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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, 1998
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 22, 1999 was approximately $170
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 22, 1999.
There were 14,013,768 shares of the Registrant's Common Stock outstanding as of
March 22, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders to be held on June 16, 1999, 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, 1998, are
incorporated by reference into Part III of this Form 10-K.
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MEDALLION FINANCIAL CORP.
1998 FORM 10-K ANNUAL REPORT
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I........................................................................................ 3
Item 1. Business of the Company........................................................ 3
Item 2. Properties..................................................................... 18
Item 3. Legal Proceedings.............................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders............................ 18
PART II....................................................................................... 21
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters....... 21
Item 6. Selected Financial Data........................................................ 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................... 43
Item 8. Financial Statements and Supplementary Data.................................... 43
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures.................................................................... 43
PART III...................................................................................... 44
Item 10. Directors and Executive Officers of the Registrant............................. 44
Item 11. Executive Compensation......................................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 44
Item 13. Certain Relationships and Related Transactions................................. 44
PART IV....................................................................................... 44
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 44
Important Factors Relating to Forward-looking Statements...................................... 45
Signatures.................................................................................... 46
</TABLE>
2
<PAGE>
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 Taxi 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 ("BLL"), acquired
certain assets and assumed certain liabilities of Business Lenders, Inc.
("Business Lenders"). BLL operates as a specialty finance company and is a Small
Business Administration ("SBA") Section 7(a) program lender focusing on long-
term loans to active businesses secured by real estate. On June 16, 1998 the
Company completed the merger with Capital Dimensions, Inc. ("CDI") a Specialized
Small Business Investment Company ("SSBIC") lender, headquartered in
Minneapolis, Minnesota. CDI was subsequently renamed Medallion Capital, Inc.
("Medallion Capital"). The charter was amended to convert Medallion Capital to a
Small Business Investment Company ("SBIC"). The transaction was accounted for as
a tax-free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended, and was treated under the pooling-of-interests method of
accounting. Medallion Business Credit LLC ("MBC") was formed on August 6, 1998
and is a wholly owned subsidiary of Medallion Financial. MBC originates loans to
small businesses for the principle purpose of financing inventory and
receivables. 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 commercial secured 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, which
finances the purchase of taxicab medallions and related assets ("Medallion
Loans") 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
commercial loan products it offers as well as the industries and geographic
areas it services. Through its subsidiary BLL, 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, 1998, the Company had approximately 5,200 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, Boston, New Orleans,
Philadelphia, San Diego and Atlanta 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 subjected 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,
3
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Edwards, Medallion Capital are RICs and are single member limited liability
companies that are treated as branches of Medallion Financial and therefore, for
tax purposes, receive the benefits of RIC status, (collectively the "RIC
Subsidiaries"), and distribute at least 90% of their respective investment
company taxable income to Medallion Financial.
The following chart illustrates the organizational structure of the Company:
<TABLE>
<CAPTION>
Medallion Financial Corp.
("Medallion Financial")
.RIC
.BDC
<S> <C> <C> <C> <C> <C> <C>
Medallion Funding Edwards Capital Transportation Business Medallion Taxi Medallion Medallion
Corp. Corp. Capital Corp. Lenders LLC Media, Inc. Capital, Inc. Business Credit LLC
("MFC") ("Edwards") ("TCC") ("BLL") ("Media") ("Medallion ("MBC")
. RIC . RIC . RIC . 7 (a) Lender . Taxicab Capital")
. SBIC . SBIC . SBIC advertising . RIC
business . SBIC
. 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.
7(a) Lender Participating lender under the SBA's Section 7(a) loan program.
Medallion Funding Corp. 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 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 SBIC under an agreement with the SBA entered into in February
1997 (the "MFC Conversion Agreement").
Medallion Funding Corp.
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
is not subject to SBA restrictions on the amount of third-party indebtedness it
may incur.
Media.
Media, which was incorporated in 1994, provides taxicab rooftop advertising
and is pursuing a plan to become a national provider of such advertising. Media
currently provides such advertising in New York City, Boston, New Orleans,
Philadelphia, San Diego and Atlanta 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 1,700 New York
City taxicabs owned by members of the MTBOT commencing on September 22, 1997. On
September 1, 1998, Media acquired the assets of Taxi Ads, LLC adding 855
installed displays in New Orleans, Philadelphia and San Diego. At December 31,
1998, Media had approximately 5200 displays installed nationwide.
4
<PAGE>
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. In the second quarter of 1999, 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 1999, 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.
BLL is a Delaware limited liability company and 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. BLL makes secured loans to
small businesses in principal amounts ranging from $10,000 to $2,700,000 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, BLL purchased the
assets and assumed certain liabilities of Business Lenders.
In connection with the 1996 Acquisitions, the Company received the
Acquisition Orders under the 1940 Act from the Securities Exchange Commission.
The Company obtained approval from the Connecticut State Department of Banking
and the SBA in the Business Lenders Acquisition.
Medallion Business Credit LLC.
MBC is a Delaware limited liability company and a wholly owned subsidiary of
the Company. MBC originates loans to small businesses for the principle purpose
of financing inventory and receivables. MBC commenced business in September
1998.
Medallion Capital, Inc.
On June 16, 1998, the Company completed the acquisition of Capital
Dimensions, Inc. ("CDI") an SSBIC lender, headquartered in Minneapolis,
Minnesota. CDI was subsequently renamed Medallion Capital, Inc. ("Medallion
Capital"). The charter was amended to convert Medallion Capital to an SBIC. The
Company issued 1,112,677 shares of its common stock for the outstanding shares
of CDI; common stock by exchanging 0.59615 shares of its common stock for each
outstanding share of CDI common stock. The transaction was accounted for as a
tax-free reorganization under Section 368 of the Internal Revenue Code of 1986,
as amended, and was treated under the pooling-of-interests method of accounting.
Under this method, the consolidated financial statements have been restated to
retroactively combine Medallion Capital's financial statements as if the merger
had occurred at the beginning of the earliest period presented. All information
in this report has been restated to reflect the merger.
5
<PAGE>
GROSS INVESTMENT PORTFOLIO SUMMARY DATA
The following table classifies the Company's gross loans including net
origination costs and equity investments outstanding as of December 31, 1998 and
1997:
Weighted
December 31, 1998 Number Average Balance
Type of Loans of Loans Interest Rate Outstanding
- ------------- -------- ------------- -----------
New York City Medallion Loans...... 1,762 8.68% $234,989,904
Other Medallion Loans.............. 751 11.71 31,071,904
------- ------- ------------
All Medallion Loans............. 2,513 9.03 266,061,808
Dry cleaners and laundromats....... 654 13.25 34,327,668
7(a) Loans......................... 356 10.65 21,398,308
Other.............................. 218 10.66 52,544,710
------- ------- ------------
Total Loans........................ 3,741 9.74 374,332,494
Equities........................... 10 - 6,766,561
------- ------- ------------
Total Investments at cost.......... 3,751 9.74% $381,099,055
======= ======= ============
Weighted
December 31, 1998 Number Average Balance
Type of Loans of Loans Interest Rate Outstanding
- ------------- -------- ------------- -----------
New York City Medallion Loans...... 1,757 9.02% $204,514,675
Other Medallion Loans.............. 511 11.80% 21,446,574
------- ------- ------------
All Medallion Loans............. 2,268 9.28% 225,961,249
Dry cleaners and laundromats....... 768 13.19% 42,681,004
7(a) Loans......................... 250 11.05% 13,739,349
Other.............................. 79 12.90% 26,026,504
------- ------- ------------
Total Loans........................ 3,365 10.20% $308,408,106
Equities........................... 11 -- 4,357,346
------- ------- ------------
Total Investments at cost.......... 3,376 10.20% $312,765,452
======= ======= ============
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 sold for approximately $211,000 and corporate medallions sold for
approximately $259,000 at December 31, 1998. 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, 1998 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.
6
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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 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 $139,000. 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 $212
million. In addition, the Company estimates Cambridge medallions currently sell
for approximately $100,000. 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 $25 million.
The Chicago Market- Based on the Company's experience, Chicago medallions
currently sell for approximately $59,000. 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 $336
million.
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 88.3% of the value of
the Company's Medallion Loan portfolio at December 31, 1998. 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 32
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 71.0% of the Company's loan
portfolio at December 31, 1998. On that date, the Company had 2,513 Medallion
Loans outstanding with an average principal amount outstanding of $105,500 and
an aggregate principal amount outstanding of $266.0 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 likelihood of
prepayment is 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, 1998, 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
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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 $650 million in aggregate principal amount of
Medallion Loans it originated during the period from 1979 through December 31,
1998. In addition, from the date of the Acquisitions through the date of this
Annual 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
250 to 600 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.
BLL 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. BLL'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 BLL,
Edwards, TCC and Medallion Financial itself.
Loan Portfolio
Commercial Installment Loans comprised 29% of the Company's loan portfolio
at December 31, 1998. 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 approximately
$3,500,000. These loans are generally retained by the Company and typically have
maturities ranging from one to ten years. At December 31, 1998, there were 1,228
Commercial Installment Loans outstanding with a balance of $108.2 million. Loans
to dry cleaners and laundromats and loans under the SBA 7(a) program represented
31.7% and 19.8%, respectively, of the aggregate principal amount of Commercial
Installment Loans outstanding at December 31, 1998. 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
120 days' interest. At December 31, 1998, the Company's Commercial Installment
Loans had a weighted average interest rate of 11.48%. 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 245 basis points at December 31, 1998. The
Company believes that the increased
8
<PAGE>
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 security interests
in the assets being financed by the borrower. At December 31, 1998, 31.7% of the
aggregate principal outstanding in the Company's Commercial Installment Loan
portfolio was secured by security interests in retail dry cleaning and coin
operated laundromat equipment and the balance, 68.3%, 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 30 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 an 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.
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 with the proper credit authority 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,
including net origination costs, separated by entity:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Receivable
MBC.................... $9,088 2%
BLL.................... $ 14,019 5% 21,398 6
Medallion Financial.... $ 14,640 8% 48,560 16 63,394 17
Tri-Magna (MFC)........ $ 90,343 58% $ 96,956 58% 99,662 51 158,725 52 226,206 60
Edwards................ 43,487 28 43,799 26 46,630 24 59,882 19 26,084 7
TCC.................... 10,981 7 9,797 6 15,608 8 10,152 3 6,675 2
Medallion Capital...... 12,065 7 15,331 10 18,236 9 17,070 6 21,487 6
-------- ---- -------- ---- -------- ---- -------- ---- ------- ----
Total................ $156,876 100% $165,883 100% $194,776 100% $308,408 100% 374,332 100%
======== ==== ======== ==== ======== ==== ======== ==== ======= ====
</TABLE>
9
<PAGE>
LOAN ACTIVITY
The following table sets forth the Company's loans originated, renewed and
repaid on a combined basis for the periods indicated:
Year Ended December 31,
1997 1998
---- ----
(in thousands)
Loans originated $ 217,135 $ 244,485
Loan participations repurchased 22,537 --
Loan repayments (including renewals) (127,987) (176,308)
Increase in unrealized depreciation (1,066) (740)
Increase in unrealized appreciation 541 410
Realized losses, net (125) (1,126)
---------- ----------
Increase (decrease) in loans receivable-net $ 111,035 $ 66,721
Loans receivable-net (beginning of period) $ 194,729 $ 305,764
Loans receivable-net (end of period) $ 305,764 $ 372,485
DELINQUENCY AND LOAN LOSS EXPERIENCE
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, 1998, the Company had an aggregate principal balance of $14.5
million, or 3.8% of the portfolio, which were delinquent for 90 days or more,
compared to an aggregate principal balance of $15.8 million or 5.2% of the
portfolio, which were delinquent for 90 days or more at December 31, 1997. 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.
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.
10
<PAGE>
The following table sets forth the Company's unrealized depreciation of
investments and the loan loss experience on a combined basis:
<TABLE>
<CAPTION>
Investments
----------------------------------------------------
Loans Equities Total
----- -------- -----
<S> <C> <C> <C>
Balance at December 31, 1996 $ (2,243,496) $ 1,443,022 $ (800,474)
------------ ------------ --------------
Increase in unrealized:
Appreciation 541,290 1,689,632 2,230,922
Depreciation (666,454) - (666,454)
Unrealized depreciation of acquired subsidiary (400,000) (400,000)
Realized:
Gains - - -
Losses 125,000 - 125,000
------------ ------------ --------------
Balance at December 31, 1997 $ (2,643,660) $ 3,132,654 $ 488,994
------------ ------------ --------------
Increase in unrealized:
Appreciation 409,943 3,305,966 3,715,909
Depreciation (540,000) (458,489) (998,489)
Unrealized depreciation of acquired subsidiary (200,000) (200,000)
Realized:
Gains (1,167,363) (1,167,363)
Losses 1,125,866 - 1,125,866
------------ ------------ --------------
Balance at December 31, 1998 $ (1,847,851) $ 4,812,768 $ 2,964,917
------------ ------------ --------------
</TABLE>
CUSTODIAL SERVICES
Fleet Bank N.A. acts as the custodian of all of the Company's portfolio
assets, except that BLL'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 1,700 Displays to the
number under contract in New York City. On September 1, 1998, the company
acquired the assets of Taxi Ads, LLC which had 850 displays in service in New
Orleans, Philadelphia and San Diego. 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,
Boston, Philadelphia, New Orleans, San Diego and Atlanta 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 additional major U.S. metropolitan markets. The
Company believes that no provider currently operates nationwide. On December 31,
1998, the Company had approximately 5,200 installed Displays.
The Company attaches each Display to the rooftop of a taxicab 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.
11
<PAGE>
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, among
others, Donna Karan; Giorgio Armani, Versace; Fleet Bank N.A.; Vogue Magazine;
Continental Airlines; Twentieth Century Fox, M&M Mars, Kellogg's; Philip Morris
Tobacco Corp.; Old Navy, Banana Republic; Disney's The Lion King on Broadway;
Saks Fifth Avenue and Brown & Williamson Tobacco Corporation.
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. 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 58.7% of Media's taxicab rooftop advertising
revenue is derived from tobacco products advertising. Under the Master
Settlement Agreement between tobacco manufacturers and the attorneys general of
various states (including those states in which the Company conducts its outdoor
advertising business), the tobacco manufacturers agreed to eliminate general
outdoor and transit advertising of tobacco products by March 31, 1999. The loss
of such advertising may have an adverse effect upon the taxicab rooftop
advertising business of the Company. The Company believes, however, that it can
replace some of the revenue which is expected to be lost due to the elimination
of tobacco taxicab rooftop advertising.
SOURCES OF FUNDS
Overview
The Company funds its operations through credit facilities with bank
syndicates and secured commercial paper 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, 1998, 44.4% of the
Company's $260.3 million of debt consisted of bank debt, 39.6% of the Company's
debt consisted of secured commercial paper, substantially all of which was at
variable effective rates of interest averaging below the Prime Rate, and 16.0%
of the Company's debt consisted of subordinated SBA debentures, with fixed rates
of interest with a weighted average rate of 7.32% on the outstanding balance at
December 31, 1998. An additional $33.8 million of debt was available at December
31, 1998 at variable effective rates of interest averaging below the Prime Rate
under the Company's $252.5 million in bank credit facilities.
The Company funds its fixed rate loans with variable rate bank debt and
fixed rate 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset/Liability Management."
Medallion Financial
Medallion Financial intends to rely on its bank credit facilities to fund
its operations. Medallion Financial has a credit facility with a bank syndicate
consisting of an $57.5 million revolving line of credit. Amounts outstanding
under the revolving line of credit bear interest at the agent bank's prime rate
or, at Medallion Financial's option, a rate based on LIBOR. At December 31,
1998, the average interest rate was 6.41%, which was 134 basis points
12
<PAGE>
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 Medallion Financial's
assets and matures on July 30, 1999. As of December 31, 1998, there was an
outstanding balance of $47.3 million under the revolving line of credit.
Edwards
Edwards, as an SBIC, 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 $19.3 million at December 31, 1998. Edwards intends to
seek to issue additional SBA debentures only if interest rates are favorable.
SBA Regulations limit the amount of SBA debentures or "leverage" SBICs may
issue. Generally, under SBA Regulations, the maximum principal amount of 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
$102.5 million. Accordingly, Edwards, MFC, Medallion Capital and TCC
collectively may not issue SBA debentures in an aggregate amount that exceeds
$102.5 million and at December 31, 1998, the aggregate amount outstanding was
$41.6 million. The interest rates payable on outstanding SBA debentures at
December 31, 1998 ranged from 3.88% to 9.60% with a weighted average of 7.32%.
At December 31, 1998, Edwards had Leveragable Capital of $9.3 million and
had issued $19.3 million in principal amount of SBA debentures that carry fixed
rates of interest and have ten-year terms. These debentures have maturities
ranging from September 1, 2002 to September 1, 2004 and rates of interest
varying from 7.15% to 8.20% per annum. Subject to the limitations discussed
above, Edwards was eligible on December 31, 1998, to issue $10.4 million in
aggregate principal amount of additional SBA debentures.
MFC
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, 1998, the
average interest rate was 6.36%, which was 139 basis points below the Prime Rate
and 108 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, 1998, there was an outstanding balance of $68.3 million under the
revolving line of credit.
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 December 31, 1998 had $103.1 million
outstanding at an average interest rate of 6.11%. The commercial paper program
is secured pari passu with the revolving credit facility.
At December 31, 1998, MFC had Leveragable Capital of $44.2 million and had
assumed $6.2 million in principal amount of SBA debentures that carry fixed
rates of interest and have ten-year terms. These debentures have maturities
ranging from September 1, 2000 to September 1, 2005 and rates of interest
varying from 3.88% to 9.6% per annum. Subject to the limitations discussed
above, MFC was eligible on December 31, 1998, to issue $83.8 million in
aggregate principal amount of additional SBA debentures.
TCC
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 SBA debentures
and the issuance of non-voting cumulative preferred stock to, or guaranteed by,
the SBA. As of December 31, 1998, TCC had $5.6 million of SBA debentures
outstanding and no preferred stock outstanding. At December 31, 1998 the
interest rate payable on SBA debentures was 8.00%. 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 SBA
debentures, but the interest on such debentures will not be subsidized by the
SBA. SBA Regulations limit the amount of SBA debentures or "leverage" SBICs may
issue and the "300% of leveragable capital" and the $102.5 million limit on the
aggregate amount of leverage permitted for SBICs under common control referred
to above also apply.
At December 31, 1998, TCC had Leveragable Capital of $7.5 million and had
issued $5.6 million in principal amount of 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. TCC was eligible on December 31, 1998, to issue $16.8 million
of additional SBA debentures subject to the overall SBA limitations.
13
<PAGE>
Preferred Stock Repurchase Agreements
MFC, TCC and Medallion Credit have repurchased all of their previously
issued preferred stock from the SBA for an aggregate price of $8.0 million,
representing a discount of 65% from the original aggregate issuance price of
$22.6 million. The repurchase price discount of $14.6 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 84
months, commencing March 31, 1993 for Medallion Capital and over 60 months,
commencing August 12, 1994 for MFC and TCC. If MFC, TCC or Medallion Capital
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, 1998, the aggregate remaining unaccreted amount of the realized
gain for MFC, TCC and Medallion Capital was $2.4 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.
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 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.
14
<PAGE>
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.
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.
15
<PAGE>
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;
(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.
16
<PAGE>
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. In June 1998, Medallion Capital's
charter was amended to convert from an SSBIC to an SBIC. 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,
1998 the amount of such unamortized repurchase discount was $1.3 million and MFC
had outstanding loans to Disadvantaged Borrowers with an aggregate cost basis in
excess of $3.1 million.
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 SBA debenture rate, plus (b) 11%, rounded off to the next lower
eighth of one percent. At December 31, 1998, the maximum rate of interest
permitted on loans originated by the RIC Subsidiaries is 19%. At December 31,
1998, the Company's outstanding Medallion Loans had a weighted average rate of
interest of 9.03% and outstanding Commercial Installment Loans had a weighted
average rate of interest of 11.48%. 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 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.
17
<PAGE>
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.
EMPLOYEES
As of December 31, 1998, the Company employed a total of 140 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, Somers Point, NJ, Minneapolis, MN
and New Orleans, LA. The Company does not own any real property. The Company
believes that its leased properties, taken as a whole, are in good operating
condition and are suitable for the Company's current business operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries have been named as defendants in various
legal proceedings incident to the ordinary course of its business. The Company
intends to vigorously defend these outstanding claims. In the opinion of the
Company's management and 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 effect 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 1998 fiscal year.
18
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
<TABLE>
<S> <C> <C>
Name Age Position(s) Held With the Company
Alvin Murstein(*)........................ 64 Chairman, Chief Executive Officer and Director
Andrew M. Murstein(*)................... 34 President and Director
Allen S. Greene(*)....................... 52 Senior Executive Vice President and Chief Operating Officer
Daniel F. Baker(*)....................... 35 Treasurer and Chief Financial Officer
Marie Russo(*)........................... 74 Senior Vice President and Secretary
Michael J. Kowalsky(*)................... 55 Executive Vice President
Jonathon G. Matuscak(*).................. 54 Vice President and Chief Accounting Officer
</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 served on the Board of Directors of the Strober Organization, Inc.,
a building supply company, from 1988 to 1997. 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
served two terms as a Director of Medallion Financial, MFC, Edwards and TCC from
May 1996 until April 1997 and since October 10, 1997. He has served as a
director of Media since its inception. 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 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>
Jonathon G. Matuscak has been Vice President and Chief Accounting Officer of
Medallion Financial since March 1998. Mr. Matuscak was employed by Arthur
Andersen LLP from 1996 to 1998. He was Executive Vice President and Chief
Financial Officer of CrossLand Federal Savings Bank and its parent company
Brooklyn Bancorp, Inc. from 1994 until March 1996. From March 1996 until May
1996, Mr. Matuscak was a Senior Vice President with Republic National Bank of
New York. Mr. Matuscak received a B.S. in accounting from the University of
Detroit and is a Certified Public Accountant in New York State.
20
<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 25, 1999, there were
approximately 2,969 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:
HIGH LOW
1998
First Quarter $29-15/16 $18-7/8
Second Quarter $31 $25
Third Quarter $28-7/8 $12-1/16
Fourth Quarter $18-1/2 $12-9/16
HIGH LOW
1997
First Quarter $19-3/4 $14
Second Quarter $20-1/8 $16
Third Quarter $21-3/4 $17-3/4
Fourth Quarter $23 $20
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. On June 16, 1998 the Company completed a
merger with CDI, now known as Medallion Capital. This transaction was accounted
for as a tax-free reorganization under Section 368 of the Internal Revenue Code
of 1986, as amended, and was treated under the pooling-of-interests method of
accounting. Under this accounting treatment, the consolidated financial
statements of the Company have been restated retroactively to combine Medallion
Capital's financial statements with the Company's consolidated financial
statements as if the merger had occurred at the beginning of the earliest period
presented. 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 years ending December
31, 1998, 1997 and 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.
Also included are unaudited consolidated financial results for the years
ended December 31, 1995 and 1994. The consolidated financial statements for
Medallion Financial Corp. for these years represent only the activity of
Medallion Capital, the predecessor of the registrant, as Medallion Financial
Corp. had no other activity. These unaudited financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all 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 periods presented.
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
21
<PAGE>
period ended May 29, 1996, have been derived from audited financial statements
incorporated by reference 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 year ended December 31, 1994 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 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.
22
<PAGE>
<TABLE>
<CAPTION>
MEDALLION FINANCIAL CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
AT AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996, 1997 AND 1998
IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS
STATEMENT OF OPERATIONS DATA 1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Investment income...................... $ 1,229 $ 1,481 $ 12,292 $ 25,848 $ 35,157
Interest expense....................... 263 224 5,328 10,099 15,609
Net interest income.................... 966 1,257 15,749 19,548
6,964
Equity in earnings (losses) of
Unconsolidated subsidiary(1).......... -- -- (63) 203 1,200
Other income........................... -- -- 411 980 1,459
Gain on sale of loans.................. -- -- -- 336 2,316
Accretion of negative goodwill......... -- -- 421 722 722
Operating expenses..................... 639 608 3,042 6,167 13,178
Amortization of goodwill............... -- -- 259 368 506
Income tax (provision) benefit......... 23 (639) (436) (929) 154
Dividends on minority interest......... (120) (120) (116) -- --
Net investment income.................. 230 (110) 3,880 10,526 11,715
Realized gain (loss) on investments,net (172) 3,800 558 78 1,291
Change in unrealized appreciation
(depreciation) of investments(2)...... (286) (649) 758 1,929 2,676
Net increase in net assets
resulting from operations(3).......... $ (228) $ 3,041 $ 5,196 $ 12,533 $ 15,682
Net increase in net assets
resulting from operations per share(3) $ (0.20) $ 2.61 $ 0.87 $ 1.02 $ 1.11
Dividends declared per share........... $ -- $ -- $ 0.45 $ 1.03 $ 1.22
======== ========= ========= ========= =========
<CAPTION>
BALANCE SHEET DATA..................... 1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Investments
Medallion Loans...................... $ -- $ -- $ 134,615 $ 225,961 $ 266,062
Commercial Installment Loans......... 12,065 15,331 60,115 79,803 106,423
Equity Investments................... 5,161 1,045 2,374 7,490 11,579
Investments, net of unrealized
depreciation of investments........... 17,226 16,376 197,104 313,254 384,064
Total assets........................... 18,565 21,237 215,277 339,894 422,225
Notes payable and demand notes......... -- -- 96,450 137,750 115,600
Commercial paper....................... -- -- -- -- 103,082
Subordinated SBA debentures............ 2,864 2,408 38,806 39,770 41,590
Total liabilities...................... 2,971 2,881 140,205 189,363 272,938
Negative goodwill...................... -- -- 258 1,795 1,072
Preferred Stock........................ 3,150 3,330 -- -- --
Total stockholders' equity............. 12,444 15,026 72,554 148,736 148,215
<CAPTION>
SELECTED FINANCIAL RATIOS AND OTHER DATA 1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Return on assets(4).................... -0.89% 15.28% 4.39% 4.51% 4.12%
Return on equity(5).................... -1.83% 20.24% 7.16% 8.43% 10.58%
Average yield, e.o.p.(6)............... 13.47% 8.82% 10.98% 10.20% 9.74%
Average cost of funds, e.o.p.(7)....... 2.79% 3.79% 7.15% 7.15% 6.42%
Spread, e.o.p.(8)...................... 10.68% 5.03% 3.83% 3.05% 3.32%
Other income ratio (9)................. 0.00% 0.00% 0.21% 0.31% 0.38%
Operating expense ratio (10)........... 3.44% 2.86% 1.41% 1.81% 3.12%
Medallion Loans as a percentage of
investments........................... 0.00% 0.00% 68.30% 72.13% 69.28%
Commercial Installment Loans as a
percentage of investments............. 70.04% 93.62% 30.52% 25.48% 27.71%
Equity investments as a
percentage of investments............. 29.96% 6.38% 1.20% 2.39% 3.01%
Investments to assets.................. 92.79% 77.11% 91.56% 92.16% 90.96%
Equity to assets....................... 67.03% 70.75% 33.70% 43.76% 35.10%
Debt to equity......................... 23.01% 16.03% 186.42% 119.35% 175.60%
SBA debt to total debt................. 100.00% 100% 28.69% 22.40% 15.98%
</TABLE>
23
<PAGE>
MEDIA (1)
<TABLE>
<CAPTION>
May 30 to Year Ended Year Ended
December 31, December 31, December 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Advertising revenue.................. $ 1,095,346 $ 3,070,119 $ 7,526,569
Cost of services..................... 499,135 1,204,892 2,381,064
----------- ----------- -----------
Gross margin......................... 596,211 1,865,227 5,145,505
Other operating expenses............. 659,211 1,499,803 3,195,116
----------- ----------- -----------
Income (losses) before taxes......... (63,000) 365,424 1,950,389
Income taxes......................... -- 162,000 750,000
----------- ----------- -----------
Net income (loss).................... $ (63,000) $ 203,424 $ 1,200,389
=========== =========== ===========
</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 indicated, divided by average total assets.
(5) Return on equity represents net increase in net assets resulting from
operations, for the year indicated, divided by total stockholders' equity.
(6) Average yield, e.o.p. represents the end of year weighted average interest
rate on investments at the date indicated.
(7) Average cost of funds, e.o.p. represents the end of year weighted average
interest rate on debt at the date indicated.
(8) Spread, e.o.p. represents average yield, e.o.p. less average cost of funds,
e.o.p.
(9) Other income ratio represents other income, for the year indicated, divided
by investments.
(10) Operating expense ratio represents operating expenses, for the year
indicated, divided by total assets.
24
<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,
1994 1995 1996
---- ---- ----
(dollars in thousands)
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C>
Investment income........................................ $ 8,820 $ 9,803 $4,423
Interest expense......................................... 4,756 6,034 2,517
-------- ------- -------
Net interest income...................................... 4,064 3,769 1,906
Equity in earnings (losses) of
unconsolidated subsidiary(1)............................. 18 126 (53)
Other income............................................. 519 446 148
Total non-interest expense............................... 2,700 2,615 1,816
Dividends paid on minority interest...................... 277 208 --
-------- ------- -------
Net investment income.................................... 1,624 1,518 185
Realized gain (loss) on investments, net................. (22) 61 --
Change in unrealized depreciation of
investments(2)........................................... 58 (140) --
-------- ------- -------
Net increase in net assets resulting from
operations............................................... $ 1,660 $ 1,439 $185
======== ======= =======
<CAPTION>
SELECTED FINANCIAL RATIOS AND OTHER DATA(3)
<S> <C> <C> <C>
Return on average assets(4)(5)........................... 1.88% 1.50% 1.86%
Return on average equity(5)(6)........................... 15.29 12.97 16.93
Interest rate spread
Average yield(5)(7)...................................... 10.20 10.61 11.00
Average cost of funds(5)(8).............................. 7.00 8.26 7.56
Spread(9)................................................ 3.20 2.35 3.44
Other income to average assets(5)........................ 0.59 0.47 0.36
Non-interest expense to average
assets(5)(10)............................................ 3.05 2.73 2.98
Weighted average assets.................................. 88,414 96,189 99,197
Weighted average investments(11)......................... 86,496 92,433 96,479
Weighted average equity.................................. 10,855 11,094 10,897
Weighted average debt.................................... 67,955 73,063 79,912
<CAPTION>
December 31,(3)
------------------------------- May 29,
1994 1995 1996(3)
---- ---- ------
<S> <C> <C> <C>
Medallion Loans as a percentage of investments........... 72.4% 68.4% 67.9%
Commercial Installment Loans as a percentage of
investments.............................................. 27.6 31.6 32.1
Investments to assets.................................... 96.7 96.3 97.0
Equity to assets......................................... 11.8 17.4 16.7
Debt to equity(12)....................................... 356 464 482
SBA debt to total debt................................... 17.5 -- --
</TABLE>
25
<PAGE>
TRI-MAGNA
<TABLE>
<CAPTION>
December 31, May 29,
1994 1995 1996
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA
Investments
Medallion Loans.......................................... $65,424 $66,338 $64,934
Commercial Installment Loans............................. 24,918 30,619 31,598
Unrealized depreciation of investments.................... (770) (910) (910)
------- ------- -------
Investments, net of unrealized depreciation of
investments.............................................. 89,572 96,047 95,622
Total assets.............................................. 92,590 99,788 98,605
Notes payable............................................. 59,025 80,295 79,395
Subordinated SBA debentures............................... 12,500 - -
Total liabilities......................................... 72,480 82,474 82,116
Minority interest......................................... 9,234 - -
Total stockholders' equity................................ 10,876 17,314 16,489
<CAPTION>
MEDIA(1)
NOVEMBER 22 TO YEAR ENDED JANUARY 1 TO
DECEMBER 31, DECEMBER 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.
26
<PAGE>
EDWARDS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1
DECEMBER 31, TO
------------ MAY 29,
1994 1995 1996
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Investment income................................ $ 4,334 $ 4,317 $ 1,727
Interest expense................................. 2,765 2,748 1,098
------- ------- -------
Net interest income.............................. 1,569 1,569 629
Other income..................................... 620 443 129
Total non-interest expense....................... 1,108 885 660
Income tax expense............................... 21 40 16
------- ------- -------
Net investment income............................ 1,060 1,087 82
Realized gain (loss) on investments, net......... -- -- --
------- ------- -------
Net increase in net assets resulting from
operations before extraordinary items........... 1,060 1,087 82
Extraordinary items(1)........................... (526) - -
------- ------- -------
Net increase in net assets resulting
from operations................................. $ 534 $ 1,087 $ 82
======= ======= =======
SELECTED FINANCIAL RATIOS AND OTHER DATA(2)
Return on average assets(3)(4)................... 2.35% 2.42% 2.28%
Return on average partners' capital(4)(5)........ 11.69 12.29 11.38
Interest rate spread
Average yield(4)(6).......................... 10.06 9.92 9.40
Average cost of funds(4)(7).................. 7.97 7.96 7.54
Spread(8).................................... 2.09 1.96 1.86
Other income to average assets(4)................ 1.38 0.99 0.68
Non-interest expense to average assets(4)(9)..... 2.46 1.98 1.63
Weighted average assets.......................... $45,025 $44,829 $45,543
Weighted average investments(10)................. 43,074 43,508 44,103
Weighted average partners' capital............... 9,064 8,846 9,112
Weighted average debt............................ 34,690 34,535 34,947
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, (2)
---------------- MAY 29,
1994 1995 1996 (2)
---- ---- --------
<S> <C> <C> <C>
Medallion Loans as a percentage of investments...... 98.3% 98.6% 98.7%
Commercial Installment Loans as a percentage
of investments..................................... 1.7 1.4 1.3
Investments to assets............................... 97.5 97.1 96.7
Partners' capital to assets......................... 19.2 20.2 19.8
Debt to partners' capital(11)....................... 408 382 385
SBA debt to total debt.............................. 71.4 71.7 71.2
</TABLE>
27
<PAGE>
EDWARDS
<TABLE>
<CAPTION>
JANUARY 1
TO
DECEMBER 31, MAY 29,
------------ -------
1994 1995 1996
(dollars in thousands)
BALANCE SHEET DATA
<S> <C> <C> <C>
Investments
Medallion Loans................................... $42,740 $43,177 $43,921
Commercial Installment Loans...................... 747 622 589
Unrealized depreciation of investments.............. (20) (20) (20)
------- ------- -------
Investments, net of unrealized depreciation
of investments..................................... 43,467 43,779 44,490
Total assets........................................ 44,574 45,084 46,001
Notes payable and demand notes...................... 10,000 9,850 10,100
Subordinated SBA debentures......................... 24,950 24,950 24,950
Total liabilities................................... 35,998 35,967 36,894
Total partners' capital............................. 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 sale of assets) divided by the weighted average
partners' capital for the period.
(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.
28
<PAGE>
TCC
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED TO
DECEMBER 31, MAY 29,
------------ -------
1994 1995 1996
---- ---- ----
(dollars in thousands)
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C>
Investment income..................................... $ 2,217 $ 1,836 $ 682
Interest expense...................................... 709 450 148
------- ------- -------
Net interest income................................... 1,508 1,386 534
Total non-interest expense............................ 711 760 260
Income tax expense (benefit)(1)....................... 653 381 128
------- ------- -------
Net investment income, adjusted for taxes(2).......... 144 245 146
Realized gain (loss) on investments................... (144) (50) 5
Change in unrealized depreciation of
investments(3)....................................... 790 335 30
------- ------- -------
Net increase (decrease) in net assets resulting
from operations...................................... $ 790 $ 530 $181
======= ======= =======
SELECTED FINANCIAL RATIOS AND
OTHER DATA(4)
Return on average assets(5)(6)......................... 3.90% 2.91% 2.56%
Return on average common equity(6)(7).................. 11.22 6.74 5.23
Interest rate spread
Average yield(6)(8).................................. 13.86 13.58 12.95
Average cost of funds(6)(9).......................... 7.60 6.14 5.58
Spread(10)........................................... 6.26 7.44 7.37
Non-interest expense to average assets(6).............. 3.51 4.18 3.67
Weighted average assets................................ $20,260 $18,183 $16,983
Weighted average investments(11)....................... 14,442 10,389 9,745
Weighted average common equity......................... 7,042 7,859 8,312
Weighted average debt.................................. 9,330 7,330 6,368
<CAPTION>
DECEMBER 31,(4)
--------------- MAY 29,
1994 1995 1996(4)
---- ---- -------
<S> <C> <C> <C>
Medallion Loans as a percentage of investments...... 80.1% 81.5% 76.0%
Commercial Installment Loans as a percentage
of investments..................................... 19.9 18.5 24.0
Loans to assets..................................... 52.8 52.6 56.3
Equity to assets.................................... 57.1 60.2 63.7
Debt to equity(12).................................. 73 64 53
SBA debt to total debt.............................. 100.0 100.0 100.0
</TABLE>
29
<PAGE>
TCC
<TABLE>
<CAPTION>
DECEMBER 31,
------------ MAY 29,
1994 1995 1996
---- ---- ----
(dollars in thousands)
BALANCE SHEET DATA
Investments
<S> <C> <C> <C>
Medallion Loans................................. $ 8,796 $ 7,988 $ 7,543
Commercial Installment Loans.................... 2,185 1,808 2,381
Unrealized depreciation of investments............... (978) (642) (612)
------- ------- -------
Investments, net of unrealized depreciation of
investments........................................ 10,003 9,154 9,312
Cash and cash equivalents............................ 8,199 7,781 6,797
Total assets......................................... 18,951 17,416 16,551
Notes payable and demand notes....................... -- -- --
SBA debentures....................................... 7,930 6,730 5,640
Total liabilities.................................... 8,129 6,937 6,008
Total stockholders' equity........................... 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.
30
<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. All amounts have been restated to include the
historical amounts of Medallion Capital, Inc. (formerly Capital Dimensions,
Inc.)
General
The Company operates a specialty finance company whose principal activity is
the origination and servicing of commercial secured loans. Primarily secured by
taxicab medallions ("Medallion Loans") and loans to small businesses secured by
equipment and other suitable collateral ("Commercial Installment Loans"). As an
adjunct to its finance business, the Company also operates a taxicab rooftop
advertising business. 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 secured credit facilities with bank syndicates, secured
commercial paper and debentures issued to or guaranteed by the SBA. Net interest
income is a function of the net interest rate spread, which is the difference
between the average yield earned on interest-earning assets and the average
interest rate paid on interest-bearing liabilities, as well as the average
balance of interest-earning assets as compared to interest-bearing liabilities.
Net interest income is affected by economic, regulatory and competitive factors
that influence interest rates, loan demand and the availability of funding to
finance the Company's lending activities. The Company, like other financial
institutions, is subject to interest rate risk to the degree that its
interest-earning assets reprice on a different basis than its interest-bearing
liabilities. The income from the taxicab rooftop advertising business are
reflected as earnings from unconsolidated subsidiary.
In addition, through its subsidiary Medallion Capital, the Company invests
in small businesses in selected industries. Medallion Capital's investments are
typically in the form of secured debt instruments with fixed interest rates
accompanied by warrants to purchase an equity interest for a nominal exercise
price (such warrants constituting "Equity Investments"). Interest income is
earned on the debt investments. Realized gains (losses) on investments are
recognized when investments are sold and represent the difference between the
proceeds received from the disposition of portfolio assets and the cost of such
portfolio assets. In addition, changes in unrealized appreciation (depreciation)
of investments is recorded and represents the net change in the estimated fair
values of the portfolio assets at the end of the period as compared with their
estimated fair values at the beginning of the period or the cost of such
portfolio assets, if purchased during the period. Generally, "realized gains
(losses) on investments" and "changes in unrealized appreciation (depreciation)
of investments" are inversely related. When an appreciated asset is sold to
realize a gain, a decrease in the previously recorded unrealized appreciation
occurs. Conversely, when a loss previously recorded as an unrealized loss is
realized by the sale or other disposition of a depreciated portfolio asset, the
reclassification of the loss from "unrealized" to "realized" causes an increase
in net unrealized appreciation and an increase in realized loss.
Trend in Loan Portfolio Yield - The Company's investment income is driven by
the principal amount of and yields on its portfolio. To identify trends in the
yields, the portfolio is grouped by Medallion Loans, Commercial Installment
Loans and Equity Investments. The following table illustrates the Company's
investments at fair value and the weighted average portfolio yields at the dates
indicated:
31
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
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 9.27% $225,961,249 72.1% 9.03% $266,061,808 69.3%
Commercial Installment Loan Portfolio 12.74% 79,803,197 25.5% 11.48% 106,422,835 27.7%
Equity Investments - 7,490,000 2.4% - 11,579,329 3.0%
----- ----------- ----- ----- ----------- -----
Total Portfolio 10.20% $313,254,446 100.0% 9.74% $384,063,972 100.0%
===== =========== ===== ===== =========== =====
</TABLE>
The weighted average yield e.o.p.(/1/) of the Medallion Loan portfolio at
December 31, 1998 was 9.03%, a decrease of 24 basis points from 9.27% at
December 31, 1997. Medallion Loans constituted 69.0% of the total portfolio of
$384.1 million at December 31, 1998 as compared to 72.1% of the total portfolio
of $313.3 million 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. 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 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. As a result of this decline in the Medallion Loan
portfolio yield, the weighted average yield e.o.p. of the entire portfolio
decreased 46 basis points to 9.74% at December 31, 1998 from 10.20% at December
31, 1997.
The Company had been shifting the portfolio mix toward a higher percentage
of Commercial Installment Loans, which historically have had a yield of
approximately 300 basis points higher than the Company's Medallion Loans and 250
to 600 basis points higher than the Prime Rate. The weighted average yield
e.o.p. of the Commercial Installment Loan portfolio decreased 126 basis points
to 11.48% at December 31, 1998 from 12.74% at December 31, 1997. Although the
percentage of the entire portfolio composed of Commercial Installment Loans
increased to 28.0% at December 31, 1998 from 25.5% at December 31, 1997, the
yield has decreased due to a drop in prime rate and the increase in the number
of loans tied to prime rate. The Company expects to try to increase both the
percentage of Commercial Installment Loans in the total portfolio and the number
of floating and adjustable rate loan originations.
Equity Investments represented 3.0% and 2.4% of the Company's entire
portfolio at December 31, 1998 and December 31, 1997, respectively.
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, secured commercial paper and, to a lesser degree,
fixed-rate, long-term 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 has offered
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 limit its use of SBA funding and will seek such funding only
when advantageous, such as when SBA financing rates are particularly attractive,
and to fund loans that qualify under the Small Business Investment Act of 1958,
as amended (the "SBIA") and SBA Regulations through subsidiaries subject to SBA
restrictions. The Company believes that its transition to financing operations
primarily with short-term LIBOR-based secured bank debt and secured commercial
paper has generally decreased its interest expense thus far. However, this 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 as
the Company issues more commercial paper in lieu of bank debt causing the spread
between yield and cost of funds to increase. At the present time commercial
paper is generally priced at approximately 40-50 basis
_______________
(/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.
32
<PAGE>
points below the rate charged under the Company's revolving credit facilities.
The commercial paper program has helped to lower cost of funds and will enable
the company to increase its funds available to originate new loans thus
increasing the size of the loan portfolio. At December 31, 1998 and December 31,
1997, short-term LIBOR-based debt including commercial paper constituted 84.0%
and 77.6% of total debt, respectively. The Company began issuing commercial
paper on March 16, 1998.
The Company's cost of funds is primarily driven by (i) the average maturity
of debt issued by the Company, (ii) the premium over LIBOR paid by the Company
on its LIBOR-based debt and secured commercial paper, and (iii) the ratio of
LIBOR-based debt to SBA financing. The Company incurs LIBOR-based debt for terms
generally ranging from 1-180 days. The Company's debentures issued to or
guaranteed by the SBA typically have initial terms of ten years. The Company's
cost of funds reflect fluctuations in LIBOR to a greater degree than in the past
because LIBOR-based debt has come to represent a greater proportion of the
Company's debt. The Company measures its cost of funds as its aggregate interest
expense for all of its interest-bearing liabilities divided by the face amount
of such liabilities. The Company analyzes its cost of funds in relation to the
average of the 90- and 180-day LIBOR (the "LIBOR Benchmark"). The Company's
average cost of funds e.o.p. at December 31, 1998 was 6.42% or 121 basis points
over the LIBOR Benchmark of 5.21% compared to 7.15%, or 132 basis points over
the LIBOR Benchmark of 5.83% at December 31, 1997.
Taxicab Rooftop Advertising. In addition to its 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 taxicab rooftop advertising displays ("Displays") that it owns and the
occupancy rate and advertising rate of those Displays. At December 31, 1998,
Media had approximately 5,200 installed Displays. The Company expects that Media
will continue to expand its operations by entering new markets on its own or
through acquisition of existing taxicab rooftop advertising companies. Although
Media is a wholly-owned subsidiary of the Company, its results of operations are
not consolidated with the Company because the Securities and Exchange Commission
regulations prohibit the consolidation of non-investment companies with
investment companies.
Currently, approximately 58.7% of Media's taxicab rooftop advertising
revenue is derived from tobacco products advertising. Under the Master
Settlement Agreement between tobacco manufacturers and the Attorney General of
various states (including those states in which the Company conducts its outdoor
advertising business), the tobacco manufacturers agreed to eliminate general
outdoor and transit advertising of tobacco products by March 31, 1999. The loss
of such advertising may have an adverse effect upon the taxicab rooftop
advertising business of the Company. The Company believes, however, that it can
replace some of the revenue which is expected to be lost due to the elimination
of tobacco taxicab rooftop advertising.
Factors Affecting Net Assets. Factors which affect the Company's net assets
include net realized gain/loss on investments and change in net unrealized
appreciation/depreciation of investments. Net realized gain/loss on investments
is the difference between the proceeds derived upon sale or foreclosure of a
loan and the cost basis of such loan or equity investment. Change in net
unrealized appreciation/depreciation of investments is the amount, if any, by
which the Company's estimate of the fair market value of its investment
portfolio is above/below the previously established fair value or the cost basis
of the portfolio. Under the 1940 Act and the SBIA, the Company's loan portfolio
and other investments 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 and its Board of Directors takes into
consideration factors such as the financial condition of its borrowers, the
adequacy of its collateral and the relationships between current and projected
market rates of interest and portfolio rates of interest and maturities. Any
change in the fair value of portfolio loans or other investments as determined
by the Company is reflected in net unrealized depreciation or appreciation of
investments and affects net increase in net assets resulting from operations but
has no impact on net investment income or distributable income. Therefore, if
recent decreases in prevailing interest rates lead to a trend of lower interest
rates, net increase in net assets resulting from operations could increase. Upon
the completion of the Acquisitions on May 29, 1996, the Company's loan portfolio
was recorded on the balance sheet at fair market value, which included $1.5
million of net unrealized depreciation, as estimated by the Company in
accordance with the 1940 Act and the purchase method of accounting. In
connection with the VGI, VGII and Venture Opportunities portfolio acquisition,
the Company recorded the investments on the balance sheet at fair value, which
included $200,000 of net unrealized depreciation.
33
<PAGE>
Recent Commencement of Operations. Medallion Financial commenced operations
in connection with the simultaneous closing of its initial public offering and
the Acquisitions on May 29, 1996. Prior to that date, Medallion Financial had no
results of operations and each of Medallion Financial, Tri-Magna, Edwards and
TCC had been operating independently of each other. The acquisition of CDI, now
Medallion Capital, was accounted for as a pooling-of-interests and as such
requires that its operating results and its assets and liabilities be combined
with those of Medallion Financial since the inception of CDI. Therefore, the
predecessor company to the Acquisitions is a combination of Medallion Financial
with no activity and CDI. The results for the year ended December 31, 1996
reflect 12 months of operating results for CDI and only the seven months of
operating results from the period commencing May 30, 1996 and ending December
31, 1996 for Medallion Financial. The 1997 and 1998 financial statements have
been restated to include 12 months of operations for CDI. Further, the operating
results of BLL are included in the 1997 financial statements beginning October
31, 1997, the date the company was acquired. 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 (post pooling-
of-interests with CDI) for the years ending December 31, 1998, 1997 and 1996.
Consolidated Results Of Operations
For the Years Ended December 31, 1998 and 1997.
Performance Summary. For the year ended December 31, 1998, net increase in
net assets resulting from operations has been positively impacted by the growth
of the Loan Portfolio and an increase in realized gains from the sale of common
and preferred stock warrants, offset by an increase in operating expenses and
the one time charge for merger related expenses.
Investment Income. Investment income increased $9.3 million or 36.0% in 1998
over 1997. The Company's investment income reflects the positive impact of
portfolio growth during the year. Total portfolio growth was $70.8 million or
22.6% from $313.3 million at December 31, 1997 to $384.1 million at December 31,
1998. The average portfolio outstanding in 1998 was $348.7 million which
generated $35.0 million of investment income at a weighted average of 10.27% as
compared to $255.2 million average portfolio outstanding in 1997 which generated
$25.8 million of investment income at a weighted average interest rate of
10.25%.
Loan originations net of participations increased by $27.4 million or 12.6%
to $244.5 million in 1998 compared to $217.1 million in 1997. Not included in
originations for 1998 are purchases of $16.7 million of loans acquired as a
result of acquisition of VGI, VGII and Venture Opportunities Corp. The
originations were offset by prepayments, terminations and refinancings by the
Company aggregating $194.4 million in 1998 compared to $112.8 in 1997.
The weighted average yield e.o.p. of the entire portfolio decreased 46 basis
points to 9.74% at December 31, 1998 from 10.20% 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, and Commercial Installment Loans as well
as 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 300 basis points higher than Medallion Loans and 250 to 600
basis points higher than the prevailing Prime Rate. The average yield e.o.p. of
the Medallion Loan portfolio decreased 24 basis points to 9.03% at December 31,
1998. 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.
At December 31, 1998 the average yield of the Commercial Installment Loan
portfolio decreased 126 basis points to 11.48%. The decline in the commercial
portfolio yield is due in part to the drop in prime rate as the quantity of
floating rate loans tied to prime has increased as a percentage of the
Commercial portfolio. Thus, shifting the average yield on commercial loans
34
<PAGE>
lower. In addition, the current interest rate environment is such that the
Company has increased the origination of loans with shorter interest rate
maturity dates, which are issued at a lower interest rate further contributing
to the decline in the portfolio yield. However, the shorter maturity dates
further reduces the Company's interest rate risk exposure. The decrease in
average yield e.o.p. of the entire loan portfolio was offset in part by the
growth in the Medallion loan portfolio during the period.
Interest Expense. The Company's 1998 interest expense was $15.6 million, an
increase of $5.5 million or 54.6% from 1997. The Company's average cost of funds
e.o.p. decreased 73 basis points to 6.42% or 121 basis points over the LIBOR
benchmark of 5.21% at December 31, 1998 from 7.15% or 132 basis points over the
LIBOR benchmark of 5.83% at December 31, 1997. The decrease in the average cost
of funds e.o.p. was caused by a reduction in the premium to LIBOR paid by the
Company combined with a 62 basis point decrease in the LIBOR benchmark. Also
contributing to the decrease in cost of funds e.o.p. was the Company's issuance
of commercial paper, which at the present time is generally priced approximately
40-50 basis points less than the Company's revolving credit facilities. Average
total borrowings increased $81.1 million or 58.7% to $218.9 million in 1998
which produced an interest expense of $15.6 million at a weighted average
interest rate of 7.13% compared to $137.8 million 1997 which produced an
interest expense of $10.1 million at a weighted average interest rate of 7.33%.
The weighted average interest rates including commitment fees and amortization
of premiums on existing interest rate cap agreements as a reflection of total
cost of funds borrowed. The percentage of the Company's short-term LIBOR based
secured indebtedness including secured commercial paper increased as a
percentage of total indebtedness to 84.0% at December 31, 1998 from 77.6% at
December 31, 1997.
Net Interest Income. Net interest income increased $3.8 million or 24.1% to
$19.5 million in 1998. Net interest income reflects the positive impact of the
portfolio growth during the year. The average spread between the average yield
on the portfolio and the average cost of funds increased 27 basis points or 8.9%
to 3.32% in 1998 from 3.05% in 1997.
Equity in Earnings of Unconsolidated Subsidiary. Advertising revenue
increased $4.4 million or 141.9% to $7.5 million in 1998 up from $3.1 million in
1997. Display rental costs increased $1.2 million or 100.0% to $2.4 million from
$1.2 million. This resulted in a gross margin in 1998 of approximately $5.1
million or 68.36% of advertising revenue compared to $1.9 million or 60.8% in
1997. The significant increase in advertising revenue and display rental cost is
directly related to the increase in the number of Displays owned by Media. The
number of Displays owned by Media increased 1,700 or 48.6% to approximately
5,200 at December 31, 1998. Operating costs increased $1.7 million or 113.0% in
1998. The increase in operating costs is a reflection of the expansion of the
Media operations. Income tax expense in 1998 amounted to $750,000. Media
generated net income of $1.2 million in 1998 compared to $203,000 in 1997. The
increase in net income is primarily the result of increases in the number of
Displays owned, improved margin and higher occupancy rates. Average display
occupancy was 100% during the year up from 84.6% during 1997. Net income is
recorded as equity in earnings or losses of unconsolidated subsidiary on the
Company's statement of operations.
Gain on sale of loans. The Company experienced a gain on the sale of the
guaranteed portion of SBA 7(a) loans in the amount of $2.3 million on loans sold
during the year. The Company accounts for gains on sale of loans in accordance
with SFAS 125 (Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities). Based upon industry data and limited experience
with this portfolio, the Company has assumed a 15% prepayment speed in
calculating the gains on sale of loans and excess servicing assets. Management
will continue to review industry data as well as its experience with the
portfolio and will adjust discount rates and prepayment speeds, if deemed
appropriate.
Other Income. The Company's other income increased $478,000 or 48.8% to
$1.5 million in 1998. Other income was primarily derived from late charges,
prepayment fees and miscellaneous income. Prepayment fees are heavily influenced
by the level and volatility of interest rates and competition.
Non-Interest Expenses. The Company's non-interest expenses increased $7.1
million or 109.3% to $13.7 million in 1998. Included in non-interest expenses
for 1998 are $1.5 million of expenses related to the merger with Medallion
Capital. Exclusive of these expenses, non-interest expenses increased $5.6
million or 86.5% to $12.2 million in 1998
35
<PAGE>
as compared to $6.5 million in 1997. Other operating expenses were $4.8 million
an increase of $2.2 million or 85.2% from 1997. Salaries and benefits increased
$3.1 million or 123.7% to $5.6 million in 1998. Professional fees were $963,000
in 1998, an increase of $136,000 or 16.4% from 1997. Administrative and advisory
fees in 1998 were $278,000 up from $226,000 in 1997. The operating expense ratio
increased to 3.2% for 1998 from 1.9% for 1997. The operating expense ratio is
computed as non-interest expenses divided by total assets. The significant
increase in other operating expenses and salary expense is principally the
result of the acquisition of certain assets and operations of Business Lenders
LLC, which added 50 full time employees and the related overhead of seven
satellite offices principally located in the eastern part of the country, to the
Company's non-interest expense. The additional staff and lending offices should
continue to provide additional loan growth for the Company.
Amortization of Goodwill and Accretion of Negative Goodwill. The
amortization of goodwill was $506,000 in 1998 up from $368,000 from 1997, and
relates to $6.6 million of goodwill generated in the acquisitions of Edwards and
TCC. The increase in amortization of goodwill is primarily related to the
purchases of assets of VGI, VGII and Venture Opportunities Corp. The goodwill
resulting from these acquisitions amounted to $1.2 million. The acquisition of
Business Lenders LLC resulted in the addition of $66,000 of goodwill. 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 Investment Income. Net investment income was $11.6 million in 1998.
Exclusive of the merger related expenses of $1.5 million, net investment income
was $13.1 million an increase of $1.6 million or 13.9% from $11.5 million in
1997. The increase was attributable to the positive impact of portfolio growth
coupled with an increase in the spread between average yield on the portfolio
and the average cost of funds..
Change in Net Unrealized Depreciation/Appreciation. The change in net
unrealized appreciation in 1998 and 1997 was $2.7 million and $1.9 million,
respectively. The change was the result of the increase in the value of equity
investments that the Company owns.
Net Realized Gain/Loss on Investments. The Company had an increase in
realized net gain on investments of $1.2 million from $0.1 million in 1997 to
$1.3 million in 1998. The increase in realized gains was the result of the sale
of common and preferred stock warrants in connection with the repayment of
several loans.
Net Increase in Net Assets Resulting from Operations. Net increase in net
assets resulting from operations was $15.7 million in 1998 an increase of $3.2
million or 25.6% over the $12.5 million earned in 1997. Exclusive of the merger
related expenses of $1.5 million, net investment income increased $1.6 million
or 14% to $13.1 million in 1998. The increase was attributable to the positive
impact of portfolio growth, an increase in realized gains offset by an increase
in operating expenses. Return on assets and return on equity for the year ended
December 31, 1998, were 4.1% and 10.6%, respectively, compared to 4.5% and 8.4%
for the year ended December 31, 1997.
Consolidated Results Of Operations
For the Years Ending December 31, 1997 and 1996.
Performance Summary. For the year ended December 31, 1997, investment income
had 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 $11.5
million of net investment income, before income taxes, earned during 1997 as
compared to $4.3 million in 1996.
Trend in Loan Portfolio Yield. The Company's investment income is driven by
the principal amount of and yields on its portfolio. To identify trends in the
yields, the portfolio is grouped by Medallion Loans, Commercial
36
<PAGE>
Installment Loans and Equity. 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 68.3% 9.27% $225,961,249 72.1%
Commercial Installment Loan Portfolio 13.36% 60,114,376 30.5% 12.74% 79,803,197 25.5%
Equity Investments - 2,374,362 1.2% - 7,490,000 2.4%
------ ------------ ------ ------ ------------ ------
Total Portfolio 10.98% $197,103,637 100.00% 10.20% $313,254,446 100.0%
====== ============ ====== ====== ============ ======
</TABLE>
Investment Income. Investment income in 1997 was $25.8 million and $12.3 in
1996. The Company's investment income reflects the positive impact of portfolio
growth during the period. Total portfolio growth was $116.2 million or an
increase of 58.9% to $313.3 at December 31, 1997 from $197.1 million at December
31, 1996. The average portfolio outstanding during the year ended December 31,
1997 was $255.2 million, which produced investment income of $25.8 million at a
weighted average interest rate of 10.25%. Gross loan originations net of
participations during 1997 were $217.1 million offset by prepayments,
terminations and refinancings by the Company aggregating $112.8 million compared
to $77.2 million and $47.2 million in 1996. In addition, during 1997, the
Company repurchased approximately $22.5 million in Medallion Loans previously
participated out to other lenders.
Weighted average yield e.o.p. of the entire portfolio decreased 78 basis
points to 10.20% at December 31, 1997 from 10.98% at December 31, 1996. 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. As of
December 31, 1997, Commercial Loans had historically 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 65 basis points to 9.27% at December 31,
1997 from 9.92% at December 31, 1996. Further, the average yield of the
Commercial Installment Loan portfolio decreased 62 basis points to 12.74% at
December 31, 1997 from 13.36% 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. Although the Company's strategy was to try to shift its
portfolio mix towards higher yielding Commercial Installment Loans, this shift
was stalled 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 loans 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 $10.1 million in 1997
compared to $5.3 million in 1996. The Company's average cost of funds e.o.p. was
7.15% or 132 basis points over the LIBOR benchmark of 5.83% at December 31, 1997
compared to 7.15% or 157 basis points over the LIBOR benchmark of 5.58% at
December 31, 1996. The 25 basis point increase in the LIBOR benchmark was offset
by a reduction in the premium to LIBOR paid by the Company keeping the average
cost of funds e.o.p. flat at 7.15%,. The Company's net borrowings at the end of
the year, increased by $42.2 million or 31.2% to $177.5 million at December 31,
1997 from $135.3 million at December 31, 1996. The increased borrowings were
used to fund portfolio growth and the acquisition of BLL. The percentage of the
Company's short-term LIBOR based indebtedness increased as a percentage of total
indebtedness
37
<PAGE>
from 71.3% at December 31, 1996 to 77.6% at December 31, 1997. Average
borrowings during 1997 were $137.8 million, which produced an interest expense
of $10.1 million at a weighted average interest rate of 7.33%. The weighted
average interest rate of 7.33% includes commitment fees and amortization of
premiums on existing interest rate cap agreements as a reflection of total cost
of funds borrowed.
Net Interest Income. Net interest income was $15.8 million in 1997 and $7.0
million in 1996. 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 1997 was 3.05%.
Equity in Earnings of Unconsolidated Subsidiary. For the year ended
December 31, 1997, Media generated advertising revenue of $3.1 million up from
$1.1 million in the same period in 1996. Display rental costs of approximately
$1.2 million resulted in a gross margin of approximately $1.9 or 60.7% of
advertising revenue in 1997 compared to $600,000 or 54.4% of advertising revenue
in 1996. The number of Displays owned by Media were approximately 3,500 at
December 31, 1997. Operating expenses in 1997 and 1996 were $1.5 million and
$659,000, respectively. Media generated net income of $203,000 in 1997 compared
to a $63,000 net loss in 1996. Net income 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 in 1997 up from
$411,000 in 1996. 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 in 1997. There were none in 1996. 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 BLL since its acquisition on October 31, 1997. BLL 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, BLL
serviced approximately $52.5 million for third parties.
Non-Interest Expenses. The Company had non-interest expenses of $6.5
million in 1997 and $3.3 million in 1996. Approximately $2.5 million of
non-interest expenses were related to salaries and benefits compared to $1.4
million in 1996. In 1997 and 1996, professional fees were $827,000 and $481,000
and other operating expenses were $2.6 million and $1.0 million, respectively.
The operating expense ratio was 1.92% for the year ended December 31, 1997.
Amortization of Goodwill and Accretion of Negative Goodwill. The
amortization of goodwill of in 1997 relates to $6.6 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 Investment Income. Net investment income earned during 1997 and 1996
was $11.5 million and $4.3 million, respectively. The increase reflects 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.
Change in Net Unrealized Depreciation/Appreciation. The change in net
unrealized appreciation in 1997 and 1996 was $1.9 million and $758,000,
respectively. The change was the result of the increase in the value of equity
investments that the Company owns.
Net Realized Gain/Loss on Investments. The Company realized a net gain on
investments of $78,000 during the year ended December 31, 1997. The gain was the
result of the sale of common and preferred stock warrants in
38
<PAGE>
connection with the repayment of several loans and recoveries 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 Increase in Net Assets Resulting from Operations. The 1997 net increase
in net assets resulting from operations was $12.5 million compared to $5.2
million in 1996 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 were 4.5% and 8.4%, respectively,
compared to 4.4% and 7.2% for the year ended December 31, 1996.
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 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.
SCHEDULE OF PRINCIPAL PAYMENTS AS OF DECEMBER 31, 1998
The following schedule of principal payments sets forth at December 31, 1998
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 $378.5 million and
interest rate sensitive liabilities were $260.3 million at December 31, 1998.
The one year cumulative interest rate gap was negative $115.6 million, or 30.4%
of interest rate sensitive assets.
<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
------ ------- ------- ------- ------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets
Medallion Loans
and Commercial
Fixed rate
Installment Loans $ 58,653 $ 49,385 $ 67,033 $140,116 $ 7,510 $11,212 $333,909
Variable rate
Installment Loans 38,433 - - - - - 38,433
Cash and cash
equivalents 6,028 -- -- -- -- -- 6,028
-------- ------- ------- -------- ------ ------- --------
Total 103,114 49,385 67,033 140,116 7,510 11,212 378,370
-------- ------- ------- -------- ------ ------- --------
Liabilities
Revolving line of
Credit 115,600 -- -- -- -- -- 115,600
Commercial paper 103,082 -- -- -- -- -- 103,082
SBA
debentures - 1,150 -- 17,140 10,600 12,700 41,590
-------- ------- ------- -------- ------ ------- --------
Total 218,682 1,150 -- 17,140 10,600 12,700 $260,272
-------- ------- ------- -------- ------ ------- --------
Interest rate gap $(115,568) $ 48,235 $ 67,033 $122,976 $ (3,090) $(1,488) $118,098
======== ======= ======= ======== ====== ======= ========
Cumulative interest
rate gap $(115,568) $(67,333) $ ( 300) $122,676 $119,586 $118,098
</TABLE>
39
<PAGE>
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, prior to the Acquisitions, 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, 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.
Further, on April 7, 1998, MFC entered into an interest rate cap agreement
limiting the Company's maximum LIBOR exposure on $20,000,000 of MFC's revolving
credit facility to 6.5% until September 30, 1999 and 7.0% until March 30, 2001.
At December 31, 1998, these caps hedged 22.9% of the Company's LIBOR-based
indebtedness including commercial paper. 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 $41.6 million
with a weighted average rate of interest of 7.32%. At December 31, 1998, these
debentures constituted 16.0% 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 SBA debentures that are issued to or
guaranteed by the SBA and loan amortization and prepayments and a secured
commercial paper program with Salomon Smith Barney. 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, 1998, 84.0% of the Company's $260.3 million of debt consisted of
bank debt and commercial paper, substantially all of which was at variable
effective rates of interest with a weighted average rate of 6.25% or 150 basis
points below the Prime Rate and 16.0% consisted of SBA debentures with fixed
rates of interest with a weighted average rate of 7.32%. 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 $33.8 million of debt was available at December 31, 1998 at variable
effective rates of interest averaging below the Prime Rate under the Company's
$252.5 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.
40
<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, 1998.
<TABLE>
<CAPTION>
Medallion
Financial MFC Edwards TCC BLLC MCC Total
--------- --- ------- --- ---- --- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 378 $ 721 $ 164 $ 846 $ 749 $ 3,170 $ 6,028
Revolving lines of credit 57,500 195,000 -- -- -- -- 252,500
Amounts available 10,150 23,668 -- -- -- -- 33,818(*)
Amounts outstanding 47,350 68,250 -- -- -- -- 115,600
Average interest rate 6.41% 6.36% -- -- -- -- 6.38%
Maturity 7/99 6/99 -- -- -- -- 6/99-7/99
Commercial paper
Amounts outstanding -- 103,082 -- -- -- -- 103,082
Average interest rate -- 6.11% -- -- -- -- 6.11%
Maturity -- 6/99 -- -- -- -- 6/99
SBA debentures -- 6,200 19,250 5,640 -- 10,500 41,590
Average interest rate -- 6.27% 7.58% 8.00% -- 7.08% 7.32%
Maturity -- 9/00-9/05 9/02-9/04 6/02 -- 3/06-6/07 9/00-9/07
Total cash and remaining amounts
available under credit facilities 10,528 24,389 164 846 749 3,170 39,846
Total debt outstanding $47,350 $177,532 $19,250 $5,640 $ - $10,500 $ 260,272
</TABLE>
* Under the terms of the revolving line of credit held by MFC, the total
amount available is reduced by commercial paper borrowings outstanding.
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, 1998, SBA financing represented 16.0% of total debt as
compared to 22.4% at December 31, 1997.
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. 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.
41
<PAGE>
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.
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
58.7% 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. Under the Master Settlement Agreement between
tobacco manufactures and the attorneys general of various states (including
these states in which the Company conducts its outdoor advertising business),
the tobacco manufacturers have agreed to eliminate general outdoor and transit
advertising of tobacco products by March 31, 1999. Accordingly, such
restrictions may have an adverse effect upon the taxicab rooftop advertising
business of the Company. The Company believes, however, that it can replace some
of the revenue which are expected to be lost due to the loss of tobacco taxicab
rooftop advertising.
42
<PAGE>
Year 2000. The Company is currently 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 loan servicing software and
update of the general ledger system and such initiatives are expected to be Year
2000 compliant. The Company has implemented a five phase plan to remediate its
information technology ("IT") and non-IT systems: (1) compiling an inventory of
the company's computer hardware and software; ("IT systems") and equipment
("non-IT systems"); (2) identifying and verifying the Year 2000 readiness of
third parties; (3) assessing whether the systems can be remediated or must be
replaced; (4) remediating or replacing IT and non-IT systems; (5) testing the
remediated or replaced IT and non-IT systems. An inventory of IT and non-IT
systems was completed by December 31, 1998. The Company has received Year 2000
compliance letters from each of its major software vendors and its major office
systems vendors and is awaiting responses from additional parties. Phase three
should be substantially complete by the end of the first quarter of 1999.
Planning for phases four and five will begin in the first quarter of 1999 and
testing of critical systems are scheduled to be completed by the end of the
second quarter. Software system tests will be conducted using fictitious
transactions and each individual workstation and network server will be tested
for Year 2000 compliance.
The Company estimates that the total cost involved in the Year 2000 project
is approximately $30,000. This excludes the costs related to new loan servicing
software and update of the general ledger system. These costs will be expenses
as incurred, except for capitalizable hardware. The project is staffed with both
external contractors and internal personnel. Approximately $7,500 has been spent
to date.
Management believes that the Year 2000 project is on schedule and such
measures will adequately address the Year 2000 issues, although there can be no
assurance in this regard. Further, both the cost estimates and completion
timeframes are subject to change based on new circumstances that may arise. The
Company will continue to address the Year 2000 issue in connection with its
future acquisitions. The Company has not yet completed its evaluation as to
whether its third party vendors will be able to resolve their year 2000 issues
in a satisfactory and timely manner, or the magnitude of the adverse impact it
would have on the Company's operations, if they fail to do so. Management has
sent Year 2000 compliance surveys to its third party vendors, however, 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. At this point in time, management is unable
to quantify the potential loss due to failure of systems to comply with the Year
2000. The Company is in the process of developing a contingency plan to address
the potential for business disruption due to systems failure or the failure of
third parties to modify their systems timely that may have a material or adverse
effect on the Company's operations. The Year 2000 disclosure set forth above is
a "year 2000 statement" as defined in the Year 2000 Information and Readiness
Disclosure Act of 1998 (the "Year 2000 Act") and, to the extent the disclosure
related to year 2000 processing of the Company or to products or services
offered by the Company, is also a "year 2000 readiness disclosure" as defined in
the Year 2000 Act.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Rule 305 of Regulations S-K, the
quantitative and qualitative disclosures called for by this Item 7A and by Rule
305 of Regulation S-K are inapplicable to the Company at this time.
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.
43
<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 16, 1999 (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.
44
<PAGE>
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Form 10-K and those that
may be made in the future by or on behalf of the Company, the Company notes that
there are various factors that could cause actual results to differ materially
from those set forth in any such forward-looking statements. The forwardlooking
statements contained in this Form 10-K were prepared by management and are
qualified by, and subject to, significant business, economic, competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
or impossible to predict and many of which are beyond the control of the
Company. Accordingly, there can be no assurance that the forward-looking
statements contained in this Form 10-K will be realized or that actual results
will not be significantly higher or lower. The statements have not been audited
by, examined by, compiled by or subjected to agreed-upon procedures by
independent accountants, and no third-party has independently verified or
reviewed such statements. Readers of this Form 10-K should consider these facts
in evaluating the information contained herein. In addition, the business and
operations of the Company are subject to substantial risks which increase the
uncertainty inherent in the forward-looking statements contained in this Form
10-K. The inclusion of the forward-looking statements contained in this Form
10-K should not be regarded as a representation by the Company or any other
person that the forward-looking statements contained in this form 10-K will be
achieved. In light of the foregoing, readers of this Form 10-K are cautioned not
to place undue reliance on the forward-looking statements contained herein.
These risks and others that are detailed in this Form 10-K and other documents
that the Company files from time to time with the Securities and Exchange
Commission, including quarterly reports on Form 10-Q and any current reports on
Form 8-K must be considered by any investor or potential investor in the
Company.
45
<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 30, 1999
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 March 30, 1999
- ------------------------------ and Chief Executive Officer
Alvin Murstein
/s/ Daniel F. Baker Treasurer and Chief Financial Officer March 30, 1999
- ------------------------------
Daniel F. Baker
/s/ Andrew M. Murstein President and Director March 30, 1999
- ------------------------------
Andrew M. Murstein
/s/ Mario M. Cuomo Director March 30, 1999
- ------------------------------
Mario M.Cuomo
/s/ Stanley Kreitman Director March 30, 1999
- ------------------------------
Stanley Kreitman
/s/ David L. Rudnick Director March 30, 1999
- ------------------------------
David L. Rudnick
/s/ Benjamin Ward Director March 30, 1999
- ------------------------------
Benjamin Ward
/s/ Frederick S. Hammer Director March 30, 1999
- ------------------------------
Frederick S. Hammer
</TABLE>
46
<PAGE>
MEDALLION FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
MEDALLION FINANCIAL CORP.
Report of Arthur Andersen LLP, Independent Public Accountants.......................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997........................................... F-3
Consolidated Statements of Operations for the Years ended December 31, 1998, 1997 and 1996............. F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years ended
December 31, 1998, and 1997 and 1996................................................................... F-5
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996............. F-6
Notes to Consolidated Financial Statements............................................................. F-8
</TABLE>
F-1
<PAGE>
MEDALLION FINANCIAL CORP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and 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,
1998 and 1997, including the consolidated schedules of investments as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the years ended
December 31, 1998, 1997 and 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. 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 and investments in equity
securities valued at $384,063,972 (91% of total assets) and $313,254,446 (92% of
total assets) as of December 31, 1998 and 1997, 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, the
Board of Directors' estimate of values may differ significantly from the values
that would have been used had a ready market for the investments 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, 1998 and 1997, and the results of
their operations and their cash flows for the years ended December 31, 1998,
1997 and 1996 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 23, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
MEDALLION FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
--------- --------
(Restated
See Note 2)
ASSETS
<S> <C> <C>
Investments :
Medallion loans $ 266,061,808 $ 225,961,249
Commercial installment
loans 106,422,835 79,803,197
Equity investments 11,579,329 7,490,000
---------------- ---------------
Net investments 384,063,972 313,254,446
Investment in and loans to unconsolidated subsidiary 5,033,661 2,696,061
---------------- ---------------
Total investments $ 389,097,633 $ 315,950,507
Cash 6,027,596 7,076,613
Accrued interest
receivable 3,640,301 3,237,840
Receivable from sale of
loans 9,569,989 2,862,981
Fixed assets, net 1,662,973 356,206
Goodwill, net 6,706,879 6,082,515
Servicing fee receivable 2,290,303 1,671,415
Other assets 3,229,568 2,655,567
---------------- ---------------
Total assets $ 422,225,242 $ 339,893,644
================ ===============
LIABILITIES
Accounts payable and
accrued expenses $ 5,593,101 $ 7,377,222
Dividends payable 4,764,681 3,594,402
Accrued interest payable 2,308,229 871,194
Notes payable to banks 115,600,000 137,750,000
Commercial paper 103,081,785 -
SBA debentures payable 41,590,000 39,770,000
---------------- ---------------
Total liabilities $ 272,937,796 $ 189,362,818
---------------- ---------------
Negative goodwill, net 1,072,916 1,795,316
---------------- ---------------
Commitments and
contingencies (Note 11)
SHAREHOLDERS' EQUITY
Preferred Stock
(1,000,000 shares of
$.01 par $ - $ -
value stock
authorized - none
outstanding)
Common stock (50,000,000 and 15,000,000 shares of $.01 par 140,138 139,089
value stock authorized 14,013,768 and 13,908,916 shares
outstanding at December
31, 1998 and 1997,
respectively)
Capital in excess of par
value 141,376,068 143,065,650
Accumulated undistributed net investment income 6,698,324 5,530,771
---------------- ---------------
Total shareholders' equity $ 148,214,530 $ 148,735,510
---------------- ---------------
Total liabilities and shareholders' equity $422,225,242 $ 339,893,644
================ ===============
Number of common shares and common share equivalents 14,143,537 14,057,009
================ ===============
Net asset value per share $10.48 $10.58
================ ===============
</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 YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Restated) (Restated)
<S> <C> <C> <C>
Investment income:
Interest income on investments......... $34,814,490 $25,646,513 $12,055,538
Interest income on
short-term investments................. 342,146 201,678 236,880
----------- ----------- -----------
Total investment income................ 35,156,636 25,848,191 12,292,418
----------- ----------- -----------
Interest expense:
Notes payable to bank.................. 8,905,679 7,041,286 3,631,746
Commercial paper....................... 3,555,769 - -
SBA debentures......................... 3,147,576 3,057,571 1,696,065
----------- ----------- -----------
Total interest expense................. 15,609,024 10,098,857 5,327,811
----------- ----------- -----------
Net interest income.................... 19,547,612 15,749,334 6,964,607
----------- ----------- -----------
Non-interest income:
Equity in gains (losses)
of unconsolidated
subsidiary............................. 1,200,389 203,424 (63,000)
Accretion of negative
goodwill............................... 722,400 722,400 421,435
Gain on sale of loans.................. 2,316,245 336,300 -
Other income........................... 1,458,802 980,309 410,991
----------- ----------- -----------
Total non-interest income.............. 5,697,836 2,242,433 769,426
----------- ----------- -----------
Expenses:
Administration and
advisory fees.......................... 277,808 226,086 161,886
Professional fees...................... 963,119 827,438 481,456
Salaries and benefits.................. 5,627,932 2,516,118 1,380,012
Other operating expenses............... 4,814,948 2,599,199 1,018,814
Amortization of goodwill............... 505,641 368,196 259,260
Merger-related expenses................ 1,494,491 - -
----------- ----------- -----------
Total expenses......................... 13,683,939 6,537,037 3,301,428
----------- ----------- -----------
Dividends on minority
interest............................... - - 116,137
----------- ----------- -----------
Net investment income
before income taxes.................... 11,561,509 11,454,730 4,316,468
Income tax benefit
(provision)............................ 153,538 (928,910) (436,193)
----------- ----------- -----------
Net investment income
after income taxes..................... 11,715,047 10,525,820 3,880,275
----------- ----------- -----------
Increase in net
unrealized appreciation
on investments......................... 2,675,923 1,929,468 757,762
Net realized gain on
investments............................ 1,290,743 77,501 558,183
----------- ----------- -----------
Net increase in net assets
resulting from operations.............. $15,681,713 $12,532,789 $ 5,196,220
=========== =========== ===========
Net increase in net
assets resulting from
operations per
common share:
Basic.................................. $1.12 $1.03 $.89
Diluted................................ $1.11 $1.02 $.87
Weighted average common
shares outstanding:
Basic Average Shares................... 13,963,665 12,123,690 5,839,094
Diluted Average Shares................. 14,093,434 12,271,783 5,983,352
</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 YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Shares of Accumulated
Common Capital Undistributed
Stock Common Stock in Excess Net Investment
Outstanding $.01 Par Value of Par Value Income
----------- -------------- ------------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 (Restated)........ 3,589,644 $35,896 $9,899,688 $5,092,445
Issuance of common stock under
offering..................................... 5,750,000 57,500 56,089,556 -
Common Stock Repurchase...................... (164,300) (1,643) (457,626) -
Exercise of stock options.................... 37,200 372 11,027 -
Stock Compensation........................... - - 13,000 -
Capitalization of undistributed income....... - - 1,831,964 (1,831,964)
Distributable net investment income.......... - - - 4,438,458
Dividends declared on common stock
($0.36 per share)............................ - - - (3,382,500)
SOP 93-2 Cumulative reclassification......... - - 292,999 (292,999)
Change in unrealized appreciation, net....... - - - 757,762
----------- ---------- ----------- -----------
Balance at December 31, 1996 (Restated)........ 9,212,544 $ 92,125 $67,680,608 $4,781,202
=========== ========== =========== ===========
Issuance of common stock under
offering..................................... 4,600,000 46,000 74,293,425 -
Exercise of stock options.................... 96,372 964 519,204 -
Capitalization of undistributed income....... - - 1,188,101 (1,188,101)
Distributable net investment income.......... - - - 10,603,321
Dividends declared on common stock
($.92 per share)......................... - - - (11,210,807)
SOP 93-2 Cumulative reclassification......... - - (615,688) 615,688
Change in unrealized appreciation, net....... - - - 1,929,468
----------- ---------- ----------- -----------
Balance at December 31, 1997 (Restated)........ 13,908,916 $139,089 $143,065,650 $5,530,771
=========== ========== =========== ===========
Exercise of stock options.................... 104,852 1,049 568,498 -
Distributable net investment income.......... - - - 13,005,790
Dividends declared on common stock
($1.20 per share)........................ - - - (16,772,240)
SOP 93-2 Cumulative reclassification......... - - (2,258,080) 2,258,080
Change in unrealized appreciation, net....... - - - 2,675,923
----------- ---------- ----------- -----------
Balance at December 31, 1998................... 14,013,768 $140,138 $141,376,068 $6,698,324
=========== ========== =========== ===========
</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 YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net increase in net assets resulting from operations............... $ 15,681,713 $ 12,532,789 $ 5,196,220
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by operating
activities:
Depreciation and amortization..................................... 360,545 80,072 31,662
Amortization of goodwill.......................................... 505,641 368,196 259,260
Net realized gain on investments.................................. (1,290,743) (77,501) (558,183)
Increase in equity in (earnings) losses
of unconsolidated subsidiary...................................... (1,200,389) (203,424) 63,000
Increase in receivable from unconsolidated subsidiary............. (1,137,211) (971,071) --
Increase in unrealized appreciation............................... (2,675,923) (1,929,468) (757,762)
Increase in accrued interest receivable........................... (269,169) (1,349,220) (193,790)
Increase in other assets.......................................... (249,741) (183,112) (2,411,559)
(Decrease) Increase in accounts payable and accrued expenses...... (1,959,089) 4,213,641 69,067
Accretion of negative goodwill.................................... (722,400) (722,400) (421,435)
(Increase) Decrease in receivable from sale of loans.............. (6,707,008) 1,493,189 --
Increase in mortgage servicing fee receivable rights.............. (672,888) (81,400) --
(Increase) Decrease in accrued interest payable................... 1,319,953 (215,053) (553,280)
---------- ---------- --------
Net cash provided by operating activities...................... 983,291 12,955,238 723,200
---------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Originations of loans (investments)............................... (244,484,885) (217,134,601) (77,162,836)
Proceeds from sales and maturities of loans (investments)......... 194,387,657 112,821,769 47,191,879
Payment for purchase of Tri-Magna, net............................ -- -- (11,848,283)
Payment for purchase of Edwards Capital Company................... -- -- (15,624,995)
Payment for purchase of TCC, net.................................. -- -- (3,748,576)
Payment for purchase of BLL, net.................................. -- (1,022,984) --
Payment for purchase of VG Group, net............................. (11,963,072) -- --
Capital expenditures for fixed assets............................. (1,491,379) (118,958) (89,928)
----------- ------------ -----------
Net cash used for investing activities......................... (63,551,679) (105,454,774) (61,282,739)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds (repayments) from notes payable to banks............. (22,150,000) 43,300,000 6,050,000
Repayment of term loan agreement.................................. -- (2,000,000) --
Proceeds from issuance of commercial paper........................ 103,081,785 -- --
Proceeds from notes payable to SBA................................ -- 4,380,000 4,170,000
Repayment of notes payable to SBA................................. (4,380,000) (5,115,918) (1,692,169)
Repayment of notes payable to other............................... -- (12,481,408) --
Payment of declared dividends to former shareholders.............. -- -- (542,012)
Payment of declared dividends to present shareholders............. (15,601,961) (9,465,630) (1,650,000)
Proceeds from public offering of common stock, net of expenses.... -- 74,339,425 56,147,056
Repurchase of common stock........................................ -- -- (459,270)
Proceeds from exercise of stock options........................... 569,547 520,168 11,399
----------- ------------ -----------
Net cash provided by financing activities...................... 61,519,371 93,476,637 62,035,004
----------- ------------ -----------
NET (DECREASE) INCREASE IN CASH.................................... (1,049,017) 977,101 1,475,465
CASH, beginning of year............................................ 7,076,613 6,099,512 4,624,047
----------- ------------ -----------
CASH, end of year.................................................. $ 6,027,596 $ 7,076,613 $ 6,099,512
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CON'T)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Restated) (Restated)
<S> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest................ $ 14,171,989 $ 10,313,910 $ 4,241,564
============ ============ ===========
Cash paid during the year for income taxes............ $ - $ 317,914 $ 501,997
============ ============ ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND OTHER ACTIVITIES
Repurchase of preferred stock through issuance of
debt................................................. $ - $ - $ 3,330,000
============ ============ ===========
</TABLE>
In conjunction with the Acquisitions, liabilities were assumed as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------------ ---- ----
Edwards Capital
Tri-Magna Company TCC BLL VG Group
--------- ------- --- --- --------
<S> <C> <C> <C> <C> <C>
Fair value of goodwill and assets
acquired, other than cash $ 97,808,510 $ 51,356,894 $ 9,714,029 $16,353,970 $18,455,155
------------ ------------ ----------- ----------- -----------
Cash acquired 1,529,717 - 6,797,183 256,538 -
Cash paid 13,378,000 15,624,995 10,545,759 1,279,522 11,963,072
------------ ------------ ----------- ----------- -----------
Cash paid, net 11,848,283 15,624,995 3,748,576 1,O22,984 11,963,072
============ ============ =========== =========== ===========
Negative goodwill 2,939,085 - - - -
------------ ------------ ----------- ----------- -----------
Liabilities assumed $83,021,142 $ 35,731,899 $5,965,453 $15,330,986 $ 6,492,083
============ ============ =========== =========== ===========
</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, 1998
(1) ORGANIZATION 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). 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 Small Business Administration (SBA). As an
adjunct to the Company's taxicab medallion finance business, Media operates a
taxicab rooftop advertising business. 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, 1998, 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
(BLL). BLL is licensed by the SBA under its section 7a program.
In connection with the 1996 Acquisitions, the Company received the
Acquisition Orders under the 1940 Act from the Securities Exchange Commission.
Approval from the Connecticut State Department of Banking and the SBA was
obtained for the Business Lenders Acquisition.
In September 1998, the Company created Medallion Business Credit LLC (MBC),
as a wholly owned subsidiary. MBC originates loans to small businesses for the
purpose of financing inventory and receivables.
On May 27, 1998, the Company completed the acquisition of certain assets and
assumption of certain liabilities of Venture Group I, Inc. ("VGI"), Venture
Group II, Inc. (VGII) and Venture Opportunities Corp., (VOC), an SBIC lender
headquartered in New York, New York.
On June 16, 1998, the Company completed the merger with Capital Dimensions,
Inc. (CDI) an SSBIC lender, headquartered in Minneapolis, Minnesota. CDI was
subsequently renamed Medallion Capital, Inc. (Medallion Capital). The charter
was amended to convert Medallion Capital to an SBIC. The transaction was
accounted for as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, and was treated under the pooling-of-interests
method of accounting.
F-8
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1998
(2) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 that finance 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 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, New Jersey and Connecticut areas,
the Company also finances medallion loans in the Boston, Cambridge, Baltimore,
Chicago and Newark areas.
Summary of Significant Accounting Policies
(a) 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.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, except for Media. All significant intercompany
transactions, balances and profits have been eliminated in consolidation. The
consolidated statements give retroactive effect to the merger with Capital
Dimensions Inc. (CDI). As stated in Note 1, the Company completed a merger with
CDI in which CDI became a wholly owned subsidiary of the Company and CDI changed
its name to Medallion Capital Inc. (Medallion Capital). Subsequent to the
merger, Medallion Capital changed its fiscal year end from June 30 to December
31 to coincide with the Company's year end. As a result of the merger being
accounted for as a pooling-of-interests and the changing of Medallion Capital's
fiscal year end, Medallion Capital's financial statements for 1997 and 1996 have
been recast to a twelve-month period ending December 31. The consolidated
financial statements for 1997 and 1996 have been restated, including all per
share data, to retroactively combine Medallion Capital's financial statements as
if the merger had occurred at the beginning of the earliest period presented.
The consolidated financial statements and related notes for the year ended
December 31, 1996 represent a full year of activity for Medallion Capital and
the activity 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, for all other wholly owned subsidiaries of the Company.
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 5 for the
presentation of financial information for Media.
(c) 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.
Investments in equity securities and stock warrants are recorded at fair
value, represented as cost, plus or minus unrealized appreciation or
depreciation, respectively. Since these investments have no ready market, fair
value is determined by the Board of Directors based upon assets and revenues of
the underlying investee company as well as
F-9
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
general market trends for businesses in the same industry. Approximately 86.0%
and 100.0% of the equity investments at December 31, 1998 and 1997 respectively,
are warrants to purchase shares that are attached to commercial loans held by
Medallion Capital.
Because of the inherent uncertainty of valuations, the Board of Directors'
estimates of the values of the investments may differ significantly from the
values that would have been used had a ready market for the investments existed
and the differences could be material.
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 69% and 72%
of the Company's loan portfolio at December 31, 1998 and 1997, 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 7(a) program, less
the sale of the guaranteed portion of those loans. Funding for the section 7(a)
program depends on annual appropriations by the U.S. Congress.
(d) Investment Transactions and Income Recognition
The principal portion of loans serviced for others by the Company at December
31, 1998 and 1997 amounted to approximately $88,826,000, and $ 83,316,000,
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,
1998 and 1997, net origination costs totaled $1,989,803 and $1,557,199
respectively. Amortization expense for the years ended December 31, 1998, 1997
and 1996 was $1,352,962, $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, 1998 and, 1997,
total nonaccrual loans were $6,595,029 and $8,654,923, respectively. For the
years ended December 31, 1998 and 1997, 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 $793,330 and $845,087, respectively.
(e) Loan Sales and Servicing Fee Receivable
The Company accounts for its sales of loans in accordance with Statement of
Financial Accounting Standard (SFAS) 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125).
SFAS 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. These standards are
based on consistent application of a financial-components approach that focuses
on control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS 125 also provides for
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings.
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 125, which requires that the gain on the sale of a
portion of a loan be based on the relative fair values of the loan sold and the
loan retained. The gain on loan sales is due to the differential between the
carrying value of the portion of loans sold and the sum of the cash received and
the servicing fee receivable, which is the difference between the servicing fee
received by the Company (generally 100 to 200 basis points) and the Company's
costs and a normal profit after considering the estimated effects of prepayments
and defaults. In connection with calculating the gain on sale, the Company must
make certain assumptions which include (i) the amount of "adequate compensation"
used to determine the amount of the servicing asset that the
F-10
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
Company will recognize at the date of the sale; (ii) the estimated life of the
underlying loan used in projecting the time period over which the Company will
receive the servicing fee; and (iii) the discount rate used in the present value
calculation of the servicing asset. The company considers 40 basis points to be
its cost of servicing. The discount rate utilized in calculating the servicing
fee is the same as the note rate, which is generally the prime rate plus 2.75%.
The servicing fee receivable is amortized as a charge to loan servicing fee
income over the estimated lives of the underlying loans using the effective
interest rate 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, 1998 and 1997 was $2,290,303 and $1,671,415,
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.
(f) Unrealized Appreciation/(Depreciation)/ and Realized
Gains/(Losses) on Investments
The change in unrealized appreciation/(depreciation)of investments is the
amount by which the fair value estimated by the Company is greater/(less) than
the cost basis of the investment 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 or sale of investments. An analysis of the
appreciation /(depreciation) of investments for the years ended December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Investments
---------------------------------------------------
Loans Equities Total
----- -------- -----
<S> <C> <C> <C>
Balance, December 31, 1996 $(2,243,496) $ 1,443,022 $ (800,474)
----------- ----------- -----------
Increase in unrealized:
Appreciation on investments 541,290 1,689,632 2,230,922
Depreciation on investments (666,454) - (666,454)
Unrealized depreciation of acquired subsidiary (400,000) - (400,000)
Realized:
Gains on investments - - -
Losses on investments 125,000 - 125,000
----------- ----------- -----------
Balance, December 31, 1997 $(2,643,660) $ 3,132,654 $ 488,994
----------- ----------- -----------
Increase in unrealized:
Appreciation on investments 409,943 3,305,966 3,715,909
Depreciation on investments (540,000) (458,489) (998,489)
Unrealized depreciation of acquired subsidiary (200,000) - (200,000)
Realized:
Gains on investments - (1,167,363) (1,167,363)
Losses on investments 1,125,866 - 1,125,866
----------- ----------- -----------
Balance, December 31, 1998 $(1,847,851) $ 4,812,768 $ 2,964,917
----------- ----------- -----------
</TABLE>
F-11
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
For the years ended December 31, 1998, 1997 and 1996, gross unrealized
appreciation and depreciation and gross realized gains and losses were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Increase in net unrealized appreciation on
investments:
Unrealized appreciation $ 3,715,909 $2,470,922 $1,216,100
Unrealized depreciation (998,489) (666,454) (458,338)
Realized gain (1,167,363) - -
Realized loss 1,125,866 125,000 -
----------- ---------- ----------
Total $ 2,675,923 $1,929,468 $ 757,762
----------- ---------- ----------
Net realized gain on investment:
Realized gain $ 2,416,609 $ 269,271 $ 663,213
Realized loss (1,125,866) (191,770) (105,000)
----------- ---------- ----------
Total $ 1,290,743 $ 77,501 $ 558,213
----------- ---------- ----------
</TABLE>
(g) 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 fifteen
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 four years.
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of" (SFAS 121). 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 121.
(h) 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.
(i) Federal Income Taxes
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 subjected 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. It is the Company's policy
to comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies. Medallion Capital applied for status as a RIC on
July 1, 1997. For periods prior to that date Medallion Capital was a taxable
entity and therefore the consolidated financial statements of the Company show
the effects of corporate tax related to Medallion Capital. At December 31, 1998,
Medallion Capital had a current tax liability of $350,000 and a deferred tax
liability of $169,000. Both the current and deferred amounts relate to
unrealized gains on investments at the date Medallion Capital became a RIC.
In 1998, the Company declared quarterly cash dividends totaling $16,772,240 or
$1.20 per share, to shareholders. During the year, the Company's subsidiaries
declared dividends payable to the Company totaling $5,959,805 from
F-12
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
Medallion Funding Corp., $591,000 from Transportation Capital Corp., $2,090,000
from Edwards Capital Corp., and $2,530,000 from Medallion Capital. Medallion
Capital distributed to the Company an additional $1,795,141 of taxable dividends
from the earnings received prior to Medallion Capital becoming a RIC. Dividends
paid by subsidiaries were eliminated during consolidation.
Media, as a non-investment company, has elected to be taxed as a regular
corporation. Refer to Note (5) for financial information for Media.
(j) Net Increase in Net Assets Resulting from Operations per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share" (SFAS 128)
which 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 128 retroactively to all periods
presented. The dilutive effect of potential common shares, consisting of
outstanding stock options is determined using the treasury method in accordance
with SFAS 128. Basic and diluted EPS for the years ended December 31, 1998,
1997, and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, Weighted Weighted Weighted
except per share Average Per Share Average Per Share Average Per Share
amounts) Income Shares Amount Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $15,682 $12,533 $5,196
Basic EPS
- ---------
Income available to
common stockholders $15,682 13,963,665 $1.12 $12,533 12,123,690 $1.03 $5,196 5,839,094 $0.89
Effect of dilutive
stock options 129,769 148,093 144,258
Diluted EPS
- -----------
Income available to
common stockholders $15,682 14,093,434 $1.11 $12,533 12,271,783 $1.02 $5,196 5,983,352 $0.87
</TABLE>
(k) Stock-Based Compensation
In 1996, the Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," (SFAS 123) 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" (APB 25).
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 account for its options under APB
25 and apply the pro forma disclosure provisions of SFAS 123. See pro forma
information in Note 8.
(l) 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.
F-13
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
(m) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements for the periods beginning after December 15, 1997. Comprehensive
income, as defined, includes all changes in equity during a period from non-
owner sources. Examples of items to be included in comprehensive income which
are excluded from net income include cumulative translation adjustments
resulting from consolidation of foreign subsidiaries' financial statements and
unrealized gains and losses on available-for-sale securities. The Company has
adopted SFAS 130 for the year ended December 31, 1998 and determined there was
no difference between total comprehensive income and net income. Accordingly,
no change in presentation on the face of the Statement of Operations is
required.
(n) Segment Information
Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" (SFAS 131). This
statement establishes the standards for reporting information about segments in
annual and interim financial statements. SFAS 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.
See Note 10 for segment disclosure.
(o) Reclassifications
Certain reclassifications have been made to prior year balances to conform
with the current year presentation.
(p) Recent Accounting Developments
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires
computer software costs associated with internal use software to be expensed as
incurred until certain capitalization criteria are met. SOP 98-1 is effective
for financial statements for fiscal years beginning after December 15, 1998.
The Company does not believe that adoption of SOP 98-1 will have a material
impact on the Company's financial position or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" (SOP 98-5). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company does not believe that
adoption of SOP 98-5 will have a material impact on the Company's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This Statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. The Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not expect that the adoption of
this Statement will have a material impact on the Company's financial position
or results of operations.
(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. (BLL), a
small business lender headquartered in Hartford, Connecticut. The total
purchase price was $16.6 million which included the assumption of $15.3 million
in liabilities.
F-14
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
The purchase prices was allocated to the assets based on their estimated fair
values and approximately $14 million were allocated to investments and
receivables. The excess of the purchase price over the fair value of the net
assets acquired (goodwill) was $66,000 and is being amortized on a straight-line
basis over 15 years. The purchase price is subject to a contingent earn-out
provision based on a multiple of net after-tax earnings up to $13 million. As of
December 31, 1998, due to net losses at BLL, no additional amounts have been
paid under this provision. The Company incurred approximately $310,000 of
acquisition-related expenses associated with this transaction. These expenses
are capitalized and amortized over 5 years.
VG Group
On May 27, 1998, the Company completed the acquisition of certain assets and
assumption of certain liabilities of Venture Group I, Inc. (VGI), Venture Group
II, Inc. (VGII) and Venture Opportunities Corp. (VOC), SBIC lenders
headquartered in New York, (hereinafter known as VG Group), for an aggregate
purchase price of $18.5 million which included the assumption of $6.5 million in
liabilities. The purchase price was allocated to the assets based on their
estimated fair values and approximately $16.7 million were allocated to
investments. The excess of the purchase price over the fair value of the net
assets acquired (goodwill) was $1.2 million and is being amortized on a
straight-line basis over 15 years.
These acquisitions were accounted for under the purchase method of accounting.
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.
The pro forma effect of the VG Group and BLL acquisitions on the results for
the years ended December 31, 1998 and 1997, would not be material. Therefore,
no pro forma information for these acquisitions is presented.
(4) MERGER
On June 16, 1998, the Company completed the merger with Capital Dimensions,
Inc. (CDI), a Specialized Small Business Investment Company ("SSBIC") lender,
headquartered in Minneapolis, MN. CDI was subsequently renamed Medallion
Capital, Inc. (Medallion Capital). The Company issued 0.59615 shares of its
common stock for each outstanding share of CDI. A total of 1,112,677 shares of
the Company's common stock was issued as a result of the merger, and each of
CDI's outstanding stock options were converted to purchase common shares of the
Company. The transaction was accounted for as a tax-free reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended, and was treated
under the pooling-of-interests method of accounting. The following tables set
forth the results of operations of CDI and the Company for the six months ended
June 30, 1998 and the twelve months ended December 31, 1997 and 1996, and are
included in the accompanying consolidated statement of operations.
<TABLE>
<CAPTION>
(Dollars in thousands)
For the six months ended June 30, 1998 The Company CDI Combined
- -------------------------------------- ----------- --- --------
<S> <C> <C> <C>
Total Investment Income $16,322 $1,288 $17,610
Net increase in net assets from operations $5,692 $1,467 $7,159
Changes in equity:
Exercise of stock options $8 $91 $99
For the year ended December 31, 1997 The Company CDI Combined
- -------------------------------------- ----------- --- --------
Total Investment Income $23,446 $2,402 $25,848
Net increase in net assets from operations $11,434 $1,099 $12,533
Changes in equity:
Issuance of common stock under offering $74,339 $74,339
Exercise of stock options $315,000 $205,000 $520,000
For the year ended December 31, 1996 The Company CDI Combined
- -------------------------------------- ----------- --- --------
Total Investment Income $10,412 $1,880 $12,292
Net increase in net assets from operations $3,721 $1,475 $5,196
Changes in equity:
Issuance of common stock under offering $56,147 - $56,147
</TABLE>
F-15
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
(5) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
The balance sheets at December 31, 1998 and 1997 for Media, are as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Cash...................................................................... $1,381,893 $ 594,377
Accounts receivable....................................................... 2,614,842 700,392
Equipment, net............................................................ 1,564,341 1,422,284
Goodwill.................................................................. 991,279 -
Other..................................................................... 571,058 533,541
---------- ----------
Total assets......................................................... $7,123,413 $3,250,594
========== ==========
Notes payable to parent................................................... 2,692,847 1,555,637
Accounts payable and accrued expenses..................................... 1,824,158 283,915
Federal income taxes payable.............................................. 156,977 162,000
---------- ----------
Total liabilities.................................................... 4,673,982 2,001,552
Equity.................................................................... 1,001,000 1,001,000
Retained earnings......................................................... 1,448,431 248,042
---------- ----------
Total equity......................................................... 2,449,431 1,249,042
---------- ----------
Total liabilities and shareholders' equity................................ $7,123,413 $3,250,594
========== ==========
</TABLE>
The statements of operations of Media (1) for the year ended December 31,
1998 (2) for the year ended December 31, 1997 (3) for the period commencing
with the Company's acquisition of Media from May 30, 1996 to December 31, 1996
and (4) for the five-month period ended May 29, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Seven Months Ended Five Months Ended
December 31, December 31, December 31, May 29,
1998 1997 1996 1996
---------- ---------- ---------- ----------
STATEMENTS OF OPERATIONS
<S> <C> <C> <C> <C>
Advertising revenue $7,526,569 $3,070,119 $1,095,346 $671,148
Cost of services 2,381,064 1,204,892 499,135 283,891
---------- ---------- ---------- --------
Gross margin 5,145,505 1,865,227 596,211 387,257
Other operating expenses 3,195,116 1,499,803 659,211 455,278
---------- ---------- ---------- --------
Income (loss) before taxes 1,950,389 365,424 (63,000) (68,021)
Income taxes 750,000 162,000 -- (14,999)
---------- ---------- ---------- --------
Net income (loss) $1,200,389 $ 203,424 $ (63,000) $(53,022)
========== ========== ========== ========
</TABLE>
The Company's investment in Media was $2,340,813 and $1,140,424 at December
31, 1998 and 1997, respectively. These amounts are comprised of the initial
capital contribution and the results of operations for subsequent periods.
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.
On September 1, 1998, the Company purchased for cash, substantially all the
operations and assets of New Orleans based Taxi Ads, LLC (consisting of 855
taxicab rooftop advertising display units and certain contacts for advertising
and fleet rental) for an aggregate purchase price of $1,200,000. This
acquisition was accounted for under the purchase method of accounting. Included
in the purchase price was certain premiums paid totaling $1,001,766, which
represented goodwill.
On March 6, 1997, Media entered into a five-year agreement with the
Metropolitan Taxi Board of Trade, Inc. (MTBOT) to provide rooftop advertising on
New York City taxicabs affiliated with the MTBOT commencing on September 22,
1997. The agreement calls for fixed payments to the fleets for two years, which
was reduced from five years, due to the elimination of tobacco product
advertising as described below.
F-16
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
Currently, approximately 58.7% of Media's taxicab rooftop advertising
revenue is derived from tobacco products advertising. Under the Master
Settlement Agreement between tobacco manufacturers and the Attorneys General of
various states (including those states in which the Company conducts its outdoor
advertising business), the tobacco manufacturers agreed to eliminate general
outdoor and transit advertising of tobacco products by March 31, 1999. The loss
of such advertising may have an adverse effect upon the taxicab rooftop
advertising business of the Company. The Company believes, however, that it can
replace some of the revenue which is expected to be lost due to the elimination
of tobacco taxicab rooftop advertising.
(6) NOTES PAYABLE TO BANKS AND COMMERCIAL PAPER
Short-term borrowings consisted of the following:
December 31, December 31,
Description 1998 1997
-------- --------
Revolving Credit Agreements....................$ 115,600,000 $ 137,750,000
Commercial Paper Agreement..................... 103,081,785 -
-------------- --------------
Total..........................................$ 218,681,785 $ 137,750,000
============== ==============
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, 1998, MFC is
required to pay an annual facility fee of 20 basis points on the unused portion
of the Revolver's aggregate commitment. Commitment fee expense for the years
ended December 31, 1998, 1997 and 1996 was $243,073, $288,399 and $114,528,
respectively. Outstanding borrowings under the Revolver were $68,250,000 and
$115,250,000 at weighted average interest rates of 6.36% and 6.97% at December
31, 1998 and 1997, 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, Edwards had $8,000,000 in available lines of credit with
several banks. These lines of credit matured on January 31, 1998 and were not
renewed. At December 31, 1997, Edwards had borrowings outstanding of $6,400,000
at a weighted average interest rate of 7.26%. At December 31, 1998, Edwards did
not have a line of credit open.
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.
At December 31, 1997 the Company had a revolving credit line of $25,000,000
which matured on April 30, 1998. The revolving credit borrowings, at the option
of the Company, were at the bank's prime rate or at a rate based on the adjusted
LIBOR. At December 31, 1997, outstanding borrowings under this agreement were
$16,100,000 at a weighted average interest rate of 7.06%. On July 31, 1998, the
Company closed this revolving credit line and entered into a committed revolving
credit agreement (the Loan Agreement) with a group of banks. The aggregate
credit commitment amount is $57,500,000 and extends through July 30, 1999. The
Loan Agreement 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 Loan 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
F-17
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
two years or any other date on which it becomes payable in accordance with the
Loan 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 LIBOR rate 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. The Company is required to pay an annual facility fee
of 15 basis points on the amount of the aggregate commitment. Commitment fee
expense for the year ended December 31, 1998 was $72,396. Outstanding borrowings
under the Revolver were $47,350,000 at a weighted average interest rate of 6.41%
at December 31, 1998. The Loan Agreement contains other restrictive covenants,
including a limitation of $1,000,000 for capital expenditures.
The weighted average interest rate for the Company's outstanding borrowings at
December 31, 1998 and 1997 was 6.38% and 7.0%. During the years ended December
31, 1998 and 1997, the Company's weighted average borrowings were $125,698,000
and $97,423,000 with a weighted average interest rate of 7.08% and 6.78%,
respectively. The maximum outstanding borrowings of the Company were
$157,700,000 and $137,750,000 at any month-end during the years ended December
31, 1998 and 1997, respectively.
(b) Commercial Paper
On March 13, 1998, MFC entered into a commercial paper agreement with Salomon
Smith Barney to sell up to an aggregate principal amount of $195 million in
secured commercial paper through private placements pursuant to Section 4(2) of
the Securities Act of 1933. Amounts outstanding at any time under the program
are limited by certain covenants, including a requirement that MFC retain an
investment grade rating from at least two of the four nationally recognized
rating agencies, and borrowing base calculations as set forth in the Revolver,
which act as backup to the commercial paper program on a pari passu basis. The
commercial paper program has no specified maturity and may be terminated by the
Company at any time. At December 31, 1998, MFC had $103,081,785 outstanding at a
weighted average interest rate of 6.11%. During the period from March 13, 1998
through December 31, 1998, MFC's weighted average borrowings related to
commercial paper were $74,445,000 with a weighted average interest rate of
5.73%. The maximum outstanding borrowings of the Company under this program were
$103,081,785 at any month-end during the year ended December 31, 1998.
(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. 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 counter-parties on these interest rate cap agreements.
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. 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 an additional $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 agreement and being amortized
over the respective terms of the agreements.
On April 7, 1998, MFC entered into an interest rate cap agreement limiting
the Company's maximum LIBOR exposure on $20,000,000 of MFC's revolving credit
facility to 6.5% until September 30, 1999 and 7.0% until March 30, 2001. A
premium of $64,000 paid under the agreement is being amortized over the term of
F-18
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
the agreement. The Company is exposed to credit loss in the event of
nonperformance by the counterparties on the interest rate cap agreement. The
Company does not anticipate nonperformance by any of these parties.
(7) SBA DEBENTURES PAYABLE
Outstanding debentures are as follows at December 31, 1998 and December 31,
1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
Due Date Amount Amount Interest Rate
- -------- ------ ------ -------------
<S> <C> <C> <C>
June 1, 1998 $ - $ 3,000,000 9.80%
April 1, 2000 - 1,380,000 8.38%
September 1, 2000 510,000 - 9.60%
December 1, 2000 640,000 - 8.70%
June 1, 2002 5,640,000 5,640,000 8.00% (5% prior to June 1,1997)
September 1, 2002 3,500,000 3,500,000 7.15%
September 1, 2002 6,050,000 6,050,000 7.15%
September 1, 2002 1,950,000 - 7.15%
June 1, 2004 900,000 - 4.80% (until June 1, 1999, 7.80%
thereafter)
June 1, 2004 4,600,000 4,600,000 7.80%
September 1, 2004 5,100,000 5,100,000 8.20%
March 1, 2005 1,700,000 - 4.84% (until March 1, 2000, 7.84%
thereafter)
September 1, 2005 500,000 - 3.88% (until September 1, 1999, 6.88%
thereafter)
March 1, 2006 2,000,000 2,000,000 7.08%
December 1, 2006 5,500,000 5,500,000 7.08%
June 1, 2007 3,000,000 3,000,000 7.07%
----------- -----------
$41,590,000 $39,770,000
=========== ===========
</TABLE>
The SBA imposes certain restrictions, among others, transfers of stock and
payments of dividends by its licensees, to which the Company is subject.
(8) STOCK OPTIONS
The Company has a stock option plan (1996 Stock Option Plan) available to
grant both incentive and nonqualified share options to employees. The 1996 Stock
Option Plan, which was approved by the Board of Directors and shareholders on
May 22, 1996, provides for the issuance of a maximum of 750,000 shares of common
stock of the Company. On June 11, 1998, the Board of Directors and shareholders
approved certain amendments to the Company's 1996 Stock Plan, including
increasing the number of shares reserved for issuance from 750,000 to 1,500,000.
At December 31, 1998, 517,852 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 shareholders 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, 1998, 63,091 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-19
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
In connection with the merger discussed in Note 4, the Company assumed the
former Capital Dimensions Venture Fund, Inc. 1997 Stock Plan. All stock options
outstanding at the time of the merger were exchanged for equivalent shares under
the 1996 Stock Option Plan and the Director Plan, respectively, using the
appropriate conversion factor. Thus, the Capital Dimensions Venture Fund, Inc.
1997 Stock Plan was terminated at the effective date of the merger.
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 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 Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net increase in net assets resulting from operations:
As reported....................................... $15,681,713 $12,532,789 $5,196,220
Pro forma......................................... 14,873,660 12,052,314 4,996,357
Net increase in net assets resulting from operations
Per share diluted:
As reported........................................ $ 1.11 $ 1.02 $ 0.87
Pro forma.......................................... $ 1.06 $ 0.98 $ 0.84
</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 years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted
Number Exercise Price Average
of Options Per Share Exercise Price
---------- ----------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1995......................... 189,121 $0.28-$4.61 $2.40
Granted.................................................. 218,389 $11.00-$14.38 $11.52
Cancelled................................................ -- -- --
Exercised................................................ (37,200) $0.28-$0.31 $0.31
-------- -------------- ------
Outstanding at December 31, 1996......................... 370,310 $0.28-$14.38 $7.98
--------
Granted.................................................. 231,945 $6.71-$26.00 $17.55
Cancelled................................................ (62,311) $3.08-$14.38 $10.66
Exercised................................................ (96,372) $0.28-$14.38 $4.53
-------- -------------- ------
Outstanding at December 31, 1997......................... 443,572 $0.28-$26.00 $13.36
--------
Granted.................................................. 379,603 $13.75-$29.25 $23.67
Cancelled................................................ (21,943) $20.63-$29.25 $27.75
Exercised................................................ (104,888) $0.28-$16.77 $5.46
-------- -------------- ------
Outstanding at December 31, 1998......................... 696,344 $6.71-$29.25 $19.72
--------
Options exercisable at:
December 31, 1996................................... 151,921 $0.28-$4.61 $2.91
December 31, 1997................................... 127,498 $0.28-$14.38 $6.86
December 31, 1998................................... 123,798 $6.71-$22.38 $14.13
</TABLE>
F-20
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
The following table summarizes information regarding options outstanding and
options exercisable at December 31, 1998 under the 1996 Stock Option Plan and
Director Plan:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- --------------------------------------------------------
Number Number
outstanding Weighted average exercisable Weighted average
at remaining at remaining
Range of December 31, contractual life in Weighted average December 31, contractual life in Weighted average
Exercise Prices 1998 years exercise price 1998 years exercise price
- ----------------- ------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$6.71-$11.00 114,964 6.58 $10.20 46,780 5.39 $ 9.03
$13.75-$14.38 116,512 8.18 $13.99 20,272 2.90 $14.15
$15.88-$22.38 214,013 7.31 $18.76 56,746 5.86 $18.33
$26.06-$29.25 250,855 9.25 $27.55 - - -
------------- ----------------- ------------------ ----------- -------------------- ------------------
696,344 8.03 $19.72 123,798 5.20 $14.13
============= ===========
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1998, 1997 and 1996 were $7.26, $6.21 and $4.30 per share,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. However, management
believes that such a model may or may not be applicable to a company regulated
under the 1940 Act. The following weighted average assumptions were used for
grants in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate........................... 5.4% 6.2% 6.4%
Expected dividend yield........................... 6.0% 4.4% 3.6%
Expected life of option in years.................. 8.6 5.4 4.8
Expected volatility............................... 49% 49% 49%
</TABLE>
(9) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1996 Quarter Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Investment Income 425 1,827 4,754 5,286
Net Investment Income 176 661 1,719 1,760
Net Income (714) 2,475 1,487 1,948
Net Income per common
share-basic (.71) .64 .16 .21
diluted (.66) .62 .16 .21
</TABLE>
<TABLE>
<CAPTION>
1997 Quarter Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Investment Income 5,725 5,901 6,451 7,770
Net Investment Income 2,158 2,689 3,224 3,383
Net Income 2,789 2,804 3,563 3,376
Net Income per common
share-basic .29 .25 .26 .24
diluted .29 .24 .25 .24
</TABLE>
F-21
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 Quarter Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Investment Income 8,725 8,884 8,942 8,606
Net Investment Income 4,055 1,856 3,523 2,128
Net Income 4,192 2,967 4,200 4,323
Net Income per common
share-basic .30 .21 .30 .31
diluted .30 .21 .30 .31
</TABLE>
(10) SEGMENT REPORTING
The Company has two reportable business segments, lending and taxicab
rooftop advertising. The lending segment originates and services secured
commercial loans. The taxicab rooftop advertising segment sells advertising
space to advertising agencies and companies in several major markets across
the United States. The segment is reported as an unconsolidated subsidiary,
Medallion Taxi Media, Inc. The accounting policies of the operating segments
are the same as those described in the summary of significant accounting
policies.
For taxicab advertising, the increase in net assets resulting from
operations represents the Company's equity in net income from Media. Segment
assets for taxicab advertising represents the Company's investment in and loan
to Media.
<TABLE>
<CAPTION>
Taxicab
1998 Lending Advertising Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 19,547,612 $ 19,547,612
Depreciation and amortization 360,545 360,545
Income tax benefit (provision) 153,538 153,538
Net increase in net assets resulting from operations 14,481,324 1,200,389 15,681,713
Segment assets 417,191,581 5,033,661 422,225,242
Capital expenditures 1,491,379 1,167,155 **
Taxicab
1997 Lending Advertising Total
- --------------------------------------------------------------------------------------------------------------------------
Net interest income $ 15,749,334 $ 15,749,334
Depreciation and amortization 80,072 80,072
Income tax benefit (provision) (928,910) (928,910)
Net increase in net assets resulting from operations 12,329,365 203,424 12,532,789
Segment assets 337,197,583 2,696,061 339,893,644
Capital expenditures 118,958 754,394 **
Taxicab
1996 Lending Advertising Total
- --------------------------------------------------------------------------------------------------------------------------
Net interest income $ 6,964,607 $ 6,964,607
Depreciation and amortization 14,500 14,500
Income tax benefit (provision) (436,193) (436,193)
Net increase in net assets resulting from operations 5,259,220 (63,000) 5,196,220
Segment assets 213,755,478 1,521,566 215,277,044
Capital expenditures 89,928 145,590 **
</TABLE>
** Capital expenditures for the Company are equal to expenditures for the
lending segment. Capital expenditures related to the taxicab advertising
segment are included in order to provide additional information.
F-22
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
(11) 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 would 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
non-interested 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. On February 24, 1999, the Board of
Directors voted to extend the Sub-Advisory Agreement with FMC until May 2000
under provisions of the renewal in the agreement. Advisory fees incurred during
the years ended December 31, 1998, 1997 and 1996 were $225,000, $225,000 and
$131,250, respectively.
(b) Employment Agreements
The Company has employment agreements with certain key officers for either a
three or five-year term. Annually, the contracts with a five-year term 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
The Company had loan commitments outstanding at December 31, 1998 to various
prospective qualified small businesses totaling approximately $39 million. A
commitment to extend credit is a binding agreement to make a loan to a customer
in the future if certain conditions are met and is subject to the same risk,
credit review and approval process as a loan. These commitments are made in the
ordinary course of the Company's business and in management's opinion, are
generally on the same terms as those to existing borrowers. Commitments
generally have fixed expiration dates. Of these commitments, approximately 67%
will be sold pursuant to SBA Guaranteed Sales. Since some commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Commitments for leased premises expire at various dates through June 30,
2006. At December 31, 1998, minimum rental commitments for non-cancellable
leases are as follows:
<TABLE>
<CAPTION>
Dollars
------------------
(in thousands)
------------------
<S> <C>
1999 880,422
2000 782,605
2001 753,060
2002 728,793
2003 and thereafter 2,331,942
----------
Total $5,476,822
==========
</TABLE>
F-23
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
Rent expense for the years ended December 31, 1998, 1997 and 1996 was $893,927,
$336,114 and $198,529, 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.
(12) RELATED PARTY TRANSACTIONS
Certain directors, officers and shareholders of Medallion Financial Corp. are
also directors of wholly owned subsidiaries, MFC, Edwards, TCC, BLL 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 for the first
meeting of each quarter and $1,000 each for any subsequent meetings. Directors
who are members of the committees of the Board or members of a subsidiary's
Board receive $500 - $1,000 for each meeting attended. Total director fees
during the years ended December 31, 1998, 1997 and 1996 were $130,354, $90,657
and $48,542, respectively. At December 31, 1998, 1997 and 1996, total officer
compensation was $2,310,667, $2,016,845 and $1,188,632, respectively.
During 1998, the Company's wholly owned subsidiary, Media, engaged in
transactions to sell rooftop advertising space to a company represented by a
relative of a Media officer. All transactions were made with arms-length
conditions and pricing.
During 1998, 1997 and 1996, a member of the Board of Directors of the
Company was a partner in the Company's primary law firm.
(13) SHAREHOLDERS' EQUITY
In 1995 and 1996, MFC, TCC and Medallion Capital repurchased and retired all
of their previously issued 3% preferred stock from the SBA at a discount of 65%
($14.6 million) for an aggregate price of $8.0 million, 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 for MFC and TCC and 7 years for
Medallion Capital, 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, 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 or Medallion Capital's liquidation, the unexpired portion ($2.4 million at
December 31, 1998) 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.
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 initial public
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. (See Note 1).
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 June 11, 1998, the shareholders adopted the resolution, proposed by the
Board of Directors, to amend the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of the Company's common stock from
15 million shares to 50 million shares.
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," $2,258,080 and $615,688 were
reclassified from capital in excess of par value to accumulated undistributed
net investment income at December 31, 1998 and 1997, respectively, in the
accompanying consolidated balance sheets. 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.
F-24
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
(14) OTHER OPERATING EXPENSES AND OTHER INCOME
The major components of other operating expenses for the years ended December
31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- --------------
<S> <C> <C> <C>
Office expenses................. $1,810,630 $ 810,819 $ 280,830
Insurance....................... 713,204 490,968 254,440
Rent............................ 893,927 336,114 198,529
Other........................... 1,397,187 961,298 285,015
---------- ---------- ----------
$4,814,948 $2,599,199 $1,018,814
========== ========== ==========
</TABLE>
The major components of other income for the years ended December 31, 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Late charges.................... $ 333,393 $212,139 $123,646
Prepayments..................... 382,777 390,511 205,329
Loan servicing fee income....... 240,470 34,000 -
Other........................... 502,162 343,659 82,016
---------- -------- --------
$1,458,802 $980,309 $410,991
========== ======== ========
</TABLE>
(15) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Investment Plan (the 401(k) Plan) which covers all
full-time 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. As of
September 1, 1998, the Company elected to match employee contributions to the
401(k) Plan in an amount per employee up to one-third of such employee's
contribution but in no event greater than 2.0% of the portion of such employee's
annual salary eligible for 401(k) plan benefits. During 1998, the Company
committed and expensed approximately $7,600 to the 401(K) plan.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" (SFAS
107) 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.
(a) Investments--As described in Note 2, the carrying amount of investments is
the estimated fair value of such investments.
(b) Servicing fee receivable--The fair market value of servicing fee 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 commercial paper--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, 1998 and December 31, 1997, the estimated fair value of these
off-balance-sheet instruments was not material.
F-25
<PAGE>
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
(e) Interest Rate Cap Agreements--The fair value is estimated based on market
prices or dealer quotes. At December 31, 1998 and December 31, 1997, the
estimated fair value of these off-balance-sheet instruments were not the
materially different.
(f) SBA Debentures Payable--The fair value of the debentures payable to the SBA
is estimated based on current market interest rates for similar debt.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------------------- ---------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Financial Assets:
Investments...................... $384,064 $384,064 $313,254 $313,254
Cash............................. $ 6,028 $ 6,028 $ 7,077 $ 7,077
Servicing fee receivable......... $ 2,290 $ 2,290 $ 1,617 $ 1,617
Financial Liabilities:
Notes payable to banks........... $115,600 $115,600 $137,750 $137,750
Commercial Paper................. $103,082 $103,082 $ - $ -
SBA debentures payable........... $ 41,590 $ 41,590 $ 39,770 $ 39,770
</TABLE>
(17) SUBSEQUENT EVENTS
On February 2, 1999, Media purchased 100% of the common stock of Transit
Advertising Displays, Inc. ("TAD") for approximately $850,000. TAD is a taxicab
rooftop advertising company headquartered in Washington, D.C. which operates
1,300 installed rooftop advertising displays in the Baltimore, MD and
Washington, D.C. areas.
F-26
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number of Balance
Loans Outstanding Rate
--------- ------------ ------------
<S> <C> <C>
1 $ 24,539 5.00%
22 5,462,468 6.88-6.98
4 2,543,621 7.25
1 246,000 7.42
1 50,509 7.50
6 541,350 7.61
54 8,256,876 7.75
154 36,423,002 8.00-8.24
238 48,918,174 8.25-8.30
396 52,368,669 8.38-8.63
217 28,735,052 8.75-8.90
187 18,957,460 9.00
112 13,553,872 9.13-9.25
100 9,958,684 9.50
67 8,517,864 9.75-9.88
220 18,805,030 10.00
89 6,726,361 10.25-10.38
368 16,793,867 10.50
37 6,599,869 10.75
155 7,092,409 11.00
6 1,746,289 11.25
1 124,551 11.33
5 448,189 11.50
12 2,694,002 11.75-11.90
179 15,600,280 12.00
3 810,157 12.25
16 1,082,837 12.50-12.70
11 944,678 12.75-12.95
298 22,716,982 13.00-13.20
112 3,905,554 13.25
38 2,881,308 13.50
21 977,171 13.75-13.98
175 7,828,432 14.00-14.20
7 337,751 14.25
71 4,552,508 14.30-14.70
269 8,906,924 14.75-15.20
1 6,936 15.25
25 1,521,269 15.50-16.50
</TABLE>
F-27
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
18 693,304 16.00
5 194,270 16.25
6 149,549 16.50
4 147,632 16.90-16.95
5 2,758,677 17.00
1 27,108 17.27
1 66,977 17.50
2 91,806 17.90
13 404,988 18.00
1 3,281 18.50
5 121,822 19.00
1 21,783 19.01
----- ------------ -----------
Total Loans 3,741 $372,342,691 9.74%
----- ------------ -----------
Equities:
Radio One $ 2,220,332
Cardinal 329,624
Citywide 3
F. Howell 961
Micromedics 58,828
Star 40,000
Other 4,116,813
------ ------------ -----------
Total Equities 10 $ 6,766,561 N/A
------ ------------ -----------
Total Investments 3,751 $379,109,252
====== ============
Plus: Origination costs, net 1,989,803
------------
Investments, at cost $381,099,055
------------
Plus: Unrealized appreciation on investments 4,812,768
Less: Unrealized depreciation on investments 1,847,851
------------
Investments at Directors' valuation $384,063,972
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<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 28,470,229 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
125 16,203,167 12.00
12 1,773,975 12.25
5 429,568 12.50
10 973,445 12.75-12.90
314 18,654,888 13.00
39 1,683,614 13.25
46 2,392,484 13.50
3 148,178 13.75-13.90
164 9,790,248 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
6 583,257 18.00-18.50
6 167,567 19.00
----- ------------ -----------
Total Loans 3,365 $306,850,907 10.20%
----- ------------ -----------
</TABLE>
F-29
<PAGE>
MEDALLION FINANCIAL CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Equities:
Radio One $3,735,179
Cardinal 329,625
Citywide 3
K-Ten 3
K-Ten (LLP) 192,547
Z Spanish 100
KZPZ 100
F. Howell 961
Micromedics 58,828
Star 40,000
First American -
----- ------------ -----
Total Equities 11 $ 4,357,346 N/A
----- ------------ -----
Total Investments 3,376 $311,208,253
===== ============
Plus: Origination costs, net 1,557,199
------------
Investments, at cost $312,765,452
------------
Plus: Unrealized appreciation on investments 3,132,654
Less: Unrealized depreciation on investments 2,643,660
------------
Investments, at Directors' valuation $313,254,446
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of March 6, 1998, by and among
Medallion Financial Corp., CD Merger Corp. and Capital Dimensions,
Inc. (Exhibits and Schedules thereto omitted). Filed as Exhibit 2.1
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998 and incorporated by reference herein.
3.1 Certificate of Amendment to Medallion Financial Corp. Restated
Certificate of Incorporation. Filed as Exhibit 3.1.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998 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
<PAGE>
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 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
<PAGE>
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.
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 First Amended and Restated Employment Agreement between Medallion
Financial Corp. and Alvin Murstein dated May 29, 1998. Filed
herewith.
10.20 First Amended and Restated Employment Agreement between Medallion
Financial Corp. and Andrew Murstein dated May 29, 1998. Filed
herewith.
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. Amended and Restated 1996 Stock Option
Plan. Filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ending June 30, 1998 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
<PAGE>
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997 and incorporated by reference herein.
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 Amended and Restated Employment Agreement dated August 29, 1998
between Medallion Financial Corp. and Allen S. Greene. Filed
herewith.
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 TriumphConnecticut, 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 as Exhibit 10.50 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
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 as Exhibit 10.51 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
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 as Exhibit 10.52 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and incorporated by
reference herein.
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 as Exhibit 10.53 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and incorporated by
reference herein.
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 as Exhibit 10.54 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
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 as Exhibit 10.55 to the
<PAGE>
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated by reference herein.
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 as Exhibit 10.56 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
.
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 as Exhibit 10.57 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
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 as Exhibit 10.58 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and incorporated by
reference herein.
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 as Exhibit 10.59 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
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 as Exhibit 10.60 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
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 as Exhibit 10.61 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
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 as Exhibit
10.62 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 and incorporated by reference herein.
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
<PAGE>
Paper issued by Medallion Funding Corp. Filed as Exhibit 10.63 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated by reference herein.
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 as Exhibit 10.64 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated by reference herein.
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 as Exhibit 10.65 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated by reference herein.
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 as
Exhibit 10.66 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated by reference
herein.
10.67 (CE) Commercial Paper Dealer Agreement [4 (2) Program] between
Medallion Funding Corp., as issuer, and Smith Barney Inc., as
dealer, dated as of March 13, 1998. Filed as Exhibit 10.1 to the
Company's Quarterly report on Form 10-Q for the fiscal quarter
ended March 31, 1998 and incorporated by reference herein.
10.68 Agency Agreement, by and between Medallion Funding Corp. and Bank
of Montreal Trust Company, dated as of March 13, 1998. Filed as
Exhibit 10.2 to the Company's Quarterly Report on form 10-Q for the
fiscal quarter ended March 31, 1998 and incorporated by reference
herein.
10.69 Loan Agreement, dated as of July 31, 1998, by and among Medallion
Financial Corp., the Lenders Party thereto, Fleet Bank, National
Association as Agent and Swing Line Lender and Fleet Bank, National
Association as Arranger (Exhibits included). Filed as Exhibit 10.2
to the Company's Quarterly Report on form 10-Q for the fiscal
quarter ended September 30, 1998 and incorporated by reference
herein.
21 List of Subsidiaries of Medallion Financial Corp. Filed herewith.
23.1 Consent of Arthur Andersen LLP relating to its report concerning
Medallion Financial Corp., dated March 29, 1999. 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 29, 1999. Filed herewith.
27 Medallion Financial Corp. Financial Data Schedule. Filed herewith.
<PAGE>
EXHIBIT 10.19
First Amended and Restated Employment Agreement
-----------------------------------------------
This Employment Agreement dated May 29, 1998, is between Medallion
Financial Corp., a Delaware corporation with its principal place of business at
437 Madison Avenue, 38th Floor, New York, NY 10022 (the "Company"), and Alvin
-------
Murstein residing at [OMITTED] (the "Executive").
---------
Whereas, the Executive is presently employed by the Company as the Chief
Executive Officer of the Company;
Whereas, the Board of Directors of the Company (The "Board") desires to
-----
provide for the continued employment of the Executive, which the Board believes
is in the best interests of the Company and its shareholders, the Executive is
willing to commit himself to serve the Company, on the terms and conditions
herein provided;
Now, Therefore, in considerationof the mutual covenants and promises
contained herein, the other good and valuable consideration, the receipts and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
The Company agrees to employ the Executive, and the Executive agrees to
serve the Company, on the terms and conditions set forth herein.
1. Title; Capacity. The Executive shall serve as Chief Executive
-- ---------------
Officer of the Company and shall be based at the Company's headquarters in New
York City. The Executive hereby accepts such employment and agrees to undertake
the duties and responsibilities inherent in such position and such other duties
and responsibilities as the Board or its designee shall from time to time
reasonably assign to him. The Executive agrees to abide by the rules,
regulations, instructions, personnel practices and policies of the Company and
any changes therein which may be adopted from time to time by the Company.
2. Term of Employment. The Company agrees to employ the Executive,
-- ------------------
and the Executive agrees to serve the Company for a period commencing on
May 29, 1998 (the
-1-
<PAGE>
"Commencement Date") and continuing for five years thereafter (such period,
-----------------
including all extensions thereto, to be collectively referred to as the
"Employment Period"), unless otherwise terminated pursuant to the terms hereof.
-----------------
The Employment Period shall automatically renew annually for a new five-year
term unless prior to the end of the first year of each five-year term, either
the Company or the Executive provides notice to the other party to this
Agreement of its intention not to extend the Employment Period beyond the then
current five-year term. Any notice given pursuant to this Section shall be
provided in accordance with the terms of Section 8.1 hereof and shall be
provided not later than 30 days prior to the end of such one-year period.
3. Compensation and Benefits.
-- -------------------------
3.1 Salary. The Company shall pay the Executive, Payable as
--- ------
customairy paid by the Company, an annual base salary of $300,000 for the one-
year period commencing on the Commencement Date. Such salary shall be reviewed
at least annually thereafter and may be increased but not decreased from the
current annual salary.
3.2 Bonus and Fringe Benefits. The Executive shall be entitled to
--- -------------------------
participate in all bonus and benefit programs or plans that the Company
establishes and makes available to its employees to the extent that the
Executive's position, tenure, salary, and other qualifications make him eligible
to participate. The Company will pay or reimburse the lease cost of the
automobile currently leased by the Executive and upon expiration or termination
of the lease will continue to provide the Executive with a suitable automobile
for his business and personal use. The Company will pay or reimburse all
maintenance, insurance, garage and other operating expenses of the automobile
currently leased by Executive or any replacement provided by the Company
hereunder. The Company will pay or reimburse the Executive for the membership
dues, entry fees, and all business related expenses for his membership in
[OMITTED] Club.
3.3 Reimbursement of Expenses. The Company shall reimburse the
--- -------------------------
Executive for all reasonable travel, entertainment and other expenses incurred
or paid by the Executive in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon presentation
by the Executive of documentation,
-2-
<PAGE>
expense statements, vouchers and/or such other supporting information as the
Company may reasonably request, provided, however, that the amount available for
-------- -------
such travel, entertainment and other expenses may be fixed in advance by the
Board.
3.4 Insurance. The Company shall continue to maintain all existing
--- ---------
life, health and disability programs which currently cover the Executive and
which the Company currently pays. The Executive shall be entitled to participate
in all employee benefit programs or plans maintained by the Company for
employees of similar positions.
3.5 Vacation. The Executive shall be entitled to six weeks paid
--- --------
vacation per year.
4. Employment Termination. The employment of the Executive by the
-- ----------------------
Company pursuant to this Agreement may be terminated under the following
circumstances:
4.1 Expiration of Term. Expiration of the Employment Period in
--- ------------------
accordance with Section 2.
4.2 Death. Upon the death of the Executive.
--- -----
4.3 Disability. If, as a result of the Executive's incapacity due to
--- ----------
physical or mental illness, the Executive shall have failed to perform the
services contemplated under this Agreement for a period of 270 consecutive days,
or a total of at least 300 calendar days during any 365-day period, or a
determination of disability shall have been made by a physician satisfactory to
both the Executive and the Company, provided that if the Executive and the
Company do not agree on a physician, the Executive and the Company shall each
select a physician and these two together shall select a third physician whose
determination as to disability shall be binding on both parties.
4.4 Cause. The Company may terminate the Executive's employment
--- -----
hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder in the event:
-----
(i) the Executive shall have willfully failed and
-3-
<PAGE>
continued to fail substantially to perform the duties (other than any
failure resulting from the Executive's incapacity due to physical or mental
illness or any actual or anticipated failure after the issuance by him of a
Notice of Termination, as defined in Section 4.6), for 30 days after a
written demand for performance is delivered to the Executive on behalf of
the Company which specifically identifies the manner in which it is alleged
that the Executive has not substantially performed his duties; provided
--------
that the Company's economic performance or failure to meet any specific
projection shall not, in and of itself, constitute "Cause"; or
-----
(ii) the Executive shall have engaged in (A) any material
misappropriation of funds, properties or assets of the Company, it being
understood that "material" for these purposes shall take into account both
--------
the amount of funds, properties or assets misappropriated and the
circumstances thereof (including the intent of the Executive in connection
therewith) or (B) any malicious damage or destruction of any property or
assets of the Company, whether resulting from the Executive's willful
actions or omissions or the Executive's gross negligence; or
(iii) the Executive shall (A) have been convicted of a crime involving
moral turpitude or constituting a felony or (B) entered a plea of nolo
contendere to any such crime, either of which has had a material adverse
effect upon the business of the Company; or
(iv) the Executive shall have (A) materially breached his obligations
under Section 6 hereof or (B) breached any of the other material provisions
of this Agreement and such breach shall remain uncured by the Executive
within 30 days following receipt of notice from the Company specifying such
breach.
4.5 Termination by the Executive. The Executive may terminate his
--- ----------------------------
employment hereunder (I) upon 90 days written notice or (ii) for Good Reason (as
defined below).
-4-
<PAGE>
For purpose of this Agreement, "Good Reason" shall exist if there is a
-----------
Change in Control (as defined below) of the Company and one or more of the
following events shall have occurred (without the Executive's express
written consent):
(a) the assignment to the Executive of any duties inconsistent with his
status as Chief Executive Officer of the Company, his removal from the
position of Chief Executive Officer of the Company, or a substantial
alteration in the nature or status of his responsibilities from those in
effect immediately prior to the Change in Control;
(b) a reduction by the Company of the Executive's annual base salary in
effect on the date immediately prior to the Change in Control;
(c) the relocation of the Company's principal Executive offices to a
location outside mid-town New York City or a requirement that the Executive
shall be based anywhere other than the Company's principal Executive
offices except for required travel on the Company's business to an extent
substantially consistent with his business travel obligations prior to the
Change in Control;
(d) the failure by the Company to continue in effect any bonus plan in
which the Executive was participating immediately prior to the Change in
Control; or
(e) the failure by the Company to continue to provide the Executive
with benefits at least as favorable as those enjoyed by him under any of
the Company's pension, life insurance, medical, health and accident,
disability, deferred compensation or savings plans in which he was
participating at the time of the Change in Control, the taking of any
action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive him of any material fringe benefit enjoyed
by him at the time of the Change in Control, or the failure by the Company
to provide the Executive with the number of paid
-5-
<PAGE>
vacation days to which he was entitled at the time of the Change in
Control.
For purpose of this Agreement, a "Change in Control" of the Company
-----------------
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended.
4.6 Notice of Termination. Any termination of the Executive's
--- ---------------------
employment by the Company or by the Executive other than termination pursuant to
Section 4.2) shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
---------------------
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances which provide a basis for termination of the Executive's
employment under the provision so indicated.
4.7 Date of Termination. "Date of Termination" shall mean (I) if the
--- ------------------- -------------------
Executive's employment is terminated pursuant to Section 4.1, the date on which
the Employment Period expires pursuant to Section 2, (ii) if the Executive's
employment is terminated pursuant to Section 4.2, the date of the Executive's
death, (iii) if the Executive's employment is terminated pursuant to Section
4.3, 30 days after the Notice of Termination is given (provided that the
Executive shall not have returned to the performance of his duties on a full-
time basis during such 30 day period), (iv) if the Executive's employment is
terminated pursuant to Section 4.4 or subsection (i) of Section 4.5, the date
specified in the Notice of Termination, provided that in the case of Section
4.5, the date specified in the Notice of Termination, provided that in the case
of a Section 4.4 termination it is at least 30 days subsequent to the date of
the issuance of such Notice of Termination and in the case of a subsection (i)
of Section 4.5 termination it is at least 90 days subsequent to the date of the
issuance of such Notice of Termination, (v) if the Executive's employment is
terminated pursuant to subsection (ii) of Section 4.5, the date specified in
such Notice of Termination, and (vi) if the Executive's employment is terminated
other than as provided herein, the date specified in the Notice of Termination,
-6-
<PAGE>
provided that it is at least 30 days subsequent tot he date of the issuance of
such Notice of Termination.
5. Compensation Upon Termination.
-- -----------------------------
5.1 If the Executive's employment is terminated under the provision of
Sections
4.1, 4.4 or subsection (I) of Section 4.5, the Company shall pay to the
Executive his full salary, bonus and benefits through the Date of Termination.
5.2 If the Executive's employment is terminated by the Executive's
death under the provision of Section 4.2, the Company shall pay to the
Executive's estate the Executive's full salary, bonus and benefits to the
Executive through the Date of Termination.
5.3 If the Executive's employment is terminated under the provisions of
Section 4.3, the Company shall pay to the Executive his full salary, bonus and
benefits through the Date of Termination. During any period that the Executive
fails to perform his duties hereunder as a result of disability (as defined in
Section 4.3), the Executive shall continue to receive his full salary, bonus and
benefits through the Date of Termination.
5.4 If the Company shall terminate the Executive's employment other
than as provided herein or the Executive shall terminate his employment pursuant
to subsection (ii) of Section 4.5, then:
(i) The Company shall pay the Executive his full salary, bonus and
benefits through the date of termination.
(ii) Subject to subsection (iv) of this Section 5.4, in lieu of any
further salary payments to the Executive for periods subsequent to the Date
of Termination, the Company shall pay as severance pay to the Executive an
amount equal to the remainder of the salary, bonus and value of the fringe
benefits which the Executive would be entitled to receive for the balance
of the Employment Period.
-7-
<PAGE>
(iii) The Company shall pay all other damages to which the
Executive may be entitled as a result of such termination, including damages for
any and all legal fees and expenses incurred by him as a result of such
termination.
(iv) In the event that (A) any payment or benefit received or to be
received by the Executive in connection with a Change in Control of the
Company or the termination of the Executive's employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or agreement
with the Company) (collectively referred to herein as "Severance Payments")
------------------
would not be deductible (in whole or part) as a result of section 280G of
the Internal Revenue Code of 1986, as amended, (the "Code") by the Company,
----
an affiliate or other person making such payment or providing such benefit
and (B) it shall be determined that the net amount retained by the
Executive, after deduction of the excise tax imposed by section 4999 of the
Code and any federal, state and local income and employment taxes on the
Severance Payments, does not exceed 110% of the net amount retained by the
Executive after applying the limitations of this subsection (iv) of Section
5.4 and after deduction of any federal, state and local income and
employment taxes on the Severance Payments as so reduced, the Severance
Payments shall be reduced until no portion of the Severance Payments is not
deductible, or the Severance Payments are reduced to zero. For purposes of
this limitation (I) no portion of the Severance Payments the receipt or
enjoyment of which the Executive shall have effectively waived in writing
prior tot he date of payment of the Severance Payments shall be taken into
account, (ii) no portion of the Severance Payments shall be taken into
account which in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to the Executive does not constitute a
"parachute payment" within the meaning of section 280G(b)(2) of the Code,
-----------------
(iii) the Severance Payments shall be reduced only to the extent necessary
so that the Severance Payments (other than those referred to in clauses (i)
or (ii)) in their entirety constitute reasonable compensation for services
actually rendered within
-8-
<PAGE>
the meaning of section 280G(b)(4) of the code or are otherwise not subject
to disallowance as deductions, in the opinion of the tax counsel referred
to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Severance Payments shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the code. For purposes of
determining the income taxes on the Severance Payments, the Executive shall
be deemed to pay federal income tax at the highest marginal rate of federal
income taxation in the calendar year in which the Severance Payments are to
be made and local income taxes at the highest marginal rate of taxation in
the state and locality of the Executive's residence on the Date of
Termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
(v) All options previously granted and unvested shall immediately
vest.
6. Proprietary Information and Developments.
-- ----------------------------------------
6.1 Proprietary Information.
--- -----------------------
(i) Th Executive agrees that all information and know how, whether or
not in writing, of a private, secret, or confidential nature concerning the
Company's business or financial affairs (collectively, "Proprietary
-----------
Information") is and shall be the exclusive property of the Company. By way
-----------
of illustration, but not limitation, Proprietary Information may include
inventions, products, processes, methods, techniques, projects
developments, plans, research data, financial data, personnel data, and
lists of borrowers, advertisers, fleet and taxi owners. The Executive will
not disclose any Proprietary Information to others outside the Company or
use the same for any unauthorized purposes without written approval by the
board, either during or after his employment, unless and until such
Proprietary Information has become public knowledge without fault by the
Executive.
-9-
<PAGE>
(ii) The Executive agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, or other written, photographic, or other
tangible material containing Proprietary Information, whether created by
the Executive or others, which shall come into his custody or
possession, shall be and are the exclusive property of the Company to be
used by the Executive only in the performance of his duties for the
Company.
(iii) The Executive agrees that his obligation not to disclose or use
information, know-how and records of the types set forth in subsection (I) and
(ii) above, also extends to such types of information, know-how,
records and tangible property of borrowers, advertisers, fleet and taxi
owners or other third parties who may have disclosed or entrusted the same
to the Company or the Executive in the course of the Company's business.
6.2 Other Agreements. The Executive hereby represents that he is not
--- ----------------
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his employment with the Company or to refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party. The Executive further represents that his performance of all
the terms of this Agreement and as an employee of the Company dos not and will
not breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by him in confidence or in trust prior to his
employment with the Company.
7. Non-Competition, Non-Solicitation.
- -- ---------------------------------
7.1 Non-solicitation of Employees. The Executive agrees that during the
--- -----------------------------
term of the Executive's employment with the Company and for a period of one year
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not directly recruit, solicit or otherwise induce or
attempt to induce any
-10-
<PAGE>
employees of the Company to leave the employment of the Company.
7.2 Non-competition. The Executive agrees that during the term of the
--- ---------------
Executive's employment with the Company and for a period of one year after the
termination of the Executive's employment with the Company for any reason, the
Executive shall not directly or indirectly, except as a passive investor in
publicly held companies and except for investments held at the date hereof,
engage in competition with the Company or any of its subsidiaries, or own or
control any interest in, or act as director, officer or employee of, or
consultant to, any firm, corporation or institution directly engaged in
competition with the Company or any of its subsidiaries; provided the Company or
one of its subsidiaries are actively engaged in such business at the time the
Executive's employment by the Company is terminated.
8. Miscellaneous.
-- -------------
8.1 Notices. All notices required or permitted under this Agreement
--- -------
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 8.1.
8.2 Pronouns. Whenever the context may require any pronouns used in
--- --------
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
8.3 Entire Agreement. This Agreement constitutes the entire
--- ----------------
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating t the subject matter of this
Agreement.
8.4 Amendment. This Agreement may be amended or modified only by a
--- ---------
written instrument executed by both the Company and the Executive.
8.5 Governing Law. This Agreement shall be construed, interpreted and
--- -------------
-11-
<PAGE>
enforced in accordance with the laws of the State of Delaware.
8.6 Successors and Assigns. This Agreement shall be binding upon and
--- ----------------------
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by him.
8.7 Waivers. No delay or omission by the Company is exercising any
--- -------
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
8.8 Captions. The captions of the sections of this Agreement are for
--- --------
convenience of reference only and in no way define, limit or affect the scope or
substance eof any section of this Agreement.
8.9 Severability. In case any provision of this Agreement shall be
--- ------------
invalid illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
In Witness Whereof, the parties hereto have executed this Agreement as of
the day and year set forth above.
Medallion Financial Corp.
By: /s/ Andrew M. Murstein
--------------------------------
Title: President
-----------------------------
Executive
/s/ Alvin Murstein
___________________________________
Alvin Murstein
-12-
<PAGE>
EXHIBIT 10.20
First Amended and Restated Employment Agreement
-----------------------------------------------
This Amended and Restated Employment Agreement dated May 29, 1998, is
between Medallion Financial Corp., a Delaware corporation with its principal
place of business at 437 Madison Avenue, 38/th/ Floor, New York, NY 10022 (the
"Company"), and Andrew Murstein residing at [OMITTED] (the "Executive").
---------
Whereas, the Executive is presently employed by the Company as the
President of the Company;
Whereas, the Board of Directors of the Company (The "Board") desires to
-----
provide for the continued employment of the Executive, which the Board believes
is in the best interests of the Company and its shareholders, the Executive is
willing to commit himself to serve the Company, on the terms and conditions
herein provided;
Now, Therefore, in considerationof the mutual covenants and promises
contained herein, the other good and valuable consideration, the receipts and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
The Company agrees to employ the Executive, and the Executive agrees to
serve the Company, on the terms and conditions set forth herein.
1. Title; Capacity. The Executive shall serve as President of the
-- ---------------
Company and shall be based at the Company's headquarters in New York City. The
Executive hereby accepts such employment and agrees to undertake the duties and
responsibilities inherent in such position and such other duties and
responsibilities as the Board or its designee shall from time to time reasonably
assign to him. The Executive agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes
therein which may be adopted from time to time by the Company.
2. Term of Employment. The Company agrees to employ the Executive, and
-- ------------------
the Executive agrees to serve the Company for a period commencing on May 29,
1998 (the
-1-
<PAGE>
"Commencement Date") and continuing for five years thereafter (such period,
-----------------
including all extensions thereto, to be collectively referred to as the
"Employment Period"), unless otherwise terminated pursuant to the terms hereof.
-----------------
The Employment Period shall automatically renew annually for a new five-year
term unless prior to the end of the first year of each five-year term, either
the Company or the Executive provides notice to the other party to this
Agreement of its intention not to extend the Employment Period beyond the then
current five-year term. Any notice given pursuant to this Section shall be
provided in accordance with the terms of Section 8.1 hereof and shall be
provided not later than 30 days prior to the end of such one-year period.
3. Compensation and Benefits.
-- -------------------------
3.1 Salary. The Company shall pay the Executive, payable as
--- ------
customarily paid by the Company, an annual base salary of $225,000 for the
one-year period commencing on the Commencement Date. Such salary shall be
reviewed at least annually thereafter and may be increased but not
decreased from the current salary.
3.2 Bonus and Fringe Benefits. The Executive shall be entitled to
--- -------------------------
participate in all bonus and benefit programs or plans that the Company
establishes and makes available to its employees to the extent that the
Executive's position, tenure, salary, and other qualifications make him
eligible to participate. The Company will pay or reimburse the lease cost
of the automobile currently leased by the Executive and upon expiration or
termination of the lease will continue to provide the Executive with a
suitable automobile for his business and personal use. The Company will
pay or reimburse all maintenance, insurance, garage and other operating
expenses of the automobile currently leased by Executive or any replacement
provided by the Company hereunder.
3.3 Reimbursement of Expenses. The Company shall reimburse the
--- -------------------------
Executive for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to, the
performance of his duties, responsibilities or services under this
Agreement, upon presentation by the Executive of documentation, expense
statements, vouchers and/or such other supporting information as the
Company may reasonably request, provided, however, that the amount
-------- -------
available for such travel, entertainment and other expenses may be fixed in
advance by the Board.
-2-
<PAGE>
3.4 Insurance. The Executive shall be entitled to health insurance
--- ---------
coverage, term life insurance and long term disability insurance to the
extent that the Executive's position, tenure, salary, age, health and other
qualifications make him eligible to participate.
3.5 Vacation. The Executive shall be entitled to six weeks paid
--- --------
vacation per year.
4. Employment Termination. The employment of the Executive by the
-- ----------------------
Company pursuant to this Agreement may be terminated under the following
circumstances:
4.1 Expiration of Term. Expiration of the Employment Period in
--- ------------------
accordance with Section 2.
4.2 Death. Upon the death of the Executive.
--- -----
4.3 Disability. If, as a result of the Executive's incapacity due to
--- ----------
physical or mental illness, the Executive shall have failed to perform the
services contemplated under this Agreement for a period of 270 consecutive
days, or a total of at least 300 calendar days during any 365-day period,
or a determination of disability shall have been made by a physician
satisfactory to both the Executive and the Company, provided that if the
Executive and the Company do not agree on a physician, the Executive and
the Company shall each select a physician and these two together shall
select a third physician whose determination as to disability shall be
binding on both parties.
4.4 Cause. The Company may terminate the Executive's employment
--- -----
hereunder for Cause. For purposes of this Agreement, the Company shall
have "Cause" to terminate the Executive's employment hereunder in the
-----
event:
(i) the Executive shall have willfully failed and continued to
fail substantially to perform the duties (other than any failure
resulting from the Executive's incapacity due to physical or mental
illness or any actual or anticipated failure after the issuance by him
of a Notice of Termination, as defined in Section 4.6), for 30 days
after a written demand for performance is
-3-
<PAGE>
delivered to the Executive on behalf of the Company which specifically
identifies the manner in which it is alleged that the Executive has
not substantially performed his duties; provided that the Company's
--------
economic performance or failure to meet any specific projection shall
not, in and of itself, constitute "Cause"; or
-----
(ii) the Executive shall have engaged in (A) any material
misappropriation of funds, properties or assets of the Company, it
being understood that "material" for these purposes shall take into
--------
account both the amount of funds, properties or assets misappropriated
and the circumstances thereof (including the intent of the Executive
in connection therewith) or (B) any malicious damage or destruction of
any property or assets of the Company, whether resulting from the
Executive's willful actions or omissions or the Executive's gross
negligence; or
(iii) the Executive shall (A) have been convicted of a crime
involving moral turpitude or constituting a felony or (B) entered a
plea of nolo contendere to any such crime, either of which has had a
material adverse effect upon the business of the Company; or
(iv) the Executive shall have (A) materially breached his
obligations under Section 6 hereof or (B) breached any of the other
material provisions of this Agreement and such breach shall remain
uncured by the Executive within 30 days following receipt of notice
from the Company specifying such breach.
4.5 Termination by the Executive. The Executive may terminate his
--- ----------------------------
employment hereunder (I) upon 90 days written notice or (ii) for Good
Reason (as defined below).
For purpose of this Agreement, "Good Reason" shall exist if there is a
-----------
Change in Control (as defined below) of the Company and one or more of the
following events shall have occurred (without the Executive's express
written consent):
-4-
<PAGE>
(a) the assignment to the Executive of any duties inconsistent
with his status as Chief Executive Officer of the Company, his removal
from the position of Chief Executive Officer of the Company, or a
substantial alteration in the nature or status of his responsibilities
from those in effect immediately prior to the Change in Control;
(b) a reduction by the Company of the Executive's annual base
salary in effect on the date immediately prior to the Change in
Control;
(c) the relocation of the Company's principal Executive offices
to a location outside mid-town New York City or a requirement that the
Executive shall be based anywhere other than the Company's principal
Executive offices except for required travel on the Company's business
to an extent substantially consistent with his business travel
obligations prior to the Change in Control;
(d) the failure by the Company to continue in effect any bonus
plan in which the Executive was participating immediately prior to the
Change in Control; or
(e) the failure by the Company to continue to provide the
Executive with benefits at least as favorable as those enjoyed by him
under any of the Company's pension, life insurance, medical, health
and accident, disability, deferred compensation or savings plans in
which he was participating at the time of the Change in Control, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive him of any material
fringe benefit enjoyed by him at the time of the Change in Control, or
the failure by the Company to provide the Executive with the number of
paid vacation days to which he was entitled at the time of the Change
in Control.
For purpose of this Agreement, a "Change in Control" of the Company
-----------------
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended.
-5-
<PAGE>
4.6 Notice of Termination. Any termination of the Executive's
--- ---------------------
employment by the Company or by the Executive other than termination
pursuant to Section 4.2) shall be communicated by Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
---------
Termination" shall mean a written notice which shall indicate the specific
-----------
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances which provide a basis for
termination of the Executive's employment under the provision so indicated.
4.7 Date of Termination. "Date of Termination" shall mean (I) if the
--- ------------------- -------------------
Executive's employment is terminated pursuant to Section 4.1, the date on
which the Employment Period expires pursuant to Section 2, (ii) if the
Executive's employment is terminated pursuant to Section 4.2, the date of
the Executive's death, (iii) if the Executive's employment is terminated
pursuant to Section 4.3, 30 days after the Notice of Termination is given
(provided that the Executive shall not have returned to the performance of
his duties on a full-time basis during such 30 day period), (iv) if the
Executive's employment is terminated pursuant to Section 4.4 or subsection
(i) of Section 4.5, the date specified in the Notice of Termination,
provided that in the case of Section 4.5, the date specified in the Notice
of Termination, provided that in the case of a Section 4.4 termination it
is at least 30 days subsequent to the date of the issuance of such Notice
of Termination and in the case of a subsection (i) of Section 4.5
termination it is at least 90 days subsequent to the date of the issuance
of such Notice of Termination, (v) if the Executive's employment is
terminated pursuant to subsection (ii) of Section 4.5, the date specified
in such Notice of Termination, and (vi) if the Executive's employment is
terminated other than as provided herein, the date specified in the Notice
of Termination, provided that it is at least 30 days subsequent tot he date
of the issuance of such Notice of Termination.
5. Compensation Upon Termination.
-- -----------------------------
5.1 If the Executive's employment is terminated under the provision
of Sections 4.1, 4.4 or subsection (I) of Section 4.5, the Company shall
pay to the Executive his full salary, bonus and benefits through the Date
of Termination.
-6-
<PAGE>
5.2 If the Executive's employment is terminated by the Executive's
death under the provision of Section 4.2, the Company shall pay to the
Executive's estate the Executive's full salary, bonus and benefits to the
Executive through the Date of Termination.
5.3 If the Executive's employment is terminated under the provisions
of Section 4.3, the Company shall pay to the Executive his full salary,
bonus and benefits through the Date of Termination. During any period that
the Executive fails to perform his duties hereunder as a result of
disability (as defined in Section 4.3), the Executive shall continue to
receive his full salary, bonus and benefits through the Date of
Termination.
5.4 If the Company shall terminate the Executive's employment other
than as provided herein or the Executive shall terminate his employment
pursuant to subsection (ii) of Section 4.5, then:
(i) The Company shall pay the Executive his full salary, bonus
and benefits through the date of termination.
(ii) Subject to subsection (iv) of this Section 5.4, in lieu of
any further salary payments to the Executive for periods subsequent to
the Date of Termination, the Company shall pay as severance pay to the
Executive an amount equal to the remainder of the salary, bonus and
value of the fringe benefits which the Executive would be entitled to
receive for the balance of the Employment Period.
(iii) The Company shall pay all other damages to which the
Executive may be entitled as a result of such termination, including
damages for any and all legal fees and expenses incurred by him as a
result of such termination.
(iv) In the event that (A) any payment or benefit received or to
be received by the Executive in connection with a Change in Control of
the Company or the termination of the Executive's employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the
-7-
<PAGE>
Company) (collectively referred to herein as "Severance Payments")
------------------
would not be deductible (in whole or part) as a result of section 280G
of the Internal Revenue Code of 1986, as amended, (the "Code") by the
----
Company, an affiliate or other person making such payment or providing
such benefit and (B) it shall be determined that the net amount
retained by the Executive, after deduction of the excise tax imposed
by section 4999 of the Code and any federal, state and local income
and employment taxes on the Severance Payments, does not exceed 110%
of the net amount retained by the Executive after applying the
limitations of this subsection (iv) of Section 5.4 and after deduction
of any federal, state and local income and employment taxes on the
Severance Payments as so reduced, the Severance Payments shall be
reduced until no portion of the Severance Payments is not deductible,
or the Severance Payments are reduced to zero. For purposes of this
limitation (I) no portion of the Severance Payments the receipt or
enjoyment of which the Executive shall have effectively waived in
writing prior tot he date of payment of the Severance Payments shall
be taken into account, (ii) no portion of the Severance Payments shall
be taken into account which in the opinion of tax counsel selected by
the Company's independent auditors and acceptable to the Executive
does not constitute a "parachute payment" within the meaning of
-----------------
section 280G(b)(2) of the Code, (iii) the Severance Payments shall be
reduced only to the extent necessary so that the Severance Payments
(other than those referred to in clauses (i) or (ii)) in their
entirety constitute reasonable compensation for services actually
rendered within the meaning of section 280G(b)(4) of the code or are
otherwise not subject to disallowance as deductions, in the opinion of
the tax counsel referred to in clause (ii); and (iv) the value of any
non-cash benefit or any deferred payment or benefit included in the
Severance Payments shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3) and
(4) of the code. For purposes of determining the income taxes on the
Severance Payments, the Executive shall be deemed to pay federal
income tax at the highest marginal rate of federal income taxation in
the calendar year in which the Severance Payments are to be made and
local income taxes at the highest marginal rate of taxation in
-8-
<PAGE>
the state and locality of the Executive's residence on the Date of
Termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
(v) All options previously granted and unvested shall
immediately vest.
6. Proprietary Information and Developments.
-- ----------------------------------------
6.1 Proprietary Information.
--- -----------------------
(i) The Executive agrees that all information and know how,
whether or not in writing, of a private, secret, or confidential
nature concerning the Company's business or financial affairs
(collectively, "Proprietary Information") is and shall be the
-----------------------
exclusive property of the Company. By way of illustration, but not
limitation, Proprietary Information may include inventions, products,
processes, methods, techniques, projects developments, plans, research
data, financial data, personnel data, and lists of borrowers,
advertisers, fleet and taxi owners. The Executive will not disclose
any Proprietary Information to others outside the Company or use the
same for any unauthorized purposes without written approval by the
board, either during or after his employment, unless and until such
Proprietary Information has become public knowledge without fault by
the Executive.
(ii) The Executive agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, or other written,
photographic, or other tangible material containing Proprietary
Information, whether created by the Executive or others, which shall
come into his custody or possession, shall be and are the exclusive
property of the Company to be used by the Executive only in the
performance of his duties for the Company.
(iii) The Executive agrees that his obligation not to disclose or
use information, know-how and records of the types set forth in
subsection (I) and
-9-
<PAGE>
(iv) above, also extends to such types of information, know-how,
records and tangible property of borrowers, advertisers, fleet and
taxi owners or other third parties who may have disclosed or entrusted
the same tot he Company or the Executive in the course of the
Company's business.
6.2 Other Agreements. The Executive hereby represents that he is not
--- ----------------
bound by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or confidential
or proprietary information in the course of his employment with the Company
or to refrain from competing, directly or indirectly, with the business of
such previous employer or any other party. The Executive further
represents that his performance of all the terms of this Agreement and as
an employee of the Company dos not and will not breach any agreement to
keep in confidence proprietary information, knowledge or data acquired by
him in confidence or in trust prior to his employment with the Company.
7. Non-Competition, Non-Solicitation.
-- ---------------------------------
7.1 Non-solicitation of Employees. The Executive agrees that during
--- -----------------------------
the term of the Executive's employment with the Company and for a period of
one year after the termination of the Executive's employment with the
Company for any reason, the Executive shall not directly recruit, solicit
or otherwise induce or attempt to induce any employees of the Company to
leave the employment of the Company.
7.2 Non-competition. The Executive agrees that during the term of
--- ---------------
the Executive's employment with the Company and for a period of one year
after the termination of the Executive's employment with the Company for
any reason, the Executive shall not directly or indirectly, except as a
passive investor in publicly held companies and except for investments held
at the date hereof, engage in competition with the Company or any of its
subsidiaries, or own or control any interest in, or act as director,
officer or employee of, or consultant to, any firm, corporation or
institution directly engaged in competition with the Company or any of its
subsidiaries; provided the Company or one of its subsidiaries are actively
engaged in such business at the time the Executive's employment by the
Company is terminated.
-10-
<PAGE>
8. Miscellaneous.
-- -------------
8.1 Notices. All notices required or permitted under this Agreement
--- -------
shall be in writing and shall be deemed effective upon personal delivery or
upon deposit in the United States Post Office, by registered or certified
mail, postage prepaid, addressed to the other party at the address shown
above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 8.1.
8.2 Pronouns. Whenever the context may require any pronouns used in
--- --------
this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular forms of nouns and pronouns shall include
the plural, and vice versa.
8.3 Entire Agreement. This Agreement constitutes the entire
--- ----------------
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating t the subject matter of
this Agreement.
8.4 Amendment. This Agreement may be amended or modified only by a
--- ---------
written instrument executed by both the Company and the Executive.
8.5 Governing Law. This Agreement shall be construed, interpreted and
--- -------------
enforced in accordance with the laws of the State of Delaware.
8.6 Successors and Assigns. This Agreement shall be binding upon and
--- ----------------------
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may
be merged or which may succeed to its assets or business, provided,
however, that the obligations of the Executive are personal and shall not
be assigned by him.
8.7 Waivers. No delay or omission by the Company is exercising any
--- -------
right under this Agreement shall operate as a waiver of that or any other
right. A waiver or consent given by the Company on any one occasion shall
be effective only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.
-11-
<PAGE>
8.8 Captions. The captions of the sections of this Agreement are for
--- --------
convenience of reference only and in no way define, limit or affect the
scope or substance eof any section of this Agreement.
8.9 Severability. In case any provision of this Agreement shall be
--- ------------
invalid illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
In Witness Whereof, the parties hereto have executed this Agreement as of
the day and year set forth above.
Medallion Financial Corp.
By: /s/ Alvin Murstein
------------------------------
Title: Chief Executive Officer
--------------------------
Executive
/s/ Andrew Murstein
________________________________
Andrew Murstein
-12-
<PAGE>
EXHIBIT 10.48
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT BETWEEN
MEDALLION FINANCIAL CORP.
AND
ALLEN S. GREENE
This amended and restated employment agreement dated as of August 29, 1998 is by
and between Medallion Financial Corp., a Delaware corporation (the "Company"),
and Allen S. Greene, an individual residing at [OMITTED] (the "Executive").
1. Employment. The Company shall employ the Executive, and the Executive agrees
- -- -----------
to serve the Company, on the terms and conditions set forth herein. The
Executive shall serve as Senior Executive Vice President and Chief Operating
Officer of the Company and shall be based at the Company's headquarters in
New York City. The Executive hereby accepts such employment hereunder, except
for absences occasioned by illness and reasonable vacation periods, and
agrees to undertake the duties and responsibilities inherent in such position
and such other duties and responsibilities as the Company shall from time to
time reasonably assign to him. Subject to the general direction of the Board
of Directors of the Company or any person to whom the Board delegates its
authority, the Executive shall use his best efforts, including the highest
standards of professional competence and integrity, and shall devote his full
business time and effort to the performance of his duties hereunder. The
Executive shall not engage in any other business activity except that the
Executive may engage from time to time in such personal investment activities
as do not interfere with his day to day responsibilities to the Company. The
Executive shall be allowed to serve as an independent member of the boards of
directors of other companies with the prior approval of the Chief Executive
Officer of the Company.
2. Compensation and Benefits.
- -- --------------------------
2.1 Salary. During the Term (as defined below) of this Agreement, the
--- -------
Executive shall be paid a salary at the rate of $250,000 per annum ("the
Base Salary"), payable as customarily paid by the Company. During the
Term of this Agreement, executive's base salary shall be reviewed at
least annually. The first such review will be made no later than May 29,
1999 and thereafter the Base Salary shall be reviewed on or before May
29 of each succeeding year. The Company, in its sole discretion, may
increase, but not decrease the base salary.
2.2 Bonus. In addition to his Base Salary, the Executive may be entitled
--- ------
to bonuses at times and amounts determined in the discretion of the
Board of Directors of the Company.
2.3 Benefits. The Executive shall be entitled to participate in all
--- ---------
employee benefit programs or plans maintained by the Company from time
to time on the same basis as other similarly situated executive
employees of the Company. If the Executive elects not to participate in
any health, life, disability or other insurance plan provided by the
<PAGE>
2
Company, the Company will pay or reimburse the Executive for the direct
premium cost of Executive's participation in any other similar plan
outside the Company. The Company will pay or reimburse the lease cost of
the automobile currently leased by the Executive and upon expiration or
termination of the lease will continue to provide the Executive with a
suitable automobile for his business or and personal use. The Company
will pay or reimburse all maintenance, insurance, garage and other
operating expenses of the automobile currently leased by Executive or
any replacement provided by the Company hereunder. The Executive will be
entitled to 6 weeks paid vacation per year.
2.4 Reimbursement of Expenses. The Company shall reimburse the Executive
--- --------------------------
in accordance with its general reimbursement policies for all ordinary
and necessary expenses incurred by the Executive on behalf of the
Company upon the presentation of appropriate supporting documentation.
2.5 Stock Options. Pursuant to a Stock Option Agreement in customary
--- ---------------
form, the Company will grant to the Executive pursuant and subject to
its 1996 Stock Option Plan, as amended, stock options to purchase up to
25,000 additional shares of the Company's common stock. The options
shall have a term of 10 years, and shall vest over a period of 5 years
in equal installments at the end of each full year with the first
installment vesting on the August 29, 1999 subject to earlier vesting
under the circumstances described in Section 3 below or such earlier
date as the Board of Directors may designate.
3. Term; Termination; Rights upon Termination.
- -- -------------------------------------------
3.1 Term. The term (the "Term") of employment of the Executive hereunder
--- -----
shall commence as of the date first above written and shall continue
until August 29, 2001 unless terminated earlier in accordance with the
provisions hereof. This Agreement shall be renewed automatically for
additional one (1) year terms, unless otherwise terminated by either
party by written notice to the other given at least one year prior to
the expiration of the then current term.
3.2 Termination. The Company may at any time, terminate the employment of
--- ------------
the Executive under this Agreement for Cause (as defined below), or
without cause, immediately and without any requirement of notice. The
Executive may at any time, upon 30 days prior written notice terminate
his employment under this Agreement with or without reason. The rights
and obligations of the parties upon any termination of the Executive's
employment shall be as set forth in Section 3.3. For purposes of this
Agreement the term "Cause" shall mean (i) any act of dishonesty or gross
and willful misconduct with respect to the Company, including without
limitation, fraud or theft, on the part of the Executive,(ii) conviction
of the Executive of a felony, or (iii) the Executive's failure to
perform his assigned duties hereunder after notice and a 30 day
opportunity to cure.
3.3 Rights Upon Termination. In the event that:
--- ------------------------
(a) The employment of the Executive is terminated by the Company
<PAGE>
3
without Cause or by the Executive upon any change by the Company in
Executives function, duties or responsibilities, which change would
cause Executive's position with the Company to become one of lesser
responsibility, importance or scope from the position described in
Section 1, then, for the remainder of the then current term of
employment hereunder, (i) the Company shall pay to the Executive,
at the time otherwise due under Section 2, all Base Salary at the
rate in effect at the time of termination and (ii) the Company
shall provide to the Executive all benefits described in Section
2.3. In addition the vesting of stock options described in Section
2.5, and those granted previously, shall accelerate such that 100%
of such options shall automatically vest on the date of such
termination. The obligations of the Company pursuant to this
Section 3.3(a) shall be in lieu of any other rights of the
Executive hereunder to compensation or benefits in respect of any
period before or after the date of such termination.
(b) The Executive's employment terminates by reason of death or
disability, then the Company shall pay and provide to the Executive
or Executive's estate or other successor in interest at the time
otherwise due under Section 2 all Base Salary and benefits due to
the Executive under Section 2 through the end of the sixth month
after the month in which the termination occurs, but reduced in the
case of disability by any payments received under any disability
plan, program or policy paid for by the Company. . In addition the
vesting of stock options described in Section 2.5,and those that
were previously granted, shall accelerate such that (i) 50% of such
options less those that have already vested in accordance with
their terms, shall automatically vest on the date of such
termination. If such termination occurs prior to December 31,1998,
(ii) 75% of such options, less those that have already vested in
accordance with their terms, shall automatically vest if such
termination occurs prior to December 31,1999, and (iii) 100% of
such options, less those that have already vested in accordance
with their terms, shall automatically vest if this agreement is
renewed and such termination occurs prior to December 31,2000. The
obligations of the Company pursuant to this Section 3.3(b) shall be
and in lieu of any other rights of the Executive hereunder to
compensation or benefits in respect of any period before or after
the date of such termination and in lieu of any severance payment,
and no other compensation of any kind or any other amounts shall be
due to the Executive by the Company under this Agreement. For
purposes of this Agreement, the term "disability" shall mean the
Executive's failure to perform the services contemplated by this
Agreement as a result of his physical or mental illness or
incapacity for a period of 6 consecutive months, or a total of 240
days in any 365 day period.
(c) The employment of the Executive is terminated by the Company for
Cause, or by the Executive other than under circumstances described
in Section 3.3(a) or (b) above, the Executive shall not be entitled
to compensation or benefits granted hereunder beyond the date of
the termination of the Executive's employment.
(d) Upon the occurrence of a Change in Control as defined in Section
7, occurs, Executive's employment shall automatically terminate and
the Company
<PAGE>
4
shall pay Executive or in the event of his subsequent death, his
beneficiary, or his estate, as the case may be, as severance pay or
liquidated damages, or both a sum equal to 2.99 times: the sum of
an amount equal to (i) Executive's Base Salary in effect
immediately prior to the Change in Control plus (ii) the bonus paid
to Executive in the fiscal year prior to the Change in Control, or
if a bonus has been paid in the fiscal year in which the Change of
Control occurs, such bonus, whichever is greater. The foregoing
severance/liquidated damages payment(s) shall be made to the
Executive's surviving spouse, or if no surviving spouse, to his
estate, in the event that the Company enters into an agreement as
to a Change in Control of the Company, and Executive shall die
after such agreement is executed but prior to consummation of the
Change in Control, which payments shall commence upon, and shall be
contingent upon, the actual consummation of the Change in Control.
At the election of the Executive, which election is to be made by
January 31 of each year and is irrevocable for the year in which
made (and once payments commence), such payment may be made in a
lump sum or paid in equal bi-weekly (or as frequently as the
Company generally pays its employees) installments following the
Executive's termination. In the event that no election is made,
payment to the Executive will be made on a bi-weekly basis (or as
frequently as the Company generally pays its employees). Such
payments shall not be reduced in the event Executive obtains other
employment following termination. Also upon the occurrence of a
Change of Control the Company will continue all benefits described
in section 2.3 for a period of 36 months. The obligations of the
Company pursuant to this Section 3.3(d) shall be in lieu of any
other rights of the Executive hereunder to compensation or benefits
in respect of any period before or after the date of such
termination and in lieu of any severance payment, and no other
compensation of any kind or any other amounts shall be due to the
Executive by the Company under this Agreement.
Notwithstanding the preceding paragraphs of this Section 3.3 (d) in the
event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive under said paragraph would be deemed to
include an "excess parachute payment" under section 280G of the
Internal Revenue Code of 1986 or any successor thereto, and
(ii) If such termination benefits were reduced to an amount
(the "Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to (3) times Executives "base
amount", as determined in accordance with said Section 280G,
and the Non-Triggering Amount would be greater than the
aggregate value of the termination benefits (without such
reduction) minus the amount of tax required to be paid by
Executive thereon by Section 4999 of the Code, then the
termination benefits shall be reduced to the Non-Triggering
Amount. The allocation of the reduction required hereby among
the termination benefits provided by Section 3.3 (d) shall be
determined by Executive.
<PAGE>
5
4. Proprietary Information.
- -- ------------------------
4.1 The Executive agrees that all information and know how, whether or not
in writing, of a private, secret or confidential nature concerning the
business or financial affairs of the Company and its subsidiaries
(collectively, for purposes of this Section 4, the "Company") and not
within Executive's possession or knowledge prior to his employment with
the Company (collectively, "Proprietary Information"), is and shall be
the exclusive property of the Company. By way of illustration, but not
limitation, Proprietary Information may include inventions, products,
processes, methods, techniques, projects, developments, plans, research
data, financial data, personnel data, and lists of borrowers,
advertisers, fleet and taxi owners. The Executive will not disclose any
Proprietary Information to others outside the Company or use the same
for any unauthorized purposes without written approval by the Company,
either during or after his employment, unless and until such Proprietary
Information has become public knowledge without fault of the Executive.
4.2 The Executive agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, or other written, photographic, or
other tangible material containing Proprietary Information, whether
created by the Executive or others, which shall come into his custody or
possession, shall be and are the exclusive property of the Company to be
used by the Executive only in the performance of his duties for the
Company.
4.3 The Executive agrees that his obligation not to disclose or use
Proprietary Information and records of the type set forth herein also
extends to such types of Proprietary Information, records and tangible
property of borrowers, advertisers, fleet and taxi owners or other third
parties who may have disclosed or entrusted the same to the Company or
to the Executive in the course of the Company's' business.
5. Other Agreements. The Executive hereby represents that his performance
-----------------
of all the terms of this Agreement and as an employee of the Company does not
and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by him in confidence or in trust
prior to his employment with the Company.
6. Non-Competition, Non- Solicitation.
- -- -----------------------------------
6.1 Non-solicitation of Employees and Customers. The Executive agrees that
during the term of the Executive's employment with the Company and for a
period of one year thereafter, the Executive shall not directly or
indirectly (i) recruit, solicit or otherwise induce or attempt to induce
any employees of the Company or any of its subsidiaries to leave their
employment or (ii) call upon, solicit, divert or take away, or attempt
to divert or take away, the business or patronage of any borrower,
customer licensee, vendor, collaborator or corporate partner of the
Company or any of its subsidiaries that had a business relationship with
the Company or any of its subsidiaries at the time of termination of
Executive's employment with the Company and that did not have a business
or personal relationship or was known to Executive prior to his
employment with the Company.
<PAGE>
6
6.2 Non-competition. The Executive agrees that during the term of the
Executive's employment with the Company, the Executive shall not
directly or indirectly, engage in competition with the Company or any
subsidiaries, or own or control any interest in, or act as director,
officer or employee of, or consultant to, any firm, corporation or
institution directly engaged in competition with the Company or any of
its subsidiaries: provided the Company or one of its subsidiaries are
actively engaged in such business at the time the Executive's employment
by the Company is terminated: and provided that the foregoing shall not
prevent the Executive from holding shares as a passive investor in a
publicly held company which do not constitute more than 5% of the
outstanding shares of such company.
7. Change in Control Protection. For purposes of this Agreement, a "Change
-----------------------------
in Control" of the Company shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended, or any similar item, schedule or form, whether or not the Company is
then subject to such reporting requirement.
8. Miscellaneous.
- -- --------------
8.1 Notices. All notices required or permitted under this Agreement shall
--------
be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed if to the Executive, at the address shown above
and if to the Company at its principal place of business at 437 Madison
Avenue, New York, New York 10022, or at such other address or addresses as
either party shall designate to the other in accordance with this Section
8.1.
8.2 Pronouns. Wherever the context may require, any pronouns used in this
---------
Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
8.3 Entire Agreements. This Agreement constitutes the entire agreement
------------------
between the parties and supercedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
8.4 Amendment. This Agreement may be amended or modified only by a written
----------
instrument executed by both the Company and the Executive.
8.5 Governing Law. This Agreement shall be construed, interpreted and
--------------
enforced in accordance with the laws of the State of Delaware.
8.6 Successors and Assigns. This Agreement shall be binding upon and inure
-----------------------
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be merged
or which may succeed to its assets or business, provided, however, that the
obligations of the Executive are personal and shall not be assigned by him.
8.7 Waivers. No delay or omission by the Company in exercising any right
--------
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent
<PAGE>
7
given by the Company on any one occasion shall be effective only in this
instance and shall not be construed as a bar or waiver of any right on any
other occasion.
8.8 Captions. The captions of the sections of this Agreement are for
---------
convenience of reference only and in no way define, limit or affect the scope
or substance of any section of this Agreement.
8.9 Severability. In case any provision of this Agreement shall be invalid,
-------------
illegal or otherwise unenforceable, the validity, legality and enforceability
of the remaining provisions shall in no way be affected or impaired thereby.
8.10 Specific Enforcement. The parties acknowledge that the Executive's
---------------------
breach of the provisions of Section 4 and 6 of this Agreement will cause
irreparable harm to the Company. It is agreed and acknowledged that the
remedy of damages will not be adequate for the enforcement of such provisions
and that such provisions may be enforced by equitable relief, including
injunctive relief, which relief shall be cumulative and in addition to any
other relief to which the Company may be entitled.
9. Arbitration. Any claims, controversies, demands, disputes or differences
------------
between or among the parties hereto or any persons bound hereby arising out of,
or by virtue of, or in connection with, or otherwise relating to this Agreement
shall be submitted to and settled by arbitration conducted in New York, New York
before one or three arbitrators each of which shall be knowledgeable in
employment law. Such arbitration shall otherwise be conducted in accordance with
the rules then obtaining of the American Arbitration Association. The parties
hereto agree to share equally the responsibility for all fees of the
arbitrators, abide by any decision rendered as final and binding, and waive the
right to appeal the decision or otherwise submit the dispute to a court of law
for a jury or non-jury trial. The parties hereto specifically agree that neither
party may appeal or subject the award or decision of any such arbitrator(s) to
appeal or review in any court of law or in equity or by any other tribunal,
arbitration system or otherwise. Judgment upon any award granted by such an
arbitrator(s) may be enforced in any court having jurisdiction thereof. If the
arbitration decision holds that one party is entirely at fault and the other
party is without fault, the party that is without fault shall be entitled to
reimbursement of fees and expenses from the losing party that is at fault in an
amount not to exceed $50,000.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year set forth above
MEDALLION FINANCIAL CORP.
By: /s/ Andrew M. Murstein
------------------------
Title: President
---------------------
EXECUTIVE
By: /s/ Allen S. Greene
------------------------
ALLEN S. GREENE
<PAGE>
Exhibit 21 List of Subsidiaries of Medallion Financial Corp.
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation or Formation
---- ------------------------------------------
<S> <C>
Medallion Funding Corp. New York
Transportation Capital Corp. New York
Edwards Capital Corp. Delaware
Medallion Media, Inc. Delaware
Business Lenders LLC Delaware
Medallion Capital, Inc Delaware
Medallion Business Credit LLC Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 23, 1999, included in this Form 10-K
into Medallion Financial Corp.'s previously filed registration statements
on Form S-8 (File Nos. 333-19057 and 333-27977).
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 29, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated March 26, 1997 on our audits of the
financial statements of Edwards Capital Company, Transportation Capital
Corporation and Tri-Magna Corporation, included in the Medallion Financial Corp.
("the Company") Annual Report on Form 10-K for the year ended December 31, 1997,
into the Company's Annual Report Form 10-K for the year ended December 31, 1998.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<INVESTMENTS-AT-COST> 381,099,055 312,765,452
<INVESTMENTS-AT-VALUE> 384,063,972 313,254,446
<RECEIVABLES> 15,500,593 7,772,236
<ASSETS-OTHER> 3,229,568 2,655,567
<OTHER-ITEMS-ASSETS> 19,431,109 16,211,395
<TOTAL-ASSETS> 422,225,242 339,893,644
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 41,590,000 39,770,000
<OTHER-ITEMS-LIABILITIES> 232,420,712 151,388,134
<TOTAL-LIABILITIES> 274,010,712 191,158,134
<SENIOR-EQUITY> 140,138 139,089
<PAID-IN-CAPITAL-COMMON> 141,376,068 143,065,650
<SHARES-COMMON-STOCK> 14,013,768 13,908,916
<SHARES-COMMON-PRIOR> 13,908,916 9,212,544
<ACCUMULATED-NII-CURRENT> 6,698,324 5,530,771
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 148,214,530 148,735,510
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 35,156,636 25,848,191
<OTHER-INCOME> 5,697,836 2,242,433
<EXPENSES-NET> 13,683,939 6,537,037
<NET-INVESTMENT-INCOME> 11,715,047 10,525,820
<REALIZED-GAINS-CURRENT> 1,290,743 77,501
<APPREC-INCREASE-CURRENT> 2,675,923 1,929,468
<NET-CHANGE-FROM-OPS> 15,681,713 12,532,789
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 16,772,240 11,210,807
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 4,600,000
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> (520,980) 76,181,575
<ACCUMULATED-NII-PRIOR> 5,530,771 4,781,202
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 225,000 225,000
<INTEREST-EXPENSE> 15,609,024 10,098,857
<GROSS-EXPENSE> 29,292,963 16,635,574
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 10.48 10.58
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
