------
$9,796,728
==========
BALANCE
COMPOSITION OF LOAN PORTFOLIO OUTSTANDING PERCENT
----------------------------- ----------- -------
New York medallions..................... $ 797,932 8.14
New York radios and others.............. 599,694 6.12
New York minuteman receivables.......... 1,217,371 12.41
Newark medallions....................... 158,157 1.61
Boston medallions....................... 3,400,557 34.68
Cambridge medallions.................... 1,984,198 20.24
Chicago medallions...................... 1,647,561 16.80
---------- ------
- - Total composition of loan portfolio. $9,805,470 100.00%
========== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDALLION FINANCIAL CORP.
By: /s/ Daniel F. Baker
-------------------
Daniel F. Baker
Treasurer and Chief Financial Officer
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES Title Date
---------- ----- ----
<S> <C> <C>
/s/ Alvin Murstein Chairman of the Board of Directors and March 31, 1998
- ------------------------------------- Chief Executive Officer
Alvin Murstein
/s/ Daniel F. Baker Treasurer and Chief Financial Officer March 31, 1998
- -------------------------------------
Daniel F. Baker
/s/ Andrew Murstein President and Director March 31, 1998
- -------------------------------------
Andrew Murstein
/s/ Mario Cuomo Director March 31, 1998
- -------------------------------------
Mario Cuomo
/s/ Stanley Kreitman Director March 31, 1998
- -------------------------------------
Stanley Kreitman
Director March 31, 1998
- -------------------------------------
David L. Rudnick
/s/ Benjamin Ward Director March __, 1998
- -------------------------------------
Benjamin Ward
Director March __, 1998
- -------------------------------------
Frederick S. Hammer
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Medallion Financial Corp. Restated Certificate of Incorporation.
Filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
3.2 Medallion Financial Corp. Restated By-Laws. Filed as Exhibit b to the
Company's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
4.1 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 the Company's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by reference
herein.
4.2 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 the Company's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein.
4.3 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 the
Company's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
4.4 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 the Company's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by reference
herein.
4.5 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 a Exhibit f.6 to the Company's Registration Statement
on Form N-2 (File No. 333-1670) and incorporated by reference herein.
4.6 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 the Company's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by reference
herein.
4.7 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 the Company'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 the Company's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996 and is incorporated by reference herein.
4.8 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 the
<PAGE>
Company's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
10.1 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 the Company's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by reference
herein.
10.2 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 the Company's
Registration Statement on Form N-2 (File No. 333-1670) and incorporated
by reference herein.
10.3 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 the Company's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein.
10.4 General Security Agreement between Israel Discount Bank of New York and
Edwards Capital Company dated May 2, 1991. Filed as Exhibit k.14 to the
Company's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
10.5 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 the Company's
Registration Statement on Form N-2 (File No. 333-1670) and incorporated
by reference herein.
10.6 Loan Agreement dated as of March 27, 1992 among Medallion Funding
Corp., the banks 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 the Company'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 the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and is incorporated by reference herein.
10.7 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 banks signatory
thereto and NatWest Bank N.A. (formerly National Westminster Bank USA).
Filed as Exhibit k.20 to the Company's Registration Statement on Form N-
2 (File No. 333-1670) and incorporated by reference herein.
10.8 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 the Company's Registration Statement on
Form N-2 (File No. 333-1670) and incorporated by reference herein.
10.9 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 the Company's Registration Statement on Form N-2 (File
No. 333-1670) and incorporated by reference herein.
<PAGE>
10.10 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 the Company's Registration Statement on Form N-2 (File
No. 333-1670) and incorporated by reference herein.
10.11 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 the
Company's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
10.12 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 the Company's Registration Statement on Form
N-2 (File No. 333-1670) and incorporated by reference herein.
10.13 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
the Company's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
10.14 Asset Purchase Agreement between Medallion Financial Corp., and Edwards
Capital Company, dated February 21, 1996. Filed as Exhibit k.2 to the
Company's Registration Statement on Form N-2 (File No. 333-1670) and
incorporated by reference herein.
10.15 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 the Company's Registration Statement on Form N-2 (File No.
333-1670) and incorporated by reference herein.
10.16 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 the Company's Registration Statement on Form N-2 (File
No. 333-1670) and incorporated by reference herein.
10.17 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 the Company's Registration Statement on Form N-2
(File No. 333-1670) and incorporated by reference herein.
10.18 Sub-Advisory Agreement between Medallion Financial Corp. and FMC
Advisers, Inc. dated May 29, 1996. Filed as Exhibit 10.18 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and incorporated by reference herein.
10.19 Employment Agreement between Medallion Financial Corp. and Alvin
Murstein dated May 29, 1996. Filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996
and incorporated by reference herein.
10.20 Employment Agreement between Medallion Financial Corp. and Andrew
Murstein dated May 29, 1996. Filed as Exhibit 10.20 to the Company's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996
and incorporated by reference herein.
10.21 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 the Company's Report on Form 10-Q for the quarterly
period ended September 30, 1996 and incorporated herein by reference.
<PAGE>
10.22 Agreement between Medallion Taxi Media, Inc. and Glenn Grumman dated
July 25, 1996. Filed as Exhibit 10.2 to the Company's Report on Form 10-
Q for the quarterly period ended September 30, 1996 and incorporated
herein by reference.
10.23 Security Agreement dated October 31, 1996 between First Bank of the
Americas and Edwards Capital Corp. Filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and incorporated by reference herein.
10.24 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 the Company's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996
and incorporated by reference herein.
10.25 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 the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 and incorporated by reference
herein.
10.26 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 the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and incorporated by reference herein.
10.27 Security Agreement dated December 1, 1996 between Fleet Bank, N.A. and
Medallion Financial Corp. Filed as Exhibit 10.27 to the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
10.28 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 the Company's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
10.29 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 the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1996 and incorporated
by reference herein.
10.30 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 10.31 to the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1996 and incorporated
by reference herein.
10.31 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 the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
10.32 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 as Exhibit 10.32 to the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1996 and incorporated
by reference herein.
10.33 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 the Company's
<PAGE>
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996
and incorporated by reference herein.
10.34 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 the Company's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 1996 and incorporated by
reference herein.
10.35 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
the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996 and incorporated by reference herein.
10.36 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 the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 and incorporated by reference herein.
10.37 Agreement between Medallion Taxi Media, Inc. and Metropolitan Taxicab
Board of Trade, Inc. dated March 6, 1997. Filed as Exhibit 10.37 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended December
31, 1996 and incorporated by reference herein.
10.38 Promissory Note from Edwards Capital Company payable to Israel Discount
Bank of New York. Filed as Exhibit k.4 to the Company's Registration
Statement on Form N-2 (File No. 333-1670) and incorporated by reference
herein.
10.39 Schedule of Promissory Notes from Edwards Capital Company payable to
Israel Discount Bank of New York. Filed as Exhibit k.5 to the Company's
Registration Statement on Form N-2 (File No. 333-1670) and incorporated
by reference herein.
10.40 Secured Note from Edwards Capital Company payable to Sterling National
Bank & Trust Company of New York. Filed as Exhibit k.6 to the Company's
Registration Statement on Form N-2 (File No. 333-1670) and incorporated
by reference herein.
10.41 Schedule of Secured Notes from Edwards Capital Company payable to
Sterling National Bank & Trust Company of New York. Filed as Exhibit k.7
to the Company's Registration Statement on Form N-2 (File No. 333-1670)
and incorporated by reference herein.
10.42 Medallion Financial Corp. Dividend Reinvestment Plan. Filed as Exhibit e
to the Company's Registration Statement on Form N-2 (File No. 333-1670)
and incorporated by reference herein.
10.43 Medallion Financial Corp. 1996 Stock Option Plan. Filed as Exhibit i.1
to the Company's Registration Statement on Form N-2 (File No. 333-1670)
and incorporated by reference herein.
10.44 Medallion Financial Corp. 1996 Non-Employee Directors Stock Option Plan.
Filed as Exhibit 10.44 to the Company's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996 and incorporated by reference
herein.
10.45 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 the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1997 and incorporated
by reference herein.
<PAGE>
10.46 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 the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1997 and incorporated
by reference herein.
10.47 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 the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997 and incorporated by reference
herein.
10.48 Employment Agreement dated August 29, 1997 between the Company and Allen
S. Greene. Filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1997 and
incorporated by reference herein.
10.49 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 the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997 and incorporated by reference herein.
10.50 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 herewith.
10.51 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 herewith.
10.52 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 herewith.
10.53 Revolving Credit Note dated December 24, 1997 in the amount of
$30,000,000 from Medallion Funding Corp. payable to BankBoston, N.A.
Filed herewith.
10.54 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 herewith.
10.55 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 herewith.
10.56 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 herewith.
10.57 Revolving Credit Note dated December 24, 1997 in the amount of
$15,000,000 from Medallion Funding Corp. payable to European American
Bank. Filed herewith.
10.58 Revolving Credit Note dated December 24, 1997 in the amount of
$15,000,000 from Medallion Funding Corp. payable to Bank Leumi USA.
Filed herewith.
10.59 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 herewith.
<PAGE>
10.60 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 herewith.
10.61 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 herewith.
10.62 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 herewith.
10.63 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 herewith.
10.64 Indenture of Lease, dated October 31, 1997, by and between Sage Realty
Corporation, as Agent and Landlord, and Medallion Financial Corp., as
Tenant. Filed herewith.
10.65 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 herewith.
10.66 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 herewith.
21 List of Subsidiaries. Filed herewith.
23.1 Consent of Arthur Andersen LLP relating to its report concerning
Medallion Financial Corp. dated February 25, 1998. Filed herewith.
23.2 Consent of Arthur Andersen LLP relating to its reports concerning Edwards
Capital Corp., Transportation Capital Corp. and Tri-Magna Corporation
dated March 26, 1997. Filed herewith.
27 Medallion Financial Corp. Financial Data Schedule. Filed herewith.
<PAGE>
EXHIBIT 10.50
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
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS......................................... 1
SECTION 1.1. Defined Terms................................ 1
SECTION 1.2. Other Definitional Provisions................ 24
ARTICLE 2. AMOUNT AND TERMS OF REVOLVING CREDIT LOANS.......... 25
SECTION 2.1. Commitments and Loans........................ 25
SECTION 2.2. Revolving Credit, Term Loan and Swing Line
Notes........................................ 27
SECTION 2.3. Procedures Applicable to Borrowings and
Conversions.................................. 31
SECTION 2.4. Termination and Reduction of Aggregate
Revolving Credit Commitment.................. 35
SECTION 2.5. Prepayments.................................. 36
SECTION 2.6. Interest on Delinquent Payments.............. 38
SECTION 2.7. Increased Costs.............................. 39
SECTION 2.8. Existing Indebtedness; Existing Fees;
Existing Interest; Use of Proceeds........... 41
SECTION 2.9. Payment on Non-Business Days................. 42
SECTION 2.10. Term of Revolving Credit Commitments........ 42
SECTION 2.11. Funding Losses.............................. 44
SECTION 2.12. Alternate Rate of Interest.................. 45
SECTION 2.13. Changes In Legality......................... 45
SECTION 2.14. Participations.............................. 46
SECTION 2.15. Commercial Paper Borrowings................. 46
ARTICLE 3. FEES AND PAYMENTS................................... 47
SECTION 3.1. Fees......................................... 47
SECTION 3.2. Payments..................................... 47
SECTION 3.3. Taxes........................................ 48
ARTICLE 4. REPRESENTATIONS AND WARRANTIES...................... 49
SECTION 4.1. Corporate Status............................. 50
SECTION 4.2. Subsidiaries................................. 50
SECTION 4.3. Location of Offices, Books and Records....... 50
SECTION 4.4. Corporate Power; Authorization............... 50
SECTION 4.5. Enforceable Obligations...................... 51
SECTION 4.6. No Violation of Agreements; Compliance with
Law.......................................... 51
SECTION 4.7. Agreements................................... 51
SECTION 4.8. No Material Litigation....................... 51
SECTION 4.9. Good Title to Properties..................... 52
SECTION 4.10. Margin Regulations.......................... 52
SECTION 4.11. SBIC........................................ 52
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<PAGE>
SECTION 4.12. Investment Company.......................... 52
SECTION 4.13. Disclosure.................................. 53
SECTION 4.14. Taxes and Claims............................ 53
SECTION 4.15. Licenses and Permits........................ 53
SECTION 4.16. Consents.................................... 54
SECTION 4.17. Employee Benefit Plans...................... 54
SECTION 4.18. Financial Condition......................... 55
SECTION 4.19. Environmental Laws, Etc..................... 55
SECTION 4.20. Event of Default............................ 55
SECTION 4.21. Solvency.................................... 56
SECTION 4.22. Priority.................................... 56
SECTION 4.23. Advertising, Origination and Servicing
Activities.................................. 56
SECTION 4.24. Activities.................................. 56
ARTICLE 5. CONDITIONS PRECEDENT................................ 56
SECTION 5.1. Conditions to Initial Revolving Credit Loan
and Initial Swing Line Loan.................. 56
SECTION 5.2. Conditions to All Revolving Credit and Term
Loans........................................ 59
ARTICLE 6. AFFIRMATIVE COVENANTS............................... 60
SECTION 6.1. Financial Statements and Other Information... 60
SECTION 6.2. Taxes and Claims............................. 63
SECTION 6.3. Insurance.................................... 64
SECTION 6.4. Books and Records............................ 64
SECTION 6.5. Properties in Good Condition................. 64
SECTION 6.6. Inspection by the Banks...................... 64
SECTION 6.7. Pay Indebtedness to Agent and Perform Other
Covenants.................................... 65
SECTION 6.8. Compliance With Laws......................... 65
SECTION 6.9. Notice of Certain Events..................... 65
SECTION 6.10. Environmental Laws, Etc..................... 66
SECTION 6.11. Further Assurances.......................... 66
SECTION 6.12. ERISA....................................... 67
SECTION 6.13. Corporate Existence......................... 67
SECTION 6.14. Maintenance of Security Interest............ 67
SECTION 6.15. Required Percentage of Medallion Loans...... 67
SECTION 6.16. Intentionally Omitted....................... 67
ARTICLE 7. FINANCIAL COVENANTS................................. 68
SECTION 7.1. Minimum Tangible Net Worth................... 68
SECTION 7.2. Maximum Liability Ratio...................... 68
SECTION 7.3. Minimum Net Finance Assets................... 68
SECTION 7.4. Minimum Net Income to Interest Expense
Ratio........................................ 68
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<PAGE>
ARTICLE 8. NEGATIVE COVENANTS............................... 68
SECTION 8.1. Liens..................................... 69
SECTION 8.2. Indebtedness.............................. 70
SECTION 8.3. Limitation on Loans and Investments....... 70
SECTION 8.4. Limitation on Subsidiaries................ 71
SECTION 8.5. Restricted Payments....................... 71
SECTION 8.6. Merger, Consolidation, Sale or Transfers
Assets.................................... 71
SECTION 8.7. Transfer of Proceeds...................... 72
SECTION 8.8. Compliance with ERISA..................... 72
SECTION 8.9. Change in Business........................ 72
SECTION 8.10. Amendments of Agreements................. 72
SECTION 8.11. Transactions with Affiliates............. 73
SECTION 8.12. Negative Pledges......................... 73
SECTION 8.13. Inconsistent Agreements.................. 73
SECTION 8.14. Capital Expenditures..................... 73
SECTION 8.15. SBA Collateral........................... 73
ARTICLE 9. DEFAULTS AND REMEDIES............................ 73
SECTION 9.1. Events of Default......................... 73
SECTION 9.2. Suits for Enforcement..................... 77
SECTION 9.3. Rights and Remedies Cumulative............ 77
SECTION 9.4. Rights and Remedies Not Waived............ 77
SECTION 9.5. Further Payments.......................... 77
ARTICLE 10. MISCELLANEOUS................................... 78
SECTION 10.1. Collection Costs......................... 78
SECTION 10.2. Modification and Waiver.................. 79
SECTION 10.3. GOVERNING LAW............................ 80
SECTION 10.4. Notices.................................. 80
SECTION 10.5. Accounting Terms......................... 81
SECTION 10.6. Costs and Expenses; Indemnity............ 81
SECTION 10.7. WAIVER OF JURY TRIAL AND SETOFF.......... 82
SECTION 10.8. Captions................................. 83
SECTION 10.9. Lien; Setoff by Banks.................... 83
SECTION 10.10. Security................................ 84
SECTION 10.11. Jurisdiction; Service of Process........ 84
SECTION 10.12. Benefit of Agreement.................... 85
SECTION 10.13. Counterparts............................ 85
SECTION 10.14. Interest................................ 85
SECTION 10.15. Attorneys' Fees......................... 86
SECTION 10.16. Severability............................ 87
SECTION 10.17. Confidentiality......................... 87
SECTION 10.18. Loss, Theft, Etc. of Notes.............. 87
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<PAGE>
ARTICLE 11. AGENCY.......................................... 88
SECTION 11.1. Appointment and Actions.................. 88
SECTION 11.2. Independent Credit Decisions............. 91
SECTION 11.3. Indemnification of Agent................. 91
SECTION 11.4. Resignation and Succession............... 92
ARTICLE 12. SALES AND TRANSFERS............................. 93
SECTION 12.1. Sales and Transfers...................... 93
SECTION 12.2. New Banks................................ 96
- 4 -
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT, dated as of December 24, 1997, among
MEDALLION FUNDING CORP., a New York corporation ("Borrower"), the banks that
from time to time are signatories hereto (including Assignees (as hereinafter
defined), collectively, the "Banks" and individually, a "Bank"), FLEET BANK,
NATIONAL ASSOCIATION , as a Bank ("Fleet"), as swing line lender (the "Swing
Line Lender"), as Arranger and as Administrative Agent and Collateral Agent
for the Banks (including any successor, the "Agent") and The Bank of New York,
as a Bank ("BONY") and as Documentation Agent for the Banks (including any
successor, the "Documentation Agent").
WHEREAS, the Borrower, the Agent and the Banks are parties to a Loan
Agreement dated as of March 27, 1992 and such Loan Agreement was previously
amended by Amendment One, Amendment Two, Amendment Three, Amendment Four,
Amendment Five and Amendment Six thereto (as so previously amended, the "Prior
Agreement"); and
WHEREAS, the Borrower, the Agent, the Documentation Agent, the Banks and
the Swing Line Lender desire to amend and restate in its entirety the Prior
Agreement and make further changes thereto, upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1. Defined Terms.
-------------
As used in this Agreement, the terms defined in the recitals hereto shall
have the respective meanings ascribed thereto in said recitals and the
following terms shall have the following respective meanings:
"Accumulated Funding Deficiency" shall have the meaning set forth in
------------------------------
Section 302 of ERISA.
"Additional Commitment Amount" shall have the meaning set forth in
----------------------------
Section 12.2 hereof.
<PAGE>
"Adjusted Aggregate Revolving Credit Commitment" shall mean the Aggregate
----------------------------------------------
Revolving Credit Commitment, less, at the time of determination, the aggregate
principal balance of all CP Debt.
"Adjusted LIBO Rate" shall mean, with respect to any Interest Period
------------------
applicable to any LIBO Rate Loan, the rate of interest per annum, as
determined by the Agent, equal to the quotient (rounded to the nearest 1/100
of 1.00% or, if there is no nearest 1/100 of 1.00%, then to the next higher
1/100 of 1.00%) obtained by dividing the LIBO Base Rate by an amount equal to
the result obtained by subtracting the Eurodollar Reserve Percentage
(expressed as a decimal) from 1.00. The Adjusted LIBO Rate shall be adjusted
automatically on and as of the opening of business on the effective date of
any change in the Eurodollar Reserve Percentage.
"Affiliate" shall mean any Person which, directly or indirectly, controls
---------
or is controlled by or is under common control with any other Person and,
without limiting the generality of the foregoing, shall include any Person who
(a) beneficially owns or holds 20% or more of the Voting Interests of such
other Person (determined either by number of shares or number of votes) or (b)
is an associate (as such term is defined in Rule 405 of the Securities Act of
1933, as in effect on the Effective Date) of such other Person. For purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agent Payment Office" shall mean with respect to all amounts owing under
--------------------
the Loan Documents, initially, the office, branch, affiliate, or correspondent
bank of the Agent designated as its "Payment Office" below its signature to
this Agreement and, thereafter, such other office, branch, affiliate, or
correspondent bank thereof as it may from time to time designate in writing as
such to the Borrower, the Swing Line Lender and each Bank.
"Aggregate Revolving Credit Commitment" shall mean $195,000,000, as the
-------------------------------------
same may be reduced, terminated or increased from time to time pursuant to
Sections 2.4, 2.10, 9.1 or 12.2 hereof.
- 2 -
<PAGE>
"Agreement" shall mean this Amended and Restated Loan Agreement, as the
---------
same may be amended and supplemented from time to time.
"Amount" shall mean, with respect to any Loan, the principal amount of,
------
plus all accrued and unpaid interest on, and all other amounts due in respect
of, such Loan.
"Applicable Commitment Percentage" means, for any Payment Period (as
--------------------------------
defined under Pricing Level), the respective rates indicated below opposite
the applicable Pricing Level indicated below for such Payment Period (or as
provided in the final paragraph of this definition, for part of a Payment
Period):
Applicable
----------
Pricing Level Commitment Percentage
------------- ---------------------
1 0.150%
2 0.175%
3 0.20%
Subject to and in accordance with the final paragraph of this definition,
the Applicable Commitment Percentage shall be effective for each Payment
Period (or in the circumstances described in the final paragraph of this
definition, such portion of a Payment Period) whether or not such Payment
Period coincides with the period pursuant to which such Commitment Fee was
payable.
Anything in this Agreement to the contrary notwithstanding, the
Applicable Commitment Percentage for a Payment Period shall be the highest
rate provided for above if the certificate of a Financial Officer of the
Borrower shall not be delivered when required by Section 6.1(f) with respect
to the portion of such Payment Period to which such certificate relates).
"Applicable LIBO Margin" means, for any Payment Period (as defined under
----------------------
Pricing Level), the respective rates indicated below for Revolving Credit
Loans and Term Loans which are LIBO Rate Loans opposite the applicable Pricing
Level indicated below for such Payment Period (or as provided in the final
paragraph of this definition, for part of a Payment Period):
- 3 -
<PAGE>
Applicable LIBO Margin
-----------------------
Pricing Level (% per annum)
------------- -------------
1 0.95%
2 1.05%
3 1.15%
; provided, that, upon Borrower obtaining both its D-2 Rating from Duff &
Phelps and its F-2 Rating from Fitch Investor's Services, then the Applicable
LIBO Margin shall decrease by 15 basis points at each Pricing Level and shall
be the respective rates indicated below for Revolving Credit Loans and Term
Loans which are LIBO Rate Loans opposite the applicable Pricing Level
indicated below for such Payment Period (or as provided in the final paragraph
of this definition, for part of a Payment Period):
Applicable LIBO Margin
-----------------------
Pricing Level (% per annum)
------------- -------------
1 0.80%
2 0.90%
3 1.00%
; provided, further, that, at any time Borrower fails to retain both of such
ratings, the Applicable LIBO Margin shall increase by 15 basis points at each
Pricing Level and shall be the respective rates indicated in the first chart
in this definition for Revolving Credit Loans and Term Loans which are LIBO
Rate Loans opposite the applicable Pricing Level indicated in such chart for
such Payment Period (or as provided in the final paragraph of this definition,
for part of a Payment Period).
Subject to and in accordance with the final paragraph of this definition,
the Applicable LIBO Margin shall be effective for each Payment Period (or in
the circumstances described in the final paragraph of this definition, such
portion of a Payment Period) whether or not such Payment Period coincides with
an Interest Period for a LIBO Rate Loan.
Anything in this Agreement to the contrary notwithstanding, the
Applicable LIBO Margin for a Payment
- 4 -
<PAGE>
Period shall be the highest rate provided for above if the certificate of a
Financial Officer of the Borrower shall not be delivered when required by
Section 6.1(f) with respect to the portion of such Payment Period to which
such certificate relates).
"Assignee" or "Assignees" shall have the meaning set forth in Section
-------- ---------
12.2 hereof.
"Assignment" or "Assignments" shall have the meaning set forth in Section
---------- -----------
12.2 hereof.
"Assignor" or "Assignors" shall have the meaning set forth in Section
-------- ---------
12.2 hereof.
"Authorized Representative" shall mean, with respect to Borrower, its
-------------------------
president, vice president or chief financial officer, or any other officer of
Borrower designated as such from time to time by Borrower in a written notice
to the Agent, accompanied by an incumbency certificate with specimen signature
included.
"Banking Day" shall mean any Business Day on which dealings in deposits
-----------
in Dollars are transacted in the London interbank market.
"Board" shall mean the Board of Governors of the Federal Reserve System.
-----
"Borrowing Base Certificate" shall mean a certificate substantially in
--------------------------
the form of Exhibit I hereto.
---------
"Borrower Financing Statements" shall mean financing statements approved
-----------------------------
for filing in accordance with the Uniform Commercial Code, and all other
titles, certificates, assignments and other documents, including, but not
limited to, the Mortgage Assignments, that the Agent or any Bank may require
to perfect the security interests to be granted under the Security Agreement.
"Borrower Security Agreement" shall mean the Borrower Security Agreement
---------------------------
dated March 27, 1992, as amended and restated by the Amended and Restated
Borrower Security Agreement, dated the Effective Date, between Borrower and
the Agent for the benefit of the Banks, the Swing Line Lender and the CP
Holders, substantially in the form of Exhibit F hereto, as the same may be
---------
amended or supplemented from time to time.
- 5 -
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or other
------------
day on which the Agent is not open for business at its offices set forth in
this Agreement.
"Capital Stock" with respect to any corporation, shall mean common stock,
-------------
preferred stock, and any and all shares or other equivalents (however
designated) of any other corporate stock, of such corporation.
"Change of Control" shall mean any event, circumstance or condition,
-----------------
including without limitation, by reason of death, disability, incapacity,
removal, resignation, or failure to be elected, that results in any two of the
Key Executives ceasing to be on the Board of Directors of, and/or executive
officers (which shall mean the President, any Vice President, Chief Executive
Officer, Chief Operating Officer or Chief Financial Officer) of, the Borrower.
"Code" shall mean the Internal Revenue Code of 1986, and all rules and
----
regulations promulgated pursuant thereto, as the same may be amended or
supplemented from time to time.
"Code Section 4975" shall mean, at any date, Section 4975 of the Code.
-----------------
"Collateral" shall mean and include the assets, property or interests in
----------
property of whatever nature whatsoever, real, personal or mixed, tangible or
intangible, of Borrower securing the Revolving Credit Loans, Swing Line Loans
or Term Loans and all other property and interests in personal property that
shall, from time to time, secure the Revolving Credit Loans, Swing Line Loans
or Term Loans.
"Collateral Account" shall have the meaning set forth in the Borrower
------------------
Security Agreement.
"Commercial Loans" shall mean Loans that are secured in whole or in part
----------------
by real property and that are not Medallion Loans.
"Commercial Paper" shall mean any and all commercial paper issued by the
----------------
Borrower from time to time pursuant to a Commercial Paper Dealer Agreement and
a Paying Agency Agreement.
- 6 -
<PAGE>
"Commercial Paper Dealer Agreement" shall mean one or more commercial
---------------------------------
paper dealer agreements between the Borrower and a dealer for the issuance and
sale of Commercial Paper by the Borrower, as the same shall be amended from
time to time, each as approved by the Agent and the Required Banks.
"Commitment Fee" shall mean the fee required to be paid pursuant to
--------------
Section 3.1 hereof.
"CP Debt" shall mean all Indebtedness from the Borrower to the CP Holders
-------
from time to time outstanding.
"CP Holders" shall mean the holders from time to time of outstanding
----------
Commercial Paper issued by the Borrower.
"Default" shall mean any of the events specified in Section 9.1 hereof,
-------
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Default Rate" shall have the meaning set forth in Section 2.6 hereof.
------------
"Distressed Person" shall mean any Person (a) that files a petition or
-----------------
seeks relief under or takes advantage of any insolvency law; makes an
assignment for the benefit of its creditors; commences a proceeding for the
appointment of a receiver, trustee, liquidator, custodian or conservator of
itself or of the whole or substantially all of its property; files a petition
or an answer to a petition under any chapter of the United States Bankruptcy
Code, as amended (11 U.S.C. (S) 101 et seq.), or files a petition or seeks
-------
relief under or takes advantage of any other similar law or statute of the
United States of America, any state thereof or any foreign country; or
(b) as to which a court of competent jurisdiction shall enter an
order, judgment or decree appointing or authorizing a receiver, trustee,
liquidator, custodian or conservator of such Person or of the whole or
substantially all of its property, or enters an order for relief against such
Person in any case commenced under any chapter of the United States Bankruptcy
Code, as amended, or grants relief under any other similar law or statute of
the United States of America, any state thereof or any foreign country; or as
to which, under the provisions of any law for the relief or aid of debtors, a
court of competent jurisdiction or a receiver, trustee,
- 7 -
<PAGE>
liquidator, custodian or conservator shall assume custody or control or take
possession of such Person or of the whole or substantially all of its
property; or as to which there is commenced against such Person any proceeding
for any of the foregoing relief or as to which a petition is filed against
such Person under any chapter of the United States Bankruptcy Code, as
amended, or under any other similar law or statute of the United States of
America or any state thereof or any foreign country and such proceeding or
petition remains undismissed for a period of 60 days; or as to which such
Person by any act indicates its consent to approval of or acquiescence in any
such proceeding or petition.
"Dividends" shall mean, for the most recently completed four fiscal
---------
quarters of the Borrower, the sum of all paid and accrued and unpaid cash
dividends on Capital Stock plus any paid and accrued and unpaid repurchase or
redemption for cash of Capital Stock.
"Dollars" and "$" shall mean dollars in lawful currency of the United
------- -
States of America.
"Domestic Investment" shall mean an Investment in respect of a Person
-------------------
which is a resident of the United States or a Person (other than a
Governmental Authority) organized or qualified under the laws of any State,
excluding any Domestic Investment that is a Portfolio Purchase.
"Domestic Loan" shall mean a Loan that is denominated and payable only in
-------------
Dollars, the Person in respect of which is a resident of the United States or
a Person (other than a Governmental Authority) organized or qualified under
the laws of any State.
"Edwards Debt" shall mean the outstanding amount which, once the Merger
------------
is effective, shall be owed by the Borrower to the SBA under the following
notes, originally given by Edwards Capital Corp., a Delaware Corporation, to
the SBA, namely: a debenture dated June 8, 1988, in the original principal
amount of $3,000,000; two debentures dated September 23, 1992, in the original
principal amount of $3,500,000 and $6,050,000, respectively; a debenture dated
June 29, 1994, in the original principal amount of $4,600,000; and a debenture
dated September 28, 1994, in the original principal amount of $5,100,000.
"Effective Date" of this Agreement shall mean the date on which (i)
--------------
counterparts of this Agreement executed and delivered
- 8 -
<PAGE>
by the parties hereto shall have been received by the Agent and (ii) the
conditions precedent set forth in Article V hereto shall have been satisfied
or waived in writing by all of the Banks.
"Eligible Commercial Loan" shall mean any Commercial Loan that satisfies
------------------------
the Eligibility Requirements and (a) that is secured by Eligible Real Estate
and (b) that is made to a Person that is an ongoing business concern.
"Eligible Medallion Loan" shall mean any Medallion Loan that satisfies
-----------------------
the Eligibility Requirements and that is secured by Medallion Rights.
"Eligible Loans" shall mean any Loan that constitutes or comprises either
--------------
an Eligible Medallion Loan or Eligible Commercial Loan or both.
"Eligible Real Estate" shall mean Real Property in which a mortgage
--------------------
interest has been obtained (and continuously maintained) by Borrower to secure
the obligations of such Person under a Loan by Borrower to such Person, or in
the case of such beneficial owner, to secure a guaranty which shall have been
made by such beneficial owner guaranteeing the Loan.
"Eligibility Requirements" with respect to any Loan, shall mean the
------------------------
following requirements:
(a) such Loan is made to, and is a recourse obligation of, the
Person to whom such Loan is made,
(b) such Loan is a Domestic Loan,
(c) such Loan is in compliance with the SBI Act and all SBA
Regulations promulgated thereunder and, after giving effect to such Loan,
Borrower and its business and operations taken as a whole, is in compliance
with the SBI Act and all SBA Regulations promulgated thereunder,
(d) such Loan is pledged in accordance with Section 2.1 of the
Borrower Security Agreement,
(e) the representations, warranties and covenants contained in
Section 4.1 of the Borrower Security Agreement are true and correct, and have
been complied with, with respect to such Loan, and
- 9 -
<PAGE>
(f) the Agent, on behalf of the Banks, has a perfected, first
priority security interest in such Loan.
"Equipment" shall mean all machinery, equipment, fixtures, vehicles,
---------
office equipment, furniture, furnishings, inventories, supplies, computer
equipment, and all other equipment whatsoever, wherever located, together with
all attachments, components, parts, equipment and accessories installed
therein or affixed thereto, including, but not limited to, all equipment as
defined in Section 9-109(2) of the UCC and all products, profits, rents and
proceeds of any of the foregoing; all whether now owned or hereafter created
or acquired.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as amended from time to time.
"ERISA Affiliate" shall mean an entity, whether or not incorporated,
---------------
which controls, is controlled by, or is under common control with, Borrower
within the meaning of Section 4001 of ERISA.
"ERISA Termination Event" shall mean (i) a Reportable Event, (ii) the
-----------------------
withdrawal of Borrower or any of its ERISA Affiliates from a Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041
of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC,
or (v) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan.
"Eurodollar Reserve Percentage" shall mean, with respect to the
-----------------------------
calculation of the Adjusted LIBO Rate for any Interest Period, the percentage
(expressed as a decimal) that is in effect on the date such calculation is
made, as prescribed by the Board for determining the maximum reserve
requirement (including without limitation any basic, marginal, special,
supplemental or emergency reserves and determined without benefit of any
credits for proration, exceptions, or offsets that may be available from time
to time) for a member bank of the Federal Reserve System applicable to
Eurocurrency funding by such member bank, currently referred to as
"Eurocurrency liabilities" in Regulation D of the Board (or in respect of any
other category of liabilities, which includes deposits by
- 10 -
<PAGE>
reference to which the interest rate on LIBO Rate Loans is determined, or any
category of extensions of credit or other assets, including loans by a non-
United States office of any Bank to United States residents).
"Event of Default" shall mean any of the events specified in Section 9.l
----------------
hereof.
"Existing Fees" shall mean, with respect to the Existing Indebtedness and
-------------
the Prior Agreement, all facility fees and other amounts (other than principal
and interest) payable in connection therewith that have accrued and remain
unpaid as of the Effective Date.
"Existing Indebtedness" shall mean, as to any Bank, the aggregate amount
---------------------
of Revolving Credit Loans made by such Bank under or pursuant to the Prior
Agreement which remain outstanding as of the Effective Date and as to all the
Banks, the aggregate amount of Revolving Credit Loans made by all the Banks
under or pursuant to the Prior Agreement which remain outstanding as of the
Effective Date.
"Existing Interest" shall mean, with respect to the Existing Indebtedness
-----------------
and the Prior Agreement, all interest payable in connection therewith that has
accrued and remains unpaid as of the Effective Date.
"Exposure Percentage" shall mean as of any date and with respect to the
-------------------
Swing Line Lender or any Bank, as the case may be, a fraction the numerator of
which is the Exposures on such date of the Swing Line Lender or such Bank, as
applicable, and the denominator of which is the aggregate Exposures on such
date of the Swing Line Lender and all Banks.
"Exposures" shall mean, as of any date, with respect to the Swing Line
---------
Lender or any Bank, as the case may be, and, as the context requires, the
Revolving Credit Loans, Swing Line Loans and/or Term Loans (each a "Loan
Type"), an amount equal to (i) the outstanding principal amount on such date
of all loans of such Loan Type owed to such Bank, plus (ii) with respect to
----
the Swing Line Lender only and only when the Loan Type is a Swing Line Loan,
the excess of (a) the outstanding principal amount on such date of all Swing
Line Loans, over (b) all payments made to the Swing Line Lender by the
Borrower and the Banks in repayment thereof or participation therein, as the
case may be, plus (iii) with respect to each Bank, the excess of (a) the
----
aggregate sum of all payments by such Bank in
- 11 -
<PAGE>
participation of the Swing Line Loans, over (b) all reimbursements of such
Bank in respect thereof.
"Fair Market Value" with respect to Eligible Real Estate, shall mean the
-----------------
fair market value thereof as reasonably determined by Borrower and not
objected to in writing by, and in the sole and absolute discretion of, the
Agent or the Required Banks, and after deducting therefrom the principal of,
interest on and all other amounts due in respect of, any Indebtedness secured
by any mortgage in favor of any Person other than the Agent for the benefit of
the Banks on such Eligible Real Estate or any portion thereof.
"Federal Funds Rate" shall mean, for any day, a rate per annum (expressed
------------------
as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%)
equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day, provided that, (i) if the
day for which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day,
and (ii) if such rate is not so published for any day, the Federal Funds Rate
for such day shall be the average of the quotations for such day on such
transactions received by the Agent.
"Fee Letter" shall mean that certain letter agreement between the
----------
Borrower and the Agent dated as of December 22, 1997.
"Fixed Rate Loan shall mean any LIBO Rate Loan and/or any Negotiated Rate
---------------
Loan.
"GAAP" shall mean generally accepted accounting principles in the United
----
States of America as in effect from time to time.
"Governmental Authority" shall mean any nation or government, any state
----------------------
or other political subdivision thereof and any entity or officer exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to any government, and any corporation or other entity owned or
controlled (through ownership of Capital Stock or otherwise) by any of the
foregoing.
- 12 -
<PAGE>
"Hazardous Materials" shall mean and include, without limitation,
-------------------
gasoline, petroleum products, explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances, polychlorinated
biphenyls or related or similar materials, asbestos or any material containing
asbestos, or any other substance or material as may be defined as a hazardous
or toxic substance by any Federal, state or local environmental law,
ordinance, rule or regulation.
"Indebtedness" of a Person shall mean and include, without duplication,
------------
(i) all items which, in accordance with GAAP, would be included in determining
total liabilities as shown on the liability side of a balance sheet as at the
date Indebtedness of such Person is to be determined, other than dividends on
Capital Stock declared but not paid to the extent such dividends are not
Restricted Payments, (ii) any liability secured by any Lien on property owned
or acquired by such Person, whether or not such liability shall have been
assumed by such Person, and (iii) guaranties, endorsements (other than for
collection in the ordinary course of business), reimbursement obligations in
respect of undrawn letters of credit and other contingent obligations of such
Person in respect of the obligations of others.
"Independent Public Accountants" shall mean Arthur Andersen & Co. or such
------------------------------
other firm of independent certified public accountants selected by Borrower
and satisfactory to the Required Banks.
"Initial Revolving Credit Loan" shall mean the Revolving Credit Loan or
-----------------------------
Loans made by the Banks to Borrower on the Effective Date.
"Initial Term" shall mean the period from and including the Effective
------------
Date to and including June 30, 1999.
"Instrument of Adherence" shall have the meaning set forth in Section
-----------------------
12.2 hereof.
"Intercreditor Agreement" shall mean that certain intercreditor agreement
-----------------------
entered into between the SBA and the Agent, on behalf of the Banks, the Swing
Line Lender and the CP Holders, substantially in the form of Exhibit G hereto,
---------
and as such agreement is amended form time to time, with the consent of the
Agent and the Required Banks.
- 13 -
<PAGE>
"Interest Expense" shall mean, for any period, all interest paid or
-----------------
scheduled to be paid (including amortization of original issue discount and
non-cash interest payments or accruals and the interest component of leases
that, in accordance with GAAP, are capitalized leases) by Borrower or any of
its Subsidiaries during such period on Indebtedness of Borrower or any of such
Subsidiaries (determined on a consolidated basis).
"Interest Period" shall have the meaning set forth in Section 2.2(d)
---------------
hereof.
"Investment" in any Person shall mean any loan, advance, or extension of
----------
credit to or for the account of; any guaranty, endorsement or other direct or
indirect contingent liability in connection with the obligations, Capital
Stock or dividends of; any ownership, purchase or acquisition of any assets,
business, Capital Stock, obligations or securities of; or any other interest
in or capital contribution to; such Person, but shall not include (a) any Loan
and (b) any Investment permitted by Section 8.14 hereof.
"Key Executive" shall mean the individuals listed on Schedule II hereto
-------------
and each of their respective successors as an executive officer (which shall
mean the President, any Vice President, Chief Executive Officer, Chief
Operating Officer or Chief Financial Officer) or director of Borrower,
provided that such successor, prior to becoming an executive officer or
director, is satisfactory to the Required Banks. Immediately upon receipt of
such approval, Schedule II hereto shall be deemed automatically amended to
substitute such approved successor for his or her predecessor as a Key
Executive.
"LIBO Base Rate" shall mean, with respect to any Interest Period, the
--------------
rate reported by the Agent as the rate per annum (rounded to the nearest 1/100
of 1.00% or, if there is no nearest 1/100 of 1.00%, then to the next higher
1/100 of 1.00%) at which deposits in Dollars are offered by Fleet or any of
its Affiliates to prime commercial banks in the London interbank market at
approximately 11:00 a.m., prevailing New York time (or as soon thereafter as
practicable), or, if Fleet is not making offers in the London interbank
market, at a rate quoted as "London Eurodollar deposits 11:00 hours offered
side," currently shown on Telerate Page 3750 or subsequent page, or if such
quotation is no longer available, such other similar quotation for Eurodollar
deposits as the Agent and the Borrower reasonably agree, on the second Banking
Day prior to the
- 14 -
<PAGE>
commencement of such Interest Period, in an amount comparable to the principal
amount of the LIBO Rate Loan and having a scheduled maturity comparable to
such Interest Period (as set forth in the Loan Request) for delivery in
immediately available funds on the first day of such Interest Period.
"LIBO Rate Loan" shall mean a Revolving Credit Loan or Term Loan bearing
--------------
interest during an Interest Period applicable to such Revolving Credit Loan or
Term Loan at a fixed rate of interest determined by reference to the Adjusted
LIBO Rate plus the applicable margin as specified in Section 2.2(c)(i), in the
case of a Revolving Credit Loan and as specified in Section 2.2(c)(iii) in the
case of a Term Loan.
"Lien" shall mean any interest in property securing an obligation owed to
----
a Person, whether such interest is based on the common law, statute or
contract, and including but not limited to the security interest arising from
a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term "Lien" includes
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other similar title exceptions and
encumbrances, including but not limited to mechanics', materialmen's,
warehousemen's, carriers' and other similar encumbrances, affecting property.
"Loan" shall mean any loan or advance made in the ordinary course of
----
business by Borrower to or for the account of any client or customer of
Borrower, which loan, advance or extension of credit is permitted pursuant to
the terms of this Agreement. Any loan, advance or extension of credit made at
a different point in time than another loan, advance or extension of credit
shall be deemed to be separate and distinct Loans.
"Loan Documents" shall mean and include this Agreement, the Revolving
--------------
Credit Notes, the Term Notes, the Swing Line Note, the Borrower Security
Agreement, the Intercreditor Agreement and the Borrower Financing Statements.
"Loan Request" shall mean a request for one or more Revolving Credit
------------
Loans or Swing Line Loans or for the continuation or conversion of any
Revolving Credit Loan or Term Loan, substantially in the form of Exhibit E
---------
hereto, executed by an Authorized Representative on behalf of the Borrower.
- 15 -
<PAGE>
"Material Adverse Effect" shall mean, with respect to an event, action or
-----------------------
condition affecting any Person, or any of its properties or revenues, an
event, action or condition that would (i) adversely affect the validity or
enforceability of, or the authority of such Person to perform its obligations
under, any of the Loan Documents to which it is a party, or (ii) materially
adversely affect the business, operations, assets or condition (financial or
otherwise) of such Person or the ability of such Person to perform its
obligations under any of the Loan Documents to which it is a party or (iii)
materially adversely affect the value of the Collateral. Unless the context
otherwise requires, any reference to Material Adverse Effect shall mean and
refer to a Material Adverse Effect with respect to Borrower.
"Maturity" shall have the meaning set forth in Section 2.2(b) hereof.
--------
"Maximum SBA Collateral" shall mean the aggregate outstanding principal
----------------------
balance of Eligible Commercial Loans equal to 120% of the SBA Secured Debt;
provided, that, such amount may be increased by an amount not to exceed the
-------- ----
lesser of (i) $200,000, or (ii) an amount necessary to include all, as opposed
to part, of any particular Eligible Commercial Loan within the SBA Collateral.
"Medallion" shall mean the metal plate which displays the license number
---------
of a licensed Taxicab on the outside of the vehicle and which is issued by the
New York City Taxi and Limousine Commission, or by any other similar
Governmental Authority for a jurisdiction other than New York City charged
with the authority to issue licenses for the operation of Taxicabs.
"Medallion Financial" shall mean Medallion Financial Corporation, a
-------------------
Delaware corporation.
"Medallion Loans" shall mean Loans secured in whole or in part by
---------------
Medallion Rights.
"Medallion Rights" shall mean all license, operating and/or subscription
----------------
rights to Taxicab Medallion(s), and all license, operating and/or subscription
rights evidenced by such Medallions, and all renewals thereof, in which a
perfected security interest has been obtained by Borrower to secure the Loan
made by Borrower to such Person, and assigned to the
- 16 -
<PAGE>
Agent, for the benefit of the Banks, pursuant to the Borrower Security
Agreement.
"Merger" shall mean the merger of Edwards Capital Corp. and
------
Transportation Capital Corp. with and into the Borrower.
"Minimum Asset Coverage" shall mean, at any time, 120% of the aggregate
----------------------
unpaid balance of all Senior Debt at such time.
"Multiemployer Plan" shall mean a Plan that is a multiemployer plan as
------------------
defined in Section 4001(a)(3) of ERISA.
"Negotiated Rate" shall mean with respect to each Swing Line Loan, the
---------------
rate per annum equal to, (i) at all times during the period, if any,
commencing on the date of delivery of a notice of an Event of Default by the
Agent to the Banks with respect to such Swing Line Loan and terminating on the
date on which such Event of Default shall no longer be continuing, the Prime
Rate, and (ii) at all other times, the rate agreed to by the Borrower and the
Swing Line Lender in accordance with Section 2.2(c)(ii) as the interest rate
that such Swing Line Loan shall bear.
"Negotiated Rate Loan" shall mean any Swing Line Loan that bears interest
--------------------
at a Negotiated Rate.
"Net Finance Assets" shall mean, as of any date of calculation, an amount
------------------
equal to the sum of:
(i) cash and Short Term Investments shown on Borrower's balance
sheet as of such date, plus
----
(ii) the aggregate outstanding principal balances of, plus accrued
interest on, all Eligible Medallion Loans and Eligible Commercial Loans
shown on Borrower's balance sheet as of the most recent fiscal quarter,
minus
-----
(iii) all loan loss and other similar reserves shown on Borrower's
balance sheet as of the most recent fiscal quarter, minus
-----
(iv) the portion, if any, of the Loans and accrued interest
described in (ii) above that Borrower, in its reasonable business
judgment, deems to be uncollectible or subject to classification as non-
accruing and for which it has not made appropriate credits to the
reserves described in (iii) above, minus
-----
- 17 -
<PAGE>
(v) the portion, if any, of the Eligible Loans and accrued interest
described in (ii) above which are more than 60 days past due, minus
-----
(vi) the aggregate outstanding principal of, plus accrued interest
on, the SBA Collateral;
provided, that, if all or any part of any Loan would be excluded under any of
-------- ----
the provisions set forth above, then the entire outstanding principal amount
of, plus accrued interest on, such Loan shall be excluded.
"Net Income" shall mean, for any period, the gross revenues of Borrower,
----------
less (i) all realized and unrealized gains and losses on investments, (ii) all
changes in loan loss reserve and (iii) all operating and nonoperating expenses
(including, without limitation, Interest Expense and all fees and commissions,
however designated, payable for management, administrative, or other services)
of Borrower for such period, derived in the ordinary course of its business,
including all charges of a proper character (including current and deferred
taxes on income, provision for taxes on income, and current additions to loan
loss and other reserves), all determined on a basis consistent with prior
years.
"New Bank" shall have the meaning set forth in Section 12.2 hereof.
--------
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
--------
"Note(s)" or "Revolving Credit Note(s)" or "Swing Line Note(s)" or "Term
------- ------------------------ ------------------ ----
Notes" shall mean the promissory note(s) of Borrower referred to in Sections
-----
2.2 and 12.2 hereof and shall include any replacement(s) therefor issued
pursuant to Sections 10.18 or 12.1 hereof.
"Participant" or "Participants" shall mean any Person, including a Bank,
----------- ------------
that pursuant to the terms of this Agreement, buys a participation in any of
the Indebtedness owing in connection with the Loan Documents.
"Paying Agency Agreement" shall mean one or more issuing and paying
-----------------------
agency agreements between the Borrower and a Paying Agent providing for the
issuance of Commercial Paper by the Borrower, as the same shall be amended
from time to time, each
- 18 -
<PAGE>
as approved by the Agent and the Required Banks in accordance with the terms
of this Agreement.
"Paying Agent" shall mean one or more paying agents acting as paying
------------
agent under a Paying Agency Agreement with the Borrower.
"Payments" shall have the meaning set forth in Section 3.2 hereof.
--------
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Percentage" of each Bank shall mean, at any particular time, the
----------
percentage designated as such for such Bank on Exhibit A hereto, as adjusted
---------
from time to time pursuant to Section 12.1(d) hereof.
"Permitted Debt" shall mean all SBA Secured Debt and all unsecured
--------------
Indebtedness of Borrower owed to Permitted Lenders and all CP Debt.
"Permitted Lenders" shall mean the SBA and the financial institutions
-----------------
approved from time to time by the Required Banks, which approval shall not be
unreasonably withheld.
"Permitted Liens" shall having the meaning set forth in Section 8.1
---------------
hereof.
"Person" or "person" shall mean any individual, partnership, firm,
------ ------
corporation, association, joint venture, trust or other entity, or any
Governmental Authority.
"Plan" shall mean, at any particular time, any employee benefit plan
----
which is covered by ERISA and in respect of which Borrower or an ERISA
Affiliate is (or, if such plan were terminated at such time, under Section
4069 of ERISA would be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Portfolio Purchase" shall mean with respect to any fiscal year of the
------------------
Borrower, an Investment which, in any one instance, or with respect to all
such purchases in the aggregate, results or would result in the Borrower
acquiring Loans, whether for cash, pursuant to financing or otherwise, with an
aggregate outstanding principal balance of $1,000,000 or more in such fiscal
year.
- 19 -
<PAGE>
"Pricing Level" means, for any Payment Period (as defined below), the
-------------
respective Pricing Level indicated below opposite the applicable Debt-Equity
Ratio indicated below for such Payment Period (or as provided in the final
paragraph of this definition, for part of a Payment Period):
Range of
Debt-Equity Ratio Pricing Level
----------------- -------------
Less than 2.0 to 1 1
Greater than or equal to 2.0
but less than 3.0 to 1 2
Greater than or equal to 3.0 to 1 3
For purposes hereof, a "Payment Period" means (i) initially, the period
--------------
commencing on the Effective Date to but not including the fifth Business Day
after the earlier of January 30, 1998, or the date of the actual receipt by
the Agent of the certificate required to be delivered by the Borrower on or
before such date pursuant to Section 6.1(f) and (ii) thereafter, the period
commencing on the day immediately succeeding the last day of the prior Payment
Period to but not including the fifth Business Day after the earlier of the
due date of the next certificate required to be delivered by the Borrower to
the Agent pursuant to Section 6.1(f) or the date of the actual receipt by the
Agent of such certificate.
The Debt-Equity Ratio for any Payment Period shall be determined in
connection with the certificate required to be delivered to the Agent pursuant
to Section 6.l(f) setting forth, among other things, a calculation of the
ratio of Total Liabilities less accrued Dividends to Tangible Net Worth (the
"Debt-Equity Ratio") as at the last day of the fiscal quarter immediately
preceding such Payment Period (i.e, the Debt-Equity Ratio for the Payment
---
Period scheduled to commence on the fifth Business Day after the earlier of
January 30, 1998 or the date of the actual receipt by the Agent of the
certificate required to be delivered by the Borrower on or before such date
pursuant to Section 6.1(f), shall be determined on the basis of the Debt-
Equity Ratio as at December 31, 1997, the Debt-Equity Ratio for the next
succeeding Payment Period shall be determined on the basis of the Debt- Equity
Ratio as at March 31, 1998, and so forth), each of which certificates shall be
delivered together with the financial statements for the fiscal
- 20 -
<PAGE>
quarter on which such calculation is based; provided, that, in the case of the
initial Payment Period the calculation shall be based on the Debt-Equity
calculation set forth in the certificate delivered by Borrower to the Banks on
or prior to the Effective Date with respect to the fiscal quarter ending
September 30, 1997.
"Prime Rate" shall mean the annual rate of interest designated by Fleet
----------
from time to time as its "prime rate" in effect at its principal office. The
Prime Rate is determined as a means of pricing for United States based
customers and is not directly fixed to any external rate of interest or index,
nor is it necessarily the lowest rate of interest charged by Fleet at any
given time for any particular class of customers or credit extensions.
"Prime Rate Loan" shall mean, as of any date of determination, a
---------------
Revolving Credit Loan or Term Loan bearing interest, as of such date of
determination, at a variable rate of interest determined by reference to the
Prime Rate.
"Principal Payments" shall have the meaning set forth in Section 2.5(b)
-------------------
hereof.
"Prohibited Transaction" shall have the meaning set forth in Section 406
----------------------
of ERISA or Code Section 4975.
"Property" shall mean all Equipment, Real Property or other real or
--------
personal property, tangible or intangible, owned or operated by Borrower.
"Real Property" shall mean real property of a Person or an ultimate
-------------
beneficial owner of such Person or machinery or Equipment of such Person or
beneficial owner forming a part of, or affixed to, such real property.
"Reportable Event" shall mean any of the events set forth in Section
----------------
4043(b) of ERISA, other than those events as to which the 30-day notice period
is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. 2615.
"Renewal Term" shall have the meaning set forth in Section 2.10(b)
------------
hereof.
"Required Banks" shall mean, as of any date of determination, the Agent
--------------
and such Bank or Banks as have Revolving Credit Commitments or Term Loans
outstanding in
- 21 -
<PAGE>
excess of 51% of the sum of the Aggregate Revolving Credit Commitment plus all
Term Loans then outstanding.
"Restricted Investment" shall mean any Investment, to the extent it does
---------------------
not constitute a Short Term Investment.
"Restricted Payment" shall mean, with respect to Borrower, any of the
-------------------
following when paid (or when the proceeds of which are paid) to any Person
during the continuance of any Default or Event of Default: (i) the payment of
any dividend on or any distribution in respect of any Capital Interests of
Borrower (other than the payment of Dividends required to be paid in order to
avoid the imposition of income taxes pursuant to the Code, or, for so long as
Borrower is a registered investment company under the 1940 Act, the payment of
such Dividends as may be required by the 1940 Act), (ii) any defeasance,
redemption, repurchase or other acquisition or retirement for value prior to
scheduled maturity of any Indebtedness ranked pari passu or subordinate in
---- -----
right of payment to the Revolving Credit Notes, Swing Line Note or the Term
Notes or of any Indebtedness having a maturity date subsequent to the maturity
of the Revolving Credit Notes, Swing Line Note or the Term Notes (other than
Permitted Debt), (iii) the redemption, repurchase, retirement or other
acquisition of any Capital Stock of Borrower or of any warrants, rights or
options to purchase or acquire any Capital Stock of Borrower, (iv) any
expenditure or the incurrence of any liability to make any expenditure for any
Restricted Investment, (v) the payment of any principal of, interest on, or
any amounts due in respect of, any Indebtedness not permitted by Section 8.2
hereof, and (vi) the payment of any principal of, or interest on, or any other
amounts due in respect of, any Subordinated Debt.
"Revolving Credit Commitment" of a Bank shall mean, as of any date of
---------------------------
calculation, an amount equal to the product of such Bank's Percentage times
the Aggregate Revolving Credit Commitment.
"Revolving Credit Commitment Period" at any date shall mean with respect
----------------------------------
to any Bank, the period from and including the Effective Date to, but
excluding, the Term Out Date with respect to such Bank's Revolving Credit
Commitment.
"Revolving Credit Exposure" shall mean with respect to any Bank as of any
-------------------------
date, the sum as of such date of (i) the outstanding principal amount of such
Bank's Revolving Credit Loans and (ii) such Bank's Swing Line Exposure.
- 22 -
<PAGE>
"Revolving Credit Loan" shall mean a loan or advance made pursuant to
---------------------
Section 2.1 (a) hereof.
"Revolving Credit Loans" shall mean, collectively, the Revolving Credit
----------------------
Loans from time to time outstanding and unpaid.
"Revolving Credit Obligations" shall have the meaning set forth in
-----------------------------
Section 2.10(b) hereof.
"Satisfactory Subordinated Debt" shall mean Subordinated Debt, excluding
------------------------------
any such Subordinated Debt owing to the SBA; provided, that, no such
-------- ----
Subordinated Debt shall be deemed Satisfactory Subordinated Debt unless and
until the Agent has provided written notice to the Borrower that same shall be
deemed Satisfactory Subordinated Debt for purposes of this Agreement.
"SBA" shall mean the Small Business Administration.
---
"SBA Collateral" shall mean certain Eligible Commercial Loans the
--------------
aggregate outstanding principal balance of which shall not at any time exceed
the Maximum SBA Collateral, which Eligible Commercial Loans are initially the
Eligible Commercial Loans set forth on Exhibit H hereto, which Exhibit H shall
--------- ---------
be replaced from time to time as provided in Section 6.1(c), which Exhibit H
shall also serve as Schedule A to the SBA Security Agreement.
"SBA Regulations" shall mean the regulations set forth at 13 CFR 107
---------------
implementing the SBI Act, as the same may be amended from time to time, and
all related guidelines, directives, treaties and interpretations thereof by
any Governmental Authority charged with the administration or interpretation
thereof.
"SBA Secured Debt" shall mean the Edwards Debt and the TCC Debt.
----------------
"SBA Security Agreement" shall mean the Security Agreement, in
----------------------
substantially the form of Exhibit L hereto, among the Borrower, the Agent and
---------
the SBA, as such agreement is amended from time to time with the consent of
the Agent and the Required Banks.
- 23 -
<PAGE>
"SBI Act" shall mean Title III of the Small Business Investment Act of
-------
1958, as amended, 15 U.S.C. 681 et seq.
------
"SBIC" shall mean a small business investment company established under
----
and operating in compliance with the SBI Act and the SBA Regulations
promulgated thereunder.
"Scheduled Swing Line Commitment Termination Date" shall mean the fifth
-------------------------------------------------
Business Day preceding the Term Out Date.
"Senior Debt" shall mean all Indebtedness of Borrower other than the SBA
-----------
Secured Debt and Subordinated Debt.
"Short Term Investment" shall mean an Investment in (i) direct
---------------------
obligations of the United States of America; (ii) negotiable certificates of
deposit issued by, or negotiable bankers' acceptances (eligible for discount
at Federal Reserve Banks) of, or repurchase agreements in respect of
obligations described in clause (i) with, any bank or trust company organized
under the laws of the United States of America or any State thereof having
capital and surplus of not less than $250,000,000; and (iii) readily
marketable commercial paper which, at the time of acquisition, is rated at
least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investor
Services, Inc.; provided, that all of such Investments described in clauses
-------- ----
(i), (ii) and (iii) shall be payable in Dollars and shall mature within twelve
months after the date of acquisition thereof.
"Single Employer Plan" shall mean any Plan which is covered by Title IV
--------------------
of ERISA, but is not a Multiemployer Plan.
"Solvent" shall mean, as to any Person, that such Person has capital
-------
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage and is able to pay its debts as
they mature and owns property having a value both at fair valuation and at
present fair saleable value, greater than the amount required to pay its debts
(including contingencies).
"Subordinated Debt" shall mean all Indebtedness of Borrower for borrowed
-----------------
money that is subordinated to the Revolving Credit Loans, Swing Line Loans and
the Term Loans on terms that are, and pursuant to a form of subordination that
is, acceptable in form and substance to the Agent and the Required Banks.
- 24 -
<PAGE>
"Subsidiary" or "Subsidiaries" of Borrower shall mean any corporation
---------- ------------
more than 50% of the outstanding Voting Interests of which is at the time
owned, directly or indirectly, by Borrower and/or by one or more of its
Subsidiaries; provided, however, that the term "Subsidiary" shall be deemed to
----------
exclude all Subsidiaries the Tangible Net Worth of which constitute less than
5% of the Tangible Net Worth of Borrower.
"Swing Line Commitment" shall mean the undertaking of the Swing Line
---------------------
Lender during the Swing Line Commitment Period to make Swing Line Loans,
subject to the terms and conditions hereof, in an aggregate outstanding
principal amount not in excess of the Swing Line Commitment Amount, and the
commitment of the Banks to participate therein as set forth in Section 2.1(c),
as the same may be adjusted from time to time pursuant to Sections 2.4 and
ARTICLE 12.
"Swing Line Commitment Amount" shall mean $5,000,000.
----------------------------
"Swing Line Commitment Period" shall mean the period from the Effective
----------------------------
Date until the Swing Line Commitment Termination Date.
"Swing Line Commitment Termination Date" shall mean the earlier of the
--------------------------------------
Business Day immediately preceding the Scheduled Swing Line Commitment
Termination Date or such other date upon which the Swing Line Commitment shall
have been terminated in accordance with Section 2.4 or Section 9.1.
"Swing Line Exposure" shall mean at any time, in respect of any Bank, an
-------------------
amount equal to the aggregate outstanding principal amount of the Swing Line
Loans at such time, multiplied by such Bank's Percentage at such time.
-------------
"Swing Line Interest Period" shall mean with respect to any Swing Line
--------------------------
Loan requested by the Borrower, the period commencing on the borrowing date
with respect to such Swing Line Loan and ending not in excess of five days
thereafter, as selected by the Borrower in the applicable Loan Request
therefor, provided, however, that (i) if any Swing Line Interest Period would
-------- -------
otherwise end on a day that is not a Business Day, such Swing Line Interest
Period shall be extended to the next succeeding Business Day, unless such next
succeeding Business Day would be a date on or after the Scheduled Swing Line
Commitment Termination Date, in which event such Swing Line Interest Period
shall end on the next preceding Business Day, and (ii) no Swing Line Interest
Period
- 25 -
<PAGE>
shall end after the Scheduled Swing Line Commitment Termination Date.
Interest shall accrue from and including the first day of a Swing Line
Interest Period to, but excluding, the last day of such Swing Line Interest
Period.
"Swing Line Loan" and "Swing Line Loans" shall have the meaning set forth
--------------- ----------------
in Section 2.1(c).
"Swing Line Maturity Date" shall mean the Scheduled Swing Line Commitment
------------------------
Termination Date, or such earlier date on which the Swing Line Loans shall
become due and payable, whether by acceleration or otherwise.
"Swing Line Participation Amount" shall have the meaning set forth in
-------------------------------
Section 2.1(c)(iii).
"Tangible Net Worth" shall mean the sum of capital surplus, earned
------------------
surplus, capital stock and Satisfactory Subordinated Debt minus deferred
charges, intangibles and treasury stock, all determined in accordance with
GAAP consistently applied.
"Taxicab" shall mean a motor vehicle carrying passengers for hire, duly
-------
licensed as a taxicab by the Taxi and Limousine Commission, or any other
Governmental Authority for a jurisdiction other than New York City, and
permitted to accept hails from passengers in the street.
"TCC Debt" shall mean the outstanding amount which, once the Merger is
--------
effective, shall be owed by the Borrower to the SBA under a debenture dated as
of June 24, 1992, originally given by Transportation Capital Corp., a New York
Corporation, to the SBA in the original principal amount of $5,600,000.
"Term Loan" shall mean a loan or advance pursuant to Section 2.1 (b)
---------
hereof.
"Term Loans" shall mean, collectively, the Term Loans from time to time
----------
outstanding and unpaid.
"Term Loan Commitment" shall mean, in respect of any Bank, its
--------------------
commitment, pursuant to Section 2(b) hereof, to make a Term Loan to Borrower
on such Bank's Term Out Date equal to the principal amount of its Revolving
Credit Loans then outstanding.
- 26 -
<PAGE>
"Termination Date" shall mean the earlier of (i) the date on which this
----------------
Agreement shall terminate in accordance with the provisions of Section 2.10
hereof or (ii) the Business Day, if any, on which all of the Revolving Credit
Commitments are terminated in accordance with Section 2.4 or 9.1 hereof.
"Term Loan Period" shall mean, with respect to each Term Loan, the period
-----------------
from the Term Out Date with respect to the Revolving Credit Loan or Loans
replaced by such Term Loan through the date of such Term Loan's Maturity.
"Term Out Date" shall mean, with respect to each Revolving Credit Loan,
-------------
June 30, 1999, subject, however, in each case, to the renewal provisions set
forth in Section 2.10 hereof.
"Total Liabilities" shall mean, as of any date of calculation, the
-----------------
aggregate outstanding Indebtedness of Borrower as of such date, determined on
an unconsolidated basis.
"UCC" shall mean, with respect to any jurisdiction, the Uniform
---
Commercial Code as then in effect in that jurisdiction.
"Underlying Collateral" shall mean all of Borrower's rights with respect
---------------------
to, or interest in, any and all present and future Medallion Rights,
Equipment, Real Property, machinery, future accounts, accounts receivable,
receivables, contracts, contract rights, general intangibles, books, desks,
notes, bills, drafts, acceptances, chases in action, chattel paper,
instruments, documents and other forms of obligations and property, real,
personal or mixed, tangible or intangible, at any time owing to or owned by
any Person to whom Borrower has made a Loan, or any guarantor of such Person.
"Voting Interests" shall mean securities, as defined in Section 2(1) of
----------------
the Securities Act of 1933, as amended, of any class or classes, the holders
of which are ordinarily, in the absence of contingencies, entitled to vote for
the election of the corporate directors (or Persons performing similar
functions). References in this Agreement to percentages of Voting Interests,
unless otherwise noted, refer to percentages of votes to which such Voting
Interests is entitled in the election of corporate directors (or Persons
performing similar functions) rather than to the number of shares.
SECTION 1.2. Other Definitional Provisions.
-----------------------------
- 27 -
<PAGE>
(a) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa.
(b) The words "hereof," "hereby," "herein," and "hereunder" and
------ ------ ------ ---------
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provisions of this Agreement,
the term "hereafter" shall mean after, and the term "heretofore" shall mean
--------- ----------
before, the date of this Agreement, and "Article," "Section," "Schedule,"
"Exhibit," "Annex" and like references are to this Agreement unless otherwise
specified.
(c) Any defined term which relates to a document shall include
within its definition any amendments, modifications, renewals, restatements,
extensions, supplements, or substitutions which may have been heretofore or
may be hereafter executed in accordance with the terms thereof and hereof.
(d) References in this Agreement to particular sections of the Code,
ERISA or any other legislation shall be deemed to refer also to any successor
sections thereto or other redesignations for codification purposes.
(e) All terms defined in the UCC and not otherwise defined or
modified herein shall have the same respective meanings as are given to such
terms in the UCC.
ARTICLE 2. AMOUNT AND TERMS OF REVOLVING CREDIT LOANS
SECTION 2.1. Commitments and Loans.
---------------------
(a) Revolving Credit Loans. Subject to the terms and conditions and
----------------------
relying upon the representations, warranties and covenants herein set forth,
each Bank severally (and not jointly) agrees to make one or more Revolving
Credit Loans to Borrower from time to time during the Revolving Credit
Commitment Period in an aggregate amount at any one time outstanding not to
exceed such Bank's Revolving Credit Commitment. During the Revolving Credit
Commitment Period, Borrower may borrow, prepay and re- borrow the Revolving
Credit Loans, all in accordance with the terms and conditions hereof;
provided, however, that immediately after giving effect thereto, (i) such
-------- -------
Bank's Revolving Credit Exposure shall not exceed such Bank's Revolving Credit
Commitment, (ii) Net Finance Assets shall be in an amount at least equal to
the
- 28 -
<PAGE>
Minimum Asset Coverage and (iii) the aggregate unpaid balance of all Swing
Line Loans plus the aggregate unpaid balance of all Revolving Credit Loans
----
shall not exceed the Adjusted Aggregate Revolving Credit Commitment.
(b) Term Loan Commitments. Subject to the terms and conditions and
---------------------
relying upon the representations, warranties and covenants herein set forth,
each Bank severally (and not jointly) agrees to make a Term Loan to Borrower
on the Term Out Date in a principal amount equal to the principal amount of
its Revolving Credit Loan or Loans outstanding on such Term Out Date;
provided, that immediately after making each Term Loan (i) Net Finance Assets
-------- ----
shall be in an amount at least equal to the Minimum Asset Coverage and (ii)
the aggregate unpaid balance of all Term Loans shall not exceed the aggregate
of the Term Loan Commitments of all the Banks and (iii) the aggregate unpaid
balance of all Revolving Credit Loans, Term Loans and Swing Line Loans shall
not exceed the sum of the Adjusted Aggregate Revolving Credit Commitment and
the aggregate unpaid balance of all outstanding Term Loans. The proceeds of
each Term Loan shall be made available to Borrower by such Bank on the
applicable Term Out Date by applying such proceeds directly to the payment of
the amounts owing to such Bank with respect to such Bank's Revolving Credit
Loans. Prior to each Term Loan's Maturity, the Borrower may prepay (and is
required to prepay) such Term Loan, only in accordance with the provisions
hereof, but thereafter may not reborrow amounts so prepaid.
(c) Swing Line Loans.
----------------
(i) Subject to the terms and conditions hereof, the Swing Line
Lender agrees to make swing line loans (each a "Swing Line Loan" and,
---------------
collectively, the "Swing Line Loans") to the Borrower in Dollars from time to
----------------
time during the Swing Line Commitment Period in an aggregate principal amount
at any one time outstanding not to exceed the Swing Line Commitment Amount,
provided, however, that, immediately after making each Swing Line Loan, (x)
-------- -------
the aggregate unpaid balance of the Swing Line Loans would not exceed the
Swing Line Commitment Amount, (y) Net Finance Assets shall be in an amount at
least equal to the Minimum Asset Coverage and (z) the aggregate unpaid balance
of all Swing Line Loans plus the aggregate unpaid balance of all Revolving
----
Credit Loans shall not exceed the Adjusted Aggregate Revolving Credit
Commitment. During the Swing Line Commitment Period, the Borrower may borrow,
prepay in whole or in part and reborrow under the Swing Line Commitment, all
in accordance with the terms and conditions of this Agreement. No
- 29 -
<PAGE>
Swing Line Loan shall be made prior to the making of the first Revolving
Credit Loans on the Effective Date.
(ii) The Swing Line Lender shall not be obligated to make any Swing
Line Loan at a time when any Bank shall be in default of its obligations under
this Agreement unless arrangements to eliminate the Swing Line Lender's risk
with respect to such defaulting Bank's participation in such Swing Line Loan
shall have been made for the benefit of the Swing Line Lender and such
arrangements are in all respects satisfactory to the Swing Line Lender. The
Swing Line Lender will not make any Swing Line Loan if the Agent or any Bank,
by notice to the Swing Line Lender and the Borrower no later than one Business
Day prior to the borrowing date with respect to such Swing Line Loan, shall
have determined that the conditions set forth in ARTICLE 5 have not been
satisfied and such conditions remain unsatisfied as of the requested time of
the making of such Swing Line Loan. Each Swing Line Loan shall be due and
payable on the earlier to occur of the last day of the Swing Line Interest
Period applicable thereto and the Swing Line Maturity Date.
(iii) Upon (1) a request by the Swing Line Lender, (2) a receipt by
a Bank of notice of an Event of Default from the Agent, or (3) the
acceleration of any loan or termination of the Revolving Credit Commitment,
Term Loan Commitment or the Swing Line Commitment, each Bank shall purchase
unconditionally, irrevocably, and severally (and not jointly) from the Swing
Line Lender a participation in the outstanding Swing Line Loans (including
accrued interest thereon) in an amount (the "Swing Line Participation Amount")
-------------------------------
equal to the product of its Percentage and the aggregate outstanding principal
amount of the Swing Line Loans plus all accrued and unpaid interest thereon.
Each Bank shall also be liable for an amount equal to the product of its
Percentage and any amounts paid by the Borrower pursuant to this Section that
are subsequently rescinded or avoided, or must be otherwise restored or
returned. Such liabilities shall be absolute and unconditional and without
regard to the occurrence of any Default or the compliance by the Borrower with
any of its obligations under the Loan Documents.
(iv) In furtherance of Section 2.2(c), upon the occurrence of any
event set forth in Section 2.1(c)(iii), such Bank shall promptly make
available its Swing Line Participation Amount to the Agent for the account of
the Swing Line Lender at the applicable Agent Payment Office, in Dollars, and
in
- 30 -
<PAGE>
immediately available funds. The Agent shall deliver the payments made by
each Bank pursuant to the immediately preceding sentence to the Swing Line
Lender promptly upon receipt thereof in like funds as received. Each Bank
shall indemnify and hold harmless the Agent and the Swing Line Lender from and
against any and all losses, liabilities (including liabilities for penalties),
actions, suits, judgments, demands, costs and expenses resulting from any
failure on the part of such Bank to pay, or from any delay in paying the Agent
any amount such Bank is required to pay in accordance with this Section
2.1(c)(iv) (except in respect of losses, liabilities, actions, suits,
judgments, demands, costs and expenses suffered by the Agent or the Swing Line
Lender, as the case may be, resulting from the gross negligence or willful
misconduct of the Agent or the Swing Line Lender, as the case may be), and
such Bank shall be required to pay interest to the Agent for the account of
the Swing Line Lender from the date such amount was due until paid in full, on
the unpaid portion thereof, at a rate of interest per annum equal to the
Federal Funds Rate payable upon demand by the Swing Line Lender. The Agent
shall distribute such interest payments to the Swing Line Lender upon receipt
thereof in like funds as received.
(v) Whenever the Agent is reimbursed by the Borrower, for the
account of the Swing Line Lender, for any payment in connection with Swing
Line Loans and such payment relates to an amount previously paid by a Bank
pursuant to this Section, the Agent will promptly pay over such payment to
such Bank.
SECTION 2.2. Revolving Credit, Term Loan and Swing Line Notes.
------------------------------------------------
(a) (i) Revolving Credit Notes. The Revolving Credit Loans of each
----------------------
Bank shall be evidenced by a separate Revolving Credit Note of Borrower, in
substantially the form of Exhibit B hereto, payable to the order of such Bank
---------
and representing the obligation of Borrower to pay the aggregate principal
amount of the Revolving Credit Loans from time to time outstanding from such
Bank, together with interest thereon. Each Bank is hereby authorized to
endorse the date, amount and loan type of each Revolving Credit Loan, the
Interest Periods during which such Revolving Credit Loan is a Prime Rate Loan
or a LIBO Rate Loan, and each payment or prepayment of principal thereof on
the schedule (including additional pages thereto added by such Bank as
required) annexed to and constituting a part of its Revolving Credit Note,
which endorsement shall constitute prima facie evidence of the accuracy of the
-----------
information so endorsed;
- 31 -
<PAGE>
provided, however, that the failure of any Bank to insert any such date or
-------- -------
amount or other information on such schedule shall not in any manner affect
the obligation of Borrower to repay any Revolving Credit Loans in accordance
with the terms of this Agreement.
(ii) Term Loan Notes. The Term Loan of each Bank shall be evidenced
---------------
by a separate Term Note of Borrower, in substantially the form of Exhibit C
---------
hereto, payable to the order of such Bank and representing the obligation of
Borrower to pay the aggregate principal amount of the Term Loan from time to
time outstanding from such Bank, together with interest thereon. Each Bank is
hereby authorized to endorse the date, amount and loan type of its Term Loan,
the Interest Periods during which such Term Loan is a Prime Rate Loan or LIBO
Rate Loan, and each payment or prepayment of principal thereof on the schedule
(including additional pages thereto added by such Bank as required) annexed to
and constituting a part of its Revolving Credit Note, which endorsement shall
constitute prima facie evidence of the accuracy of the information so
----- -----
endorsed; provided, however, that the failure of any Bank to insert any such
-------- -------
date or amount or other information on such schedule shall not in any manner
affect the obligation of Borrower to repay any Term Loan in accordance with
the terms of this Agreement.
(iii) Swing Line Notes. The Swing Line Loans of the Swing Line
----------------
Lender shall be evidenced by a separate Swing Line Note of Borrower, in
substantially the form of Exhibit D hereto, payable to the order of the Swing
---------
Line Lender and representing the obligation of Borrower to pay the aggregate
principal amount of the Swing Line Loans from time to time outstanding from
such Swing Line Lender, together with interest thereon. The Swing Line Lender
is hereby authorized to endorse the date, amount and Swing Line Interest
Period of each Swing Line Loan, and each payment or prepayment of principal
thereof on the schedule (including additional pages thereto added by the Swing
Line Lender as required) annexed to and constituting a part of its Swing Line
Note, which endorsement shall constitute prima facie evidence of the accuracy
-----------
of the information so endorsed; provided, however, that the failure of the
-------- -------
Swing Line Lender to insert any such date or amount or other information on
such schedule shall not in any manner affect the obligation of Borrower to
repay any Swing Line Loans in accordance with the terms of this Agreement.
(b) Date and Maturity of Each Note. Each Note shall, except as
------------------------------
otherwise provided in Sections 12.1 or 12.2 hereof,
- 32 -
<PAGE>
be dated (A) the Effective Date, in the case of each Revolving Credit Note and
the Swing Line Note and (B) the applicable Term Out Date, in the case of each
Term Note issued in replacement of a Revolving Credit Loan, and shall be
payable at its Maturity. For purposes of this Agreement, the term "Maturity"
shall mean, with respect to (i) any Revolving Credit Loan, the earlier of (A)
the Term Out Date for such Revolving Credit Loan, (B) the Termination Date and
(C) any other date on which such Revolving Credit Loan shall be or become due
and payable, in whole or in part, in accordance with the terms of this
Agreement, whether by required or optional prepayment, declaration,
acceleration, or otherwise, (ii) with respect to any Swing Line Loan, on the
earlier of (A) the date such Swing Line Loan shall be or become due and
payable, in whole or in part, in accordance with the terms of this Agreement
whether by stated maturity, required or optional prepayment, declaration,
acceleration, or otherwise, or (B) the Swing Line Commitment Termination Date
and (iii) with respect to any Term Loan made by a Bank to replace its existing
Revolving Credit Loans pursuant to Section 2.1(b) hereof, the earlier of (A)
the second anniversary of the Term Out Date applicable to such replaced
Revolving Credit Loans and (B) any other date on which such Term Loan shall be
or become due and payable, in whole or in part, in accordance with the terms
of this Agreement, whether by required or optional prepayment, declaration,
acceleration, or otherwise.
(c)(i) Interest Rate on the Revolving Credit Notes. Each Revolving
-------------------------------------------
Credit Note shall bear interest, subject to the provisions of Section 10.14
hereof, until its Maturity on the principal amount thereof from time to time
outstanding at an annual rate elected by Borrower in accordance with the
notice provisions set forth in Section 2.7 hereof equal to either (a) the
Prime Rate or (b) the Adjusted LIBO Rate plus the Applicable LIBO Margin;
provided, that, with respect to the Initial Revolving Credit Loan (and only
-------- ----
with respect to such Initial Revolving Credit Loan), (i) each Revolving Credit
Note shall bear interest, subject to the provisions of Section 10.14 hereof,
until the last day of the Interest Period selected pursuant to the Loan
Request for such Initial Revolving Credit Loan, at a per annum rate equal to
6.95% and (ii) notwithstanding the definition of "Fixed Rate Loan," such
Initial Revolving Credit Loan shall be deemed a Fixed Rate Loan for purposes
of this Agreement. The rate of interest of each Revolving Credit Note shall
be computed on the basis of a 360-day year for the actual number of days
elapsed.
- 33 -
<PAGE>
(c)(ii) Interest Rate on Swing Line Note. The Swing Line Note shall
--------------------------------
bear interest, subject to the provisions of Section 10.14 hereof, until its
Maturity on the principal amount thereof from time to time outstanding at an
annual rate equal to the Negotiated Rate for the applicable Swing Line
Interest Period. The rate of interest of the Swing Line Note shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
(c)(iii) Interest Rate on the Term Notes. Each Term Note shall bear
-------------------------------
interest, subject to the provisions of Section 10.14 hereof, until its
Maturity on the principal amount thereof from time to time outstanding at an
annual rate elected by Borrower in accordance with the notice provisions set
forth in Section 2.3 hereof equal to either (a) the Prime Rate or (b) the
Adjusted LIBO Rate plus the Applicable LIBO Margin. The rate of interest of
each Term Note shall be computed on the basis of a 360-day year for the actual
number of days elapsed.
(c)(iv) Interest Rate after Maturity. The unpaid principal balance
-----------------------------
of each Note shall bear interest from and including its Maturity until paid at
the rate specified in Section 2.6 hereof.
(d) The Interest Period. The interest period (the "Interest Period")
------------------- ---------------
with respect to (i) any Prime Rate Loan, shall be a period continued from day
to day until terminated by Borrower, such termination to be effective two
business days after the selection of a LIBO Rate Loan to replace such Prime
Rate Loan, and (ii) any LIBO Rate Loan, shall be a period of borrowing
commencing on and including the date of advance or conversion and ending on
the numerically corresponding date that is one, two, three, four, five or six
months thereafter, as set forth in the Loan Request. Notwithstanding the
foregoing:
(A) in the case of a LIBO Rate Loan, (I) if the numerically corresponding
date in the appropriate month is not a Banking Day, such Interest Period
shall be extended to the next succeeding day that is a Banking Day unless
such day falls in the succeeding calendar month, in which event such
Interest Period shall end on the first preceding day that is a Banking
Day and (II) if there is no numerically corresponding date in the
appropriate month, such Interest Period shall end on the last Banking Day
in such month,
- 34 -
<PAGE>
(B) in the case of any LIBO Rate Loan made on or after the Term Out Date,
the Interest Period shall be limited to a period of one month, and
(C) in no case shall the Interest Period of either a Revolving Credit
Loan or a Term Loan end on a date subsequent to such loan's Maturity.
(e) Payment of Interest. Interest accrued on each Revolving Credit
-------------------
Loan, Swing Line Loan or Term Loan shall be payable, without duplication, on:
(i) the Maturity of such loan;
(ii) with respect to any portion of any Revolving Credit Loan, Swing
Line Loan or Term Loan repaid or prepaid pursuant to this Agreement, the date
of such repayment or prepayment, as the case may be;
(iii) with respect to the Swing Line Loans and with respect to any
portion of the outstanding principal amount of Revolving Credit Loans and Term
Loans maintained as Prime Rate Loans, the first Business Day of each calendar
month, payable monthly and in arrears, commencing with the first such date
following the date of the making of such Revolving Credit Loans, Swing Line
Loans or Term Loans as, or, with respect to Revolving Credit Loans and Term
Loans, their conversion into, Prime Rate Loans;
(iv) with respect to the portion of the outstanding principal amount
of all Revolving Credit Loans or Term Loans maintained as LIBO Rate Loans, the
last day of each applicable Interest Period and, in connection with any such
Revolving Credit Loan having a four, five, or six-month Interest Period, the
day that would be the last day of a three-month Interest Period commencing on
the same day as such four, five, or six-month Interest Period commences; and
(v) with respect to that portion of the outstanding principal amount
of all Revolving Credit Loans or Term Loans that is converted to Prime Rate
Loans or LIBO Rate Loans on a day when interest otherwise would not have been
payable pursuant to Section 2.2(c)(iii) or (iv), the date of such conversion.
SECTION 2.3. Procedures Applicable to Borrowings and Conversions.
---------------------------------------------------
- 35 -
<PAGE>
(a)(i) Revolving Credit Loans. Subject to the limitations applicable
----------------------
to Interest Periods for LIBO Rate Loans and to the provisions of Section
2.4(b) hereof, Borrower may borrow Revolving Credit Loans on any Business Day
(in the case of LIBO Rate Loans, on any Banking Day) during the Revolving
Credit Commitment Period; provided, however, that Borrower shall give the
-------- -------
Agent irrevocable written notice in the form of a Loan Request (which may be
sent via teletransmission) substantially in the form of Exhibit E hereto,
---------
specifying the aggregate amount of the loan it is seeking as follows:
(A) in the case of a borrowing of a Revolving Credit Loan as a Prime
Rate Loan, on or before 10:00 a.m., prevailing New York City time, on the
first Business Day preceding the requested borrowing date, which
borrowing date shall be a Business Day (or irrevocable oral notice on or
before 10:00 a.m., prevailing New York City time, on such date, confirmed
in a Loan Request (which may be sent via teletransmission) no later than
5:00 p.m., prevailing New York City time, on such first Business Day
preceding such borrowing date; and
(B) in the case of a borrowing of a Revolving Credit Loan as a LIBO
Rate Loan, on or before 11:00 a.m., prevailing New York City time, on the
third Banking Day preceding the first day of the requested Interest
Period (or irrevocable oral notice on or before 11:00 a.m., prevailing
New York City time, on such date, confirmed in a Loan Request (which may
be sent via teletransmission) no later than 5:00 p.m., prevailing New
York City time, on such third Banking Day preceding the first day of the
requested Interest Period).
If Borrower furnishes a Loan Request to the Agent, but no election is made as
to either the loan type or Interest Period to be applicable thereto, the
Revolving Credit Loan will be made as a Prime Rate Loan. Each borrowing of a
given loan type shall be in an aggregate principal amount, together with
Revolving Credit Loans of the same loan type to be continued as such and
Revolving Credit Loans of other loan types to be converted to such loan type
on the same Business Day, of at least (x) $1,000,000 or any integral multiple
of $100,000 in excess thereof in the case of LIBO Rate Loans and (y) $100,000
or any integral multiple of $50,000 in excess thereof in the case of Prime
Rate Loans.
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<PAGE>
(ii) Term Loans. The date on which each Term Loan shall be made
----------
shall be the Term Out Date applicable to the Revolving Credit Loan or Loans
which such Term Loan shall replace. Each Term Loan shall, for its first
Interest Period, be a Prime Rate Loan unless Borrower gives irrevocable
written notice to the Agent that it wants such loan, for its first Interest
Period, to be a LIBO Rate Loan. Such notice specifying a LIBO Rate Loan must
be received by the Agent on or before 11:00 a.m., prevailing New York City
time, on the third Banking Day preceding the date on which such Term Loan is
to be made (or irrevocable oral notice must be given on or before 11:00 a.m.,
prevailing New York City time, on such date, confirmed in writing (which may
be sent via teletransmission) no later than 5:00 p.m., prevailing New York
City time, on such third Banking Day preceding the date on which such Term
Loan is to be made. Such first Interest Period shall continue until Borrower
has notified the Agent, in accordance with Section 2.3(c) hereof, of its
selection of the next succeeding loan type and Interest Period. Within five
Business Days after any Term Loan has been made, the Agent shall revise
Exhibit A hereto to reflect the corresponding reduction in the Aggregate
---------
Revolving Credit Commitment.
(iii) Swing Line Loans. The Borrower may borrow under the Swing Line
----------------
Commitment on any Business Day during the Swing Line Commitment Period,
provided that the Borrower shall notify the Agent and the Swing Line Lender
(by telephone or facsimile confirmed promptly by the delivery to the Agent and
the Swing Line Lender of a Loan Request manually signed by the Borrower) no
later than 3:00 p.m. on the requested borrowing date, specifying a) the
aggregate principal amount to be borrowed under the Swing Line Commitment, b)
the requested borrowing date, and c) the amount of, and the length of the
Swing Line Interest Period for, each Swing Line Loan. The Swing Line Lender
will then, subject to its determination that the terms and conditions of this
Agreement have been satisfied, make the requested amount available, in
Dollars, and in immediately available funds, promptly on that same day, to the
Agent at the applicable Agent Payment Office who, thereupon, will promptly
make such amount available to the Borrower at the such Agent Payment Office,
in Dollars, and in immediately available funds. Each borrowing of Swing Line
Loans shall be in an aggregate principal amount equal to $100,000 or such
amount plus an integral multiple of $50,000 in excess thereof or, if less, the
unused portion of the Swing Line Commitment Amount.
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<PAGE>
(b)(i) Funding of Revolving Credit Loans and Term Loans. Upon
------------------------------------------------
receipt of each Loan Request requesting Revolving Credit Loans or Term Loans,
the Agent shall promptly notify each Bank thereof. Subject to its receipt of
the notice referred to in the preceding sentence, each Bank will make the
amount of its Percentage of the requested Revolving Credit Loans, or Term
Loans, as the case may be, available to the Agent for the account of the
Borrower at the applicable Agent Payment Office in the Dollars not later than
2:00 p.m. (New York City time), on the relevant borrowing date requested by
Borrower, in funds immediately available to the Agent at such Agent Payment
Office. The amounts so made available to the Agent on such borrowing date
will then, subject to the satisfaction of the terms and conditions of this
Agreement, as determined by the Agent, be made available on such borrowing
date to Borrower by the Agent at such Agent Payment Office, in Dollars, and in
immediately available funds, no later than 3:00 p.m. (New York City time).
(b)(ii) Failure to Fund. Unless the Agent shall have received prior
---------------
notice from a Bank (by telephone or otherwise, such notice to be promptly
confirmed by facsimile or other writing) that such Bank will not make
available to the Agent such Bank's Percentage of the Revolving Credit Loans or
Term Loans, as the case may be, to be made on a borrowing date, the Agent may
assume that such Bank has made such amount available to the Agent on the
borrowing date in accordance with this Section, provided that such Bank
received notice thereof from the Agent in accordance with the terms hereof,
and the Agent may, in reliance upon such assumption, make available to the
Borrower on such borrowing date a corresponding amount. If and to the extent
such Bank shall not have so made such amount available to the Agent, such Bank
and Borrower severally agree to pay to the Agent, forthwith on demand, such
corresponding amount (to the extent not previously paid by the other),
together with interest thereon for each day from the date such amount is made
available to Borrower until the date such amount is paid to the Agent, at a
rate per annum equal to, in the case of Borrower, the applicable interest rate
then applicable to such loan(s), and, in the case of such Bank, to the extent
such amount is paid to the Agent (A) no later than the second day after the
date such amount is made available to the Borrower, the Federal Funds Rate and
(B) after the second day after the date such amount is made available to the
Borrower, the applicable interest rate then applicable to such loan(s). Such
payment by Borrower, however, shall be without prejudice to its rights against
such Bank. If such Bank shall pay to the Agent
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<PAGE>
such corresponding amount, such amount so paid shall constitute such Bank's
Revolving Credit Loan or Term Loan, as the case may be, as part of such
Revolving Credit Loans and Term Loans for purposes of this Agreement, which
Revolving Credit Loan and Term Loan, as the case may be, shall be deemed to
have been made by such Bank on such borrowing date. No Bank's obligation to
fund any Revolving Credit Loan or Term Loan shall be affected by any other
Bank's failure to fund any Revolving Credit Loan or Term Loan, nor shall any
Bank's Revolving Credit Commitment or Term Loan Commitment be increased as a
result of any such failure of any other Bank.
(c) Subject to the limitations applicable to Interest Periods for
LIBO Rate Loans, Borrower may continue any LIBO Rate Loan as such for an
additional Interest Period or convert any Revolving Credit Loan or Term Loan
of a given loan type into a Revolving Credit Loan or Term Loan of a different
loan type on any Business Day (in the case of LIBO Rate Loans to be continued
or converted, on any Banking Day) during the Revolving Credit Commitment
Period or Term Loan Period applicable to such loan; provided, however, that:
-------- -------
(i) Borrower shall give the Agent the irrevocable written notice in
the form of a Loan Request in the manner and by the applicable time specified
in Section 2.3(a) hereof for the borrowing of a Revolving Credit Loan of the
loan type to be converted to or continued and, if applicable, the Interest
Period therefor;
(ii) in the case of the continuation of less than all of the
outstanding Revolving Credit Loans or of only a portion of a Term Loan of a
given loan type on the same Business Day, the aggregate principal amount of
the Revolving Credit Loans or the Term Loan of such loan type to be continued
as such, together with any Revolving Credit Loans or portion of a Term Loan to
be made as or converted to the same loan type on such Business Day, shall not
be less than $1,000,000 or any integral multiple of $100,000 in excess
thereof;
(iii) in the case of the conversion of less than all of the
outstanding Revolving Credit Loans or of only a portion of a Term Loan of a
given loan type to another loan type on the same Business Day, the aggregate
principal amount of Revolving Credit Loans or the portion of the Term Loan of
such loan type to be converted to another loan type together with any
Revolving Credit Loans or any portion of the Term Loan
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<PAGE>
of such other loan type to be made or continued as such on such Business Day,
shall not be less than $1,000,000;
(iv) LIBO Rate Loans may be converted only at the end of the then
applicable Interest Period;
(v) no LIBO Rate Loan may be continued as such, nor may any
Revolving Credit Loan or Term Loan be converted to a LIBO Rate Loan, for less
than the minimum applicable Interest Period therefor; and
(vi) no LIBO Rate Loan may be continued as such, nor may any
Revolving Credit Loan or Term Loan be converted to a LIBO Rate Loan, if any
Default or Event of Default shall have occurred and be continuing as of any
date during the period commencing on the date the Loan Request is required to
be submitted to the Agent and ending on the first day of the requested
Interest Period.
If Borrower fails, in connection with the expiration of an Interest Period
applicable to a Revolving Credit Loan or Term Loan that is a LIBO Rate Loan,
to furnish a Loan Request to the Agent for the continuation or conversion
thereof or fails to elect a loan type or permitted Interest Period therefor,
or if the continuation or conversion of any Revolving Credit Loan or Term Loan
as a LIBO Rate Loan is prohibited due to the occurrence and continuance of a
Default or Event of Default, such Revolving Credit Loan or Term Loan (unless
prepaid in accordance with the provisions of Section 2.5 hereof or accelerated
in accordance with Section 9.1 hereof) shall be converted automatically to a
Prime Rate Loan as of the expiration of the then applicable Interest Period.
SECTION 2.4. Termination and Reduction of Aggregate Revolving Credit
-------------------------------------------------------
Commitment.
----------
Subject to the provisions of Section 2.5 hereof, Borrower shall have the
option to terminate, and from time to time to reduce permanently, the
Aggregate Revolving Credit Commitment, upon irrevocable written notice to the
Agent at least three Business Days prior to the proposed Termination Date or
reduction date, as the case may be, specifying such date, whether a
termination or reduction is being requested and, if a reduction is being
requested, the amount thereof. On the date specified in such notice, such
termination or reduction shall be effected; provided, however, that (i) in the
-------- -------
case of a termination, such termination must also include a termination
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<PAGE>
of the Swing Line Commitment and such termination must be accompanied by
repayment of all outstanding Revolving Credit Loans, Swing Line Loans and
outstanding Term Loans in full, together with all other amounts owed to the
Agent or any Bank or the Swing Line Lender pursuant to any of the Loan
Documents and (ii) in the case of any reduction, such reduction is accompanied
by (A) repayment of the Revolving Credit Loans to the extent (if any) that the
aggregate principal amount of the Revolving Credit Loans and Swing Line Loans
outstanding exceeds the amount of the Adjusted Aggregate Revolving Credit
Commitment after taking into account the Aggregate Revolving Credit Commitment
as then reduced and (B) repayment of an amount of all Term Loans then
outstanding equal to the percentage by which the Aggregate Revolving Credit
Commitment is to be reduced multiplied by the aggregate principal amount plus
accrued interest of all Term Loans then outstanding. Any such repayment shall
be subject to the provisions of Section 2.5(a) hereof. Any reduction of the
Aggregate Revolving Credit Commitment shall be in an aggregate amount of
$500,000 or an integral multiple thereof and shall be applied by the Agent pro
rata among the Banks in proportion to their Revolving Credit Commitments. Any
repayment of outstanding Term Loans required by a reduction in the Aggregate
Revolving Credit Commitment shall be applied by the Agent pro rata among the
Agent in proportion to the amount of the principal plus accrued interest of
their Term Loans then outstanding. Within five Business Days after any
reduction in the Aggregate Revolving Credit Commitment pursuant to this
Section 2.4, the Agent shall revise Exhibit A hereto to reflect such reduction
---------
and shall promptly send a copy thereof to the Banks. Upon termination of the
Aggregate Revolving Credit Commitment pursuant to this Section 2.4 and upon
payment of all amounts due by Borrower to the Agent, the Documentation Agent,
the Swing Line Lender and the Banks under the Loan Documents, the obligations
of the parties hereto, except as otherwise provided herein, shall be deemed
terminated; provided, however, that this Agreement and the other Loan
-------- -------
Documents shall continue to be effective or shall be reinstated, as the case
may be, if any payment hereunder or in connection with any of the Loan
Documents at any time is rescinded or otherwise must be returned as a result
of the bankruptcy, insolvency or reorganization of Borrower or otherwise, all
as if such payment had not been made.
SECTION 2.5. Prepayments.
-----------
(a) Voluntary. Borrower from time to time may prepay the Revolving
----------
Credit Loans, the Swing Line Loans, or the Term
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<PAGE>
Loans, in whole or in part, without premium or penalty, upon irrevocable
written notice to the Agent given at least as early before the proposed date
of such prepayment as the corresponding time specified in Section 2.3(a)
hereof for notice of the borrowing of a Revolving Credit Loan of the loan type
to be prepaid, specifying the date of prepayment and the amount of the
prepayment; provided, however, that (i) the entire Aggregate Revolving Credit
-------- -------
Commitment may not be terminated (although all Revolving Credit Loans may be
paid off in full) while any Term Loan remains outstanding, (ii) except for
prepayments necessitated by Section 8.6(b) hereof, each partial prepayment of
the Revolving Credit Loans or Swing Line Loans shall be in an amount not less
than $500,000 or any integral multiple of $100,000 in excess thereof, (iii)
except for prepayments necessitated by Borrower's election to reduce the
Aggregate Revolving Credit Commitment pursuant to Section 2.4 hereof, without
the prior written approval of the Required Banks, Borrower may not prepay any
Term Loan unless all Revolving Credit Loans have been paid off in full and the
Aggregate Revolving Credit Commitment terminated, (iv) Borrower may not prepay
any Fixed Rate Loan prior to the last day of the Interest Period, or Swing
Line Interest Period, as the case may be, therefor. To the extent possible,
Borrower shall, in connection with any voluntary prepayment, prepay Prime Rate
Loans first and Fixed Rate Loans second. Any prepayment of Fixed Rate Loans
shall be subject to Section 2.11 hereof. If any notice of prepayment is
given, the amount specified in such notice shall be due and payable in the
manner and by the time provided in Section 3.2 hereof on the date specified in
such notice, together with accrued interest thereon to such date as provided
in Section 2.2(c) hereof. Any such prepayment of a Revolving Credit Loan may
be reborrowed, subject to the terms and conditions of this Agreement, from
time to time. Any prepayment of a Term Loan may not be reborrowed.
(b) Mandatory Prepayment of Term Loans. Principal on each Term Loan
----------------------------------
shall be repaid in equal monthly installments in an amount sufficient to
amortize such Term Loan over a twenty-four month period. Such payments (the
"Principal Payments") shall be paid by Borrower to the Agent on the last day
-------------------
of each month during which such Term Loan is outstanding. Any prepayments of
principal on any Term Loan pursuant to Sections 2.5(a) and (c) hereof shall
not reduce the amount of each monthly Principal Payment. Any prepayments of
principal on the Term Loans pursuant to Sections 2.5(a) and (c) hereof shall
be applied against the monthly Principal Payments in
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<PAGE>
inverse order of the dates on which such Principal Payments are to be made.
(c) Other Mandatory Prepayments.
----------------------------
(i) If, at any time, (A) the aggregate outstanding principal balance
of the Revolving Credit Loans, plus the aggregate outstanding balance of all
----
Swing Line Loans, exceeds the Adjusted Aggregate Revolving Credit Commitment,
or (B) the aggregate outstanding principal balance of the Swing Line Loans
exceeds the Swing Line Commitment, or (C) the aggregate principal balance of
all Revolving Credit Loans, plus the aggregate principal balance of all Swing
----
Line Loans, plus the aggregate principal balance of all Term Loans, exceeds
----
the sum of the Adjusted Aggregate Revolving Credit Commitment and the
aggregate principal balance of all Term Loans, Borrower shall make a
prepayment of such Revolving Credit Loans, or Swing Line Loans, as the case
may be (or if no such loans shall then be outstanding, the Borrower shall make
a prepayment of the Term Loans), in the amount of such excess (rounded upwards
to the next higher integral multiple of $100,000), together with accrued
interest thereon to the date of prepayment as provided in Section 2.2(c)
hereof. To the extent possible, Borrower shall, in connection with such
mandatory prepayment, prepay Prime Rate Loans first, and Fixed Rate Loans
second. Any prepayment of Fixed Rate Loans shall be subject to Section 2.11
hereof.
(ii) If, at any time, Net Finance Assets are less than the Minimum
Asset Coverage, within five days of the first day there exists such deficiency
the Borrower shall make payment to the Agent (to be applied against the Swing
Line Loans first, then Revolving Credit Loans and then Term Loans) in an
amount such that after taking into account such payment Net Finance Assets
shall be at least (rounded upwards to the next higher integral multiple of
$100,000) equal to the Minimum Asset Coverage, together with accrued interest
thereon to the date of prepayment as provided in Section 2.2(c) hereof. To
the extent possible, Borrower shall, in connection with such mandatory
prepayment, prepay Prime Rate Loans first, and Fixed Rate Loans second. Any
prepayment of Fixed Rate Loans shall be subject to Section 2.11 hereof.
(d) Application of Prepayments. With respect to all prepayments
--------------------------
pursuant to subsections (a), (b) and (c) above, upon receipt of any notice of
prepayment and/or any such prepayment, the Agent shall promptly notify each
Bank thereof
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<PAGE>
and with respect to Revolving Credit Loans and Term Loans each such prepayment
shall be effected pro rata amongst all the Banks in proportion to each Bank's
then outstanding Revolving Credit Loans, or Term Loans, as the case may be.
SECTION 2.6. Interest on Delinquent Payments.
-------------------------------
All unpaid amounts due under the Notes or any other Loan Document that
are not paid when due (including, to the extent permitted by law, unpaid
interest on the Notes) shall bear interest, subject to the provisions of
Section 10.14 hereof, from and including its due date until paid in full
(whether before or after the occurrence of any Event of Default described in
Sections 9.1(g) and 9.1(h) hereof) at an annual rate equal to the sum of (i)
in the case of any Prime Rate Loan, 2% plus the Prime Rate applicable to such
Prime Rate Loan then in effect, (ii) in the case of any Adjusted LIBO Rate
Loan that is a Revolving Credit Loan, 3.75% plus the Adjusted LIBO Rate
applicable to such Adjusted LIBO Rate Loan then in effect, and (iii) in the
case of any Adjusted LIBO Rate Loan that is a Term Loan, 4% plus the Adjusted
LIBO Rate applicable to such Adjusted LIBO Rate Loan then in effect. Such rate
of interest (the "Default Rate") shall be computed on the basis of a 360-day
year for the actual number of days elapsed. If the Default Rate is to be based
on the Prime Rate, the Prime Rate to be charged shall change when and as the
Prime Rate is changed, and any such change in the Prime Rate shall become
effective at the opening of business on the day on which such change is
adopted. At the end of the applicable Interest Period for a LIBO Rate Loan on
which the Default Rate is being charged, such LIBO Rate Loan shall be
automatically converted to a Prime Rate Loan, and the Default Rate to be
charged in respect of such Loan shall be computed based on the Prime Rate.
SECTION 2.7. Increased Costs.
---------------
(a) In the event any applicable existing or future law, regulation,
guideline, treaty or directive or condition or interpretation thereof
(including, without limitation, any request, guideline or policy; whether or
not having the force of law), by any Governmental Authority charged with the
administration or interpretation thereof, or any change in any of the
foregoing, which:
(i) subjects any Bank, or the Swing Line Lender, to any tax levy,
impost, duty, charge, fee, deduction or withholding of any nature with respect
to its Revolving Credit
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<PAGE>
and/or Term Loan and/or Swing Line Commitment to make Fixed Rate Loans or any
Revolving Credit Loan or Term Loan or Swing Line Loan that is a Fixed Rate
Loan; or
(ii) changes the basis of taxation of payments to such Bank of
principal of and/or interest on its Fixed Rate Loans or its Revolving Credit
and/or Term Loan and/or Swing Line Commitment to make Fixed Rate Loans and/or
fees and other amounts payable hereunder in respect of its Fixed Rate Loans or
its Revolving Credit or Term Loan or Swing Line Commitment to make Fixed Rate
Loans; or
(iii) imposes, modifies or deems applicable or results in the
application of or increases any reserve, special-deposit, assessment,
liquidity or similar requirement (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans or
commitments to lend Fixed Rate Loans by any office of any Bank (based upon
such Bank's or such Participant's reasonable allocation of the aggregate of
such requirements); or
(iv) imposes upon such Bank any other condition or requirement with
respect to its Revolving Credit and/or Term Loan and/or Swing Line Commitment
to make Fixed Rate Loans or any Revolving Credit Loan or Term Loan or Swing
Line Loan of which any Fixed Rate Loan forms a part;
and the result of any of the foregoing is to increase the actual cost to such
Bank of making or maintaining its Revolving Credit and/or Term Loan and/or
Swing Line Commitment to make Fixed Rate Loans or its Revolving Credit Loans
or Term Loans or Swing Line Loans hereunder that are Fixed Rate Loans or to
reduce the amount of any payment (whether of principal, interest, or
otherwise) received or receivable by such Bank in respect of any Fixed Rate
Loan or its Revolving Credit or Term Loan or Swing Line Commitment to make
Fixed Rate Loans or to require such Bank to make any payment, then and in any
such case set forth in paragraphs (i) through (iv) above:
(1) such Bank, or the Swing Line Lender, as the case may be, shall
promptly notify Borrower in writing of the happening of such event;
(2) such Bank, or the Swing Line Lender, as the case may be, shall
promptly deliver to Borrower a certificate of such Bank, or such Swing Line
Lender, stating the event that has occurred or the reserve or requirements or
other conditions
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<PAGE>
that have been imposed on such Bank, or such Swing Line Lender, the request,
directive, guideline or requirement with which it has complied, together with
the date thereof and the amount (based upon such Bank's, or such Swing Line
Lender's, as the case may be, reasonable policies as to the allocation of
capital and costs, as applicable) of such increased cost, reduction or payment
for one or more periods ending not later than the date of such certificate;
and
(3) Borrower shall pay within 10 days after demand therefor such
amount or amounts as will compensate such Bank, or the Swing Line Lender, as
the case may be, for such additional cost, reduction or payment.
(b) If, after the Effective Date, any Bank or the Swing Line Lender,
as the case may be, shall have determined that any change in any present (or
any adoption, application, or change in any future) applicable law,
governmental rule, regulation, policy, guideline, or directive or request
(whether or not having the force of law), or any change in the interpretation
or administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, of general application regarding
capital adequacy, capital maintenance, capital ratios or other similar
requirements (whether or not having the force of law), or otherwise affects
the amount of capital required or expected to be maintained by any of the
Banks, or the Swing Line Lender, as the case may be, or any corporation
controlling any of the Banks or the Swing Line Lender, as the case may be, or
such Bank, or the Swing Line Lender, as the case may be, determines that the
amount of capital required is increased by or based upon the existence of the
revolving credit, swing line and term loan facilities or commitments
established hereunder or any loans made pursuant hereto or upon agreements or
loans of the type contemplated hereby then such Bank or the Swing Line Lender,
as the case may be, may give written notice to Borrower of such fact (the
"Increased Costs Notice"). To the extent that the costs of such increased
capital requirements are not then reflected in the Prime Rate or the LIBO Base
Rate, Borrower shall thereafter attempt to negotiate in good faith an
adjustment of the compensation payable hereunder which will adequately
compensate such Bank, or the Swing Line Lender, as the case may be, in light
of such changed circumstances. Each Bank and the Swing Line Lender, as the
case may be, hereby agrees that any Increased Cost Notice from it to Borrower
shall be delivered to Borrower no later than 90 days following the end of any
financial period with respect to which such
- 46 -
<PAGE>
compensation is sought. If Borrower and such Bank, or the Swing Line Lender,
as the case may be, are unable to agree to an adjustment within 30 days of the
day on which the Borrower receives such notice, then, commencing on such
thirtieth day and retroactive to the date of such notice (but not earlier than
the effective date of any such change), the fees payable to such Bank, or the
Swing Line Lender, as the case may be, hereunder shall increase by an amount
which will, in such Bank's, or the Swing Line Lender's, as the case may be,
reasonable determination, provide adequate compensation. Such Bank, or the
Swing Line Lender, as the case may be, shall allocate such cost increases
among its customers in good faith and on an equitable basis.
(c) The certificate of such Bank, or the Swing Line Lender, as the
case may be as to the additional amounts payable pursuant to this Section 2.7
delivered to Borrower, in the absence of manifest error, shall be conclusive
as to the amount thereof. A claim by any Bank, or the Swing Line Lender, as
the case may be, for all or any part of any additional amount required to be
paid by Borrower under this Section 2.7 may be made at any time and from time
to time as the occasion therefor may arise. The protection of this Section 2.7
shall be available to such Bank and the Swing Line Lender regardless of any
possible contention of invalidity or inapplicability of the law, regulation or
condition that has been imposed. In the event that any such law, regulation or
condition is subsequently held to be invalid or inapplicable and the result
thereof is to eradicate any such additional cost, reduction or payment, such
Bank, or the Swing Line Lender, as the case may be, shall promptly pay to
Borrower an amount equal to the amount of compensation paid by Borrower to
such Bank, or the Swing Line Lender, as the case may be, for its account as a
result of such invalid or inapplicable law, regulation or condition.
SECTION 2.8. Existing Indebtedness; Existing Fees; Existing Interest;
--------------------------------------------------------
Use of Proceeds.
---------------
(a) The proceeds of the Initial Revolving Credit Loans shall be used
to refinance the Existing Indebtedness that is to be repaid pursuant to this
Section 2.8. Notwithstanding the provisions of subsections 2.8(b) - 2.8(e)
below, the Notes executed in connection with this Agreement shall amend,
restate, replace and supersede the Notes made by Borrower to the order of the
Banks in connection with the Prior Agreement (the "Prior Notes"); provided,
however, that the execution and
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<PAGE>
delivery of the Notes shall not in any circumstance be deemed to have
terminated, extinguished or discharged the Borrower's indebtedness under such
Prior Notes, all of which indebtedness shall continue under and be governed by
the Notes and the documents, instruments and agreements executed pursuant
hereto or in connection herewith. The Notes are a replacement, consolidation,
amendment and restatement of the Prior Notes and ARE NOT A NOVATION.
(b) With respect to all loans outstanding under the Prior Agreement,
the Borrower shall pay to each applicable Bank directly, on the Effective
Date, the then outstanding principal balance of each such loan together with
all accrued and unpaid Existing Interest with respect thereto and any amounts
required pursuant to Section 2.11 of the Prior Agreement.
(c) The Borrower shall pay to each Bank directly, on the Effective
Date, all Existing Fees then owed to such Bank.
(d) It is expressly agreed that each Bank shall deal directly with
Borrower to obtain payment of the Existing Indebtedness, Existing Interest and
Existing Fees owed to such Bank. The Agent shall have no responsibility for
ensuring that Borrower makes any of the payments required pursuant to this
Section 2.8, or that the amount of any such payment is correct. The Agent
shall have no liability to any Bank or to Borrower for any matter directly or
indirectly related to any such payment.
(e) The proceeds of all Revolving Credit Loans, (other than the
Initial Revolving Credit Loans), Swing Line Loans and the Term Loans made to
Borrower hereunder shall be used only (i) to fund Medallion Loans and
Commercial Loans made in the ordinary course of Borrower's business and which
are in compliance with the SBI Act and the SBA Regulations promulgated
thereunder, (ii) to make Investments which are in compliance with the SBI Act
and the SBA Regulations promulgated thereunder, (iii) to refinance the
Commercial Paper; provided, that, Revolving Credit Loans shall only refinance
-------- -----
the Commercial Paper as long as no Default or Event of Default then exists or
would exist as a result thereof and (v) for other working capital purposes.
SECTION 2.9. Payment on Non-Business Days.
----------------------------
Whenever any payment to be made under the Notes (other than principal of
or any interest on LIBO Rate Loans), this
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<PAGE>
Agreement, or any other Loan Document shall be stated to be due on a day that
is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time in such case shall be included in the
computation of payment of interest or fees, as the case may be.
SECTION 2.10. Term of Revolving Credit Commitments.
------------------------------------
(a) Subject to the other provisions of this Section 2.10, (i) during
the Initial Term, the Revolving Credit Commitment and other obligations of
each Bank under this Agreement with respect to Revolving Credit Loans shall
terminate on the last day of the Initial Term, and (ii) during any Renewal
Term (as defined in Section 2.10(b) below), the Revolving Credit Commitment
and other obligations of each Bank under this Agreement with respect to
Revolving Credit Loans shall terminate on June 30 of the year immediately
following the year in which such Renewal Term commenced.
(b) Each Bank's Revolving Credit Commitment and other obligations
under this Agreement with respect to Revolving Credit Loans (collectively,
"Revolving Credit Obligations") shall be terminated on the last day of the
-----------------------------
Initial Term unless such Bank gives written notice of renewal, for a one year
period, of its Revolving Credit Obligations to Borrower by April 30 of the
year during which such obligations are to be terminated (April 30, 1999, in
the case of the Initial Term) (the "Renewal Deadline"). Borrower shall then
----------------
have until the fifth Business Day following the Renewal Deadline to reject (by
written notice, which must be received by no later than 5:00 p.m., prevailing
New York City time, on such fifth Business Day) any Bank's offer of renewal
(the "Rejection of Renewal Deadline"). If any Bank has elected not to renew
-----------------------------
its Revolving Credit Obligations, then, not later than three Business Days
after the Rejection of Renewal Deadline the Borrower shall provide each Bank
and the Agent a list indicating each Bank that has elected to renew its
Revolving Credit Obligations and all Banks who originally elected to renew
their Revolving Credit Obligations shall have until the tenth Business Day
following the Rejection of Renewal Deadline to reverse their decision and
elect instead (by written notice to Borrower, which must be received by no
later than 5:00 p.m., prevailing New York City time, on such tenth Business
Day) not to renew such obligations (the "Renewal Reconsideration Deadline").
--------------------------------
The foregoing procedure with respect to the renewal of the Revolving Credit
Obligations of each Bank under this Agreement shall be repeated each year
following the Initial Term (each
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<PAGE>
such year, a "Renewal Term") with the Renewal Deadline, the Rejection of
Renewal Deadline and the Renewal Reconsideration Deadline to be applicable in
each such year, until there are no longer any Revolving Credit Commitments
outstanding. In the event that any Bank elects to extend its Revolving Credit
Obligations for a Renewal Term or Terms, (i) the expiration, termination,
Maturity and Term Out Date of such Obligations outstanding at the commencement
of, or made during, the Renewal Term shall be the June 30 of the year to which
such financing arrangement shall be extended by such renewal, and (ii) each
Revolving Credit Note shall be deemed amended to reflect the extended
Maturity. If any Bank elects not to renew its Revolving Credit Obligations,
or if Borrower rejects any Bank's offer to renew its Revolving Credit
Obligations, then, on the Term Out Date of such Bank's Revolving Credit
Loan(s), such Bank shall make a Term Loan to Borrower in accordance with the
provisions of Section 2.1(b) hereof. The procedures set forth above shall
also separately apply to the Swing Line Lender with respect to the Swing Line
Commitment; provided, that, in the event all Banks extending Revolving Credit
-------- ----
Loans elect not to renew as set forth above, the Swing Line Lender shall be
deemed to have made a similar election.
(c) Within five Business Days after the commencement of any Renewal
Term, the Agent shall revise Exhibit A hereto if required in connection with
---------
any change in the Aggregate Revolving Credit Commitment.
(d) Notwithstanding the foregoing provisions of this Section 2.10,
upon the occurrence of an Event of Default, the provisions of Article IX
hereof shall apply and the Agent may take any action permitted or required
thereunder.
(e) The occurrence of the Termination Date shall not release,
terminate or limit the rights or remedies of the Agent, or any Bank, or the
obligations under this Agreement or any other Loan Document of Borrower, and
such rights and remedies and such obligations shall survive until Borrower
shall have fully paid and performed all its obligations hereunder and
thereunder in full.
SECTION 2.11. Funding Losses.
--------------
(a) Borrower shall pay, within 10 days after demand therefor, such
amount as will compensate the Banks and the Swing Line Lender for any loss or
reasonable expense they may sustain as a consequence of (i) the receipt or
recovery or
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<PAGE>
conversion for any reason (including, without limitation, as a consequence of
acceleration pursuant to Article IX hereof, a voluntary or mandatory
prepayment pursuant to Section 2.5 hereof, or a mandatory conversion pursuant
to Section 2.13 hereof) of all or any part of a Fixed Rate Loan prior to the
last day of the applicable Interest Period, or Swing Line Interest Period, as
the case may be, therefor, or (ii) any failure to borrow, convert to or
continue any Fixed Rate Loan as such after submitting a Loan Request (whether
oral or written) relating thereto, including, but not limited to, (A) any loss
or expense sustained or incurred in liquidating or employing deposits from
third parties acquired to effect or maintain a Fixed Rate Loan or any part
thereof or (B) any loss of margin on reemployment of the funds so received or
recovered.
(b) Each Bank shall be entitled to fund its Revolving Credit Loans
and Term Loans in such manner as it may determine in its sole discretion,
including without limitation the London interbank market and the New York
secondary market; provided, however, that, for the purposes of calculations
-------- -------
under this Section 2.11, each LIBO Rate Loan shall be deemed to have been
funded by the purchase in the London interbank market of a Dollar deposit in
an amount comparable to the principal amount of such LIBO Rate Loan and having
a maturity comparable to the applicable Interest Period therefor.
(c) A certificate of any Bank or the Swing Line Lender, as the case
may be, as to any additional amounts payable pursuant to this Section 2.11
setting forth in reasonable detail the basis and method of determining such
amounts shall be conclusive, absent manifest error, as to the determination by
such Bank set forth therein. A claim by any Bank or the Swing Line Lender for
all or any part of any additional amount required to be paid by Borrower under
this Section 2.11 may be made at any time and from time to time as often as
the occasion therefor may arise.
SECTION 2.12. Alternate Rate of Interest.
--------------------------
(a) In the event, and on each occasion prior to the commencement of
any Interest Period for any LIBO Rate Loans, (i) the Required Banks shall have
notified the Agent that they have determined, or the Agent or Fleet shall have
determined, that Dollar deposits in an amount comparable to the principal
amount of such LIBO Rate Loan and having a scheduled maturity comparable to
the Interest Period set forth in the related Loan
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<PAGE>
Request are not generally available in the London interbank market or (ii) the
Agent or Fleet shall determine that reasonable means do not exist for
ascertaining the LIBO Base Rate, the Agent, as soon as practicable thereafter,
shall give oral notice of such determination to Borrower, promptly confirmed
in writing (which may be by teletransmission). In the event of any such
determination and until the Agent notifies Borrower (and provides a copy of
this notice to the Banks) that the circumstances giving rise to such notice no
longer exist, no Revolving Credit Loans or Term Loans will be made as LIBO
Rate Loans and no Revolving Credit Loans or Term Loans will be converted to or
continued as LIBO Rate Loans, but shall convert to Prime Rate Loans at the end
of the applicable Interest Period, if any, therefor. Each determination by a
Bank, or the Agent or Fleet, as the case may be, hereunder shall be conclusive
absent manifest error.
SECTION 2.13. Changes In Legality.
-------------------
(a) If, anything to the contrary herein contained notwithstanding,
any applicable existing or future law, regulation, guideline, treaty or
directive or condition or interpretation thereof (including, without
limitation, any request, guideline or policy, whether or not having the force
of law), by any Governmental Authority charged with the administration or
interpretation thereof, or any change in any of the foregoing shall make it
unlawful or improper for any Bank to make or maintain any Revolving Credit
Loans or any Term Loan as LIBO Rate Loans, then, by oral notice to Borrower
and the Agent, promptly confirmed in writing (which may be by
teletransmission), such Bank may:
(i) declare that its Revolving Credit Loans or Term Loans thereafter
will not be made by it as LIBO Rate Loans, whereupon Borrower shall be
prohibited from requesting Revolving Credit Loans or Term Loans as LIBO Rate
Loans unless and until such declaration is withdrawn; and
(ii) require that all its outstanding Revolving Credit Loans or its
Term Loan that are LIBO Rate Loans be converted to Prime Rate Loans, in which
event all such Revolving Credit Loans or Term Loans shall be converted
automatically to Prime Rate Loan(s) as of the end of their applicable Interest
Periods or as of such earlier date as may be required of such Bank for the
lawful or proper conduct of its lending activities.
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<PAGE>
SECTION 2.14. Participations.
--------------
Borrower may grant participations to other Persons of Borrower's choosing
in a portion of its rights and/or obligations under any Loan; provided,
--------
however, that any such participation shall be granted pursuant to a form of
-------
participation agreement which shall provide, among other things, that (a)
Borrower shall service such Loan, (b) any participant thereunder shall be
entitled to no more than its pro rata share of the Underlying Collateral
--------
securing such Loan and to no more than principal and interest under such Loan,
(c) Borrower's interest shall be pari passu or superior in right of payment to
the interest of such participant in such Loan and (d) Borrower's rights to any
payment under such Loan shall be prior to, or pro-rata with, any such
participant. Upon request by the Agent or the Required Banks, Borrower shall
provide the Banks in writing with a description of all Loans in respect of
which participations have been granted.
SECTION 2.15. Commercial Paper Borrowings.
---------------------------
Pursuant to the Commercial Paper Dealer Agreement and the Paying Agency
Agreement, the Borrower expects to issue Commercial Paper from time to time.
The Borrower, the Banks and the Agent agree that the Commercial Paper is
secured pari passu with the Obligations in accordance with the terms of the
Bank Security Agreement. The Borrower will notify the Agent (which may be by
telephone, followed promptly by written notice) on each day when the
outstanding CP Debt increases. When the Borrower desires to use a Revolving
Credit Loan to repay any amount of CP Debt, the Borrower will follow all of
the required procedures under this Article II relating to a Revolving Credit
Loan and will in addition advise the Agent to transfer the proceeds of such
Revolving Credit Loans to the Paying Agent for the Commercial Paper; provided,
---------
that no such borrowing of a Revolving Credit Loan will be authorized if at the
----
time thereof a Default or Event of Default exists or would exist as a result
thereof. Neither the Agent, the Documentation Agent, the Swing Line Lender nor
any Bank shall have any liability for any act or omission of any Paying Agent,
including any liability for the failure to make timely payment to any CP
Holder.
ARTICLE 3. FEES AND PAYMENTS
SECTION 3.1. Fees.
----
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<PAGE>
(a) Commitment Fees. Borrower shall pay to the Agent, for the pro rata
---------------
benefit of each Bank (based on each Bank's Percentage of the Revolving Credit
Commitment), a fee (the "Commitment Fee") equal to the Applicable Commitment
Percentage of the average daily unused portion of the Aggregate Revolving
Credit Commitment (Swing Line Loans shall not be deemed to be a used portion
of the Aggregate Revolving Credit Commitment). Such fee shall be payable to
the Agent for the period from the Effective Date to and including the last day
of the Revolving Credit Commitment Period, payable quarterly in arrears on the
first day of each calendar quarter during the Revolving Credit Commitment
Period, commencing with the first such date after the Effective Date, and
ending on the Termination Date. Fees shall be calculated for each month on
the basis of a 360-day year for the actual number of days elapsed in such
month.
(b) Agent Fees. The Borrower agrees to pay to the Agent, for its own
----------
account, all the fees set forth in the Fee Letter.
SECTION 3.2. Payments.
--------
(a) Routine Payments. Except as otherwise specifically provided
----------------
in this Agreement, each payment (including each prepayment) by Borrower
pursuant to this Agreement or the Notes, whether in respect of principal,
interest, or increased costs and the Commitment Fees and all other fees to be
paid to the Agent, the Swing Line Lender and the Banks in connection with the
Loan Documents (collectively, "Payments"; and the portion of such payments
that are on account of the Commitment Fee, together with all of such other
fees, is sometimes hereinafter collectively referred to as the "Fees") shall
be made by the Borrower without set-off, withholding, deduction, or
counterclaim, to the Agent at the applicable Agent Payment Office in funds
immediately available to the Agent at such office by 12:00 noon (local time in
the city in which such Agent Payment Office is located) on the due date for
such Payment. The failure of the Borrower to make any such Payment by such
time shall not constitute a default hereunder, provided that such payment is
made on such due date, but any such Payment made after 12:00 p.m. (local time
in the city in which such payment is to be made in accordance with the terms
hereof) on such due date shall be deemed to have been made on the next
Business Day for the purpose of calculating interest on amounts outstanding on
the applicable loans. Subject to Section 9.5, promptly upon receipt thereof
by the Agent, (a) each Payment of principal and interest on the Revolving
Credit Loans, Term Loans and Swing Line Loans shall be remitted by the Agent
in
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<PAGE>
like funds as received to each Bank and the Swing Line Lender, as the case may
be, pro rata according to its Exposure Percentage of such loans, and (b) each
payment of the Commitment Fee shall be remitted by the Agent in like funds as
received to each Bank pro rata according to such Bank's Revolving Credit
Commitment.
(b) Alternate Payment Dates. If any Payment hereunder shall be due
-----------------------
and payable on a day which is not a Business Day the due date thereof (except
as otherwise provided in this Agreement) shall be extended to the next
Business Day and (except with respect to Payments in respect of the Fees)
interest shall be payable at the applicable rate specified herein during such
extension, provided, however, that, if such next Business Day is after the
Maturity of such loan, any such payment shall be due on the immediately
preceding Business Day.
SECTION 3.3. Taxes.
-----
(a) Any and all payments by Borrower pursuant to this Agreement, the
Revolving Credit Notes, the Term Notes or the Swing Line Note shall be made,
in accordance with the terms hereof and thereof, free and clear of and without
deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding franchise taxes imposed on the Agent, the Swing Line Lender or any
Bank by the jurisdiction under the laws of which the Agent, the Swing Line
Lender or such Bank is organized or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Agent, or the Swing Line Lender or any Bank, (i) the sum
payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 3.3) the Agent, the Swing Line Lender or such Bank
shall receive an amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions, (iii) Borrower
shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law, and (iv) Borrower shall deliver
to the Agent evidence of such payment to the relevant Governmental Authority.
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<PAGE>
(b) In addition, Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies of the United States or any State or political subdivision thereof or
any applicable foreign jurisdiction that arise from any payment made hereunder
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or any other Loan Document (hereinafter referred to as
"Other Taxes") and to deliver to the Agent and the Banks evidence of such
payment to the relevant Governmental Authority.
(c) Borrower will indemnify the Agent, the Swing Line Lender and the
Banks for the full amount of Taxes and Other Taxes (including without
limitation Taxes and Other Taxes imposed by any jurisdiction on amounts
payable under this Section 3.3) paid by the Agent, the Swing Line Lender or
any Bank (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. This indemnification
shall be made within 10 days after written demand therefor by the Agent, the
Swing Line Lender or any Bank. Should Borrower elect to contest whether or not
the Taxes or Other Taxes giving rise to its indemnification obligation
hereunder were correctly or legally asserted, the Agent, the Swing Line Lender
or the Bank being indemnified agrees to cooperate in such contest, at
Borrower's expense, and to make available to Borrower such books and records
as may be reasonably necessary and useful in connection with such contest.
(d) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in
this Section 3.3 shall survive the payment in full of principal, interest,
fees and other amounts hereunder and under the other Loan Documents.
(e) Each Bank, if any, that is not organized under the laws of the
United States of America or any State agrees (i) prior to the first payment to
such Bank of any amounts due to such Bank under the Loan Documents, upon
request by Borrower, to execute and deliver to Borrower completed counterparts
of IRS Form W-8, 1001, or 4224 (or any successor thereto or substitute
therefor), as applicable, and (ii) thereafter, upon request by Borrower from
time to time in order to maintain the effectiveness and accuracy of such tax
forms and otherwise to comply with United States tax laws, to execute and
deliver to Borrower additional or supplemental tax forms
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<PAGE>
with respect to amounts due to such Bank under the Loan Documents.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent, the Swing Line Lender and the Banks to
enter into this Agreement and to make the Revolving Credit Loans, Swing Line
Loans and Term Loans, Borrower hereby makes the following representations and
warranties, which shall survive the execution and delivery of the Loan
Documents and (except to the extent that any of such representations and
warranties expressly relate to earlier dates) shall be deemed repeated and
confirmed as of each date on which any Revolving Credit Loans, Swing Line
Loans or Term Loans are requested by Borrower or made by any Bank or the Swing
Line Lender, as the case may be:
SECTION 4.1. Corporate Status.
----------------
Borrower is a duly organized and validly existing corporation in good
standing under the laws of its state of incorporation, is properly licensed
and has the corporate power and authority and the legal right to own its
property and conduct the business in which it is engaged or presently proposes
to engage and is duly licensed and qualified as a foreign corporation in good
standing under the laws of each jurisdiction where the failure to qualify as
such would have a Material Adverse Effect.
SECTION 4.2. Subsidiaries.
------------
Except as set forth on Schedule III hereof (as the same may be amended
from time to time to include entities the Tangible Net Worth of which
constitute less than 5% of the Tangible Net Worth of Borrower), there are no
corporations of which Borrower owns, directly or indirectly, shares of capital
stock having in the aggregate 50% or more of the total combined voting power
of the issued and outstanding shares of capital stock entitled to vote
generally in the election of directors of such corporation; nor are there any
corporations, partnerships, joint ventures or other entities in which Borrower
has, or pursuant to any agreement has the right to acquire at any time by any
means, directly or indirectly, an equity interest or investment.
SECTION 4.3. Location of Offices, Books and Records.
--------------------------------------
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<PAGE>
Schedule I annexed hereto, as amended from time to time pursuant to
Section 6.9 hereof, completely and accurately lists all places (i) at which
Borrower maintains its books and records relating to, among other things, its
Loans, (ii) at which Borrower has any places of business and (iii) at which
Borrower has its chief executive office.
SECTION 4.4. Corporate Power; Authorization.
------------------------------
Borrower has the corporate power and authority and the legal right to
make, deliver and perform this Agreement and the other Loan Documents to which
it is a party. Borrower has taken all necessary corporate action (including,
but not limited to, the obtaining of any consent of stockholders required by
law or by the Certificate of Incorporation or By-Laws of Borrower) to
authorize the execution, delivery and performance of the Loan Documents to
which it is a party or by which it is otherwise affected and to authorize the
transactions contemplated hereby and thereby.
SECTION 4.5. Enforceable Obligations.
-----------------------
Each Loan Document, and each other instrument and document executed by
Borrower and delivered to the Agent pursuant to Section 5.1 hereof,
constitutes the legal, valid and binding obligation of Borrower, enforceable
in accordance with its respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally, and
general principles of equity, and there are no actions, suits or proceedings
pending or, to the knowledge of Borrower, threatened against, or affecting,
Borrower or any of its officers or directors calling into question the
legality, validity or enforceability of any thereof.
SECTION 4.6. No Violation of Agreements; Compliance with Law.
-----------------------------------------------
Borrower is not in default under any indenture, mortgage, deed of trust,
agreement or other instrument to which it is a party or by which it or any of
its properties may be bound. Neither the execution and delivery of the Loan
Documents nor any of the instruments and documents to be delivered by Borrower
pursuant to this Agreement or the other Loan Documents, nor the consummation
of the transactions herein and therein contemplated, nor compliance with the
provisions hereof or thereof will violate any law or regulation, or any order
or
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<PAGE>
decree of any court or governmental instrumentality, or will conflict with, or
result in the breach of, or constitute a default under, any indenture,
mortgage, deed of trust, agreement or other instrument to which Borrower is a
party or by which it may be bound, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property of Borrower except as
expressly permitted by this Agreement, or violate any provision of the
Certificate of Incorporation, By-Laws or any preferred stock provisions of
Borrower.
SECTION 4.7. Agreements.
----------
Borrower is not a party to any agreement or instrument or subject to any
corporate restriction (including any restriction set forth in its Certificate
of Incorporation, By- Laws or preferred stock provisions) that could have a
Material Adverse Effect.
SECTION 4.8. No Material Litigation.
----------------------
There are no actions, suits or proceedings pending or, to the knowledge
of Borrower, threatened, against, or affecting Borrower or any of its officers
or directors before any court, arbitrator or governmental or administrative
body or agency which, if adversely determined, might have a Material Adverse
Effect. No injunction, writ, restraining order or other order of any nature
adverse to Borrower or the conduct of its business or inconsistent with the
due consummation of such transactions has been issued by any Governmental
Authority. Borrower is not in default under any applicable statute, rule,
order, decree or regulation of any court, arbitrator or governmental body or
agency having jurisdiction over Borrower.
SECTION 4.9. Good Title to Properties.
------------------------
Borrower has good and marketable title to all its properties and assets,
subject to no Liens of any kind (except as expressly permitted under this
Agreement).
SECTION 4.10. Margin Regulations.
------------------
Borrower does not own any "margin stock" as such term is defined in
Regulation U as amended (12 C.F.R. Part 221), issued by the Board and is not
obligated to register with the Board as a "lender" as such term is defined in
Regulation G as amended (12 C.F.R. Part 207), issued by the Board. The
proceeds of the
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<PAGE>
borrowings made pursuant to this Agreement will be used by Borrower only for
the purposes set forth in Section 2.8 hereof. None of such proceeds and none
of the proceeds of any loan or advance made by Borrower will be used, directly
or indirectly, for the purpose of purchasing or carrying any margin stock or
for the purposes of maintaining, reducing or retiring any Indebtedness that
originally was incurred to purchase or carry margin stock or for any other
purpose that might constitute any of the Revolving Credit Loans, Swing Line
Loans or Term Loans under this Agreement or any such loans or advances a
"Purpose credit" within the meaning of said Regulations G and U or Regulation
X (12 C.F.R. Part 224) of the Board. Neither Borrower nor any agent acting in
its behalf has taken or will take any action that might cause this Agreement
or any of the documents or instruments delivered pursuant hereto or other Loan
Documents to violate any regulation of the Board or to violate the Securities
Exchange Act of 1933, as amended.
SECTION 4.11. SBIC.
----
Borrower is, and has been since the date of its incorporation, a
qualified SBIC. Borrower is in compliance with all conditions or requirements
imposed by the SBA or any other applicable Governmental Authority with respect
to its status as a SBIC including, without limitation, all conditions and
requirements imposed under the SBI Act and the SBA Regulations promulgated
thereunder.
SECTION 4.12. Investment Company.
------------------
Each of Borrower and Medallion Financial is an "investment company," as
such term is defined in the 1940 Act. The acquisition of the Notes by the
Banks, the application of the proceeds and repayment thereof by Borrower and
the performance of the transactions contemplated by this Agreement and the
other Loan Documents will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission
thereunder.
SECTION 4.13. Disclosure.
----------
No representation or warranty made by Borrower in any Loan Document or
any other document furnished from time to time in connection herewith or
therewith contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the statements
herein
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<PAGE>
or therein, in light of the circumstances under which they were made, not
misleading. There is no fact known to Borrower or any of its officers or
directors which has, or which in the future might have, in the reasonable
judgment of Borrower, a Material Adverse Effect, except as set forth or
referred to in this Agreement or in another document or instrument heretofore
furnished to the Banks.
SECTION 4.14. Taxes and Claims.
----------------
Borrower has filed or caused to be filed, all Federal, state and local
tax returns and reports which are required to be filed and has paid all taxes
shown to be due and payable on said returns or on any assessments made against
it or any of its property and all other taxes, fees or charges imposed on it
or any of its property by any Governmental Authority (other than those the
amount or validity of which are currently being diligently contested in good
faith by appropriate proceedings and in respect of which adequate reserves in
conformity with GAAP have been provided on the books of Borrower); and no tax
liens have been filed and, to the knowledge of Borrower, no claims are being
asserted with respect to any such taxes, fees or other charges. Borrower, to
the best of its knowledge, has paid and discharged all lawful claims for
labor, material, supplies and anything else which might or could, if unpaid,
become a Lien on any of its properties (other than those the amount or
validity of which are currently being diligently contested in good faith by
appropriate proceedings and in respect of which adequate reserves in
conformity with GAAP have been provided on the books of Borrower).
SECTION 4.15. Licenses and Permits.
--------------------
Borrower possesses all the licenses, permits, approvals and consents of
Federal, state and local governments and regulatory authorities) and rights in
any thereof, adequate for the conduct of its business as now conducted,
without conflict with the rights or claimed rights of others. Borrower has not
received any notice nor does Borrower have any knowledge or reason to believe
that any appropriate authority intends to cancel, terminate or modify any of
such licenses or permits or that valid grounds for such cancellation,
termination or modification exist.
SECTION 4.16. Consents.
--------
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<PAGE>
No consent, authorization or action of, or filing with, any Governmental
Authority or any other Person is required to authorize, or is otherwise
required of Borrower in connection with, the execution, delivery, performance,
validity or enforceability of the Loan Documents or any of the instruments or
documents to be delivered pursuant to the Loan Documents.
SECTION 4.17. Employee Benefit Plans.
----------------------
(a) None of the Plans maintained at any time by Borrower, or any
ERISA Affiliate thereof or the trusts created thereunder has engaged in a
Prohibited Transaction which could subject any such Plan or trust to a
material tax, liability or penalty on or resulting from Prohibited
Transactions imposed under Code Section 4975 or ERISA.
(b) None of the Plans which are employee pension benefit plans
maintained at any time by Borrower, or any ERISA Affiliate thereof, or the
trusts created thereunder has been terminated in a manner that results or
could result in a liability to Borrower in excess of $50,000, nor has
Borrower, any ERISA Affiliate thereof, or any such Plan of Borrower or any
ERISA Affiliate incurred any liability to the PBGC in excess of $50,000, other
than for required insurance premiums which have been paid when due; neither
Borrower nor any ERISA Affiliate has withdrawn from or caused a partial
withdrawal to occur with respect to any Multiemployer Plan within the meanings
of Sections 4203 and 4205 of ERISA the effect of which was a liability or
potential liability to Borrower in excess of $50,000; and Borrower and each
ERISA Affiliate has made or provided for all contributions to all employee
pension benefit plans which they maintain and which were required under ERISA
or the Code as of the end of the most recent fiscal year under each such plan;
no such employee pension benefit plan has incurred any Accumulated Funding
Deficiency the effect of which was a liability or potential liability to
Borrower in excess of $50,000, whether or not waived; nor has there been any
Reportable Event, or other event or condition which presents a risk of
termination of any such Plan by the PBGC, which termination could result in a
potential liability to Borrower in excess of $50,000.
(c) The present value of all accrued benefits under the Plans, if
any, which are employee pension benefit plans did not, as of the most recent
valuation date for each such Plan, exceed by more than $50,000 the then
current value of the assets of such Plans allocable to such accrued benefits.
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(d) Each employee pension benefit plan maintained by Borrower and
each ERISA Affiliate has been administered in accordance with its terms and is
in compliance in all material respects with all applicable requirements of
ERISA and other applicable laws, regulations and rulings.
(e) As used in this Section 4.17 the term "employee Pension benefit
Plan" and "accrued benefits" shall have the respective meanings assigned to
them in ERISA.
SECTION 4.18. Financial Condition.
-------------------
The consolidated balance sheets of the Borrower for the fiscal years
ended March 31, 1995, 1996 and 1997 and the related consolidated statements of
income, retained earnings and cash flow for the fiscal years ended on said
dates, as certified by the Independent Public Accountants present fairly the
consolidated financial condition of the Borrower as at the date of each such
balance sheet, and the results of its operations for such period. All such
financial statements have been prepared in accordance with GAAP applied on a
basis consistent with that of the comparable preceding period, and since the
dates of the financial statements mentioned above, there has been no material
adverse change in the consolidated condition, financial or otherwise, of the
Borrower.
SECTION 4.19. Environmental Laws, Etc.
-----------------------
(a) All Property heretofore, now or hereafter owned or operated by
Borrower complied, complies and will comply in all material respects with all
applicable Federal, state and local, environmental, health and safety
statutes, guidelines, codes, ordinances and regulations;
(b) such Property does not contain and is not being and has not been
used to generate, manufacture, refine, produce, store, handle, transfer,
process, dispose of, or transport, any Hazardous Materials in violation of any
material applicable Federal, state or local law or regulation; and
(c) there are no underground storage tanks or surface impoundments
located on, under, or within such Property in violation of any material
applicable Federal, state or local law or regulation.
SECTION 4.20. Event of Default.
----------------
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<PAGE>
No event has occurred and is continuing that constitutes a Default or an
Event of Default or would constitute such a Default or Event of Default after
notice or lapse of time or both.
SECTION 4.21. Solvency.
--------
Borrower is Solvent, and will not, as a result of the transactions
contemplated hereby or by the Loan Documents become not Solvent.
SECTION 4.22. Priority.
--------
Except as otherwise permitted hereunder, the Agent, for the ratable
benefit of the Banks, the Swing Line Lender and the CP Holders, has a valid
and perfected first priority security interest (subject to the terms of the
Intercreditor Agreement) in and to all Collateral, enforceable against
Borrower and all third parties in all relevant jurisdictions and securing the
payment of the Revolving Credit Loans, Swing Line Loans and Term Loans and all
other sums payable under or in connection with the Loan Documents.
SECTION 4.23. Advertising, Origination and Servicing Activities.
-------------------------------------------------
All advertising, origination and servicing activities, procedures and
materials used with regard to any Loan made or accounts acquired, collected or
serviced by Borrower comply with all applicable Federal, state and local laws,
ordinances, rules and regulations, including but not limited to those related
to usury, truth in lending, real estate settlement procedures, consumer
protection, equal credit opportunity, fair debt collection, rescission rights
and disclosures, except where failure to comply would not have a Material
Adverse Effect.
SECTION 4.24. Activities.
----------
The only transactions engaged in by Borrower in the ordinary course of
its business consist of: (i) the making and servicing of Loans and Investments
in compliance with the SBI Act and the SBA Regulations promulgated thereunder;
and (ii) transactions incidental to the foregoing.
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ARTICLE 5. CONDITIONS PRECEDENT
SECTION 5.1. Conditions to Initial Revolving Credit Loan and Initial
-------------------------------------------------------
Swing Line Loan.
---------------
The obligation of (i) the Banks to make the Initial Revolving Credit Loan
and (ii) the Swing Line Lender to make its first Swing Line Loan hereunder,
are each subject to the satisfaction on the Effective Date of the following
conditions precedent:
(a) The Agent and the Swing Line Lender shall have received, on or
before making the initial Swing Line Loan, the Swing Line Note conforming to
the requirements hereof in the form of Exhibit D hereto, executed by an
---------
Authorized Representative of Borrower; and the Agent and each Bank shall have
received, on or before making the Initial Revolving Credit Loan, the
following, each in form and substance satisfactory to the Agent and each Bank
in all respects:
(i) a Revolving Credit Note conforming to the requirements
hereof in the form of Exhibit B hereto, executed by an Authorized
---------
Representative of Borrower;
(ii) evidence satisfactory to the Banks that there is no
outstanding Indebtedness or Liens except Permitted Indebtedness and
Permitted Liens;
(iii) the Borrower Security Agreement in the form of Exhibit E,
---------
executed by an Authorized Representative of Borrower;
(iv) a copy of the duly executed Intercreditor Agreement
substantially in the form of Exhibit G (and the Agent shall have
---------
received an original copy of such Intercreditor Agreement);
provided, that, this condition shall only be a condition precedent
-------- -----
to the first extension of credit after the Merger has become
effective);
(v) evidence satisfactory to the Banks that the Borrower
Financing Statements have been filed and confirmation thereof
received in a form acceptable to the Required Banks, such that the
security interests described therein constitute valid and perfected
first priority security interests, subject only to Liens permitted
pursuant to Section 8.1 hereof;
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(vi) the results of a search of all filings made against
Borrower under the UCC as in effect in any relevant state,
indicating that the Collateral is free and clear of any Lien or
encumbrance, other than Permitted Liens;
(vii) opinions of counsel to Borrower substantially in the form
of Exhibit J hereto; such opinion shall also cover such other
---------
matters incident to the transactions contemplated by this Agreement
and the other Loan Documents as the Required Banks reasonably may
require;
(viii) a copy of the Certificate of Incorporation of Borrower
and all amendments thereto, certified as of the date hereof by the
Chief Operating Officer of Borrower;
(ix) copies of the By-laws of Borrower in effect as of the
Effective Date, certified by the Chief Operating Officer of
Borrower;
(x) certified copies of the resolutions of the Board of
Directors of Borrower approving each of the Loan Documents and each
of the other instruments and documents to be executed by it and
delivered to the Banks pursuant to this Agreement or any other Loan
Document, certified by the Chief Operating Officer of Borrower, and
certified copies of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect
thereto;
(xi) certificates of the Chief Operating Officer of Borrower
certifying the names and true signatures of the officers of Borrower
authorized to sign each document to which it is a signatory and
which is to be delivered by it hereunder or pursuant to any other
Loan Document to which it is a party;
(xii) a certificate of the Chief Executive Officer and the Chief
Financial Officer of Borrower to the effect that (A) the financial
statements referred to in Section 4.18 hereof present fairly the
financial condition of Borrower as of the date and for the period of
such financial statements and (B) no material adverse change in the
condition,
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financial or otherwise, of Borrower has occurred since the date of
such financial statements;
(xiii) a certificate of an Authorized Representative of Borrower
to the effect that Borrower has in effect all insurance coverage
required pursuant to Section 6.3 hereof;
(xiv) originals of instruments and other documents constituting
part of the Collateral or Underlying Collateral as the Agent may
request in order to perfect its security interest, on behalf of the
Banks, in such Collateral;
(xv) copies of all other documents, instruments and agreements
requested by the Agent in connection with the transactions
contemplated by this Agreement and the other Loan Documents; and
(xvi) a Borrowing Base Certificate in the form of Exhibit I.
---------
(b) Borrower is a corporation duly organized and validly
existing, has all licenses, permits and authorizations necessary to
own its properties and to carry on its business as now conducted and
proposed to be conducted and is in good standing in the jurisdiction
of its organization and in each other jurisdiction in which the
nature of its business or ownership or use of its property requires
such qualification and the Agent shall receive such evidence
thereof, as it or the Required Banks may request.
(c) All requisite corporate action and proceedings, as the case may
be, in connection with the Loan Documents shall be satisfactory in form and
substance to the Agent and the Banks, and the Agent and the Banks shall have
received all information and copies of all documents, including without
limitation, records of requisite corporate action and proceedings which the
Agent, the Banks and Emmet, Marvin & Martin, as counsel to the Agent, may have
requested in connection therewith, such documents, where so requested, to be
certified by appropriate corporate officers or Governmental Authorities.
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<PAGE>
(d) All necessary approvals, authorizations and consents, if any be
required, of any Governmental Authority having jurisdiction with respect to
any of the Collateral and the transactions contemplated by this Agreement and
the other Loan Documents shall have been obtained. In addition, Borrower shall
be in compliance with all laws, rules, regulations, orders and administrative
guidelines applicable to the operation of its business, including, without
limitation, those of the SBA.
(e) All representations, warranties, covenants and agreements
contained in any Loan Document shall be true and correct in all material
respects, and shall have been performed (to the extent required to be
performed on or prior to the Effective Date), as of the Effective Date.
(f) Borrower shall have paid to each Bank the sums set forth in
Section 2.8 hereof that are required to be paid to such Bank on or before the
Effective Date.
SECTION 5.2. Conditions to All Revolving Credit and Term Loans.
-------------------------------------------------
The obligation of the Banks to make any Revolving Credit Loans (including
the Initial Revolving Credit Loan) and any Term Loans and the obligation of
the Swing Line Lender to make any Swing Line Loan (including any initial Swing
Line Loan) is further subject to the satisfaction of the following conditions
precedent:
(a) each of the representations and warranties made by Borrower in
or pursuant to any Loan Document or which are contained in any agreement,
instrument, certificate, document or other writing furnished at any time under
or in connection herewith or therewith shall be true and correct in all
material respects when made and on and as of the date of the making of such
Revolving Credit Loan or Term Loan or Swing Line Loan (except to the extent
any representation or warranty expressly relates to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the Revolving Credit Loans
or Term Loans or Swing Line Loans to be made on such date;
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(c) no event, act or condition having or causing a Material Adverse
Effect with respect to Borrower has occurred since the Effective Date;
(d) after taking into account Revolving Credit Loans and/or Term
Loans and/or Swing Line Loans to be made on such date, Net Finance Assets
shall be in an amount at least equal to the Minimum Asset Coverage.
Each borrowing by Borrower hereunder shall constitute a representation and
warranty by Borrower as of the date of such borrowing that the conditions in
clauses (a), (b), (c) and (d) of this Section 5.2 have been satisfied.
ARTICLE 6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until the Notes together with
interest and all other Indebtedness of Borrower to the Agent, the Swing Line
Lender or the Banks under the Loan Documents are paid in full and the
Aggregate Revolving Credit Commitment, the Swing Line Commitment and all Term
Loan Commitments are terminated, unless specifically waived in writing by the
Agent and the Required Banks:
SECTION 6.1. Financial Statements and Other Information.
------------------------------------------
Borrower shall furnish to the Agent and each Bank:
(a) as soon as practicable and in any event within 30 days after the
close of each calendar quarter, beginning with the calendar quarter ending
December 31, 1997, a detailed schedule of all outstanding Loans of Borrower
setting forth (i) the aging, on a contractual basis, of each Loan and (ii) the
aggregate dollar amount of Loans as to which any amendments or modifications
to or waivers of any terms thereof have been made during the quarter as a
result of the Person to whom such Loan was made being unable to comply (for
whatever reason) with the terms thereof;
(b) as soon as practicable and in any event within 30 days after the
close of each calendar quarter, beginning with the calendar quarter ending
December 31, 1997, a schedule setting forth (i) the number of Medallion Rights
pledged to Borrower as security for Loans made by it, (ii) the then
outstanding aggregate principal amount of the Loans secured by such Medallion
Rights and (iii) Borrower's good faith best
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<PAGE>
estimate (along with supporting documentation) of the current fair market
value of the operating rights and licenses evidenced by taxi medallions
included in such Medallion Rights;
(c) monthly, and not later than the 10th Business Day of each month,
an updated Exhibit H which shall identify, with detail satisfactory to the
---------
Agent, all SBA Collateral as of the last day of the immediately preceding
month;
(d) as soon as practicable and in any event within 60 days after the
end of each of the first three fiscal quarters of each fiscal year, beginning
with the fiscal quarter ending December 31, 1997, a balance sheet, a statement
of income and retained earnings and a statement of cash flow of Borrower, as
at the end of and for the quarterly period then ended and for the period
commencing at the end of the previous fiscal year and ending with such
quarter, setting forth the corresponding figures for the appropriate periods
of the previous fiscal year in comparative form, all in reasonable detail
(which detail shall include data as to non-accruals (and related collateral,
repossessions, charge-offs and reconciliation for allowance for losses) and be
reviewed by the Independent Public Accountants and certified by the President
or Chief Financial Officer of Borrower to be true and correct and to have been
prepared in accordance with GAAP (except for the omission of footnotes),
subject to normal recurring year-end audit adjustments;
(e) as soon as practicable and in any event within 90 days after the
end of the fiscal year of Borrower commencing with the fiscal year ending
March 31, 1998, a balance sheet, a statement of income and retained earnings
and a statement of cash flow of Borrower, as at the end of and for the fiscal
year just closed, setting forth the corresponding figures of the previous
fiscal year in comparative form, all in reasonable detail (which detail shall
include data as to non-accruals and related collateral, repossessions, charge-
offs and reconciliation for allowance for losses), presented in a manner
consistent with the financial statements of Borrower for the preceding fiscal
year, and, with respect to such consolidated statements, certified (without
any qualification or exception deemed material by the Agent or any Bank) by
the Independent Public Accountants; and concurrently with such financial
statements, a written statement, addressed to the Agent and the Banks, signed
by such Independent Public Accountant to the effect that, in making the
examination necessary for their certification of such financial statements,
they have not
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<PAGE>
obtained, as of the end of such fiscal year, any knowledge of the existence of
any Default or Event of Default, or, if such accountants shall have obtained
from such examination any such knowledge, they shall disclose in such written
statement the Default or Event of Default;
(f) concurrently with the delivery of the schedules or financial
statements required to be furnished under Sections 6.1(a), or 6.(d) hereof, a
certificate signed by the President or Chief Financial Officer of Borrower,
and concurrently with the delivery of the financial statements required to be
furnished under Section 6.1(e) hereof, a certificate signed by the Independent
Public Accountants, and promptly upon the occurrence of any Default or Event
of Default, a certificate signed by the President or Chief Financial Officer
of Borrower or such Independent Public Accountants, if a Default or Event of
Default shall have occurred during the period of their review, in each case
stating (i) that a review of the activities of Borrower during such period has
been made under his or their, as the case may be, immediate supervision with a
view to determining whether Borrower has observed, performed and fulfilled all
of its obligations under this Agreement, and (ii) that there existed during
such period no Default or Event of Default (provided that, as to a certificate
prepared by the Independent Public Accountants, such period, as it relates to
the compliance by Borrower with covenants contained in Articles VII and VIII
hereof shall apply to the fiscal period covered by their review) or if any
such Default or Event of Default exists, specifying the nature thereof, the
period of existence thereof and what action Borrower proposes to take, or has
taken, with respect thereto; each such certificate shall be accompanied by a
schedule setting forth the computations as of the end of such period of the
Debt-Equity Ratio (as defined under "Pricing Level") and of each of the
financial ratios, tests or covenants specified in Article VII, 6.15, 8.2, 8.3,
8.4, and 8.14 hereof;
(g) concurrently with the delivery of the financial statements
required to be furnished under Section 6.1(e) hereof, (i) any management
letters prepared by the Independent Public Accountants described above,
setting forth weaknesses in the accounting and control procedures of Borrower
and (ii) projections (in a format satisfactory to the Agent) for the fiscal
year immediately following the fiscal year for which such financial statements
were provided;
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<PAGE>
(h) promptly upon receipt thereof, copies of (i) all financial
reports (including, without limitation, management letters), if any, submitted
to Borrower by its auditors in connection with each annual interim or special
audit of its books by such auditors, (ii) all "vault count opinions" submitted
to Borrower in connection with each inspection by such auditors of the
documents evidencing Borrower's Loans and the Underlying Collateral securing
such Loans, (iii) all audits submitted to Borrower by the SBA or any other
Governmental Authority and (iv) all reports, letters or other documents
submitted to Borrower by the SBA or any other Governmental Authority relating
to a material change in Borrower's business or the rules and regulations
promulgated by any Governmental Authority applicable thereto, including,
without limitation, the SBI Act, the SBA Regulations, the 1940 Act and the
Code;
(i) a Borrowing Base Certificate indicating a computation of the
Minimum Net Finance Assets (as defined in Section 7.3) (i) monthly (not later
than 10 Business Days after the last day of each month) covering the period
ending the last day of the immediately preceding month, and (ii) on the date
an extension of credit is requested, covering the period commencing with the
first day of the month such extension of credit is requested through the date
thereof; and
(j) with reasonable promptness, such other information respecting
the business, operations and financial condition of Borrower as the Agent or
any of the Banks from time to time reasonably may request.
SECTION 6.2. Taxes and Claims.
----------------
(a) Borrower shall pay promptly when due, (i) all material sales,
use, excise, personal property, income, withholding, corporate franchise and
all other taxes, assessments and governmental charges upon or against or
relating to Borrower or its ownership or use of any of its properties, assets,
income or gross receipts unless and to the extent that such charges are being
diligently contested in good faith by appropriate proceedings and adequate
reserves in conformity with GAAP have been provided therefor on the books of
Borrower, and (ii) all lawful claims, whether for labor, materials, supplies,
services or anything else which might or could, if unpaid, become a Lien or
charge upon the properties or assets of Borrower or any of its Subsidiaries,
which Lien would not be permitted under this Agreement, unless and to the
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extent such claims are being diligently contested in good faith by appropriate
proceedings and adequate reserves in conformity with GAAP have been provided
therefor on the books of Borrower.
(b) Borrower shall not permit, or suffer to remain, and will
promptly discharge, any Lien (other than a Permitted Lien) arising from any
unpaid tax, assessment, levy or governmental charge.
(c) In the event Borrower shall fail to pay any such tax,
assessment, levy or governmental charge or to discharge any such Lien (other
than a Permitted Lien), then the Agent, without waiving or releasing any
obligation or default of Borrower hereunder, may at any time or times
hereafter, but shall be under no obligation to do so, make such payment,
settlement, compromise or release or cause to be released any such Lien, and
take any other action with respect thereto which the Agent deems advisable.
All sums paid by the Agent in satisfaction of, or on account of any tax, levy
or assessment or governmental charge, or to discharge or release any Lien, and
any expenses, including reasonable attorneys' fees actually incurred, court
costs and other charges relating thereto, shall become a part of the
Obligations secured by the Collateral, payable on demand.
SECTION 6.3. Insurance.
---------
(a) Borrower shall (i) keep all of its properties adequately insured
at all times with responsible insurance carriers against loss or damage by
fire and other hazards and (ii) maintain adequate insurance at all times with
responsible carriers against liability on account of damage to persons and
property and under all applicable workmen's compensation laws. For the
purposes of this Section 6.3(a), insurance shall be deemed adequate if the
same is not less extensive in coverage and amount than is customarily
maintained by other persons engaged in the same or similar business similarly
situated.
(b) Borrower, from time to time upon request of the Agent or any
Bank, promptly shall furnish or cause to be furnished to the Agent and any
such requesting Bank evidence, in form and substance satisfactory to the Agent
and such Bank (if requested by a Bank), of the maintenance of all insurance
required by this Section 6.3 to be maintained, including, but not limited to,
such originals or copies as the Agent or such Bank may request of policies,
certificates of insurance, riders
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and endorsements relating to such insurance and proof of premium payments.
SECTION 6.4. Books and Records.
-----------------
Borrower shall maintain, at all times, true and complete books, records
and accounts in which true and correct entries shall be made of its
transactions in accordance with GAAP consistently applied and in compliance
with the regulations of any governmental regulatory body having jurisdiction
over it.
SECTION 6.5. Properties in Good Condition.
----------------------------
Borrower shall keep its properties in good repair, working order and
condition (subject to such wear and tear as may occur in the ordinary course
of business) and, from time to time, make all needful and proper repairs,
renewals, replacements, additions and improvements thereto, so that the
business carried on may be properly and advantageously conducted at all times
in accordance with prudent business management.
SECTION 6.6. Inspection by the Banks.
-----------------------
Borrower shall allow any representative of the Agent or any of the Banks
to visit and inspect any of the properties of Borrower to examine and audit
the books of account and other records and files of Borrower, to make copies
thereof and to discuss the affairs, business, finances and accounts of
Borrower with its officers and employees, all at such reasonable times and as
often as the Agent any of the Banks may request; provided, that, at least once
-------- ----
each calendar year such an inspection shall be conducted by the Agent at the
request of the Required Banks (or without such a request if the Agent shall
deem it necessary or advisable). Reasonable expenses incurred in connection
with one such audit and inspection requested by the Required Banks or the
Agent each year shall be paid by Borrower, with any additional audits to be at
the expense of the Bank performing the same, or at the expense of all Banks if
conducted by the Agent, except that, if an Event of Default shall have
occurred and be continuing, all such additional audits shall be at the expense
of the Borrower.
SECTION 6.7. Pay Indebtedness to Agent and Perform Other Covenants.
-----------------------------------------------------
Borrower shall (a) make full and timely payments to the Agent, for the
ratable benefit of the Banks, and the Swing Line
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Lender, as the case may be, of the principal of and interest on the Notes and
all other amounts owed by Borrower under or pursuant to the Loan Documents,
whether now existing or hereafter arising and (b) duly comply with all the
terms and covenants contained in each of the instruments and documents
furnished in connection with or pursuant to this Agreement or the other Loan
Documents, all at the times and places and in the manner set forth therein.
SECTION 6.8. Compliance With Laws.
--------------------
Borrower shall comply with all applicable laws and regulations, including
but not limited to, those of the SBA and Federal, state and local laws and
regulations relating to consumer lending, disclosure, collection and licensing
where the failure to so comply would have a Material Adverse Effect (other
than those the validity of which are being diligently contested in good faith
by appropriate proceedings and adequate reserves in conformity with GAAP have
been provided therefor on the books of Borrower).
SECTION 6.9. Notice of Certain Events.
------------------------
Borrower shall promptly, but in no event later than three Business Days
after obtaining knowledge thereof, give written notice to the Agent and the
Banks of: (a) any material litigation, including arbitrations, and of any
investigations or proceedings before any Governmental Authority brought
against Borrower, whether or not the claim is considered by Borrower to be
covered by insurance, which might, if determined adversely, have a Material
Adverse Effect, or where the amount involved, when added together with all
other amounts involved in any other litigation, investigation, arbitration or
proceeding affecting Borrower, would exceed $500,000, and Borrower shall, if
requested by the Agent or the Required Banks, set up such reserves as the
Agent or the Required Banks reasonably determine are necessary to protect the
Agent or the Banks against loss; (b) any written notice of a violation
received by Borrower from any Governmental Authority which, if such violation
were established, might have a Material Adverse Effect; (c) any material
attachment, judgment, lien, levy or order which may be placed on or assessed
against or threatened against Borrower or the Collateral; (d) any Default or
Event of Default or any event that, after notice or lapse of time or both,
would become a Default or Event of Default; (e) any other matter that has or
causes or may have or cause a Material Adverse Effect with respect to
Borrower; (f) any Change of
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Control or proposed Change of Control; and (g) any change in the corporate
name or corporate form of Borrower, or of any change in the information
disclosed on Schedule I annexed hereto.
SECTION 6.10. Environmental Laws, Etc.
-----------------------
(a) Borrower shall keep all Property owned or operated by it free of
Hazardous Materials and comply with the requirements of all applicable
Federal, state and local environmental, health, safety and sanitation laws,
ordinances, regulatory and administrative authorities with respect thereto.
Except to the extent it does so on the date hereof and in strict compliance
with all applicable laws, Borrower shall not use any Property to generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer,
produce, process or in any manner deal with, Hazardous Materials, and shall
not cause or permit, as a result of any intentional or unintentional act or
omission on the part of Borrower or any occupant, tenant or subtenant, the
installation or placement of Hazardous Materials onto any Property or onto any
other property or suffer the presence of Hazardous Materials on any Property.
Borrower shall undertake promptly and pursue diligently to completion
appropriate remedial clean-up action in the event of any release of Hazardous
Materials on, upon or into any real property owned or operated by Borrower or
any real property adjacent thereto.
(b) Borrower agrees to provide the Banks with copies of any
notifications of releases of Hazardous Materials that are given by or on
behalf of Borrower to any Governmental Authority with respect to any real
property owned or operated by Borrower. Such copies shall be sent to the Banks
concurrently with the mailing or delivery of such copies to the Governmental
Authority.
SECTION 6.11. Further Assurances.
------------------
Upon the request of the Agent or the Required Banks, Borrower at its cost
and expense shall duly execute and deliver, or cause to be duly executed and
delivered, to the Agent and the Banks such further instruments and do and
cause to be done such further acts as may be reasonably necessary or proper in
the opinion of the Agent or the Required Banks to carry out more effectually
the provisions and purposes of this Agreement and the other Loan Documents.
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SECTION 6.12. ERISA.
-----
Borrower shall deliver to the Agent and the Banks, promptly after (i) the
occurrence thereof, notice that an ERISA Termination Event or a Prohibited
Transaction with respect to any Plan has occurred, which notice shall specify
the nature thereof and Borrower's proposed response thereto, and (ii) actual
knowledge thereof, copies of any notice of the PBGC's intention to terminate
or to have a trustee appointed to administer any Plan.
SECTION 6.13. Corporate Existence.
-------------------
Borrower shall do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence (except as
otherwise may be permitted by Section 8.6 hereof) and all rights, licenses,
permits and franchises, the termination of which would have a Material Adverse
Effect; comply with all laws, regulations, ordinances, rules and orders
applicable to it, noncompliance with which would have a Material Adverse
Effect; conduct and operate its business in substantially the manner in which
it is presently conducted and operated without material alteration or change
in the nature of such business; at all times maintain and preserve all
property used or useful in the conduct of its business and keep the same in
appropriate repair and condition, and from time to time make, or cause to be
made, all appropriate repairs, renewals and replacements thereto, so that the
business carried on in connection therewith may be properly conducted at all
times.
SECTION 6.14. Maintenance of Security Interest.
--------------------------------
Borrower shall maintain perfected, first priority security interests in
the Collateral in favor of the Agent in accordance with the terms of the
Borrower Security Agreement, subject only to the Liens permitted pursuant to
Section 8.1 hereof.
SECTION 6.15. Required Percentage of Medallion Loans.
--------------------------------------
Borrower shall ensure that, for so long as any amounts are owed by it to
the Banks, the Swing Line Lender or the Agent under the Loan Documents, at all
times at least 65% of the aggregate principal amount of all Loans made by it
and then outstanding shall be Eligible Medallion Loans to Persons who have
obtained such Loans for the purpose of acquiring Medallion Rights for use
primarily in New York City.
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SECTION 6.16. Intentionally Omitted.
---------------------
SECTION 6.17. Borrower's Manuals. Not later than 90 days after the
------------------
Effective Date Borrower shall provide to the Agent and each Bank a copy of its
then operative credit policy manual and a copy of its then operative operating
manual and thereafter shall notify the Agent and each Bank of any and all
material changes to such manuals from that most recently delivered.
ARTICLE 7. FINANCIAL COVENANTS
Borrower covenants and agrees that, until the Notes, together with
interest and all other Indebtedness of Borrower to the Agent, the Swing Line
Lender or the Banks under this Agreement and the other Loan Documents, are
paid in full and the Aggregate Revolving Credit Commitment, the Swing Line
Commitment and all Term Loan Commitments are terminated, Borrower shall not,
without the prior written consent of the Agent and the Required Banks:
SECTION 7.1. Minimum Tangible Net Worth.
--------------------------
Suffer or permit Tangible Net Worth to be less than (i) $45,000,000 at
any time prior to the Merger becoming effective and (ii) $65,000,000 on the
date the Merger becomes effective and at all times thereafter.
SECTION 7.2. Maximum Liability Ratio.
-----------------------
Suffer or permit the ratio of Total Liabilities to Tangible Net Worth to
be more than 4:1 at any time.
SECTION 7.3. Minimum Net Finance Assets.
--------------------------
Suffer or permit the ratio of Net Finance Assets to Senior Debt to be
less than 1.20:1 at any time.
SECTION 7.4. Minimum Net Income to Interest Expense Ratio.
--------------------------------------------
Suffer or permit the ratio, on a rolling four quarter basis, of (a) Net
Income plus Interest Expense to (b) Interest Expense to be less than 1.35:1.
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ARTICLE 8. NEGATIVE COVENANTS
Borrower covenants and agrees that until the Notes together with interest
and all other Indebtedness of Borrower to the Agent, the Swing Line Lender or
the Banks under this Agreement are paid in full and the Aggregate Revolving
Credit Commitment, the Swing Line Commitment and all Term Loan Commitments are
terminated, Borrower shall not, without the prior written consent of the Agent
and the Required Banks:
SECTION 8.1. Liens.
-----
Create, assume or suffer to exist any Lien upon any of its property or
assets, whether now owned or hereafter acquired; provided, however, that the
foregoing restriction and limitation shall not apply to the following Liens
(the "Permitted Liens"):
(a) Liens created under the Borrower Security Agreement or other
Liens in favor of the Agent or the Banks;
(b) Liens existing on property at the time acquired by Borrower
after the date of the financial statements referred to in Section 4.18 hereof,
provided that such Lien was not incurred, directly or indirectly, in
--------
anticipation or contemplation of such acquisition;
(c) Liens constituting renewals, extensions or refundings of Liens
permitted by clause (b) above, provided that the principal amount of the
Indebtedness secured by any such new Lien does not exceed the principal amount
of the Indebtedness being renewed, extended or refunded at the time of
renewal, extension or refunding thereof and that such new Lien attaches only
to the same property theretofore subject to such earlier Lien;
(d) Liens securing taxes, assessments or governmental charges or
levies, or the claims or demands of materialmen, mechanics, carriers, workmen,
repairmen, warehousemen, landlords and other like Persons, not yet delinquent
or which are being actively contested in good faith by appropriate proceedings
and in respect of which adequate reserves in conformity with GAAP have been
provided on the books of Borrower;
(e) other Liens incidental to the conduct of its business or the
ownership of its property and assets which were
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not incurred in connection with the borrowing of money or the obtaining of
advances or credit, and which do not in the aggregate materially detract from
the value of its property or assets, or materially impair the use thereof in
the operation of its business;
(f) attachment, judgment and other similar Liens arising in
connection with court proceedings, provided that execution or other
enforcement of such Liens is effectively stayed, the claims secured thereby
are being actively contested in good faith by appropriate proceedings and
adequate reserves in conformity with GAAP have been provided on the books of
Borrower;
(g) Liens arising in connection with, and securing the cost of, the
acquisition of Equipment, provided, that such Lien attaches to such Equipment
concurrently with or within 90 days after the acquisition thereof (by
purchase, construction or otherwise), and provided, further, that the
aggregate amount of Indebtedness securing all such Liens shall not at any time
exceed $1,000,000; and
(h) Liens on SBA Collateral securing the SBA Secured Debt, subject
to the terms and conditions of the Intercreditor Agreement.
SECTION 8.2. Indebtedness.
------------
Create, incur, assume or suffer to exist, contingently or otherwise, any
Indebtedness, except:
(a) Indebtedness of Borrower to the Agent, the Swing Line Lender and
the Banks arising hereunder or under any of the other Loan Documents;
(b) Permitted Debt and Subordinated Debt of Borrower;
(c) Intentionally Omitted.
---------------------
(d) Indebtedness secured by Liens described in Section 8.1(b), (c)
or (g) hereof; and
(e) Unsecured current liabilities incurred in the ordinary course of
business and paid within 90 days after the due date thereof (unless diligently
contested in good faith by appropriate proceedings and, if requested by the
Agent,
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reserved against in conformity with GAAP) other than liabilities that are for
money borrowed or are evidenced by bonds, debentures, notes or other similar
instruments.
SECTION 8.3. Limitation on Loans and Investments.
(a) Make, or obligate itself to make, (i) any loan or advance or
Investment that is not a Domestic Loan or a Domestic Investment, or (ii)
without the prior written consent of the Agent and the Required Lenders (which
consent shall not be unreasonably withheld), any Portfolio Purchase.
(b) Make, or obligate itself to make, any loan or advance or
Investment that is not in compliance with the rules and regulations
promulgated by any Governmental Authority to which it is subject, including,
without limitation, the SBI Act and the SBA Regulations promulgated thereunder
and the 1940 Act.
(c) Make, or obligate itself to make, any Loan if, after giving
effect to such Loan, the aggregate outstanding principal amount of all Loans
made to any one Person together with its Affiliates would exceed 20% of
Borrower's Tangible Net Worth plus Subordinated Debt.
(d) Make, or commit to make, or acquire or commit to acquire, any
Commercial Loan to or from any Person if, as a result of such Loan, Borrower's
Commercial Loan concentration in any given industry (determined in accordance
with the Standard Industrial Classification promulgated by the Office of
Management and Budget) would exceed in principal amount 25% of Borrower's
total Loans outstanding.
SECTION 8.4. Limitation on Subsidiaries.
--------------------------
Own, beneficially or of record, or obligate itself to own, beneficially
or of record, directly or indirectly, 50% or more of the Voting Interests of
any corporation the Tangible Net Worth of which constitute more than 5% of the
Tangible Net Worth of Borrower.
SECTION 8.5. Restricted Payments.
-------------------
Make, or obligate itself to make, any Restricted Payment.
SECTION 8.6. Merger, Consolidation, Sale or Transfers Assets.
-----------------------------------------------
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<PAGE>
(a) Sell, discount or otherwise dispose of Loans or any Collateral
if a Default or Event of Default has occurred and is continuing or if the
effect of such sale, discount or disposal would be to put Borrower in
violation of any of the covenants and agreements contained in this Agreement;
(b) Sell or otherwise dispose of an amount of Loans which, in
aggregate principal amount, exceeds 10% of the aggregate principal amount of
all Loans of Borrower then outstanding unless, immediately upon such sale or
disposition, Borrower makes, in accordance with the provisions of Section
2.5(a) hereof, a voluntary prepayment on all then outstanding Revolving Credit
Loans and Term Loans equal to the aggregate principal amount, plus accrued
interest, of the Loans so sold or disposed.
(c) Enter into any transaction of merger or consolidation, or
transfer, sell, assign, lease, or otherwise dispose of all or substantially
all of its properties or assets to any Person, except that the Borrower may
merge or consolidate with any other Person, provided that (A) Borrower shall
be the surviving and continuing corporation, (B) no Default or Event of
Default shall have occurred and be continuing and (C) after giving effect to
such consolidation or merger, Borrower would be Solvent and would have
Tangible Net Worth at least equal to the Tangible Net Worth Borrower had
immediately before such consolidation or merger.
SECTION 8.7. Transfer of Proceeds.
--------------------
Transfer, or commit itself to transfer, any portion of the proceeds of
the Revolving Credit Loans, Swing Line Loans and Term Loans to be made to
Borrower from time to time hereunder to Medallion Financial, except as may be
necessary in order for Borrower to pay and make to Medallion Financial its
normal and customary dividends and distributions; provided that such dividends
or distributions do not cause Borrower to be in violation of any of the
covenants and agreements contained in this Agreement.
SECTION 8.8. Compliance with ERISA.
---------------------
Take any of the following actions or permit any of the following events
to exist if, as a result thereof, Borrower would, or would be likely to, incur
a liability in excess of $50,000; terminate, or permit or suffer any of its
ERISA
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Affiliates to terminate (other than a standard termination, as defined in
Section 4041(b) of Title IV of ERISA, of a Single Employer Plan), any Plans
maintained by Borrower or any of its ERISA Affiliates so as to incur any
liability to the PBGC; permit or suffer to exist any Prohibited Transaction
involving any of such Plans or any trust created thereunder which would
subject Borrower to a tax, liability or penalty on Prohibited Transactions
imposed under Code Section 4975 or ERISA; fail to pay, or permit or suffer any
of its ERISA Affiliates to fail to pay, to any such Plan (including any
multiemployer plan) any contribution which it or such ERISA Affiliate is
obligated to pay under the terms of such Plan; permit any Accumulated Funding
Deficiency, whether or not waived, with respect to any Plan; or permit or
suffer to exist any occurrence of a Reportable Event, or any other event or
condition, which presents a material risk of termination by the PBGC of any
such Plan.
SECTION 8.9. Change in Business.
------------------
Materially change or alter the nature of its business as conducted as of
the Effective Date.
SECTION 8.10. Amendments of Agreements.
------------------------
Consent to any amendment, supplement, or other modification of any of the
terms (including acceleration, covenant, default, subordination, sinking fund,
repayment, interest rate or redemption provisions) contained in, or applicable
to, or any security for, any Permitted Debt or other instrument evidencing or
applicable to Permitted Debt (including, without limitation, the SBA Security
Agreement) if such amendment, supplement, or other modification materially
adversely affects the interests of the Agent, the Documentation Agent, the
Swing Line Lender or any Bank.
SECTION 8.11. Transactions with Affiliates.
----------------------------
Enter into, or cause, suffer, or permit to exist, any material
transactions, including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service, with any Affiliate
on terms that are less favorable to Borrower than those that would be
obtainable at the time from any Person who is not an Affiliate.
SECTION 8.12. Negative Pledges.
----------------
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<PAGE>
Enter into any agreement (excluding this Agreement and the other Loan
Documents) prohibiting the creation or assumption of any Lien upon its
properties, revenues, or assets, whether now owned or hereafter acquired.
SECTION 8.13. Inconsistent Agreements.
-----------------------
Enter into any agreement containing any provisions which would be
violated or breached by any borrowing hereunder or by the performance by
Borrower of its obligations under any of the Loan Documents where the
potential consequences of such violation or breach would have a Material
Adverse Effect.
SECTION 8.14. Capital Expenditures.
--------------------
Expend or commit to expend for itself more than an aggregate of $500,000
in any fiscal year for capital expenditures, for the acquisition of Equipment
or for leasehold improvements.
SECTION 8.15. SBA Collateral.
--------------
(i) At any time allow the aggregate outstanding principal balance of
the SBA Collateral to exceed the Maximum SBA Collateral at such time, or (ii)
update Exhibit H hereto (or Schedule A to the SBA Security Agreement) (a) more
often than monthly (as provided in Section 6.1(c) hereof, or (b) at any time a
Default or an Event of Default shall occur and be continuing or be caused as a
result of updating such Exhibit H (Schedule A).
ARTICLE 9. DEFAULTS AND REMEDIES
SECTION 9.1. Events of Default.
-----------------
If any one or more of the following events (herein called "Events of
Default") shall occur for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body), that is to say:
(a) if default shall be made in the due and punctual payment of the
principal of or interest on any of the Revolving Credit Loans, Swing Line
Loans or Term Loans or any other amounts due and owing to the Agent, the Swing
Line Lender or
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the Banks, when and as the same shall become due and payable and, with respect
to defaults in payment other than payment of principal, such default shall
continue for more than five days;
(b) if default shall be made in the performance or observance of, or
shall occur under, any covenant, agreement or provision contained in Article
VII or Sections 6.9(d), 6.13, 6.14, 8.1, 8.2, 8.5, 8.6, 8.9, 8.10 or 8.12
hereof;
(c) if default shall be made by Borrower in the performance or
observance of, or shall occur under, any other covenant, agreement or
provision of this Agreement (other than Section 6.7 hereof) and such default
shall not have been remedied within 30 days after such failure shall first
have become known to any officer of Borrower;
(d) if default shall be made by Borrower in the performance or
observance of, or shall occur under, any covenant, agreement or provision of
any other Loan Document or in any other agreement, instrument or document
delivered to the Agent, the Documentation Agent, the Swing Line Lender or the
Banks and such default shall not have been remedied within such grace or cure
period, if any, as may be provided therefor;
(e) Intentionally Omitted.
---------------------
(f) if Borrower shall (i) default in the payment of any principal,
interest or premium with respect to any Indebtedness for borrowed money or any
obligation which is the substantive equivalent thereof in excess of $50,000,
other than Indebtedness under the Revolving Credit Loans, the Swing Line
Loans, or the Term Loans, and such default shall continue for more than the
period of grace, if any, therein specified or (ii) default in the performance
or observance of any other term, condition or agreement contained in any such
obligation or in any agreement relating thereto if the effect thereof is to
cause, or permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become due
prior to its stated maturity;
(g) if any representation or warranty or any other statement of fact
herein or in the other Loan Documents, or in connection with the transactions
contemplated hereby or thereby, or in any writing, certificate, report or
statement at any time furnished by Borrower to the Agent, the Documentation
Agent, the Swing Line Lender or any Bank pursuant to or in connection with
this Agreement or the other Loan Documents
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shall prove to have been false or misleading in any material respect when
made;
(h) if Borrower shall file a petition or seek relief under or take
advantage of any insolvency law; make an assignment for the benefit of its
creditors; commence a proceeding for the appointment of a receiver, trustee,
liquidator, custodian or conservator of itself or of the whole or
substantially all of its property; file a petition or an answer to a petition
under any chapter of the United States Bankruptcy Code, as amended (11 U.S.C.
(S) 101 et seq.), or file a petition or seek relief under or take advantage of
any other similar law or statute of the United States of America, any state
thereof or any foreign country;
(i) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing or authorizing a receiver, trustee, liquidator,
custodian or conservator of Borrower or of the whole or substantially all of
its property, or enter an order for relief against Borrower in any case
commenced under any chapter of the United States Bankruptcy Code, as amended,
or grant relief under any other similar law or statute of the United States of
America, any state thereof or any foreign country; or if, under the provisions
of any law for the relief or aid of debtors, a court of competent jurisdiction
or a receiver, trustee, liquidator, custodian or conservator shall assume
custody or control or take possession of Borrower or of the whole or
substantially all of its property; or if there is commenced against Borrower
any proceeding for any of the foregoing relief or if a petition is filed
against Borrower under any chapter of the United States Bankruptcy Code, as
amended, or under any other similar law or statute of the United States of
America or any state thereof or any foreign country and such proceeding or
petition remains undismissed for a period of 60 days; or if Borrower by any
act indicates its consent to, approval of or acquiescence in any such
proceeding or petition;
(j) if any judgment or judgments against Borrower or any attachment
or execution against any of its property for any amount or amounts in excess
of $50,000 in the aggregate remains unpaid, unstayed, undismissed or unbonded
for a period of more than 30 days;
(k) (i) any Person shall engage in any Prohibited Transaction
involving any Plan, (ii) any Accumulated Funding Deficiency, whether or not
waived, shall exist with respect to
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any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings
shall commence to have a trustee appointed, or a trustee shall be appointed,
to administer or to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Banks likely to result in the termination
of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan
shall terminate for purposes of Title IV of ERISA (other than a standard
termination as defined in Section 4041(b) thereof), (v) Borrower or any of its
ERISA Affiliates shall, or is, in the reasonable opinion of the Agent or the
Required Banks, likely to, incur any liability in connection with a withdrawal
from, or the insolvency or reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan; and in
case in clauses (i) through (vi) above, such event or condition, together with
all other such events or conditions, if any, could subject Borrower to any
tax, penalty or other liabilities in the aggregate material in relation to the
business, operations, property or financial or other condition of Borrower;
(1) if there shall occur any change in the Collateral or in the
business of Borrower, or its operation, conduct or prospects thereof, that
individually or in the aggregate, could have or result in a Material Adverse
Effect; or
(m) if there shall occur a Change of Control;
then, in the case of an Event of Default described in clause (h) or (i) above,
the Aggregate Revolving Credit Commitment, the Swing Line Commitment, and each
Term Loan Commitment shall automatically terminate and (i) the unpaid balance
of the Revolving Credit Notes, the Swing Line Note, the Term Notes and all
interest accrued thereon, and (ii) any accrued and unpaid fees and expenses
due and payable hereunder or under any other Loan Document shall automatically
(without any action on the part of the Agent or the Banks and without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived) forthwith become due and payable, and, in the case of any
other Event of Default, then and in any such event, and at any time
thereafter, if such or any other Event of Default shall then be continuing the
following action may be taken: the Agent may (but shall not be obligated to,
and upon the direction of the Required Banks shall, declare (i) the Aggregate
Revolving Credit Commitment, the Swing Line
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Commitment and all Term Loan Commitments to be terminated, whereupon the
obligation of the Agent the Banks and the Swing Line Lender to make further
Revolving Credit Loans or Term Loans or Swing Line Loans, as the case may be,
hereunder shall terminate immediately and (ii) the Revolving Credit Notes,
Swing Line Note and Term Notes to be due and payable, whereupon the maturity
of the then unpaid balance of the Revolving Credit Notes, Swing Line Note and
Term Notes shall be accelerated and the same, and all interest accrued thereon
and any accrued and unpaid fees and expenses due and payable hereunder, shall
forthwith become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything
contained herein or in Revolving Credit Notes, Swing Line Note or Term Notes
to the contrary notwithstanding.
SECTION 9.2. Suits for Enforcement.
---------------------
In case any one or more Events of Default shall occur and be continuing,
the Agent may (but shall not be obligated to), and at the request of the
Required Banks shall, proceed to protect and enforce the rights or remedies of
the Agent, the Documentation Agent, the Swing Line Lender and the Banks either
by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein, in
the other Loan Documents, or in any document or instrument delivered in
connection with or pursuant to this Agreement or the other Loan Documents or
to enforce the payment of the Notes or any other legal or equitable right or
remedy.
SECTION 9.3. Rights and Remedies Cumulative.
------------------------------
No right or remedy herein conferred upon the Banks, the Swing Line
Lender, the Documentation Agent, or the Agent is intended to be exclusive of
any other right or remedy contained herein or in the other Loan Documents or
in any instrument or document delivered in connection with or pursuant to this
Agreement or the other Loan Documents, and every such right or remedy shall be
cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity
or by statute, or otherwise.
SECTION 9.4. Rights and Remedies Not Waived.
------------------------------
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No course of dealing between Borrower and any of the Banks, the Swing
Line Lender, the Documentation Agent or the Agent or any failure or delay on
the part of any Bank, the Swing Line Lender or the Agent in exercising any
rights or remedies hereunder shall operate as a waiver of any rights or
remedies of such or any other Bank, the Swing Line Lender, the Documentation
Agent or the Agent and no single or partial exercise of any rights or remedies
hereunder shall operate as a waiver or preclude the exercise of any other
rights or remedies hereunder.
SECTION 9.5. Further Payments.
----------------
In the event that the Revolving Credit Commitments, the Swing Line
Commitment and the Term Loan Commitments shall have been terminated or the
Revolving Credit Loans, Swing Line Loans and the Term Loans and all other
amounts owing under the Loan Documents shall have been declared due and
payable pursuant to the provisions of this Section, any funds received by the
Agent, the Swing Line Lender and the Banks from or on behalf of the Borrower
shall be remitted to, and applied by, the Agent in the following manner and
order: (a) first, to the payment of interest on, and then the principal
portion of, any Revolving Credit Loans or Term Loans which the Agent may have
advanced on behalf of any Bank for which the Agent has not then been
reimbursed by such Bank or the Borrower; (b) second, to reimburse the Agent,
the Documentation Agent and the Swing Line Lender for any expenses due from
the Borrower pursuant to the provisions of Section 10.6, (c) third, to the
payment of the outstanding principal amount of the Swing Line Loans (together
with all interest thereon), (d) fourth, to the payment of the Fees, (e) fifth,
to the payment of any other fees, expenses or amounts (other than the
principal of and interest on the Revolving Credit Loans, Swing Line Loans or
Term Loans) payable by the Borrower to the Agent, the Documentation Agent, the
Swing Line Lender or any of the Banks under the Loan Documents, (f) sixth, to
the payment, pro rata according to the Exposure Percentage of each Bank, of
interest due on the Revolving Credit Loans and Term Loans, (g) seventh, to the
payment, pro rata according to Exposure Percentage of each Bank, of principal
on the Revolving Credit Loans and Term Loans, of such principal, (h) eighth,
any remaining funds shall be paid to whomsoever shall be entitled thereto or
as a court of competent jurisdiction shall direct.
ARTICLE 10. MISCELLANEOUS
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SECTION 10.1. Collection Costs.
----------------
In the event that the Banks, the Swing Line Lender, the Agent or the
Documentation Agent or any of them shall retain or engage an attorney or
attorneys to collect or enforce or protect its interests with respect to this
Agreement, any of the other Loan Documents, or any instrument or document
delivered pursuant to this Agreement or the other Loan Documents, including,
without limitation, each of the documents referred to in Section 5.1 hereof,
or to protect the rights of any holder or holders with respect thereto,
Borrower shall pay, within 10 days after demand therefor, all of the costs and
expenses of such collection, enforcement or protection, including reasonable
attorneys' fees actually incurred and disbursements, and the Agent on behalf
of such Banks, the Agent on behalf of the Swing Line Lender, the Swing Line
Lender, the Agent or the Documentation Agent or the holders of such Notes, as
the case may be, may take judgment for all such amounts, in addition to the
unpaid principal balance of the Notes and accrued interest thereon and any
accrued and unpaid fees and expenses due and payable hereunder.
SECTION 10.2. Modification and Waiver.
-----------------------
With the written consent of the Required Lenders, the Agent and the
Borrower may, from time to time, enter into written amendments, supplements or
modifications of the Loan Documents and, with the consent of the Required
Lenders, the Agent on behalf of the Banks and the Swing Line Lender may
execute and deliver to the Borrower a written instrument waiving or a consent
to a departure from, on such terms and conditions as the Agent may specify in
such instrument, any of the requirements of the Loan Documents or any Default
and its consequences; provided, however, that:
-------- -------
(a) no such amendment, supplement, modification, waiver or consent
shall, without the consent of all of the Banks, (i) increase the Revolving
Credit Commitment or Term Loan Commitment of any Bank or the Aggregate
Revolving Credit Commitment or the Adjusted Aggregate Revolving Credit
Commitment, (ii) decrease the rate, or extend the time of payment, of interest
of, or change or forgive the principal amount or extend the time of payment
of, any Revolving Credit Loan or Term Loan, or decrease the rate, or extend
the time of payment, of the Commitment Fee, (iii) change the provisions of
Sections 3.3, 9.1, this 10.2, or 10.9, change the definition of "Eligible
Loan," "Required Banks," "Event of Default,"
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"Prime Rate," "Adjusted LIBO Rate" "Minimum Asset Coverage" "Revolving Credit
Commitment Periods," "Revolving Credit Loans," "Term Loans," "Term Loan
Commitment" and all defined terms included in such definitions, (iv) change
any of the provisions of Article II (other than Sections 2.8(e) and 2.14
thereof) or Article III hereof, or (v) change the Borrower Security Agreement,
change the Intercreditor Agreement (in any material respect), or release all
or substantially all of the Collateral, or (vi) change any provision hereof
which expressly requires the consent, approval or waiver by all Banks;
(b) without the written consent of the Agent, or the Documentation
Agent, as applicable, no such amendment, supplement, modification or waiver
shall amend, modify or waive any provision of Article 11 or otherwise change
any of the rights or obligations of the Agent or the Documentation Agent
hereunder or under the Loan Documents;
(c) without the written consent of the Swing Line Lender, no such
amendment, supplement, modification or waiver shall change the Swing Line
Commitment or change any other term or provision that relates to the Swing
Line Commitment or the Swing Line Loans; and
(d) none of the following shall require the consent, authorization
or approval of Borrower: (i) amendment or modification of any agreement to
which Borrower is not a party, and (ii) with respect to the agency
relationship between the Agent and the Banks, Article XI (other than Section
11.4) hereof.
Any such amendment, supplement, modification or waiver shall apply equally to
the Agent, the Documentation Agent, the Swing Line Lender, and each of the
Banks and shall be binding upon the parties to the applicable Loan Document,
the Banks, the Swing Line Lender, Agent, the Documentation Agent and all
future holders of the Revolving Credit Loans, Term Loans and/or Swing Line
Loans. In the case of any waiver, the parties to the applicable Loan
Document, the Banks, the Swing Line Lender, the Documentation Agent and the
Agent shall be restored to their former position and rights hereunder and
under the Loan Documents to the extent provided for in such waiver, and any
Default waived shall not extend to any subsequent or other Default, or impair
any right consequent thereon. The Loan Documents may not be amended orally or
by any course of conduct. No notice to or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar or
other circumstances.
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SECTION 10.3. GOVERNING LAW.
-------------
THIS AGREEMENT, THE REVOLVING CREDIT NOTES, THE SWING LINE NOTE AND THE
TERM NOTES AND THE RIGHTS AND DUTIES OF THE PARTIES THEREUNDER AND WITH
RESPECT TO INTEREST, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION ARE
MANDATORILY APPLICABLE TO THE EXERCISE OF REMEDIES OR THE PERFECTION OF
SECURITY INTERESTS UNDER THE UCC.
SECTION 10.4. Notices.
-------
All notices, requests, consents, demands or other communications provided
for herein shall be in writing and shall be deemed to have been given (i) five
Business Days after the date mailed if sent by registered or certified mail,
postage prepaid, return receipt requested, or (ii) on the day of delivery if
personally delivered or sent by overnight courier service, or (iii) on the day
of transmission if sent by telecopier and confirmed, on the same day as such
notice is sent, by telephonic notice or by one of the other two methods listed
above, and shall be addressed, as the case may be, as follows: to the Agent at
its address set forth on Exhibit A, with a copy to Emmet, Marvin & Martin, 120
---------
Broadway, New York, New York 10271 (Attention: Richard M. Skoller, Esq.),
Telecopier No. (212) 212-238-3100, and to any Bank at its address specified
for such Bank on Exhibit A; and to Borrower at Medallion Funding Corp., 437
---------
Madison Avenue, 38th Floor, New York, New York 10022 (Attention: Daniel Baker,
Treasurer and Chief Financial Officer), Telecopier No. (212) 328-2121, with a
copy to Palmer & Dodge LLP, One Beacon Street, Boston, Massachusetts 02108,
(Attention: John L. Whitlock, Esq.), Telecopier No. (617) 227-4420, or to such
other person or address as either party shall designate to the other from time
to time in writing forwarded in like manner.
SECTION 10.5. Accounting Terms.
----------------
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP, consistently applied. Where any accounting
determination or calculation is required to be made under this Agreement, such
determination or calculation (unless otherwise provided) will be made in
accordance with GAAP, consistently applied except that if because of a change
in GAAP, Borrower would have to alter a previously utilized accounting method
or policy in order to
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remain in compliance with GAAP, such determination or calculation will
continue to be made in accordance with Borrower's previous accounting methods
or policy. Unless otherwise specified herein all financial statements required
to be delivered hereunder, shall be prepared and all financial records shall
be maintained in accordance with GAAP.
SECTION 10.6. Costs and Expenses; Indemnity.
-----------------------------
(a) Borrower agrees to pay on demand all reasonable out-of-pocket
costs and expenses incurred by the Banks, the Swing Line Lender, the Agent and
the Documentation Agent in connection with the preparation, administration,
filing and recording of any amendments, waivers or consents which may be
requested by Borrower, all out-of-pocket costs and expenses, if any, in
connection with the preparation, administration and enforcement (whether in
the context of a civil action, adversary proceeding, workout or otherwise) of
this Agreement, the other Loan Documents, and such other instruments and
documents, including, without limitation, reasonable attorneys' fees actually
incurred, audit charges, appraisal fees, search fees and filing fees and all
out-of-pocket costs and expenses (including, without limitation, reasonable
attorneys' fees) of the Agent in connection with its duties as Agent under
this Agreement, the Borrower Security Agreement and the other Loan Documents.
Borrower also agrees to pay on demand all reasonable attorneys' fees actually
incurred, and any expenses, costs and charges relating thereto of the Agent if
at any time or times hereafter the Agent employs counsel for advice with
respect to this Agreement or the other Loan Documents, or to intervene, file a
petition, answer, motion or other pleading in any suit or proceeding relating
to this Agreement or any other Loan Document (including, without limitation,
the interpretation or administration, or the amendment, waiver or consent with
respect to any term, of this Agreement or the other Loan Documents) or to
represent the Agent in any pending or threatened litigation with respect to
the affairs of Borrower in any way relating to any the Borrower's obligations
hereunder or to enforce any rights of the Agent, the Documentation Agent or
any Bank or the Swing Line Lender or liabilities of Borrower, any Person to
whom Borrower has made a Loan, or any Person which may be obligated to the
Agent or the Banks or the Swing Line Lender by virtue of this Agreement or any
other Loan Document, instrument or document now or hereafter delivered to the
Agent, the Documentation Agent or any Bank or the Swing Line Lender by or for
the benefit of Borrower. Borrower agrees to be responsible for payment of the
amounts referred to in this Section 10.6 whether or not any
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Revolving Credit Loans, Swing Line Loans or Term Loans are made hereunder.
(b) Borrower further agrees to indemnify and save harmless each
Bank, the Swing Line Lender, the Agent and the Documentation Agent and each of
their respective officers, directors, employees, agents and Affiliates (each
an "Indemnified Party" and collectively the "Indemnified Parties") from and
against any and all actions, causes of action, suits, losses, liabilities and
damages and expenses (including, without limitation, reasonable attorney's
fees actually incurred) in connection therewith (herein called the
"Indemnified Liabilities") incurred by any Indemnified Party as a result of,
or arising out of or relating to any of the transactions contemplated hereby
or by the other Loan Documents, except for any Indemnified Liabilities arising
on account of the gross negligence or willful misconduct of the Indemnified
Party seeking indemnity under this Section 10.6(b); provided, however, that,
-------- -------
if and to the extent such agreement to indemnify may be unenforceable for any
reason, Borrower shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which shall be permissible
under applicable law. The agreements in this Section 10.6 shall survive the
payment of the Revolving Credit Notes, the Swing Line Note and the Term Notes
and related obligations and the termination of the Revolving Credit
Commitment, Swing Line Commitment and Term Loan Commitment.
SECTION 10.7. WAIVER OF JURY TRIAL AND SETOFF.
-------------------------------
EACH OF BORROWER, THE AGENT, THE DOCUMENTATION AGENT, THE SWING LINE
LENDER AND THE BANKS HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY
COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR
DISPUTE, HOWSOEVER ARISING, BETWEEN BORROWER AND ANY OF THE BANKS, THE
DOCUMENTATION AGENT, THE SWING LINE LENDER OR THE AGENT, BETWEEN ANY BANKS,
AND BETWEEN THE AGENT AND/OR THE DOCUMENTATION AGENT AND ANY BANKS; AND
BORROWER HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF, COUNTERCLAIM OR
CROSS-CLAIM IN CONNECTION WITH ANY SUCH LITIGATION, IRRESPECTIVE OF THE NATURE
OF SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM (UNLESS SUCH SETOFF, COUNTERCLAIM
OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL
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OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER
ACTION).
SECTION 10.8. Captions.
--------
The captions of the various sections and paragraphs of this Agreement
have been inserted only for the purpose of convenience; such captions are not
a part of this Agreement and shall not be deemed in any manner to modify,
explain, enlarge or restrict any of the provisions of this Agreement.
SECTION 10.9. Lien; Setoff by Banks.
---------------------
(a) Borrower hereby grants to the Agent, the Swing Line Lender and
the Banks a continuing lien for its respective Indebtedness to the Agent, the
Swing Line Lender and the Banks upon any and all monies, securities and other
property of Borrower and the proceeds thereof, now or hereafter held or
received by or in transit to, the Agent, the Swing Line Lender or any of the
Banks from or for Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and also upon any and all deposits
(general or special) and credits of Borrower with, and any and all claims of
Borrower against the Swing Line Lender or the Banks, at any time existing.
Upon the occurrence of any Event of Default, the Agent, the Swing Line Lender
and the Banks are hereby authorized at any time and from time to time, without
notice to Borrower, to setoff, appropriate and apply any or all items
hereinabove referred to against all Indebtedness of Borrower to the Agent, the
Swing Line Lender and the Banks, whether under this Agreement, the Revolving
Credit Notes, the Term Notes, the Swing Line Note or otherwise, and whether
now existing or hereafter arising. The Agent, the Swing Line Lender and each
Bank agree promptly to notify Borrower after any such set-off and application
is made by such Bank or Swing Line Lender, as the case may be, provided, that,
-------- ----
the failure to give such notice shall not affect the validity of such setoff
and application.
(b) Each holder of a Note agrees that if it shall, through the
exercise of a right of banker's lien, setoff, counterclaim or otherwise,
obtain payment with respect to any Note which results in its receiving more
than its pro rata share of the aggregate payments or reductions of all Notes
--------
(based on such holder's Exposure Percentage), it shall forthwith purchase from
such other holders a participation in all of the Notes held by such other
holders so that the amount
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of all unpaid Notes and participations therein held by all holders shall be
pro rata (based on each holder's Exposure Percentage).
--------
(c) Borrower expressly consents to the foregoing arrangements in
Section lO.9(b) and agrees that any holder of a participation in a Note so
acquired may exercise any and ail rights of banker's lien, setoff,
counterclaim or otherwise with respect to any and all monies owing by such
holder to Borrower as fully as if such holder were a holder of a Note in the
amount of such participation. If all or any portion of any such excess payment
is thereafter recovered from the holder which received the same, the purchase
provided for in Section lO.9(b) shall be rescinded to the extent of such
recovery, without interest.
(d) Each Bank and the Swing Line Lender agrees that if and to the
extent that any amount received by the Agent, the Swing Line Lender or any
Bank from Borrower or any other obligor or from the Collateral is subsequently
invalidated, declared to be fraudulent or preferential, set aside or
judicially required to be repaid to a trustee, receiver or any other person
under any applicable creditors' remedy proceeding, including without
limitation any bankruptcy proceeding, the other Banks hereto shall purchase
from the Bank or Swing Line Lender from which said amount is recovered an
additional participation in such amount equal to such Bank's Exposure
Percentage of that amount. The amount invalidated, declared to be fraudulent
or preferential, set aside or judicially required to be repaid to a trustee,
receiver or any other person under any applicable creditors' remedy proceeding
shall be deemed to be an amount immediately due and owing from Borrower.
SECTION 10.10. Security.
--------
As Security for the payment of any and all sums owing under the Notes and
all other obligations of Borrower (i) hereunder and the other Loan Documents
and (ii) under the CP Debt, Borrower shall execute and deliver to the Agent,
the Banks, the Swing Line Lender and the CP Holders, on the Effective Date,
the Borrower Security Agreement and grant to the Agent, on behalf of the
Banks, the Swing Line Lender and the CP Holders, a security interest in all of
its interests in the Collateral and Underlying Collateral and cause to be
properly filed in all pertinent jurisdictions the Borrower Financing
Statements. The security interest in such Collateral shall be subject to the
terms and conditions of the
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Intercreditor Agreement, which by their signature below, each Bank and the
Swing Line Lender consent to the Agent entering into.
SECTION 10.11. Jurisdiction; Service of Process.
--------------------------------
Borrower hereby irrevocably consents to the non-exclusive jurisdiction of
the courts of the State of New York, County of New York and of any Federal
Court located in the Southern District of New York, and agrees that venue in
each of such Courts is proper, in connection with any action or proceeding
arising out of or relating to this Agreement, the other Loan Documents, or any
document or instrument delivered pursuant to this Agreement or the other Loan
Documents. In any such action or proceeding, Borrower waives personal service
of any summons, complaint or other process and agrees that the service thereof
may be made by certified or registered mail directed to Borrower at its
address set forth in Section 10.4 hereof. Nothing herein shall affect the
right of the Agent, the Documentation Agent, the Swing Line Lender or any Bank
to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against Borrower in any other jurisdiction.
SECTION 10.12. Benefit of Agreement.
--------------------
This Agreement shall be binding upon and inure to the benefit of
Borrower, the Agent, the Documentation Agent, the Swing Line Lender and the
Banks and their respective successors and assigns, and all subsequent holders
of the Notes except that the obligation of the Banks to make Revolving Credit
Loans or Term Loans hereunder and the obligation of the Swing Line Lender to
make any Swing Line Loan hereunder shall not inure to the benefit of any
successors or assigns of Borrower.
SECTION 10.13. Counterparts.
------------
This Agreement may be executed by the parties hereto individually or in
any combination, in one or more counterparts, each of which shall be an
original and all of which shall together constitute one and the same
agreement.
SECTION 10.14. Interest.
--------
(a) Usury Limitation. It is the intention of the parties hereto to
----------------
conform strictly to the usury laws now in force in the appropriate controlling
jurisdiction. Accordingly,
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if the transactions contemplated hereby would be usurious, under any
controlling law, then, in that event, notwithstanding anything to the contrary
in this Agreement, the Notes or any other instrument or agreement entered into
in connection therewith, it is agreed as follows: (i) the aggregate of all
charges which constitute interest under the laws of the controlling
jurisdiction that are contracted for, chargeable or receivable under this
Agreement or under any of the other aforesaid instruments or agreements or
otherwise in connection with the Notes ("Interest") shall under no
circumstances exceed the maximum amount of interest permitted by law (the
"Maximum Amount"), and any Interest in excess of the Maximum Amount shall be
cancelled automatically and shall not be payable under this Agreement, the
Notes or the aforesaid instruments or agreements and, if theretofore paid,
shall be either refunded to Borrower or credited ratably on the principal of
the Notes; and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the Required Banks resulting from any Event of
Default under this Agreement or otherwise, or in the event of any voluntary or
mandatory prepayment by Borrower permitted or required by this Agreement, the
Notes or any of the other aforesaid instruments or agreements, then Interest
may never include more than the Maximum Amount, and excess Interest, if any,
shall be cancelled automatically as of the date of such acceleration or
prepayment, and if theretofore paid, shall be either refunded to Borrower or
credited ratably on the principal of the Notes; provided, that, nothing
contained in this Section 10.14 shall be deemed to imply that the laws of any
State other than the State of New York shall govern this Agreement or the
Notes.
(b) Recapture. If, at any time, Interest would exceed the Maximum
---------
Amount but for the foregoing limitation, Interest shall remain at the Maximum
Amount, notwithstanding any subsequent reduction of Interest, until the total
amount of Interest equals the amount of Interest which would have accrued if
Interest had not been limited to the Maximum Amount, but nothing in this
paragraph shall affect or extend the maturity of any of the Notes. If, at
maturity or final payment of any of the Notes, the total amount of Interest
paid is less than the total amount of Interest which would have accrued had
Interest not been limited to the Maximum Amount, Borrower agrees, to the full
extent permitted by law, to pay to the Agent for the ratable benefit of the
Banks and the Swing Line Lender, as the case may be, an amount equal to the
positive difference, if any, derived by subtracting (x) the amount of Interest
which accrued on the Notes pursuant to the provisions
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of the foregoing two paragraphs from (y) the lesser of (i) the amount of
Interest which would have accrued on such Notes if the Maximum Amount had at
all times been in effect, and (ii) the amount of Interest which would have
accrued if Interest on such Notes, not limited to the Maximum Amount, had at
all times been in effect.
SECTION 10.15. Attorneys' Fees.
---------------
As used in this Agreement, "attorneys' fees" shall include, without
limitation, all reasonable fees of counsel (including, without limitation,
those incurred on appeals) actually incurred arising from such services and
all reasonably incurred expenses, costs, charges and other fees of such
counsel, and all such fees shall constitute Indebtedness of Borrower to the
Agent, the Documentation Agent, the Swing Line Lender and the Banks under this
Agreement. Without limiting the generality of the foregoing, such expenses,
costs, charges and fees may include: paralegal fees, costs and expenses;
accountants' fees, costs and expenses; court costs and expenses; photocopying
and duplicating expenses; long distance telephone charges; air express and
courier charges; telegram charges; secretarial overtime charges; and, expenses
for travel, lodging and food paid or incurred in connection with the
performance of such legal services.
SECTION 10.16. Severability.
------------
Any provision of this Agreement prohibited by the laws of any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, or modified to conform with such laws, without invalidating
the remaining provisions of this Agreement, and any such prohibition in any
jurisdiction shall not invalidate such provisions in any other jurisdiction.
SECTION 10.17. Confidentiality.
---------------
The Agent, the Documentation Agent, the Swing Line Lender and each Bank
are hereby authorized to deliver a copy of any financial statement or any
other information relating to the business, operations or financial condition
of Borrower which may be furnished to it hereunder or otherwise, to any
regulatory body or agency having jurisdiction over the Agent, the
Documentation Agent, the Swing Line Lender or such Bank or to any Person which
shall, or shall have any right or obligation to, succeed to all or any part of
the interest of the Agent, the Documentation Agent, the Swing Line Lender or
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such Bank in, this Agreement, the other Loan Documents and any security herein
or therein provided for or otherwise securing the Notes. Except as provided
above, the Agent, the Documentation Agent, the Swing Line Lender and the Banks
agree that from the date hereof, they will not, without the prior written
consent of Borrower, submit or disclose to or file with any Person other than
the Agent, the Documentation Agent, the Swing Line Lender or a Bank or any of
its or such Bank's Affiliates or a Person that may become a Bank, or such
Person's Affiliates, any confidential or non-public information relating to
Borrower, except where disclosure may be required by law.
SECTION 10.18. Loss, Theft, Etc. of Notes.
--------------------------
Upon receipt by Borrower of (i) an affidavit of an authorized officer of
any Bank or the Swing Line Lender setting forth the fact of loss, theft or
destruction of any Note and of its ownership of the Note at the time of such
loss, theft or destruction or (ii) a mutilated Note, such affidavit or
mutilated Note shall be accepted as satisfactory evidence thereof and no
further indemnity shall be required as a condition to the execution and
delivery of a new Note of like tenor in lieu of such lost, stolen, destroyed
or mutilated Note without expense to the holder thereof, provided that such
Bank, or the Swing Line Lender, as the case may be, agrees in writing to
indemnify Borrower from all expenses, claims and liabilities (including
without limitation, reasonable attorneys' fees actually incurred) in the
defense of any such claims resulting from the loss, theft, destruction or
mutilation of the old Note and the execution and delivery of the new Note.
ARTICLE 11. AGENCY
Borrower, the Banks and the Swing Line Lender agree with the Agent and
the Documentation Agent as follows:
SECTION 11.1. Appointment and Actions.
-----------------------
(a) Each Bank and the Swing Line Lender hereby irrevocably
designates and appoints Fleet Bank, National Association as the Administrative
Agent and Collateral Agent of such Bank and the Swing Line Lender under the
Loan Documents (including any additional documents referred to therein as
"Loan Documents"), and each such Bank and the Swing Line Lender hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions hereof and thereof and to
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exercise such powers and perform such duties as are expressly delegated to the
Agent by the terms hereof and thereof together with such other powers as are
reasonably incidental thereto. The Agent shall hold the security pledged under
the Borrower Security Agreement in accordance with the terms thereof.
Notwithstanding any provision to the contrary in this Agreement or any of the
other Loan Documents, the Agent shall not have any duties or responsibilities
except those expressly set forth herein or therein, nor any fiduciary
relationship with any Bank or the Swing Line Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Agent.
(b) The Agent may execute any of its duties by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it
with reasonable care.
(c) Neither the Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such person under or in
connection with any of the Loan Documents (except for its or such person's own
gross negligence or willful misconduct), or (ii) responsible in any manner to
any Bank or the Swing Line Lender or Participant for any recitals, statements,
representations or warranties made by Borrower contained herein or in any
certificate, report, statement or other document referred to or provided for
in, or received by the Agent under or in connection with any of the Loan
Documents, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any of the Loan Documents or for any failure
of Borrower to perform its obligations under any of the Loan Documents. The
Agent shall not be under any obligation to any Bank to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of any of the Loan Documents, or to inspect the properties, books
or records of Borrower.
(d) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed
by it to be genuine
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and correct and to have been signed, sent or made by the proper person or
persons and upon advice and statements of legal counsel (including, without
limitation, counsel to Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as
the owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent.
(e) The Agent shall be fully justified in failing or refusing to
take any action under any of the Loan Documents unless it shall first receive
such advice or concurrence of the Banks as it deems appropriate or as required
by the specific terms of this Agreement or it shall first be indemnified to
its satisfaction by the Banks against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under any of the Loan Documents in accordance with a
request of the Required Banks (or all Banks if specifically required by the
terms of this Agreement), and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Banks, the Swing Line
Lender and all future holders of the Notes and all Participants.
(f) The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default or any default under any
document, agreement or instrument delivered in connection therewith, unless
the Agent shall have actual knowledge thereof or shall have received notice
from any Bank or Borrower, describing such event, act or condition, Default or
Event of Default and stating that such notice is a "notice of default." In the
event that the Agent has such actual knowledge or receives such a notice, the
Agent shall give notice thereof to the Swing Line Lender and the Banks. The
Agent shall take such action with respect to such event, act or condition or
Default or Event of Default as shall be reasonably directed by the Required
Banks (or all Banks if specifically required by the terms of this Agreement)
in writing; provided, that, unless and until the Agent shall have received
-------- ----
such directions, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such event, act or
condition, Default or Event of Default as it shall deem advisable in the best
interests of the Banks and the Swing Line Lender.
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(g) Until such time as the Agent shall have been notified in writing
duly executed on behalf of any Bank by an officer thereof duly authorized to
take such action, that such Bank has sold all or a portion of the Revolving
Credit Loans or the Term Loans made by, or Revolving Credit Commitment or Term
Loan Commitment of, such Bank, the Agent may treat such Bank as the owner or
holder of such Bank's share of the Revolving Credit Loans or Aggregate
Revolving Credit Commitment, or of such Bank's Term Loan or Term Loan
Commitment, as applicable, in accordance with the percentages thereof advanced
by such Bank. The foregoing shall also apply to the Swing Line Lender with
respect to the Swing Line Loans and the Swing Line Commitment.
(h) The Bank of New York shall act as the Documentation Agent under
this Agreement and the provisions of Sections 11.3 and 11.4 shall also apply
to the Documentation Agent with respect thereto. The Documentation Agent
shall have no responsibility, duties or obligations under this Agreement or
any other Loan Document. Furthermore, at any time or times, in order to
comply with any legal requirement in any jurisdiction, the Agent may appoint
another bank or trust company or one or more other Persons, either to act as
co-agent or co-agents, jointly with the Agent, or to act as separate agent or
agents on behalf of the Banks with such power and authority as may be
necessary for the effectual operation of the provisions hereof and may be
specified in the instrument of appointment (which may, in the discretion of
the Agent, include provisions for the protection of such co-agent or separate
agent similar to the provisions of this Article XI).
(i) It is understood by all of the parties to this Agreement that
the Agent is acting simultaneously in its capacity as Agent for the Banks and
the CP Holders under this Agreement and the Borrower Security Agreement and as
Agent for the SBA under the SBA Security Agreement; and accordingly the Agent
shall not be liable to any Bank, the Swing Line Lender, any CP Holder, any
Paying Agent, the Borrower or the SBA (or their successors and assigns) in
connection with or any way directly or indirectly related to its acting in
such dual capacity (except for the Agent's own gross negligence or willfull
misconduct) and each of the Banks hereby consents thereto. All references to
the Agent herein shall be construed in accordance with the foregoing so long
as the SBA Security Agreement shall remain in full force and effect and as
long as the Borrower Security Agreement secures any CP Debt. Furthermore,
each Bank expressly (i) consents to the Agent's,
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on behalf of such Bank, entering into the Borrower Security Agreement and the
Intercreditor Agreement, provided such documents are substantially similar to
the form of the respective document attached as an Exhibit hereto; provided,
--------
that, the Intercreditor Agreement shall not be effective unless and until the
----
Merger is effective and (ii) agrees that to the extent either the Borrower
Security Agreement or the Intercreditor Agreement expressly imposes any
obligation on any Bank it shall comply with each such obligation.
SECTION 11.2. Independent Credit Decisions.
----------------------------
Each Bank and the Swing Line Lender expressly acknowledges that neither
the Agent nor the Documentation Agent nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent or the
Documentation Agent hereinafter taken, including any review of the affairs of
Borrower shall be deemed to constitute any representation or warranty by the
Agent or the Documentation Agent to any Bank or the Swing Line Lender. Each
Bank and the Swing Line Lender represents to the Agent that it has,
independently and without reliance upon the Agent or the Documentation Agent,
or the Swing Line Lender, or the other Banks, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of Borrower and made its own decision to enter
into this Agreement. Each Bank and the Swing Line Lender also represents that
it will, independently and without reliance upon the Agent, the Documentation
Agent, the Swing Line Lender, or the other Banks, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
hereunder, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Banks and/or the Swing
Line Lender by the Agent hereunder, neither the Agent nor the Documentation
Agent shall have any duty or responsibility to provide any Bank or the Swing
Line Lender with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of
Borrower which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates,
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<PAGE>
provided that the Agent shall supply the Banks and the Swing Line Lender with
a copy of any financial audit of Borrower actually received by the Agent.
SECTION 11.3. Indemnification of Agent.
------------------------
Each Bank jointly and severally agrees to indemnify Fleet in its capacity
as Agent (to the extent not reimbursed by Borrower), ratably according to its
Percentage of the Aggregate Revolving Credit Commitment from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever
which may at any time (including without limitation at any time following the
payment of any of the Notes) be imposed on, incurred by or asserted against
the Agent in any way relating to or arising out of this Agreement, the other
Loan Documents or the transactions contemplated hereby or thereby or any
action taken or omitted by the Agent under or in connection with any of the
foregoing; provided that no Bank shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's bad faith, willful misconduct or gross negligence. The agreements in
this subsection shall survive the payment of the Notes and the related
obligations and the termination of the Revolving Credit Commitment, the Swing
Line Commitment and the Term Loan Commitment.
SECTION 11.4. Resignation and Succession.
--------------------------
The Agent may resign as Agent upon ten days' written notice to the Banks,
the Swing Line Lender and Borrower, provided, however, that such resignation
-------- -------
shall not become effective until a successor agent shall have accepted its
appointment hereunder; and provided, further, that if no successor shall have
so accepted within 30 days from the date of such notice, the Agent may apply
to a court of competent jurisdiction for the appointment of a successor agent.
If the Agent shall resign as Agent, then Borrower (or the Required Banks, if
Borrower fails to do so) shall appoint a successor agent, whereupon such
successor agent shall succeed to the rights, powers and duties of the Agent,
and the term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated, without any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement or any holders of the
Notes. Any such successor agent
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<PAGE>
selected by Borrower shall require the prior written consent of the Required
Banks, which consent shall not be unreasonably withheld. Any successor agent
must be a bank or trust company incorporated and doing business within the
United States of America having a combined capital and surplus of at least
$250,000,000. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article XI shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement. In
the event that the Agent becomes subject to the receivership of the Federal
Deposit Insurance Corporation or any successor entity, such receiver commences
the liquidation of the Agent, and Banks holding at least 10% of the sum of the
Aggregate Revolving Credit Commitment plus the amount of all Term Loans then
outstanding request the Agent to resign because of such receivership, the
Agent's agency under this Agreement shall terminate.
ARTICLE 12. SALES AND TRANSFERS
SECTION 12.1. Sales and Transfers.
-------------------
(a) Subject to the provisions of this Section 12.1, any Bank may
execute an assignment and acceptance, which assignment and acceptance shall be
substantially in the form of Exhibit K hereto (herein individually called an
---------
"Assignment" and collectively called the "Assignments"), whereby such Bank
(herein individually called an "Assignor" and collectively called the
"Assignors") shall assign, without recourse and without representation or
warranty except as specifically set forth in said Assignment, to one or more
banks or other entities (herein individually called an "Assignee" and
collectively called the "Assignees") all or any part of the Assignor's rights
and benefits, and delegate all or any part of the Assignor's obligations,
under this Agreement, such Assignor's Revolving Credit and/or Term Loan
Commitment, the Revolving Credit Loans and Term Loans and the Notes.
(b) Any Assignment pursuant to this Section 12.1 shall (i) be in an
aggregate principal amount of not less than $5,000,000; (ii) be of a constant,
and not a varying percentage of the Assignor's rights and obligations under
the Loan Documents; (iii) require the prior written consent of Borrower, which
consent shall not be unreasonably withheld (it being the understanding of the
parties hereto that a refusal to consent to an Assignment to an entity which
is a significant competitor
- 106 -
<PAGE>
of Borrower shall not be considered unreasonable); provided, that, such
consent shall not be required if a Default shall have occurred and then be
continuing, or such Assignee is a subsidiary or affiliate of such Assignor, or
such Assignee is a subsidiary or affiliate of another Bank, or such Assignee
is another Bank; (iv) require the prior written consent of the Agent and the
Swing Line Lender, which consent shall not be unreasonably withheld; provided,
that, such consent shall not be required if such Assignee is another Bank; (v)
be subject to the requirement that after giving effect to such Assignment, the
Revolving Credit Commitment and Term Loan Commitment of such Assignor
remaining is not less than $5,000,000 and (vi) be subject to the delivery to
the Agent of an Assignment signed by the Assignor and the Assignee, along with
an assignment fee in the sum of $3,500 for the account of the Agent.
(c) Upon execution, delivery and acceptance of each Assignment and
the satisfaction of the conditions set forth in subclauses (a) and (b) above,
from and after the effective date specified therein, which effective date
shall be at least five Business Days after the execution thereof, Borrower,
the Agent, and the Banks agree that, to the extent of any such Assignment,
(i) the Assignee shall, in addition to any rights, benefits and
obligations hereunder held by it immediately prior to such effective date,
have the rights, benefits and obligations of a Bank under this Agreement, the
Assignor's Revolving Credit and/or Term Loan Commitment, the Revolving Credit
Loans, the Term Loans and the Notes as it would have if it were a Bank
hereunder to the extent that the same have been assigned and delegated to it
pursuant to such Assignment, and
(ii) the Assignor shall, to the extent that rights, benefits and
obligations hereunder have been assigned and delegated by it pursuant to such
Assignment, relinquish its rights and benefits and be released from its
obligations under this Agreement (and, in the case of an Assignment covering
all or the remaining portion of the Assignor's rights, benefits and
obligations under this Agreement, the Assignor shall cease to be a Bank
hereunder), except that in all cases the Assignor shall remain entitled to the
rights and benefits arising under Section 10.6, and shall remain liable with
respect to any of its obligations arising under Article XI, with respect to
any matters arising prior to the effective date of any such Assignment;
- 107 -
<PAGE>
provided, that the Agent, Borrower and each Bank shall be entitled to continue
to deal solely and directly with the assigning Bank in connection with the
interests so assigned and delegated to the Assignee until written notice of
such Assignment, together with addresses and related information with respect
to the Assignee, shall have been given to the Agent, Borrower and each Bank by
the assigning Bank and the Assignee.
(c) Upon its receipt of an Assignment executed by the Assignor and
an Assignee, together with the Note(s) subject to such Assignment, the Agent
shall, if such Assignment has been completed and conforms to the requirements
of this Section 12.1, forward a photostatic copy thereof to Borrower. Within 5
Business Days after its receipt of a photostatic copy of such Assignment,
Borrower shall execute and deliver to the Agent, to be exchanged for the
applicable Note(s) delivered to the Agent by the Assignor, a new Note or new
Notes payable to the order of the Assignee in an amount equal to and of the
same type as the Note or Notes assumed by it pursuant to such Assignment and,
if the Assignor has retained a Revolving Credit Commitment or a portion of the
Term Loan hereunder, a new Revolving Credit Note or Term Note, as the case may
be, payable to the order of the Assignor in an amount equal to the Revolving
Credit Commitment or the amount of the Term Loan retained by it hereunder.
Such new Note or Notes shall be of the same type as, and in aggregate
principal amount equal to the aggregate principal amount of, such Note or
Notes shall be dated the effective date of such Assignment, shall be payable
to the order of the Assignee and, if applicable, the Assignor, shall otherwise
be in substantially the form of such surrendered Note(s), and shall constitute
Revolving Credit Note(s) or a Term Note under this Agreement, as the case may
be. Such new Revolving Credit Note(s) or Term Note shall be in replacement and
substitution for, and not in payment of, the Revolving Credit Note(s) or Term
Note delivered to the Agent by the Assignor. The Agent shall deliver such new
Revolving Credit Note(s) or Term Note to the payee or payees thereof and shall
mark the Revolving Credit Note(s) or Term Note previously held by the Assignor
as "replaced" and shall deliver the same to Borrower.
(d) Within five Business Days after each Assignment has been
accepted by the Agent in accordance with the terms hereof, Borrower and the
Agent shall revise Exhibit A hereto to set forth (i) the Percentage or amount
---------
of the Term Loan of each
- 108 -
<PAGE>
Assignee and such Assignee's name and address and (ii) the Percentage or
amount of the Term Loan, if any, retained by the Assignor, and the appropriate
officer of each of Borrower and the Agent shall initial each such revision.
(e) The foregoing provisions shall be equally applicable to the
Swing Line Lender, Swing Line Note and Swing Line Commitment with such changes
necessary to conform the foregoing to the Swing Line Lender, Swing Line Note
and Swing Line Commitment.
(f) In addition to the participations provided for in this
Agreement, including those set forth in Section 2.1(c) and Section 10.9, each
Bank may grant participations in all or any part of its rights under the Loan
Documents to one or more party that would be eligible to be an Assignee,
provided that (i) such Bank's obligations under this Agreement and the other
Loan Documents shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties to this Agreement and the other Loan
Documents for the performance of such obligations, (iii) the Borrower, the
Agent, the Swing Line Bank, the Documentation Agent and the other Banks shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement and the other Loan
Documents, (iv) no sub-participations shall be permitted without the consent
of the Borrower and the Agent (which consent shall not be unreasonably
withheld), (v) neither the granting nor the offering of such participation
would require that any additional loss, cost or expense be borne by the
Borrower at any time or would require any registration or qualification under
any applicable federal or state securities laws, and (vi) the voting rights of
any holder of any participation shall be limited to the those matters
requiring the consent of all Banks as set forth under Section 10.2.
(g) No Bank shall, as between and among the Borrower, the Agent, the
Swing Line Lender and such Bank, as the case may be, be relieved of any of its
obligations under the Loan Documents as a result of any Assignment or the
granting of any participation in all or any part of its rights under the Loan
Documents.
(h) Subject to Section 12.1(g), any Bank may at any time or from
time to time assign all or any portion of its rights under the Loan Documents
to a Federal Reserve Bank, provided that any such assignment shall not release
such assignor from its obligations thereunder.
- 109 -
<PAGE>
SECTION 12.2. New Banks.
---------
Any financial institution approved by Borrower, the Agent and the
Required Banks may join this Agreement as an additional Bank (such Person
being herein referred to as the "New Bank") and be entitled to all the rights
and interests and obligated to perform all of the obligations and duties of a
Bank with respect to a specified additional amount of Revolving Credit
Commitment hereunder, provided, that (a) Borrower shall, in its sole
-------- ----
discretion, have given its prior written consent to the addition of the New
Bank as a party to this Agreement, (b) the Agent, the Swing Line Lender and
the Required Banks shall have given their prior written consent (which consent
shall not be unreasonably withheld), (c) such New Bank and Borrower shall have
executed and delivered an instrument of adherence (the "Instrument of
Adherence") in form and substance satisfactory to Borrower and the Agent
pursuant to which such New Bank shall agree to be bound as a Bank by the terms
and conditions hereof and the other Loan Documents, and to make Revolving
Credit Loans and a Term Loan to Borrower in accordance with this Agreement,
and which Instrument of Adherence shall specify the maximum amount of
additional Revolving Credit Loans that such New Bank shall agree to be bound
as a Bank by the terms and conditions hereof and the other Loan Documents, and
to make Revolving Credit Loans and a Term Loan to Borrower in accordance with
this Agreement, and which Instrument of Adherence shall specify the maximum
amount of additional Revolving Credit Loans that such New Bank agrees to
provide hereunder (the "Additional Commitment Amount") and the New Bank's
address for notices, (d) the Additional Commitment Amount provided by any New
Bank must be at least $5,000,000, (e) such New Bank shall have received such
opinions of counsel to Borrower, such evidence of proper corporate
organization, existence, authority and appropriate corporate proceedings with
respect to Borrower, and such other certificates, instruments, and documents,
as it shall have requested in connection with such Instrument of Adherence,
(f) such New Bank shall have paid to the Agent an administrative fee in the
sum of $3,500 for the account of the Agent, and (g) such New Bank shall have
confirmed to and agreed with the Agent, the Documentation Agent, the Swing
Line Lender and the Banks and Borrower as follows:
(i) the Agent, the Documentation Agent, the Swing Line Lender and
the Banks have made no representation or warranty and shall have no
responsibility with respect to any statements, warranties or representations
made in or in
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<PAGE>
connection with this Agreement or the other Loan Documents or the execution,
legality, validity, enforceability, genuineness, sufficiency, collectibility
or value of this Agreement, the other Loan Documents, and Collateral, or any
other Instrument or document furnished pursuant hereto;
(ii) the Agent, the Documentation Agent, the Swing Line Lender and
the Banks have made no representation or warranty and shall have no
responsibility with respect to the financial condition of Borrower and its
Subsidiaries or any other Person primarily or secondarily liable in respect of
any of their obligations under this Agreement or any of the other Loan
Documents, or the performance or observance by Borrower and its Subsidiaries
or any other Person primarily or secondarily liable in respect of their
obligations under this Agreement or any of the other Loan Documents or any
other instrument or document furnished pursuant hereto or thereto;
(iii) such New Bank confirms that it has received a copy of this
Agreement and the other Loan Documents, together with copies of the most
recent financial statements referred to in Sections 4.18 and 6.1 hereof and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Instrument of Adherence;
(iv) such New Bank will, independently and without reliance upon the
other Banks, the Swing Line Lender, the Documentation Agent, or the Agent and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement;
(v) such New Bank appoints and authorizes the Agent and the
Documentation Agent to take such action as Agent and Documentation Agent,
respectively, on its behalf and to exercise such powers under this Agreement
and the other Loan Documents as are delegated to the Agent and the
Documentation Agent by the terms hereof or thereof, together with such powers
as are reasonably incidental thereto;
(vi) such New Bank agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as a Bank; and
- 111 -
<PAGE>
(vii) such New Bank represents and warrants that it is legally
authorized to enter into such Instrument of Adherence.
Upon any New Bank's execution of an Instrument of Adherence and
Borrower's, the Agent's, the Swing Line Lender's and the Required Banks'
consent thereto, the Percentage of each Bank and the Aggregate Revolving
Credit Commitment shall be adjusted appropriately. Promptly thereafter,
Borrower shall notify each of the Banks, the Agent and the Documentation Agent
of the joinder hereunder of such New Bank, the resulting increase in the
Aggregate Revolving Credit Commitment and each Bank's new Percentage and
provide each of the Banks and the Agent with a copy of the executed Instrument
of Adherence and a copy of Exhibit A reflecting the necessary adjustments.
---------
Upon the effective date of any Instrument of Adherence, the New Bank
shall make all (if any) such payments to the other Banks as may be necessary
to result in the Revolving Credit Loans made by such New Bank being equal to
such New Bank's Percentage (as then in effect) of the aggregate principal
amount of all Revolving Credit Loans outstanding to Borrower as of such date.
Borrower hereby agrees that any New Bank so paying any such amount to the
other Banks pursuant to this Section 12.2 shall be entitled to all the rights
of a Bank hereunder and such payments to the other Banks shall constitute
Revolving Credit Loans held by such New Bank hereunder and that such New Bank
may, to the fullest extent permitted by law, exercise all of its right of
payment (including the right of set- off) with respect to such amounts as
fully as if such New Bank had initially advanced Borrower the amount of such
payments.
THIS AGREEMENT CONTAINS A WAIVER OF TRIAL BY JURY.
SEE SECTION 10.7 HEREOF.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
- 112 -
<PAGE>
IN WITNESS WHEREOF, Borrower, the Agent, the Documentation Agent, the
Swing Line Lender and the Banks have caused this Agreement to be duly executed
by their respective officers hereunto duly authorized as of the day and year
first above written.
MEDALLION FUNDING CORP.
By: /s/ Alvin Murstein
--------------------------
Name: Alvin Murstein
Title: Chief Executive Officer
By: /s/ Daniel F. Baker
--------------------------
Name: Daniel F. Baker
Title: Treasurer and Chief
Financial Officer
FLEET BANK, NATIONAL ASSOCIATION, as Agent, as
Swing Line Lender and as one of the Banks
By: /s/ Andrea H. Lee
--------------------------
Title: Vice President
Payment Office:
1185 Avenue of the Americas
New York, New York 10036
THE BANK OF NEW YORK,
as Documentation Agent
and as one of the Banks
By: /s/ Scott Silverstein
--------------------------
Title: Vice President
BANKBOSTON, N.A.
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<PAGE>
By: /s/ Jack Bender
--------------------------
Title: Director
HARRIS TRUST AND SAVINGS BANK
By: /s/ Michael Houlihan
--------------------------
Title: Vice President
BANK TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ James Brown
--------------------------
Title: Vice President
ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/ Jerry Grossman
--------------------------
Title: Senior Vice President
By: /s/ Maureen McKee
--------------------------
Title: Vice President
EUROPEAN AMERICAN BANK
By: /s/ Dennis Nochowitz
--------------------------
Title: Vice President
BANK LEUMI TRUST COMPANY OF NEW YORK
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<PAGE>
By: /s/ Paul Tine
--------------------------
Title: Vice President
By: /s/ Rich Silverstein
--------------------------
Title: Senior Vice President
THE CHASE MANHATTAN BANK
By: /s/ William Saya
--------------------------
Title: Vice President
- 115 -
<PAGE>
EXHIBIT A
PERCENTAGES
-----------
<PAGE>
December 24, 1997
Revolving Credit
Name and Address of Bank Facility Available Percentage
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036 $30,000,000 30/195
The Bank of New York
530 Fifth Avenue
New York, NY 10036 $30,000,000 30/195
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110 $30,000,000 30/195
Harris Trust and
Savings Bank
111 West Monroe
Chicago, IL 60690 $20,000,000 20/195
Bank Tokyo - Mitsubishi
Trust Company
1251 Avenue of the Americas
New York, New York 10016 $20,000,000 20/195
The Chase Manhattan Bank
600 Fifth Avenue
New York, NY 10020 $20,000,000 20/195
Israel Discount Bank
of New York
511 Fifth Avenue
New York, New York 10022 $15,000,000 15/195
European American Bank
335 Madison Avenue
New York, New York 10017 $15,000,000 15/195
Bank Leumi USA
562 Fifth Avenue
New York, NY 10036 $15,000,000 15/195
- 2 -
<PAGE>
TOTAL FACILITIES $195,000,000
============
- 3 -
<PAGE>
EXHIBIT B
FORM OF REVOLVING CREDIT NOTE
-----------------------------
<PAGE>
REVOLVING CREDIT NOTE
$_________ No. __
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of ____________ (the "Bank") at the Agent Payment Office (as defined in the Loan
Agreement), in lawful money of the United States of America and in immediately
available funds, an amount equal to the lesser of (a) ____________ DOLLARS
($__________) and (b) the aggregate unpaid principal amount of all Revolving
Credit Loans made by the Bank to the Borrower pursuant to the Amended and
Restated Loan Agreement, dated as of December 24, 1997, as amended, among the
Borrower, the banks that from time to time are signatories thereto, the Swing
Line Lender, Fleet Bank NA as Arranger and Agent, and The Bank of New York as
Documentation Agent (as amended, modified or supplemented from time to time in
accordance with its terms, the "Loan Agreement"). The Borrower further promises
to pay interest (computed on the basis of a 360-day year for the actual number
of days elapsed) in like money on the unpaid principal balance of this Note from
time to time outstanding at such rates and times as provided in the Loan
Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By:_____________________
Alvin Murstein
CEO
By:_____________________
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT C
FORM OF TERM NOTE
-----------------
<PAGE>
TERM NOTE
---------
$_______________ No._________
December __, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New York
corporation (the "borrower"), hereby unconditionally promises to pay on
, or on such earlier date as may be required under the Loan Agreement
(hereinafter referred to), to the order of ____________________ (the "Bank") at
the Agent Payment Office (as defined in the Loan Agreement), in lawful money of
the United States of America and in immediately available funds, an amount equal
to the lesser of (a) _____________________ MILLION DOLLARS ($________________)
and (b) the aggregate unpaid principal amount of the Term Loan made by the Bank
to the Borrower pursuant to the Amended and Restated Loan Agreement, dated as of
December 24, 1997, among the Borrower, the banks that from time to time are
signatories thereto, Fleet Bank, National Association as Agent, Fleet Bank,
National Association as swing line lender and The Bnak of New York as
Documentaion Agent (as amended, modified or supplemented from time to time in
accordance with its terms, the "Loan Agreement"). The Borrower further promises
to pay interest (computed on the basis of a 360-day year for the actual number
of days elapsed) in like money on the unpaid principal balance of this Note from
time to time outstanding at such rates and times as provided in the Loan
Agreement.
All payments of the principal on the Term Loan represented by this Note
("Principal Payments') shall be made at such times as provided in the Loan
Agreement. All Principal Payments shall be endorsed by the holder of this Note
on the schedule annexed hereto (including any additional pages such holder may
add to such schedule), which endorsement shall constitute prima facie evidence
----- ------
of the accuracy of the information so endorsed; provided, however, that the
-------- --------
failure of the holder of this Note to insert any date or amount or other
information on such schedule shall not in any manner affect the obligation of
the Borrower to repay the Term Loan in accordance with the terms of the Loan
Agreement.
<PAGE>
Amounts repaid on this Term Note cannot be reborrowed.
On and after the stated or any accelerated maturity hereof, and until paid
in full (whether before or after the occurrence of any Event of Default
described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), (a) the
outstanding principal amount of this Note which at such time is a Prime Rate
Loan (including, to the extent permitted by law, unpaid interest thereon) shall
bear interest at an annual rate equal to the sum of 2% plus the Prime Rate
applicable to such Prime Rate Loan then in effect and (b) the outstanding
principal amount of this Note which is a LIBO Rate Loan (including, to the
extent permitted by law, unpaid interest thereon) shall bear interest at an
annual rate equal to the sum of 4% plus the Adjusted LIBO Rate applicable to
such LIBO Rate Loan then in effect, in each case payable on demand, but in no
event shall such rate of interest (the "Default Rate") be in excess of the
maximum rate of interest permitted under applicable law. The Default Rate shall
be computed on the basis of a 360-day year for the actual number of days
elapsed. If the Default Rate is to be based on the Prime Rate, the Prime Rate to
be charged shall change when and as the Prime Rate is changed, and any such
change in the Prime Rate shall become effective at the opening of business on
the day on which such change is adopted. At the end of the applicable Interest
Period for a LIBO Rate Loan on which the Default Rate is being charged, such
LIBO Rate Loan shall be automatically converted to a Prime Rate Loan, and the
Default Rate to be charged in respect of such Loan shall be computed based on
the Prime Rate.
This Note is one of the Term Notes referred to in the Loan Agreement, is
secured as provided therein, is entitled to the benefits thereof and is subject
to optional and mandatory prepayment, in whole or in part, as provided therein.
The Borrower shall make when due any and all payments and prepayments on this
Term Note required under the Loan Agreement. Reference is herein made to the
Loan Agreement for the rights of the holder to accelerate the unpaid balance
hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and notice
of any kind, release, surrender or substitution of security, or forbearance or
other indulgence, without notice.
- 2 -
<PAGE>
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
This Note may not be changed, modified, or terminated orally, but only by
an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS TERM LOAN NOTE, THE
BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY,
ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS- CLAIMS
AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY
REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED,
PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS
AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NON-
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK COUNTY OF NEW YORK
AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK IN
CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS TERM
NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, AND
SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO THE
BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or provision of
this Term Note shall be held invalid, illegal or unenforceable, the validity of
all other terms and provisions herein shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the
date first above written.
MEDALLION FUNDING CORP
a New York corporation
By:______________________________
Name:
Title:
- 3 -
<PAGE>
By:______________________________
Name:
Title:
- 4 -
<PAGE>
EXHIBIT D
FORM OF SWING LINE NOTE
-----------------------
<PAGE>
EXHIBIT E
FORM OF LOAN REQUEST
--------------------
<PAGE>
FORM OF LOAN REQUEST
--------------------
_________, 199
Fleet Bank, N.A., as Agent for
the Banks referred to below
1185 Avenue of the Americas
New York, New York 10036
Attention: _______________
Re: Amended and Restated Loan Agreement,
dated as of December 24, 1997
by and among Medallion Funding Corp. (the
"Borrower") the banks that from time to time
are signatories thereto, Fleet Bank N.A.
as Swing Line Lender, Arranger,
Administrative Agent and Collateral Agent
and The Bank of New York as Documentation
Agent (the "Loan Agreement")
-----------------------------------------
Dear Sir or Madam:
Reference is made to the Loan Agreement (capitalized terms used but
not defined herein having the meaning ascribed thereto in the Loan Agreement).
I. Advances
-----------
[In the case all or a portion of a Revolving Credit borrowing is made as a Prime
Rate Loan.]
Please advance $___________ as a Prime Rate Loan effective on
____________, 19__ . [Note: loan request must be received by no later than 1:00
p.m.,. New York City time, on the Business Day prior to this day in order for
the loan to be advanced on the day requested.]
[In the case all or a portion of a Revolving Credit borrowing is made as a LIBO
Rate Loan.]
<PAGE>
Please advance $________________ as a LIBO Rate Loan effective on
_______________, l9__ (which is not less than three Banking Days from the date
hereof). The interest Period for such LIBO Rate Loan will commence on and
include the date of advance and will end, subject to the limitations applicable
to Interest Periods contained in the definition of Interest Period in the Loan
Agreement, on the numerically corresponding date that is [one] [two] [three]
[four] [five] [six] months thereafter.
[In the case all or a portion of a borrowing is made as a Swing Line Loan.]
Please advance $___________ as a Swing Line Loan effective on
____________, 19__ . [Note: loan request must be received by no later than 1:00
p.m.,. New York City time in order for the loan to be advanced on the same day
as the request.] The Swing Line Interest Period for such Swing Line Loan will
commence on and include the date of advance and will end on the numerically
corresponding date that is [one] [two] [three] [four] or [five] days thereafter.
II. Conversions
---------------
[In the case of the conversion of all [or a portion] of a Prime Rate Loan into a
LIBO Rate Loan.]
Please convert $_____________, which amount represents the entire
outstanding principal amount] of the Prime Rate Loan or Loans of the
undersigned, into a LIB0 Rate Loan effective on ____________19___ (which is not
less than three Banking Days from the date hereof). The Interest Period for
such LIBO Rate Loan will commence on and include the date of such conversion and
will end, subject to the limitations applicable to Interest Periods contained in
the definition of Interest Period in the Loan Agreement, on the numerically
corresponding date that is [one] [two] [three] [four] [five] [six] months
thereafter. [Note: Term Loans that are LIBO Rate Loans may only have an
Interest Period of one month.]
[Please continue $_______________ (the balance) of such Prime Rate
Loan or Loans not so converted as a Prime Rate Loan.]
[In the case of the conversion of all [or a portion] of a LIBO
- 2 -
<PAGE>
Rate Loan into a Prime Rate Loan.]
Please convert $____________, [which amount represents the entire
outstanding principal amount] of the LIBO Rate Loan or Loans of the undersigned,
the Interest Period with respect to which ends on ____________ (the "Conversion
Date"), into a Prime Rate Loan effective on the Conversion Date (which is not
less than three Banking Days from the date hereof).
III. Continuations
-----------------
[In the case of the continuation of all [or a portion] of a
LIBO Rate Loan.]
Please continue $_____________, [which amount represents the entire
outstanding principal amount] of the LIBO Rate Loan or Loans of the undersigned,
the Interest Period with respect to which ends on _______________ (which is not
less than three Banking Days from the date hereof), as a LIBO Rate Loan with an
Interest Period commencing on and including such date and ending, subject to the
limitations applicable to Interest Periods contained in the definition of
Interest Period in the Loan Agreement, on the numerically corresponding date
that is [one] [two] [three] [four] [five] [six] months thereafter. [Note: Term
Loans that are LIBO Rate Loans may only have an Interest Period of one month].
The Borrower hereby represents and warrants to the Bank that:
(a) Each and every of the representations and warranties set forth in
the Loan Agreement is true as of the date hereof and with the same effect as
though made on the date hereof, and is hereby incorporated herein in full by
reference as if fully restated herein in its entirety.
(b) No Default or Event of Default and no event or condition which,
with the giving of notice or lapse of time or both, would constitute such a
Default or Event of Default, now exists or would exist under the Loan Agreement.
- 3 -
<PAGE>
EXHIBIT F
FORM OF BORROWER SECURITY AGREEMENT
-----------------------------------
<PAGE>
SECURITY AGREEMENT
among
MEDALLION FUNDING CORP., as debtor,
UNITED STATES SMALL BUSINESS ADMINISTRATION
and
FLEET BANK, N.A., as Agent
______________________
Dated as of ____________, 1997
______________________
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of the ____ day of ___________, 1997, is
among MEDALLION FUNDING CORP., a New York corporation ("Borrower"), the United
--------
States Small Business Administration (the "SBA"), and FLEET BANK, N.A., a
---
national banking association, in its capacity as agent (the "Agent") for the
-----
SBA.
RECITALS
WHEREAS, the Borrower and Fleet Bank, N.A., in its capacity as agent for
the banks party to the Loan Agreement described below (the "Bank Agent") have
----------
entered into a Security Agreement dated as of March 27, 1992, as amended and
restated by the Amended and Restated Security Agreement dated as of December 24,
1997 (as the same may be amended or supplemented from time to time, the "Bank
----
Security Agreement"), by which the Borrower granted to the Bank Agent perfected,
- ------------------
first-priority security interests in all of the Borrower's assets to secure the
payment and performance of all of the obligations (the "Bank Obligations") to
----------------
the Bank Agent and the Banks (as hereafter defined) and the holders of
Commercial Paper (as hereafter defined), including obligations of the Borrower
pursuant to a Loan Agreement among the Borrower, the Bank Agent and the banks
party thereto from time to time (the "Banks") dated as of March 27, 1992, as
-----
amended and restated by an Amended and Restated Loan Agreement dated as of
December 24, 1997 (as the same may be amended or supplemented from time to time,
the "Loan Agreement"); and
--------------
WHEREAS, upon the effective date hereof the Borrower has merged (the
"Merger") Transportation Capital Corp., a New York corporation ("TCC") and
- ------- ---
Edwards Capital Corp., a Delaware corporation ("Edwards") into the Borrower,
-------
with the Borrower as the surviving corporation; and
WHEREAS, prior to such merger, TCC was obligated to the SBA under a note
dated June 24, 1992 in the principal amount of $5,640,000 (the "TCC Note") which
--------
upon the effective date of the Merger became an obligation of the Borrower; and
WHEREAS, prior to such merger, Edwards was obligated to the SBA under notes
in the aggregate principal amount of $22,250,000 (the "Edwards Notes") which
-------------
upon the effective date of the Merger became an obligation of the Borrower; and
WHEREAS, the Borrower wishes to secure its obligations to the SBA under the
TCC Note and the Edwards Notes (but not with respect to the Borrower's
obligations
- 2 -
<PAGE>
under other notes to the SBA), and the Bank Agent and the Banks have consented
to share certain collateral with the SBA on the terms herein;
NOW, THEREFORE, in consideration of the willingness of the Agent and the
SBA to enter into this Agreement and the SBA's approval of the Merger, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINED TERMS. Capitalized terms defined in the foregoing
caption and recitals shall have the respective meanings ascribed thereto. In
addition, as used herein, the following terms shall have the following meanings:
"Accounts" shall have the meaning assigned to it in Section 106 of the UCC.
--------
"Books and Records" shall mean books, records, computer files and other
-----------------
Information relating to any of the Commercial Loan Collateral.
"Collateral Account" shall mean that account of Borrower maintained with
------------------
the Agent and containing such reasonable terms as shall be agreed to by the
Agent.
"Commercial Loan" shall mean any loan, advance or extension of credit made
---------------
in the ordinary course of business by Edwards or TCC before the Merger or by
Borrower either before or after the Merger to or for the account of any client
or customer of Edwards, TCC or the Borrower, but shall exclude all Loans secured
in whole or in part by Medallion Rights.
"Commercial Loan Collateral" shall mean all the following property now
--------------------------
owned or at any time hereafter acquired by Borrower or in which Borrower now has
or at any time in the future may acquire any right, title or interest:
(a) all Commercial Loans;
(b) all property and rights, including, but not limited to, Underlying
Collateral, which now or hereafter secure Commercial Loans;
(c) all Books and Records;
(d) all amounts deposited in any Collateral Account relating to Commercial
Loans;
(e) all Contracts relating to Commercial Loans;
- 3 -
<PAGE>
(f) all rights and remedies of Borrower with respect to, or in connection
with, any contract, security interest, guaranty or other document, instrument or
agreement relating to or affecting any Commercial Loans or any Underlying
Collateral;
(g) all General Intangibles relating to Commercial Loans;
(h) all Instruments relating to Commercial Loans;
(i) all Chattel Paper relating to Commercial Loans;
(j) all Equipment securing any Commercial Loan;
(k) all Investment Property securing any Commercial Loans;
(l) all Accounts relating to any Commercial Loans;
(m) all property and rights repossessed, or otherwise acquired in
connection with any Commercial Loans or the exercise by Borrower of any rights
of a secured party under or with respect to any of the Commercial Loans or
arising out of the sale or disposition of any Commercial Loans, any other
Commercial Loan Collateral, or in connection with the sale of any repossessed
property;
(n) all parts, accessions, accessories, goods, appurtenant or related to
any of the foregoing, replacement parts, trade names, choses in action, now or
hereafter affixed thereto, arising therefrom, used in connection therewith, or
related to the use, possession or operation thereof; and
(o) to the extent not otherwise included, all Proceeds, products,
substitutions and replacements of any and all of the foregoing.
"Contracts" shall mean all contracts and agreements, including, but not
---------
limited to, loan agreements, security agreements, guaranties, intercreditor
agreements, office leases, lease agreements for mobile goods (as defined in the
UCC) (whether or not covered by a certificate of title), indemnity agreements,
license agreements, rental agreements and all other contracts and agreements of
every kind and nature whatsoever.
"Default" shall mean an event specified in Section 5.1, whether or not any
-------
requirement for the giving of notice, the lapse of time, or both, or any other
condition has been satisfied.
"Depository Accounts" shall mean accounts of Borrower containing any
-------------------
deposits or other sums credited to Borrower, whether in regular or special
depository accounts or otherwise.
- 4 -
<PAGE>
"Designated Commercial Loans" shall mean the Commercial Loans identified on
---------------------------
Schedule A attached hereto and as shall be designated from time to time by the
- ----------
Borrower in writing to the Agent and the SBA in accordance with Section 2.2 on a
substitute Schedule A which shall upon receipt by the Agent be attached hereto
----------
and which shall constitute Schedule A.
----------
"Equipment" shall mean all machinery, equipment, fixtures, vehicles, office
---------
equipment, furniture, furnishings, inventories, supplies, computer equipment and
all other equipment whatsoever, wherever located, together with all attachments,
components, parts, equipment and accessories installed therein or affixed
thereto, including, but not limited to, all equipment as defined in Section 9-
109(2) of the UCC and all products, profits, rents and proceeds of any of the
foregoing; all whether now owned or hereafter created or acquired.
"Event of Default" shall mean an event specified in Section 5.1.
----------------
"General Intangibles" shall have the meaning assigned to it in Section 9-
-------------------
106 of the UCC and shall include, but not be limited to, all interests in and to
Permits and Licenses, Medallion Rights, patents, trademarks, tradenames,
copyrights, trade secrets, licenses and know-how.
"Governmental Authority" shall mean any nation or government, any state or
----------------------
other political subdivision thereof and any entity or officer exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to any government, and any corporation or other entity owned or
controlled (through ownership of capital stock or otherwise) by any of the
foregoing.
"Instruments" shall have the meaning assigned to it in Section 9-105(1)(i)
-----------
of the UCC.
"Intercreditor Agreement" shall mean the Intercreditor Agreement dated as
-----------------------
of even date herewith among the Bank Agent, the SBA Agent, the Collateral Agent,
and the SBA, and consented to by the Borrower, as such agreement is amended,
supplemented and restated from time to time.
"Laws" shall have the meaning set forth in Section 2.2 hereof.
----
"Liens" shall mean any interest in property securing an obligation owed to
-----
a Person, whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" includes reservations,
exceptions, encroachments,
- 5 -
<PAGE>
easements, rights of way, covenants, conditions, restrictions, leases and other
similar title exceptions and encumbrances, including but not limited to
mechanics', materialmen's, warehousemen's, carriers' and other similar
encumbrances, affecting property.
"Loan" shall mean any loan, advance or extension of credit made in the
----
ordinary course of business by Borrower to or for the account of any client or
customer of Borrower. Any loan, advance or extension of credit made at a
different point in time shall be deemed to be a separate and distinct Loan.
"Material Adverse Effect" shall mean, with respect to an event, action or
-----------------------
condition affecting the Borrower, or any of its properties or revenues, an
event, action or condition that would (i) adversely affect the validity or
enforceability of, or the authority of the Borrower, to perform its obligations
hereunder or the SBA Secured Debt, (ii) materially adversely affect the
business, operations, assets or condition (financial or otherwise) of the
Borrower or the ability of the Borrower to perform its obligations hereunder or
the SBA Secured Debt, or (iii) materially adversely affect the value of the SBA
Collateral.
"Medallion" shall mean the metal plate which displays the license number of
---------
a licensed Taxicab on the outside of the vehicle and which is issued by the New
York City Taxi and Limousine Commission or by any other Governmental Authority
for a jurisdiction other than New York City with the authority to issue licenses
for the operation of Taxicabs.
"Medallion Rights" shall mean (a) all license, operating and/or
----------------
subscription rights to Taxicab Medallion(s), and all license, operating and/or
subscription rights evidenced by such Medallion(s) and (b) all renewals thereof.
"Permits and Licenses" shall mean (a) all applicable authorizations,
--------------------
consents, certificates, licenses, rights of way permits, approvals, waivers,
exemptions, encroachment agreements, variances, franchises, permissions, and
permits of any Governmental Authority and all documents and applications filed
in connection therewith, and (b) all renewals thereof.
"Permitted Liens" shall mean (a) Liens created under the Bank Security
---------------
Agreement or other Liens in favor of the Agent to secure any Bank Obligations;
(b) liens securing taxes, assessments or governmental charges or levies, or the
claims or demands of materialmen, mechanics, carriers, workmen, repairmen,
warehousemen, landlords and other like Persons, not yet delinquent or which are
being actively contested in good faith by appropriate proceedings and in respect
of which adequate reserves in conformity with GAAP have been provided on the
books of Borrower; (c) other Liens incidental to the conduct of the Borrower's
business or the ownership of its property and assets which
- 6 -
<PAGE>
were not incurred in connection with the borrowing of money or the obtaining of
advances or credit, and which do not in the aggregate materially detract from
the value of it property or assets, or materially impair the use thereof in the
operation of its business; (d) attachment, judgment and other similar Liens
arising in connection with court proceedings, provided that execution or other
enforcement of such Liens is effectively stayed, the claims secured thereby are
being actively contested in good faith by appropriate proceedings and adequate
reserves in conformity with GAAP have been provided on the books of Borrower;
and (e) Liens arising in connection with, and securing the cost of, the
acquisition of Equipment, provided, that such Lien attaches to such Equipment
--------
concurrently with or within 90 days after the acquisition thereof (by purchase,
construction or otherwise), and provided, further, that the aggregate amount of
-------- -------
indebtedness securing all such Liens shall not at any time exceed $1,000,000.
"Person" or "person" shall mean any individual, partnership, firm,
------ ------
corporation, association, joint venture, trust or other entity, or any
Governmental Authority.
"Proceeds" shall have the meaning assigned to it in Section 9-306(1) of the
--------
UCC and shall include, but not be limited to, (a) any and all proceeds of any
insurance, indemnity, warranty or guaranty existing from time to time with
respect to any of the Commercial Loan Collateral, (b) any and all payments (in
any form whatsoever) made or due and payable from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Commercial Loan Collateral by any Governmental Authority (or
any Person acting under color of governmental authority) and (c) any and all
other amounts from time to time paid or payable under or in connection with any
of the Commercial Loan Collateral.
"Real Property" shall mean real property of a Person or an ultimate
-------------
beneficial owner of such Person or machinery or Equipment of such Person or
beneficial owner forming a part of, or affixed to, such real property.
"SBA Collateral" shall mean all Commercial Loan Collateral relating to the
--------------
Designated Commercial Loans.
"SBA Eligibility Requirements" with respect to any Designated Commercial
----------------------------
Loan, shall mean (a) such Loan is made to, and is a recourse obligation of, the
Person to whom such Loan is made; (b) such Loan is a Domestic Loan; (c) such
Loan is in compliance with the SBI Act and all SBA Regulations promulgated
thereunder and, after giving effect to such Loan, Borrower and its business and
operations taken as a whole are in compliance with the SBI Act and all SBA
Regulations promulgated thereunder; (d) no payment on such Loan is more than 60
days past due; (e) the representations, warranties and covenants contained in
Section 4.1 are true and correct, and have been complied with, with respect to
such Loan, and (f) the Agent, on behalf of the SBA, has a perfected, first
priority security interest in such Loan.
- 7 -
<PAGE>
"SBA Secured Debt" shall mean the Edwards Debt and the TCC Debt.
----------------
"Taxicab" shall mean a motor vehicle carrying passengers for hire, duly
-------
licensed as a taxicab by the Taxi and Limousine Commission, or any other
Governmental Authority for a jurisdiction other than New York City, and
permitted to accept hails from passengers in the street.
"UCC" shall mean the Uniform Commercial Code as then in effect in the State
---
of New York.
"Underlying Collateral" shall mean all of Borrower's rights with respect
---------------------
to, or interest in, any and all present and future Equipment, Real Property,
machinery, future accounts, accounts receivable, receivables, contracts,
contract rights, general intangibles, books, desks, notes, bills, drafts,
acceptances, chases in action, chattel paper, instruments, documents and other
forms of obligations, and property, real, personal or mixed, tangible or
intangible, at any time owing to or owned by any Person to whom Borrower has
made a Commercial Loan, or any guarantor of such Person.
SECTION 1.2. ACCOUNTING TERMS. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with generally accepted accounting principles in
the United States of America as in effect from time to time ("GAAP"), and all
----
financial computations hereunder shall be computed, unless otherwise
specifically provided herein, in accordance with GAAP.
SECTION 1.3. RULES OF CONSTRUCTION. (a) Words of the masculine gender
shall mean and include correlative words of the female and neuter genders, and
words importing the singular number shall mean and include the plural number and
vice versa.
(b) The terms "hereby", "hereto", "hereof", "herein", and "hereunder" and
------ ------ ------ ------ ---------
any similar words refer to this Agreement as a whole and not to any particular
provisions of this Agreement. The term "hereafter" shall mean after, and the
---------
term "heretofore" shall mean before, the date of this Agreement, and "Article",
---------- -------
"Section", "Schedule", "Exhibit" and like references are to this Agreement
------- -------- -------
unless otherwise specified.
(c) Any defined term that relates to a document shall include within its
definition any amendments, modifications, renewals, restatements, extensions,
supplements, or substitutions which may have been heretofore or may be hereafter
executed in accordance with the terms thereof.
- 8 -
<PAGE>
(d) References in this Agreement to particular sections of the UCC or to
any other legislation shall be deemed to refer also to any successor sections
thereto or other redesignations for codification purposes.
(e) Terms used in this Agreement that are not capitalized shall have the
meanings provided by the UCC to the extent the same are used or defined therein.
ARTICLE II
CREATION OF SECURITY INTEREST
SECTION 2.1. GRANT OF SECURITY INTEREST TO AGENT. Borrower hereby grants
to the Agent for the benefit of the SBA a continuing first priority lien on and
security interest in the SBA Collateral to secure the Borrower's obligations to
the SBA under and pursuant to the SBA Secured Debt and under this Agreement,
and, in furtherance of such grant, Borrower hereby assigns for security all the
SBA Collateral to the Agent for the benefit of the SBA to secure the Borrower's
obligations under the SBA Secured Debt and this Agreement.
SECTION 2.2 DESIGNATION OF SBA COLLATERAL. The Borrower agrees that at
all times the aggregate outstanding balance of the Designated Commercial Loans
shall equal or exceed 1.2 times the outstanding balance of the SBA Secured Debt
(subject ot the terms and conditions of the Intercreditor Agreement), and that
all of the Designated Commercial Loans shall meet the SBA Eligibility
Requirements. From time to time, the Borrower may amend Schedule A hereto to
----------
designate Designated Commercial Loans, provided, however, that such Designated
Commercial Loans on such date meet the requirements of this section. Upon such
designation in accordance with the terms of this section, the Commercial Loans
identified on such substitute Schedule A shall constitute the Designated
----------
Commercial Loans, and such substitute Schedule A shall be attached hereto as
----------
Schedule A. The Agent shall have no responsibility for determining the
- ----------
compliance with this section of the designation of Designated Commercial Loans.
SECTION 2.3 AGREEMENT TO PLEDGE ADDITIONAL COLLATERAL. In the event that
the Designated Commercial Loans at any time fail to meet the requirements of the
first sentence of Section 2.2 and the Borrower does not have sufficient
Commercial Loans to designate to meet such requirements, the Borrower shall
grant a security interest to the Agent for the benefit of the SBA in all of its
Commercial Loans and Medallion Loans, such security interest to be subordinate
to the security interest held by the Bank Agent to secure the Bank Obligations.
The terms of such security interest shall be reflected in an appropriate
amendment to the Intercreditor Agreement and shall provide that no distributions
of the proceeds of such collateral shall be made to the SBA and the SBA shall
take no action in connection therewith, or in any way interfere in any action
that the Banks and/or the Bank Agent are taking in connection therewith, until
the Bank
- 9 -
<PAGE>
Obligations have been paid in full and all commitments under the Loan
Agreement have terminated.
SECTION 2.4. PERFECTION. At any time or times after (i) an Event of
Default has occurred or (ii) any change in any existing law, regulation,
guideline, treaty or directive or condition or interpretation thereof, including
without limitation, any request, guideline or policy, whether or not having the
force of law (collectively, "Laws"), or the proposal by any Governmental
----
Authority, of a new Law, which, in the Agent's or the SBA's opinion, adversely
affects the validity, security or perfection of the security interests and liens
granted herein, Borrower shall execute and deliver to the Agent, at the Agent's
or the SBA's request, all assignments, certificates of title, conveyances,
assignment statements, financing statements, renewal financing statements,
security agreements, affidavits, mortgages, mortgage assignments, trust deeds,
notices and all other agreements, instruments and documents that the Agent
reasonably may request, in form satisfactory to the Agent, and shall take any
and all other steps reasonably requested by the Agent, in order to perfect and
maintain the security interests and liens granted herein, and to consummate
fully all of the transactions contemplated under this Agreement including steps
authorized under the Bank Security Agreement.
SECTION 2.5. RECORDING, REGISTERING, FILING, ETC. At any time or times
after (i) a Default or an Event of Default has occurred or (ii) any change in
any existing Law or the proposal by any Governmental Authority of a new Law
which, in the Agent's or the SBA's opinion, adversely affects the validity,
security or perfection of the security interests and liens granted herein,
Borrower will perform, or will cause to be performed, each of the following:
(a) Record, register and file such notices, certificates of title,
financing statements, mortgage assignments, trust deeds and other documents or
instruments as may, from time to time, be requested by the Agent to carry out
fully the intent of this Agreement, with such administrations or governmental
agencies as may be necessary or advisable in order to perfect, establish,
confirm, and maintain the security interests and liens created hereunder, as
legal, valid, and binding security interests and liens upon the SBA Collateral;
(b) Furnish to the Agent evidence of every such recording, registering and
filing; and
(c) Execute and deliver or perform, or cause to be executed and delivered
or performed, such further and other instruments or acts as the Agent reasonably
determines are necessary or desirable to fully carry out the intent and purpose
of this Agreement or to subject the SBA Collateral to the security interest and
lien created hereunder, including, without limitation, defending the title of
Borrower to the SBA Collateral by means of negotiation with and, if necessary,
appropriate legal proceedings
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against, each party claiming an interest therein contrary or adverse to
Borrower's title to same.
SECTION 2.6. DELIVERY OF DOCUMENTS. Pursuant to the Bank Security
Agreement, the Bank Agent is holding instruments evidencing all of the
Commercial Loans constituting the SBA Collateral. The Borrower agrees to
continue to deliver such instruments to the Agent as long as this Agreement is
in effect in accordance with the provisions of the Bank Security Agreement. The
Agent acknowledges all instruments with respect to the SBA Collateral held in
its capacity as Bank Agent under the Bank Security Agreement are also held in
its capacity as Agent hereunder.
SECTION 2.7. FURTHER ASSURANCES. (a) At any time or times after (i) a
Default or an Event of Default has occurred or (ii) any change in any existing
Law or the proposal by any Governmental Authority of a new Law which, in the
Agent's or the SBA's opinion, adversely affects the validity, security or
perfection of the security interests and liens granted herein, then, in addition
to the acts specifically required to be performed by Borrower elsewhere under
this Agreement, Borrower shall do all other things and sign and deliver all
other documents and instruments reasonably requested by the Agent to perfect,
protect, maintain and enforce the security interests and liens of the Agent in
the SBA Collateral, and the first priority of such security interests and liens,
and other rights granted hereunder. Such acts shall include but not be limited
to the marking of Borrower's Books and Records, the Chattel Paper and
Instruments to show the Agent's security interests and liens and the filing of
financing, renewal and/or continuation statements under the UCC or other
documents evidencing the Agent's liens under applicable law and the delivery of
any SBA Collateral the physical possession of which is necessary or desirable in
order for the Agent to perfect its liens. Upon the occurrence of any of the
events specified in subclauses (i) and (ii) of this Section 2.7(a), Borrower
authorizes the Agent to execute alone any financing, renewal and/or continuation
statement or any other document or instrument which the Agent may require to
perfect, protect, continue or enforce in accordance herewith any security
interest, lien or other right hereunder and authorizes the Agent to sign
Borrower's name on the same. Upon payment in full by Borrower of all the SBA
Secured Debt in accordance with the terms thereof, the security interests and
liens granted by Borrower hereunder shall terminate, except that if, at any
time, all or part of the payment of the monetary payments made on any SBA
Secured Debt theretofore made by Borrower or any other Person is rescinded or
otherwise must be returned by the Agent or any Bank for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or reorganization of
Borrower or such other Person), the security interests and liens granted
hereunder or under any other present or future agreement between Borrower and
the Agent, and all rights of the Agent and all SBA Secured Debt shall be
reinstated as to such SBA Secured Debt which was satisfied by the payment to be
rescinded or returned, all as though such payment had not been made, and
Borrower shall sign and deliver to
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the Agent all documents and things necessary to perfect all terminated liens
subject to the intervening liens, if any, granted by Borrower to any Person.
(b) A carbon, photographic, or other reproduction of this Agreement shall
be sufficient as a UCC filing and may be filed in any appropriate office in lieu
thereof.
(c) Upon the occurrence of any of the events specified in subclauses (i)
and (ii) of Section 2.7(a), to the extent requested by the Agent, Borrower will
use its best efforts to cause each mortgagee of any and all real estate under
any lease included in any Underlying Collateral relating to any SBA Collateral
and each landlord under any lease included in any such Underlying Collateral to
execute and deliver to the Agent assignments, in form and substance satisfactory
to the Agent, by which such mortgagee or landlord waives its rights, if any, to
the SBA Collateral.
SECTION 2.8. INDEMNITY. Borrower will hold the Agent and the SBA harmless
from and indemnify the SBA and the Agent or other designee of the Agent against
all losses, damages, costs and expenses (including, without limitation,
attorneys' fees, costs and expenses) incurred by it, whether prior to or from
and after the date hereof, whether direct, indirect or consequential, as a
result of or arising from or relating to any suit, investigation, action or
proceeding by any Person (including, without limitation, the SBA),
whether threatened or initiated, asserting a claim for any legal or equitable
remedy against any Person under any statute or regulation, including without
limitation, any Federal or state antitrust laws, or under any common law or
equitable cause or otherwise, all to the extent arising from or in connection
with this Agreement or the enforcement of the rights of the Agent hereunder,
other than losses, damages, costs and expenses resulting from, but only to the
extent resulting from, the willful misconduct or gross negligence of the Person
seeking indemnification.
SECTION 2.9. BORROWER REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (i) Borrower shall remain liable under the contracts and
agreements included in the SBA Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (ii) the exercise by the Agent of any
rights under this Agreement shall not release Borrower from any of its duties or
obligations under the contracts and agreements included in the SBA Collateral,
and (iii) neither the Agent nor the SBA shall have any obligation or liability
under the contracts and agreements included in the SBA Collateral by reason of
this Agreement nor shall the Agent or the SBA be obligated to perform any of the
obligations or duties of Borrower thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
SECTION 2.10. AGENT MAY PERFORM. If Borrower fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be
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payable by Borrower, together with interest thereon at the rate specified as the
Stated Interest Rate in the TCC Note, and until so paid shall be deemed part of
the obligations secured hereby.
SECTION 2.11. AGENT'S DUTIES. The powers conferred on the Agent hereunder
are solely to protect its interest and the interests of the SBA in the SBA
Collateral and shall not impose any duty upon it to exercise any such powers
except as provided herein. Except for the safe custody of any SBA Collateral in
its possession and the accounting for monies actually received by it hereunder
and performing its other express duties hereunder, the Agent shall have no duty
as to any SBA Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any SBA
Collateral.
ARTICLE III
PRIORITY OF SECURITY INTERESTS
SECTION 3.1. PRIORITY OF SECURITY INTERESTS. The Borrower warrants and
represents to the Agent and the SBA that, as to those assets for which
perfection may be accomplished by filing or by possession under the UCC, the
security interests granted to the Agent hereunder constitute and will constitute
at all times a valid and perfected first priority security interest vested in
the Agent in and upon the SBA Collateral. Borrower further warrants and
represents that the Agent's security interests in the SBA Collateral are not and
hereinafter shall not become subordinate or junior to the security interests,
liens or claims of any other Person, firm or corporation, including any state,
county or local governmental agency, except for the Permitted Liens.
ARTICLE IV
SBA COLLATERAL
SECTION 4.1. REPRESENTATIONS, COVENANTS AND WARRANTIES. Borrower hereby
makes the following representations, warranties and covenants to the Agent and
the SBA, which shall survive the execution and delivery of this Agreement:
(a) Borrower is now and at all times hereafter shall be the absolute owner,
free and clear of all Liens (other than Permitted Liens) of indefeasible title
to all of the SBA Collateral, except for that portion of Borrower's rights
and/or obligations under any Loan in which Borrower has granted a participation
to any Person;
(b) To the best of Borrower's knowledge, each outstanding Loan included in
the SBA Collateral does, and each future Loan included in the SBA Collateral
will, represent a bona fide, valid and legally enforceable indebtedness
according to its terms, and each such Loan, at the time of creation thereof,
except with the consent of the Agent and the SBA, will be subject to no offsets,
discounts, counterclaims, contra- accounts or
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any other defense of any kind or character that materially adversely affects the
value of such Loan;
(c) With respect to each outstanding and future Loan included in the SBA
Collateral, the Agent and the SBA may rely on all statements or representations
made by Borrower on or with respect to such Loans delivered hereunder, and,
unless otherwise indicated in writing by Borrower, each outstanding Loan
included in the SBA Collateral is, and each future Loan included in the SBA
Collateral will be, genuine and in all respects what it purports to be, and, to
Borrower's knowledge, there are no, and, at the time of creation of each such
Loan there will not be any, to Borrower's knowledge, facts, events or
occurrences that would in any way materially impair the validity or enforcement
thereof;
(d) All of the outstanding Loans included in the SBA Collateral have been,
and all future Loans included in the SBA Collateral will be, created, and are
(or in the case of such future Loans, will be), and the form and content of each
document related to all such outstanding and future Loans, the security related
thereto, and the transactions from which it arose comply (or, in the case of
such future Loans, will comply) in all material respects with any and all
applicable laws, ordinances, rules and regulations, Federal, state and/or local,
with respect to the extension of credit and charging of interest, including,
without limitation, as applicable, the Federal Consumer Credit Protection Act,
the Federal Fair Credit Reporting Act, the Federal Trade Commission Act, the
Federal Equal Credit Opportunity Act and all Federal, state and local laws
related to licensing, usury, truth in lending, real estate settlement
procedures, consumer protection, equal credit opportunity, fair debt collection,
unfair and deceptive trade practices, rescission rights and disclosures, and
with all rules and regulations thereunder, all as amended, and any disclosures
required with respect to any such Loan the failure of which to make would have a
Material Adverse Effect on Borrower were and will continue to be made properly
and in a timely manner;
(e) The original amount and unpaid balance of each Loan included in the SBA
Collateral shown on Borrower's books and records and on any statement or
schedule delivered to the Agent (i) are and will be the true and correct amount
actually owing to Borrower;
(f) If requested by the SBA at any time or from time to time, Borrower
shall cause a Lien search against each Person to whom a Loan included in the SBA
Collateral has been made satisfactory to the Agent, to be performed and
delivered directly to the Agent, which Lien search shall indicate the absence of
any Liens against such Person or the property of the Person on which Borrower
has a Lien, other than Liens in favor of Borrower which have been assigned to
the Agent or the SBA and other than Permitted Liens;
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(g) Borrower has not extended and will not extend any credit of any kind or
in any manner to any Person in connection with the transactions from which the
Loans included in the SBA Collateral arose or will arise other than as Borrower
has indicated on and has had evidenced by, or will indicate or have evidenced
by, in the case of future Loans included in the SBA Collateral, Borrower's files
related to all such Loans;
(h) Each security agreement, UCC filing, title retention instrument, and
other document and instrument, if any, which is security for the Loans included
in the SBA Collateral contains, or will contain, in the case of future Loans
included in the SBA Collateral, a correct and sufficient description of the
Underlying Collateral covered thereby and each lien or security interest which
secures any such outstanding Loan is, or any such future Loan will be, valid;
(i) To the best knowledge of Borrower, except as disclosed to the Agent,
any and all policies of insurance related to the property securing any
obligation of a Person to whom Borrower has made a Loan included in the SBA
Collateral, or any guarantor of such Loan, in connection with any Loan included
in the SBA Collateral and any credit life insurance, credit disability
insurance, or credit unemployment insurance are in full force and effect in
accordance with the terms of all agreements between Borrower and such Person or
guarantor;
(j) Borrower has no knowledge of any fact which would impair in any
material respect the value or validity of any Loan included in the SBA
Collateral except as disclosed to the Agent; and
(k) The transactions contemplated herein, including the granting of
security interests herein and the enforcement by the Agent of its rights
hereunder if a Default or Event of Default occurs, do not and will not affect
the validity of the pledges of the Underlying Collateral, and the Loans included
in the SBA Collateral secured by the Underlying Collateral are and will still be
valid against the Obligers of such Loans.
SECTION 4.2. COLLECTIONS.
(a) Subject to the provisions of this Agreement and the Intercreditor
Agreement, Borrower shall service, manage, enforce, and make Collections in
connection with the Commercial Loans. "Collections", as used herein, means
-----------
payment of principal and interest on the Commercial Loans, other payments made
with respect to Commercial Loans, the cash proceeds realized from the
enforcement of Commercial Loans and any security therefor, or the collateral,
proceeds of credit or group life insurance, and all proceeds of insurance of any
real or personal property which secure any of the Commercial Loans.
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(b) With respect to each of the Collections: Borrower shall collect all
Collections, receive all payments thereon and immediately deposit the proceeds
thereof into a Depository Account. Borrower may withdraw funds from such
account to use in the ordinary course of its business.
SECTION 4.3. RIGHTS OF AGENT REGARDING COLLATERAL. Upon the occurrence
and during the continuance of an Event of Default and subject to the provisions
of the Intercreditor Agreement, the Agent shall have the right, and upon the
direction of the SBA shall, at any time and from time to time thereafter,
without notice to Borrower, (a) to notify, and upon the direction of the Agent
to Borrower, the Borrower will notify, (i) all Persons to whom Borrower has made
Loans that the Agent has a security interest in the SBA Collateral and direct
all such Persons to make payments to the Agent or its designee, and to such
banks and accounts (which may be the Collateral Account) as designated by the
Agent or such designee, of all sums owing by them to Borrower, and (ii) all
banks in which Borrower has any Depository Accounts of the occurrence of an
Event of Default and direct all such Banks to transfer into the Collateral
Account, or to such other account at such bank as shall be designated by the
Agent or its designee, all amounts on deposit from time to time in the related
Depository Accounts; (b) to settle, compromise, sell, assign, extend or renew
any debt owing by any Persons to whom Borrower has made a Loan included in the
SBA Collateral; (c) to sell or assign such SBA Collateral upon such terms as the
Agent may deem advisable; and (d) to discharge and release in the name of
Borrower and the Agent any such debt. Any and all disbursements for costs and
expenses incurred or paid by the Agent with respect to the enforcement,
collection or protection of its interest in the SBA Collateral, or against
Borrower, whether by suit or otherwise, notification of Persons to whom Borrower
has made such Loans, including reasonable attorneys' fees actually incurred,
court costs and similar expenses, if any, shall be secured by the SBA
Collateral, payable on demand.
ARTICLE V
DEFAULT
SECTION 5.1. EVENTS OF DEFAULT. Any one of the following events will
constitute an "Event of Default":
(a) the failure to pay any amount due on the SBA Secured Debt, whether at
maturity or upon acceleration in accordance with the terms thereof, and such
failure shall continue for five (5) days after demand from the SBA delivered to
the Borrower;
(b) the acceleration of the Bank Obligations after an event of default
under the Loan Agreement or the Borrower's failure to pay at maturity the
balance of the Bank Obligations and such failure constitutes an event of default
under the Loan Agreement which has not been the subject of a waiver or
forbearance in accordance with the terms of the Loan Agreement;
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(c) the transfer of the Borrower by the SBA to its Office of Liquidation;
or
(d) the failure of Borrower to observe, perform or comply with any of the
terms, provisions, conditions, covenants, warranties or representations
contained in this Agreement, which failure shall not have been remedied within
30 days after such failure shall first have become known to any officer of
Borrower.
SECTION 5.2. REMEDIES.
(a) Upon the occurrence of any Event of Default, the Agent shall have, in
addition to any other rights and remedies contained in this Agreement or as Bank
Agent in the Bank Security Agreement, all the rights and remedies of a secured
party under the UCC, and all other rights and remedies provided by law, all of
which shall be cumulative to the extent permitted by law. Upon the occurrence
of any Event of Default of which the Agent has been given notice by the Borrower
or the SBA, and at any time thereafter if such or any other default shall then
be continuing, the Agent shall have the right without further notice to
Borrower, and upon direction of the SBA, subject to the provisions of the
Intercreditor Agreement, (i) to take possession and control of, set off and
apply to the payment of the SBA Secured Debt, any or all SBA Collateral, in the
manner set forth in Section 5.3; (ii) to enforce payment in connection with the
Commercial Loans or any other SBA Collateral; (iii) to notify the Borrower, and
upon the direction of the Agent to Borrower, the Borrower will notify all
Persons to whom Borrower has made Commercial Loans that the Agent has a security
interest in such SBA Collateral and direct all such Persons to make payments to
the Agent or its designee, and to such banks and accounts as designated by the
Agent or such designee, of all sums owing by them to Borrower; to prosecute any
action, suit or proceeding with respect to the SBA Collateral; (iv) to extend
the time of payment of any and all SBA Collateral, to make allowances and
adjustment with respect thereto, to issue credits in the name of Borrower or the
Agent or to settle, compromise or renew any debt constituting a part of the SBA
Collateral; and (v) to sell, assign and deliver the SBA Collateral (or any part
thereof), at public or private sale, at broker's board, for cash, upon credit or
otherwise, at the Agent's sole option and discretion and the Agent and the SBA
may bid or become purchaser at any such sale, if public, free from any right of
redemption, which is hereby expressly waived. Borrower agrees that the giving of
ten days notice by the Agent, sent by certified mail, return receipt requested
postage prepaid, to the address set forth below, designating the place and time
of any public sale or of the time after which any private sale or other intended
disposition of the SBA Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice with respect
thereto. The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by the Agent in accordance with
Section 5.3, and Borrower shall remain liable to the Agent and the SBA
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for any deficiency, together with interest thereon at the rates provided in the
documents evidencing the SBA Secured Debt, and the cost and expenses of
collection of such deficiency, including (to the extent permitted by law),
without limitation, reasonable attorneys' fees actually incurred, expenses and
disbursements.
(b) If at any time or times hereafter the Agent employs counsel for advice
with respect to this Agreement, or to intervene, file a petition, answer, motion
or other pleading in any suit or proceeding relating to this Agreement
(including, without limitation, the interpretation or administration, or the
amendment, waiver or consent with respect to any term, of this Agreement), or
relating to any SBA Collateral, or to protect, take possession of, or liquidate
any SBA Collateral, or to attempt to enforce any security interest or lien in
any SBA Collateral, or to represent the Agent in any pending or threatened
litigation with respect to the affairs of Borrower or any claim of the SBA
(whether against the Borrower, the Agent, the Bank Agent or any Bank) in any way
relating to any of the SBA Collateral or to enforce any rights of the Agent or
liabilities of Borrower or any Person to whom Borrower has made a Commercial
Loan, then in any of such events, all of the reasonable attorneys' fees actually
incurred arising from such services, and any expenses, costs and charges
relating thereto, shall be secured by the SBA Collateral.
(c) Upon the occurrence of an Event of Default, the Agent shall have the
right to require Borrower to assemble all SBA Collateral not already in the
Agent's possession and make it reasonably available to the Agent at one or more
places to be designated by the Agent which are reasonably convenient to both
parties, and to take possession of such SBA Collateral and to enter and remain
upon the various premises of Borrower without cost or charge to the Agent, and
to use the same, together with materials, supplies, books and records of
Borrower for the purpose of collecting such SBA Collateral or liquidating such
SBA Collateral (plus any SBA Collateral already in the Agent's possession),
whether by foreclosure, auction or otherwise. In addition, the Agent may remove
from such premises such SBA Collateral, and any records with respect thereto, to
the premises of the Agent or any custodian for such time as the Agent may
desire, in order to effectively collect or liquidate such SBA Collateral.
(d) Upon the occurrence of an Event of Default, the Agent shall have the
right to, and upon the direction of the SBA shall, require Borrower to establish
and maintain a lockbox service with such bank or banks as may be acceptable to
the Agent. In the event Borrower (or any of its Affiliates, subsidiaries,
stockholders, directors, officers, employees or agents) shall receive any
monies, checks, notes, drafts or any other items of payment relating to, or
proceeds of, a Commercial Loan, Borrower agrees with the Agent as follows:
(i) Borrower shall hold all such items of payment in trust for the
Agent and the SBA and as the property of Agent, the Banks and the SBA,
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separate from the funds of Borrower, and Borrower shall immediately
forward, or cause to be forwarded, the same to the lockbox service for
application in accordance with Section 5.3.
(ii) Borrower shall forward to the Agent, on a daily basis, deposit
slips related to all such items of payment received by Borrower and, if
requested by the Agent, copies of such checks and other items, together
with a statement showing the application of that portion of such items of
payment relating to payment in connection with the Commercial Loans and a
collection report with regard thereto in form and substance satisfactory to
the Agent.
(iii) All such items of payment shall be the sole and exclusive
property of the Agent as Bank Agent for the benefit of the Banks and as
Agent for the SBA hereunder immediately upon the earlier of receipt of such
items by the Agent or the receipt of such items by Borrower.
(iv) The lockbox service shall be subject to the sole control of
the Agent and the Agent shall have the right at all times in its sole
discretion to apply all or part of such items of payment in accordance with
Section 5.3. The Agent may, and upon the direction of the SBA, subject to
the requirements of the Intercreditor Agreement, shall, release to Borrower
all or any part of such items of payment.
(v) The Agent assumes no responsibility for such lockbox
arrangement, including, without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder.
(e) Upon the occurrence of any Event of Default, Borrower does hereby
irrevocably make, constitute and appoint the Agent and any of its officers,
employees or agents as the true and lawful attorneys of Borrower with power to:
(i) sign the name of Borrower on any financing statement, renewal
financing statement, notice or other similar document that in the Agent's
opinion must be filed in order to perfect or continue perfected the
security interests granted in this Agreement;
(ii) receive, endorse, assign and deliver, in Borrower's name or in
the name of the Agent, all checks, notes, drafts and other instruments
relating to any SBA Collateral, including receiving, opening and properly
disposing of all mail addressed to Borrower concerning the SBA Collateral
and to notify postal authorities to change the address for delivery of mail
to such address as the Agent may designate;
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(iii) sign Borrower's name on any notices to any of Borrowers
clients or customers; and
(iv) take or bring at Borrower's cost, in Borrower's name or in the
name of the Agent, all steps, actions and suits deemed by the Agent
necessary or desirable to effect collections in connection with any
Commercial Loans, to enforce payment in connection with any Commercial
Loans, to settle, compromise or release in whole or in part, any amounts
owing in connection with any Commercial Loans, to prosecute any action or
proceeding with respect to any Commercial Loans, to extend the time of
payment in connection with any Commercial Loans, to make allowances and
adjustments with respect thereto, to secure credit in the name of the
Agent, and to do all other things necessary or desirable to realize upon
the SBA Collateral, including but not limited to the Underlying SBA
Collateral, and to carry out this Agreement.
Neither the Agent nor its agents or attorneys will be liable for any act or
omission nor for any error of judgment or mistake of fact unless such act,
omission, error or mistake shall occur as a result of their gross negligence or
willful misconduct. This power, being coupled with an interest, is irrevocable
so long as any of the SBA Secured Debt remains unpaid.
(f) Notwithstanding any provision herein, as long as the Intercreditor
Agreement shall be in effect, the exercise by the Agent of rights hereunder
shall be subject to the provisions of the Intercreditor Agreement.
(g) The rights and remedies provided herein with respect to the SBA or its
Agent are not exclusive of any other rights or remedies provided by the SBA
regulations and applicable law. Nothing contained in this Agreement shall be
interpreted as restricting in any way the ability of the SBA to exercise the
rights and remedies available to it under the Small Business Investment Act of
1958, as amended, and the regulations promulgated thereunder.
SECTION 5.3. APPLICATION OF PROCEEDS.
(a) The proceeds of any lockbox collection or sale of, or other realization
upon, all or any part of the SBA Collateral shall be applied by the Agent in the
following order of priority:
first, to payment of the expenses of such lockbox or sale or other
-----
realization, including reasonable compensation to the Agent and its agents
and counsel and all expenses, liabilities, advances incurred or made by the
Agent in connection therewith, and any other unreimbursed expenses for
which the Agent is to be reimbursed under this Agreement;
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second, to the payment of the SBA Secured Debt (including
------
principal, interest, fees and all other amounts due thereunder);
third, to the payment of the Bank Obligations (including principal,
-----
interest, fees and all other amounts due thereunder), in accordance with
the terms of the Bank Security Agreement; and
fourth, after indefeasible payment in full of all of the SBA
------
Secured Debt and all Bank Obligations, to payment to Borrower or its
successors and assigns, or as a court of competent jurisdiction may direct,
of any surplus then remaining from such proceeds.
The Agent may make distributions hereunder in cash or in kind or in a
combination of cash or property. Any deficiency remaining, after application of
such cash or cash proceeds to the SBA Secured Debt and the Bank Obligations,
shall continue to be obligations for which Borrower remains liable.
(b) In making the determinations and allocations required by this Section
5.3, the Agent may rely upon information supplied by the SBA as to the amount
outstanding on the SBA Secured Debt and by the Banks and the Paying Agent as to
the amounts outstanding on the Bank Obligations, and the Agent shall have no
liability to the SBA or any of the Banks, the CP Holders or the Paying Agent for
actions taken in reliance upon such information. All distributions made by the
Agent pursuant to this Section 5.3 shall be final, and the Agent shall have no
duty to inquire as to the application by the SBA, the Banks, the CP Holders or
the Paying Agent of any amounts distributed to them. However, if at any time
the Agent determines that an allocation was based upon a mistake of fact
(including without limitation, mistakes based on an assumption that principal or
interest or any other amount has been paid by payments that are subsequently
recovered from the recipient thereof through the operation of any bankruptcy,
reorganization, insolvency or other laws or otherwise), the Agent may in its
discretion, but shall not, subject to Section 5.3(c), be obligated to, adjust
subsequent allocations and distributions hereunder so that, on a cumulative
basis, the SBA, the Banks and the CP Holders receive the distributions to which
they would have been entitled if such mistake of fact had not been made.
(c) If, through the operation of any bankruptcy, reorganization, insolvency
or other laws or otherwise, the security interests created hereby are enforced
with respect to some, but not all, of the SBA Secured Debt and the Bank
Obligations, the Agent shall nonetheless apply the proceeds for the benefit of
the SBA, the Banks and the CP Holders, in the proportion and subject to the
priorities of Section 5.3(a).
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<PAGE>
SECTION 5.4. WAIVER BY AGENT OR SBA. The Agent's or the SBA's failure at
any time or times hereafter to require strict performance by Borrower of any of
the provisions, warranties, terms and conditions contained in this Agreement
shall not waive, affect or diminish any right of the Agent or the SBA at any
time or times hereafter to demand strict performance therewith and with respect
to any other provisions, warranties, terms and conditions contained in this
Agreement, and any waiver of any Event of Default shall not waive or affect any
other Event of Default, whether prior or subsequent thereto, and whether of the
same or a different type. None of the warranties, conditions, provisions and
terms contained in this Agreement shall be deemed to have been waived by any act
or knowledge of the Agent or the SBA, or their respective agents, officers or
employees except by an instrument in writing signed by an officer of the Agent
or the SBA and directed to Borrower specifying such waiver.
ARTICLE VI
AGENCY
SECTION 6.1. APPOINTMENT AND ACTIONS.
(a) The SBA hereby designates and appoints Fleet Bank, N.A. as its
collateral Agent hereunder, and the SBA hereby authorizes the Agent to take such
action on its behalf under the provisions hereof and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms hereof
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary in this Agreement, the Agent shall
not have any duties or responsibilities except those expressly set forth herein,
nor any fiduciary relationship with the SBA, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise exist against the Agent.
(b) The Agent may execute any of its duties by or through agents or
attorneys- in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
(c) Neither the Agent nor any of its Affiliates or their respective
officers, directors, employees, agents or attorneys-in-fact shall be (i) liable
for any action lawfully taken or omitted to be taken by it or such person under
or in connection with this Agreement (except for its or such person's own gross
negligence or willful misconduct), or (ii) responsible in any manner to the SBA
for any recitals, statements, representations or warranties made by Borrower
contained herein or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent under or in connection
with this Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Edwards Notes or the TCC Note or this
Agreement or for any failure of Borrower to perform its obligations under either
of them. The
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<PAGE>
Agent shall not be under any obligation to the SBA to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, the SBA Secured Debt or this Agreement, or to inspect the
properties, books or records of Borrower.
(d) The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed, sent or made by the proper person or persons and upon
advice and statements of legal counsel (including, without limitation, counsel
to Borrower), independent accountants and other experts selected by the Agent.
The Agent may deem and treat the SBA as the owner of the SBA Secured Debt for
all purposes unless and until an assignment of the SBA's rights under this
Agreement has been agreed to by the Agent in accordance with Section 7.9.
(e) The Agent shall be fully justified in failing or refusing to take any
action under this Agreement unless it shall first receive such advice or
concurrence of the SBA as it deems appropriate or as required by the specific
terms of this Agreement or it shall first be indemnified to its satisfaction by
the SBA against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement in accordance with a request of the SBA, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all future
holders of the SBA Secured Debt.
(f) The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Event of Default, or any act or circumstance which with the
passage of time or the giving of notice would constitute and Event of Default,
or any document, agreement or instrument delivered in connection therewith,
unless the Agent shall have actual knowledge thereof or shall have received
notice from the SBA or Borrower, describing such event, act or condition,
default or Event of Default and stating that such notice is a "notice of
---------
default." The Agent shall take such action with respect to such event, act or
condition or default or Event of Default as shall be reasonably directed by the
SBA in writing, provided that such direction is not inconsistent with the terms
of the Intercreditor Agreement; and provided further that, unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such event, act or condition, default or Event of Default as it shall deem
advisable in the best interests of the SBA.
(g) At any time or times, in order to comply with any legal requirement in
any jurisdiction, the Agent may appoint another bank or trust company or one or
more other Persons, either to act as co-agent or co-agents, jointly with the
Agent, or to act as
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<PAGE>
separate agent or agents on behalf of the SBA with such power and authority as
may be necessary for the effectual operation of the provisions hereof and may be
specified in the instrument of appointment (which may, in the discretion of the
Agent, include provisions for the protection of such co-agent or separate agent
similar to the provisions of this Article VI).
SECTION 6.2. INDEPENDENT CREDIT DECISIONS. The SBA expressly acknowledges
that neither the Agent nor any of its Affiliates or their respective officers,
directors, employees, agents or attorneys-in-fact have made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of Borrower shall be deemed to constitute any
representation or warranty by the Agent to the SBA. The SBA represents to the
Agent that it has, independently and without reliance upon the Agent, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and credit worthiness of Borrower and made its own
decision to enter into this Agreement. The SBA also represents that it will,
independently and without reliance upon the Agent, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
hereunder, and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial and other condition and
credit worthiness of Borrower. Except for notices and other documents expressly
required to be furnished to the SBA by the Agent hereunder, the Agent shall not
have any duty or responsibility to provide the SBA with any credit or other
information concerning the business, operations, property, financial and other
condition or credit worthiness of Borrower which may come into the possession of
the Agent or any of Affiliates or their respective officers, directors,
employees, agents or attorneys-in-fact.
SECTION 6.3. INDEMNIFICATION OF AGENT. The SBA agrees to indemnify the
Agent (to the extent not reimbursed by Borrower) from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the SBA
Secured Debt) be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of this Agreement, the transactions contemplated
hereby or any action taken or omitted by the Agent under or in connection with
any of the foregoing; provided that the SBA shall not be liable for the payment
of any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Agent's bad faith, willful misconduct or gross negligence. The
agreements in this subsection shall survive the payment of the SBA Secured Debts
and other obligations under this Agreement.
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<PAGE>
SECTION 6.4. RESIGNATION AND SUCCESSION.
(a) The Agent may resign as Agent hereunder upon its resignation as
Collateral Agent in accordance with the procedures set forth in the
Intercreditor Agreement. The successor Collateral Agent appointed in accordance
with the terms of the Intercreditor Agreement shall automatically, without
further action hereunder, become the successor agent hereunder, whereupon such
successor agent shall succeed to the rights, powers and duties of the Agent, and
the term "Agent" shall mean such successor agent effective upon its appointment,
and the former Agent's rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement.
(b) In the event that all of the Bank Obligations under the Loan Agreement
shall be satisfied and the Bank Agent shall be discharged of its obligations
under the Bank Security Agreement at a time when any amount on the SBA Secured
Debt shall remain outstanding, the Bank Agent shall, upon notice to the SBA,
resign and be discharged of its obligations under this Agreement, whereupon the
SBA shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean the SBA, and the former Agent's rights, powers and duties as
Agent shall be terminated, without any other or further act or deed on the part
of such former Agent or any of the parties to this Agreement, provided, however,
that if the Borrower has also granted or expects to grant a subordinate security
interest in the SBA Collateral to another lender or representative agent for a
Person or Persons extending credit to the Borrower, the SBA agrees, upon the
written request of the Borrower, to cooperate with the Borrower and such lender
or representative agent to enter into an intercreditor agreement or appointment
of a common collateral agent on terms similar to the terms of this Agreement or
as otherwise reasonably agreed between the Borrower and the SBA.
(c) After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article VI shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. CONTINUING LIEN. There is included within the term "SBA
Collateral," as used herein, all other property and all interests therein of any
kind hereafter acquired by Borrower, meeting or falling within the description
of the SBA Collateral set forth herein and also the proceeds and products
thereof.
SECTION 7.2. WAIVERS BY BORROWER.
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<PAGE>
(a) Borrower irrevocably waives the right to direct the application of any
and all payments which may be received by the Agent during the continuance of an
Event of Default, and Borrower does hereby irrevocably agree that, during the
continuance of an Event of Default, the Agent shall have the continuing
exclusive right to apply and reapply any and all such payments received in such
manner as the Agent may deem advisable, notwithstanding any entry upon any of
its books and records.
(b) Borrower also waives any and all notices of demand, notice or protest
that Borrower might be entitled to receive with respect to this Agreement by
virtue of any applicable statute or law, and waives demand, protest, notice of
protest, notice of default, release, compromise, settlement, extension or
renewal of all commercial paper, accounts, contract rights, instruments,
guaranties, and otherwise, at any time held by the Agent on which Borrower may
in any way be liable, notice of nonpayment at maturity of any and all Commercial
Loans, and notice of any action taken by the Agent unless expressly required by
this Agreement.
SECTION 7.3. PARTIES. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the parties hereto.
SECTION 7.4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE CONFLICT OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER
JURISDICTION ARE MANDATORILY APPLICABLE TO THE EXERCISE OF REMEDIES OR THE
PERFECTION OF SECURITY INTERESTS UNDER THE UCC.
SECTION 7.5. WAIVER OF JURY TRIAL AND SETOFF. EACH OF BORROWER, THE SBA
AND THE AGENT HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY
OTHER CLAIM OR DISPUTE, HOWSOEVER ARISING, BETWEEN BORROWER AND THE AGENT; AND
BORROWER HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF, COUNTERCLAIM OR CROSS-
CLAIM IN CONNECTION WITH ANY SUCH LITIGATION, IRRESPECTIVE OF THE NATURE OF SUCH
SETOFF, COUNTERCLAIM OR CROSS-CLAIM (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-
CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS,
BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION).
SECTION 7.6. JURISDICTION; SERVICE OF PROCESS. Borrower hereby
irrevocably consents to the Jurisdiction of the Courts of the State of New York,
County of New
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<PAGE>
York and of any Federal Court located in the Southern District of
New York, and agrees that venue in each of such Courts is proper in connection
with any action or proceeding arising out of or relating to this Agreement.
Nothing herein shall affect the right of the SBA to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against Borrower in any other jurisdiction.
SECTION 7.7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Borrower and all terms, provisions, conditions
and agreements to be performed by Borrower contained in this Agreement shall be
true and correct, and satisfied, where applicable, at the time of the execution
of this Agreement and shall survive the execution and delivery of this
Agreement.
SECTION 7.8. SUCCESSOR AGENT. In the event a successor agent is appointed
pursuant to the provisions of Section 6.4, such successor agent shall succeed to
the rights, powers and duties of the Agent hereunder, and the former Agent's
rights, powers and duties as Agent shall, subject to the provisions of Section
6.4(c), be terminated, without any other or further act or deed on the part of
such former Agent or the SBA. Such former Agent agrees to take such actions as
are reasonably necessary to effectuate the transfer of its rights, powers and
duties to such successor agent.
SECTION 7.9. TERMINATION. This Agreement and the security interest in the
SBA Collateral created hereby will terminate when all of the SBA Secured Debt
has been irrevocably paid and finally discharged in full in accordance with its
terms. Borrower may not assign this Agreement without the express written
consent of the Agent and the SBA. The SBA may not assign this Agreement without
the express written consent of the Agent, except for any assignment by operation
of law.
SECTION 7.10. NOTICES. All notices, requests, consents, demands or other
communications provided for herein shall be deemed to have been given (i) five
Business Days after the date mailed if sent by registered or certified mail,
postage prepaid, return receipt requested, or (ii) on the day of delivery if
personally delivered or sent by overnight courier service, or (iii) on the day
of transmission if sent by telecopier and confirmed, on the same day as such
notice is sent, by telephonic notice or by one of the other two methods listed
above, and shall be addressed, as the case may be, as follows: to the Agent at
Fleet Bank, N.A., 1185 Avenue of the Americas, New York, NY 10036 (Attn: Andrea
Lee), Telecopier No. (212) 819-6212, with a copy to Emmet, Marvin & Martin, 120
Broadway, New York, New York 10271 (Attention: Richard M. Skoller, Esq.),
Telecopier No. (212) 212-238-3100, and to Borrower at Medallion Funding Corp.,
205 East 42nd Street, New York, New York 10017 (Attention: Daniel Baker, Vice
President, Finance), Telecopier No. (212) 983-0351, with a copy to Palmer &
Dodge LLP, One Beacon Street, Boston, Massachusetts 02108 (Attention: John L.
Whitlock, Esq.), Telecopier No. (617) 227-4420, and to the SBA at United States
Small
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<PAGE>
Business Administration, 409 Third Street, S.W., Washington, D.C. 20416, Attn:
Fonda Stephens-Kelly, or to such other person or address as either party shall
designate to the other from time to time in writing forwarded in like manner.
SECTION 7.11. SEVERABILITY. To the extent any provision of this Agreement
is prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
SECTION 7.12 RIGHTS AND REMEDIES NOT WAIVED. No course of dealing between
the Borrower and the Agent or the SBA, and no failure on the part of the Agent
or the SBA to exercise any rights or remedies hereunder or under any SBA Secured
Debt shall operate as a waiver of any rights or remedies of the Agent or the
SBA, and no single or partial exercise of any rights or remedies hereunder shall
operate as a waiver or preclude the exercise of any other rights or remedies
hereunder.
SECTION 7.13. COUNTERPARTS. This Agreement may be executed by the parties
hereto in counterparts, each of which shall be an original and both of which
shall together constitute one and the same agreement.
SECTION 7.14. AMENDMENTS. This Agreement may not be amended except by a
writing executed by all the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written by the duly authorized officers of the parties hereto.
MEDALLION FUNDING CORP.
By:___________________________
Name: Alvin Murstein
Title: Chief Executive Officer
By:___________________________
Name: Daniel F. Baker
Title: Treasurer and Chief
Financial Officer
UNITED STATES SMALL BUSINESS
ADMINISTRATION
By:___________________________
Name:
Title:
FLEET BANK, N.A.,
as Agent
By:___________________________
Name:
Title:
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<PAGE>
SCHEDULE A
----------
SBA COLLATERAL - DESIGNATED COMMERCIAL LOANS
The following loans are hereby designated as SBA Collateral as of
__________, 1997:
Loan Number Borrower Outstanding Balance
----------- -------- -------------------
$________________
Total Outstanding Balance $________________
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<PAGE>
EXHIBIT G
FORM OF INTERCREDITOR AGREEMENT
-------------------------------
<PAGE>
INTERCREDITOR AGREEMENT
This Intercreditor Agreement is dated as of ________________, 1997, and
entered into among Fleet Bank, N.A., as agent (in such capacity, the "Bank
Agent") for the lenders, commercial paper holders and paying agent under the
Bank Security Agreement referred to below, Fleet Bank, N.A., as agent (in such
capacity, the "SBA Agent") for the Small Business Administration under the SBA
Security Agreement referred to below, Fleet Bank, N.A. as collateral agent (in
such capacity, together with its successors in such capacity, the "Collateral
Agent") hereunder, and the Small Business Administration (the "SBA").
RECITALS
WHEREAS, Medallion Funding Corp. (the "Borrower"), as the borrower, the
several lenders from time to time parties thereto (the "Lenders"), the Bank
Agent and The Bank of New York as documentation agent have entered into an
Amended and Restated Loan Agreement dated as of December 24, 1997 (said
agreement, as it may hereafter be amended, supplemented or otherwise modified
from time to time, being the "Bank Loan Agreement"); and
WHEREAS, the Borrower also issues commercial paper from time to time, and
has secured its obligations to the Lenders and to the holders of its commercial
paper and the paying agent for such holders (collectively with the Lenders, the
"Revolving Lenders") under and pursuant to an Amended and Restated Security
Agreement dated as of December 24, 1997, between the Borrower and the Bank Agent
(said agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "Bank Security Agreement"); and
WHEREAS, effective upon the merger of Edwards Capital Corp. and
Transportation Capital Corp. with and into the Borrower the Borrower also will
assume the obligations owing to the SBA secured pursuant to a Security Agreement
dated as of even date herewith (said agreement, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SBA Security
Agreement");
WHEREAS, the parties wish to set forth their agreement as to the decisions
relating to the exercise of remedies under the Bank Security Agreement and the
SBA Security Agreement and certain limitations on the exercise of such remedies.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
SECTION 1. DEFINED TERMS. Capitalized terms defined in the foregoing
caption and recitals shall have the respective meanings ascribed thereto. In
addition, as used herein, the following terms shall have the following meanings:
"Acceleration" shall mean any of the Revolving Obligations or the SBA
------------
Obligations have been declared, or have become, immediately due and payable.
"Agreement" shall mean this Intercreditor Agreement, as the same may be
---------
amended and supplemented from time to time.
"Collateral" shall mean all the properties and assets of whatever nature,
----------
real or personal, tangible or intangible, now owned or existing or hereafter
acquired or arising, in which any of the Revolving Lenders, the SBA, the Bank
Agent or the SBA Agent has been granted a lien pursuant to any of the Security
Documents.
"Collateral Agent Obligations" shall mean all indemnity, reimbursement and
----------------------------
payment obligations of the Borrower to the Collateral Agent under this Agreement
or any Security Document.
"Notice of Acceleration" shall mean a notice by the Bank Agent in the case
----------------------
of the Revolving Lenders or the SBA Agent or the SBA, in each case delivered to
the Collateral Agent stating that an Acceleration has occurred.
"Revolving Obligations" shall mean all of the obligations secured by the
---------------------
collateral described in the Bank Security Agreement.
"Revolving Primary Collateral" shall mean the assets of the Borrower in
----------------------------
which the Borrower has granted a security interest to the Bank Agent for the
benefit of the Revolving Lenders under the Bank Security Agreement, but
excluding therefrom the SBA Collateral.
"SBA Obligations" shall mean the outstanding amount which shall be owed by
---------------
the Borrower to the SBA (i) under the following notes, originally given by
Edwards Capital Corp., a Delaware Corporation, to the SBA, namely: a debenture
dated June 8, 1988, in the original principal amount of $3,000,000; two
debentures dated September 23, 1992, in the original principal amount of
$3,500,000 and $6,050,000, respectively; a debenture dated June 29, 1994, in the
original principal amount of $4,600,000; and a debenture dated September 28,
1994, in the original principal amount of $5,100,000 and (ii) under a debenture
dated as of June 24, 1992, originally given by Transportation Capital Corp., a
New York Corporation, to the SBA in the original principal amount of $5,600,000.
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<PAGE>
"SBA Collateral" shall mean the Designated Commercial Loan collateral
--------------
described in Section 2.2 of the SBA Security Agreement.
"Secured Parties" shall mean the Revolving Lenders and the SBA.
---------------
"Secured Obligations" shall mean the Revolving Obligations and the SBA
-------------------
Obligations.
"Security Documents" shall mean the Bank Security Agreement and the SBA
------------------
Security Agreement.
"Short Term Investments" shall mean (i) direct obligations of the United
----------------------
States of America; (ii) negotiable certificates of deposit issued by, or
negotiable bankers' acceptances (eligible for discount at Federal Reserve Banks)
of, or repurchase agreements in respect of obligations described in clause (i)
with, any bank or trust company organized under the laws of the United States of
America or any state thereof having capital and surplus of not less than
$250,000,000; and (iii) readily marketable commercial paper which, at the time
of acquisition, is rated at least A-1 by Standard & Poor's Corporation or P-1 by
Moody's Investor Services; provided, that all of such investments described in
clauses (i), (ii) and (iii) shall be payable in United Stated dollars and shall
mature within twelve months after the date of acquisition.
SECTION 2. APPOINTMENT AS COLLATERAL AGENT. The Bank Agent, on behalf of
the Revolving Lenders, and the SBA Agent on behalf of the SBA, hereby severally
appoint, Fleet Bank, N.A. to serve as the Collateral Agent and representative of
the Secured Parties, and each authorizes the Collateral Agent to act as agent
for the Secured Parties for the purpose of enforcing the Secured Parties' rights
under the Security Documents. The Collateral Agent hereby accepts such
appointment and agrees to act as Collateral Agent hereunder.
SECTION 3. DECISIONS RELATING TO EXERCISE OF REMEDIES.
(a) The Collateral Agent agrees to make such demands, to give such notices
and to take such other actions under this Agreement and the Security Documents
as are expressly required under the terms hereof and thereof, and to take such
action to enforce the Security Documents and to foreclose upon, collect and
dispose of the Collateral or any portion thereof as may be expressly required
under the terms of this Agreement and the Security Documents or as Collateral
Agent may be directed in accordance herewith. The Collateral Agent shall not be
required to take any action that is in its opinion contrary to law or to
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<PAGE>
the terms of this Agreement or the Security Documents, or that would in its
opinion subject it or any of its officers, employees, agents or directors to
liability, and the Collateral Agent shall not be required to take any action
under this Agreement or the Security Documents unless and until the Collateral
Agent shall be indemnified to its reasonable satisfaction by the Secured Parties
requesting such action against any and all loss, cost, expense or liability in
connection therewith.
(b) With respect to the Revolving Primary Collateral, after receipt by the
Collateral Agent of a Notice of Acceleration relating to the Revolving
Obligations, the Collateral Agent shall take direction from the Bank Agent (who
may, in accordance with the Bank Security Agreement be directed by the Required
Banks (as defined in the Bank Loan Agreement)).
(c) With respect to the SBA Collateral, after receipt by the Collateral
Agent of a Notice of Acceleration relating to the SBA Obligations, the
Collateral Agent shall take direction from the SBA Agent (who may, in accordance
with the SBA Security Agreement be directed by the SBA). In the event that (i)
the Collateral Agent has received a Notice of Acceleration relating to the
Revolving Obligations and has completed the liquidation of the Revolving Primary
Collateral, and (ii) after application of all of the proceeds of the Revolving
Primary Collateral some of the Revolving Obligations remain unpaid, but (iii)
the Collateral Agent has not received a Notice of Acceleration relating to the
SBA Obligations, then the Collateral Agent, upon direction by the Bank Agent as
set forth above, shall liquidate the SBA Collateral in accordance with the terms
of the Bank Security Agreement, applying all proceeds thereof as set forth in
Section 5.3 thereof. Furthermore, in the event that the Collateral Agent has
received a Notice of Acceleration relating to the Revolving Obligations, but has
not completed the liquidation of the Revolving Primary Collateral, the
Collateral Agent, with the prior consent of the SBA (which will not be
unreasonably withheld), upon direction by the Bank Agent as set forth above,
shall liquidate the SBA Collateral in the manner set forth in the previous
sentence.
(d) Each party executing this Agreement agrees that the Collateral Agent
may act as required herein (regardless of whether any individual party or any
other Secured Party agrees, disagrees or abstains with respect to such request),
that the Collateral Agent shall have no liability for acting in accordance with
such request and that no party or Secured Party shall have any liability to any
other party or Secured Party for any such request. The Collateral Agent shall
give prompt notice to all parties hereto of actions taken by it hereunder;
provided, however, that the Collateral Agent shall have no liability for its
- 4 -
<PAGE>
failure to do so and the failure to give any such notice shall not impair the
right of the Collateral Agent to take any such action or the validity or
enforceability under this Agreement of the action so taken.
(e) Each party executing this Agreement, on behalf of the Secured Parties,
agrees not to take any action whatsoever to enforce any term or provision of the
Security Documents or to enforce any of its rights in respect of the Collateral,
except through the Collateral Agent in accordance with this Agreement.
(f) It is understood by all parties hereto that the Collateral Agent is
acting simultaneously in its capacity as SBA Agent for the SBA under the SBA
Security Agreement and as Bank Agent for the Revolving Lenders under the Bank
Security Agreement; and accordingly the Collateral Agent shall not be liable to
any Revolving Lender, the Borrower or the SBA (or their successors and assigns)
in connection with or in any way directly or indirectly related to its acting in
such dual capacity.
SECTION 4. APPLICATION OF PROCEEDS OF COLLATERAL.
(a) When a Notice of Acceleration relating to the Revolving Obligations is
in effect, all amounts received from the liquidation or collection of the Bank
Primary Collateral shall be applied in the following order of priority:
First, to the extent not theretofore paid by or on behalf of the Borrower,
all Collateral Agent Obligations in connection with the performance of its
duties hereunder relating to the liquidation or collection of the Bank
Primary Collateral; and
Second, to the Bank Agent for distribution under the Bank Security
Agreement in accordance with its terms.
(b) When a Notice of Acceleration relating to the SBA Obligations is in
effect, all amounts received from the liquidation or collection of the SBA
Collateral shall be applied in the following order of priority:
First, to the extent not theretofore paid by or on behalf of the Borrower,
all Collateral Agent Obligations in connection with the performance of its
duties hereunder relating to the liquidation or collection of the SBA
Collateral;
Second, to the SBA Agent for distribution under the SBA Security Agreement
in accordance with its terms.
(c) When a Notice of Acceleration relating to the Revolving Obligations is
in effect but no Notice of Acceleration relating to the SBA Obligations is in
effect, if at such time all
- 5 -
<PAGE>
of the Revolving Obligations have not been paid in full, all amounts received
from the liquidation or collection of the SBA Collateral shall be applied in the
following order of priority (provided, that, if at such time the Collateral
Agent has not completed its liquidation of the Bank Primary Collateral it shall
not liquidate any SBA Collateral without the prior consent of the SBA, which
consent shall not be required if the Collateral Agent has at such time completed
such liquidation of such Bank Primary Collateral):
First, to prepay the SBA Obligations in accordance with their terms, and
Second, after all of the SBA Obligations have been paid in full, to the
extent not theretofore paid by or on behalf of the Borrower, all Collateral
Agent Obligations; and
Third, to the Bank Agent for distribution in accordance with the terms of
the Bank Security Agreement.
(d) Unless the Collateral Agent shall have received instructions from the
Bank Agent, the SBA Agent or the SBA as to the times at which any amounts are to
be distributed to such parties pursuant to this section, all distributions or
transfers pursuant to this section shall be made at such times and as promptly
as the Collateral Agent shall in its good faith discretion determine to be
reasonable and practicable under the circumstances, given the amount available
for distribution or transfer and the amounts reasonably expected to be
available, and the cost of distributing funds to the Secured Parties entitled to
receive the same. The Collateral Agent shall at all times have the right to
request distribution instructions as contemplated by the preceding sentence.
(e) Pending the disbursement thereof pursuant to the terms of this
Agreement, all Collateral proceeds shall be invested by the Collateral Agent in
such Short Term Investments as it shall determine from time to time. All
reasonable commissions and other reasonable costs and expenses incurred by the
Collateral Agent in connection with the acquisition or disposition by it of
Short Term Investments may be deducted by the Collateral Agent from the income
received by the Collateral Agent with respect thereto.
SECTION 5. INFORMATION.
(a) Upon the request of the Collateral Agent, each party hereto agrees to
promptly inform the Collateral Agent of the existence and amount of the Secured
Obligations owing to such party. Upon request of the Collateral Agent, each
party will inform the Collateral Agent of such payments on the Secured
- 6 -
<PAGE>
Obligations as may be received from time to time by such party and such other
Secured Parties for whom such party is acting as agent.
(b) If, notwithstanding the request of the Collateral Agent, any party
shall fail or refuse reasonably promptly to certify as to the existence or
amount of any Secured Obligation or such other information concerning the
Secured Obligations as the Collateral Agent may reasonably request, the
Collateral Agent shall be entitled to determine such existence or amount of such
Secured Obligations by such method as the Collateral Agent may, in its sole
discretion, determine in good faith, including by reliance upon a certificate of
an officer of the Borrower. The Collateral Agent may rely conclusively, and
shall be fully protected in so relying, on any determination made by it in good
faith in accordance with the provisions of this section (or as otherwise
directed by a court of competent jurisdiction after notice and hearing on the
merits) and, in the absence of gross negligence or willful misconduct shall have
no liability to the Borrower, any holder of any Secured Obligation or any other
person as a result of such determination.
(c) If the Collateral Agent receives any Notice of Acceleration or
certificate rescinding a Notice of Acceleration or any request by the Borrower
for any consent, waiver or amendment with respect hereto or any Security
Document, it shall give prompt notice thereof to each other party at the address
for such party provided for in Section 8 hereof, but shall have no liability for
its failure to do so.
(d) A Notice of Acceleration shall be deemed to have been given only when
the Notice of Acceleration has actually been received by the Collateral Agent
and to have been rescinded when the Collateral Agent has actually received from
the creditor or creditor group which gave such Notice of Acceleration a notice
withdrawing such Notice of Acceleration. A Notice of Acceleration shall be
deemed to be outstanding at all times after such notice has been given until
such time, if any, as such notice has been rescinded.
SECTION 6. INTERCREDITOR ARRANGEMENTS; SBA COLLATERAL DESCRIPTION.
(a) Each of the Collateral Agent and each of the other parties for itself
or on behalf of the respective Secured Parties hereby agrees, and the Borrower
hereby acknowledges, that notwithstanding the order of priority of any filing of
any financing statement, the lien of the SBA Agent for the benefit of the SBA on
the SBA Collateral shall be prior in right, including rights of distribution, to
the lien of the Bank Agent for the benefit of the Revolving Lenders, and that
unless and until the
<PAGE>
Borrower shall grant security interests in any of the other Collateral in
accordance with the terms of the SBA Security Agreement and the Bank Loan
Agreement, the SBA Agent and the SBA have no lien on, or right to receive
distributions of the proceeds of, any other Collateral other than the SBA
Collateral.
(b) If any Secured Party acquires custody, control or possession of any
Collateral or proceeds therefrom, other than by distribution from the Collateral
Agent pursuant to the terms of this Agreement, and such Secured Party would not
have been entitled to receive such proceeds pursuant to the provisions of
Section 3, such Secured Party shall promptly cause such Collateral, proceeds or
payments to be delivered to or put in the custody, possession or control of the
Collateral Agent for disposition or distribution in accordance with the
provisions of Section 3. Until such time as the provisions of the immediately
preceding sentence have been complied with, such Secured Party shall be deemed
to be a custodian of all such Collateral, proceeds and payments in trust for the
parties entitled thereto hereunder.
(c) Each party hereto shall execute and deliver such other documents and
instruments, in form and substance reasonably satisfactory to the other parties,
and shall take such other action, in each case as any other party may reasonably
have requested (at the cost and expense of the Borrower which, by countersigning
this Agreement, agrees to pay such reasonable costs and expenses), to effectuate
and carry out the provisions of this Agreement, including by recording or filing
in such places as the requesting party may deem desirable, this Agreement or
such other documents or instruments.
(d) No Secured Party may require the Collateral Agent to take or refrain
from taking any action hereunder or under any of the Security Documents or with
respect to any of the Collateral except as and to the extent expressly set forth
in this Agreement.
(e) It is expressly agreed that (i) at no time shall the aggregate
outstanding principal balance of the SBA Collateral exceed 120% of the SBA
Obligations at such time; provided, that, such amount may be increased by an
-------- ----
amount not to exceed the lesser of (i) $200,000, or (ii) an amount necessary to
include all, as opposed to part, of any partcular Commercial Loan (as defined in
the Bank Loan Agreement and the SBA Security Agreement) within the SBA
Collateral, and (ii) Schedule A to the SBA Security Agreement shall not be
updated (a) more often than monthly, or (b) at any time the Collateral Agent,
the SBA Agent or the SBA has been notified that a Default or an Event of Default
has occurred and is continuing under the Bank Loan Agreement, or would be caused
as a result of updating such Schedule A.
- 8 -
<PAGE>
SECTION 7. DISCLAIMERS AND INDEMNITY.
(a) The Collateral Agent (which term for purposes of this Section 7, shall,
unless the context clearly indicates otherwise, also include the Bank Agent and
the SBA Agent), shall have no duties or responsibilities to the Secured Parties
except those expressly set forth in this Agreement and the Security Documents,
and the Collateral Agent shall not by reason of this Agreement or the Security
Documents be a trustee for any Secured Party or have any other fiduciary
obligation to any Secured Party (including any obligation under the Trust
Indenture Act of 1939, as amended). The Collateral Agent shall not be
responsible to any Secured Party for any recitals, statements, representations
or warranties contained in this Agreement, the Security Documents or any of the
other documents relating to the Secured Obligations (collectively, the
"Financing Agreements") or in any certificate or other document referred to or
provided for in, or received by any of them under, any of the Financing
Agreements, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any of the Financing Agreements or any other
document referred to or provided for therein or any lien under the Security
Documents or the perfection or priority of any such lien or the value or
condition of the Collateral or the title of the Borrower to the Collateral or
for any failure by the Borrower to perform any of its obligations under any of
the Financing Agreements. The Collateral Agent may employ agents and attorneys-
in-fact and shall not be responsible for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. Neither
the Collateral Agent nor any of its directors, officers, employees or agents
shall be liable or responsible for any action taken or omitted to be taken by it
or them hereunder or in connection herewith, except for its or their own gross
negligence or willful misconduct.
(b) The Collateral Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telex, telecopy,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper person or persons, and upon advice
and statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Collateral Agent. The Collateral
Agent shall not be deemed to have actual, constructive, direct or indirect
notice or knowledge of the occurrence of any Acceleration unless and until the
Collateral Agent shall have received a Notice of Acceleration. The Collateral
Agent shall have no obligation whatsoever either prior to or after receiving a
Notice of Acceleration to inquire whether an Acceleration has, in fact, occurred
and shall be entitled to rely conclusively, and shall be fully protected in so
relying, on any Notice of Acceleration certificate so furnished to
- 9 -
<PAGE>
it. As to any matters not expressly provided for by this Agreement, the
Collateral Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions given in
accordance with the Bank Security Agreement and/or the SBA Security Agreement.
(c) The Collateral Agent shall be indemnified to the extent and in
accordance with the indemnities provided in the Bank Loan Agreement, Bank
Security Agreement and the SBA Security Agreement and notwithstanding that such
provisions are not expressly applicable to the Collateral Agent, all such
provisions shall, unless the context clearly indicates otherwise, be read to
include and run to the benefit of the Collateral Agent.
(d) Except as expressly provided herein or in the Security Documents, the
Collateral Agent shall have no duty to take any affirmative steps with respect
to the collection of amounts payable in respect of the Collateral.
(e) The Collateral Agent may resign at any time by giving at least 10 days
notice thereof to the parties (such resignation to take effect as hereinafter
provided). In the event of any such resignation of the Collateral Agent, the
other parties shall have the right to appoint a successor Collateral Agent which
appointment shall, unless an Acceleration has occurred and is continuing, be
subject to the approval of the Borrower, provided, however, that if the bank
then holding the position of the Bank Agent is then willing to serve as the
Collateral Agent and if such Bank Agent is a bank which is qualified to act as
the successor Collateral Agent (pursuant to the fourth sentence of this
paragraph), then the Bank Agent shall, upon its acceptance as the successor
Collateral Agent, become the successor Collateral Agent without any further act
by any other party hereto. If no successor Collateral Agent shall have been so
appointed by the other parties and shall have accepted such appointment within
30 days after the notice of the notice of intent of the Collateral Agent to
resign, then the retiring Collateral Agent may apply to a court of competent
jurisdiction for the appointment of a successor Collateral Agent. Any successor
Collateral Agent appointed pursuant to this paragraph shall be a bank party to
the Loan Agreement or a commercial bank organized under the laws of the United
States of America or any state thereof and having a combined capital and surplus
of at least $250,000,000. Upon the acceptance of any appointment as Collateral
Agent hereunder by a successor Collateral Agent and the transfer of any
Collateral held by the retiring Collateral Agent to the successor Collateral
Agent, such successor Collateral Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent, and the retiring or removed Collateral Agent shall thereupon
be discharged from its
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<PAGE>
duties and obligations hereunder. After any retiring or removed Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Section 6 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the Collateral
Agent.
(f) Notwithstanding the fact that certain of the provisions of this
Agreement apply to the Secured Parties, it is expressly agreed that neither the
Collateral Agent, the Bank Agent nor the SBA Agent shall have any responsibility
for ensuring performance by such Secured Party(ies), nor any liability
whatsoever for their failure to so perform.
SECTION 8. MISCELLANEOUS.
(a) NOTICES. All notices and other communications provided for herein
shall be in writing and may be personally served, telecopied, telexed or sent by
United States mail and shall be deemed to have been given when delivered in
person, upon receipt of telecopy or telex, or four Business Days after deposit
in the United States mail, registered or certified, with postage prepaid and
properly addressed. For the purposes hereof, the addresses of the parties
hereto (until notice of a change thereof is delivered as provided in this
section) shall be as provided in the Bank Security Agreement and the SBA
Security Agreement.
(b) PARTIES. This Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the parties hereto.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT
OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION
ARE MANDATORILY APPLICABLE TO THE EXERCISE OF REMEDIES OR THE PERFECTION OF
SECURITY INTERESTS UNDER THE UCC.
(d) WAIVER OF JURY TRIAL AND SETOFF. EACH OF PARTIES HERETO HEREBY WAIVES
TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS AGREEMENT, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR
DISPUTE, HOWSOEVER ARISING, BETWEEN BORROWER AND ANY OTHER PARTY; AND BORROWER
HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF, COUNTERCLAIM OR CROSS-CLAIM IN
CONNECTION WITH ANY SUCH LITIGATION, IRRESPECTIVE OF THE NATURE OF SUCH SETOFF,
COUNTERCLAIM OR CROSS-CLAIM (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM
COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION).
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<PAGE>
(e) JURISDICTION; SERVICE OF PROCESS. Borrower hereby irrevocably consents
to the Jurisdiction of the Courts of the State of New York, County of New York
and of any Federal Court located in the Southern District of New York, and
agrees that venue in each of such Courts is proper in connection with any action
or proceeding arising out of or relating to this Agreement. Nothing herein
shall affect the right of the other parties to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
Borrower in any other jurisdiction.
(f) WAIVERS AND MODIFICATIONS. This Agreement may be modified or waived
only by an instrument or instruments in writing signed by all of the parties
hereto.
(g) TERMINATION. Upon the earlier to occur of (i) receipt by the
Collateral Agent of evidence satisfactory to it of the termination of all
commitments to extend credit which would constitute Revolving Obligations and
the indefeasible payment in full of all Revolving Obligations, and (ii) receipt
by the Collateral Agent of evidence satisfactory to it of the indefeasible
payment in full of all SBA Obligations (including, without limitation, the
reasonable compensation, expenses and disbursements of the Collateral Agent),
this Agreement shall terminate, provided that Section 7 of this Agreement shall
survive, and remain operative and in full force and effect, regardless of the
termination of this Agreement.
(h) SEVERABILITY. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
(i) RIGHTS AND REMEDIES NOT WAIVED. No course of dealing between the
Borrower and the Collateral Agent or any other party, and no failure on the part
of the Collateral Agent or any other party to exercise any rights or remedies
hereunder shall operate as a waiver of any rights or remedies of the Collateral
Agent or any other party, and no single or partial exercise of any rights or
remedies hereunder shall operate as a waiver or preclude the exercise of any
other rights or remedies hereunder.
(j) COUNTERPARTS. This Agreement may be executed by the parties hereto in
counterparts, each of which shall be an original and all of which shall together
constitute one and the same agreement.
(k) BORROWER AGREEMENT TO BE BOUND HEREBY. By countersigning this
Agreement, the Borrower acknowledges and
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<PAGE>
consents to and agrees to perform and be bound by each of the provisions hereof
stated to be applicable to it.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written by the duly authorized officers of the parties hereto.
FLEET BANK, N.A.,
as Bank Agent, SBA Agent and
Collateral Agent
By:______________________________
Name:
Title:
UNITED STATES SMALL BUSINESS
ADMINISTRATION
By:______________________________
Name:
Title:
The foregoing is agreed to:
MEDALLION FUNDING CORP.
By:_________________________________________
Name: Alvin Murstein
Title: Chief Executive Officer
By:_________________________________________
Name: Daniel F. Baker
Title: Treasurer and Chief Financial Officer
- - 13 -
<PAGE>
EXHIBIT H
SBA COLLATERAL
--------------
<PAGE>
SBA COLLATERAL - DESIGNATED COMMERCIAL LOANS
The are no loans designated as SBA Collateral as of the Effective Date.
<PAGE>
EXHIBIT I
FORM OF BORROWING BASE CERTIFICATE
----------------------------------
<PAGE>
EXHIBIT J
FORM OF OPINION LETTER
----------------------
<PAGE>
EXHIBIT K
FORM OF ASSIGNMENT
------------------
<PAGE>
ASSIGNMENT AND ACCEPTANCE
-------------------------
Dated ___________
Reference is hereby made to the Amended and Restated Loan Agreement
dated as of December __, 1997 (the "Loan Agreement") by and among MEDALLION
FUNDING CORP., a New York corporation ("Borrower"), the banks that from time to
time are signatories thereto (including Assignees (as hereinafter defined),
collectively, the "Banks" and individually, a "Bank"), FLEET BANK, NATIONAL
ASSOCIATION , as a Bank ("Fleet"), as swing line lender (the "Swing Line
Lender"), as Arranger and as Agent for the Banks (including any successor, the
"Agent") and The Bank of New York, as a Bank ("BONY") and as Documentation
Agent. Capitalized terms used herein that are defined in the Loan Agreement
that are not otherwise defined herein shall have the respective meanings
ascribed thereto in the Loan Agreement.
_______________________________, a __________________ (the "Assignor")
and _______________________________________, a ________________, (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a __ % interest in and
to all of the Assignor's rights and obligations under the Loan Agreement as of
the Effective Date (as defined below) (including, without limitation, such
percentage interest in the Assignor's Revolving Credit Commitment and Term Loan
Commitment as in effect on the Effective Date, and the Revolving Credit Loans
and/or Term Loans owing to the Assignor on the Effective Date, and the Note(s)
held by the Assignor).
2. The Assignor: (i) represents and warrants that as of the date
hereof its Revolving Credit and Term Loan Commitment (without giving effect to
assignments thereof that have not yet become effective) is $__________ and the
aggregate outstanding principal amount of Revolving Credit Loans and Term Loans
owing to it (without giving effect to assignments thereof that have not yet
become effective) is $__________; (ii) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder, and
that such interest is free and clear of any adverse claim; (iii) makes no
representation or warranty and assumes no
<PAGE>
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Agreement or any other instrument or
document furnished pursuant thereto; and (iv) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower or any other Person or the performance or observance by the
Borrower or any other Person of any of its obligations under the Loan Agreement
or any other instrument or document furnished pursuant thereto; and (v) attaches
the Note(s) referred to in paragraph 1 above and requests that the Agent
exchange such Note(s) for new Note(s) as follows: [a Revolving Credit Note dated
the Effective Date (as such term is defined below) in the principal amount of $
__________ payable to the order of the Assignee, a Revolving Credit Note dated
the Effective Date in the principal amount of $ __________ payable to the order
of the Assignor, a Term Note dated the Effective Date in the principal amount of
$________ payable to the order of the Assignee and a Term Note dated the
Effective Date in the principal amount of $________ payable to the order of the
Assignor.]
3. The Assignee: (i) confirms that it has received a copy of the
Loan Agreement, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment; (ii) agrees that it will,
independently and without reliance upon the Agent, the Assignor or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Loan Agreement; (iii) confirms that it is an Assignee permitted
by the Loan Agreement; (iv) appoints and authorizes the Agent to take such
action as its agent on its behalf and to exercise such powers under the Loan
Agreement as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Agreement are required to be performed by it as a Bank; and (vi) specifies
as its addresses for Prime Rate Loans and LIBO Rate Loans (and address for
notices) the offices set forth beneath its name on the signature pages hereof.
4. The effective date for this Assignment shall be ________________
(the "Effective Date"). Following the
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<PAGE>
execution of this Assignment, it will be delivered to the Agent for acceptance
by the Agent.
5. Upon such acceptance, as of the Effective Date: (i) the Assignee
shall be a party to the Loan Agreement and, to the extent provided in this
Assignment, have the rights and obligations of a Bank thereunder and (ii) the
Assignor shall, to the extent provided in this Assignment, relinquish its rights
and be released from its obligations under the Loan Agreement.
6. Upon such acceptance, from and after the Effective Date, the
Agent shall make all payments under the Loan Agreement and the Note(s) in
respect of the interest assigned hereby (including, without limitation, all
payments of principal, interest and commitment fees with respect thereto) to the
Assignee. The Assignor and Assignee shall make all appropriate adjustments in
payments under the Loan Agreement and the Note(s) for periods prior to the
Effective Date directly between themselves.
7. This Assignment shall be governed by, and construed in accordance
with, the laws of the State of New York.
[NAME OF ASSIGNOR]
By_____________________________
Name:
Title:
[NAME OF ASSIGNEE]
By______________________________
Name:
Title:
Lending Office for Prime Rate Loans:
Lending Office for LIBO Rate Loans:
- 3 -
<PAGE>
Attention:
Address for Notices:
Attention:
Telephone No.:
Telex No.:
Accepted this ___ day
of ______________, 199_
FLEET BANK, N.A., as Agent
By___________________________
Title
- 4 -
<PAGE>
EXHIBIT L
FORM OF SBA SECURITY AGREEMENT
------------------------------
<PAGE>
SCHEDULE I
Location of Offices, Books and Records
<PAGE>
SCHEDULE II
Key Executives
--------------
Alvin Murstein Chief Executive Officer
Director
Daniel F. Baker Chief Financial Officer
Treasurer
Michael Kowalsky President
Marie Russo Senior Vice President
Michael Fanger Executive Vice President
<PAGE>
SCHEDULE III
Subsidiaries
------------
<PAGE>
EXHIBIT 10.51
Revolving Credit Note, dated December 24, 1997, in the amount of $30,000,000
from Medallion Funding Corp. payable to Fleet Bank, National Association
$30,000,000.00 No. 1
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of FLEET BANK, NATIONAL ASSOCIATION (the "Bank") at the Agent Payment Office (as
defined in the Loan Agreement), in lawful money of the United States of America
and in immediately available funds, an amount equal to the lesser of (a) THIRTY
MILLION AND 00/100 DOLLARS ($30,000,000.00) and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Bank to the Borrower
pursuant to the Amended and Restated Loan Agreement, dated as of December 24,
1997, as amended, among the Borrower, the banks that from time to time are
signatories thereto, the Swing Line Lender, Fleet Bank NA as Arranger and Agent,
and The Bank of New York as Documentation Agent (as amended, modified or
supplemented from time to time in accordance with its terms, the "Loan
Agreement"). The Borrower further promises to pay interest (computed on the
basis of a 360-day year for the actual number of days elapsed) in like money on
the unpaid principal balance of this Note from time to time outstanding at such
rates and times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
____________________
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.52
Revolving Credit Note dated December 24, 1997, in the amount of $30,000,00 from
Medallion Funding Corp payable to the Bank of New York.
REVOLVING CREDIT NOTE
$30,000,000.00 No. 2
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of THE BANK OF NEW YORK (the "Bank") at the Agent Payment Office (as defined in
the Loan Agreement), in lawful money of the United States of America and in
immediately available funds, an amount equal to the lesser of (a) THIRTY MILLION
AND 00/100 DOLLARS ($30,000,000.00) and (b) the aggregate unpaid principal
amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant
to the Amended and Restated Loan Agreement, dated as of December 24, 1997, as
amended, among the Borrower, the banks that from time to time are signatories
thereto, the Swing Line Lender, Fleet Bank NA as Arranger and Agent, and The
Bank of New York as Documentation Agent (as amended, modified or supplemented
from time to time in accordance with its terms, the "Loan Agreement"). The
Borrower further promises to pay interest (computed on the basis of a 360-day
year for the actual number of days elapsed) in like money on the unpaid
principal balance of this Note from time to time outstanding at such rates and
times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel. F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.53
REVOLVING CREDIT NOTE
$30,000,000.00 No. 3
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of BANKBOSTON, N.A. (the "Bank") at the Agent Payment Office (as defined in the
Loan Agreement), in lawful money of the United States of America and in
immediately available funds, an amount equal to the lesser of (a) THIRTY MILLION
AND 00/100 DOLLARS ($30,000,000.00) and (b) the aggregate unpaid principal
amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant
to the Amended and Restated Loan Agreement, dated as of December 24, 1997, as
amended, among the Borrower, the banks that from time to time are signatories
thereto, the Swing Line Lender, Fleet Bank NA as Arranger and Agent, and The
Bank of New York as Documentation Agent (as amended, modified or supplemented
from time to time in accordance with its terms, the "Loan Agreement"). The
Borrower further promises to pay interest (computed on the basis of a 360-day
year for the actual number of days elapsed) in like money on the unpaid
principal balance of this Note from time to time outstanding at such rates and
times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.54
REVOLVING CREDIT NOTE
$20,000,000.00 No. 4
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of HARRIS TRUST AND SAVINGS BANK (the "Bank") at the Agent Payment Office (as
defined in the Loan Agreement), in lawful money of the United States of America
and in immediately available funds, an amount equal to the lesser of (a) TWENTY
MILLION AND 00/100 DOLLARS ($20,000,000.00) and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Bank to the Borrower
pursuant to the Amended and Restated Loan Agreement, dated as of December 24,
1997, as amended, among the Borrower, the banks that from time to time are
signatories thereto, the Swing Line Lender, Fleet Bank NA as Arranger and Agent,
and The Bank of New York as Documentation Agent (as amended, modified or
supplemented from time to time in accordance with its terms, the "Loan
Agreement"). The Borrower further promises to pay interest (computed on the
basis of a 360-day year for the actual number of days elapsed) in like money on
the unpaid principal balance of this Note from time to time outstanding at such
rates and times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.55
REVOLVING CREDIT NOTE
$20,000,000.00 No. 5
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of BANK TOKYO - MITSUBISHI TRUST COMPANY (the "Bank") at the Agent Payment
Office (as defined in the Loan Agreement), in lawful money of the United States
of America and in immediately available funds, an amount equal to the lesser of
(a) TWENTY MILLION AND 00/100 DOLLARS ($20,000,000.00) and (b) the aggregate
unpaid principal amount of all Revolving Credit Loans made by the Bank to the
Borrower pursuant to the Amended and Restated Loan Agreement, dated as of
December 24, 1997, as amended, among the Borrower, the banks that from time to
time are signatories thereto, the Swing Line Lender, Fleet Bank NA as Arranger
and Agent, and The Bank of New York as Documentation Agent (as amended, modified
or supplemented from time to time in accordance with its terms, the "Loan
Agreement"). The Borrower further promises to pay interest (computed on the
basis of a 360-day year for the actual number of days elapsed) in like money on
the unpaid principal balance of this Note from time to time outstanding at such
rates and times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.56
REVOLVING CREDIT NOTE
$15,000,000.00 No. 6
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of ISRAEL DISCOUNT BANK OF NEW YORK (the "Bank") at the Agent Payment Office (as
defined in the Loan Agreement), in lawful money of the United States of America
and in immediately available funds, an amount equal to the lesser of (a) FIFTEEN
MILLION AND 00/100 DOLLARS ($15,000,000.00) and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Bank to the Borrower
pursuant to the Amended and Restated Loan Agreement, dated as of December 24,
1997, as amended, among the Borrower, the banks that from time to time are
signatories thereto, the Swing Line Lender, Fleet Bank NA as Arranger and Agent,
and The Bank of New York as Documentation Agent (as amended, modified or
supplemented from time to time in accordance with its terms, the "Loan
Agreement"). The Borrower further promises to pay interest (computed on the
basis of a 360-day year for the actual number of days elapsed) in like money on
the unpaid principal balance of this Note from time to time outstanding at such
rates and times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.57
REVOLVING CREDIT NOTE
$15,000,000.00 No. 7
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of EUROPEAN AMERICAN BANK (the "Bank") at the Agent Payment Office (as defined
in the Loan Agreement), in lawful money of the United States of America and in
immediately available funds, an amount equal to the lesser of (a) FIFTEEN
MILLION AND 00/100 DOLLARS ($15,000,000.00) and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Bank to the Borrower
pursuant to the Amended and Restated Loan Agreement, dated as of December 24,
1997, as amended, among the Borrower, the banks that from time to time are
signatories thereto, the Swing Line Lender, Fleet Bank NA as Arranger and Agent,
and The Bank of New York as Documentation Agent (as amended, modified or
supplemented from time to time in accordance with its terms, the "Loan
Agreement"). The Borrower further promises to pay interest (computed on the
basis of a 360-day year for the actual number of days elapsed) in like money on
the unpaid principal balance of this Note from time to time outstanding at such
rates and times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.58
REVOLVING CREDIT NOTE
$15,000,000.00 No. 8
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of BANK LEUMI USA (the "Bank") at the Agent Payment Office (as defined in the
Loan Agreement), in lawful money of the United States of America and in
immediately available funds, an amount equal to the lesser of (a) FIFTEEN
MILLION AND 00/100 DOLLARS ($15,000,000.00) and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Bank to the Borrower
pursuant to the Amended and Restated Loan Agreement, dated as of December 24,
1997, as amended, among the Borrower, the banks that from time to time are
signatories thereto, the Swing Line Lender, Fleet Bank NA as Arranger and Agent,
and The Bank of New York as Documentation Agent (as amended, modified or
supplemented from time to time in accordance with its terms, the "Loan
Agreement"). The Borrower further promises to pay interest (computed on the
basis of a 360-day year for the actual number of days elapsed) in like money on
the unpaid principal balance of this Note from time to time outstanding at such
rates and times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.59
REVOLVING CREDIT NOTE
$20,000,000.00 No. 9
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Maturity, as defined in the Loan Agreement (hereinafter referred to) or
on such earlier date as may be required under the Loan Agreement, to the order
of THE CHASE MANHATTAN BANK (the "Bank") at the Agent Payment Office (as defined
in the Loan Agreement), in lawful money of the United States of America and in
immediately available funds, an amount equal to the lesser of (a) TWENTY MILLION
AND 00/100 DOLLARS ($20,000,000.00) and (b) the aggregate unpaid principal
amount of all Revolving Credit Loans made by the Bank to the Borrower pursuant
to the Amended and Restated Loan Agreement, dated as of December 24, 1997, as
amended, among the Borrower, the banks that from time to time are signatories
thereto, the Swing Line Lender, Fleet Bank NA as Arranger and Agent, and The
Bank of New York as Documentation Agent (as amended, modified or supplemented
from time to time in accordance with its terms, the "Loan Agreement"). The
Borrower further promises to pay interest (computed on the basis of a 360-day
year for the actual number of days elapsed) in like money on the unpaid
principal balance of this Note from time to time outstanding at such rates and
times as provided in the Loan Agreement.
All Revolving Credit Loans made by the Bank pursuant to the Loan
Agreement and all payments of the principal thereof shall be endorsed by the
holder of this Note on the schedule annexed hereto (including any additional
pages such holder may add to such schedule), which endorsement shall constitute
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loans in accordance
with the terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the
<PAGE>
occurrence of any Event of Default described in Sections 9.1(g) and 9.1(h) of
the Loan Agreement), (a) the outstanding principal amount of this Note which at
such time is a Prime Rate Loan (including, to the extent permitted by law,
unpaid interest thereon) shall bear interest at an annual rate equal to the sum
of 2% plus the Prime Rate applicable to such Prime Rate Loan then in effect and
(b) the outstanding principal amount of this Note which is a LIBO Rate Loan
(including, to the extent permitted by law, unpaid interest thereon) shall bear
interest at an annual rate equal to the sum of 3.75% plus the Adjusted LIBO Rate
applicable to such LIBO Rate Loan then in effect, in each case payable on
demand, but in no event shall such rate of interest (the "Default Rate") be in
excess of the maximum rate of interest permitted under applicable law. The
Default Rate shall be computed on the basis of a 360-day year for the actual
number of days elapsed. If the Default Rate is to be based on the Prime Rate,
the Prime Rate to be charged shall change when and as the Prime Rate is changed,
and any such change in the Prime Rate shall become effective at the opening of
business on the day on which such change is adopted. At the end of the
applicable Interest Period for a LIBO Rate Loan on which the Default Rate is
being charged, such LIBO Rate Loan shall be automatically converted to a Prime
Rate Loan, and the Default Rate to be charged in respect of such Loan shall be
computed based on the Prime Rate.
This Note is one of the Revolving Credit Notes referred to in the Loan
Agreement, is secured as provided therein, is entitled to the benefits thereof
and is subject to optional and mandatory prepayment, in whole or in part, as
provided therein. The Borrower shall make when due any and all payments and
prepayments on this Revolving Credit Note required under the Loan Agreement.
Reference is herein made to the Loan Agreement for the rights of the holder to
accelerate the unpaid balance hereof prior to maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
- 2 -
<PAGE>
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL
BY JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
BORROWER AND INURE TO THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving Credit Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions herein
shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 3 -
<PAGE>
EXHIBIT 10.60
Swing Line Note, dated December 24, 1997, in the amount of $5,000,000 from
Medallion Funding Corp. payable to Fleet Bank, National Association.
SWING LINE NOTE
$5,000,000.00 No. SL
December 24, 1997
FOR VALUE RECEIVED, the undersigned, Medallion Funding Corp., a New
York corporation (the "Borrower"), hereby unconditionally promises to pay on the
date of Swing Line Maturity Date, as defined in the Loan Agreement (hereinafter
referred to) or on such earlier date as may be required under the Loan
Agreement, to the order of FLEET BANK, NATIONAL ASSOCIATION (the "Bank") at the
Agent Payment Office (as defined in the Loan Agreement), in lawful money of the
United States of America and in immediately available funds, an amount equal to
the lesser of (a) FIVE MILLION AND 00/100 DOLLARS ($5,000,000.00) and (b) the
aggregate unpaid principal amount of all Swing Line Loans made by the Bank to
the Borrower pursuant to the Amended and Restated Loan Agreement, dated as of
December 24, 1997, as amended, among the Borrower, the banks that from time to
time are signatories thereto, the Swing Line Lender, Fleet Bank NA as Arranger
and Agent, and The Bank of New York as Documentation Agent (as amended, modified
or supplemented from time to time in accordance with its terms, the "Loan
Agreement"). The Borrower further promises to pay interest (computed on the
basis of a 360-day year for the actual number of days elapsed) in like money on
the unpaid principal balance of this Note from time to time outstanding at such
rates and times as provided in the Loan Agreement.
All Swing Line Loans made by the Bank pursuant to the Loan Agreement
and all payments of the principal thereof shall be endorsed by the holder of
this Note on the schedule annexed hereto (including any additional pages such
holder may add to such schedule), which endorsement shall constitute
<PAGE>
prima facie evidence of the accuracy of the information so endorsed; provided,
- ----------- --------
however, that the failure of the holder of this Note to insert any date or
- -------
amount or other information on such schedule shall not in any manner affect the
obligation of the Borrower to repay any Swing Line Loans in accordance with the
terms of the Loan Agreement.
On and after the stated or any accelerated maturity hereof, and until
paid in full (whether before or after the occurrence of any Event of Default
described in Sections 9.1(g) and 9.1(h) of the Loan Agreement), the outstanding
principal amount of this Note (including, to the extent permitted by law, unpaid
interest thereon) shall bear interest (the "Default Rate") at an annual rate
equal to the sum of 2% plus the Negotiated Rate applicable to such Swing Line
Loan then in effect. At the end of the applicable Swing Line Interest Period
for a Negotiated Rate Loan on which the Default Rate is being charged, such
Negotiated Rate Loan shall be automatically converted to a Prime Rate Loan, and
the Default Rate to be charged in respect of such Loan shall be at an annual
rate equal to the sum of 2% plus the Prime Rate then in effect and the Prime
Rate to be charged shall change when and as the Prime Rate is changed, and any
such change in the Prime Rate shall become effective at the opening of business
on the day on which such change is adopted. In each case, interest at the
Default Rate shall be payable on demand, but in no event shall such rate of
interest be in excess of the maximum rate of interest permitted under applicable
law. The Default Rate shall be computed on the basis of a 360-day year for the
actual number of days elapsed.
This Note is the Swing Line Note referred to in the Loan Agreement, is
secured as provided therein, is entitled to the benefits thereof and is subject
to optional and mandatory prepayment, in whole or in part, as provided therein.
The Borrower shall make when due any and all payments and prepayments on this
Swing Line Note required under the Loan Agreement. Reference is herein made to
the Loan Agreement for
- 2 -
<PAGE>
the rights of the holder to accelerate the unpaid balance hereof prior to
maturity.
Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Loan Agreement.
This Note may not be changed, modified, or terminated orally, but only
by an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS SWING LINE NOTE,
THE BORROWER WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY
JURY, ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-
CLAIMS AGAINST THE BANK (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD
NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK AND OF ANY FEDERAL COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
SWING LINE NOTE. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES,
AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF BORROWER AND INURE TO
THE BENEFIT OF THE BANKS AND ITS SUCCESSORS AND ASSIGNS. If any term or
provision of this Swing Line Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions herein shall in no
way be affected thereby.
- 3 -
<PAGE>
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the date first above written.
MEDALLION FUNDING CORP.,
a New York Corporation
By: /s/ Alvin Murstein
--------------------
Alvin Murstein
CEO
By: /s/ Daniel F. Baker
--------------------
Daniel F. Baker
Treasurer & CFO
- 4 -
<PAGE>
EXHIBIT 10.61
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.
<PAGE>
TABLE OF CONTENTS
This table of contents is not a part of the document
but is provided for ease of reference.
SECTION Page
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms 2
SECTION 1.2. Accounting Terms 6
SECTION 1.3. Rules of Construction 6
ARTICLE II
CREATION OF SECURITY INTEREST
SECTION 2.1. Grant of Security Interest to Agent 7
SECTION 2.2. Perfection 7
SECTION 2.3. Recording, Registering, Filing, Etc. 7
SECTION 2.4. Delivery of Documents 8
SECTION 2.5. Further Assurances 9
SECTION 2.6. Appointment of Agent as Attorney-in-Fact 9
SECTION 2.7. Indemnity 10
SECTION 2.8. Borrower Remains Liable 11
SECTION 2.9. Agent May Perform 11
SECTION 2.10. Agent's Duties 11
<PAGE>
ARTICLE III
PRIORITY OF SECURITY INTERESTS
SECTION 3.1. Priority of Security Interests 11
ARTICLE IV
COLLATERAL
SECTION 4.1. Representations, Covenants and Warranties 12
SECTION 4.2. Collections 13
SECTION 4.3. Rights of Agent Regarding Collateral 14
ARTICLE V
DEFAULT
SECTION 5.1. Events of Default 14
SECTION 5.2. Remedies 14
SECTION 5.3. Application of Proceeds 17
SECTION 5.4. Waiver by Agent or Banks 18
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Continuing Lien 18
SECTION 6.2. Waivers by Borrower 18
SECTION 6.3. Parties 19
SECTION 6.4. GOVERNING LAW 19
SECTION 6.5. WAIVER OF JURY TRIAL AND SETOFF 19
<PAGE>
SECTION 6.6. Jurisdiction; Service of Process 19
SECTION 6.7. Survival of Representations and Warranties 20
SECTION 6.8. Obligations Secured by Property Other Than Collateral 20
SECTION 6.9. Successor Agent 20
SECTION 6.10. Termination 20
SECTION 6.11. Notices 21
SECTION 6.12. Severability 21
SECTION 6.13. Counterparts 21
<PAGE>
AMENDED AND RESTATED
SECURITY AGREEMENT
This AMENDED AND RESTATED SECURITY AGREEMENT, dated as of December 24,
1997, is between MEDALLION FUNDING CORP., a New York corporation ("Borrower"),
--------
and FLEET BANK, N.A., a national banking association, as agent (the "Agent") for
-----
the banks that from time to time are signatories to the Loan Agreement
(hereinafter defined) (collectively, the "Banks" and individually, a "Bank;"
----- ----
which term as used in this Amended and Restated Security Agreement shall be
deemed to include the Swing Line Lender set forth in such Loan Agreement, unless
the context clearly indicates otherwise).
RECITALS
WHEREAS, the Agent and the Banks have entered into an Amended and Restated
Loan Agreement, dated as of even date herewith, (as the same may be amended or
supplemented from time to time, the "Loan Agreement"), with Borrower providing
--------------
for revolving credit loans (including the Initial Revolving Credit Loan) (the
"Revolving Credit Loans;" which term as used in this Amended and Restated
- -----------------------
Security Agreement shall be deemed to include the Swing Line Loans (as defined
in the Loan Agreement) unless the context clearly indicates otherwise) and term
loans (the "Term Loans") not to exceed the amounts provided in the Loan
----------
Agreement.
WHEREAS, a condition precedent to the obligation of the Banks to make the
Revolving Credit Loans or Term Loans under the Loan Agreement is that Borrower
grant to the Agent perfected, security interests in all of the Collateral to
secure the payment and performance of all of the obligations of Borrower owing
to the Agent and the Banks pursuant to the Loan Agreement and other documents.
WHEREAS, in partial satisfaction of Borrower's obligation under Sections
5.1 and 5.2 of the Loan Agreement and otherwise as an inducement necessary to
the Banks' making the Revolving Credit Loans or Term Loans to Borrower, Borrower
agrees to grant to the Agent a security interest in the Collateral pursuant to
the terms set forth herein.
WHEREAS, the Borrower expects to enter into a Commercial Paper Dealer
Agreement (as defined in the Loan Agreement) and a Paying Agency Agreement (as
defined in the Loan Agreement) pursuant to which the Borrower proposes to issue
Commercial Paper from time to time to provide financing for its operations; and
WHEREAS, the Borrower has asked the Banks to consent, and the Banks have
agreed, to the granting of a security interest in the Collateral to secure its
obligations to the holders (the
<PAGE>
"CP Holders") of the Commercial Paper pari passu with the security interest held
by the Agent for the benefit of the Banks; and
WHEREAS, the Borrower has asked the Banks to consent to the granting of a
security interest in a pool of its Commercial Loans (and under certain
circumstances a subordinate lien in all of its assets) pursuant to a Security
Agreement among the Borrower, the Agent and the SBA (the "SBA Security
Agreement), providing for a lien on such Commercial Loans (the "SBA Collateral")
to secure a note originally made by Transportation Capital Corp., a New York
corporation ("TCC"), dated June 24, 1992, in the principal amount of $5,640,000,
and notes originally made by Edwards Capital Corp., a Delaware corporation
("Edwards"), in the aggregate original principal amount of $22,250,000, which
have become the obligations of the Borrower upon the merger of TCC and Edwards
into the Borrower; and
WHEREAS, the Banks are willing to consent to the grant of the security
interest in the Collateral to the Agent for the benefit of the CP Holders and to
the grant of the security interest in the SBA Collateral to the Agent for the
benefit of the SBA pursuant to the SBA Security Agreement, provided that the
Security Agreement is amended in accordance herewith and provided, further that
in the case of the CP Holders such security interest granted to the Agent for
their benefit shall not be effective unless and until (i) the Agent has been
appointed the Agent of the CP Holders for purposes of this Agreement with duties
consistent with those necessary for the Agent (in its opinion) to perform its
duties under this Agreement, (ii) the CP Holders shall have consented to the
terms of this Agreement and to the Agent's entering into the Intercreditor
Agreement on their behalf and (iii) the Agent shall have provided the CP Holders
written notification that it has been indemnified, in a manner satisfactory to
the Agent, by such CP Holders with respect to the Agent's responsibilities
hereunder on behalf of such CP Holders;
WHEREAS, in furtherance of the grant of the security interest in the SBA
Collateral, the Banks are also willing to consent to an Intercreditor Agreement
(the "Intercreditor Agreement"), effective upon the effectiveness of the SBA
Security Agreement, setting forth the relative rights of the Agent for the
benefit of the Banks and the CP Holders pursuant to this Agreement and the
rights of the Agent for the benefit of the SBA pursuant to the SBA Security
Agreement;
NOW, THEREFORE, in consideration of the willingness of the Agent and the
Banks to enter into the Loan Agreement and to agree, subject to the terms and
conditions thereof, to make the Revolving Credit Loans or Term Loans to Borrower
pursuant thereto, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and the Agent hereby
covenant and agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINED TERMS. Capitalized terms defined in the foregoing
caption and recitals shall have the respective meanings ascribed thereto.
Capitalized terms
2
<PAGE>
defined in the Loan Agreement and not otherwise defined in this Agreement shall
have the meanings ascribed to those terms in the Loan Agreement. In addition, as
used herein, the following terms shall have the following meanings:
"Accounts" shall have the meaning assigned to it in Section 106 of the UCC.
--------
"Books and Records" shall mean books, records, computer files and other
-----------------
Information relating to any of the Collateral.
"Chattel Paper" shall have the meaning assigned to it in Section 9-
-------------
105(1)(b) of the UCC.
"Collateral" shall mean all the following property now owned or at any time
----------
hereafter acquired by Borrower or in which Borrower now has or at any time in
the future may acquire any right, title or interest:
(a) all Loans;
(b) all property and rights, including, but not limited to, Underlying
Collateral, which now or hereafter secure Loans;
(c) all Books and Records;
(d) all amounts deposited in any Collateral Account;
(e) all Contracts;
(f) all rights and remedies of Borrower with respect to, or in connection
with, any contract, security interest, guaranty or other document, instrument or
agreement relating to or affecting any Loans or any Underlying Collateral;
(g) all General Intangibles;
(h) all Instruments;
(i) all Chattel Paper;
(j) all Equipment;
(k) all Inventory;
(1) all Investments;
(m) all Investment Property;
3
<PAGE>
(n) all Accounts
(o) all property and rights, including, but not limited to, items
described in clauses (b) through (n) hereof, repossessed, or otherwise acquired
in connection with any Loans or the exercise by Borrower of any rights of a
secured party under or with respect to any of the Loans or this Agreement or
arising out of the sale or disposition of any Loans, any other Collateral, or in
connection with the sale of any repossessed property;
(p) all parts, accessions, accessories, goods, appurtenant or related to
any of the foregoing, replacement parts, trade names, closes in action, now or
hereafter affixed thereto, arising therefrom, used in connection therewith, or
related to the use, possession or operation thereof;
(q) all cash and Short-Term Investments; and
(r) to the extent not otherwise included, all Proceeds, products,
substitutions and replacements of any and all of the foregoing.
"Collateral Account" shall mean that account of Borrower maintained with
------------------
the Agent and containing such reasonable terms as shall be agreed to by the
Agent.
"Contracts" shall mean all contracts and agreements, including, but not
---------
limited to, loan agreements, security agreements, guaranties, intercreditor
agreements, office leases, lease agreements for mobile goods (as defined in the
UCC) (whether or not covered by a certificate of title), indemnity agreements,
license agreements, rental agreements and all other contracts and agreements of
every kind and nature whatsoever.
"Depository Accounts" shall mean accounts of Borrower containing any
-------------------
deposits or other sums credited to Borrower, whether in regular or special
depository accounts or otherwise.
"Equipment" shall mean all machinery, equipment, fixtures, vehicles, office
---------
equipment, furniture, furnishings, inventories, supplies, computer equipment and
all other equipment whatsoever, wherever located, together with all attachments,
components, parts, equipment and accessories installed therein or affixed
thereto, including, but not limited to, all equipment as defined in Section 9-
109(2) of the UCC and all products, profits, rents and proceeds of any of the
foregoing; all whether now owned or hereafter created or acquired.
"General Intangibles" shall have the meaning assigned to it in Section 9-
-------------------
106 of the UCC and shall include, but not be limited to, all interests in and to
Permits and Licenses, Medallion Rights, patents, trademarks, tradenames,
copyrights, trade secrets, licenses and know- how.
"Information" shall mean books, records, delivery receipts, copies of
-----------
checks and stubs, security documents, division of interest files, bank
reconciliation statements, remittances,
4
<PAGE>
revenue accounting records, invoices, leases, licenses, authorizations for
expenditures, contracts and such other documents, information and data as any
Bank may request pursuant to the Loan Agreement.
"Instruments" shall have the meaning assigned to it in Section 9-105(1)(i)
-----------
of the UCC.
"Inventory" shall mean all inventory, goods, raw materials, components and
---------
other personal property, wherever located, including, but not limited to, all
inventory as defined in Section 9-109(4) of the UCC.
"Investment" in any Person shall mean any loan, advance, or extension of
----------
credit to or for the account of; any guaranty, endorsement or other direct or
indirect contingent liability in connection with the obligations, Capital Stock
or dividends of; any ownership, purchase or acquisition of any assets, business,
Capital Stock, obligations or securities of; or any other interest in or capital
contribution to; such Person.
"Investment Property" shall have the meaning assigned to it in Section 9-
-------------------
115 of the UCC.
"Laws" shall have the meaning set forth in Section 2.2 hereof.
----
"Loan" shall mean any loan, advance or extension of credit made in the
----
ordinary course of business by Borrower to or for the account of any client or
customer of Borrower. Any loan, advance or extension of credit made at a
different point in time shall be deemed to be a separate and distinct Loan.
"Loan Documents" shall mean and collectively refer to the Loan Documents
--------------
(as defined in the Loan Agreement) and all other agreements, instruments and
documents, including, without limitation, notes, guaranties, mortgages, deeds to
secure debt, deeds of trust, chattel mortgages, pledges, powers of attorney,
consents, assignments, contracts, notices, security agreements, trust account
agreements and all other written matters whether heretofore, now or hereafter
executed by or on behalf of Borrower and/or delivered to the Agent or the Banks,
with respect to this Agreement, or the transactions contemplated by this
Agreement.
"Medallion" shall mean the metal plate which displays the license number of
---------
a licensed Taxicab on the outside of the vehicle and which is issued by the New
York City Taxi and Limousine Commission or by any other Governmental Authority
for a jurisdiction other than New York City with the authority to issue licenses
for the operation of Taxicabs.
"Medallion Riqhts" shall mean (a) all license, operating and/or
----------------
subscription rights to Taxicab Medallion(s), and all license, operating and/or
subscription rights evidenced by such Medallion(s) and (b) all renewals thereof.
5
<PAGE>
"Obligations" shall mean any and all present and future indebtedness and
-----------
all performance obligations which may at any time be owing by Borrower to the
Agent or any Bank, however arising, under the Loan Agreement, this Agreement or
any other Loan Document between the Agent and/or any Bank and Borrower in
connection with any of the foregoing or in connection with any Loan Document,
whether now in existence or incurred hereafter, whether incurred directly or
incurred by others and assumed by Borrower, whether secured by mortgage, pledge,
or lien upon or security interest in any property of Borrower, or any other
Person, whether such indebtedness or other obligation is absolute or contingent,
joint or several, matured or unmatured, direct or indirect, and whether the
Borrower is liable for such indebtedness or other obligation as principal,
surety, endorser, guarantor, or otherwise. Without limiting the generality of
the foregoing, the Obligations shall include the liability of Borrower to any
Bank for all balances owing to any Bank in any account maintained on such Bank's
books under the Loan Agreement or under any other agreement or arrangement now
or hereafter entered into between Borrower and the Agent or any Bank in
connection therewith, and, in connection with this Agreement or the Loan
Agreement, (i) indebtedness owing by Borrower to the Agent or any Bank, (ii) the
liability of Borrower to the Agent or any Bank as maker or endorser of any
promissory note or other instrument for the payment of money, and (iii) the
liability of Borrower to the Agent or any Bank under any instrument of guaranty
or indemnity, or arising under any guarantee, endorsement, or undertaking which
the Agent or any Bank may make or issue to others for the account of Borrower,
including without limitation, any accommodation extended to Borrower with
respect to letters of credit, acceptance of drafts, or endorsement of notes or
other instruments by the Agent or such Bank for the account and benefit of
Borrower. The Obligations shall also include interest, premium (if any),
commissions, financing and service charges, and expenses and fees, including but
not limited to the costs and expenses of collection of the Obligations
(including the fees and disbursements of accountants), the costs and expenses of
the Agent and the costs and expenses of filing, perfecting, preserving,
retaking, holding, and preparing any of the Collateral for sale chargeable to
Borrower and due from Borrower under this Agreement, the Loan Agreement or under
any other agreement or arrangement which may be now or hereafter entered into
between Borrower and the Agent or the Banks.
"Other Agreements" shall mean collectively any of the Loan Documents other
----------------
than this Agreement.
"Percentage of the Obligations" shall mean with respect to the Agent or any
-----------------------------
Bank the percentage which is equal to the product of (x) 100 times (y) a
fraction, the numerator of which is the total amount of Obligations owing to the
Agent or such Bank, as the case may be, at the time of computation and the
denominator of which is the total amount of the Obligations as of such time.
"Permits and Licenses" shall mean (a) all applicable authorizations,
--------------------
consents, certificates, licenses, rights of way permits, approvals, waivers,
exemptions, encroachment
6
<PAGE>
agreements, variances, franchises, permissions, and permits of any Governmental
Authority and all documents and applications filed in connection therewith, and
(b) all renewals thereof.
"Permitted Liens" shall mean the Liens permitted pursuant to Section 8.1 of
---------------
the Loan Agreement.
"Proceeds" shall have the meaning assigned to it in Section 9-306(1) of the
--------
UCC and shall include, but not be limited to, (a) any and all proceeds of any
insurance, indemnity, warranty or guaranty existing from time to time with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any Person acting under
color of governmental authority) and (c) any and all other amounts from time to
time paid or payable under or in connection with any of the Collateral.
"Real Property" shall mean real property of a Person or an ultimate
-------------
beneficial owner of such Person or machinery or Equipment of such Person or
beneficial owner forming a part of, or affixed to, such real property.
"SBA Collateral" shall have the meaning set forth in the recitals to this
--------------
Amended and Restated Security Agreement.
"Taxicab" shall mean a motor vehicle carrying passengers for hire, duly
-------
licensed as a taxicab by the Taxi and Limousine Commission, or any other
Governmental Authority for a jurisdiction other than New York City, and
permitted to accept hails from passengers in the street.
"UCC" shall mean, with respect to any jurisdiction, the Uniform Commercial
---
Code as then in effect in that jurisdiction.
"Underlying Collateral" shall mean all of Borrower's rights with respect
---------------------
to, or interest in, any and all present and future Medallion Rights, Equipment,
Real Property, machinery, future accounts, accounts receivable, receivables,
contracts, contract rights, general intangibles, books, desks, notes, bills,
drafts, acceptances, chases in action, chattel paper, instruments, documents and
other forms of obligations, and property, real, personal or mixed, tangible or
intangible, at any time owing to or owned by any Person to whom Borrower has
made a Loan, or any guarantor of such Person.
SECTION 1.2. ACCOUNTING TERMS. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP.
7
<PAGE>
SECTION 1.3. RULES OF CONSTRUCTION. (a) Words of the masculine gender
shall mean and include correlative words of the female and neuter genders, and
words importing the singular number shall mean and include the plural number and
vice versa.
(b) The terms "hereby", "hereto", "hereof", "herein", and "hereunder" and
------ ------ ------ ------ ---------
any similar words refer to this Agreement as a whole and not to any particular
provisions of this Agreement. The term "hereafter" shall mean after, and the
---------
term "heretofore" shall mean before, the date of this Agreement, and "Article",
---------- -------
"Section", "Schedule", "Exhibit" and like references are to this Agreement
------- -------- -------
unless otherwise specified.
(c) Any defined term that relates to a document shall include within its
definition any amendments, modifications, renewals, restatements, extensions,
supplements, or substitutions which may have been heretofore or may be hereafter
executed in accordance with the terms thereof.
(d) References in this Agreement to particular sections of the UCC or to
any other legislation shall be deemed to refer also to any successor sections
thereto or other redesignations for codification purposes. Unless otherwise
indicated, references in this Agreement to the UCC shall mean the UCC as in
effect in the State of New York.
(e) All terms used in this Agreement that are not capitalized shall have
the meanings provided by the UCC as in effect in the State of New York to the
extent the same are used or defined therein.
ARTICLE II
CREATION OF SECURITY INTEREST
SECTION 2.1. GRANT OF SECURITY INTEREST TO AGENT. To induce the Banks to
make the Revolving Credit Loans or Term Loans to Borrower and, as security for
any and all Obligations of Borrower, and as security for Borrower's Permitted
Debt owing to the CP Holders, Borrower hereby grants to the Agent for the
ratable benefit of the Agent, the Banks and the CP Holders a continuing lien on
and security interest in the Collateral, which shall be a first priority lien
except as provided in the Intercreditor Agreement, and, in furtherance of such
grant, Borrower hereby assigns for security all the Collateral to the Agent for
the ratable benefit of the Agent, the Banks and the CP Holders.
SECTION 2.2. PERFECTION. At any time or times after (i) a Default or an
Event of Default has occurred or (ii) any change in any existing law,
regulation, guideline, treaty or directive or condition or interpretation
thereof, including without limitation, any request, guideline or policy, whether
or not having the force of law (collectively, "Laws"), or the proposal by any
----
Governmental Authority, of a new Law, which, in the Agent's opinion, adversely
affects the validity, security or perfection of the security interests and liens
granted herein, Borrower shall execute and deliver to the Agent, at the Agent's
request, all assignments,
8
<PAGE>
certificates of title, conveyances, assignment statements, financing statements,
renewal financing statements, security agreements, affidavits, mortgages,
mortgage assignments, trust deeds, notices and all other agreements, instruments
and documents that the Agent reasonably may request, in form satisfactory to the
Agent, and shall take any and all other steps reasonably requested by the Agent,
in order to perfect and maintain the security interests and liens granted
herein, and to consummate fully all of the transactions contemplated under this
Agreement and any Other Agreements.
SECTION 2.3. RECORDING, REGISTERING, FILING, ETC. At any time or times
after (i) a Default or an Event of Default has occurred or (ii) any change in
any existing Law or the proposal by any Governmental Authority of a new Law
which, in the Agent's opinion, adversely affects the validity, security or
perfection of the security interests and liens granted herein, Borrower will
perform, or will cause to be performed, each of the following:
(a) Record, register and file such notices, certificates of title,
financing statements, mortgage assignments, trust deeds and other documents or
instruments as may, from time to time, be requested by the Agent to carry out
fully the intent of this Agreement, with such administrations or governmental
agencies as may be necessary or advisable in order to perfect, establish,
confirm, and maintain the security interests and liens created hereunder, as
legal, valid, and binding security interests and liens upon the Collateral;
(b) Furnish to the Agent evidence of every such recording, registering and
filing; and
(c) Execute and deliver or perform, or cause to be executed and delivered
or performed, such further and other instruments or acts as the Agent reasonably
determines are necessary or desirable to fully carry out the intent and purpose
of this Agreement or to subject the Collateral to the security interest and lien
created hereunder, including, without limitation, defending the title of
Borrower to the Collateral by means of negotiation with and, if necessary,
appropriate legal proceedings against, each party claiming an interest therein
contrary or adverse to Borrower's title to same.
SECTION 2.4. DELIVERY OF DOCUMENTS. (a) As promptly as practicable after
the date hereof (but in no event later than 10 Business Days after the date
hereof), Borrower shall deliver to the Agent all instruments evidencing all
Loans (collectively, the "Collateral Notes") of Borrower then outstanding. In
----------------
addition, each time Borrower shall make a new Loan, Borrower shall immediately
deliver to the Agent the Collateral Note evidencing such Loan. The Agent shall
keep all Collateral Notes at its principal office in New York City in a vault or
other place of similar security. Borrower and its authorized agents and
representatives, which shall include its Independent Public Accountants, shall
at all times, during normal business hours, have full access to examine, but not
to remove, without the prior consent of the Agent, the Collateral Notes;
provided, however, that (i) Borrower and/or its authorized agent shall have
given the Agent at least 24 hours prior notice, or such other notice as may be
required by applicable provisions of the Investment Company Act of 1940, as
amended, before seeking
9
<PAGE>
access to the Collateral Notes and (ii) the Agent shall, in its sole discretion,
be entitled to have one of its employees, agents or representatives present at
all times or from time to-time during any such period of access.
(b) Upon the Agent's request, Borrower shall immediately deliver to the
Agent or its designee, at Borrower's expense, copies of all documents, chattel
paper, security agreements, guarantees and other writings evidencing any Loan or
its related Underlying Collateral.
(c) At any time on or after a Default or Event of Default, upon the Agent's
request, Borrower shall immediately deliver to the Agent or its designee all
documents, instruments, chattel paper, security agreements, guarantees and other
writings so requested by the Agent evidencing any Collateral of Borrower, such
documents, instruments, chattel paper, security agreements, guarantees and other
writings to be held as Collateral under the terms of this Agreement.
(d) The Agent shall have no obligation to inspect or examine any of the
Collateral Notes or other documents delivered to it by Borrower hereunder, and
shall be entitled to assume, and shall be fully protected in assuming, without
inspection or examination, that Borrower has complied in full with its delivery
obligations hereunder.
SECTION 2.5. FURTHER ASSURANCES. (a) At any time or times after (i) a
Default or an Event of Default has occurred or (ii) any change in any existing
Law or the proposal by any Governmental Authority of a new Law which, in the
Agent's opinion, adversely affects the validity, security or perfection of the
security interests and liens granted herein, then, in addition to the acts
specifically required to be performed by Borrower elsewhere under this
Agreement, Borrower shall do all other things and sign and deliver all other
documents and instruments reasonably requested by the Agent to perfect, protect,
maintain and enforce the security interests and liens of the Agent in the
Collateral, and the first priority of such security interests and liens, and
other rights granted hereunder or under any other present or future agreement
between Borrower and the Agent, including, without limitation, the Loan
Documents. Such acts shall include but not be limited to the marking of
Borrower's Books and Records, the chattel paper and instruments to show the
Agent's security interests and liens and the filing of financing, renewal and/or
continuation statements under the UCC or other documents evidencing the Agent's
liens under applicable law and the delivery of any Collateral the physical
possession of which is necessary or desirable in order for the Agent to perfect
its liens. Upon the occurrence of any of the events specified in subclauses (i)
and (ii) of this Section 2.5(a), Borrower authorizes the Agent to execute alone
any financing, renewal and/or continuation statement or any other document or
instrument which the Agent may require to perfect, protect, continue or enforce
in accordance herewith any security interest, lien or other right hereunder or
under any of the other Loan Documents and authorizes the Agent to sign
Borrower's name on the same. Upon payment in full by Borrower of all the
Obligations in
10
<PAGE>
accordance with the terms thereof, the security interests and liens granted by
Borrower hereunder shall terminate, except that if, at any time, all or part of
the payment of the monetary Obligations theretofore made by Borrower or any
other Person is rescinded or otherwise must be returned by the Agent or any Bank
for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of Borrower or such other Person), the security
interests and liens granted hereunder or under any other present or future
agreement between Borrower and the Agent, and all rights of the Agent and all
Obligations shall be reinstated as to monetary Obligations which were satisfied
by the payment to be rescinded or returned, all as though such payment had not
been made, and Borrower shall sign and deliver to the Agent all documents and
things necessary to perfect all terminated liens subject to the intervening
liens, if any, granted by Borrower to any Person.
(b) A carbon, photographic, or other reproduction of this Agreement shall
be sufficient as a UCC filing and may be filed in any appropriate office in lieu
thereof.
(c) Upon the occurrence of any of the events specified in subclauses (i)
and (ii) of Section 2.5(a), to the extent requested by the Agent, Borrower will
use its best efforts to cause each mortgagee of any and all real estate under
any lease included in any Underlying Collateral and each landlord under any
lease included in any Underlying Collateral to execute and deliver to the Agent
assignments, in form and substance satisfactory to the Agent, by which such
mortgagee or landlord waives its rights, if any, to the Collateral.
SECTION 2.6. APPOINTMENT OF AGENT AS ATTORNEY-IN-FACT. Upon the
occurrence of any of the events specified in subclause (i) of Section 2.5(a),
Borrower does hereby irrevocably make, constitute and appoint the Agent and any
of its officers, employees or agents as the true and lawful attorneys of
Borrower with power to:
(a) sign the name of Borrower on any financing statement, renewal financing
statement, notice or other similar document that in the Agent's opinion must be
filed in order to perfect or continue perfected the security interests granted
in this Agreement or any Other Agreements;
(b) receive, endorse, assign and deliver, in Borrower's name or in the name
of the Agent, all checks, notes, drafts and other instruments relating to any
Collateral, including receiving, opening and properly disposing of all mail
addressed to Borrower concerning the Collateral and, during the existence of an
Event of Default (as hereinafter defined), to notify postal authorities to
change the address for delivery of mail to such address as the Agent may
designate;
(c) sign Borrower's name on any notices to any of Borrowers clients or
customers; and
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(d) upon the occurrence and during the continuance of an Event of Default,
take or bring at Borrower's cost, in Borrower's name or in the name of the
Agent, all steps, actions and suits deemed by the Agent necessary or desirable
to effect collections in connection with any Loans, to enforce payment in
connection with any Loans, to settle, compromise or release in whole or in part,
any amounts owing in connection with any Loans, to prosecute any action or
proceeding with respect to any Loans, to extend the time of payment in
connection with any Loans, to make allowances and adjustments with respect
thereto, to secure credit in the name of the Agent, and to do all other things
necessary or desirable to realize upon the Collateral, including but not limited
to the Underlying Collateral, and to carry out this Agreement and all Other
Agreements.
Neither the Agent nor its agents or attorneys will be liable for any act or
omission nor for any error of judgment or mistake of fact unless such act,
omission, error or mistake shall occur as a result of their gross negligence or
willful misconduct. This power, being coupled with an interest, is irrevocable
so long as the Obligations remain unpaid.
SECTION 2.7. INDEMNITY. In addition to all of the Agent's and Banks'
other rights and remedies under the Loan Documents, Borrower will hold the Banks
and the Agent from and indemnify the Banks and the Agent or other designee of
the Agent against all losses, damages, costs and expenses (including, without
limitation, attorneys' fees, costs and expenses) incurred by any of them,
whether prior to or from and after the date hereof, whether direct, indirect or
consequential, as a result of or arising from or relating to any suit,
investigation, action or proceeding by any Person, whether threatened or
initiated, asserting a claim for any legal or equitable remedy against any
Person under any statute or regulation, including without limitation, any
Federal or state antitrust laws, or under any common law or equitable cause or
otherwise, all to the extent arising from or in connection with this Agreement
or the other Loan Documents or the enforcement of the rights of the Agent
hereunder, other than losses, damages, costs and expenses resulting from, but
only to the extent resulting from, the willful misconduct or gross negligence of
the Person seeking indemnification.
SECTION 2.8. BORROWER REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (i) Borrower shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (ii) the exercise by the Agent or the Banks of
any rights under this Agreement or any of the other Loan Documents shall not
release Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (iii) neither the Agent nor the Banks
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement or any of the other Loan
Documents nor shall the Agent or any Bank be obligated to perform any of the
obligations or duties of Borrower thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
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SECTION 2.9. AGENT MAY PERFORM. If Borrower fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by Borrower, together with interest thereon at the
rate specified in Section 2.6 of the Loan Agreement, and until so paid shall be
deemed part of the Obligations.
SECTION 2.10. AGENT'S DUTIES. The powers conferred on the Agent hereunder
are solely to protect its interest and the interests of the Banks and the CP
Holders in the Collateral and shall not impose any duty upon it to exercise any
such powers except as provided herein. Except for the safe custody of any
Collateral in its possession and the accounting for monies actually received by
it hereunder and performing its other express duties hereunder, the Agent shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral.
ARTICLE III
PRIORITY OF SECURITY INTERESTS
SECTION 3.1. PRIORITY OF SECURITY INTERESTS. Borrower warrants and
represents to the Agent and the Banks that, as to those assets for which
perfection may be accomplished by filing or by possession under the UCC, the
security interests granted to the Agent hereunder constitute and will constitute
at all times a valid and perfected security interest vested in the Agent
in and upon the Collateral. Borrower further warrants and represents that the
Agent's security, interests in the Collateral are not and hereinafter shall not
become subordinate or junior to the security interests, liens or claims of any
other Person, firm or corporation, including the United States or any
department, agency or instrumentality thereof, or any state, county or local
governmental agency, except for the Permitted Liens. Borrower shall not grant
(without the prior written approval of the Agent) a security interest in or
permit a lien or encumbrance upon any of the Collateral to anyone except the
Agent as long as any of the Obligations remain unpaid, except for the Permitted
Liens. Notwithstanding the priority of any filed financing statement, the
Borrower, the Agent acting hereunder for the benefit of the Banks and the Agent
acting as agent for the SBA under the SBA Security Agreement acknowledge and
agree that the security interest in that part of the Collateral which
constitutes the SBA Collateral granted by the Borrower under the SBA Security
Agreement is senior and prior in right of distribution to the security interest
granted herein for the benefit of the Banks, the CP Holders and the Paying
Agent, to the extent and as provided in Section 5.3(a) hereof and in the
Intercreditor Agreement.
ARTICLE IV
COLLATERAL
SECTION 4.1. REPRESENTATIONS, COVENANTS AND WARRANTIES. Borrower hereby
makes the following representations, warranties and covenants to the Agent and
the Banks,
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which shall survive the execution and delivery of the Loan Documents and (except
to the extent that any of such representations, and warranties and covenants
expressly relate to earlier dates) shall be deemed repeated and confirmed as of
each date on which any Revolving Credit Loans or Term Loans are requested by
Borrower or made by any Bank:
(a) Borrower is now and at all times hereafter shall be the absolute owner,
free and clear of all Liens (other than Permitted Liens) except security
interests and rights of the Agent and the Banks granted herein, of indefeasible
title to all of the Collateral, except for that portion of Borrower's rights
and/or obligations under any Loan in which Borrower has granted a participation
to any Person in accordance with Section 2.14 of the Loan Agreement;
(b) To the best of Borrower's knowledge, each outstanding Loan does, and
each future Loan will, represent a bona fide, valid and legally enforceable
indebtedness according to its terms, and each Loan, at the time of creation
thereof, except with the consent of the Agent and the Banks, will be subject to
no offsets, discounts, counterclaims, contra-accounts or any other defense of
any kind or character that materially adversely affects the value of the Loan;
(c) With respect to each outstanding and future Loan, the Agent and the
Banks may rely on all statements or representations made by Borrower on or with
respect to such Loans delivered hereunder or under the Loan Agreement, and,
unless otherwise indicated in writing by Borrower, each outstanding Loan is, and
each future Loan will be, genuine and in all respects what it purports to be,
and, to Borrower's knowledge, there are no, and, at the time of creation of each
Loan there will not be any, to Borrower's knowledge, facts, events or
occurrences that would in any way materially impair the validity or enforcement
thereof;
(d) All of the outstanding Loans have been, and all future Loans will be,
created, and are (or in the case of future Loans, will be), and the form and
content of each document related to all outstanding and future Loans, the
security related thereto, and the transactions from which it arose comply (or,
in the case of future Loans, will comply) in all material respects with any and
all applicable laws, ordinances, rules and regulations, Federal, state and/or
local, with respect to the extension of credit and charging of interest,
including, without limitation, as applicable, the Federal Consumer Credit
Protection Act, the Federal Fair Credit Reporting Act, the Federal Trade
Commission Act, the Federal Equal Credit Opportunity Act and all Federal, state
and local laws related to licensing, usury, truth in lending, real estate
settlement procedures, consumer protection, equal credit opportunity, fair debt
collection, unfair and deceptive trade practices, rescission rights and
disclosures, and with all rules and regulations thereunder, all as amended, and
any disclosures required with respect to any Loan the failure of which to make
would have a Material Adverse Effect on Borrower were and will continue to be
made properly and in a timely manner;
(e) The original amount and unpaid balance of each Loan shown on Borrower's
books and records and on any statement or schedule delivered to the Agent are
and will be true and correct, and the unpaid balance is and will be the amount
actually owing to Borrower;
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(f) If requested by the Required Banks at any time or from time to time,
Borrower shall cause a Lien search against each Person to whom a Loan has been
made satisfactory to the Agent, to be performed and delivered directly to the
Agent, which Lien search shall indicate the absence of any Liens against such
Person or the property of the Person on which Borrower has a Lien, other than
Liens in favor of Borrower which have been assigned to the Agent or the Banks or
Liens in favor of the Agent or the Banks and other than Permitted Liens;
(g) Borrower has not extended and will not extend any credit of any kind or
in any manner to any Person in connection with the transactions from which the
Loans arose or will arise other than as Borrower has indicated on and has had
evidenced by, or will indicate or have evidenced by, in the case of future
Loans, Borrower's files related to the Loans;
(h) Each security agreement, UCC filing, title retention instrument, and
other document and instrument, if any, which is security for the Loans contains,
or will contain, in the case of future Loans, a correct and sufficient
description of the Underlying Collateral covered thereby and each lien or
security interest which secures any outstanding Loan is, or any future Loan will
be, valid;
(i) To the best knowledge of Borrower, except as disclosed to the Agent,
any and all policies of insurance related to the property securing any
obligation of a Person to whom Borrower has made a Loan, or any guarantor of
such Loan, in connection with any Loan and any credit life insurance, credit
disability insurance, or credit unemployment insurance are in full force and
effect in accordance with the terms of all agreements between Borrower and such
Person or guarantor;
(j) Borrower has no knowledge of any fact which would impair in any
material respect the value or validity of any Loan except as disclosed to the
Agent; and
(k) The transactions contemplated herein, including the granting of
security interests herein and the enforcement by the Agent of its rights
hereunder if a Default or Event of Default occurs, do not and will not affect
the validity of the pledges of the Underlying Collateral and the Loans secured
by the Underlying Collateral are and will still be valid against the Obligers of
such Loans.
SECTION 4.2. COLLECTIONS. (a) Subject to the provisions of this
Agreement, the Intercreditor Agreement, and the other Loan Documents, Borrower
shall service, manage, enforce, and make Collections in connection with the
Loans. "Collections", as used herein, means payment of principal and interest
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on the Loans, other payments made with respect to Loans, the cash proceeds
realized from the enforcement of Loans and any security therefor, or the
collateral, proceeds of credit or group life insurance, and all proceeds of
insurance of any real or personal property which secure any of the Loans.
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(b) With respect to each of the Collections: Borrower shall collect all
Collections, receive all payments thereon and immediately deposit the proceeds
thereof into a Depository Account. Borrower may withdraw funds from such
account to use in the ordinary course of its business.
SECTION 4.3. RIGHTS OF AGENT REGARDING COLLATERAL. Upon the occurrence
and during the continuance of an Event of Default, and subject to the provisions
of the Intercreditor Agreement, the Agent shall have the right, and upon the
direction of the Required Banks shall, at any time and from time to time
thereafter, without notice to Borrower, (a) to notify, and upon the direction of
the Agent to Borrower, the Borrower will notify, (i) all Persons to whom
Borrower has made Loans that the Agent has a security interest in such
Collateral and direct all such Persons to make payments to the Agent or its
designee, and to such banks and accounts (which may be the Collateral Account)
as designated by the Agent or such designee, of all sums owing by them to
Borrower, and (ii) all banks in which Borrower has any Depository Accounts of
the occurrence of an Event of Default and direct all such Banks to transfer into
the Collateral Account, or to such other account at such bank as shall be
designated by the Agent or its designee, all amounts on deposit from time to
time in the related Depository Accounts; (b) to settle, compromise, sell,
assign, extend or renew any debt owing by any Persons to whom Borrower has made
a Loan; (c) to sell or assign such Collateral upon such terms as the Agent may
deem advisable; and (d) to discharge and release in the name of Borrower and the
Agent any such debt. Any and all disbursements for costs and expenses incurred
or paid by the Agent with respect to the enforcement, collection or protection
of its interest in the Collateral, or against Borrower, whether by suit or
otherwise, notification of Persons to whom Borrower has made Loans, including
reasonable attorneys' fees actually incurred, court costs and similar expenses,
if any, shall become a part of the Obligations secured by the Collateral,
payable on demand.
ARTICLE V
DEFAULT
SECTION 5.1. EVENTS OF DEFAULT. Any one of the following events will
constitute an "Event of Default":
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(a) failure of Borrower to observe, perform or comply with any of the
terms, provisions, conditions or covenants, or, in any material respect, any
warranties or representations, contained in this Agreement other than in Section
4.1 hereof;
(b) failure of Borrower to observe, perform or comply with any of the
terms, provisions, conditions, covenants, warranties or representations
contained in Section 4.1 of this Agreement, which failure shall not have been
remedied within 30 days after such failure shall first have become known to any
officer of Borrower;
(c) the occurrence of an Event of Default under the Loan Agreement; or
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(d) any of the Loan Documents shall cease to be in full force and effect.
SECTION 5.2. REMEDIES. (a) Upon the occurrence of any Event of Default,
the Agent shall have, in addition to any other rights and remedies contained in
this Agreement or in any of the Other Agreements, all the rights and remedies of
a secured party under the UCC, and all other rights and remedies provided by
law, all of which shall be cumulative to the extent permitted by law. Upon the
occurrence of any Event of Default and at any time thereafter if such or any
other default shall then be continuing, the Agent shall have the right without
further notice to Borrower to, and upon the direction of the Required Banks
shall, appropriate, take possession and control of, set off and apply to the
payment of any or all of the Obligations and/or the CP Debt, any or all
Collateral, subject to and in the manner set forth in Section 5.3 and in the
Intercreditor Agreement, to enforce payment in connection with the Loans or any
other Collateral to settle, compromise or release, in whole or in part, any
amounts owing on the Collateral, to prosecute any action, suit or proceeding
with respect to the Collateral, to extend the time of payment of any and all
Collateral, to make allowances and adjustment with respect thereto, to issue
credits in the name of Borrower or the Agent, to sell, assign and deliver the
Collateral (or any part thereof), at public or private sale, at broker's board,
for cash, upon credit or otherwise, at the Agent's sole option and discretion
and the Agent and any Bank or other Person interested in the Obligations may bid
or become purchaser at any such sale, if public, free from any right of
redemption, which is hereby expressly waived. Borrower agrees that the giving
of ten days notice by the Agent, sent by certified mail, return receipt
requested postage prepaid, to the address set forth below, designating the place
and time of any public sale or of the time after which any private sale or other
intended disposition of the Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice with respect
thereto. The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by the Agent in accordance with
Section 5.3 hereof, and the Borrower shall remain liable to the Agent, the Banks
and the CP Holders for any deficiency, together with interest thereon at the
rate provided in the Loan Agreement with respect to the Obligations and in the
Commercial Paper with respect to the CP Debt, and the cost and expenses of
collection of such deficiency, including (to the extent permitted by law),
without limitation, reasonable attorneys' fees actually incurred, expenses and
disbursements.
(b) If at any time or times hereafter the Agent employs counsel for advice
with respect to this Agreement or any Other Agreements, or to intervene, file a
petition, answer, motion or other pleading in any suit or proceeding relating to
this Agreement or any Other Agreements (including, without limitation, the
interpretation or administration, or the amendment, waiver or consent with
respect to any term, of this Agreement or any Other Agreements), or relating to
any Collateral, or to protect, take possession of, or liquidate any Collateral,
or to attempt to enforce any security interest or lien in any Collateral, or to
represent the Agent in any pending or threatened litigation with respect to the
affairs of Borrower in any way relating to any of the Collateral or to the
Obligations or to enforce any rights of the Agent,
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any Bank or the CP Holders or liabilities of Borrower, any Person to whom
Borrower has made a Loan, or any Person which may be obligated to the Agent or
such Bank by virtue of this Agreement or any Other Agreement, instrument or
document now or hereafter delivered to the Agent, any Bank, any CP Holder or the
Paying Agent by or for the benefit of Borrower, then in any of such events, all
of the reasonable attorneys' fees actually incurred arising from such services,
and any expenses, costs and charges relating thereto, shall be Obligations
secured by the Collateral.
(c) Upon the occurrence of an Event of Default, the Agent shall have the
right to require Borrower to assemble all Collateral not already in the Agent's
possession and make it reasonably available to the Agent at one or more places
to be designated by the Agent which are reasonably convenient to both parties,
and to take possession of such Collateral and to enter and remain upon the
various premises of Borrower without cost or charge to the Agent, and to use the
same, together with materials, supplies, books and records of Borrower for the
purpose of collecting such Collateral or liquidating such Collateral (plus any
Collateral already in the Agent's possession), whether by foreclosure, auction
or otherwise. In addition, the Agent may remove from such premises such
Collateral, and any records with respect thereto, to the premises of the Agent
or any Custodian for such time as the Agent may desire, in order to effectively
collect or liquidate such Collateral.
(d) Upon the occurrence of an Event of Default, the Agent shall have the
right to, and upon the direction of the Required Banks shall, require Borrower
to establish and maintain a lockbox service (which may be the Collateral
Account) with such bank or banks as may be acceptable to the Agent. In the
event Borrower (or any of its Affiliates, subsidiaries, stockholders, directors,
officers, employees or agents) shall receive any monies, checks, notes, drafts
or any other items of payment relating to, or proceeds of, the Loan, Borrower
agrees with the Agent as follows:
(i) Borrower shall hold all such items of payment in trust for the Agent
and the Banks and as the property of Agent and the Banks, separate from the
funds of Borrower, and Borrower shall immediately forward, or cause to be
forwarded, the same to the lockbox service for application to the Revolving
Credit Loans or Term Loans;
(ii) Borrower shall forward to the Agent, on a daily basis, deposit slips
related to all such items of payment received by Borrower and, if requested
by the Agent, copies of such checks and other items, together with a
statement showing the application of that portion of such items of payment
relating to payment in connection with the Loans and a collection report
with regard thereto in form and substance satisfactory to the Agent;
(iii) All such items of payment shall be the sole and exclusive property
of the Agent for the benefit of the Banks immediately upon the earlier of
receipt of such items by the Agent or the receipt of such items by
Borrower;
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(iv) The lockbox service shall be subject to the sole control of the Agent
and the Agent shall have the right at all times in its sole discretion to
apply all or part of such items of payment to the payment in accordance
with Section 5.3 hereof. The Agent may, and upon the direction of the
Required Banks shall, release to Borrower all or any part of such items of
payment; and
(v) The Agent assumes no responsibility for such lockbox arrangement,
including, without limitation, any claim of accord and satisfaction or
release with respect to deposits accepted by any bank thereunder.
(e) To the extent that the Agent, acting as Agent hereunder, exercises any
rights or omits to exercise any rights under this Agreement at any time for the
benefit of the Banks (whether requested by the Required Banks thereunder or
otherwise) with respect to any of the Collateral, such exercise or omission
shall likewise be deemed to be authorized by the CP Holders for performance (or
omission) by the Agent hereunder for the benefit of the CP Holders. In
furtherance of the foregoing, the Agent may exercise (or omit to exercise) all
rights requested by the Required Banks under this Agreement without first giving
notice to or consulting with any CP Holder or the Paying Agent acting with
respect to any Commercial Paper.
SECTION 5.3. APPLICATION OF PROCEEDS. (a) The proceeds of any lockbox
collection or sale of, or other realization upon, all or any part of the
Collateral shall be applied by the Agent in the following order of priority:
first, to payment of the expenses of such lockbox or sale or other
realization, including reasonable compensation to the Agent and its agents
and counsel and all expenses, liabilities, advances incurred or made by the
Agent in connection therewith, and any other unreimbursed expenses for
which the Agent is to be reimbursed under this Agreement;
second, (i) with respect to the realization upon SBA Collateral, first to
the payment of the SBA Secured Debt (including principal, interest, fees
and all other amounts due thereunder), and after payment in full of the SBA
Secured Debt, to the payment of the CP Debt (to the extent that it
constitutes Permitted Debt) and the Obligations, pro rata in accordance
with the respective outstanding balances thereof (including principal,
interest, fees and all other amounts due thereunder) and (ii) with respect
to all other Collateral, to the payment of the CP Debt (to the extent that
it constitutes Permitted Debt) and the Obligations, pro rata in accordance
with the respective outstanding balances thereof (including principal,
interest, fees and all other amounts due thereunder); and
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third, after indefeasible payment in full of all Obligations and all CP
Debt, to payment to Borrower or its successors and assigns, or as a court
of competent jurisdiction may direct, of any surplus then remaining from
such proceeds.
The Agent may make distributions hereunder in cash or in kind, but such
distributions to the Banks shall in all events be made pro rata on the basis of
the respective Exposure Percentages of the Obligations. Distributions made
under clause "second" above may also be made in a combination of cash or
property, but distributions to the Banks shall be made pro rata on the basis of
the respective Exposure Percentages of the Obligations. Distributions made
under clauses "first" and "third" may also be made in a combination of cash or
property. Any deficiency remaining, after application of such cash or cash
proceeds to the Obligations, shall continue to be Obligations for which Borrower
remains liable.
(b) In making the determinations and allocations required by this Section
5.3, the Agent may rely upon information supplied by the Banks as to the amounts
of the Obligations held by them, upon information supplied by the Paying Agent
as to the amounts owed on the CP Debt, and upon information supplied by the SBA
as to the amounts owed on the SBA Secured Debt, and the Agent shall have no
liability to any of the Banks, the CP Holders or the Paying Agent for actions
taken in reliance upon such information. All distributions made by the Agent
pursuant to this Section 5.3 shall be final, and the Agent shall have no duty to
inquire as to the application by the Banks, the CP Holders, the Paying Agent or
the SBA of any amount distributed to them. However, if at any time the Agent
determines that an allocation was based upon a mistake of fact (including
without limitation, mistakes based on an assumption that principal or interest
or any other amount has been paid by payments that are subsequently recovered
from the recipient thereof through the operation of any bankruptcy,
reorganization, insolvency or other laws or otherwise), the Agent may in its
discretion, but shall not, subject to Section 5.3(c), be obligated to, adjust
subsequent allocations and distributions hereunder so that, on a cumulative
basis, the Banks, the CP Holders and the SBA receive the distributions to which
they would have been entitled if such mistake of fact had not been made.
(c) If, through the operation of any bankruptcy, reorganization, insolvency
or other laws or otherwise, the security interests created hereby are enforced
with respect to some, but not all, of the Obligations, the CP Debt and the SBA
Secured Debt, the Agent shall nonetheless apply the proceeds for the benefit of
the Banks, the CP Holders and the SBA, in the proportion and subject to the
priorities of Section 5.3(a). To the extent that the Agent distributes proceeds
collected with respect to one Obligation to or on behalf of the holder of
another Obligation or a Bank obtains the equivalent of proceeds through the
exercise of any right of setoff, the holder of the former Obligation shall be
deemed to have purchased a participation in the latter Obligation or shall be
subrogated to the rights of the holder thereof to receive any subsequent
payments and distributions made with respect to the portion thereof paid or to
be paid by the application of such proceeds.
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SECTION 5.4. WAIVER BY AGENT OR BANKS. The Agent's or any Bank's failure
at any time or times hereafter to require strict performance by Borrower of any
of the provisions, warranties, terms and conditions contained in this Agreement
or any of the Other Agreements shall not waive, affect or diminish any right of
the Agent or any Bank at any time or times hereafter to demand strict
performance therewith and with respect to any other provisions, warranties,
terms and conditions contained in this Agreement or any of the Other Agreements,
and any waiver of any Event of Default shall not waive or affect any other Event
of Default, whether prior or subsequent thereto, and whether of the same or a
different type. None of the warranties, conditions, provisions and terms
contained in this Agreement or any Other Agreement shall be deemed to have been
waived by any act or knowledge of the Agent or any Bank, or their respective
agents, officers or employees except by an instrument in writing signed by an
officer of the Agent or such Bank and directed to Borrower specifying such
waiver.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. CONTINUING LIEN. This Agreement secures all present and
future Obligations of Borrower. There is included within the term "Collateral,"
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as used herein, all other property and all interests therein of any kind
hereafter acquired by Borrower, meeting or falling within the general
description of the Collateral set forth herein and also the proceeds and
products thereof.
SECTION 6.2. WAIVERS BY BORROWER. (a) Borrower irrevocably waives the
right to direct the application of any and all payments which may be received by
the Agent during the continuance of an Event of Default, and Borrower does
hereby irrevocably agree that, during the continuance of an Event of Default,
the Agent shall have the continuing exclusive right to apply and reapply any and
all such payments received in such manner as the Agent may deem advisable,
notwithstanding any entry upon any of its books and records.
(b) Borrower also waives any and all notices of demand, notice or protest
that Borrower might be entitled to receive with respect to this Agreement by
virtue of any applicable statute or law, and waives demand, protest, notice of
protest, notice of default, release, compromise, settlement, extension or
renewal of all commercial paper, accounts, contract rights, instruments,
guaranties, and otherwise, at any time held by the Agent or the Banks on which
Borrower may in any way be liable, notice of nonpayment at maturity of any and
all Loans, and notice of any action taken by the Agent or the Banks unless
expressly required by this Agreement.
SECTION 6.3. PARTIES. This Agreement and any of the Other Agreements,
instruments and documents executed and delivered pursuant hereto or to
consummate the transactions contemplated hereunder shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto.
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SECTION 6.4. GOVERNING LAW. THIS AGREEMENT AND ANY OTHER AGREEMENTS SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW
YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT
THAT THE LAWS OF ANOTHER JURISDICTION ARE MANDATORILY APPLICABLE TO THE EXERCISE
OF REMEDIES OR THE PERFECTION OF SECURITY INTERESTS UNDER THE UCC.
SECTION 6.5. WAIVER OF JURY TRIAL AND SETOFF. EACH OF BORROWER AND THE
AGENT HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT
TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER AGREEMENTS
OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT OR THE OTHER
AGREEMENTS, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR
ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE, HOWSOEVER ARISING, BETWEEN
BORROWER AND ANY OF THE BANKS OR THE AGENT, BETWEEN ANY BANKS, BETWEEN THE AGENT
AND ANY BANKS, BETWEEN THE AGENT AND ANY CP HOLDER OR THE PAYING AGENT, BETWEEN
ANY CP HOLDER AND THE PAYING AGENT AND BETWEEN ANY CP HOLDERS AND BORROWER
HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF, COUNTERCLAIM OR CROSS-CLAIM IN
CONNECTION WITH ANY SUCH LITIGATION, IRRESPECTIVE OF THE NATURE OF SUCH SETOFF,
COUNTERCLAIM OR CROSS-CLAIM (UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM
COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION).
SECTION 6.6. JURISDICTION; SERVICE OF PROCESS. Borrower hereby
irrevocably consents to the Jurisdiction of the Courts of the State of New York,
County of New York and of any Federal Court located in the Southern District of
New York, and agrees that venue in each of such Courts is proper in connection
with any action or proceeding arising out of or relating to this Agreement, the
Other Agreements, or any document or instrument delivered pursuant to this
Agreement or the Other Agreements. Nothing herein shall affect the right of any
Bank to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against Borrower in any other jurisdiction.
SECTION 6.7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Borrower and all terms, provisions, conditions
and agreements to be performed by Borrower contained in this Agreement and in
the other Loan Documents shall be true and correct, and satisfied, where
applicable, at the time of the execution of this Agreement, and shall survive
the execution and delivery of this Agreement and all Other Agreements.
22
<PAGE>
SECTION 6.8. OBLIGATIONS SECURED BY PROPERTY OTHER THAN COLLATERAL. To
the extent that the Obligations are now or hereafter secured by property other
than the Collateral, or by a guarantee, endorsement or property of any other
Person, then the Agent shall have the right to, and upon the direction of the
Required Banks shall, proceed against such other property, guarantee or
endorsement upon the occurrence and during the continuance of an Event of
Default, and the Agent shall have the right, with the consent of the Required
Banks, to determine which rights, security, liens, security interests or
remedies the Agent shall at any time pursue, relinquish, subordinate, modify or
take any other action with respect thereto, without in any way modifying or
affecting any of them or any of the Agent's rights or any of the Bank's rights
under the Obligations, this Agreement or any Other Agreements.
SECTION 6.9. SUCCESSOR AGENT. In the event a successor agent is appointed
pursuant to the provisions of Section 11.4 of the Loan Agreement, such successor
agent shall succeed to the rights, powers and duties of the Agent hereunder, and
the term "Agent" shall mean such successor agent effective upon its appointment,
-----
and the former Agent's rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to the Loan Agreement or any holders of the Revolving Credit
Notes or Term Notes. Such former Agent agrees to take such actions as are
reasonably necessary to effectuate the transfer of its rights, powers and duties
to such successor agent.
SECTION 6.10. TERMINATION. This Agreement and the security interest in
the Collateral created hereby will terminate when the Obligations and the CP
Debt have been irrevocably paid and finally discharged in full in accordance
with the terms of the Loan Agreement or the documents evidencing the CP Debt, as
the case may be, the Banks are no longer obligated to make Revolving Credit
Loans or Term Loans under the Loan Agreement, and the Dealer is no longer
required to sell Commercial Paper. No waiver by the Agent or any Bank or any
other holder of the Revolving Credit Notes or the Term Notes or any CP Holder or
the Paying Agent of any default will be effective unless in writing nor operate
as a waiver of any other default or of the same default on a future occasion.
In the event of a sale or assignment by any Bank (including the Agent in its
capacity as a Bank but not as Agent) of a Revolving Credit Note(s) or a Term
Note(s) or any portion thereof, such Bank may assign or transfer its rights and
interest under this Agreement in whole or in part to the purchaser or purchasers
of the Revolving Credit Note(s) or Term Note(s), whereupon such purchaser or
purchasers will become vested with all of the powers, rights and
responsibilities of such Bank hereunder, and such Bank will thereafter be
forever released and fully discharged from any liability or responsibility
hereunder with respect to the rights, interest and responsibilities so assigned,
other than liabilities arising out of actions taken prior to the date of
assignment. Borrower may not assign this Agreement without the express written
consent of the Agent and the Banks.
23
<PAGE>
SECTION 6.11. NOTICES. All notices, requests, consents, demands or other
communications provided for herein shall be given in accordance with the terms
of Section 10.4 of the Loan Agreement.
SECTION 6.12. SEVERABILITY. To the extent any provision of this Agreement
is prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
SECTION 6.13. COUNTERPARTS. This Agreement may be executed by the parties
hereto in counterparts, each of which shall be an original and both of which
shall together constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written by the duly authorized officers of the parties hereto.
MEDALLION FUNDING CORP.
By: /s/ Alvin Murstein
--------------------------------
Name: Alvin Murstein
Title: Chief Executive Officer
By: /s/ Daniel F. Baker
--------------------------------
Name: Daniel F. Baker
Title: Treasurer and
Chief Financial Officer
FLEET BANK, N.A.,
as Agent
By: /s/ Andrea H. Lee
---------------------------------
Name: Andrea H. Lee
Title: Vice President
24
<PAGE>
EXHIBIT 10.62
First Amendment, dated as of February 5, 1998, to Amended and Restated Loan
Agreement by and among Medallion Funding Corp., the leaders 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.
AMENDMENT NUMBER ONE TO LOAN AGREEMENT
--------------------------------------
First Amendment entered into as of February 5, 1998, among MEDALLION
FUNDING CORP., a New York corporation ("Borrower"), the banks that are
signatories hereto, collectively, the "Banks" and individually, a "Bank"), FLEET
BANK, NATIONAL ASSOCIATION , as a Bank ("Fleet"), as swing line lender (the
"Swing Line Lender"), as Arranger and as Administrative Agent and Collateral
Agent for the Banks (including any successor, the "Agent") and The Bank of New
York, as a Bank ("BONY") and as Documentation Agent for the Banks (including any
successor, the "Documentation Agent").
WHEREAS, the Borrower, the Banks, the Agent and the Documentation Agent are
parties to an Amended and Restated Loan Agreement dated as of December 24, 1997
(the "Agreement"); and
WHEREAS, the Borrower has requested that the Banks and the Agent amend, and
the Banks and the Agent have agreed to amend, certain provisions of the
Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The Agreement is hereby amended as follows:
(a) The definition of "Commercial Loans" contained in Section 1.1 of
the Agreement is amended to read in its entirety as follows:
"Commercial Loans" shall mean Loans that are secured in whole or in
----------------
part by Real Property, Inventory, Equipment and/or Receivables and that are
not Medallion Loans.
(b) The definition of "Eligible Commercial Loans" contained in Section
1.1 of the Agreement is amended to read in its entirety as follows:
<PAGE>
"Eligible Commercial Loan" shall mean any Commercial Loan that
------------------------
satisfies the Eligibility Requirements and (a) that is secured by Eligible
Real Estate, Eligible Equipment, Eligible Inventory or Eligible Receivables
and (b) that is made to a Person that is an ongoing business concern.
(c) New definitions of "Eligible Equipment" and "Eligible Inventory"
shall be added to Section 1.1 of the Agreement immediately after the definition
of "Eligible Commercial Loan" to read in their entirety as follows:
"Eligible Equipment" shall mean Equipment in which a first priority
------------------
perfected security interest has been obtained by Borrower to secure the
obligations of such Person under a Loan by Borrower to such Person, or in
the case of such beneficial owner, to secure a guaranty which shall have
been made by such beneficial owner guaranteeing the Loan, and the same has
been assigned to the Agent, for the benefit of the Banks, pursuant to the
Security Agreement.
"Eligible Inventory" shall mean Inventory in which a first priority
------------------
perfected security interest has been obtained by Borrower to secure the
obligations of such Person under a Loan by Borrower to such Person, or in
the case of such beneficial owner, to secure a guaranty which shall have
been made by such beneficial owner guaranteeing the Loan, and the same has
been assigned to the Agent, for the benefit of the Banks, pursuant to the
Security Agreement.
(d) A new definition of "Eligible Receivables" shall be added to
Section 1.1 of the Agreement immediately after the definition of "Eligible Real
Estate" to read in its entirety as follows:
"Eligible Receivables" shall mean Receivables (i) that are reasonably
--------------------
determined in good faith to be eligible by Borrower, (ii) that arise in the
ordinary course of a Person's business, (iii) that are net of credits,
rebates, offsets, holdbacks or adjustments and
- 2 -
<PAGE>
(iv) in which a first priority perfected security interest has been
obtained by Borrower to secure the obligations of such Person under a Loan
by Borrower to such Person, or in the case of such beneficial owner, to
secure a guaranty which shall have been made by such beneficial owner
guaranteeing the Loan, and the same has been assigned to the Agent, for the
benefit of the Banks, pursuant to the Security Agreement.
(e) A new definition of "Inventory shall be added to Section 1.1 of
the Agreement immediately after the definition of "Interest Period" to read in
its entirety as follows:
"Inventory" shall mean, with respect to any Person, all goods held by
---------
such Person for sale or lease by such Person, or to be furnished under
contracts of service, in each case in the ordinary course of such Person's
business.
(f) The definition of "Loans" contained in Section 1.1 of the
Agreement is amended to read in its entirety as follows:
"Loan" shall mean any loan or advance made in the ordinary course of
----
business by Borrower (which for purposes of this definition shall include
those acquired pursuant to a Portfolio Purchase that is permitted pursuant
to the terms of this Agreement) to or for the account of any client or
customer of Borrower, which loan, advance or extension of credit is
permitted pursuant to the terms of this Agreement. Any loan, advance or
extension of credit made at a different point in time than another loan,
advance or extension of credit shall be deemed to be separate and distinct
Loans.
(g) A new definition of "Receivables" shall be added to Section 1.1 of
the Agreement immediately after the definition of "Real Property" to read in its
entirety as follows:
- 3 -
<PAGE>
"Receivables" shall mean, with respect to any Person, all present and
-----------
future rights to payment for goods sold or leased or for services rendered
by such Person whether or not evidenced by an instrument or chattel paper.
(h) The definition of "Investment" contained in Section 1.1 of the
Agreement is amended to read in its entirety as follows:
"Investment" in any Person shall mean any loan, advance, or extension
----------
of credit to or for the account of; any guaranty, endorsement or other
direct or indirect contingent liability in connection with the obligations,
Capital Stock or dividends of; any ownership, purchase or acquisition of
any assets, business, Capital Stock, obligations or securities of; or any
other interest in or capital contribution to; such Person, but shall not
include (a) any Loan, (b) any Investment permitted by Section 8.14 hereof
and (c) any Portfolio Purchase.
(i) The definition of "Portfolio Purchase" contained in Section 1.1 of
the Agreement is amended to read in its entirety as follows:
"Portfolio Purchase" shall mean any purchase or acquisition, whether
-------------------
for cash, for stock, pursuant to financing or otherwise, of any assets,
business, Capital Stock, obligations or securities of, any Person; or other
interest in or capital contribution to, any Person that results in, or
would result in (after taking into account the applicable Portfolio
Purchase), the Borrower having any additional Loans.
(j) A new definition of "Super-majority Banks" shall be added to
Section 1.1 of the Agreement immediately after the definition of "Subsidiary" to
read in its entirety as follows:
"Super-majority Banks" shall mean, as of any date of determination,
--------------------
the Agent and such Bank or Banks as have Revolving Credit Commitments or
Term Loans outstanding
- 4 -
<PAGE>
equal to or in excess of 75% of the sum of the Aggregate Revolving Credit
Commitment plus all Term Loans then outstanding.
(k) Section 5.2(c) is amended to read in its entirety as follows:
(c) no event, action or condition has occurred that would
adversely affect the validity or enforceability of, or the authority of the
Borrower to perform its obligations under, any of the Loan Documents to
which it is a party.
(l) Section 6.15 is amended to read in its entirety as follows:
SECTION 6.15. Required Percentage of Medallion Loans.
--------------------------------------
Borrower shall ensure that, for so long as any amounts are owed by it
to the Banks, the Swing Line Lender or the Agent under the Loan Documents,
at all times at least 65% of the aggregate principal amount of all Loans
then outstanding shall be Eligible Medallion Loans to Persons who have
obtained such Loans for the purpose of acquiring Medallion Rights for use
primarily in New York City. For purposes of this Section 6.15, Loans shall
include all Loans acquired in connection with Portfolio Purchases permitted
pursuant to this Agreement.
(m) Section 8.3(a) is amended to read in its entirety as follows:
(a) Make, or obligate itself to make, any loan or advance or
Investment that is not a Domestic Loan or a Domestic Investment.
(n) A new Section 8.16 is added immediately after Section 8.15 to read
in its entirety as follows:
SECTION 8.16. Portfolio Purchases.
-------------------
- 5 -
<PAGE>
Make, or obligate itself to make, any Portfolio Purchase unless:
(i) no Default or Event of Default exists or would exist after giving
effect to the applicable Portfolio Purchase;
(ii) the Borrower has provided the Agent and each of the Banks with a
pro forma certificate of the chief financial officer of the Borrower
evidencing the Borrower's computation of compliance with each of the
financial ratios, tests or covenants specified in Article VII, 6.15, 8.2,
8.3, 8.4 and 8.14 hereof after giving effect to the applicable Portfolio
Purchase;
(iii) the applicable Portfolio Purchase has the approval of the
seller;
(iv) (1) the seller of the loans constituting such Portfolio Purchase
is in the business of making loans secured by New York City taxicab
medallions and the loans to be acquired in connection therewith are secured
by New York City taxicab medallions, or (2) the Portfolio Purchase is being
made from a Person in any other line of business; provided, that, to the
--------------
extent the Portfolio Purchase does not entirely involve loans secured by
New York City taxicab medallions, in addition to the foregoing, each such
Portfolio Purchase shall be subject to the following additional
limitations:
(A) if the consideration for such Portfolio Purchase shall be
Capital Stock of the Borrower, the fair market value of such Capital
Stock, less the aggregate outstanding principal balances of all loans
included in such Portfolio Purchase that are secured by New York City
taxicab medallions, if any, shall not exceed $50,000,000 with respect
to any one such Portfolio Purchase or $100,000,000 in any fiscal year
with respect to all such Portfolio Purchases in the aggregate in such
fiscal year; and
- 6 -
<PAGE>
(B) if the consideration for such Portfolio Purchase shall be
other than Capital Stock of the Borrower, the consideration therefor,
less the aggregate outstanding principal balances of all loans
included in such Portfolio Purchase that are secured by New York City
taxicab medallions, if any, shall not exceed $25,000,000 with respect
to any one such Portfolio Purchase or $50,000,000 in any fiscal year
with respect to all such Portfolio Purchases in the aggregate in such
fiscal year.
(o) Section 9.1(e) is amended to read in its entirety as follows:
(e) if the Borrower shall (i) default in the payment of any
principal, interest or premium with respect to any CP Debt (provided,
--------
however, that without prejudice to the right to declare any other Default
-------
or Event of Default, as to any such default, if on the date of such default
the Borrower delivers to the Agent a Loan Request (A) for a loan in an
amount at least equal to the amount of the defaulted payment, (B)
requesting that such loan be made on the earliest date that a loan may be
made under this Agreement and (C) containing a certification by the
Borrower that the proceeds of the loan(s) so requested will be used
immediately upon receipt to refinance the CP Debt in default, then such
default (and only such default) shall not constitute a Default or Event of
----
Default hereunder as long as the proceeds are used by the Borrower as
aforesaid, and as long as no holder of CP Debt has commenced legal
proceedings to enforce their remedies), or (ii) default in the performance
or observance of any other term, condition or agreement contained in any
such obligation or in any agreement relating thereto if the effect thereof
is to cause, or permit the holder or holders of such obligation (or the
Paying Agent or any other Person on behalf of such holder or holders) to
cause, such obligation to become due prior to its stated maturity;
(p) Section 9.1(f) is amended to read in its entirety as follows:
- 7 -
<PAGE>
(f) if Borrower shall (i) default in the payment of any
principal, interest or premium with respect to any Indebtedness for
borrowed money or any obligation which is the substantive equivalent
thereof in excess of $50,000, other than Indebtedness under the Revolving
Credit Loans, the Swing Line Loans, the Term Loans, or the CP Debt, and
such default shall continue for more than the period of grace, if any,
therein specified or (ii) default in the performance or observance of any
other term, condition or agreement contained in any such obligation or in
any agreement relating thereto if the effect thereof is to cause, or permit
the holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such obligation to become due prior to its
stated maturity;
(q) Section 9.1(l) is amended to read in its entirety as follows:
(1) if there shall occur any change in the Collateral or in the
business of Borrower, or its operation, conduct or prospects thereof, that
individually or in the aggregate, could have or result in a Material
Adverse Effect and the Agent has been directed to declare such Event of
Default by the Super-majority Banks as set forth below in this Section 9.1;
or
- 8 -
<PAGE>
(r) The paragraph beginning with the word "then" immediately following
Section 9.1(m) is amended to read in its entirety as follows:
then, (A) in the case of an Event of Default described in clause (h) or (i)
above, the Aggregate Revolving Credit Commitment, the Swing Line
Commitment, and each Term Loan Commitment shall automatically terminate and
(i) the unpaid balance of the Revolving Credit Notes, the Swing Line Note,
the Term Notes and all interest accrued thereon, and (ii) any accrued and
unpaid fees and expenses due and payable hereunder or under any other Loan
Document shall automatically (without any action on the part of the Agent
or the Banks and without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived) forthwith become due and
payable, and, (B) in the case of an Event of Default described in clause
(l) above, at any time thereafter, if such Event of Default shall then be
continuing the following action may be taken: The Agent, upon the direction
of the Super-majority Banks, shall, declare (i) the Aggregate Revolving
Credit Commitment, the Swing Line Commitment and all Term Loan Commitments
to be terminated, whereupon the obligation of the Agent the Banks and the
Swing Line Lender to make further Revolving Credit Loans or Term Loans or
Swing Line Loans, as the case may be, hereunder shall terminate immediately
and (ii) the Revolving Credit Notes, Swing Line Note and Term Notes to be
due and payable, whereupon the maturity of the then unpaid balance of the
Revolving Credit Notes, Swing Line Note and Term Notes shall be accelerated
and the same, and all interest accrued thereon and any accrued and unpaid
fees and expenses due and payable hereunder, shall forthwith become due and
payable without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, anything contained herein or in
Revolving Credit Notes, Swing Line Note or Term Notes to the contrary
notwithstanding, and, (C) in the case of any other Event of Default, then
and in any such event, and at any time thereafter, if such or any other
Event of Default shall then be continuing the
- 9 -
<PAGE>
following action may be taken: the Agent may (but shall not be obligated
to), and upon the direction of the Required Banks shall, declare (i) the
Aggregate Revolving Credit Commitment, the Swing Line Commitment and all
Term Loan Commitments to be terminated, whereupon the obligation of the
Agent the Banks and the Swing Line Lender to make further Revolving Credit
Loans or Term Loans or Swing Line Loans, as the case may be, hereunder
shall terminate immediately and (ii) the Revolving Credit Notes, Swing Line
Note and Term Notes to be due and payable, whereupon the maturity of the
then unpaid balance of the Revolving Credit Notes, Swing Line Note and Term
Notes shall be accelerated and the same, and all
- 10 -
<PAGE>
interest accrued thereon and any accrued and unpaid fees and expenses due
and payable hereunder, shall forthwith become due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived, anything contained herein or in Revolving Credit Notes,
Swing Line Note or Term Notes to the contrary notwithstanding.
2. The Borrower hereby represents and warrants to the Agent and each Bank
that:
(a) Each and every of the representations and warranties set forth in
the Agreement is true as of the date hereof and with the same effect as though
made on the date hereof, and is hereby incorporated herein in full by reference
as if fully restated herein in its entirety.
(b) No Default or Event of Default and no event or condition which,
with the giving of notice or lapse of time or both, would constitute such a
Default or Event of Default, now exists or would exist.
3. All capitalized terms used herein, unless otherwise defined herein,
have the same meanings provided therefor in the Agreement.
4. The amendments set forth herein are limited precisely as written and
shall not be deemed to (a) be a consent to or a waiver of any other term or
condition of the Agreement or any of the documents referred to therein or (b)
prejudice any right or rights which the Agent or any Bank may now have or may
have in the future under or in connection with the Agreement or any documents
referred to therein. Whenever the Agreement is referred to in the Agreement or
any of the instruments, agreements or other documents or papers executed and
delivered in connection therewith, it shall be deemed to mean the Agreement as
modified by this First Amendment.
5. This Amendment Number One shall be effective as of the date first
above written provided that the Borrower and
- 11 -
<PAGE>
the Agent shall have received counterparts of this Amendment Number One duly
signed by the Borrower and each of the Banks. Promptly after the effective date
of this Amendment Number One, the Agent shall deliver fully executed
counterparts of this Amendment to each of the Banks, and the Agreement shall
consist of the Agreement as amended by this Amendment Number One.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURES
CONTINUED ON THE FOLLOWING PAGES BEGINNING WITH PAGE 7]
- 12 -
<PAGE>
IN WITNESS WHEREOF, Borrower, the Agent, the Documentation Agent, the Swing
Line Lender and the Banks have caused this Agreement to be duly executed by
their respective officers hereunto duly authorized as of the day and year first
above written.
MEDALLION FUNDING CORP.
By: /s/ Alvin Murstein
--------------------------
Name: Alvin Murstein
Title: Chief Executive Officer
By: /s/ Daniel F. Baker
--------------------------
Name: Daniel F. Baker
Title: Treasurer and Chief
Financial Officer
FLEET BANK, NATIONAL ASSOCIATION, as
Agent, as Swing Line Lender and as one of the Banks
By: /s/ Andrea Lee
--------------------------
Title: Vice President
Payment Office:
1185 Avenue of the Americas
New York, New York 10036
THE BANK OF NEW YORK,
as Documentation Agent
and as one of the Banks
- 13 -
<PAGE>
By: /s/ Scott Silverstein
-----------------------
Title: Vice President
- 14 -
<PAGE>
BANKBOSTON, N.A.
By: /s/ Jack Bender
------------------------
Title: Director
HARRIS TRUST AND SAVINGS BANK
By: /s/ Michael Houlihan
------------------------
Title: Vice President
BANK TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ James Brown
------------------------
Title: Vice President
ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/ Jerry Grossman
-----------------------------
Title: Senior Vice President
By: /s/ Maureen McKee
------------------------
Title: Vice President
EUROPEAN AMERICAN BANK
By: /s/ Dennis Nochowitz
------------------------
Title: Vice President
- 15 -
<PAGE>
BANK LEUMI USA
By: /s/ Paul Tine
----------------------------
Title: Vice President
By: /s/ Rich Silverstein
----------------------------
Title: Senior Vice President
- 16 -
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ William Saya
------------------------
Title: Vice President
- 17 -
<PAGE>
EXHIBIT 10.63
AMENDMENT NO. 1 TO AMENDED AND RESTATED SECURITY AGREEMENT
AGREEMENT, made as of March 12, 1998, by and between MEDALLION FUNDING
CORP., a New York corporation, (the "Borrower"); and FLEET BANK, N.A., a
national banking association (the "Agent"), as Agent for the Banks that from
time to time are parties to the Loan Agreement referred to in the Amended and
Restated Security Agreement hereinafter described and for the Holders of
Commercial Paper therein referred to.
W I T N E S S E T H:
-------------------
WHEREAS:
(A) The Borrower and the Agent are parties to an Amended and Restated
Security Agreement dated as of December 24, 1997 (the "Security Agreement");
(B) The Borrower and the Bank wish to amend the Security Agreement as set
forth herein (this Agreement is hereinafter referred to as "Amendment No. 1");
(C) Any capitalized terms not defined herein shall have the meanings
ascribed thereto in the Security Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Article 1. Amendments to the Security Agreement.
------------------------------------
This Amendment shall be deemed to be an amendment to the Security
Agreement and shall not be construed in any way as a replacement or substitution
therefor. All of the terms and provisions of this Amendment are hereby
incorporated by reference into the Security Agreement as if such terms and
provisions were set forth in full therein.
(a) The Recitals Section of the Security Agreement which appears at
the beginning thereof is hereby amended to Amendment No. 1, dated as of March
12, 1998, to Amended and Restated Security Agreement between Medallion Funding
Corp. and Fleet Bank, N.A.
<PAGE>
the extent that the seventh "WHEREAS" clause is amended to read in its entirety
as follows:
"WHEREAS, the Banks are willing to consent to the grant of the
security interest in the Collateral to the Agent for the benefit of the CP
Holders and to the grant of the security interest in the SBA Collateral to
the Agent for the benefit of the SBA pursuant to the SBA Security
Agreement, provided that the Security Agreement is amended in accordance
herewith and provided, further that in the case of the CP Holders such
security interest granted to the Agent for their benefit shall not be
effective unless and until (i) the Agent has been appointed the Agent of
the CP Holders for purposes of this Agreement with duties consistent with
those necessary for the Agent (in its opinion) to perform its duties under
this Agreement, (ii) the CP Holders shall have been deemed to have
consented to the Agent's entering into the Intercreditor Agreement on their
behalf and (iii) the CP Holders shall have been deemed to agree that the
Agent is not liable to the CP Holders other then for gross negligence or
willful misconduct."
(b) Section 1.1 of the Security Agreement is hereby amended by
deleting the term "Percentage of the Obligations" in its entirety.
(c) Section 5.2 of the Security Agreement is hereby amended to the
extent that subsection 5.2(a) and the first paragraph of subsection 5.2(d) are
each hereby amended to read in their entirety as follows:
"(a) Upon the occurrence of any Event of Default, the Agent shall
have, in addition to any other rights and remedies contained in this
Agreement or in any of the Other Agreements, all the rights and remedies of
a secured party under the UCC, and all other rights and remedies provided
by law, all of which shall be cumulative to the extent permitted by law.
Upon the occurrence of any Event of Default and at any time thereafter if
such or any other default shall then be continuing, the Agent shall have
the right without
- 2 -
<PAGE>
further notice to Borrower to and shall, (i) upon the direction of the
Required Banks or (ii) 10 Business Days after written notice from the
Paying Agent that the CP Debt was not paid when due (and to the Agent's
actual knowledge such CP Debt then remains unpaid), appropriate, take
possession and control of, set off and apply to the payment of any or all
of the Obligations and/or the CP Debt, any or all Collateral, subject to
and in the manner set forth in Section 5.3 and in the Intercreditor
Agreement, to enforce payment in connection with the Loans or any other
Collateral to settle, compromise or release, in whole or in part, any
amounts owing on the Collateral, to prosecute any action, suit or
proceeding with respect to the Collateral, to extend the time of payment of
any and all Collateral, to make allowances and adjustment with respect
thereto, to issue credits in the name of Borrower or the Agent, to sell,
assign and deliver the Collateral (or any part thereof), at public or
private sale, at broker's board, for cash, upon credit or otherwise, at the
Agent's sole option and discretion and the Agent and any Bank or other
Person interested in the Obligations may bid or become purchaser at any
such sale, if public, free from any right of redemption, which is hereby
expressly waived. Borrower agrees that the giving of ten days notice by the
Agent, sent by certified mail, return receipt requested postage prepaid, to
the address set forth below, designating the place and time of any public
sale or of the time after which any private sale or other intended
disposition of the Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice with respect
thereto. The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by the Agent in accordance
with Section 5.3 hereof, and the Borrower shall remain liable to the Agent,
the Banks and the CP Holders for any deficiency, together with interest
thereon at the rate provided in the Loan Agreement with respect to the
Obligations and in the Commercial Paper with respect to the CP Debt, and
the cost and expenses of collection of such deficiency, including (to the
extent permitted by law), without
- 3 -
<PAGE>
limitation, reasonable attorneys' fees actually incurred, expenses and
disbursements.
(d) Upon the occurrence of an Event of Default, the Agent shall have
the right to and shall (i) upon the direction of the Required Banks, or
(ii) 10 Business Days after written notice from the Paying Agent that the
CP Debt was not paid when due (and to the Agent's actual knowledge such CP
Debt then remains unpaid) require Borrower to establish and maintain a
lockbox service (which may be the Collateral Account) with such bank or
banks as may be acceptable to the Agent. In the event Borrower (or any of
its Affiliates, subsidiaries, stockholders, directors, officers, employees
or agents) shall receive any monies, checks, notes, drafts or any other
items of payment relating to, or proceeds of, the Loan, Borrower agrees
with the Agent as follows:"
Article 2. Representations and Warranties.
------------------------------
The Borrower hereby represents and warrants to the Bank that, other than
with respect to the reporting requirements set forth in Section 6.1 of the Loan
Agreement which are incorrect solely by reason of the Borrower's fiscal year end
date being December 31 and not March 31 as referred to therein:
(a) Each and Every of the representations and warranties set forth in
Article IV of the Security Agreement is true as of the date hereof with respect
to the Borrower and with the same effect as though made on the date hereof, and
is hereby incorporated herein in full by reference as if fully restated herein
in its entirety.
(b) No Default or Event of Default now exists.
(c) This Amendment No. 1 and any other documents, agreements or
instruments now or hereafter executed and delivered to the Agent by the Borrower
in connection herewith constitute (or shall, when delivered, constitute) valid
and
- 4 -
<PAGE>
legally binding obligations of Borrower, each of which is and shall be
enforceable against Borrower in accordance with their respective terms.
(d) No consent, waiver or approval of any entity is or will be
required in connection with the execution, delivery, performance, validity or
enforcement or priority of this Amendment No. 1 or any other agreements,
instruments or documents to be executed and/or delivered in connection herewith
or pursuant hereto.
Article 5. Miscellaneous. Except as specifically amended herein, the
-------------
Security Agreement shall remain in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, each of the undersigned has executed or caused to be
duly executed this Amendment No. 1 as of the date first above written.
MEDALLION FUNDING CORP.
By: /s/ Daniel F. Baker
----------------------
FLEET BANK, N.A., as Agent
By: /s/ Andrea Lee
----------------------
- 5 -
<PAGE>
SBA COLLATERAL - DESIGNATED COMMERCIAL LOANS
The following loans are hereby designated as SBA Collateral as of
__________, 1997:
Loan Number Borrower Outstanding Balance
----------- -------- -------------------
$________________
Total Outstanding Balance $________________
- 6 -
<PAGE>
EXHIBIT 10.64
INDENTURE OF LEASE, DATED October 31, 1997,
BY AND BETWEEN
SAGE REALTY CORPORATION, AS AGENT AND
LANDLORD
and
MEDALLION FINANCIAL CORP.
AS TENANT
<PAGE>
TABLE OF CONTENTS
PAGE
----
Article
ARTICLE 1. DEFINITIONS, TERM............................................. 1
ARTICLE 2. COMMENCEMENT OF TERM.......................................... 2
ARTICLE 3. FIXED RENT, ADDITIONAL RENTS AND RENT ADJUSTMENTS............. 3
ARTICLE 4. ELECTRICITY................................................... 8
ARTICLE 5. USE........................................................... 11
ARTICLE 6. REPAIRS, ALTERATIONS AND LIENS................................ 12
ARTICLE 7. FLOOR LOAD, NOISE, WINDOW CLEANING............................ 17
ARTICLE 8. LAWS, ORDINANCES, REQUIREMENTS OF PUBLIC
AUTHORITIES.................................................. 18
ARTICLE 9. INSURANCE, PROPERTY LOSS, REIMBURSEMENT....................... 19
ARTICLE 10. DAMAGE OR DESTRUCTION BY FIRE OR OTHER CAUSE.................. 22
ARTICLE 11. ASSIGNMENT, SUBLETTING, MORTGAGING............................ 24
ARTICLE 12. NO LIABILITY ON LANDLORD...................................... 31
ARTICLE 13. MOVING OF HEAVY EQUIPMENT..................................... 32
ARTICLE 14. CONDEMNATION.................................................. 32
ARTICLE 15. ENTRY, RIGHT TO CHANGE PUBLIC PORTIONS OF
THE BUILDING................................................. 33
ARTICLE 16. BANKRUPTCY.................................................... 34
ARTICLE 17. DEFAULTS AND REMEDIES AND WAIVER OF REDEMPTION................ 36
ARTICLE 18. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS.............. 39
ARTICLE 19. COVENANT OF QUIET ENJOYMENT................................... 40
ARTICLE 20. EXCAVATION.................................................... 40
ARTICLE 21. SERVICES AND EQUIPMENT........................................ 40
ARTICLE 22. DEFINITION OF LANDLORD........................................ 45
ARTICLE 23. INVALIDITY OF ANY PROVISION................................... 45
- i -
<PAGE>
ARTICLE 24. BROKER........................................................ 45
ARTICLE 25. SUBORDINATION................................................. 46
ARTICLE 26. ESTOPPEL CERTIFICATE.......................................... 48
ARTICLE 27. LEGAL PROCEEDINGS; WAIVER OF JURY TRIAL....................... 48
ARTICLE 28. SURRENDER OF PREMISES......................................... 50
ARTICLE 29. RULES AND REGULATIONS......................................... 51
ARTICLE 30. NOTICES....................................................... 52
ARTICLE 31. NO WAIVER; ENTIRE AGREEMENT................................... 52
ARTICLE 32. CAPTIONS...................................................... 53
ARTICLE 33. INABILITY TO PERFORM.......................................... 53
ARTICLE 34. NO REPRESENTATION BY LANDLORD................................. 54
ARTICLE 35. NAME OF BUILDING.............................................. 54
ARTICLE 36. SUCCESSORS AND ASSIGNS........................................ 54
ARTICLE 37. DEFERRED COLLECTIONS.......................................... 55
ARTICLE 38. ERISA - "PROHIBITED TRANSACTIONS"............................. 55
ARTICLE 39. FEES/INTEREST/LATE CHARGES.................................... 56
ARTICLE 40. ABATEMENT OF RENT............................................. 56
ARTICLE 41. TENANT'S EXPANSION OPTION..................................... 57
ARTICLE 42. TENANT'S EXTENSION OPTION..................................... 61
Schedule A Floor Plan
Schedule B Intentionally Omitted
Schedule C Rules and Regulations
Schedule D Schedule of Building Holidays
Schedule E Cleaning Specifications
Schedule F Alternate Article 4
- ii -
<PAGE>
INDENTURE OF LEASE made as of this _____ day of October,
1997, between SAGE REALTY CORPORATION, a New York corporation, having its
principal office at 777 Third Avenue, New York, New York 10017, Agent for
Madison Avenue Leasehold LLC the owner of the Building hereinafter mentioned
(herein "Landlord"), and MEDALLION FINANCIAL CORP., a Delaware corporation,
having its office at 205 East 42nd Street, New York, New York 10017 (herein
"Tenant").
W I T N E S S E T H:
ARTICLE 1.
DEFINITIONS, TERM
-----------------
Section 1.01. The terms defined in this Article shall, for all
purposes of this Lease and all agreements supplemental thereto, have the
meanings herein specified unless the context otherwise requires.
(a) "Building" shall mean the office building known as 437
Madison Avenue, in the Borough of Manhattan, City and State of New York. The
plot of land on which the Building is erected is hereinafter called the "Land."
(b) "Business Days" shall mean all days excluding
Saturdays, Sundays and days observed by the State of New York or Federal
Government as legal holidays, and further excluding holidays established by any
union contract applicable to employees at the Building. A Schedule of holidays
for calendar year 1998 is attached hereto as Schedule D.
(c) "Commencement Date" shall have the meaning set forth in
Section 2.02.
(d) "Demised Premises" shall mean the entire
thirty-eighth (38th) floor of the Building, as shown on the Floor Plan annexed
hereto as Schedule A and made a part of this Lease, including all fixtures and
equipment (including the existing supplemental air-conditioning systems) which
at the Commencement Date or during the Term of this Lease are attached thereto
and which become a part thereof.
(e) "Expiration Date" shall mean June 30, 2006, or any
earlier date of termination pursuant to the provisions hereof.
(f) "Fixed Rent" shall mean the annual rental payable by
Tenant for the Demised Premises in equal monthly installments as provided for
in Article 3 of this Lease.
<PAGE>
2
(g) "Interest Rate" shall mean the lesser of (i)) 2% above
the prime commercial lending rate of Marine Midland Bank, N.A. in effect from
time to time or (ii) the maximum applicable legal rate, if any.
(h) "Lease" shall mean this Indenture of Lease and any and
all Schedules annexed hereto.
(i) "Term of this Lease" and "Term" shall mean the term of
years commencing on the Commencement Date and expiring on the Expiration Date,
subject to the terms and conditions hereinafter set forth.
Section 1.02. Landlord hereby leases to Tenant, and Tenant
hereby rents from Landlord, the Demised Premises, subject to the provisions
hereinafter set forth, together with appurtenances, including the right to use
in common with others the lobbies, elevators and other public portions of the
Building.
TO HAVE AND TO HOLD unto Tenant, its successors and permitted
assigns, for the Term of this Lease.
ARTICLE 2.
COMMENCEMENT OF TERM
--------------------
Section 2.01. Tenant acknowledges that it has examined the
Demised Premises and is taking same "as is" as of the Commencement Date.
Tenant acknowledges that Landlord is not required to do any work with respect
thereto.
Section 2.02. The Term of this Lease and the payment of rent
shall commence on November 1, 1997 (herein the "Commencement Date"). The
taking of possession by Tenant of the Demised Premises shall be deemed an
acceptance of same by Tenant and shall also be conclusive evidence, as against
Tenant, that the Demised Premises and the Building of which the same form a
part were in good and satisfactory condition at the time of such occupancy and
that the Demised Premises were substantially as shown on Schedule A.
<PAGE>
3
Section 2.03. If Landlord shall be unable to give possession of
the Demised Premises on the date anticipated for the commencement of the Term
hereof for any reason whatsoever, Landlord shall not be subject to any
liability, nor shall the validity of this Lease nor the obligations of Tenant
hereunder be thereby affected. Landlord shall use diligent efforts to deliver
possession of the Demised Premises promptly, subject to any delays beyond the
reasonable control of Landlord. In the event that Landlord shall be unable to
give possession of the Demised Premises on or prior to the date (the "Outside
Delivery Date") which is two (2) months from the date hereof (subject to
extension for a period of one (1) months in the aggregate by reason of force
majeure [set forth immediately below]), Tenant may cancel and terminate this
Lease by giving notice thereof to Landlord on or prior to the Outside Delivery
Date, in which event this Lease shall terminate upon the giving of such notice,
and the parties hereto shall have no further liabilities or obligations to each
other hereunder. Any delay in Landlord's obtaining vacant possession of the
Demised Premises caused by labor trouble, governmental controls, act of God, or
any other cause beyond Landlord's reasonable control shall extend such time
period for Landlord to give possession of the Demised Premises to Tenant.
Without limiting the foregoing, the parties hereto expressly negate the
provisions of Section 223-a of the Real Property Law and agree that such Section
shall be inapplicable hereto. Tenant agrees that the provisions of this Article
are intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a. If by reason of such delay, the Term of this Lease
shall commence subsequent to such anticipated date, the Term of this Lease shall
be deemed extended for the same period.
ARTICLE 3.
FIXED RENT, ADDITIONAL RENTS AND RENT ADJUSTMENTS
-------------------------------------------------
Section 3.01. During the Term of this Lease, Tenant shall pay,
at Landlord's address as herein set forth, or at such other address that
Landlord may from time to time designate, a Fixed Rent payable in lawful money
of the United States of America (by check of Tenant drawn on a bank that is a
member of the New York Clearinghouse Association) in equal monthly installments
in advance on the first day of each calendar month, without notice or demand,
and without setoff, abatement (except as expressly provided herein), or
deduction whatsoever at annual rates as follows:
(i) $603,500 during the period beginning on the
Commencement Date and continuing through June 30, 2000;
(ii) $680,000 during the period beginning on
<PAGE>
4
July 1, 2000 and continuing through June 30, 2001;
(iii) $697,000 during the period beginning on July 1, 2001
and continuing through the balance of the Term.
If Tenant's obligation to pay Fixed Rent shall commence on a date
other than the first day of a calendar month, the first installment of Fixed
Rent shall be in an amount equal to that required to cover the period up to and
including the last day of the month wherein the obligation to pay Fixed Rent
occurs, computed on a per diem basis. Tenant shall pay the first full calendar
monthly installment of Fixed Rent on the execution of this Lease.
Section 3.02. The Fixed Rent does not take into account
increases of real estate taxes and/or expenses during the Term of this Lease or
other adjustments in rent, or other payments to be made by Tenant, during the
Term of this Lease. Provision therefor is hereinafter made.
Section 3.03. All costs and expenses, adjustments and payments,
which Tenant assumes or agrees or is obligated to pay to Landlord pursuant to
this Lease and/or its Schedules shall be deemed additional rent and, in the
event of nonpayment, Landlord shall have all rights and remedies with respect
thereto as herein provided for in case of nonpayment of Fixed Rent.
Tenant covenants to pay the Fixed Rent, additional rent and
adjustments of rent as in this Lease provided, when due.
Section 3.04. For the purposes of this Section 3.04, the
following definitions shall apply:
(a) The Term "Base Tax Year" as hereinafter set forth for
the determination of real estate tax escalation shall mean the period
commencing July 1, 1998, and ending June 30, 1999.
(b) The term "the Percentage" shall mean 2.29%.
(c) The term "Real Estate Taxes" shall mean all real estate
taxes, assessments, water and sewer rents, governmental levies, county taxes or
any other governmental charge, general or special, ordinary or extraordinary,
unforeseen as well as foreseen, of any kind or nature whatsoever, which are or
may be assessed or imposed upon the Land, the Building and the sidewalks,
plazas or streets in front of or adjacent thereto, including any tax, excise or
fee measured by or payable with respect to any rent, and levied against
Landlord and/or the Land and/or Building, under the laws of the United States,
the State of New York, or any political subdivision thereof, or by the City
<PAGE>
5
of New York, or any political subdivision thereof. If, due to a future change in
the method of taxation or in the taxing authority, a franchise, income,
transit, profit or other tax or governmental imposition, however designated,
shall be levied against Landlord, and/or the Land and/or the Building, in
substitution in whole or in part for said Real Estate Taxes, or in lieu of
additional real estate taxes, then such franchise, income, transit, profit or
other tax or governmental imposition shall be deemed to be included within the
definition of "Real Estate Taxes" for the purposes hereof. In the event that
the Real Estate Taxes for the Base Tax Year shall include any charge with
respect to any so called "Business Improvement District" or similar charge (a
"Bid Charge"), and if any such Bid Charge is subsequently discontinued or
eliminated, then, as of the date of such discontinuance or elimination, the
Real Estate Taxes for the Base Tax Year shall be recalculated as if the Bid
Charge had not originally been included therein.
(d) The term "Tax Year" shall mean every twelve-month
consecutive period commencing each July 1st during the Term of this Lease.
(e) The term "Wage Rate" shall mean the minimum regular
hourly wage rate plus all other sums, including, but not limited to, sums paid
for pensions, welfare funds, vacations, bonuses, social security, unemployment,
disability benefits, health, life, accident and other types of insurance
required to be paid to or for the benefit of employees engaged in the general
maintenance and operation of office buildings of the type and in the vicinity
of the Building pursuant to a collective bargaining agreement (designated as
"Others" in said agreement) between Realty Advisory Board on Labor Relations,
Inc. (or any successor thereto) and Local 32B/32J of the Building Service
Employees International Union AFL-CIO (or any successor thereto). The Wage
Rate is intended to be an index in the nature of a cost of living index, and is
not intended to reflect the actual costs of wages or expenses for the Building.
If any such agreement is not entered into, or such parties or their successors
shall cease to bargain collectively, then the Wage Rate shall be the minimum
regular hourly wage rate and other sums as aforesaid payable to or for the
benefit of employees engaged in the maintenance and operation of first class
office buildings of the same general type as the Building in the Manhattan
area.
(f) The term "Base Wage Rate" shall mean the Wage Rate in
effect on January 1, 1998.
(g) The term "Wage Rate Factor" shall mean 17,000.
(A) Operating Expense Adjustment.
It is agreed that if at any time the Wage Rate shall be
<PAGE>
6
greater than the Base Wage Rate, Tenant shall be required to pay to Landlord as
additional rent an Operating Expense Adjustment in an annual sum equal to the
product obtained by multiplying (i) the number of cents (including any fraction
of a cent) by which the Wage Rate exceeds the Base Wage Rate by (ii) the Wage
Rate Factor by (iii) 75%. Such Operating Expense Adjustment shall be payable to
Landlord together with Fixed Rent in equal monthly installments on the first day
of each calendar month commencing with the first month during the Term of this
Lease in which the Wage Rate shall be greater than the Base Wage Rate and as
billed by Landlord, continuing thereafter until a new adjustment in the
additional rent shall be established and become effective in accordance with the
provisions of this paragraph. Notwithstanding any change in Wage Rate downwards,
the Fixed Rent shall not be reduced. In the event any change in the Wage Rate
shall be made retroactive, Tenant shall pay Landlord the amount of any resulting
retroactive adjustment in such additional rent within five (5) days after being
billed therefor.
(B) Real Estate Tax Adjustment
In the event that the Real Estate Taxes payable for any Tax Year
shall exceed the amount of such Real Estate Taxes, as finally determined,
payable with respect to the Base Tax Year, Tenant shall pay to Landlord, as
additional rent ("Tenant's Tax Payment") for such Tax Year, an amount equal to
the Percentage of the excess. By or after the start of the Tax Year following
the Base Tax Year, and by or after the start of each Tax Year thereafter,
Landlord shall furnish to Tenant a statement of the Real Estate Taxes payable
with respect to such Tax Year, and a statement of the Real Estate Taxes payable
during the Base Tax Year.
Within thirty (30) days after the issuance by the governmental
authority having jurisdiction thereover of tax bills for Real Estate Taxes
assessed, levied and/or imposed upon the Land and Building for any Tax Year,
Landlord shall submit to Tenant a photostatic copy of such bill and/or bills
and thereafter on or about each respective anniversary date shall submit a copy
of the tax bill and/or bills for the Real Estate Taxes assessed, levied or
imposed upon the Land and Building for such Tax Year, together with a statement
which shall indicate the amount, if any, of Tenant's Tax Payment. Landlord's
failure to submit copies of bills as aforesaid shall not be considered a
default by Landlord or a defense by Tenant to such tax payment.
Within thirty (30) days after the issuance of the statement, Tenant
shall pay Tenant's Tax Payment in the amount set forth on such statement. Such
statement shall be conclusively deemed binding upon Tenant unless Tenant shall
have objected thereto in writing within thirty (30) days of receipt thereof.
Notwithstanding the foregoing provisions of this paragraph, Tenant's Tax
Payment shall be payable in the same
<PAGE>
7
number of installments as Real Estate Taxes are payable to the taxing authority
and shall be payable not more than thirty (30) days in advance of the date on
which the corresponding installment is due such taxing authority without
incurring any penalty, interest or late charge.
In the event Landlord shall receive a final reduction or refund of
Real Estate Taxes for any Tax Year for which Tenant is obligated to pay any
additional rent under the provisions of this subsection B of Section 3.04, the
amount or the proceeds of such reduction or refund, less legal fees and other
expenses incurred in collecting the same or achieving such reduction, shall be
applied and allocated to the periods for which such final reduction or refund
was obtained, and proper adjustment shall be promptly made between Landlord and
Tenant. Tenant has been advised that proceedings to protest the Real Estate
Tax assessment for the Base Tax Year may have been filed and may result in a
reduction of Real Estate Taxes for the Base Tax Year.
Any payments or refunds due hereunder for any period of less than a
full Tax Year at the commencement or end of the Term of this Lease shall be
equitably prorated to reflect such event.
In addition to Tenant's obligation to pay Tenant's Tax Payment as
aforesaid, Tenant shall pay to Landlord as additional rent payable upon demand,
any occupancy tax or rent tax now in effect or hereafter enacted, if payable by
Landlord in the first instance or hereafter required to be paid by Landlord.
Section 3.05. Upon the date of the expiration or any sooner
termination of this Lease, whether the same be the date hereinabove set forth
as the expiration of the Term of this Lease (hereinafter called "Lease
Expiration Date") or any prior or subsequent date, a proportionate share of the
Fixed Rent, adjustments and additional rents for the year (calendar or fiscal)
in which such expiration or termination occurs, shall immediately become due
and payable by Tenant to Landlord as hereinafter provided, if not theretofore
already billed and paid. Such proportionate share shall be based upon the
length of time that this Lease shall have been in existence during such year.
Promptly after any such expiration or termination, Landlord shall compute the
amounts due from Tenant, as aforesaid, which computations shall either be based
on that year's actual figures or be an estimate based on the most recent
statements theretofore prepared by Landlord and furnished to Tenant pursuant to
this Lease. If an estimate is used, then Landlord shall promptly cause
statements to be prepared on the basis of the comparative year's actual figures
as soon as they are available, and within ten (10) days after such statement or
statements are prepared by Landlord and furnished to Tenant, Landlord and
Tenant shall make appropriate adjustments of any estimated payments theretofore
made.
<PAGE>
8
Tenant's obligation to pay any and all rents, adjustments and
additional rents under this Lease shall continue and shall cover all periods up
to the Lease Expiration Date. Landlord's and Tenant's obligations to make the
adjustments hereinabove referred to shall survive any expiration or termination
of this Lease. Any delay or failure of Landlord in billing any Fixed Rent or
additional rent herein provided for shall not constitute a waiver of or in any
way impair the continuing obligation of Tenant to pay such rent adjustments
hereunder; provided, however, that Landlord shall not be entitled to render to
Tenant a statement requiring payment of an adjustment of rent under this
Article 3 later than two (2) full calendar years, in the case of an adjustment
with respect to Operating Expenses, and two (2) full Tax Years, in the case of
an adjustment with respect to Real Estate Taxes, after the expiration of the
year with respect to which such adjustment relates.
ARTICLE 4.
ELECTRICITY
-----------
Section 4.01. Tenant's electricity consumption and demand in
the Demised Premises shall be measured by existing submeters, and Tenant agrees
to purchase such electricity from Landlord or Landlord's designated agent at
terms and rates for electricity under the same rate classification and
frequency that Landlord is charged by the local public utility furnishing
electricity to the Building computed as if Tenant were a separate customer
purchasing power at such rate classification and frequency under a single
aggregated account thereunder, but in no event shall the amount payable by
Tenant per Kilowatt Hour be less than Landlord's average cost per Kilowatt Hour
at such rate as would be applicable for purchasing electric energy for the
entire Building, plus eight (8%) percent thereof to reimburse Landlord for
administrative services and for line loss in connection with supplying and
billing such electricity. All such sums shall be paid by Tenant to Landlord
as additional rent hereunder. If more than one meter measures the electricity
consumption and demand of Tenant in the Building, the service rendered through
each meter shall be aggregated and billed in accordance with the above rate
classification, unless Landlord shall elect separate billing on a per-meter
basis. Landlord may at any time render bills for Tenant's consumption and
demand and Tenant shall pay the same within thirty (30) days following the date
the same are rendered. At Landlord's option, Tenant shall purchase from the
Landlord or Landlord's agent all lighting tubes, lamps, bulbs and ballasts used
in the Demised Premises and Tenant shall pay Landlord's reasonable charges for
providing and installing same on demand, as additional rent. Landlord
represents that the meter measuring Tenant's consumption of electricity in the
Demised Premises does not measure electricity
<PAGE>
9
consumption in any area other than the Demised Premises.
Section 4.02. Tenant's use of electric energy in the Demised
Premises shall not at any time exceed the capacity of any of the electrical
conductors, machinery and equipment in or otherwise serving the Demised
Premises. In order to insure that such capacity is not exceeded and to avert
possible adverse effect upon the Building electric service, Tenant shall not,
without Landlord's prior written consent in each instance, connect any
additional fixtures, machinery, appliances or equipment to the electric system
of the Demised Premises existing on the Commencement Date other than lamps,
typewriters, copiers, computer terminals, copying machines, communications
equipment such as telephones, fax machines, appliances, and other small office
machines that consume comparable or less amounts of electricity. Should
Landlord grant such consent, any additional risers or other equipment required
therefor shall be provided by Landlord, and the cost thereof shall be paid by
Tenant within thirty (30) days following Landlord's demand therefor.
Section 4.03. Landlord shall not be liable in any way to
Tenant for any failure or defect in the supply or character of electric energy
furnished to the Demised Premises by reason of any requirement, act or omission
of the public utility servicing the Building with electricity, or for any other
reason whatsoever.
Section 4.04. Landlord reserves the right to discontinue
furnishing electric energy to Tenant at any time upon not less than ninety (90)
days prior written notice to Tenant provided that Landlord shall have made such
election as to the majority of all tenants occupying the Building and further
provided that electric service is available directly from the public utility
servicing the Building (Landlord hereby agreeing, unless otherwise required by
law, not to discontinue furnishing electricity to Tenant until such time as
Tenant is able to obtain same directly from the public utility). If Landlord
exercises such right of termination, from and after the effective date of such
termination, Landlord shall no longer be obligated to furnish Tenant with
electric energy. If Landlord exercises such right of termination, this Lease
shall remain unaffected thereby and shall continue in full force and effect,
and promptly upon receipt of such notice Tenant shall diligently arrange to
obtain electric service directly from the public utility company servicing the
Building. In connection with obtaining such electric service directly from the
public utility company Tenant may utilize the then existing electric feeders,
risers and wiring serving the Demised Premises to the extent the same are
available, suitable and safe for such purposes, but only to the extent of
Tenant's then authorized connected load. All meters and additional panel boards,
feeders, risers, wiring and other conductors and equipment which may be required
to obtain electric energy directly from such public utility company shall be
<PAGE>
10
installed and maintained by Tenant at its expense if Landlord's election to
discontinue furnishing electric energy to Tenant shall have been required by
applicable law. If, however, Landlord shall voluntarily elect to discontinue
furnishing electric energy to Tenant, then Landlord shall install the foregoing
and pay for the cost (but not the maintenance) of the same.
Section 4.05. Unless otherwise agreed by the parties,
Landlord shall supply all electric meters for use hereunder. In no instance
shall Tenant install or permit the installation or use of the electric meters
or electric metering devices for any purpose whatsoever unless such meters
and/or metering devices shall conform in every respect to the requirements,
rules and regulations of the local public utility as approved from time to time
by the Public Service Commission of the State of New York as to the accuracy of
measurement of such meters or metering devices, including, but not limited to,
proper measurement and reflection of power factor.
Section 4.06. Tenant covenants and agrees that at no time
will the connected electrical load serving the Demised Premises exceed 6 watts
per gross square foot (exclusive of any power required for the heating,
ventilating and air-conditioning serving the Demised Premises). Landlord
represents that no less than six (6) watts per gross square foot (exclusive of
any power required for the heating, ventilating and air-conditioning serving
the Demised Premises) of electric service is presently available to the Demised
Premises, and, subject to the provisions of Section 4.04, will continue to be
available to the Demised Premises during the entire Term.
Section 4.07. If any tax is imposed upon Landlord with
respect to electrical energy furnished as a service to Tenant by any federal,
state or municipal authority, Tenant covenants and agrees that where permitted
by law or applicable regulations, Tenant's pro rata share of such taxes shall
be reimbursed by Tenant to Landlord as additional rent.
ARTICLE 5.
USE
---
Section 5.01. Tenant shall use and occupy the Demised
Premises for administrative, executive and general business office purposes
only and for no other purposes. Such office use may include ordinary office
pantries.
Section 5.02. Tenant shall not suffer or permit the Demised
Premises or any part thereof to be used in any manner, or anything to be done
therein, or suffer or permit anything to be brought into or kept in the Demised
Premises which would in any
<PAGE>
11
way (i) violate any law or requirement of public authorities, (ii)cause
structural injury to the Building or any part thereof, (iii)interfere with the
normal operation of the heating, air-conditioning, ventilating, plumbing or
other mechanical or electrical systems of the Building or the elevators
installed therein, (iv) constitute a public or private nuisance, (v) alter the
appearance of the exterior of the Building or of any portion of the interior
thereof other than the Demised Premises.
Section 5.03. Tenant shall not, without the prior written
consent of Landlord (which shall not be unreasonably withheld or delayed),
allow a "Servicing Company" (defined below) to install any telephone, data,
information or other communications equipment in the Demised Premises to
service premises occupied by persons other than Tenant and/or its affiliates.
For example, the Demised Premises may not be used as a so-called "switching" or
"relay" station serving third parties (that is, parties other than Tenant and
its affiliates) without such consent by Landlord. In granting such consent,
Landlord may require that the Servicing Company enter into a license agreement
with Landlord confirming that the Servicing Company shall have no independent
rights in the Demised Premises and that upon termination of this Lease, for
whatever reason, the Servicing Company will have no right to leave its
equipment in the Demised Premises. Landlord may make a reasonable charge to
the Servicing Company for allowing it to install its equipment in the Demised
Premises. A "Servicing Company" shall mean a person, firm, corporation or
other entity other than Tenant whose equipment services not only the Demised
Premises, but other premises or parties as well.
<PAGE>
12
ARTICLE 6.
REPAIRS, ALTERATIONS AND LIENS
------------------------------
Section 6.01. Tenant shall take good care of the Demised
Premises and the fixtures and appurtenances, therein, and at its sole cost and
expense make all repairs thereto as and when needed to preserve them in good
working order and condition (other than structural repairs and repairs to the
plumbing, wiring and other Building equipment for the general supply of water,
heat, air-conditioning, gas and electricity which are not caused by the
carelessness, omission, neglect, improper conduct or other cause of Tenant, its
servants, employees, agents, visitors or licensees and other than repairs
necessitated by the acts of Landlord, its agents, servants or employees or when
otherwise required to be made by Landlord under this Lease). All damage or
injury to the Demised Premises and to its fixtures, appurtenances and equipment
or to the Building of which the same form a part, or to its fixtures,
appurtenances and equipment, caused by Tenant moving property, or resulting
from any air-conditioning unit or system, any short circuit, flow or leakage of
water, steam, illuminating gas, sewer gas, sewerage or odors, or by frost or by
bursting or leaking of pipes or plumbing works or gas or from any other cause
of any other kind or nature whatsoever, in any such event, due to carelessness,
omission, neglect, improper conduct or other cause of Tenant, its servants,
employees, agents, visitors or licensees, shall be repaired, restored or
replaced promptly by Tenant, at its sole cost and expense, to the satisfaction
of Landlord. If Tenant fails to make such repairs, restorations or
replacements, same may be made by Landlord at the expense of Tenant and any
costs therefor shall be collectible as additional rent or otherwise, and shall
be paid by Tenant within five (5) days after rendition of a bill or statement
therefor.
Section 6.02. Landlord shall, at its expense, make all
repairs and replacements, structural and otherwise, necessary in order to keep
in good order and repair the exterior of the Building and the public portions
of the Building, the need for which Landlord shall have knowledge (including
the public halls and stairways, plumbing, wiring and other Building equipment
for the general supply of water, heat, air-conditioning, gas and electricity)
except repairs hereinabove provided to be made by Tenant and repairs, the need
for which Tenant has not reported to Landlord.
Section 6.03. All repairs, restorations or replacements by
either party shall be of first-class quality and done in good and workmanlike
manner. Tenant shall, and shall include in all contracts, subcontracts and
purchase orders a requirement that such contractors, subcontractors or
materialmen, as the case may be, shall, cause all workers at the Demised
<PAGE>
13
Premises to work harmoniously with each other and with Building personnel and in
a manner which will not disrupt access to or use of the common areas of the
Building, cause inconvenience to the other tenants in the Building or interfere
with the conduct of other tenants' business. Tenant agrees that should Tenant,
its agents and/or contractors, enter upon the Demised Premises for the purpose
of performing any work, the labor employed by Tenant or anyone performing such
work, for or on behalf of Tenant, shall always be harmonious and compatible with
the labor employed by Landlord or any contractors or subcontractors of Landlord.
Should such labor be unharmonious or incompatible, Landlord may require Tenant
to withdraw such labor from the Demised Premises. In the event Tenant or
Tenant's contractor shall enter upon the Demised Premises or any other part of
the Building, Tenant agrees to indemnify and save Landlord free and harmless,
from and against any and all claims whatsoever arising out of said entry or such
work. Tenant's agents, contractors and their employees shall comply with the
special rules, regulations and requirements of building management for the
performance and coordination of said agents, contractors and their employees so
as to avoid the intrusion into the operation of the Building and to avoid
disturbing the quiet enjoyment of other tenants.
Section 6.04. Tenant shall not store or place any materials
or other obstructions in the lobby or other public portions of the Building, or
on the sidewalk adjacent to the Building.
Section 6.05. Tenant shall do no work and shall make no
alterations, decorations, installations, additions or improvements in or to the
Demised Premises, including, but not limited to, a water cooler, an
air-conditioning or cooling system unit or part thereof or other apparatus of
like or other nature, without Landlord's prior written consent which consent
shall not be unreasonably withheld or delayed in the case of alterations,
decorations, installations, additions or improvements in the Demised Premises
which are non-structural in nature and do not affect the structure, exterior or
common areas of the Building (it being understood that the 38th floor elevator
lobby is not deemed to be a common area of the Building) or adversely affect
the heating, ventilating or air-conditioning, electrical, mechanical, plumbing
or elevator systems of the Building or other tenants' use thereof, and then
only by contractors or mechanics approved by Landlord. Such approval must be
obtained prior to any bidding for said work. Tenant has submitted to Landlord
preliminary plans and specifications for certain improvements to the Demised
Premises, dated October 13, 1997, labeled Drawing SP-1 prepared by Descon
Interiors Incorporated (the "Preliminary Plans"). Landlord hereby consents to
the performance of the work described in the Preliminary Plans provided such
work is consistent with such Preliminary Plans. All such work, alterations,
decorations, installations, additions or improvements shall be done at Tenant's
sole expense and at such
<PAGE>
14
times and in such manner as Landlord may from time to time designate and in full
compliance with all governmental bodies having jurisdiction thereover. Tenant's
work, alterations, decorations, installations, additions or improvements shall
be completed free of all liens and encumbrances and, as a condition precedent to
Landlord's consent to the making by Tenant of alterations, decorations,
installations, additions or improvements to the Demised Premises, Tenant agrees
to obtain, and deliver to Landlord, written and unconditional waivers of
mechanics' liens upon the real property in which the Demised Premises are
located, for all work, labor and services to be performed and materials to be
furnished by them in connection with such work, signed by all contractors,
subcontractors, materialmen and laborers to become involved in such work.
Landlord shall not be liable for any failure of the
air-conditioning and ventilating equipment in the Demised Premises installed by
Landlord caused by any work, alterations, decorations, installations, additions
or improvements by Tenant, and Tenant shall correct any such condition causing
such failure promptly upon notice from Landlord of the need therefor. If
Tenant shall fail to correct same, Landlord may make such correction and charge
Tenant for the cost thereof. Such sum due Landlord shall be deemed additional
rent and shall be paid by Tenant promptly upon being billed therefor.
Section 6.06. Prior to commencing any work pursuant to the
provisions of Section 6.05, Tenant shall furnish to Landlord:
(i) Copies of all governmental permits and authorizations
which may be required in connection with such work.
(ii) A certificate evidencing that Tenant (or Tenant's
contractors) has (have) procured workers' compensation insurance covering all
persons employed in connection with the work who might assert claims for death
or bodily injury against Landlord, "Overlandlord" (as hereinafter defined),
Tenant or the Building.
(iii) Such additional personal injury and property damage
insurance (over and above the insurance required to be carried by Tenant
pursuant to the provisions of Article 9) as Landlord may reasonably require
because of the nature of the work to be done by Tenant.
Section 6.07. All work, alterations, decorations,
installations, additions or improvements upon the Demised Premises, made by
either party, including all paneling, decorations, partitions, railings,
mezzanine floors, galleries and the like, affixed to the realty or for which
Tenant has received a credit shall, unless Landlord elects otherwise (which
<PAGE>
15
election shall be made by giving a notice pursuant to the provisions of Article
30 not less than thirty (30) days prior to the expiration or other termination
of this Lease or any renewal or extension thereof) become the property of
Landlord, and shall remain upon, and be surrendered with, said premises, as a
part thereof, at the end of the term or renewal term, as the case may be. At
the same time Tenant submits to Landlord its request for consent to any
alterations, decorations, installations, additions or improvements and the
plans and specifications therefor, Tenant may request, in writing, that
Landlord specify any "Atypical Alterations" (as defined below) which Tenant
shall be required to remove on or before the expiration of the Term of this
Lease. Landlord shall notify Tenant at the time of the consent to the
alterations, decorations, installations, additions or improvements and the
plans and specifications in question, of those Atypical Alterations which
Tenant is required to remove before the expiration of the Term of this Lease in
accordance with the terms of this Section 6.07, and Tenant shall, upon the
expiration or the earlier termination of the Term of this Lease, remove at
Tenant's sole cost and expense, such Atypical Alterations specified in
Landlord's notice, repair any damage to the Demised Premises in connection
therewith and restore the Demised Premises to the condition existing prior to
the Atypical Alterations. For purposes hereof, the term "Atypical Alterations"
shall be deemed to include, but not be limited to, a raised floor, louvered
windows, any kitchen facility (as opposed to a pantry), any vault and any audio
or video installation. Additionally, Landlord hereby agrees that Tenant shall
have no obligation upon the expiration or earlier termination of the Term to
restore (i) any alterations or improvements existing on the date hereof and
(ii) all alterations and improvements as shown on the Preliminary Plans. All
movable property, furniture, furnishings and trade fixtures, alterations,
installations and additions other than those affixed to the realty so that they
cannot be removed without material damage shall remain the property of Tenant
and shall be removed from the Demised Premises on or before the Expiration
Date. In the event of damage to the Demised Premises or the Building by reason
of such removal, Tenant shall restore the same to good order and condition
(normal wear and tear excepted). If Tenant should desire to leave any part of
such property in the Demised Premises upon the expiration of the Term, it shall
so notify Landlord in writing not less than sixty (60) days prior to the
expiration of the Term of this Lease specifying the items of property which it
desires to so leave. If within thirty (30) days after the service of such
notice Landlord shall request Tenant to remove any of the said property, Tenant
shall at its expense at or before the expiration of the Term of this Lease,
remove said property, and, in case of damage by reason of such removal, restore
the Demised Premises to good order and condition (normal wear and tear
excepted).
Section 6.08. Landlord shall not be responsible for
supervision and/or coordination in respect to Tenant's
<PAGE>
16
alterations or repairs. Landlord's managing agent shall perform such supervision
and coordination, and with respect to any work, alteration, decoration, addition
or improvement costing more than $10,000, Tenant agrees to pay to such managing
agent promptly upon being billed therefor, a sum equal to ten (10%) percent of
the cost of such work, for indirect costs, field supervision and coordination in
connection therewith. Tenant agrees to keep records of Tenant's work,
alterations, decorations, additions and improvements costing in excess of
$10,000 and of the cost thereof. Tenant agrees to furnish to Landlord's managing
agent copies of such records certified as correct by Tenant within forty-five
(45) days of such managing agent's request therefor. Landlord hereby agrees that
the foregoing supervisory fee shall not apply to work performed by Tenant in the
Demised Premises in order to prepare same for Tenant's initial occupancy
thereof.
Section 6.09. Tenant will not do any act or suffer any act to
be done which will in any way encumber the title of Landlord or Tenant in and
to the Demised Premises or the Building or the Land nor will the interest or
estate of Landlord or Tenant in the Demised Premises or the Building or the
Land be in any way subject to any claim by way of lien or encumbrance, whether
by operation of law or by virtue of any express or implied contract by Tenant.
Section 6.10. Tenant will not suffer or permit any liens to
stand against the Demised Premises, the Building or the Land or any part
thereof, by reason of any work, labor, services or materials done for, or
supplied to, or claimed to have been done for, or supplied to, Tenant, or
anyone holding the Demised Premises, or any part thereof, through or under
Tenant. If any such lien is at any time filed against the Demised Premises or
the Building or the Land, Tenant will cause the same to be discharged of record
within thirty (30) days after the date of filing the same, by either payment,
deposit or bonding (and the failure of Tenant to do so shall be a material
default hereunder entitling Landlord to give a notice to Tenant pursuant to the
provisions of Section 17.01(1) hereof). In addition to any other right or
remedy of Landlord, Landlord may, but will not be obligated to, procure the
discharge of the same either by paying the amount claimed to be due by deposit
in court or bonding, and/or Landlord will be entitled, if Landlord so elects,
to compel the prosecution of an action for the foreclosure of such lien by the
lienor and to pay the amount of the judgment, if any, in favor of the lienor
with interest computed at the Interest Rate, costs and allowances. Any amount
paid or deposited by Landlord for any of the aforesaid purposes, and all legal
and other expenses of Landlord, including, without limitation, reasonable
attorneys' fees incurred in defending such action or in procuring the discharge
of such lien, with all necessary disbursements in connection therewith, will
become due and payable on the date of payment or deposit, as additional rent.
<PAGE>
17
Section 6.11. Nothing in this Lease will be deemed to be, or
construed in any way as constituting, the consent or request of Landlord,
express or implied by inference or otherwise, to any person, firm or
corporation for the performance of any labor or the furnishing of any materials
for any construction, rebuilding, alteration or repair of or to the Demised
Premises, the Building or the Land or any part thereof, nor as giving Tenant
any right, power or authority to contract for or permit the rendering of any
services or the furnishing of any materials which might in any way give rise to
the right to file any lien against Landlord's interest in the Demised Premises,
the Building or the Land.
ARTICLE 7.
FLOOR LOAD, NOISE, WINDOW CLEANING
----------------------------------
Section 7.01. Tenant shall not place a load upon any floor of
the Demised Premises which exceeds the load per square foot which such floor
was designed to carry and which is allowed by law.
Section 7.02. Business machines and mechanical equipment
belonging to Tenant which cause noise or vibration that may be transmitted to
the structure of the Building or the Demised Premises to such a degree as to be
objectionable to Landlord shall be placed and maintained by the party owning
the machines or equipment, at such party's expense, in settings of cork, rubber
or spring type vibration eliminators sufficient to eliminate noise or
vibration.
<PAGE>
18
Section 7.03. Tenant will not clean, nor require, permit,
suffer or allow any window in the Demised Premises to be cleaned, from the
outside in violation of Section 202 of the Labor Law or of the rules of the
Board of Standards and Appeals or of any other board or body having or
asserting jurisdiction.
ARTICLE 8.
LAWS, ORDINANCES, REQUIREMENTS OF PUBLIC AUTHORITIES
----------------------------------------------------
Section 8.01. Tenant shall, at its expense, comply with all
laws, orders, ordinances and regulations or any direction made pursuant to law
of any public officer or officers which shall, with respect to the particular
use or manner of use of the Demised Premises (as opposed to mere use and
occupancy as contemplated by Article 5), or to any abatement of nuisance,
impose any violation, order or duty upon Landlord or Tenant arising from
Tenant's particular use or manner of use of the Demised Premises (as opposed to
mere use and occupancy as contemplated by Article 5), or as a result of any
installations made therein (whether or not in compliance with the work article)
by Tenant or at Tenant's request or required by reason of a breach of any of
Tenant's covenants or agreements hereunder.
Section 8.02. If Tenant should desire to contest the validity
of any such law, ordinance, rule, order or regulation with which Tenant is
obligated to comply, it may, at its expense, carry on such contest; and
non-compliance by it during such contest (so long as Tenant proceeds with due
diligence) shall not constitute a breach of this Lease provided that it shall,
to the satisfaction of Landlord, indemnify and hold Landlord harmless against
all liability for any loss, damages, and expenses (including, without
limitation, reasonable attorneys' fees) which might result from or be incurred
in connection with such contest or non-compliance. Notwithstanding the
foregoing, non-compliance as aforesaid shall not commence or continue if it
might subject Landlord to any fine or penalty or to prosecution for a crime, or
if it would constitute a default by Landlord under any mortgage or lease
affecting the Building and/or the Land.
Section 8.03. If Tenant receives written notice of any
violation of law, ordinance, rule, order or regulation applicable to the
Demised Premises, it shall give prompt notice thereof to Landlord.
Section 8.04. Except as aforesaid, Landlord shall, at its
expense, comply with or cause to be complied with, all laws, orders, ordinances
and regulations of federal, state, county and municipal authorities and any
direction made pursuant to law of any public officer or officers which shall
with respect to the public portions of the Building, impose any violation,
<PAGE>
19
order or duty upon Landlord or Tenant and with respect to which Tenant is not
obligated by Section 8.01 to comply. Except as aforesaid, Landlord shall
further, at its expense, comply with or cause to be complied with, all laws,
ordinances, rules, regulations and orders of federal, state, county and
municipal authorities and any direction made pursuant to law of any public
officer or officers which affect Tenant's use or enjoyment of, or access to,
the Demised Premises and with respect to which Tenant is not obligated by
Section 8.01 to comply. Landlord may, at its expense, contest the validity of
any such law, ordinance, rule, order or regulation.
Section 8.05. Landlord hereby agrees to deliver to Tenant a form
ACP-5 with respect to the Demised Premises within twenty (20) days after the
date hereof.
ARTICLE 9.
INSURANCE, PROPERTY LOSS, REIMBURSEMENT
---------------------------------------
Section 9.01. Tenant shall not do or permit to be done any
act or thing upon the Demised Premises which will invalidate or be in conflict
with the Certificate of Occupancy or the terms of the New York State standard
form of fire, boiler, sprinkler, water damage or other insurance policies
covering the Building and the fixtures and property therein; and Tenant shall
at its own expense, comply with all rules, orders, regulations or requirements
of the New York Board of Fire Underwriters or any other similar body having
jurisdiction, and shall not knowingly do or permit anything to be done in or
upon the Demised Premises in a manner which increases the rate of fire
insurance upon the Building or on any property or equipment located therein
over the rate in effect at the commencement of the Term of this Lease.
Section 9.02. If, by reason of any failure of Tenant to
comply with the provisions of this Lease, the rate of fire, boiler, sprinkler,
water damage or other insurance (with extended coverage) on the Building or on
the property and equipment of Landlord or any other tenant or subtenant in the
Building shall be higher than it otherwise would be, Tenant shall reimburse
Landlord and the other tenants in the Building for that part of the fire,
boiler, sprinkler, water damage or other insurance premiums thereafter paid by
Landlord or by the other tenants in the Building which shall have been charged
because of such failure by Tenant, and Tenant shall make the reimbursement on
the first day of the month following such payment by Landlord or such other
tenants. In any action or proceeding wherein Landlord and Tenant are parties,
a schedule or "make up" of any insurance rate for the Building or Demised
Premises issued by the New York Fire Insurance Exchange, or other body
establishing fire insurance rates for the Building, shall be conclusive
evidence of the facts therein stated and of the several items and charges in
the
<PAGE>
20
insurance rates then applicable to the Building or Demised Premises.
Section 9.03. Tenant, at Tenant's own cost and expense, shall
maintain insurance protecting and indemnifying Landlord and Tenant (and at
Landlord's request, the landlord under any ground or underlying lease [herein
"Overlandlord"], as well as the holder of any mortgage affecting the Land, the
Building or both) against any and all claims for injury or damage to persons or
property for the loss of life or of property occurring upon, in or about the
Demised Premises, and the public portions of the Building used by Tenant, its
employees, agents, contractors, customers and invitees arising out of the
negligent act or omission of any of the foregoing, such insurance to afford
minimum protection during the Term of this Lease of not less than a single
combined limit of $3,000,000 in respect of property damage and bodily injury or
death to any one person or in respect of any one occurrence or accident.
Landlord may from time to time require that the amount of liability insurance
to be maintained by Tenant under this Article be increased so that Landlord
shall be adequately protected giving due consideration to all relevant
circumstances and conditions. Any such increase shall be consistent with
increases required by landlords of similar buildings in the Midtown Manhattan
area.
All such insurance shall be effected under valid and enforceable
policies (which may cover the Demised Premises and other locations), shall be
issued by insurers of recognized responsibility and shall contain a provision
whereby the insurer agrees not to cancel the insurance without ten (10) days'
prior written notice to Landlord.
On or before the Commencement Date of this Lease, Tenant shall
furnish Landlord with a certificate evidencing the aforesaid insurance
coverage, and renewal certificates shall be furnished to Landlord at least
thirty (30) days prior to the expiration date of each policy for which a
certificate was theretofore required to be furnished.
<PAGE>
21
Section 9.04. Tenant shall give Landlord notice in case of a
fire or accident in the Demised Premises or the Building, or of defects therein
or in any fixtures or equipment, promptly after Tenant is aware of the same.
Section 9.05. Tenant shall indemnify and hold Landlord
harmless from and against all liabilities, suits, claims, demands and actions,
and costs and expenses of any kind or nature, due to or arising out of any
injury to person or property, including death resulting at any time therefrom,
occurring in or about the Demised Premises (unless caused by or due to the
negligence or willful misconduct of Landlord, its agents, employees,
contractors or invitees, in which event Tenant's indemnification herein shall
be only to the extent, if any, of Tenant's negligence or willful misconduct or
that of Tenant's agents, employees, contractors or invitees). To the extent of
any valid and collectible insurance furnished by Tenant for the protection of
Landlord, Tenant's obligation to indemnify and hold Landlord harmless against
liability which is covered by such insurance shall be deemed, to the extent
thereof, to be satisfied.
Section 9.06. Landlord and Tenant shall each endeavor to
secure an appropriate clause in, or an endorsement upon, each fire or extended
coverage or rent insurance policy obtained by it and covering the Building, the
Demised Premises or the personal property, fixtures and equipment located
therein or thereon, pursuant to which the respective insurance companies waive
subrogation or permit the insured, prior to any loss, to agree with a third
party to waive any claim it might have against said third party. Each party
hereto shall give prompt notice to the other in the event such clause is or
becomes unavailable. The waiver of subrogation or permission for waiver of any
claim shall extend to the agents of each party and the employees of each party
and its respective agents and, in the case of Tenant, shall also extend to all
other persons and entities occupying or using the Demised Premises. If and to
the extent that such waiver or permission can be obtained only upon payment of
an additional charge, then the party benefiting from the waiver or permission
shall pay such charge upon written demand, or shall be deemed to have agreed
that the party obtaining the insurance coverage in question shall be free of
any further obligations under the provisions hereof relating to such waiver or
permission.
Subject to the foregoing provisions of this Section 9.06, each
party hereby releases the other with respect to any claim (including a claim
for negligence) which it might otherwise have against the other party for loss,
damages or destruction with respect to its property by fire or other casualty
(including rental value or business interest, as the case may be) occurring
during the Term of this Lease.
<PAGE>
22
Landlord represents that it currently can and agrees to obtain a
so-called "waiver of subrogation" clause in its insurance policy covering the
Building. Landlord agrees that it will notify Tenant if, at any time during
the Term Landlord can no longer obtain said "waiver of subrogation" clause it
its insurance policy.
Section 9.07. Tenant agrees to look solely to Landlord's
estate and interest in the Land and Building, or the lease of the Building, or
of the Land and Building, and the Demised Premises, for the satisfaction of any
right or remedy of Tenant for the collection of a judgment (or other judicial
process) requiring the payment of money by Landlord, in the event of any
liability by Landlord, and no other property or assets of Landlord shall be
subject to levy, execution, attachment, or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of Landlord and Tenant hereunder, or Tenant's use and occupancy of
the Demised Premises, or any other liability of Landlord to Tenant.
Section 9.08 Landlord agrees that the officers, directors and
shareholders of Tenant, or any Related Entity (as hereinafter defined) of
Tenant, shall not be personally liable for the obligations of Tenant under the
terms of this Lease, but this Section 9.08 shall not be deemed to diminish or
change the obligations of Tenant hereunder.
<PAGE>
23
ARTICLE 10.
DAMAGE OR DESTRUCTION BY FIRE OR OTHER CAUSE
--------------------------------------------
Section 10.01. If the Building or the Demised Premises shall
be partially or totally damaged or destroyed by fire or other cause, then
whether or not the damage or destruction shall have resulted from the fault or
neglect of Tenant, or its employees, agents or visitors (and if this Lease
shall not have been terminated as in this Article 10 hereinafter provided),
Landlord shall repair the damage and restore and rebuild the Building and/or
the Demised Premises (without limiting the rights of any insurance company,
subrogated to Landlord's rights hereunder pursuant to the terms of any
insurance policy as to which Landlord shall have been unable to obtain a waiver
of subrogation in accordance with Section 9.06 hereof, to seek recovery from
Tenant, and any rights of Landlord under any other provisions of this Lease or
at law or in equity), with reasonable dispatch after notice to it of the damage
or destruction; provided, however, that Landlord shall not be required to
repair or replace any of Tenant's property. Notwithstanding anything contained
herein to the contrary, in no event shall Tenant be relieved of liability or
responsibility for damage or destruction resulting from the fault or neglect of
Tenant if the insurance policies carried by Landlord on the Building do not
contain a waiver of the right of subrogation.
Section 10.02. If the Building or the Demised Premises shall
be partially destroyed by fire or other cause, the rents payable hereunder
shall be abated to the extent that the Demised Premises shall have been
rendered untenantable and for the period from the date of such damage or
destruction to the date the damage shall be repaired or restored. If the
Demised Premises or a major part thereof shall be totally (which shall be
deemed to include substantially completely) untenantable on account of fire or
other cause, the rent shall abate as of the date of the damage or destruction
and until Landlord shall repair, restore and rebuild the Building and the
Demised Premises, provided, however, that should Tenant reoccupy a portion of
the Demised Premises during the period the Demised Premises are made completely
untenantable, rents allocable to such portion shall be payable by Tenant from
the date of such occupancy.
<PAGE>
24
Section 10.03. If the Building or Demised Premises shall be
totally damaged or destroyed by fire or other cause, or if the Building shall
be so damaged or destroyed by fire or other cause that Landlord shall decide
not to restore or rebuild it, then in either such case Landlord may terminate
this Lease by giving Tenant notice to such effect within one hundred twenty
(120) days after the date of the casualty. If the Demised Premises shall be
substantially damaged or destroyed during the final two (2) years of the Term,
each of Landlord and Tenant shall have the option, to be exercised by giving
written notice to the other, within thirty (30) days of the occurrence of such
damage, to terminate this Lease and the Term and estate hereby granted as of
the date of such damage or destruction. In case of any damage or destruction
mentioned in this Article 10, Tenant may terminate this Lease by notice to
Landlord, if Landlord has not completed the making of the required repairs and
restored and rebuilt the Building and the Demised Premises within nine (9)
months from the date of such damage or destruction, or within such period after
such date (not exceeding three (3) months) as shall equal the aggregate period
Landlord may have been delayed in doing so by adjustment of insurance, labor
trouble, governmental controls, act of God, or any other cause beyond
Landlord's reasonable control, and such termination shall be effective upon the
expiration of thirty (30) days after the date of such notice.
Section 10.04. No damages, compensation or claim shall be
payable by Landlord for inconvenience, loss of business or annoyance arising
from any repair or restoration of any portion of the Demised Premises or of the
Building pursuant to this Article 10. Landlord shall endeavor to effect such
repair or restoration promptly and in such manner as not unreasonably to
interfere with Tenant's business, provided that no additional costs, for labor
at overtime or premium rates, or otherwise, are incurred thereby.
Section 10.05. Tenant covenants and agrees to cooperate with
Landlord, the landlord under any ground or underlying lease to which this Lease
is subject and subordinate or any mortgagee of any mortgage to which this Lease
is subordinate in their attempts to collect insurance proceeds (including rent
insurance proceeds) payable to any of such parties.
Section 10.06. Landlord will not carry separate insurance of
any kind on Tenant's property, and Landlord shall not be obligated to repair
any damage thereto or replace the same.
<PAGE>
25
Section 10.07. In the event of the termination of this Lease
pursuant to any of the provisions of this Article 10, this Lease and the Term
and estate hereby granted shall expire as of the date of such termination with
the same effect as if that were the originally stated Expiration Date set forth
in Section 1.01(e) hereof, and the Fixed Rent and additional rent payable
hereunder shall be apportioned as of such date.
Section 10.08. The provisions of this Article 10 shall be
considered an express agreement governing any case of damage or destruction of
the Demised Premises by fire or other casualty, and Section 227 of the Real
Property Law of the State of New York, providing for a contingency in the
absence of an express agreement, and any other law of like import, now or
hereafter in force, shall have no application to the Demised Premises and this
Lease.
ARTICLE 11.
ASSIGNMENT, SUBLETTING, MORTGAGING
----------------------------------
Section 11.01. (a) Tenant will not by operation of law or
otherwise, assign, mortgage or encumber this Lease, nor the estate and Term
hereby granted, nor sublet or permit the Demised Premises or any part thereof
to be used by others, without Landlord's prior written consent in each
instance. The consent by Landlord to any assignment or subletting shall not in
any manner be construed to relieve Tenant from obtaining Landlord's express
written consent to any other or further assignment or subletting.
If Tenant desires to assign or sublet all or any portion of the
Demised Premises then, notwithstanding that Tenant shall not have obtained a
proposed assignee or subtenant, Tenant shall give written notice ("Tenant's
Notice") of such desire to Landlord, setting forth the desired effective date
of such assignment or the desired commencement and expiration dates of
such subletting, the area to be sublet, the consideration or rent to be payable
under such desired assignment or subletting, as the case may be, and other
economic terms and conditions of the desired assignment or subletting. In such
event, Tenant agrees to use as its exclusive rental agent for such purpose, for
a period of ninety (90) days (and thereafter on a non-exclusive basis), the
then designated leasing agent of the Building and to notify such leasing agent
of its desire to assign this Lease or sublet the Demised Premises.
Landlord shall have the following options to be exercised within
thirty (30) days from receipt of Tenant's Notice:
1. If an assignment shall be proposed or if such
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26
subletting shall be for all or substantially all of the Demised Premises,
Landlord shall have the option to cancel and terminate this Lease as of the
date proposed by Tenant for such assignment or subletting.
2. If a proposed sublease shall be for less than all or
substantially all of the Demised Premises or if it shall be for less than the
balance of the Term granted hereunder, Landlord shall have the option to
terminate this Lease as to the portion of the Demised Premises proposed to be
sublet and for such portion of the Term as is included in such proposed
sublease, to take effect as of the effective date thereof. In the event of the
exercise of such option under this subparagraph 2, the rent and all other
charges payable hereunder shall be equitably apportioned, and Tenant shall be
responsible for the cost of constructing any necessary demising walls.
3. Landlord shall have the option to require Tenant to
execute an assignment or sublease to Landlord, or to any party designated by
Landlord, containing the same terms and conditions as with the proposed
assignee or subtenant, except that (A) the assignee or sublessee shall have an
express unlimited right to assign or sublease to others, and make any
alterations required in connection therewith, and (B) the rent or consideration
payable under said assignment or sublease to Landlord or Landlord's designee
shall be the lower of (i) the rental payable by Tenant to Landlord under this
Lease or (ii) the rental payable by the proposed assignee or subtenant pursuant
to the proposed assignment or subletting.
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27
Landlord hereby agrees that the foregoing options 2 and 3 shall not
apply to a sublease or subleases which, together with any other subleases then
in existence, shall be less than twenty (20%) percent of the Demised Premises.
If Landlord shall not exercise any of its foregoing options within the time set
forth above, or if the foregoing options shall not apply to the proposed
transaction, then, upon Tenant obtaining a specific assignee or sublessee within
six (6) months of the date of Tenant's Notice, upon substantially similar terms
as set forth in Tenant's Notice or terms which are more favorable to Tenant,
Tenant shall submit to Landlord in writing (1) the name of the proposed assignee
or subtenant; (2) the terms and conditions of the proposed assignment or
subletting; (3) the nature and character of the business of the proposed
assignee or subtenant and any other information reasonably requested by
Landlord. Provided Tenant shall not be in default hereunder, and the proposed
assignment or sublease conforms with the conditions specified in the preceding
sentence, Landlord's consent to any such proposed assignment or subletting shall
not be "unreasonably" withheld or delayed, as described in paragraph (b) of this
Section 11.01. Landlord agrees that it shall respond to any request for consent
to Tenant's proposed assignment or sublease within twenty (20) days after
receipt of all information and documents relevant thereto and if Landlord shall
fail to so respond within said thirty (30) days, Landlord shall be deemed to
have consented to Tenant's proposed assignment, sublease or occupancy, provided
that Tenant's request for consent contains a legend in bold typeface to the
effect that Landlord's failure to respond within said thirty (30) days shall be
deemed Landlord's consent. If Tenant fails to obtain a specific assignee or
sublessee within said six (6) month period or fails to consummate any proposed
assignment or subletting to which Landlord shall have consented within one
hundred eighty (180) days after granting such consent, paragraph (a) shall again
apply to said proposed assignment or subletting.
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28
If Landlord shall not exercise any of the options described in
paragraph (a) above and Tenant shall thereupon assign this Lease or sublet all
or any portion of the Demised Premises, then and in that event, Tenant shall
pay to Landlord, as additional rent, fifty (50%) percent of the excess, if any,
of the Fixed Rent plus additional rent paid by the assignee or sublessee to
Tenant over the Fixed Rent plus additional rent allocable to that part of the
Demised Premises affected by such assignment or sublease pursuant to the
provisions of this Lease, such excess, if any, to be reduced by the actual
reasonable expenses incurred by Tenant in connection with such assignment or
subletting, including, without limitation, brokerage commissions (if
applicable) but not in excess of one and one half commissions, the cost of
physically separating the sublet area (if applicable) from the rest of the
Demised Premises and other related construction expenses actually incurred in
connection with preparing the space for occupancy by the sublessee, free rent
and reasonable legal expenses. Such additional rent payments shall be made
monthly within five (5) days after receipt of the same by Tenant. Fifty (50%)
percent of any cash or other consideration payable to Tenant in connection with
such assignment or sublease or the sale of Tenant's property in connection
therewith (less in the case of the sale thereof the fair market value of such
personal property, as reasonably determined by Landlord), shall be similarly
paid over to Landlord when and as received by Tenant.
If Tenant fails to consummate any proposed assignment or subletting
to which Landlord shall have consented within sixty (60) days after granting
such consent, paragraph (a) shall again apply to said proposed assignment or
subletting.
No option exercised by Landlord pursuant to the provisions of
paragraph (a), and no assignment or sublease made to Landlord under the
provisions of paragraph (a), shall be binding upon any purchaser of any ground
or underlying lease who acquires such ground or underlying lease by reason of
the foreclosure of any mortgage to which this Lease is subordinate, nor upon
any assignee of any ground or underlying lease who takes such assignment in
lieu of such foreclosure, it being understood, however, that such purchaser or
assignee may, at its option, elect to enforce such option, assignment or
sublease.
(b) In determining reasonableness, Landlord may take into
consideration all relevant factors surrounding the proposed sublease or
assignment, including, without limitation, the following:
(i) the financial stability and business reputation of the
proposed assignee or subtenant;
(ii) the nature of the business and the proposed use of the
Demised Premises by the proposed assignee or subtenant
<PAGE>
29
in relation to the majority of other tenants in the Building;
(iii) the proposed assignee or subtenant shall not be a
tenant of other space in the Building or a party which has dealt with Landlord
or Landlord's agent (directly or through a broker) with respect to space in the
Building during the six (6) months immediately preceding Tenant's request for
Landlord's consent, provided Landlord has comparable space in the Building for
such proposed assignee or subtenant;
(iv) restrictions contained in leases of other tenants of
the Building;
(v) the effect that the proposed assignee's or subtenant's
occupancy or use of the Demised Premises would have upon the operation and
maintenance of the Building and Landlord's investment therein;
(vi) not more than two entities (excluding, Tenant and any
Related Entities (as hereinafter defined)) shall occupy the Demised Premises at
any time.
Section 11.02. If this Lease shall be assigned, or if the
Demised Premises or any part thereof be sublet or occupied by any person or
persons other than Tenant, Landlord may after default by Tenant, collect rent
from the assignee, subtenant or occupant and apply the net amount collected to
the rent herein reserved, but no such assignment, subletting, occupancy or
collection of rent shall be deemed a waiver of the covenants in this Article,
nor shall it be deemed acceptance of the assignee, subtenant or occupant as a
tenant, or a release of Tenant from the full performance by Tenant of all the
terms, conditions and covenants of this Lease.
Section 11.03. Each assignee or transferee shall assume and be
deemed to have assumed this Lease and shall be and remain liable jointly and
severally with Tenant for the payment of the rent, additional rent and
adjustments of rent, and for the due performance of all the terms, covenants,
conditions and agreements herein contained on Tenant's part to be performed for
the Term of this Lease. No assignment shall be binding on Landlord unless such
assignee or Tenant shall deliver to Landlord a duplicate original of the
instrument of assignment which contains a covenant of assumption by the
assignee of all of the obligations aforesaid and shall obtain from Landlord the
aforesaid written consent prior thereto.
Section 11.04. For the purposes of this Lease, any sale,
transfer or assignment of the majority stock of a corporate Tenant (other than
a sale of shares of a corporate tenant the shares of which are listed on a
registered securities exchange or are regularly traded in the "over-the-counter
market" provided such sale is effectuated on such exchange or in such market)
or
<PAGE>
30
any transfer in the control of Tenant by operation of law or otherwise shall
be deemed an assignment. Notwithstanding the foregoing, the sale, transfer or
assignment of the majority of the stock of Tenant pursuant to a public or
private offering or pursuant to any corporate restructuring shall not be deemed
an assignment, provided that the same is not done to circumvent the prohibition
contained herein.
Section 11.05. The listing of any name other than that of
Tenant, whether on the doors of the Demised Premises, on the Building directory
or otherwise, shall not operate to vest any right or interest in this Lease or
the Demised Premises. It is expressly understood that any such listing is a
privilege extended by Landlord that is revocable at will by written notice to
Tenant.
Section 11.06. Tenant shall reimburse Landlord for any costs
incurred by Landlord to review the requested consent provided in Article 11,
including reasonable attorneys' fees.
Section 11.07. If Landlord shall recover or come into
possession of the Demised Premises before the Expiration Date, Landlord shall
have the right to take over any sublease made by Tenant and to succeed to all
rights of Tenant thereunder, Tenant hereby assigning (effective as of the date
of Landlord's succession of Tenant's estate in the Demised Premises) such
subleases as Landlord may elect to take over. Every subletting hereunder shall
be subject to the condition that, from and after the termination of this Lease
or re-entry by Landlord hereunder or other succession by Landlord to Tenant's
estate in the Demised Premises, the subtenant shall waive any right to
surrender possession or to terminate the sublease and, at Landlord's election,
shall be bound to Landlord for the balance of the term thereof and shall attorn
to and recognize Landlord, as its landlord, under all of the then executory
terms of such sublease, except that Landlord shall not be (a) liable for any
previous act, omission or negligence of Tenant under such sublease, (b) subject
to any counterclaim, defense or offset theretofore accruing to such subtenant
against Tenant, (c) bound by any previous modification or amendment of such
sublease made without Landlord's consent or by any previous prepayment of more
than one month's rent and additional rent unless paid as provided in the
sublease, or (d) obligated to perform any repairs or other work in the
subleased space or the Building beyond Landlord's obligations under this Lease,
and each subtenant shall execute and deliver such instruments as Landlord may
reasonably request to evidence and confirm such attornment.
Section 11.08. Notwithstanding anything to the contrary
elsewhere contained herein (including Section 11.01(a) hereof and Landlord's
rights thereunder to profit sharing), provided that Tenant shall not be in
monetary default or material non-monetary default in any of the terms of this
Lease beyond
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31
notice and the expiration of any applicable grace period, Tenant may, without
Landlord's consent but upon not less than ten (10) days' prior written notice to
Landlord, sublet to, or allow occupancy by, any corporations or other business
entities which control, are controlled by, or are under common control with
Tenant (herein referred to as a "Related Entity") all or part of the Demised
Premises or permit any Related Entity to occupy the same for any of the purposes
permitted to Tenant, subject however to compliance with Tenant's obligations
under this Lease. Such subletting or occupancy shall not be deemed to vest in
any such Related Entity any right or interest in this Lease nor shall such
subletting or occupancy relieve, release, impair or discharge any of Tenant's
obligations hereunder. Tenant shall deliver to Landlord a copy of any such
sublease or occupancy agreement for all or any portion of the Demised Premises.
Landlord hereby acknowledges and agrees that the following Related Entities may
occupy the Demised Premises but only for so long as such entities shall continue
to remain Related Entities of Tenant: (i) Taxi Tops Inc. (d/b/a Medallion Taxi
Media), (ii) Edwards Capital Corp., (iii) Transportation Capital Corp., (iv)
Medallion Funding Corp., and (iv) Business Lenders LLC.
Section ll.09. Notwithstanding anything to the contrary
elsewhere contained herein (including Section 11.01(a), which shall not be
applicable to an assignment or transfer pursuant to this Section 11.09), Tenant
may, upon prior written notice to Landlord, assign or transfer its entire
interest in this Lease and the leasehold estate hereby created to a "Successor
Corporation" (as such term is hereinafter defined) of Tenant, provided that
Tenant shall not be in monetary default or material non-monetary default in any
of the terms of this Lease beyond notice and the expiration of any applicable
grace period. A "Successor Corporation", as used in this Section, shall mean
(a) a corporation into which or with which Tenant, its corporate successors or
permitted assigns, is merged or consolidated, in accordance with applicable
statutory provisions for the merger or consolidation of a corporation, provided
that by operation of law or by effective provisions contained in the
instruments of merger or consolidation, the liabilities of the corporations
participating in such merger or consolidation are assumed by the corporation
surviving such merger or consolidation, or (b) a corporation, partnership or
other business entity acquiring this Lease and the Term and the estate hereby
granted, the goodwill and all or substantially all of the other property and
assets (other than capital stock of such acquired corporation) of Tenant, its
corporate successors or permitted assigns, its corporate successors or
permitted assigns, or (c) any corporate successor to a Successor Corporation
becoming such by either of the methods described in subdivisions (a) and (b)
above, provided that, (x) immediately after giving effect to any such merger or
consolidation, or such acquisition and assumption, as the case may be, the
corporation, partnership or other business entity surviving such merger or
created by such consolidation or
<PAGE>
32
acquiring such assets and assuming such liabilities, as the case may be, shall
have a net worth, as determined in accordance with generally accepted accounting
principles, at least equal to the greater of (i) the net worth, similarly
determined, of Tenant, immediately prior to such merger or consolidation or such
acquisition and assumption, as the case may be, or (ii) the net worth, similarly
determined, of Tenant as of the date of this Lease and (y) proof of such net
worth, as evidenced by a statement from a certified public accounting firm
reasonably satisfactory to Landlord shall have been delivered to Landlord at
least ten (10) days prior to the effective date of any such merger or
consolidation, or acquisition and assumption, as the case may be. Upon the
compliance with the foregoing provisions of this Section 11.09, and the delivery
to Landlord of the agreement of the Successor Corporation, in form and substance
reasonably satisfactory to Landlord, to assume all the terms of this Lease to be
performed by Tenant, and to be bound thereby, the corporation, partnership or
other business entity so assigning or transferring this Lease shall thereafter
be released and discharged from any obligations thereafter arising under this
Lease.
ARTICLE 12.
NO LIABILITY ON LANDLORD
------------------------
Section 12.01. Landlord or its agents shall not be liable for
any damage to property of Tenant or of others entrusted to employees of the
Building, nor for the loss of or damage to any property of Tenant by theft or
otherwise. Landlord or its agents shall not be liable for any injury or damage
to persons or property resulting from fire, explosion, falling plaster, steam,
gas, electricity, water, rain or snow, leaks from any part of the Building or
from the pipes, appliances or plumbing works or from the roof, street or
sub-surface or from any other place or by dampness or by any other cause of
whatsoever nature, unless caused by or due to the negligence or willful
misconduct of Landlord, its agents, servants or employees; nor shall Landlord
or its agents be liable for any such damage caused by other tenants or persons
in the Building or caused by operations in construction of any private, public
or quasi-public work; nor shall Landlord be liable for any latent defect in the
Demised Premises or in the Building of which they form a part. If at any time
any windows of the Demised Premises are temporarily or permanently closed,
darkened or bricked up for any reason whatsoever including but not limited to
Landlord's own acts, Landlord shall not be liable for any damage Tenant may
sustain thereby, and Tenant shall not be entitled to any compensation therefor
nor abatement of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Tenant shall reimburse and compensate
Landlord as additional rent within five (5) days after rendition of a
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33
statement for all expenditures made by, or damages or fines sustained or
incurred by, Landlord due to non-performance or non-compliance with or breach or
failure to observe any term, covenant or condition of this Lease upon Tenant's
part to be kept, observed, performed or complied with. Tenant shall give
immediate notice to Landlord in case of fire or accidents in the Demised
Premises or in the Building or of defects therein or in any fixtures or
equipment.
ARTICLE 13.
MOVING OF HEAVY EQUIPMENT
-------------------------
Section 13.01. Tenant shall not move any safe, heavy equipment
or bulky matter in or out of the Building without Landlord's written consent,
which consent Landlord agrees not unreasonably to withhold or delay. If the
movement of such items requires special handling, Tenant agrees to employ only
persons holding a Master Rigger's License to do said work and all such work
shall be done in full compliance with the Administrative Code of the City of
New York and other municipal requirements. All such movements shall be made
during hours which will least interfere with the normal operations of the
Building, and all damage caused by such movement shall be promptly repaired by
Tenant at Tenant's expense.
<PAGE>
34
ARTICLE 14.
CONDEMNATION
------------
Section 14.01. In the event that the whole of the Demised
Premises shall be lawfully condemned or taken in any manner for any public or
quasi-public use, this Lease and the Term and estate hereby granted shall
forthwith cease and terminate as of the date of vesting of title. In the event
that only a part of the Demised Premises shall be so condemned or taken, then,
effective as of the date of vesting of title, the rent hereunder for such part
shall be abated. In the event that only a part of the Building shall be so
condemned or taken, then (a) if substantial structural alteration or
reconstruction of the Building shall in the reasonable opinion of Landlord be
necessary or appropriate as a result of such condemnation or taking (whether or
not the Demised Premises be affected), Landlord may, at its option, terminate
this Lease and the Term and estate hereby granted as of the date of such
vesting of title by notifying Tenant in writing of such termination within
sixty (60) days following the date on which Landlord shall have received notice
of vesting of title, or (b) if Landlord does not elect to terminate this Lease,
as aforesaid, this Lease shall be and remain unaffected by such condemnation or
taking, except that the Fixed Rent shall be abated to the extent, if any,
hereinbefore provided in this Article 14. In the event that only a part of the
Demised Premises shall be so condemned or taken and this Lease and the Term and
estate hereby granted are not terminated as hereinbefore provided, Landlord
will, at its expense, restore with reasonable diligence the remaining
structural portions of the Demised Premises as nearly as practicable to the
same condition as it was prior to such condemnation or taking.
In the event of termination in any of the cases hereinabove
provided, this Lease and the Term and estate hereby granted shall expire as of
the date of such termination with the same effect as if that were the date
hereinbefore set for the expiration of the Term of this Lease, and the rent
hereunder shall be apportioned as of such date.
In the event of any condemnation or taking hereinabove mentioned of
all or a part of the Building, Landlord shall be entitled to receive the entire
award in the condemnation proceeding, including any award made for the value of
the estate vested by this Lease in Tenant, and Tenant hereby expressly assigns
to Landlord any and all right, title and interest of Tenant now or hereafter
arising in or to any such award or any part thereof, and Tenant shall be
entitled to receive no part of such award. Tenant shall, at its own cost and
expense, be entitled to pursue an independent claim for moving expenses,
Tenant's property (which does not become part of the Building or property of
Landlord) and injury to Tenant's business, provided,
<PAGE>
35
however, that such claim shall not thereby lessen, reduce or otherwise affect
Landlord's award.
ARTICLE 15.
ENTRY, RIGHT TO CHANGE PUBLIC PORTIONS OF THE BUILDING
------------------------------------------------------
Section 15.01. Tenant shall permit Landlord to erect, use and
maintain pipes and conduits in and through the Demised Premises. In the event
the construction deprives the Tenant of the use of a material or substantial
area (other than on a temporary basis), Tenant shall be entitled to an
abatement of rent for the space so permanently taken. Landlord or its agents
or designees shall have the right, but only upon reasonable notice (except in
emergencies, in which event no notice shall be required) given to Tenant or any
authorized employee of Tenant at the Demised Premises, to enter the Demised
Premises at reasonable times during business hours, for the purpose of making
such repairs or alterations as Landlord shall be required or shall have the
right to make by the provisions of this Lease and, subject to the foregoing,
shall also have the right to enter the Demised Premises for the purpose of
inspecting them or exhibiting them to prospective purchasers or lessees of the
entire Building or to prospective mortgagees of the property of which the
Demised Premises are a part. The holder of any mortgage of Landlord's interest
in the property, its agents or designees shall also have such right of
inspection for itself and for any prospective assignees of any such mortgagees.
Landlord shall be allowed to take all material into and upon the Demised
Premises that may be required for the repairs and alterations above mentioned
without the same constituting an eviction of Tenant in whole or in part,
and the rent reserved shall in no wise abate, except as otherwise provided in
this Lease, while said repairs or alterations are being made, by reason of loss
or interruption of the business of Tenant because of the prosecution of any
such work, provided Landlord diligently proceeds therewith in such manner as to
cause the least possible interference with the Tenant's use and enjoyment of
the Demised Premises.
Section 15.02. During the twelve (12) months prior to the
expiration of the Term of this Lease, Landlord may exhibit the Demised Premises
to prospective tenants. Landlord shall also have the right to enter the
Demised Premises for the purpose of inspecting the same or exhibiting the same
to prospective purchasers or lessees of the entire Building or to prospective
mortgagees of the property of which the Demised Premises forms a part. The
holders of any mortgage of Landlord's interest in the property, or such
holders' agent or designees, shall also have such right of inspection for
itself and for any prospective assignees of any such mortgagees. Landlord
agrees, to the extent practicable, to give Tenant reasonable prior notice of
any exhibition or inspection pursuant to this Section 15.02 and to
<PAGE>
36
perform any such exhibition or inspection at times reasonably convenient to
Tenant and in a manner so as to minimize interference with Tenant's business.
Landlord further agrees that, except in the event of an emergency, Landlord's
exhibition or inspection of the Demised Premises shall be, to the extent
practicable, in the company of a representative of Tenant.
<PAGE>
37
Section 15.03. Landlord shall have the right at any time
without thereby creating an actual or constructive eviction or incurring
liability to Tenant therefor, to change the arrangement or location of such of
the following as are not contained within the Demised Premises or any part
thereof: entrances, passageways, elevators, doors and doorways, corridors,
stairs, toilets and other like public service portions of the Building provided
such changes do not unreasonably interfere with or materially adversely affect
Tenant's access to and use of the Demised Premises.
ARTICLE 16.
BANKRUPTCY
----------
Section 16.01. (a) Anything elsewhere in this Lease to the
contrary notwithstanding, this Lease may be cancelled by Landlord by the
sending of a written notice to Tenant within a reasonable time after the
happening of any one or more of the following events: (i) Tenant shall (A)
have applied for or consented to the appointment of a receiver, trustee,
liquidator, or other custodian of Tenant or any of its properties or assets,
(B) shall have taken any other action which could result in it becoming the
subject of an insolvency or bankruptcy proceeding, (C)have made a general
assignment for the benefit of creditors, (D)have commenced a voluntary case for
relief as a debtor under the United States Bankruptcy Code or filed a petition
to take advantage of any bankruptcy, reorganization, insolvency, readjustment
of debts, dissolution or liquidation law or statute or an answer admitting the
material allegations of a petition filed against it in any proceeding under any
such law, or (E) be adjudicated a bankrupt or insolvent, or (ii) without the
acquiescence or consent of Tenant an order, judgment or decree shall have been
entered by any court of competent jurisdiction (a) approving as properly filed
a petition seeking relief under the United States Bankruptcy Code or any
bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or
liquidation law or statute with respect to Tenant or appointing a receiver,
trustee, liquidator or other custodian of all or a substantial part of its
properties or assets, and such order, judgment or decree shall have continued
unstayed and in effect for any period of not less than ninety (90) days.
Neither Tenant, nor any person claiming through or under Tenant or by reason of
any statute or order of court, shall thereafter be entitled to possession of
the Demised Premises, but shall forthwith quit and surrender the Demised
Premises. If this Lease shall be assigned in accordance with its terms, the
provisions of this Article shall be applicable only to the party then owning
Tenant's interest in this Lease.
(b) It is stipulated and agreed that in the event of the
termination of this Lease pursuant to (a) hereof, Landlord
<PAGE>
38
shall forthwith, notwithstanding any other provisions of this Lease to the
contrary, be entitled to recover from Tenant as and for liquidated damages an
amount equal to the difference between the rent reserved hereunder for the
unexpired portion of the Term demised and the then fair and reasonable rental
value of the Demised Premises for the same period. In the computation of such
damages the difference between any installment of rent becoming due hereunder
after the date of termination and the fair and reasonable rental value of the
Demised Premises for the period for which such installment was payable shall be
discounted to the date of termination at the rate of four percent (4%) per
annum. If the Demised Premises or any part thereof be re-let by Landlord for the
unexpired Term of this Lease, or any part thereof, before the presentation of
proof of such liquidated damages to any court, commission or tribunal, the
amount of rent reserved upon such re-letting shall be prima facie evidence as to
the fair and reasonable rental value for the part or the whole of the Demised
Premises so re-let during the term of the re-letting. Nothing herein contained
shall limit or prejudice the right of Landlord to prove for and obtain as
liquidated damages by reason of such termination, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, such damages are to be proved, whether or not such
amount be greater, equal to, or less than the amount of the difference referred
to above.
ARTICLE 17.
DEFAULTS AND REMEDIES AND WAIVER OF REDEMPTION
----------------------------------------------
Section 17.01. (1) If (A) Tenant defaults in fulfilling any
of the covenants of this Lease, (i) with respect to the covenant for the
payment of rent or additional rent if such default shall continue for five (5)
days, and (ii) with respect to any other covenants, if such default shall
continue for twenty (20) days, in either event, after Landlord shall have given
to Tenant a written notice specifying such default, or (B) the Demised Premises
become vacant or deserted, or if the Demised Premises are damaged by reason of
negligence or carelessness of Tenant, its agents, employees or invitees or (C)
in the case of the happening of a default or omission (other than in the
payment of Fixed Rent, additional rent or other charges hereunder and other
than the failure to cause a lien against the Demised Premises, the Building or
the Land to be discharged of record) which cannot with due diligence be
completely cured or remedied within such twenty (20) day period, and if Tenant
shall not have diligently commenced curing such default within such twenty (20)
day period, and shall not thereafter with reasonable diligence and in good
faith proceed to remedy or cure such default, then, in any such case Landlord
may give to Tenant a notice of intention to terminate this Lease upon the
expiration of three (3) days from the service of such notice of intention, and
upon
<PAGE>
39
the expiration of said three (3) days, this Lease and the Term hereof shall
terminate, and Tenant shall then quit and surrender the Demised Premises to
Landlord, but Tenant shall remain liable as hereinafter provided.
(2) If (A) the notice provided for in (1) hereof shall have been
given, and the Term shall expire as aforesaid; or (B) if Tenant shall make a
default in the payment of the rent reserved herein or any item of additional
rent herein mentioned or any part of either or in making any other payment
herein provided within the time period provided for in (1) above; or (C) if any
execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the Demised Premises shall be taken or occupied or attempted
to be taken or occupied by someone other than Tenant; or (D) if Tenant shall
fail to move into or take possession of the Demised Premises within ninety (90)
days after commencement of the Term of this Lease, of which fact Landlord shall
be the sole judge; then and in any of such events Landlord may without notice,
re-enter the Demised Premises either by force or otherwise, and dispossess
Tenant by summary proceedings or otherwise, and the legal representatives of
Tenant or other occupant of the Demised Premises and remove their effects and
hold the Demised Premises as if this Lease had not been made, and Tenant hereby
waives the service of notice of intention to re-enter or to institute legal
proceedings to that end. If Tenant shall make default hereunder prior to the
date fixed as the commencement of any renewal or extension of this Lease,
Landlord may cancel and terminate such renewal or extension agreement by written
notice, but Tenant shall remain liable as hereinafter provided.
Section 17.02. In case of any such default, re-entry,
expiration and/or dispossess by summary proceedings or otherwise, (i)the rent
shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration together with such expenses as Landlord may incur
for legal expenses, attorneys' fees, brokerage and/or putting the Demised
Premises in good order, or for preparing the same for re-rental; (ii) Landlord
may re-let the Demised Premises or any part or parts thereof, either in the
name of Landlord or otherwise, for a term or terms, which may at Landlord's
option be less than or exceed the period which would otherwise have constituted
the balance of the Term of this Lease and may grant concessions or free rent;
and/or (iii) Tenant or the legal representatives of Tenant shall also pay
Landlord as liquidated damages for the failure of Tenant to observe and perform
Tenant's covenants herein contained, at the election of Landlord, either:
(a) a sum which at the time of such termination of this
Lease or at the time of any such re-entry by Landlord, as the case
may be, represents the then value of the excess, if any, of (1) the
aggregate of the installments of Fixed Rent and the additional rent
(if
<PAGE>
40
any) which would have been payable hereunder by Tenant, had
this Lease not so terminated, for the period commencing with such
earlier termination of this Lease or the date of any such re-entry,
as the case may be, and ending with the date hereinbefore set for
the expiration of the full term hereby granted pursuant to Articles
1 and 2 hereof, over (2) the aggregate rental value of the Demised
Premises for the same period, said lump sum to be discounted to the
Expiration Date of this Lease at the then prevailing prime rate of
interest; or
(b) sums equal to the aggregate of the installments of
Fixed Rent and additional rent (if any) which would have been
payable by Tenant had this Lease not so terminated, or had Landlord
not so re-entered the Demised Premises, payable upon the due dates
therefor specified herein following such termination or such
re-entry and until the date hereinbefore set for the expiration of
the full term hereby granted; provided, however, that if Landlord
shall re-let the Demised Premises during said period, Landlord
shall credit Tenant with the net rents received by Landlord for
such re-letting, such net rents to be determined by first deducting
from the gross rents as and when received by Landlord from such
re-letting the expenses incurred or paid by Landlord terminating
this Lease or of re-entering the Demised Premises and of securing
possession thereof, including, without limitation, reasonable
attorneys' fees and costs of removal and storage of Tenant's
property, as well as the expenses of re-letting, including
repairing, restoring, altering, decorating and preparing the
Demised Premises for new tenants, brokers' commissions, advertising
costs, attorneys' fees, and all other similar or dissimilar
expenses chargeable against the Demised Premises and the rental
therefrom in connection with such re-letting, it being understood
that any such re-letting may be for a period equal to or shorter or
longer than the remaining Term of this Lease; provided, further,
that (i) in no event shall Tenant be entitled to receive any excess
of such net rents over the sums payable by Tenant to Landlord
hereunder, (ii) in no event shall Tenant be entitled in any suit
for the collection of damages pursuant to this paragraph (b) to a
credit in respect of any net rents from a re-letting except to the
extent that such net rents are actually received by Landlord prior
to the commencement of such suit, and (iii) if the Demised Premises
or any part thereof should be re-let in combination with other
space, then proper apportionment on a square foot area basis shall
be made of the rent received from such re-letting and of the
expenses of re-letting.
<PAGE>
41
For the purpose of paragraph (a) of this Section 17.02, the amount of
additional rent which would have been payable by Tenant under Article 3 hereof
for each year, as therein provided, ending after such termination of this Lease
or such re-entry, shall be deemed to be an amount equal to the amount of such
additional rent payable by Tenant for the calendar year and Tax Year ending
immediately preceding such termination of this Lease or such re-entry. Suit or
suits for the recovery of such damages, or any installments thereof, may be
brought by Landlord from time to time at its election, and nothing contained
herein shall be deemed to require Landlord to postpone suit until the date when
the Term of this Lease would have expired if it had not been terminated under
the provisions of Articles 16 or 17 hereof, or under any provision of law, or
had Landlord not re-entered the Demised Premises.
Landlord, at Landlord's option, may make such alterations, repairs,
replacements and/or decorations in the Demised Premises as Landlord in
Landlord's sole judgment considers advisable and necessary for the purpose of
re-letting the Demised Premises; and the making of such alterations and/or
decorations shall not operate or be construed to release Tenant from any
liability hereunder as aforesaid. Landlord shall in no event be liable in any
way whatsoever for failure to re-let the Demised Premises, or in the event that
the Demised Premises are re-let, for failure to collect the rent thereof under
such re-letting. In the event of a breach or threatened breach by Tenant of
any of the covenants or provisions hereof, Landlord shall have the right of
injunction and the right to invoke any remedy allowed at law or in equity as if
re-entry, summary proceedings and other remedies were not herein provided for.
Mention in this Lease of any particular remedy shall not preclude Landlord from
any other remedy, in law or in equity. Tenant hereby expressly waives any and
all rights of redemption granted by or under any present or future laws in the
event of Tenant being evicted or dispossessed for any cause, or in the event of
Landlord obtaining possession of the Demised Premises, by reason of the
violation by Tenant of any of the covenants and conditions of this Lease, or
otherwise.
ARTICLE 18.
LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
------------------------------------------------
Section 18.01. If Tenant shall default in the observance or
performance of any term or covenant on its part to be observed or performed
under or by virtue of any of the terms or provisions in any Article of this
Lease and such default shall continue beyond any applicable notice and cure
period (provided, however, in the case of an emergency neither notice nor the
expiration of any cure periods shall be necessary), Landlord,
<PAGE>
42
without being under any obligation to do so and without thereby waiving such
default, may remedy such default for the account and at the expense of Tenant.
If Landlord makes any expenditures or incurs any obligations for the payment of
money in connection therewith, including, but not limited to, attorneys' fees in
instituting, prosecuting or defending any action or proceedings, such sums paid
or obligations incurred with interest computed at the Interest Rate and costs
shall be deemed to be additional rent hereunder and shall be paid to it by
Tenant on demand.
ARTICLE 19.
COVENANT OF QUIET ENJOYMENT
---------------------------
Section 19.01. Landlord covenants that upon Tenant paying the
rent and additional rents and observing and performing all the terms, covenants
and provisions of this Lease on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the Demised Premises, subject
nevertheless to the terms and conditions of this Lease.
ARTICLE 20.
EXCAVATION
----------
Section 20.01. In the event that an excavation should be made
for building or other purposes upon land adjacent to the Building, or should be
authorized to be made, Tenant shall, if necessary, afford to the person or
persons causing or authorized to cause such excavation, license to enter upon
the Demised Premises for the purpose of doing such work as shall reasonably be
necessary to protect or preserve the wall or walls of the Building, or the
Building, from injury or damage and to support them by proper foundations,
pinning and/or underpinning.
ARTICLE 21.
SERVICES AND EQUIPMENT
----------------------
Section 21.01. So long as this Lease shall remain in full
force and effect, Landlord shall, at its cost and expense:
(a) Provide necessary elevator facilities on Business Days
from 8:00 A.M. to 6:00 P.M. and shall have sufficient elevators available at
all other times. At Landlord's option, the elevators shall be operated by
automatic control or by manual control, or by a combination of both of such
methods. Subject to Landlord's security regulations, Tenant shall have access
to the Demised Premises twenty-four (24) hours per day, seven (7) days per
week. Landlord hereby agrees that there shall be no charge to Tenant for
Tenant's use of the freight elevator
<PAGE>
43
during Tenant's initial move into the Demised Premises.
(b) Maintain and keep in good order and repair the
air-conditioning, heating and ventilating system installed by Landlord. The
aforesaid systems will be operated by Landlord when seasonably required on
Business Days, and shall be effective from 8:00 A.M. to 6:00 P.M. The
air-conditioning, heating and ventilating system has been designed to maintain
conditions pursuant to the New York State Energy Conservation Construction Code,
effective January 1, 1979 and has been designed to maintain interior conditions
of (i) 80 degrees F dry bulb and 50% max relative humidity when outside
conditions are 95 degrees dry bulb and 75 degrees wet bulb, and (ii) 70 degrees
F when outside conditions are 0 degrees F and will further provide fresh air in
a quantity not less than 0.30 cu. ft. per minute per square foot of floor area.
The above conditions are based upon the occupancy not exceeding one (1) person
for each 100 square feet and a maximum connected electrical four (4) watts per
square foot of usable area, of which a maximum of two (2) watts per square foot
of usable area may be used for lighting. Landlord shall have no responsibility
or liability for the ventilating conditions and/or temperature of the Demised
Premises during the hours or days Landlord is not required to furnish heat,
ventilation or air-conditioning pursuant to this paragraph. Landlord has
informed Tenant that the windows of the Demised Premises and the Building may be
sealed, and that the Demised Premises may become uninhabitable and the air
therein may become unbreathable during the hours or days when Landlord is not
required pursuant to this paragraph to furnish heat, ventilation or air-
conditioning. Any use or occupancy of the Demised Premises during the hours or
days Landlord is not so required to furnish heat, ventilation or air-
conditioning to the Demised Premises shall be at the sole risk, responsibility
and hazard of Tenant. Such condition of the Demised Premises shall not
constitute nor be deemed to be a breach or a violation of this Lease or of any
provision thereof, nor shall it be deemed an eviction nor shall Tenant claim or
be entitled to claim any abatement of rent nor make any claim for any damages or
compensation by reason of such condition of the Demised Premises. Tenant shall
in any event cause all of the windows in the Demised Premises to be kept closed
and shall cause and keep entirely unobstructed all of the vents, intakes,
outlets and grilles, at all times and shall comply with and observe all
regulations and requirements prescribed by Landlord for the proper functioning
of the heating, ventilating and air-conditioning systems. In the event that
Tenant shall require air-conditioning, heating or ventilation at such times as
same are not furnished by Landlord, Tenant shall give Landlord at least twenty-
four (24) hours advance notice of such requirement and, if same is furnished by
Landlord, Tenant agrees to pay Landlord's charges therefor as additional rent.
(c) Provide cleaning and janitorial services on Business
Days as described in Schedule E annexed hereto.
<PAGE>
44
(d) Furnish hot and cold water for lavatory and drinking
and office cleaning purposes. If Tenant requires, uses or consumes water for
any other purposes, Tenant agrees to Landlord installing a meter or meters or
other means to measure Tenant's water consumption, and Tenant further agrees to
reimburse Landlord for the cost of the meter or meters and the installation
thereof, and to pay for the maintenance of said meter equipment and/or to pay
Landlord's cost of other means of measuring such water consumption by Tenant.
Tenant shall reimburse Landlord the cost of all water consumed, as measured by
said meter or meters or as otherwise measured, including sewer rents.
(e) Provide Tenant with seventeen (17) directory listings
on the Building lobby directory, free of charge to Tenant. Landlord may make a
reasonable charge for any changes to the directory listings.
Section 21.02. A. Landlord reserves the right to interrupt,
curtail or suspend the services required to be furnished by Landlord under this
Article 21 when the necessity therefor arises by reason of accident, emergency,
mechanical breakdown, or when required by any law, order or regulation of any
federal, state, county or municipal authority, or for any other cause beyond
the reasonable control of Landlord. Landlord shall use due diligence to
complete all required repairs or other necessary work as quickly as possible so
that Tenant's inconvenience resulting therefrom may be for as short a period of
time as circumstances will permit. No diminution or abatement of rent or other
compensation shall or will be claimed by Tenant as a result therefrom, nor
shall this Lease or any of the obligations of Tenant be affected or reduced by
reason of such interruption, curtailment or suspension.
B. Notwithstanding the foregoing, in the event
that as a result of such interruption, curtailment or suspension of services
not necessitated by Tenant's acts and not occurring as a result of a
requirement of law, Tenant shall be unable to conduct and shall actually
discontinue conducting its normal business operations in the Demised Premises
for a period of five (5) consecutive days or longer and shall notify Landlord
of such discontinuance at the inception of such period (the "Inception
Notice"), then Tenant shall be entitled to an abatement of the Fixed Rent and
additional rent payable with respect to the Demised Premises for the period
beginning on the day the Demised Premises were so rendered unusable for the
conduct of Tenant's normal business operations (and such Inception Notice was
given) and ending on the earlier of the date on which (a) Tenant resumes
occupancy of the Demised Premises for the conduct of its business or (b) the
Demised Premises are rendered usable for the conduct of Tenant's business
operations (regardless of any delay by Tenant in thereafter resuming such
<PAGE>
45
business operations).
Section 21.03. Tenant shall reimburse Landlord for the cost to
Landlord of removal from the Demised Premises and the Building of so much of
any refuse and rubbish of Tenant as shall exceed that ordinarily accumulated
daily in the routine of business office occupancy or by any use of the Demised
Premises after customary business hours.
Section 21.04. It is expressly agreed that only Landlord or
any one or more persons, firms or corporations authorized in writing by
Landlord will be permitted to furnish laundry, linen, towels, drinking water,
ice and other similar supplies and services to tenants and licensees in the
Building. Landlord may fix, in its sole and absolute discretion, at any time
and from time to time, the hours during which and the regulations under which
such supplies and services are to be furnished . Landlord expressly reserves
the right to act as or to designate, at any time and from time to time, an
exclusive supplier of all or any one or more of the said supplies and services,
provided that the quality thereof and the charges therefor are reasonably
comparable to that of other suppliers; and Landlord furthermore expressly
reserves the right to exclude from the Building any person, firm or corporation
attempting to furnish any of said supplies or services but not so designated by
Landlord.
Section 21.05. It is expressly agreed that only Landlord or
any one or more persons, firms or corporations authorized in writing by
Landlord will be permitted to sell, deliver or furnish any food or beverages,
either personally or through the use of vending machines, for consumption
within the Demised Premises or elsewhere in the Building. Landlord expressly
reserves the right to act as or to designate at any time, or from time to time,
an exclusive supplier or suppliers of such food and beverages; and Landlord
further expressly reserves the right to exclude from the Building any person,
firm or corporation attempting to deliver or purvey any such food or beverages
but not so designated by Landlord. It is understood, however, that Tenant or
regular office employees of Tenant who are not employed by any supplier of such
food or beverages or by any person, firm or corporation engaged in the business
of purveying such food or
<PAGE>
46
beverages, may personally bring food or beverages into the Building for
consumption within the Demised Premises by employees of Tenant, but not for
resale to or for consumption by any other tenant. Landlord may fix in its
absolute discretion, at any time and from time to time, the hours during which,
the regulations under which, foods and beverages may be brought into the
Building by regular employees of Tenant. Notwithstanding the foregoing, it is
understood that Tenant or regular office employees of Tenant who are not
employed by any supplier of such food or beverages or by any person, firm or
corporation engaged in the business of purveying such food or beverages, may
personally bring food or beverages into the Building for consumption within the
Demised Premises by employees of Tenant, but not for resale to or for
consumption by any other tenant. It is further understood that Tenant may order
food and beverages for delivery to Tenant in the Demised Premises for
consumption by Tenant's employees and invitees from contractors, restaurants and
caterers selected by Tenant, without obtaining Landlord's prior consent,
provided, however, that if Landlord determines that the delivery by any such
contractor, restaurant or caterer poses a security risk to the Building
personnel or to other tenants in the Building or otherwise causes a nuisance or
disruption in the Building, Landlord may exclude same from the Building.
Section 21.06. Tenant agrees to employ such office maintenance
contractor as Landlord may from time to time designate, for all waxing,
polishing, lamp replacement, cleaning (other than those cleaning services
Landlord is obligated to furnish) and the maintenance work in the Demised
Premises, provided that the quality thereof and the charges therefor are
reasonably comparable to that of other contractors. Tenant shall not employ
any other contractor without Landlord's prior written consent, which shall not
be unreasonably withheld.
Section 21.07. Landlord will not be required to furnish any
other services, except as otherwise provided in this Lease.
Section 21.08. (a) Tenant, at its sole cost and expense, shall
cause the Demised Premises to be exterminated on a monthly basis to the
satisfaction of Landlord and shall for such purposes employ exterminators
designated by Landlord.
(b) If Tenant shall have facilities on the Demised Premises for
cooking, drinking, eating, washing and/or storage of food, or similar items,
Tenant shall, on a weekly basis, cause the portion of the Demised Premises on
which such facilities are located to be exterminated to the satisfaction of
Landlord by exterminators designated by Landlord. The foregoing shall not,
however, constitute any approval or consent to the use of the Demised Premises
for such purposes.
If Tenant fails to comply with the provisions of this Section
21.08, Landlord, in addition to any other remedies available to it under this
Lease or pursuant to law, may, after five (5) days prior written notice,
perform such service, and the cost therefor shall be paid by Tenant on demand
as additional rent hereunder.
<PAGE>
47
ARTICLE 22.
DEFINITION OF LANDLORD
----------------------
Section 22.01. The term "Landlord" wherever used in this Lease
shall be limited to mean and include only the owner or owners at the time in
question of the Land and the Building or the Building or the tenant under a
ground or underlying lease affecting the Land and the Building or the Building,
or both, to whom this Lease may be assigned, or a mortgagee in possession, so
that in the event of any sale, assignment or transfer of the Land and the
Building or the Building, or of such ground or underlying lease, such owner,
tenant under a ground lease or mortgagee in possession shall thereupon be
released and discharged from all covenants, conditions and agreements of
Landlord thereafter accruing hereunder; but such covenants, conditions and
agreements shall be binding upon each new owner, tenant under a ground or
underlying lease, or mortgagee in possession for the time being of the Land and
the Building, until sold, assigned or transferred.
ARTICLE 23.
INVALIDITY OF ANY PROVISION
---------------------------
Section 23.01. If any term, covenant, condition or provision
of this Lease or the application thereof to any circumstance or to any person,
firm or corporation shall be invalid or unenforceable to any extent, the
remaining terms, covenants, conditions and provisions of this Lease, or the
application thereof to any circumstances or to any person, firm or corporation
other than those as to which any term, covenant, condition or provision is held
invalid or unenforceable, shall not be affected thereby and each remaining
term, covenant, condition and provision of this Lease shall be valid and shall
be enforceable to the fullest extent permitted by law.
<PAGE>
48
ARTICLE 24.
BROKER
------
Section 24.01. The parties hereto agree that
SageGroupAssociates Inc. ("Sage") and Newmark Real Estate Co., Inc. ("Newmark")
were the only brokers who negotiated and brought about this transaction.
Landlord agrees to pay Sage a commission therefor as per separate agreement.
On or before the date of this Lease, Landlord agrees to provide Tenant with a
letter from Newmark stating that Newmark shall not look to Landlord or Tenant
for a commission in connection with this transaction. On or before the date of
this Lease, Landlord agrees to provide Tenant with a letter from The Galbreath
Company L.P. ("Galbreath") stating that Galbreath shall not look to Landlord or
Tenant for a commission in connection with this transaction. Tenant represents
and warrants that it has not dealt with any broker other than Sage and Newmark
and Tenant agrees to indemnify and save Landlord harmless from any claims made
by any other brokers claiming to have dealt with Tenant. Landlord represents
that it has not dealt with any broker other than Sage and Newmark, and Landlord
agrees to indemnify and save Tenant harmless from any claims made by Sage and
any other brokers claiming to have dealt with Landlord.
ARTICLE 25.
SUBORDINATION
-------------
Section 25.01. This Lease is subject and subordinate to all
ground or underlying leases and to all mortgages which may now or hereafter
affect such leases or the Building of which the Demised Premises forms a part,
and to all renewals, modifications, consolidations, replacements and extensions
thereof. This clause shall be self-operative, and no further instrument of
subordination shall be required by any mortgagee. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Landlord may
request. Tenant hereby constitutes and appoints Landlord the Tenant's
attorney-in-fact to execute any such certificate or certificates for and on
behalf of Tenant.
Section 25.02. At the option of Landlord or any successor
landlord or the holder of any mortgage affecting the Demised Premises, Tenant
agrees that neither the cancellation nor termination of any ground or
underlying lease to which this Lease is now or may hereafter become subject or
subordinate, nor any foreclosure of a mortgage affecting said premises, nor the
institution of any suit, action, summary or other proceeding against Landlord
herein or any successor landlord, or any foreclosure proceeding brought by the
holder of any such mortgage
<PAGE>
49
to recover possession of such property, shall by operation of law or otherwise
result in cancellation or termination of this Lease or the obligations of Tenant
hereunder, and upon the request of any such landlord, successor landlord, or the
holder of such mortgage, Tenant covenants and agrees to attorn to Landlord or to
any successor to Landlord's interest in the Demised Premises, or to such holder
of such mortgage or to the purchaser of the mortgaged premises in foreclosure.
Section 25.03. In the event of any act or omission by Landlord
which would give Tenant the right to terminate this Lease or to claim a partial
or total eviction, pursuant to the terms of this Lease, if any, Tenant will not
exercise any such right until (i) it has given written notice of such act or
omission to
(a) the holder of any first mortgage,
(b) the landlord under any ground or underlying
lease to which this Lease is subject and subordinate, whose names and addresses
shall previously have been furnished to Tenant, by delivering such notice of
such act or omission addressed to such holders at the last address so
furnished, and (ii) a reasonable period for remedying such act or omission
shall have elapsed following such giving of notice during which such parties,
or any of the parties, with reasonable diligence, following the giving of such
notice, has not commenced and continued to remedy such act or omission or to
cause the same to be remedied.
Section 25.04. If, in connection with obtaining financing, a
banking, insurance or other recognized institutional lender shall request
reasonable modifications in this Lease as a condition to such financing, Tenant
will not unreasonably withhold, delay or defer its consent thereto, provided
that such modifications do not, in Tenant's reasonable opinion, increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's use and enjoyment of the Demised Premises.
Section 25.05. Landlord agrees to use commercially reasonable
efforts to obtain from its current mortgagee for the benefit of Tenant a
Subordination, Non-disturbance and Attornment Agreement ("SNDA") in such
mortgagee's standard form, provided that Landlord shall have no liability
whatsoever, and the obligations of the parties hereto shall not be affected in
any manner whatsoever, if such mortgagee shall fail to deliver such agreement.
Landlord agrees to use commercially reasonable efforts to obtain from any
future mortgagee a SNDA in such future mortgagee's standard form, provided that
Landlord shall have no liability whatsoever, and the obligations of the parties
hereto shall not be affected in any manner whatsoever, if such future mortgagee
shall fail to deliver such agreement. Landlord agrees
<PAGE>
50
to deliver to Tenant, within thirty (30) days after the date hereof, a SNDA from
the landlord under the ground lease to which this Lease is subordinate.
ARTICLE 26.
ESTOPPEL CERTIFICATE
--------------------
Section 26.01. Tenant agrees, at any time, and from time to
time, upon not less than ten (10) days prior notice from Landlord, to execute,
acknowledge and deliver to Landlord a statement in writing addressed to
Landlord certifying that this Lease is unmodified and in full force and effect
(or, if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), stating the dates to which
the Fixed Rent, additional rental and other charges have been paid, and stating
whether or not to the best knowledge of the signer of such certificate, there
exists any default in the performance of any covenant, agreement, term,
provision or condition contained in this Lease, and any claim or offset in
favor of Tenant, and, if any, specifying each such default, claim or offset in
favor of Tenant, and, if any, specifying each such default, claim or offset of
which signer may have knowledge, it being intended that any such statement
delivered pursuant hereto may be relied upon by Landlord and by any purchaser
or prospective purchaser of the Building and/or the Land and by any mortgagee
or prospective mortgagee of any mortgage affecting the Building and/or the
Land, and by any landlord under a ground or underlying lease affecting the Land
or the Building.
Section 26.02. Landlord agrees, at any time, and from time to
time, upon not less than ten (10) days prior notice from Tenant, to execute,
acknowledge and deliver to Tenant a statement in writing addressed to Tenant
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the Fixed
Rent, additional rent and other charges have been paid, and stating whether or
not, to the best knowledge of the signer of such certificate for and on behalf
of Landlord, there exists any default in the performance of any covenant,
agreement, term, provision or condition contained in this Lease and, if any,
specifying each such default of which such signer may have knowledge.
ARTICLE 27.
LEGAL PROCEEDINGS; WAIVER OF JURY TRIAL
---------------------------------------
Section 27.01. Landlord and Tenant hereby waive, to
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51
the extent such waiver is not prohibited by law, the right to a jury trial in
any action, summary proceeding or legal proceeding between or among the parties
hereto or their successors arising out of this Lease or Tenant's occupancy of
the Demised Premises or Tenant's right to occupy the Demised Premises.
Section 27.02. Tenant hereby waives the right to interpose a
counterclaim (other than a mandatory counterclaim) in any summary proceeding
instituted by Landlord against Tenant or in any action instituted by Landlord
for unpaid rent or additional rent under this Lease.
Section 27.03. Tenant hereby agrees that the existence of any
legal proceeding arising under this Lease,or any judgment resulting therefrom,
shall remain confidential and to that end shall not discuss with, or make
public disclosure of, the same to the press, other tenants of the Building, or
otherwise. The parties hereto understand and agree that the papers filed in
the course of any such legal proceeding may be available to the public but this
Section 27.03 is understood by Tenant as a prohibition against any public
discussion or disclosure of the same, including any response to any query from
the press, other tenants of the Building or otherwise.
Section 27.04. A. In the event Tenant claims or asserts that
Landlord has violated or failed to perform a covenant of Landlord not to
unreasonably withhold or delay Landlord's consent or approval, or in any case
where Landlord's reasonableness in exercising its judgment is in issue,
Tenant's sole remedy shall be an action for specific performance, declaratory
judgment or injunction, and in no event shall Tenant be entitled to any money
damages for a breach of such covenant, and in no event shall Tenant claim or
assert any claims in any money damages in any action or by way of set-off,
defense or counterclaim, and Tenant hereby specifically waives the right to any
money damages or other remedies.
B. In the event that Tenant shall request
Landlord's consent under the terms of this Lease and Tenant believes that
Landlord has unreasonably withheld or delayed the same, such dispute, but no
other matter whatsoever (except for any other matter under this Lease for which
arbitration is provided as the method of dispute resolution, in which event
such matter shall be resolved in a separate arbitration proceeding), shall be
resolved by arbitration in Manhattan by an arbitrator selected from the panel
of retired judges maintained by Comprehensive Alternative Dispute Resolution
Enterprises, Inc. ("CADRE"). If CADRE shall no longer exist or shall be
unwilling or unable to act or if Tenant shall object to CADRE, such dispute
shall be resolved by another reputable commercial arbitration company which has
expedited arbitration procedures which meet the time frame set forth herein, as
Landlord shall select (the "Company"), provided, however, that
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52
Tenant may dispute Landlord's choice of the Company, in which event the parties
shall mutually agree upon the Company, and if the parties shall be unable to
agree upon the Company, the Company shall be appointed by any judge of a court
of competent jurisdiction in the City of New York. Upon selection of the
Company the parties agree that the balance of this Section 27.04B shall
continue to apply with the substitution of the Company in lieu of CADRE. If
Tenant so desires to submit such dispute to CADRE, Tenant shall notify Landlord
of such desire, and within ten (10) Business Days thereafter, Tenant shall make
such submission and deliver all applicable applications and documents to CADRE
with a copy of the entire submission being delivered simultaneously to
Landlord. The arbitration shall be conducted pursuant to the then existing
rules, regulations, practices and procedures of CADRE and provided such rules
so permit, within five (5) Business Days after Tenant's submission or
application, the arbitration shall commence two (2) Business Days thereafter
and shall be conducted for at least seven (7) hours on each Business Day
thereafter until completion, each party having no more than a total of fifteen
(15) hours to present its case and to cross-examine or interrogate persons
supplying information or documentation on behalf of the other party. If such
rules do not permit such expedited procedure, then such rules of CADRE shall
govern, it being the intent of the parties to conduct the arbitration in the
most expeditious manner permitted by the rules. The arbitrator shall make a
determination within five (5) Business Days after conclusion of the
arbitration; such determination to be strictly limited to whether or not
Landlord's failure to consent to any proposed assignment of this Lease or
proposed sublease or occupancy of all or any portion of the Demised Premises or
proposed Tenant Improvement, was reasonable. No monetary award shall be
awarded as a result of any proceeding pursuant to this Section, Landlord's sole
responsibility in the event of a negative determination being the requirement
of granting its consent to Tenant's proposed request, except that the
prevailing party shall have the right to be reimbursed for its reasonable fees
and expenses within twenty (20) days after submission of a bill therefor to the
losing party.
ARTICLE 28.
SURRENDER OF PREMISES
---------------------
Section 28.01. Upon the expiration or other termination of the
Term of this Lease, Tenant shall quit and surrender the Demised Premises in
good order and condition, ordinary wear and tear and damage by fire or other
casualty, the elements and any cause beyond Tenant's reasonable control
excepted, and shall remove all its property therefrom, except as
otherwise provided in this Lease. Tenant's obligation to observe or perform
this covenant shall survive the expiration or other termination of the Term of
this Lease.
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53
Section 28.02. If at any time during the last month of the
Term of this Lease, Tenant shall have removed all or substantially all of
Tenant's property from the Demised Premises, Landlord may, and Tenant
irrevocably grants to Landlord a license to, immediately enter and alter,
renovate and redecorate the Demised Premises, without diminution or abatement
of rent, or incurring liability to Tenant for any compensation, and such acts
shall have no effect on this Lease.
Section 28.03. Tenant agrees it shall indemnify and save
Landlord harmless against all costs, claims, loss or liability resulting from
delay by Tenant in surrendering the Demised Premises upon expiration or sooner
termination of the term of this Lease, including, without limitation, any
claims made by any succeeding tenant founded on such delay. The parties
recognize and agree that the damage to Landlord resulting from any failure by
Tenant timely to surrender the Demised Premises will be substantial, will
exceed the amount of monthly rent theretofore payable hereunder, and will be
impossible of accurate measurement. Tenant, therefore, agrees that if
possession of the Demised Premises is not surrendered to Landlord within two
(2) days after the date of the expiration or sooner termination of the Term of
this Lease, then Tenant will pay Landlord as liquidated damages for each month
and for each portion of any month during which Tenant holds over in the Demised
Premises after expiration or sooner termination of the Term of this Lease, a
sum equal to two (2) times the average rent and additional rent which was
payable per month under this Lease during the six (6) month period preceding
such expiration or termination of the Term of this Lease. The aforesaid
obligations shall survive the expiration of sooner termination of the Term of
this Lease.
ARTICLE 29.
RULES AND REGULATIONS
---------------------
Section 29.01. Tenant, its servants, employees, agents,
visitors, and licensees shall observe faithfully and comply strictly with the
rules and regulations set forth in Schedule C attached hereto and made a part
hereof. Landlord shall have the right from time to time during the Term of
this Lease to make reasonable changes in and additions to the rules thus set
forth. Landlord agrees not to enforce the rules and regulations against Tenant
in a discriminatory manner unless compliance is necessitated due to the manner
in which Tenant uses and occupies the Demised Premises, or any act or omission
by Tenant. In the event of a conflict between the terms and conditions of this
Lease and the rules and regulations, the terms and conditions of the Lease shall
prevail.
Section 29.02. Any failure by Landlord to enforce any
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54
rules and regulations now or hereafter in effect, either against Tenant or any
other tenant in the Building, shall not constitute a waiver of any such rules
and regulations.
ARTICLE 30.
NOTICES
-------
Section 30.01. Any notice, request or demand permitted or
required to be given by the terms and provisions of this Lease, or by any law
or governmental regulation, either by Landlord to Tenant or by Tenant to
Landlord, shall be in writing. Unless otherwise required by such law or
regulation, such notice, request or demand shall be given, and shall be deemed
to have been served and given by Landlord and received by Tenant, when Landlord
(1) shall have deposited such notice, request or demand by registered or
certified mail enclosed in a securely closed postpaid wrapper, in a United
States Government general or branch post office, addressed to Tenant at the
Demised Premises, and (2) until Tenant has moved its offices to the Demised
Premises, shall have deposited such notice, request or demand by registered or
certified mail enclosed in a securely closed postpaid wrapper in such a post
office addressed to Tenant at its address as stated on the first page of this
Lease. A copy of all notices to Tenant shall also be sent to Scott Mollen,
Esq., c/o Graubard Mollen & Miller, 600 Third Avenue, New York, New York
10016. Such notice, request or demand shall be given, and shall be deemed to
have been served and given by Tenant and received by Landlord, when Tenant
shall have deposited such notice, request or demand by registered or certified
mail enclosed in a securely closed postpaid wrapper in such a post office
addressed to Landlord at 777 Third Avenue, New York, New York 10017. Either
party may, by notice as aforesaid, designate a different address or addresses
for notices, requests or demands to it.
ARTICLE 31.
NO WAIVER; ENTIRE AGREEMENT
---------------------------
Section 31.01. The failure of Landlord to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, or any of the Rules and Regulations set forth or
hereafter adopted by Landlord shall not prevent a subsequent act which would
have originally constituted a violation from having all the force and effect of
an original violation. The receipt by Landlord of rent with knowledge of the
breach of any covenant of this Lease shall not be deemed a waiver of such
breach. The failure of Landlord to enforce any of the Rules and Regulations set
forth, or hereafter adopted, against Tenant and/or any other tenant in the
Building shall not be deemed a waiver of any such Rules and
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55
Regulations. No provision of this Lease shall be deemed to have been waived by
Landlord, unless such waiver be in writing signed by Landlord. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
Section 31.02. This Lease with the Schedules annexed hereto,
if any, contains the entire agreement between Landlord and Tenant, and any
executory agreement hereafter made between Landlord and Tenant shall be
ineffective to change, modify, waive, release, discharge, terminate, or effect
an abandonment of this Lease, in whole or in part, unless such executory
agreement is in writing and signed by the party against which enforcement of
the change, modification, waiver, release, discharge, termination or the
effecting of the abandonment is sought.
ARTICLE 32.
CAPTIONS
--------
Section 32.01. The captions of Articles in this Lease are
inserted only as a matter of convenience and for reference, and they in no way
define, limit or describe the scope of this Lease or the intent of any
provision thereof.
<PAGE>
56
ARTICLE 33.
INABILITY TO PERFORM
--------------------
Section 33.01. This Lease and the obligation of Tenant to pay
rent hereunder and perform all of the other covenants and agreements hereunder
on the part of Tenant to be performed shall in no way be affected, impaired or
excused because Landlord is unable to fulfill any of its obligations under this
Lease or to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make, or is delayed in making any
repair, additions, alterations or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strike or labor troubles or any outside cause
whatsoever including but not limited to, governmental preemption in connection
with a National Emergency or by reason of any rule, order or regulation of any
department or subdivision thereof of any government agency or by reason of the
conditions of supply and demand which have been or are affected by war or other
emergency.
ARTICLE 34.
NO REPRESENTATION BY LANDLORD
-----------------------------
Section 34.01. Landlord or Landlord's agents have made no
representations or promises with respect to the Building, the Land or the
Demised Premises except as herein expressly set forth, and no rights, easements
or licenses are acquired by Tenant by implication or otherwise except as
expressly set forth in the provisions of this Lease. The taking of possession
of the Demised Premises by Tenant shall be conclusive evidence, as against
Tenant, that Tenant accepts said premises and that the Demised Premises and the
Building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken.
<PAGE>
57
ARTICLE 35.
NAME OF BUILDING
----------------
Section 35.01. The Building may be known as or by such name as
Landlord, in its sole discretion, may elect, and Landlord shall have the right
from time to time to change such designation or name without Tenant's consent.
ARTICLE 36.
SUCCESSORS AND ASSIGNS
----------------------
Section 36.01. The covenants, conditions and agreements
contained in this Lease shall bind and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and,
except as otherwise provided herein, their assigns.
ARTICLE 37.
DEFERRED COLLECTIONS
--------------------
Section 37.01. If all or any part of the Fixed Rent or
additional rents, as above defined, shall at any time become uncollectible,
reduced or required to be refunded by virtue of any rules, regulations, orders,
laws and ordinances (including, without limitation, rent control or
stabilization laws), or governmental or quasi-governmental authorities having
jurisdiction ("Laws and Ordinances"), then for the period prescribed by said
Laws and Ordinances, Tenant shall pay to Landlord the maximum amounts permitted
pursuant to said Laws and Ordinances. Upon the expiration of the applicable
period of time during which such amounts shall be uncollectible, reduced or
refunded, Tenant shall pay to Landlord as additional rent, within fifteen (15)
days after demand, all such uncollected, reduced or refunded amounts that would
have been payable for the period absent such Laws and Ordinances; provided,
however, that the retroactive collection thereof shall then be lawful.
<PAGE>
58
ARTICLE 38.
ERISA - "PROHIBITED TRANSACTIONS"
---------------------------------
Section 38.01. Tenant hereby represents and warrants to
Landlord that (1) Tenant is not an affiliate of JMB Institutional Realty
Corporation; (2) Tenant (or any affiliate of Tenant) does not have, and during
the one year period preceding the date that this Lease was entered into has not
exercised, the authority to appoint or terminate JMB Institutional Realty
Corporation as the Investment Manager of JMB Group Trust I, or to select or
retain JMB Group Trust I as an investment vehicle for any trust participating
therein.
Section 38.02. Tenant acknowledges that it has been informed
that JMB Group Trust I is the owner of an interest in Landlord; that JMB Group
Trust I is a group trust in which certain tax qualified employee benefit plans
have made investments; and that under the Employee Retirement Income Security
Act of 1974 ("ERISA") and the Internal Revenue Code ("IRC") the leasing of
space in the Building to an entity related to an employee benefit plan that is
an investor in JMB Group Trust I may, unless the representations made by Tenant
are satisfied, constitute a "prohibited transaction" as defined in Section 406
of ERISA and Section 4975 of the IRC, resulting in, among other sanctions, an
excise tax on Tenant. Tenant covenants and agrees to advise Landlord
immediately in writing, of the occurrence of an event or circumstance of which
Tenant becomes aware resulting in such "prohibited transaction" and agrees that
if this Lease now or at any time in the future constitutes or results in any
such "prohibited transaction", then, without limitation on its rights or
remedies, Landlord will have the right to terminate this Lease at any time on
not less than thirty (30) days written notice.
ARTICLE 39.
FEES/INTEREST/LATE CHARGES
--------------------------
Section 39.01. Whenever any default by Tenant, beyond any
applicable notice and cure period, causes Landlord to incur attorneys' fees
and/or other costs or expenses, Tenant agrees that it shall pay and/or
reimburse Landlord for such fees, costs or expenses promptly upon being billed
therefor.
Section 39.02. If any monies owing by Tenant under this Lease
are paid more than ten (10) days after the date such monies are payable
pursuant to the provisions of this Lease, Tenant shall pay Landlord interest
thereon, at the Interest Rate, for the period from the date such monies were
originally payable to the date such monies are paid. In the event that three
times
<PAGE>
59
in any twelve (12) month period Tenant shall have defaulted beyond any
applicable notice and cure period in the payment of Fixed Rent or additional
rent, or any part of either, then any further default by Tenant within such
twelve (12) month period shall permit Landlord to collect from Tenant, upon
demand, in addition to any interest payable pursuant to this Article 38, or
elsewhere in this Lease, a late charge equal to ten percent (10%) of the amount
of Fixed Rent and additional rent so due as compensation to Landlord for the
costs incurred by it as a result of such defaults, Landlord and Tenant
acknowledging that the actual amount of such costs would be impossible to
ascertain.
ARTICLE 40.
ABATEMENT OF RENT
-----------------
Section 40.01. Anything herein to the contrary
notwithstanding, provided this Lease shall be in full force and effect and
Tenant shall not be in default hereunder beyond any applicable notice and grace
periods, the Fixed Rent shall abate at the rate of $50,291.67 per month
(pro-rated for any partial month) for a period of two (2) months and five (5)
days from and after the Commencement Date.
ARTICLE 41.
TENANT'S EXPANSION OPTION
-------------------------
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60
Section 41.01. In the event that Tenant has notified Landlord in
writing that it desires to lease additional space on the 37th or 39th floors of
the Building (any such space is hereinafter referred to as the "Expansion
Space") and provided same becomes available for direct leasing (i.e., a
----
lease of such space expires or is terminated and such space is not leased again
by the same tenant or occupant, or the successors or assigns of such tenant or
occupant, by renewal or a new lease or modification of a previous lease, and
such space is not subject to any other lease or an option contained in another
lease, or the space is not subject to a lease as of the date hereof, and the
space is not one with respect to which Landlord has commenced negotiations with
any other proposed tenant), then, Landlord shall send Tenant a notice setting
forth the date on which Landlord has obtained, or anticipates obtaining, vacant
possession of the Expansion Space. Upon Landlord giving such a notice,
provided this Lease shall be in full force and effect and provided that Tenant
shall not be in monetary default or material non-monetary default hereunder
beyond any applicable notice and grace period either as of the date of Tenant's
exercise of the expansion option herein described or as of the day which would
otherwise be the first day of Tenant's leasing of the Expansion Space (which
conditions regarding default may be waived by Landlord in its sole discretion),
and further provided that there shall be not less than five (5) years remaining
in the Term as of the Expansion Space Commencement Date (as hereinafter
defined)(unless Tenant shall simultaneously exercise its extension option
contained in Article 42 hereof), then Tenant shall have the option, exercisable
by notice to Landlord given within five (5) days after Landlord's notice to
Tenant, time being of the essence with respect to Tenant's notice, to lease the
Expansion Space from Landlord upon the terms and conditions hereinafter set
forth. In the event Tenant fails to exercise its option to accept the
Expansion Space within five (5) days from the date of the applicable notice
from Landlord, Landlord shall have the right to lease the Expansion Space to
any other proposed tenant for any term whatsoever and Tenant shall be deemed to
have waived its rights to the particular Expansion Space.
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61
Section 41.02. If Tenant exercises its option to lease the
Expansion Space in a timely manner, then on the date (the "Expansion Space
Commencement Date") Landlord delivers possession of the Expansion Space to
Tenant, the Expansion Space shall be added to the Demised Premises. Tenant
acknowledges that it will take the Expansion Space "as-is", and Landlord shall
not be obligated to perform any work, furnish any materials, or give Tenant any
rent credit or work allowance or any sum of money with respect thereto, and the
Expansion Space shall become part of the Demised Premises upon and subject to
all of the terms and conditions of this Lease, except that the Fixed Rent
payable by Tenant for the Expansion Space shall be equal to the greater of (i)
the Fixed Rent then in effect from time to time for the Demised Premises (on a
per square foot basis) including all escalations and additional rent payable as
herein provided or (ii) the fair market rental value of the Expansion Space (the
"Expansion FMRV"). The Expansion FMRV shall be determined in accordance with the
following procedure:
(i) Immediately after the exercise by Tenant of its option
contained herein, Landlord and Tenant shall use their best efforts
to agree upon the Expansion FMRV. In the event Landlord and Tenant
cannot reach agreement within fifteen (15) Business Days after the
date of Tenant's notice of exercise of its option contained herein,
Landlord and Tenant shall each select a reputable, licensed real
estate broker having an office in New York County and familiar with
the rentals then being charged in the Building and in comparable
buildings (respectively, "Landlord's Broker" and "Tenant's Broker")
who shall confer promptly after their selection by Landlord and
Tenant and shall use their best efforts to agree upon the Expansion
FMRV, taking into consideration all relevant factors (except as
expressly excluded below), including, as a primary factor, the
rental which Landlord is then commanding or requiring for leases of
comparable space in the Building (or, if there is then no
comparable space in the Building, taking into consideration the
quality of non-comparable space in the Building relative to the
Expansion Space) and including as a further factor the value of
free rent concessions then being granted for leases with a term
equal to the balance of the Term as of the Expansion Space
Commencement Date and the fact that the base years for Real Estate
Tax Adjustment and Operating Expense Adjustment under Article 3
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62
of the Lease shall be the same for the Expansion Space as they are
for the existing space, but specifically excluding as a factor the
value of tenant improvement work or contributions. If Landlord's
Broker and Tenant's Broker cannot reach agreement within forty-five
(45) days after the date of Tenant's notice of exercise of its
option contained herein, then within ten (10) days thereafter, they
shall designate a third reputable, licensed real estate broker
having an office in New York County (the "Independent Broker"). Upon
the failure of Landlord's Broker and Tenant's Broker to agree upon
the designation of the Independent Broker, then the Independent
Broker shall be appointed by a Justice of the Supreme Court of the
State of New York upon ten (10) days notice, or by any other court
in New York County having jurisdiction and exercising functions
similar to those exercised by the Supreme Court of the State of New
York. Concurrently with such appointment, Landlord's Broker and
Tenant's Broker shall each submit a letter to the Independent
Broker, with a copy to Landlord and Tenant, setting forth such
broker's estimate of the Expansion FMRV, taking into consideration
the factors described above (respectively, "Landlord's Broker's
Letter" and "Tenant's Broker's Letter").
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63
(ii) In the event the Expansion FMRV set forth in Landlord's
Broker's Letter and Tenant's Broker's Letter shall differ by less
than $2.50 per square foot for any year during the remainder of the
Term, then the Expansion FMRV shall not be determined by the
Independent Broker, and the Expansion FMRV shall be the average of
the Expansion FMRV set forth in Landlord's Broker's Letter and
Tenant's Broker's Letter. In the event the Expansion FMRV set
forth in Landlord's Broker's Letter and Tenant's Broker's Letter
shall differ by more than $2.49 per square foot per annum for any
year during the remainder of the Term, the Independent Broker shall
conduct such investigations and hearings as he may deem appropriate
and shall, within sixty (60) days after the date of his
designation, choose either the rental set forth in Landlord's
Broker's Letter or Tenant's Broker's Letter to be the Expansion FMRV
during the Term and such choice shall be binding upon Landlord and
Tenant. Landlord and Tenant shall each pay the fees and expenses of
its respective broker. The fees and expenses of the Independent
Broker shall be shared equally by Landlord and Tenant.
Section 41.03. In the event the Fixed Rent for the Expansion Space
shall not have been determined prior to the Expansion Space Commencement Date,
then the Fixed Rent for the Expansion Space to be paid by Tenant to Landlord
until such determination has been made shall be the Fixed Rent for the Demised
Premises (on a per square foot basis) immediately preceding the Expansion Space
Commencement Date, including all escalations or additional rent payable
pursuant to Article 3 hereof or as otherwise provided herein. After such
determination of the Fixed Rent for the Expansion Space has been made, any
excess rental for the Expansion Space theretofore paid by Tenant to Landlord
shall be credited by Landlord against the next ensuing monthly installments of
Fixed Rent payable by Tenant to Landlord and any deficiency in Fixed Rent due
from Tenant to Landlord attributable to the Expansion Space shall be
immediately paid.
Section 41.04. Promptly after Tenant exercises its option to lease
the Expansion Space and the Fixed Rent for the Expansion Space shall have been
determined, Landlord and Tenant shall execute and deliver an agreement (i)
incorporating the Expansion Space into the definition of the Demised Premises,
(ii) setting forth the Fixed Rent for the Expansion Space, (iii) amending
Section 3.04 to reflect the increase in the Percentage attributable to the
Expansion Space and the increase in the Wage
<PAGE>
64
Rate Factor attributable to the Expansion Space. In addition, if the Expansion
Space shall be less than a full floor, the electricity for such Expansion Space
may, at Landlord's option, be provided on a so called "rent inclusion" basis, in
which event, with respect to the Expansion Space, Article 4 hereof shall not be
applicable, and instead, Article 4 appearing in Schedule F annexed hereto and
made a part hereof shall be applicable to the Expansion Space, and the Fixed
Rent for the Expansion Space, shall be increased by a sum equal to $2.90 (as
adjusted in accordance with Section 4.01 of said Schedule F) multiplied by the
rentable square foot area of the Expansion Space. The failure of the parties to
enter into such an agreement shall not affect their respective rights and
obligations hereunder.
Section 41.05. Under no circumstances shall Landlord have any
liability for the failure of any occupant of all or a portion of the Expansion
Space to vacate same at the end of the term of such occupant's lease. Landlord
agrees to take such actions as are reasonable, in its sole judgment, to obtain
vacant possession of any such space at the end of such term provided Landlord's
failure to deliver such possession to Tenant shall in no event affect the
enforceability of this Lease.
ARTICLE 42.
TENANT'S EXTENSION OPTION
-------------------------
Section 42.01. Provided this Lease shall then be in full force and
effect and Tenant shall not be in default hereunder beyond any applicable
notice or grace period either as of the date of Tenant's exercise of the
extension option described herein or as of the day which would otherwise be the
first day of the Extension Term, as defined herein (which conditions regarding
default may be waived by Landlord in its sole discretion), Tenant shall have
the right, at its option, to extend the Term for a single five (5) year period
(the "Extension Term"). The Extension Term shall commence on the day
immediately following the original Expiration Date and shall expire on the day
prior to the fifth (5th) anniversary of such date unless the Extension Term
shall sooner end pursuant to any of the terms, covenants or conditions of this
Lease or pursuant to law. Tenant shall give Landlord written notice of
Tenant's intention to exercise such option on or before the date which is nine
(9) months prior to the original Expiration Date, the time of exercise being of
the essence, and upon the giving of such notice, this Lease and the Term shall
be extended without execution or delivery of any other or further documents,
with the same force and effect as if the Extension Term had originally been
included in the Term and the Expiration Date shall thereupon be deemed to be
the last day of the Extension Term. All of the terms, covenants and conditions
of this Lease shall continue in
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65
full force and effect during the Extension Term, including items of additional
rent and escalation which shall remain payable on the terms herein set forth,
except that the Fixed Rent shall be as determined in accordance with Section
42.02 of this Article and Tenant shall have no further right to extend the Term
pursuant to this Article.
Section 42.02. The Fixed Rent payable by Tenant for the Demised
Premises during the Extension Term shall be the greater of (i) the Fixed Rent
then in effect, including all escalations and additional rent payable as herein
provided, or (ii) the fair market rental value of the Demised Premises taking
into consideration all relevant factors (except as expressly provided below),
including, as a primary factor, the rental which Landlord is then commanding or
requiring for comparable space in the Building (or, if there is then no
comparable space in the Building, taking into consideration the quality of
non-comparable space in the Building relative to the Demised Premises) and
including as a further factor the value of free rent concessions then being
granted for leases with a term equal to the Extension Term and the fact that
the base years for Real Estate Tax Adjustment and Operating Expense Adjustment
under Article 3 of the Lease shall be the same during the Extension Term as
they are for the Term, but specifically excluding as a factor the value of
tenant improvement work or contributions (fair market rental value taking into
account the foregoing is hereinafter referred to as the "FMRV"). The FMRV
shall be determined in accordance with the following procedure:
(i) Immediately after the exercise by Tenant of its option
under Section 42.01 above, Landlord and Tenant shall use their best
efforts to agree upon the FMRV. In the event Landlord and Tenant
cannot reach agreement within fifteen (15) Business Days after the
date of Tenant's notice of exercise of its option, Landlord and
Tenant shall each select a reputable qualified, licensed real
estate broker having an office in New York County and familiar with
the rentals then being charged in the Building and in comparable
buildings (respectively, "Landlord's Broker" and "Tenant's Broker")
who shall confer promptly after their selection by Landlord and
Tenant and shall use their best efforts to agree upon the FMRV. If
Landlord's Broker and Tenant's Broker cannot reach agreement within
sixty (60) days after the date of Tenant's notice of exercise of
its option, then within ten (10) days thereafter, they shall
designate a third reputable, licensed real estate broker having an
office in New York County (the "Independent Broker"). Upon the
failure of Landlord's Broker and Tenant's Broker to agree upon the
designation of the Independent Broker, then the Independent Broker
shall be appointed by a Justice of the Supreme Court of the State
of New York
<PAGE>
66
upon ten (10) days notice, or by any other court in New York County
having jurisdiction and exercising functions similar to those
exercised by the Supreme Court of the State of New York.
Concurrently with such appointment, Landlord's Broker and Tenant's
Broker shall each submit a letter to the Independent Broker, with a
copy to Landlord and Tenant, setting forth such broker's estimate of
the FMRV (respectively, Landlord's Broker's Letter" and "Tenant's
Broker's Letter").
(ii) In the event the FMRV set forth in Landlord's Broker's
Letter and Tenant's Broker's Letter shall differ by less than $2.50
per square foot for each year during the Extension Term, then the
FMRV shall not be determined by the Independent Broker, and the
FMRV shall be the average of the FMRV set forth in Landlord's
Broker's Letter and Tenant's Broker's Letter. In the event the FMRV
set forth in Landlord's Broker's Letter and Tenant's Broker's Letter
shall differ by more than $2.49 per square foot per annum for any
year during the Extension Term, the Independent Broker shall conduct
such investigations and hearings as he may deem appropriate and
shall, within sixty (60) days after the date of his designation,
choose either the rental set forth in Landlord's Broker's Letter or
Tenant's Broker's Letter to be the FMRV during the Extension Term
and such choice shall be binding upon Landlord and Tenant. Landlord
and Tenant shall each pay the fees and expenses of its respective
broker. The fees and expenses of the Independent Broker shall be
shared equally by Landlord and Tenant.
Section 42.03. In the event the Extension Term shall commence
prior to determination of the Fixed Rent during the Extension Term as herein
provided, then the Fixed Rent to be paid by Tenant to Landlord until such
determination has been made shall be the Fixed Rent for the twelve (12) month
period immediately preceding the commencement of the Extension Term, including
all escalations or additional rent payable pursuant to Article 3 hereof or as
otherwise provided herein. After such determination has been made for the
Fixed Rent during the Extension Term, any excess rental for the Extension Term
theretofore paid by Tenant to Landlord shall be credited by Landlord against
the next ensuing monthly Fixed Rent payable by Tenant to Landlord and any
deficiency in Fixed Rent due from Tenant to Landlord during the Extension Term
shall be immediately paid.
Section 42.04. Promptly after the Fixed Rent has been determined,
Landlord and Tenant shall execute and deliver an agreement setting forth the
Fixed Rent for the Extension Term, as finally determined, provided the failure
of the parties to do so shall not affect their respective rights and
obligations
<PAGE>
67
hereunder.
<PAGE>
68
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this Lease as of the day and year first above written.
SAGE REALTY CORPORATION, AS AGENT
FOR MADISON AVENUE LEASEHOLD LLC
By:
-----------------------------------
Landlord
MEDALLION FINANCIAL CORP.
By:
------------------------------------
Tenant
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the day of , 1997, before me personally
-------------
came , to me known, who being by me duly sworn, did depose
---------------
and say that he resides at ; that he is the
------------------ ---------------
SAGE REALTY CORPORATION, the corporation described in and which executed
the foregoing instrument; that (s)he signed (her)his name thereto by authority
of the Board of Directors of such corporation.
------------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the day of , 1997, before me
-------------
personally came , to me known, who being by me duly sworn,
---------------
did depose and say that he resides at ;
---------------- --------------------
that he is the of MEDALLION FINANCIAL CORP.,
------------------------
the corporation described in and which executed the foregoing instrument; that
(s)he signed (her)his name thereto by authority of the Board of Directors of
such corporation.
------------------------------
Notary Public
<PAGE>
SCHEDULE "A"
FLOOR PLAN
----------
INTENTIONALLY OMITTED
<PAGE>
SCHEDULE "B"
INTENTIONALLY OMITTED
---------------------
<PAGE>
SCHEDULE "C"
RULES AND REGULATIONS
---------------------
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No bicycles, dogs or other
animals may be brought into the Building by Tenant, or its employees, licensees
or invitees. No tenant shall invite to the tenant's premises, or permit the
visit of, persons in such numbers or under such conditions as to interfere with
the use and enjoyment of any of the plazas, entrances, corridors, escalators,
elevators and other facilities of the Building by other tenants. Tenant shall
not use or permit its employees to use the elevators before 10:00 A.M. in a
"Down" direction for purposes of taking a coffee break or similar activities.
Fire exits and stairways are for emergency use only, and they shall not be used
for any other purposes by the tenants, their employees, licensees or invitees.
No tenant shall encumber or obstruct, or permit the encumbrance or obstruction
of, any of the sidewalks, plazas, entrances, corridors, escalators, elevators,
fire exits or stairways of the Building. Landlord reserves the right to control
and operate the public portions of the Building and the public facilities, as
well as facilities furnished for the common use of the tenants, in such manner
as it deems best for the benefit of the tenants generally.
2. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with
other tenants, caused by a tenant or the employees, licensees or invitees of
the tenant, shall be paid by such tenant.
3. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having
a pass issued by Landlord or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register. Tenant's employees, agents and visitors shall be permitted to
enter and leave the Building whenever appropriate arrangements have been
previously made between Landlord and Tenant with respect thereto. Each tenant
shall be responsible for all persons for whom he requests such permission and
shall be liable to Landlord for all acts of such persons. Any person whose
presence in the Building at any time shall, in the judgment of Landlord, be
prejudicial to the safety, character, reputation and interests of the Building
or its tenants may be denied access to the Building or may be ejected
therefrom. In case of invasion, riot, public excitement or other commotion,
Landlord may prevent all access to the Building during the continuance of the
same, by closing the doors or otherwise,
<PAGE>
2
for the safety of the tenants and protection of property in the Building.
Landlord may require any person leaving the Building with any package or other
object to exhibit a pass from the tenant from whose premises the package or
object is being removed, but the establishment and enforcement, or failure to
enforce, of such requirements shall not impose any responsibility on Landlord
for the protection of any tenant against the removal of property from the
premises of the tenant. Landlord shall, in no way, be liable to any tenant for
damages or loss arising from the admission, exclusion or ejection of any person
to or from the tenant's premises or the Building under the provisions of this
rule.
4. No tenant shall obtain or accept or use in its premises ice,
drinking water, food, beverage, towel, barbering, boot blacking, floor
polishing, lighting maintenance, cleaning or other similar services from any
persons not authorized by Landlord in writing to furnish such services,
provided always that the charges for such services by persons authorized by
Landlord are not excessive. Such services shall be furnished only at such
hours, in such places within the tenant's premises and under such regulations
as may be fixed by Landlord.
5. No awnings or other projections over or around the windows shall be
installed by any tenant and only such window blinds as are supplied, or
permitted by Landlord shall be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of the
Building, either by Tenant or by jobbers or others, in the delivery or receipt
of merchandise or mail, any hand trucks, except those equipped with rubber
tires and side guards.
7. All entrance doors in each tenant's premises shall be left locked
when the tenant's premises are not in use. Entrance doors shall not be left
open at any time. All windows in each tenant's premises shall be kept closed
at all times, and all blinds or drapes therein above the ground floor shall be
lowered or closed when and as reasonably required because of the position of
the sun, during the operation of the Building air conditioning system to cool
or ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments, radio
or television, which, in the judgment of Landlord, might disturb other tenants
in the Building shall be made or permitted by any tenant and no cooking shall
be done in Tenant's premises except as expressly approved by Landlord. Nothing
shall be done or permitted in any tenant's premises and nothing shall be
brought into or kept in any tenant's premises which would impair or interfere
with any of the Building services or the proper and economic heating, cleaning
or other servicing of the Building or the premises, or the use or enjoyment by
any other tenant of any other premises, nor shall there be installed by any
tenant any ventilating, air conditioning, electrical or other
<PAGE>
3
equipment of any kind which, in the judgment of Landlord, might cause any such
impairment or interference. No dangerous, inflammable, combustible or explosive
object or material shall be brought into the Building by any tenant or with the
permission of any tenant.
9. Tenant shall not permit any cooking or food odors emanating from
the Demised Premises to seep into other portions of the Building.
10. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building
which may damage them. The water and wash closets and other plumbing fixtures
in or serving any tenant's premises shall not be used for any purpose other
than the purpose for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein.
All damages resulting from any misuse of the fixtures shall be borne by the
tenant who, or whose servants, employees, agents, visitors or licensees, shall
have caused the same.
11. No signs, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside or inside the premises or the Building without the prior written
consent of Landlord. In the event of the violation of the foregoing by any
tenant, Landlord may remove the same without any liability, and may charge the
expense incurred by such removal to the tenant or tenants violating this rule.
Interior signs and lettering on doors and elevators shall be inscribed,
painted, or affixed for each tenant by Landlord at the expense of such tenant,
and shall be of a size, color and style acceptable to Landlord. Landlord shall
have the right to prohibit any advertising by any tenant which impairs the
reputation of the Building or its desirability as a building for offices, and
upon written notice from Landlord, Tenant shall refrain from or discontinue
such advertising.
12. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows in any tenant's premises, and no lock on any door
therein shall be changed or altered in any respect. Duplicate keys for a
tenant's premises and toilet rooms shall be procured only from Landlord, which
may make a reasonable charge therefor. Upon the termination of a tenant's
lease, all keys to the tenant's premises and toilet rooms shall be delivered to
Landlord.
13. No tenant shall mark, paint, drill into, or in any way deface any
part of the Building or the premises demised to such tenant. Not boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. Not tenant shall install any
resilient tile or similar floor covering in the premises demised to such tenant
except in a manner approved by Landlord.
<PAGE>
4
14. No tenant shall use or occupy, or permit any portion of the
premises demised to such tenant to be used or occupied, as an office for a
public stenographer or typist, or as a barber or manicure shop, or as an
employment bureau. No tenant or occupant shall engage or pay any employees in
the Building, except those actually working for such tenant or occupant in the
Building or advertise for laborers giving an address at the Building.
15. No premises shall be used, or permitted to be used, at any time, as
a store for the sale or display of goods or merchandise or any king, or as a
restaurant, shop, booth, bootblack or other stand, or for the conduct of any
business or occupation which involves direct patronage of the general public on
the premises demised to such tenant, or for manufacturing or for other similar
purposes.
16. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside for the regular duties, unless under
special instructions from the office of the Landlord.
17. Each tenant shall, at its expense, provide artificial light in the
premised demised to such tenant for Landlord's agents, contractors and
employees while performing janitorial or other cleaning services and making
repairs or alterations in said premises.
18. Employees of Tenant shall not loiter around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.
19. Any cuspidors or similar containers or receptacles used in the
Demised Premises shall be cared for and cleaned by and at the expense of
Tenant.
20. Any and all wet and/or food garbage, including coffee grinds, is to
be deposited in a plastic liner bag in a waste basket or other receptacle.
21. Tenant shall separate all refuse and rubbish of Tenant in
accordance with the methods and procedures set forth, from time to time, by
Landlord.
<PAGE>
SCHEDULE "D"
SCHEDULE OF BUILDING HOLIDAYS
-----------------------------
SEE ATTACHED
<PAGE>
SCHEDULE "E"
CLEANING SPECIFICATIONS
-----------------------
I. GENERAL CLEANING AND JANITORIAL SPECIFICATIONS
A. DAILY SERVICES
1. Empty and clean interiors and exteriors of receptacles and places
for disposal.
2. Empty and clean all ash trays and receptacles.
3. Clean cigarette urns and replace sand and/or water as necessary.
4. Hand dust all office furniture, fixtures and window sills. If
textolite or similar desk tops are used, they are to be wiped with
a damp cloth.
5. Dust all moldings, door louvers, ventilating louvers within reach,
ledges, radiators, chair rails, baseboards and trim, damp dusting
where necessary.
6. Dust under all desk equipment and damp dust all telephone
equipment, excluding all electronic desk machines (e.g., Computer
terminals and screens, copiers and faxes).
7. Wash clean all water coolers and fountains.
8. Wipe clean all chrome, aluminum and other metal work and enamel and
mail chutes.
9. Unwaxed flooring, excluding wood, marble, terazzo or carpet, used
as corridors adjacent to the core shall be cleaned and mopped.
This excludes full floor tenants who must maintain their corridor.
10. Damp wash blackboards unless marked "save".
11. Keep supply closets and slop sinks clean and orderly.
12. Store cleaning equipment in designated areas.
13. Sweep all floors.
14. All tenant kitchen areas are excluded from all cleaning services.
<PAGE>
2
B. WEEKLY SERVICES
Wipe clean all brass and other bright work. Refinishing and
polishing special metal surfaces are the responsibility of the
tenant.
C. QUARTERLY SERVICES "HIGH DUSTING"
1. Dust, while in place, all pictures, frames, charts, graphs and
similar wall hangings not reached in nightly cleaning, as
necessary.
2. Dust and clean all vertical surfaces, such as walls, partitions,
doors, door bucks, venetian blinds and other surfaces not reached
in nightly cleaning, as necessary. This excludes interior glass
partitions located in tenant areas.
3. Dust all books while in place in libraries, as necessary.
4. Dust all door louvers and other ventilating louvers, grills, etc.,
as necessary.
5. Clean all pipes and other horizontal surfaces not reached in
nightly cleaning, as necessary. This excludes interior glass
partitions located in tenant areas.
6. Dust all lighting fixtures, globes, files and open shelves.
7. Dust all closet shelving and damp mop closet tile floors.
D. ANNUAL SERVICES
1. Clean all stairwell walls.
2. Dust ceiling surfaces, other than acoustical ceiling materials, and
vacuum clean only acoustical material and other similar surfaces.
Wash ceiling areas around air-diffuser, if requested.
II. RESTROOMS
With respect to the Building core restrooms only, which excludes
private or executive bathrooms, Contractors shall:
<PAGE>
3
A. NIGHTLY SERVICES
1. Mop, rinse and dry floors; polish mirrors and glass shelves, clean
enameled surfaces.
2. Wash basins, urinals and bowls using non-abrasive cleaner of the
bacterial disinfectant type in cold water, remove stains and making
certain to clean under sides of rim of urinals and bowls.
3. Wash both sides of all toilet seats with bacterial disinfectant
type cleaner in cold water.
4. Damp wipe walls and wash the tile wall near urinals with a
disinfectant.
5. Polish flushometers, piping, toilet seat hinges and other metal if
not clean and bright.
6. Fill and maintain mechanical operation of all toilet tissue, soap
and sanitary napkin dispensers. The Landlord shall be responsible
for the cost of mechanical repairs. The cost of hand towels and
soap are the responsibility of the tenant. The Landlord pays for
toilet paper.
7. All waste paper cans and sanitary disposal receptacles are to be
emptied and thoroughly cleaned and washed, as necessary.
8. Scrub floors as necessary.
9. Private and executive restrooms are excluded from all nightly
service.
10. All supplies are excluded from private and executive restrooms.
B. MONTHLY SERVICES
Wash down wall in washrooms and stalls as needed from trim to
floor. This excludes private and executive restrooms.
III. FLOORS
With respect to the Building, Contractor shall:
A. NIGHTLY CLEANING
1. Sweep all floors.
<PAGE>
4
2. Sweep, wet mop with a detergent and rise all VCT floors.
3. Landlord will maintain surfaces in all public corridors of split
tenant floors. Full floors are the responsibility of the tenant.
4. Vacuum carpets in passenger elevators. Clean and vacuum all
elevator saddles and tracks in all floors.
5. Remove gum and foreign matter from all floors as necessary.
B. WEEKLY CLEANING
1. Sweep stairs in fire stairwats and dust handrails.
2. Dust all brass and other bright work. Refinishing or polishing
metal or chrome are excluded.
3. Vacuuming of carpet floors:
(a) Vacuum clean all carpets once weekly in tenant areas.
(b) Use a heavy-duty machine with an adjustable height "beater
bar" or "beater brush".
(c) Carpet sweep as necessary.
(d) Brush or dust by hand carpet edges inaccessible to high
pressure vacuum attachments as required.
(e) Clean under furniture that can be moved.
(f) DRAPERIES REQUIRE A HAND-TYPE VACUUM ATTACHMENT TO REMOVE
ACCUMULATED DUST.
IV. GLASS
1. The cleaning of interior glass partitions is the responsibility of
the tenant.
2. Window cleaning, other than interior glass partitions, shall be in
accordance with the existing or future schedule established at the
building. The Landlord is responsible for the cost of this
service.
<PAGE>
SCHEDULE "F"
ALTERNATE ARTICLE 4
-------------------
ELECTRICITY
-----------
Section 4.01. The Fixed Rent reserved in this Lease includes the agreed
sum of [$2.90 x the rentable square foot area of the Expansion Space], in
consideration of which Landlord, as an additional service, will supply Tenant
with electricity for normal use in the Demised Premises between the hours 9:00
A.M. and 5:30 P.M. on Business Days. If Landlord's electric rates (i.e., the
public utility rate schedule at the time in question, including all surcharges,
taxes, fuel adjustments, taxes regularly passed on to consumers by the public
utility, and other sums payable in respect thereof for the supply of electric
energy to Landlord for the Building) are increased, the Fixed Rent reserved in
this Lease shall be adjusted by applying to the sum specified above, the same
percentage as such rate increase, and such adjusted Fixed Rent shall be billed
by Landlord to Tenant, with effect as of the date of the increase of Landlord's
electric rate. If Tenant disputes the amount, Tenant shall nevertheless pay
the same as billed, and the amount shall be determined by an independent
utility consultant to be selected by Landlord and paid by Tenant. The
determination of the consultant shall be binding upon the parties. Landlord
shall not be liable in any way to Tenant for any failure or defect in the
supply or character of electric energy furnished to the Demised Premises by
reason of any requirement, act or omission of the public utility serving the
Building with electricity or for any other reason not attributable to Landlord.
At Landlord's option, Tenant shall purchase from Landlord or Landlord's agent
all lighting tubes, lamps, bulbs and ballasts used in the Demised Premises, and
Tenant shall pay Landlord's reasonable charges for providing and installing
same on demand, as additional rent.
Section 4.02. Tenant's use of electric energy in the Demised Premises
shall not at any time exceed the capacity of any of the electrical conductors,
machinery and equipment in or otherwise serving the Demised Premises. In order
to insure that such capacity is not exceeded and to avert possible adverse
effect upon the Building electric service, Tenant shall not, without Landlord's
prior written consent in each instance, connect any additional fixtures,
machinery, appliances or equipment to the Building electric distribution system
or make any alteration or addition to Tenant's machinery, appliances or
equipment, or the electric system of the Demised Premises existing on the
Commencement Date. Should Landlord grant such consent, all additional risers
or other equipment required therefor shall be provided by Landlord, and the
cost thereof shall be paid by Tenant upon Landlord's demand. As a condition to
granting such consent, Landlord may require Tenant to agree to an increase in
the Fixed Rent by an amount which will reflect the value to Tenant of the
additional service to be furnished by Landlord, that is, the
<PAGE>
2
potential additional electrical energy to be made available to Tenant based
upon the estimated additional capacity of such additional risers or other
equipment. If Landlord and Tenant cannot agree thereon, Tenant shall
nevertheless pay the same as billed until such amount shall be determined by an
independent utility consultant to be selected by Landlord and paid by Tenant.
When the amount of such increase is so determined, the parties shall execute an
agreement supplementary hereto to reflect such increase in the amount of the
Fixed Rent stated in this Lease and in the amount set forth in Section 4.01,
effective from the date such additional service is made available to Tenant,
but such increase shall be effective from such date even if such supplementary
agreement is not executed.
Section 4.03. If there shall be an increase in the space constituting
the Demised Premises, or if Tenant's failure to maintain its machinery and
equipment in good order and repair causes greater consumption of electrical
current, or if Tenant uses electricity on days or hours other than those
specified in Section 4.01, or if Tenant adds any machinery, appliances or
equipment requiring additional electrical current, the Fixed Rent herein
reserved shall be increased accordingly. The amount thereof shall be billed by
Landlord to Tenant, effective as of the date of the increased usage. Such sum
shall be due, and shall be paid by Tenant, as additional rent hereunder at the
time billed. If Tenant disputes the amount, Tenant shall nevertheless pay the
same as billed, and the amount shall be determined by an independent utility
consultant to be selected by Landlord and paid by Tenant. The determination of
the consultant shall be binding upon the parties.
Section 4.04. Landlord reserves the right to discontinue furnishing
electric energy to Tenant in the Demised Premises at any time upon not less
than thirty (30) days' notice to Tenant. If Landlord exercises such right of
termination, this Lease shall continue in full force and effect and shall be
unaffected thereby, except only that, from and after the effective date of such
termination, Landlord shall not be obligated to furnish electric energy to
Tenant and the Fixed Rent under this Lease shall be reduced by the amount set
forth in Section 4.01, plus or minus the amount of any change pursuant to
Sections 4.01, 4.02, 4.03 and 4.05. If Landlord so discontinues furnishing
electric energy to Tenant, Tenant shall arrange to obtain electric energy
directly from the public utility company furnishing electric service to the
Building. Such electric energy may be furnished to Tenant by means of the then
existing building system feeders, risers and wiring to the extent that the same
are available, suitable and safe for such purposes. All meters and additional
panel boards, feeders, risers, wiring and other conductors and equipment which
may be required to obtain electric energy directly from such public utility
company shall be installed and maintained by Tenant at its expense.
<PAGE>
3
Section 4.05. Tenant covenants and agrees that at no time will the
connected electrical load serving the Demised Premises exceed 5 watts per
square foot. Should Landlord consent to an increase in the connected
electrical load, as a condition to granting such consent, Landlord may require
Tenant to agree to an increase in the Fixed Rent by an amount which will
reflect the value to Tenant of the additional connected electrical load. The
determination of the consultant shall be binding upon the parties.
Section 4.06. If any tax is imposed upon Landlord with respect to
electrical energy furnished as a service to Tenant by any Federal, State or
Municipal Authority, Tenant covenants and agrees that where permitted by law or
applicable regulations, Tenant's pro rata share of such taxes shall be
reimbursed by Tenant to Landlord.
Section 4.07. Landlord shall have the right to procure periodic surveys
made by an independent utility consultant selected by Landlord and if such
utility consultant determines that there has been (i) an increase in Tenant's
use of electrical current or (ii) the amount set forth in Section 4.01 is
insufficient, then, the amount set forth in Section 4.01 shall be adjusted and
in addition to the other requirements and obligations imposed on Tenant in this
Article, Tenant shall pay the fees of the utility consultant making such
survey. The findings of such utility consultant shall be binding and
conclusive on the parties.
Section 4.08. Notwithstanding the aforesaid provisions of this Article,
if, pursuant to an action of the Public Service Commission of the State of New
York, or otherwise, submetering of electricity is permitted at the Building,
then Landlord shall have the option, at Landlord's sole cost and expense, of
installing submeters to measure Tenant's electricity consumption. Upon
installation of the submeters, Tenant's electricity consumption and demand
shall be measured by said submeters, and Tenant agrees to purchase such
electricity from Landlord or Landlord's designated agent at Landlord's electric
rates, plus twelve (12%) percent thereof to reimburse Landlord for
administrative services in connection with supplying and billing such
electricity and two and one-half percent (2 1/2%) for line loss. All such sums
shall be paid by Tenant to Landlord as additional rent hereunder. If more than
one meter measures the electricity consumption and demand of Tenant in the
Building, the service rendered through each meter shall be aggregated and
billed in accordance with the above rate classification, unless Landlord shall
elect separate billing on a per-meter basis. Landlord may at any time render
bills for Tenant's consumption and demand and Tenant shall pay the same within
thirty (30) days following the date the same are
rendered. If Landlord exercises such right of submetering, this Lease shall
continue in full force and effect and shall be unaffected thereby, except only
that, from and after the effective date of such submetering, the Fixed Rent
under this Lease shall be reduced by the amount set forth in Section 4.01, plus
or minus the
<PAGE>
4
amount of any change pursuant to Sections 4.01, 4.02, 4.03 and 4.05, and Tenant
shall purchase electric energy pursuant to this Section 4.08.
<PAGE>
EXHIBIT 10.65
AMD1217
THIRD AMENDMENT TO LETTER AGREEMENT
-----------------------------------
Third Amendment, dated December 22, 1997, to Letter Agreement dated as of
December 1, 1996 between MEDALLION FINANCIAL CORP. and FLEET BANK, NATIONAL
ASSOCIATION.
WHEREAS, the Borrower and the Bank are parties to a Letter Agreement dated
as of December 1, 1996, as amended by the Letter Agreement, dated as of February
10, 1997, between the Borrower and the Bank, as further amended by the Letter
Agreement, dated as of April 7, 1997, between the Borrower and the Bank (as so
amended, the "Agreement"); and
WHEREAS, the Borrower has requested that the Bank amend, and the Bank has
agreed to amend, certain provisions of the Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The Agreement is hereby amended to provide that, subject to the
Borrowing Base requirements set forth in Section 1 of the Agreement, for a
period of four (4) months, commencing December 22, 1997, the maximum aggregate
principal amount of Loans available to Borrower under the Line shall be
increased from $7,500,000 to $25,000,000; provided, however, that on April 22,
1998 and at all times thereafter, the maximum aggregate principal amount of
Loans available to Borrower under the Line shall be reduced again to $7,500,000.
Accordingly, for the four month period set forth above, but for that period
only, the amount "$7,500,00" contained in the opening paragraph of the Agreement
and in Section 1 thereof is replaced with the amount "$25,000,000."
2. To the extent that on April 22, 1998 the aggregate amount of
outstanding Loans exceeds $7,500,000, the Borrower shall immediately pay to the
Bank the amount of such excess, which payment shall be applied against the
outstanding principal balance of the Note evidencing the Loans.
3. The Borrower hereby represents and warrants to the Bank that:
(a) Each and every of the representations and warranties set forth in
the Agreement and the Note (as defined in the Agreement) is true as of the date
hereof and with the same effect as though made on the date hereof, and is hereby
incorporated herein in full by reference as if fully restated herein in its
entirety.
<PAGE>
(b) No default or Event of Default (as defined under the Note) and no
event or condition which, with the giving of notice or lapse of time or both,
would constitute such a default or Event of Default, now exists or would exist.
4. All capitalized terms used herein, unless otherwise defined herein,
have the same meanings provided therefor in the Agreement.
5. The amendments set forth herein are limited precisely as written and
shall not be deemed to (a) be a consent to or a waiver of any other term or
condition of the Agreement or any of the documents referred to therein or (b)
prejudice any right or rights which the Bank may now have or may have in the
future under or in connection with the Agreement or any documents referred to
therein. Whenever the Agreement is referred to in the Agreement or any of the
instruments, agreements or other documents or papers executed and delivered in
connection therewith, it shall be deemed to mean the Agreement as further
modified by this Amendment Number 3.
6. The Borrower shall execute and deliver concurrently herewith
Endorsement No. 3 to teh Revolving Credit Note. Such Endorsement Number 3 shall
be in the form of Exhibit A annexed hereto and be deemed, together with the Note
to which it shall be attached, as such Note has been previously amended,
collectively the Note for all purposes of the Agreement and documents relating
thereto for the periods referenced therein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Number 3
to be duly executed and delivered by their respective duly authorized officers
as of the date first above written.
MEDALLION FINANCIAL CORPORATION
By: /s/ Daniel F. Baker
---------------------------
Name: Daniel F. Baker
Title: Treasurer and Chief
Financial Officer
FLEET BANK, NATIONAL ASSOCIATION
By: /s/ Andrea Lee
---------------------------
Name: Andrea Lee
Title: Vice President
-2-
<PAGE>
EXHIBIT 10.66
ENDORSEMENT NO. 3, DATED DECEMBER 22, 1997,
TO REVOLVING CREDIT NOTE
-------------------------------------------
Dated as of December 1, 1996, from MEDALLION FINANCIAL CORP. payable to
FLEET BANK, N.A. by Endorsement No. 1 thereto dated February 10, 1997 and as
further amended by Endorsement No. 2 thereto dated April 7, 1997 (as so amended,
the "Note"), to which this Endorsement Number 3 is attached, hereby agree as
follows:
1. The Note is hereby amended as follows:
(a) For the period commencing December 22, 1997, all references in the
Note to the amount "$7,500,000 " or "SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($7,500,000)" shall be amended to read "$25,000,000" or "TWENTY FIVE MILLION
DOLLARS ($25,000,000)"; provided, however, that on April 22, 1998 and at all
times thereafter, all references in the Note to the amount "25,000,000" or
"TWENTY FIVE MILLION DOLLARS ($25,000,000)" shall be amended to read "SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS" or "($7,500,000)".
(b) The rate of interest for a Eurodollar Loan (as defined in the
Note) shall be amended such that the phrase "a fixed rate of 1.30% plus the
Eurodollar Rate" shall be replaced with the phrase "a fixed rate of 1.10% plus
the Eurodollar Rate".
(c) Paragraph 11 is amended by adding a new subparagraph (e) as
follows:
(e) acquire, by purchase or otherwise, the business or assets of, or
stock of, another business entity (each an "Acquisition") if the
acquisition price, inclusive of (i) any indebtedness incurred in connection
therewith, (ii) the assumption of any indebtedness, and (iii) any deferred
purchase price on account thereof, exceeds $1,000,000 with respect to any
individual Acquisition or $1,000,000 with respect to all such Acquisitions
in the aggregate.
2. To the extent that on April 22, 1998 the outstanding principal balance
of this Note exceeds $7,500,000, the Borrower shall immediately pay to the Bank
the amount of such
<PAGE>
excess, which payment shall be applied against the outstanding principal balance
of this Note.
Except as expressly amended by this Endorsement Number 3, all the terms and
conditions of the Note to which this Endorsement Number 3 is attached shall
continue in full force and effect.
This Endorsement Number 3 shall be effective December 22, 1997.
MEDALLION FINANCIAL CORPORATION
By: /s/ Daniel F. Baker
---------------------------
Name: Daniel F. Baker
Title: Treasurer and Chief
Financial Officer
FLEET BANK, N.A.
By: /s/ Andrea Lee
---------------------------
Name: Andrea Lee
Title: Vice President
-2-
<PAGE>
Exhibit 21
----------
List of Subsidiaries of Medallion Financial Corp.
Subsidiary Jurisdiction of Organization
- ---------- ----------------------------
Medallion Funding Corp. New York
Transportation Capital Corp. New York
Edwards Capital Corp. Delaware
Medallion Media, Inc. Delaware
Business Lenders, LLC Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the use of our
report dated February 25, 1998, included in this Form 10-K and to all references
to our Firm included in the registration statement on Form S-8 (File Nos.
333-10957 and 333-27977).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 27, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the use of our
reports dated March 26, 1997, on our audits of the financial statements of
Edwards Capital Company, Transportation Capital Corp. and Tri-Magna Corporation,
included in this Form 10-K and to all references to our Firm included herein.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE AUDITED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 289,864,870
<INVESTMENTS-AT-VALUE> 289,864,870
<RECEIVABLES> 7,469,236
<ASSETS-OTHER> 3,742,204
<OTHER-ITEMS-ASSETS> 8,968,334
<TOTAL-ASSETS> 310,044,644
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 178,653,134
<TOTAL-LIABILITIES> 178,653,134
<SENIOR-EQUITY> 128,803
<PAID-IN-CAPITAL-COMMON> 130,378,936
<SHARES-COMMON-STOCK> 12,880,296
<SHARES-COMMON-PRIOR> 8,250,000
<ACCUMULATED-NII-CURRENT> 883,771
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 131,391,510
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,446,396
<OTHER-INCOME> 2,242,433
<EXPENSES-NET> 5,165,060
<NET-INVESTMENT-INCOME> 11,314,395
<REALIZED-GAINS-CURRENT> 144,271
<APPREC-INCREASE-CURRENT> 25,000
<NET-CHANGE-FROM-OPS> 11,433,666
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,210,807
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,600,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 74,904,231
<ACCUMULATED-NII-PRIOR> 45,224
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 225,000
<INTEREST-EXPENSE> 9,209,374
<GROSS-EXPENSE> 14,374,434
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
