MEDALLION FINANCIAL CORP, 497, 2000-08-15

MEDALLION FINANCIAL CORP
497, 2000-08-15
FINANCE SERVICES

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As Filed Pursuant to Rule 497
Registration No. 333-
36826

Freshstart Venture Capital Corporation
2429 Jackson Avenue
Long Island City, NY 11101

August 14, 2000

Dear Shareholders:

We will hold a special meeting of our shareholders at the Marriott East Side
Hotel, 525 Lexington Avenue, New York on September 7, 2000 at 9:30 a.m.,
Eastern time.

At the meeting, you will be asked to consider and vote upon a proposal to
approve and adopt a merger agreement with Medallion Financial Corp. and approve
a merger that will cause Freshstart Venture Capital Corp. to become a wholly
owned subsidiary of Medallion.

You are entitled to receive in the merger a fraction of a share of
Medallion's common stock for each share of Freshstart common stock you own.
Medallion expects to issue approximately 564,205 shares of its common stock in
the merger. Medallion common stock is quoted on the Nasdaq National Market
under the symbol "TAXI."

After careful consideration, your board of directors has unanimously
approved this transaction and concluded that it is in the best interests of
Freshstart and its shareholders. Your board of directors unanimously recommends
that you vote "FOR" this transaction.

Attached is a notice of special meeting of shareholders and a proxy
statement/prospectus relating to the merger. This document describes the merger
in detail. We encourage you to read it carefully.

The merger and an investment in Medallion stock involve risks. You should
carefully consider the discussion in the section entitled "Risk Factors" on
page 15 of this proxy statement/prospectus.

We cordially invite you to attend the meeting. However, whether or not you
plan to attend the meeting, please complete, sign and date the enclosed proxy
card and return it to us in the enclosed postage pre-paid envelope as promptly
as possible. YOUR VOTE IS VERY IMPORTANT.

Do not send your stock certificates at this time.

Sincerely,

/s/ Zindel Zelmanovitch
Zindel Zelmanovitch
President
<PAGE>

Freshstart Venture Capital Corporation
2429 Jackson Avenue
Long Island City, NY 11101

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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

----------------

To Our Shareholders:

A special meeting of shareholders of Freshstart Venture Capital Corporation
will be held at 9:30 a.m., Eastern time, on September 7, 2000, at the Marriott
East Side Hotel, 525 Lexington Avenue, New York, to consider and vote upon a
proposal to approve and adopt a merger agreement with Medallion Financial Corp.
and approve a merger that will cause Freshstart to become a wholly owned
subsidiary of Medallion.

No other business will be considered at the meeting.

This proposal is more fully described in the proxy statement/prospectus that
accompanies this notice, which you should read carefully.

If the merger is approved by the Freshstart shareholders at the meeting and
effected by Freshstart, any shareholder who (i) files with Freshstart, before
the vote on the adoption of the merger, a written objection to the proposed
merger that includes notice of his election to dissent, his name and address,
the number of shares of Freshstart common stock held, and a demand for payment
of the fair value of his shares if the merger is effected; (ii) does not vote
his shares in favor of the merger; and (iii) otherwise complies with the terms
of Section 623 of New York Business Corporation Law, will have the right to
receive payment of the fair value of his or her shares in lieu of receiving
Medallion common stock pursuant to the merger. Freshstart and any such
shareholder shall in such cases have the rights and duties and shall follow the
procedure set forth in Section 623 of New York Business Corporation Law. See
"Appraisal Rights of Dissenting Shareholders" in the accompanying Proxy
Statement/Prospectus for a more complete description of the rights of
dissenting shareholders.

We have fixed the close of business on August 10, 2000 as the record date
for the determination of our shareholders entitled to vote at this meeting.

Do not send your stock certificates at this time.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE.
IT IS IMPORTANT THAT YOUR INTERESTS BE REPRESENTED AT THE SPECIAL MEETING. YOU
CAN REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.

By Order of the Board of Directors
of Freshstart Venture Capital
Corporation

/s/ Neil Greenbaum
Neil Greenbaum
Secretary

Long Island City, New York
August 14, 2000
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FRESHSTART MEDALLION FINANCIAL CORP.
VENTURE CAPITAL CORPORATION 437 Madison Avenue
24-25 Jackson Avenue New York, New York 10022
Long Island City, New York 11101 (212) 328-2100
(718) 361-8295
</TABLE>

FRESHSTART
VENTURE CAPITAL CORPORATION

PROXY STATEMENT

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MEDALLION FINANCIAL CORP.

PROSPECTUS

This Joint Proxy Statement/Prospectus is being furnished to you as a holder
of common stock of Freshstart Venture Capital Corporation, a New York
corporation ("Freshstart") in connection with the solicitation of proxies by
the Board of Directors of Freshstart (the "Freshstart Board of Directors") for
use at the Special Meeting of Shareholders of Freshstart to be held at Marriott
East Side Hotel, 525 Lexington Avenue, New York, on September 7, 2000, at 9:30
a.m. local time, and to any and all adjournment(s) thereof.

The Merger. This Proxy Statement/Prospectus relates to the proposed merger
of FS Merger Corp. ("Merger Sub"), a wholly-owned subsidiary of Medallion
Financial Corp. ("Medallion"), with and into Freshstart pursuant to an
Agreement and Plan of Merger dated as of December 22, 1999 (the "merger
agreement") by and among Medallion, Merger Sub and Freshstart. Consummation of
the merger is subject to various conditions, including the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Freshstart
common stock at the Special Meeting. Pursuant to certain voting agreements,
dated as of December 22, 1999 among Medallion and certain shareholders of
Freshstart, certain Freshstart shareholders agreed to vote their shares of
Freshstart common stock owned by them as of December 22, 1999 in favor of the
merger (127,984 shares of Freshstart common stock, representing approximately
5.9% of the outstanding shares of Freshstart common stock as of August 10,
2000, the record date for the Freshstart Special Meeting). These shareholders
have sole voting and investment power with respect to all Freshstart common
stock owned by them. The terms and conditions of the merger and related
transactions are more fully described in this Proxy Statement/Prospectus and in
the merger agreement, a copy of which is attached as Appendix A and is
incorporated by reference to this Proxy Statement/Prospectus.

This Proxy Statement/Prospectus also constitutes the Prospectus of Medallion
with respect to the shares of common stock of Medallion (the "Medallion common
stock") to be issued in connection with the merger. When the merger is
completed, you will receive, for each outstanding share of Freshstart common
stock, $4.025 in Medallion common stock for each share of Freshstart common
stock that you own, if the average closing price of Medallion common stock is
between $12.00 and $15.99 during the period described in the next paragraph;
$4.125 in Medallion common stock for each share of Freshstart common stock that
you own, if the average closing price of Medallion common stock is between
$16.00 and $19.50 during the period described in the next paragraph; $4.375 in
Medallion common stock for each share of Freshstart common stock that you own,
if the average closing price of Medallion common stock is between $19.51 and
$23.50 during the period described in the next paragraph; $4.625 in Medallion
common stock for each share of Freshstart common stock that you own, if the
average closing price of Medallion common stock is between $23.51 and $27.50
during the period described in the next paragraph; $4.875 in Medallion common
stock for each share of Freshstart common stock that you own, if the average
closing price of Medallion common stock exceeds $27.51 during the period
described in the next paragraph; or $4.025 in Medallion common stock for each
share of Freshstart common stock that you own, if the average closing price of
Medallion common stock is less than $12.00 during the period described in the
next paragraph.
<PAGE>

The exact number of Medallion shares that you will receive in exchange for
each Freshstart share will depend upon the average closing price of Medallion
common stock during the 10 trading days ending on and including the third
trading day before the Closing Date.

Medallion will not issue any fractional shares. Instead, you will receive
cash for any fractional share of Medallion common stock owed to you, based on
the average closing price of Medallion common stock during the 10 trading days
ending on and including the third trading day before the Closing Date.

Medallion common stock is, and the shares of Medallion common stock offered
by this Proxy Statement/Prospectus will be, listed and traded on the Nasdaq
National Market under the symbol "TAXI." The last reported sale price of
Medallion common stock on the Nasdaq National Market on August 11, 2000 was
$16.625 per share. The last reported sale price of Freshstart common stock on
the Nasdaq SmallCap Market on August 8, 2000 was $3.00 per share.

Both Medallion and Freshstart are closed-end, non-diversified management
investment companies. The Freshstart board of directors has determined that it
is in the best interests of the Freshstart shareholders that Freshstart become
a wholly-owned subsidiary of Medallion through consummation of the merger. The
Freshstart board of directors concluded that, among other advantages, the
merger would provide enhanced liquidity for Freshstart shareholders, and
increase the availability of additional investment capital.

Following the merger, you will become a shareholder of Medallion. This Proxy
Statement/Prospectus sets forth concisely the information that you should know
before voting on the merger agreement and should be retained for future
reference.

This Proxy Statement/Prospectus and the accompanying form of proxy is being
mailed to you on or about August 14, 2000.

Medallion is treated as a business development company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The principal executive
office of Medallion is located at 437 Madison Avenue, New York, New York 10022.

SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE EVALUATED IN CONNECTION WITH THE MERGER.

----------------

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Proxy Statement/Prospectus is August 14, 2000.
<PAGE>

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q. WHAT IS HAPPENING?

A. You are being asked to vote on an Agreement and Plan of Merger to permit
Medallion Financial Corp. to acquire Freshstart in a tax-free exchange of
shares. If the Agreement and Plan of Merger is approved and the acquisition
consummated, you would no longer be a shareholder of Freshstart, but would
be a shareholder of Medallion.

Q: WHY ARE THE COMPANIES PROPOSING TO MERGE?

A: Medallion and Freshstart are proposing to merge because we believe that
resulting combination will create a stronger, more competitive company
capable of achieving greater financial strength, operational efficiencies,
earning power and growth potential than either company would have achieved
on its own. Medallion and Fresh Start believe that the combination will also
create cost savings and better service and enable the combined company to
provide product offerings to their customers.

Q: HOW WILL THESE TWO COMPANIES MERGE?

A: Medallion and Freshstart will combine under an Agreement and Plan of Merger
providing that a wholly-owned subsidiary of Medallion will merge with and
into Freshstart, and Freshstart will survive the merger as a wholly owned
subsidiary of Medallion.

Q: WHAT WILL I RECEIVE IN THE MERGER?

A: Based upon the closing price of Medallion's common stock on August 11, 2000,
if the merger is completed, you will receive .2481 shares of Medallion
common stock for each share of Freshstart common stock that you own.
Medallion will not issue fractional shares of its common stock. Instead, you
will receive cash, without interest, based on the average of the last
reported sales prices of Medallion common stock on the Nasdaq National
Market during the 3 consecutive trading days ending on and including the
third trading day prior to the day on which the merger is completed.

On December 22, 1999, the last full trading day before the public
announcement of the proposed merger, the last reported sale price of
Medallion common stock on the Nasdaq National Market was $18.50 per share.
On August 11, 2000, the most recent practicable date prior to the printing
of this proxy statement/prospectus, the last reported sale price of
Medallion common stock on the Nasdaq National Market was $16.625 per share.

Q: ARE FRESHSTART SHAREHOLDERS ENTITLED TO APPRAISAL RIGHTS?

A: Yes, if the merger is approved by the Freshstart shareholders at the meeting
and effected by Freshstart, any shareholder who (i) files with Freshstart,
before the vote on the adoption of the merger, a written objection to the
proposed merger that includes notice of his election to dissent, his name
and address, the number of shares of Freshstart common stock held, and a
demand for payment of the fair value of his shares if the merger is
effected; (ii) does not vote his shares in favor of the merger; and (iii)
otherwise complies with the terms of Section 623 of New York Business
Corporation Law, will have the right to receive payment of the fair value of
his or her shares in lieu of receiving Medallion common stock pursuant to
the merger. Freshstart and any such shareholder shall in such cases have the
rights and duties and shall follow the procedure set forth in Section 623 of
New York Business Corporation Law. See "Appraisal Rights of Dissenting
Shareholders" for a more complete description of the rights of dissenting
shareholders.

Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER OF MEDALLION AND FRESHSTART?

A: We are working to complete the merger as quickly as possible. We currently
expect to complete the merger promptly following the special meeting. If
necessary or desirable, Medallion and Freshstart may agree to complete the
merger at a later date.

1
<PAGE>

Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?

A: The merger is intended to qualify as a tax-free reorganization under the
Internal Revenue Code. Accordingly, generally no gain or loss will be
recognized by Medallion or Freshstart as a result of the merger.
Additionally, no gain or loss will be recognized by Freshstart shareholders
to the extent they receive shares of Medallion common stock in the merger.
Freshstart shareholders may recognize taxable gain to the extent they
receive cash in lieu of fractional shares of Medallion. Freshstart
shareholders should consult their tax advisors for a full understanding of
the tax consequences of the merger.

Q: WHO MUST APPROVE THE MERGER?

A: In addition to the approvals by the Medallion board of directors and the
Freshstart board of directors, each of which has already been obtained, the
merger must be approved by the Freshstart shareholders and the Small
Business Administration. Approval of the merger by the Small Business
Administration is expected shortly after the Freshstart special meeting.

Q: WHAT SHAREHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER?

A: A majority of the outstanding shares of Freshstart common stock entitled to
vote constitutes a quorum for the Freshstart special meeting. The
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Freshstart common stock is required to approve the merger
agreement and the merger.

Q: DOES THE FRESHSTART BOARD OF DIRECTORS RECOMMEND APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER?

A: YES. AFTER CAREFUL CONSIDERATION, THE FRESHSTART BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSED MERGER ON THE ENCLOSED
PROXY CARD. For a more complete description of the recommendation of the
Freshstart board of directors, see the sections entitled "Freshstart's
Reasons for the Merger" on page 30 and "Recommendation of the Board of
Directors of Freshstart" on page 32.

Q: WHAT DO I NEED TO DO NOW?

A: We urge you to read this proxy statement/prospectus, including its annexes,
carefully, and to consider how the merger will affect you as a shareholder.
You also may want to review the documents referenced under "Where You Can
Find More Information" on page 70 and consult with your accounting, legal
and tax advisors.

Q: HOW DO I VOTE MY SHARES?

A: You may indicate how you want to vote on your proxy card and then sign and
mail your proxy card in the enclosed return envelope as soon as possible so
that your shares may be represented at the Freshstart special meeting. You
may also attend the special meeting in person instead of submitting a proxy.

If you fail either to return your proxy card or to vote in person at the
special meeting, or if you mark your proxy "abstain," the effect will be a
vote against the merger agreement and the merger. If you sign and send in
your proxy without indicating how you want to vote, your proxy will be
counted as a vote for the merger agreement and the merger unless your
shares are held in a brokerage account.

Q: IF MY SHARES ARE HELD IN A BROKERAGE ACCOUNT, WILL MY BROKER VOTE MY SHARES
FOR ME?

A: Your broker will not be able to vote your shares without instructions from
you on how to vote. Therefore, it is important that you follow the
directions provided by your broker regarding how to instruct your broker to
vote your shares. If you fail to provide your broker with instructions, it
will have the same effect as a vote against the merger agreement and the
merger.

2
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Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?

A: You may change your vote at any time before the vote takes place at the
Freshstart special meeting. To do so, you may either complete and submit a
new proxy card or send a written notice stating that you would like to
revoke your proxy. In addition, you may attend the special meeting and vote
in person. However, if you elect to vote in person at the special meeting
and your shares are held by a broker, bank or other nominee, you must bring
to the special meeting a letter from the broker, bank or other nominee
confirming your beneficial ownership of the shares.

Q: WHEN AND WHERE IS THE FRESHSTART SPECIAL MEETING?

A: The special meeting of Freshstart shareholders will be held at 9:30 a.m.,
Eastern time, on September 7, 2000 at the Marriott East Side Hotel 525
Lexington Avenue, New York.

Q: SHOULD I SEND IN MY SHARE CERTIFICATES NOW?

A: No. After we complete the merger, Medallion will send to you instructions
explaining how to exchange your shares of Freshstart common stock for the
appropriate number of shares of Medallion common stock.

Q: WHO MAY I CONTACT WITH ANY ADDITIONAL QUESTIONS?

A: You may call David Evanson of Financial Communication Associates at (610)
649-3604, or Daniel Baker of Medallion at (212) 328-2100.

Q: ARE THERE ANY RISKS ASSOCIATED WITH THE MERGER?

A: The merger does involve risks. For a discussion of risk factors that should
be considered in evaluating the merger, see the "Risk Factors" section
beginning on page .

3
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TABLE OF CONTENTS

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Page
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SUMMARY................................................................... 1
Risk Factors............................................................ 5
Dividends and Distributions............................................. 5
Management of Freshstart and Medallion.................................. 6
Medallion Summary Historical and Pro Forma Consolidated Financial
Information............................................................ 7
FreshStart Summary Consolidated Financial Information................... 9
Comparative Per Share Prices............................................ 10
FreshStart Selected Consolidated Financial Information..................
Expense Table........................................................... 11

RECENT DEVELOPMENTS....................................................... 13
RISK FACTORS.............................................................. 14
Risk Relating to Integration of Freshstart and Medallion................ 14
Interest Rate Spread.................................................... 14
Leverage................................................................ 14
Industry and Geographic Concentration................................... 16
Reliance on Management.................................................. 16
Substantial Influence by Existing Principal Stockholders................ 16
Risk Relating to Integration of Recent Acquisitions..................... 16
Availability of Funds................................................... 17
Competition............................................................. 17
Credit Quality.......................................................... 17
Portfolio Valuation..................................................... 18
Taxicab Industry Regulation............................................. 18
Pass-Through Tax Treatment.............................................. 19
Risks Associated with Distribution Requirements and Leverage.......... 19
Risks Associated with Diversification Requirements.................... 19
Possible Volatility of Stock Price...................................... 20
Dependence on Cash Flow from Subsidiaries............................... 20
Certain Anti-Takeover Provisions........................................ 20

MEDALLION SELECTED CONSOLIDATED FINANCIAL DATA............................ 21

FRESHSTART SUMMARY CONSOLIDATED FINANCIAL DATA............................ 23

THE FRESHSTART SPECIAL MEETING............................................ 24

THE MERGER................................................................ 28
General................................................................. 28
Closing Date............................................................ 28
Background of the Merger................................................ 29
Freshstart's Reasons for the Merger..................................... 29
Recommendation of the Board of Directors of Freshstart.................. 31
Interests of Certain Persons in the Merger.............................. 35
The Merger Agreement.................................................... 35
Terms of the Merger................................................... 35
Representations and Warranties........................................ 36
Certain Covenants..................................................... 36
No Shopping........................................................... 37
Indemnification....................................................... 37
</TABLE>

i
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Page
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Conditions............................................................ 37
Termination; Fees and Expenses........................................ 38
Certain Federal Income Tax Consequences................................. 39
Accounting Treatment.................................................... 40
Certain Legal Matters................................................... 40
Federal Securities Law Consequences..................................... 41
Listing................................................................. 41
Stock Option Agreement.................................................. 41

COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.......................... 42
Freshstart's Investment Objectives, Policies and Restrictions........... 42
Medallion's Investment Objectives, Policies and Restrictions............ 43

MEDALLION COMMON STOCK PRICES............................................. 46

DESCRIPTION OF MEDALLION CAPITAL STOCK.................................... 47
General................................................................. 47
Common Stock............................................................ 47
Preferred Stock......................................................... 47

COMPARISON OF RIGHTS OF MEDALLION AND FRESHSTART STOCKHOLDER.............. 48
Limitation on Directors' Liabilities.................................... 48
Delaware Law and Certain Provisions of the Certificate of Incorporation
and the By-Laws........................................................ 48
Certain Provisions of Delaware Law Regarding an Interested Stockholder.. 49
Appraisal Rights of Dissenting Shareholders............................. 53
Determination of Net Asset Value of Medallion........................... 54

MEDALLION'S DIVIDEND REINVESTMENT PLAN.................................... 56

EQUIVALENT PER SHARE DATA................................................. 58

UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET..................... 60

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF INCOME.............. 62

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS..... 67

LEGAL PROCEEDINGS......................................................... 69

OTHER MATTERS............................................................. 69

LEGAL MATTERS............................................................. 69

EXPERTS................................................................... 69

WHERE YOU CAN FIND MORE INFORMATION....................................... 69

FORWARD-LOOKING INFORMATION............................................... 71

APPENDIX A: Agreement and Plan of Merger.................................. A

Amendment No. 1 to Agreement and Plan of Merger........................... A-1

Amendment No. 2 to Agreement and Plan of Merger........................... A-2

APPENDIX B: Selected Provisions of New York Business Corporation Law...... B-1
</TABLE>

ii
<PAGE>

SUMMARY

This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you. See "Where You
Can Find More Information" on page 70. We have included page references
parenthetically to direct you to a more complete description of the topics in
this summary.
The Companies

Medallion Financial Corp.

Medallion, a closed-end, non-diversified management investment company that
has elected to be treated as a business development company under the
Investment Company Act of 1940, as amended (the "1940 Act") is a specialty
finance company with a leading position in the origination and servicing of
loans financing the purchase of taxicab medallions and related assets.
Medallion also originates and services commercial installment loans financing
small businesses in other targeted industries. Through its subsidiary Business
Lenders LLC, an SBA 7(a) lender, Medallion finances long-term loans to active
businesses secured by real estate and other assets. Up to 80% of these loans
are guaranteed against losses by the federal government. The investment
objectives of Medallion are to provide a high level of distributable income,
consistent with preservation of capital, as well as long-term growth of net
asset value. Medallion has elected to be treated as a "regulated investment
company" for federal income tax purposes. As a regulated investment company,
Medallion is not subject to any U.S. federal income tax on investment company
taxable income in any year if it distributes to its shareholders at least 90%
of its investment company taxable income for that taxable year, which
requirement Medallion complies with through payment of quarterly cash
dividends. Since fiscal 1996, Medallion has paid dividends for each fiscal year
and it intends to continue to pay dividends as long as funds are legally
available for distribution. Shareholders may elect to reinvest distributions.
As an adjunct to its finance business, Medallion operates a taxicab advertising
business.

Freshstart Venture Capital Corporation

Freshstart is a Small Business Investment Company that operates as a
Specialized Small Business Investment Company (SSBIC) under the Small Business
Investment Act of 1958, as amended, and is regulated and financed in part by
the Small Business Administration. Freshstart is a non-diversified investment
company that has elected to be regulated as a business development company, a
type of closed-end investment company under the 1940 Act. Freshstart has
elected to be treated as a "regulated investment company" for federal income
tax purposes. As a regulated investment company, Freshstart is not subject to
any U.S. federal income tax on investment company taxable income in any year if
it distributes to its shareholders at least 90% of its investment company
taxable income for that taxable year, which requirement Freshstart complies
with through payment of quarterly cash dividends. Since fiscal 1988, Freshstart
has paid dividends for each fiscal year and it intends to continue to pay
dividends as long as funds are legally available for distribution.

As an SSBIC, Freshstart's business is to provide loan financing to small and
medium-sized businesses at least 50% owned by persons who qualify under SBA
regulations as socially or economically disadvantaged. Freshstart makes a
substantial portion of its loans to finance taxicab medallions, taxicabs and
related assets, with the balance of its loans being made to other small
business concerns. Freshstart has not to date made any equity investments in
any small business concerns.

The Freshstart Special Meeting (Page 25)

The Freshstart Special Meeting will be held on September 7, 2000, at 9:30
a.m., local time at the Marriott East Side Hotel, 525 Lexington Avenue. At the
Freshstart Special Meeting, you will be asked to approve and adopt the merger
and the merger agreement.

<PAGE>

Recommendation to Freshstart Shareholders (Page 32)

The Freshstart board of directors believes that the merger is advisable and
in the best interests of Freshstart and its shareholders. The board unanimously
recommends that you vote "for" approval of the merger and the merger agreement.

Record Date

You can vote at the Freshstart Special Meeting only if you owned shares of
Freshstart common stock at the close of business on August 10, 2000, which is
the record date.

Vote Required to Approve the Merger

The merger requires the approval of the holders of two-thirds of the
outstanding shares of Freshstart common stock. If you do not return your proxy
or vote in person, it will have the effect of a vote against the merger.
Brokers who hold your shares of Freshstart common stock as nominees cannot vote
those shares unless you instruct them to, following the procedure they give
you.

Medallion shareholders do not need to vote to approve the merger.

Voting Power; Voting by Management (Page 25)

On the record date, 2,172,688 shares of Freshstart common stock were
outstanding. Of these, 127,984 shares (approximately 5.9% of the shares
entitled to vote) were beneficially owned by certain directors and executive
officers of Freshstart. Each share of Freshstart common stock entitles the
holder to one vote.

Certain of Freshstart's directors and executive officers, who collectively
beneficially owned 127,688 shares (or approximately 5.88%) of Freshstart's
outstanding shares as of the record date have executed voting agreements in
which they have agreed to vote the Freshstart common stock owned by them in
favor of the merger.

Revoking Proxies (Page 25)

You can revoke a proxy previously given by you by giving written notice to
at the address on the proxy card, by filing another proxy, or by attending the
Freshstart Special Meeting and voting in person.

Summary of the Merger

The merger agreement, Amendment No. 1 and Amendment No. 2 are attached at
the back of this Proxy Statement/Prospectus (as Appendix A, A-1 and A-2,
respectively). We encourage you to read the merger agreement, as amended, as it
is the legal document that governs the merger.

In the proposed merger, a subsidiary of Medallion will merge into
Freshstart, and Freshstart will become a wholly-owned subsidiary of Medallion.
You will receive shares of Medallion common stock in exchange for your shares
of Freshstart common stock.

Effective Time of the Merger

Medallion and Freshstart hope to complete the merger promptly after the
Freshstart Special Meeting, if regulatory approvals and other required matters
are completed by that time.

What You Will Receive in the Merger (Page 29)

If the merger is completed, you will receive:

. $4.025 in Medallion common stock for each share of Freshstart common
stock that you own, if the average closing price of Medallion common
stock is less than $12.00 during the period described in the next
paragraph;

. $4.025 in Medallion common stock for each share of Freshstart common
stock that you own, if the average closing price of Medallion common
stock is between $12.00 and $15.99 during the period described in the
next paragraph;

. $4.125 in Medallion common stock for each share of Freshstart common
stock that you own, if the average closing price of Medallion common
stock is between $16.00 and $19.50 during the period described in the
next paragraph;

. $4.375 in Medallion common stock for each share of Freshstart common
stock that you own, if the average closing price of Medallion common
stock is between

2
<PAGE>

$19.51 and $23.50 during the period described in the next paragraph;

. $4.625 in Medallion common stock for each share of Freshstart common
stock that you own, if the average closing price of Medallion common
stock is between $23.51 and $27.50 during the period described in the
next paragraph; or

. $4.875 in Medallion common stock for each share of Freshstart common
stock that you own, if the average closing price of Medallion common
stock exceeds $27.51 during the period described in the next paragraph.

Please do not send in your stock certificates. You will receive written
instructions to do so after the merger.

Ownership of Medallion Stock Following the Merger

Following the merger, existing Freshstart shareholders will own
approximately 3.86% of the outstanding common stock of Medallion (based upon
the number of shares of Medallion and Freshstart common stock outstanding on
June 16, 2000).

Federal Income Tax Consequences (Page 40)

We expect that neither Freshstart nor its shareholders will recognize gain
or loss for U.S. federal income tax purposes as a result of the merger, except
for any taxes payable by Freshstart shareholders on their receipt of cash
instead of fractional Medallion shares. Freshstart has received a legal opinion
from its counsel regarding these tax consequences.

Tax matters are complicated, and the tax consequences of the merger to you
will depend on the facts of your own situation. We urge you to contact your own
tax advisor to understand fully how the merger will affect you, including how
any state, local, or foreign tax laws may apply to you.

Freshstart's Reasons for the Merger (Page 30)

The Freshstart board believes, among other things, that the merger offers
you the opportunity to own stock in a significantly larger and more actively
traded business enterprise with potentially greater growth opportunities
compared with the opportunities available to Freshstart as an independent
company and that the merger would give Freshstart the opportunity to achieve
greater financial strength through synergies offered by the merger.

Opinion of Freshstart's Financial Advisor (Page 32)

The Freshstart board of directors has received an opinion of Freshstart's
financial advisor, First Colonial Securities Group, Inc. ("First Colonial"), as
to the fairness, from a financial point of view, of the consideration provided
for in the merger. First Colonial's opinion is directed to the Freshstart board
and does not constitute a recommendation to any shareholder as to how to vote
with respect to matters relating to the proposed merger.

Interests of Freshstart's Officers and Directors in the Merger (Page 36)

When considering the recommendation by the Freshstart board to vote "FOR"
the merger, you should be aware that certain directors and executive

3
<PAGE>

officers of Freshstart have interests in the merger that are different from,
and may conflict with, your interests. If we complete the merger, Medallion
will continue certain indemnification arrangements for directors and officers
of Freshstart. Certain directors and officers of Freshstart will also receive
certain benefits upon completion of the merger, including accelerated payments
of salary due to them under existing contractual arrangements. One officer will
provide consulting services to Medallion upon completion of the merger. The
Freshstart board was aware of these interests and considered them in approving
the merger.

Regulatory Approvals (Page 38)

Medallion and Freshstart must make filings with and obtain approval from the
United States Small Business Administration before they can complete the
merger.

We cannot predict whether we will obtain all required regulatory approvals
for the merger, or whether any approvals will include conditions that may be
detrimental to Medallion or Freshstart.

Conditions to the Merger (Page 38)

The merger will be completed only if certain conditions, including the
following, are met or waived:

. the Freshstart shareholders approve the merger;

. no more than 4% of the total number of shares of Freshstart common stock
outstanding is held by shareholders who provide notice that they intend
to dissent under New York law;

. no court orders prevent the merger or impose material limitations on the
ownership or operation of Freshstart after the merger;

. Freshstart and Medallion both receive letters from their accountants,
dated the closing date, stating they concur with management that the
merger qualifies for pooling of interests accounting treatment;

. Medallion and Freshstart receive an opinion from its tax counsel that
the merger will qualify as a tax-free transaction;

. the registration statement, including this Proxy Statement/Prospectus,
is declared effective;

. the representations and warranties made by Medallion and Freshstart
continue to be accurate except for inaccuracies that would not have a
material adverse effect; and

. the Nasdaq National Market approves the listing of the Medallion common
stock being issued in the merger agreement.

Termination of the Merger Agreement (Page 39)

Even if the Freshstart shareholders approve the merger, Medallion and
Freshstart can agree at any time to terminate the merger agreement without
completing the merger. The merger agreement can also be terminated if any of
the following occurs:

. the merger is not completed by September 30, 2000;

. a court or other governmental authority prohibits the merger; or

. the Freshstart shareholders do not approve the merger.

Medallion can terminate the merger agreement if:

. Freshstart violates its obligations to refrain from soliciting
acquisition proposals from others or if the Freshstart board approves or
permits a different acquisition proposal, or otherwise changes its
recommendation of the merger in a manner that is materially adverse to
Medallion; or

. the average closing price of Medallion common stock is less than $12.00
during the 10 trading days ending on and including the third trading day
before the Freshstart Special Meeting.

4
<PAGE>

Freshstart can also terminate the merger agreement if prior to shareholder
approval of the merger Freshstart's board of directors authorizes the
acceptance of a more favorable acquisition proposal.

Stock Option Agreement (Page 42)

Medallion and Freshstart have also entered into a stock option agreement,
which gives Medallion an option to purchase from Freshstart up to 434,320
shares (approximately 19.9%) of Freshstart's common stock for an exercise price
of $3.875 per share. The option becomes exercisable only if certain events
related to termination of the planned merger occur.

Freshstart Cannot Solicit Other Offers (Page 38)

Freshstart has agreed not to encourage, solicit, discuss, or negotiate with
anyone (other than Medallion) regarding a merger or sale, unless Freshstart
receives an unsolicited superior acquisition proposal and Freshstart's board of
directors is required by law to pursue the superior proposal in order to meet
its fiduciary obligations to the Freshstart shareholders.

Appraisal Rights (Page 55)

Under New York law, Freshstart shareholders are entitled to certain
appraisal rights in connection with the merger.

Accounting Treatment (Page 41)

Medallion and Freshstart expect the merger to qualify as a "pooling of
interests," which means that they will treat the two companies as if they had
always been combined for accounting and financial reporting purposes.

Comparative Prices of Medallion and Freshstart Common Stock (Page 50)

Medallion common stock is listed on the Nasdaq National Market and
Freshstart common stock is traded on the Nasdaq SmallCap Market. On December
22, 1999, the last trading day before the public announcement of the proposed
merger, Medallion common stock closed at $18.50 and Freshstart common stock
closed at $3.0625. On August 11, 2000, Medallion common stock closed at $16.625
and on August 8, 2000 Freshstart common stock closed at $3.00.

Following the merger, Freshstart common stock will no longer trade on the
Nasdaq SmallCap Market or any other exchange.

Fluctuations in Market Price

The number of shares of Medallion common stock that Freshstart shareholders
will receive in the merger will depend on the market value of Medallion common
stock during a specific period prior to the Freshstart Special Meeting. The
market value of Medallion common stock is likely to change, both before and
after the Freshstart Special Meeting and the merger. No one can accurately
predict what the market value will be at any particular time.

Listing of Medallion Common Stock (Page 42)

Medallion will apply to list the shares of its common stock to be issued in
the merger on the Nasdaq National Market.

Risk Factors (Page 15)

Holders of Freshstart common stock, in voting on the merger, should
consider, among other things the following factors:

. risks relating to integration of Freshstart and Medallion;

. risks associated with interest rate spread;

. leverage;

. industry and geographic concentration of Medallion's loans; and

. reliance on management.

Dividends and Distributions (Page 5)

Under Medallion's present policy, it distributes to its shareholders at
least 90% of its yearly investment company taxable income in quarterly cash
dividends. Some of Medallion's subsidiaries have also elected to be treated as
regulated investment companies and distribute at least 90% of

5
<PAGE>

their respective investment company taxable income to Medallion.

As a regulated investment company, Freshstart distributes to its
shareholders at least 90% of its yearly investment company taxable income as
dividends.

Differences in Rights of Medallion's and Freshstart's Shareholders (Page 50)

The rights of Freshstart shareholders currently are governed by New York
law, Freshstart's Articles of Incorporation and Freshstart's By-laws. When the
merger is completed, shareholders of Freshstart will become shareholders of
Medallion, a Delaware corporation, and their rights as shareholders of
Medallion will be governed by Delaware law, Medallion's Certificate of
Incorporation and Medallion's By-laws. The rights of Freshstart shareholders
and the rights of Medallion shareholders differ in certain respects.

Management of Freshstart and Medallion

Freshstart is managed by its executive officers under the supervision of its
Board of Directors.

Medallion is managed by its executive officers under the supervision of its
Board of Directors.

Recent Developments

On May 4, 2000, Medallion executed an agreement to acquire Ameritrans
Capital Corporation, a specialty finance company that primarily engages in
lending secured by taxicab medallions and is based in the New York metropolitan
area.

On August 4, 2000, Medallion executed an agreement to acquire substantially
all of the assets of Firestone Financial Corp. and Firestone Financial Canada,
Ltd., together a leading provider of secured installment loan, lease and
inventory financing to borrowers in North America, most of whom are engaged in
one or more of the vending machine, amusement machines, gaming equipment and
carnival equipment businesses.

Forward-Looking Statements (Page 72)

This document (and documents to which we refer you in this document)
includes various forward-looking statements about Medallion, Freshstart and the
combined company that are subject to risks and uncertainties. Forward-looking
statements include information concerning future results of operations of
Medallion, Freshstart and the combined company. Also, statements that use the
words "anticipate," "believe," "could," "estimate," "expect," "forecast,"
"intend," "may," "plan," "possible," "project," "should," "will," or similar
expressions are forward-looking statements. Many factors, some of which are
discussed elsewhere in this document and in documents to which we have referred
you, could affect the future financial results of Medallion, Freshstart and the
combined company. These factors could cause actual results to differ materially
from those expressed in forward-looking statements contained in this document
or related documents. These factors include adverse changes in economic
conditions and in the markets served by Medallion and Freshstart and a
significant delay in the completion of the merger.

6
<PAGE>

Medallion Summary Historical and Pro Forma Consolidated Financial Information.

The following table sets forth certain summary condensed historical
financial data of Medallion and pro forma information giving effect to the
merger as of March 31, 2000. The data set forth below does not include
financial information with respect to Ameritrans. The table is based on and
should be read in conjunction with Medallion's historical financial statements
and notes thereto incorporated by reference in this Proxy Statement-Prospectus.
See "Where You Can Find More Information," on page 70. Medallion's audited
historical financial statements were audited by Arthur Andersen LLP,
independent public accountants.

<TABLE>
<CAPTION>
Year Ended December 31, Proforma
(dollars in thousands, except per share Three Months Three Months
data) Ended Ended
---------------------------------------------- March 31, March 31,
1995 1996 1997 1998 1999 2000 2000
----------- ------- ------- ------- -------- ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Investment income....... $1,481 $12,292 $25,848 $35,157 $ 41,380 $13,794 $14,494
Interest expense........ 224 5,328 10,099 15,609 19,635 6,504 6,817
Net interest income..... 1,257 6,964 15,749 19,548 21,745 7,290 7,677
Equity in earnings
(losses) of
Unconsolidated
subsidiary(1).......... -- (63) 203 1,200 (214) (319) (319)
Other income............ -- 411 980 1,459 2,112 745 799
Gain on sale of loans... -- -- 336 2,316 3,014 686 686
Accretion of negative
goodwill............... -- 421 722 722 722 181 181
Operating expenses...... 608 3,042 6,167 13,178 16,907 4,557 4,557
Amortization of
goodwill............... -- 259 368 506 530 137 137
Income tax (provision)
benefit................ (639) (436) (929) 154 (46) -- --
Dividends on minority
interest............... (120) (116) -- -- -- -- --
Net investment income... (110) 3,880 10,526 11,715 9,896 4,059 4,330
Realized gain (loss) on
investments, net....... 3,800 558 78 1,291 22,746 (113) (170)
Change in unrealized
appreciation
(depreciation) of
investments (2)........ (649) 758 1,929 2,676 (11,910) 270 270
Net increase in net
assets resulting from
operations(3).......... $3,041 $ 5,196 $12,533 $15,682 $ 20,732 $ 4,216 $ 4,430
Net increase in net
assets resulting from
operations per share
diluted(3)............. $ 2.61 $ 0.87 $ 1.02 $ 1.11 $ 1.47 $ 0.30 $ 0.30
Dividends declared per
share.................. $ -- $ 0.36 $ 0.92 $ 1.20 $ 1.31 $ 0.35 $ 0.35
<CAPTION>
Proforma
March 31, March 31,
1995 1996 1997 1998 1999 2000 2000
----------- ------- ------- ------- -------- ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Investments, net of
unrealized depreciation
of investments......... 16,376 197,104 313,254 384,095 467,463 493,015 513,815
Total assets............ 21,237 215,277 339,894 422,225 509,613 532,310 554,876
Notes payable........... -- 96,450 137,750 115,600 190,450 175,500 178,500
Commercial paper........ -- -- -- 103,082 93,984 136,657 136,657
Subordinated SBA
debentures............. 2,408 38,806 39,770 41,590 10,500 10,500 21,360
Senior secured notes.... -- -- -- -- 45,000 45,000 45,000
Total liabilities....... 2,881 140,205 189,363 272,938 358,573 377,199 393,637
Negative goodwill....... -- 258 1,795 1,072 351 170 170
Preferred Stock......... 3,330 -- -- -- -- -- --
Total shareholders'
equity................. 15,026 72,554 148,736 148,215 150,689 154,941 161,069
</TABLE>

(continued on following page)

7
<PAGE>

<TABLE>
<CAPTION>
March 31,
1995 1996 1997 1998 1999 2000
------ ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios And
Other Data
Return on assets(4).......... 15.28% 4.39% 4.51% 4.12% 4.45% 0.81%
Return on equity(5).......... 20.24% 7.16% 8.43% 10.58% 13.76% 2.72%
Average yield, e.o.p.(6)..... 8.82% 10.98% 10.20% 9.93% 9.91% 9.96%
Average cost of funds,
e.o.p.(7)................... 3.79% 7.15% 7.15% 6.42% 7.09% 6.91%
Spread, e.o.p.(8)............ 5.03% 3.83% 3.05% 3.51% 2.82% 3.05%
Other income ratio (9)....... 0.00% 0.21% 0.31% 0.38% 0.45% 0.15%
Operating expense ratio
(10)........................ 2.86% 1.41% 1.81% 3.12% 3.32% 0.82%
Medallion Loans as a
percentage of Investments... 0.00% 68.30% 72.13% 69.27% 64.84% 64.26%
Commercial Installment Loans
as a percentage of
investments................. 93.62% 30.52% 25.48% 27.71% 34.66% 35.24%
Equity investments as a
percentage of investments... 6.38% 1.20% 2.39% 3.02% 0.50%
Investments to assets........ 77.11% 91.56% 92.16% 90.97% 91.73% 92.62%
Equity to assets............. 70.75% 33.70% 43.76% 35.10% 29.57% 29.11%
Debt to equity............... 16.03% 186.42% 119.35% 175.60% 225.59% 237.29%
SBA debt to total debt....... 100% 28.69% 22.40% 15.98% 3.09% 2.86%
</TABLE>

MEDIA (1)
STATEMENT OF OPERATIONS DATA
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months
May 30 to Year Ended Year Ended Year Ended Ended
December 31, December 31, December 31, December 31, March 31, 2000
1996 1997 1998 1999 (unaudited)
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Advertising revenue..... $1,095 $3,070 $7,526 $9,878 $2,276
Cost of services........ 499 1,205 2,413 4,262 1,163
------ ------ ------ ------ ------
Gross margin............ 596 1,865 5,113 5,616 1,113
Other operating
expenses............... 659 1,500 3,163 5,224 1,396
------ ------ ------ ------ ------
Income (losses) before
taxes.................. (63) 365 1,950 392 (283)
Income tax benefit
(provision)............ -- (162) (750) (134) 113
------ ------ ------ ------ ------
Net income (loss)....... $ (63) $ 203 $1,200 $ 258 $ (170)
</TABLE>
--------
(1) Equity in earnings (losses) of unconsolidated subsidiary represents the
net income (loss) for the period indicated from Medallion's investment in
Media. The amount reflects the elimination of approximately $473,000 and
$150,000 of advertising revenue purchased by the Company from Media in
1999 and the three months ended March 31, 2000, respectively. Such amount
has not been eliminated in the statement of operations of Media.
(2) Change in unrealized depreciation of investments represents the (increase)
decrease for the period in the unrealized depreciation applied against
Medallion's investments to state them at fair value.
(3) Net increase in net assets resulting from operations is the sum of net
investment income, net realized gains or losses on investments and the
change in unrealized gains or losses on investments.
(4) Return on assets represents net increase in net assets resulting from
operations, for the period indicated, divided by average assets during the
stated period.
(5) Return on equity represents net increase in net assets resulting from
operations, for the period indicated, divided by average shareholders'
equity during the stated period.
(6) Average yield, e.o.p. represents the end of period weighted average
interest rate on investments at the date indicated.
(7) Average cost of funds, e.o.p. represents the end of period 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 period indicated,
divided by average investments during the stated period.
(10) Operating expense ratio represents operating expenses, for the period
indicated, divided by average assets during the stated period.

8
<PAGE>

Freshstart Summary Consolidated Financial Information

The summary statement of operations and balance sheet data set forth below
are derived from Freshstart's audited financial statements, and should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Freshstart's financial statements,
including the notes thereto, and other financial information included in
Freshstart's Annual Report on Form 10-K incorporated by reference herein.
Freshstart's audited historical financial statements were audited by the office
of Michael C. Finklestein, independent public accountants.

<TABLE>
<CAPTION>
Nine Months
Ended
As of or For the Year Ended May 31, February 29,
--------------------------------------- 2000
1995 1996 1997 1998 1999 (unaudited)
------ ------ ------ ------- ------ ------------
(dollars in thousands, except per
share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Interest income......... $1,005 $1,004 $1,271 $ 2,464 $2,922 2,165
Operating expenses:
Interest expense....... 323 308 361 967 1,338 931
General and
administrative
expense............... 250 245 257 367 421 314
Other operating
expenses.............. 89 90 124 103 146 125
Total operating
expenses............... 662 643 742 1,437 1,905 1,370
Net operating income.... 343 361 529 1,027 1,017 795
Gains (losses) on
investments in small
business concerns:
Realized............... -- -- -- -- -- --
Unrealized(3).......... (2) (35) -- (139) (179) (518)
Income (loss) before
income taxes(2)........ 341 326 529 888 838 277
Income taxes............ 2 2 3 1 1 2
Net income.............. 339 324 526 887 837 275
Dividends on preferred
stock to SBA paid or
restricted............. 341 353 394 1,012 797
Income applicable to
common stock........... 325 340 505 851 802 3
Earnings per common
share (1).............. .27 .27 .29 .38 .36 .11
Weighted average common
shares outstanding
(1).................... 1,097 1,097 1,627 2,173 2,173 2,173
Balance Sheet Data:
Investments at cost.... 8,313 8,598 14,309 24,442 25,124 21,721
Unrealized appreciation
(depreciation) on
investments, Net...... (181) (181) (181) (320) (316) (816)
Investments at
estimated fair value.. 8,132 8,417 14,128 24,122 24,808 20,905
Cash and cash
equivalents........... 745 415 2,870 1,528 814 1,454
Total assets........... 9,203 9,238 17,351 26,248 26,258 22,930
SBA financing.......... 4,340 4,380 8,450 12,360 12,360 10,860
Total liabilities...... 6,034 6,068 10,133 19,155 19,127 15,695
Total shareholders'
equity................ 3,169 3,170 7,218 7,093 7,131 7,235
Other Selected Data:
Number of portfolio
companies at period
end.................... 241 176 229 277 242
Number of new portfolio
companies.............. 62 54 81 154 82
New advances to
portfolio companies.... -- -- -- -- --
Proceeds from
liquidation of
investments............ (406) (320) (5,711) (10,133) (681)
Estimated fair value of
investment portfolio at
period end............. 8,313 8,598 14,309 24,442 25,124
</TABLE>
--------
(1) The amount of dividends paid per share of Common Stock is based on the
actual amount of dividends paid to holders of Common Stock, in accordance
with Subchapter M of the Code, calculated on the basis of the weighted
average number of shares outstanding during each period. The average number
of shares has been calculated on a month-end average basis.
(2) The Company, since the fiscal year ended May 31, 1998, has elected and
qualified to be taxed a s a regulated investment company, and, therefore,
substantially all taxable income has been distributed to shareholders.
Accordingly, the Company only paid the minimum state and local taxes.
(3) Represents increases to unrealized depreciation and bad debt write-off of
investments to state them at the estimated fair market value.

9
<PAGE>

Comparative Per Share Prices.

Medallion common stock trades on the Nasdaq National Market under the symbol
"TAXI." The following table sets forth the high and low closing sale prices of
the Medallion common stock as reported by the Nasdaq National Market for each
of the quarters in the two year period ended December 31, 1999 and for the
first quarter of 2000 and for the second quarter of 2000.

<TABLE>
<CAPTION>
High Low
--------- --------
<S> <C> <C>
2000
Quarter ended June 30, 2000............................ $17 15/16 $14 1/16
Quarter ended March 31, 2000........................... $19 7/32 $15 3/4

1999
Quarter ended March 31, 1999........................... $21 1/4 $14
Quarter ended June 30, 1999............................ $19 5/8 $15 1/8
Quarter ended September 30, 1999....................... $21 3/4 $18 1/8
Quarter ended December 31, 1999........................ $21 9/16 $17 1/4

1998
Quarter ended March 31, 1998........................... $29 15/16 $18 7/8
Quarter ended June 30, 1998............................ $31 $25
Quarter ended September 30, 1998....................... $28 7/8 $12 1/16
Quarter ended December 31, 1998........................ $18 1/2 $12 9/16
</TABLE>

On August 11, 2000, the last sales price of Medallion common stock on the
Nasdaq National Market was $16.625. The public announcement of the merger
agreement occurred on December 23, 1999.

Freshstart common stock trades on the Nasdaq SmallCap Market under the
symbol "FSVC." The following table sets forth the high and low closing sale
prices of the Freshstart common stock as reported by the Nasdaq SmallCap Market
for each of the quarters in the two year period ended December 31, 1999 and for
the first quarter of 2000 and for the second quarter of 2000.

<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
2000
Quarter ended June 30, 2000............................. $3 13/16 $3
Quarter ended March 31, 2000............................ $4 $3 9/32
1999
Quarter ended March 31, 1999............................ $6 $4 3/16
Quarter ended June 30, 1999............................. $5 1/6 $3 3/4
Quarter ended September 30, 1999........................ $5 $3 1/4
Quarter ended December 31, 1999......................... $4 1/4 $3
1998
Quarter ended March 31, 1998............................ $6 5/8 $5 1/2
Quarter ended June 30, 1998............................. $6 7/8 $5 11/16
Quarter ended September 30, 1998........................ $6 1/8 $4 3/4
Quarter ended December 31, 1998......................... $5 7/8 $4 1/4
</TABLE>

On August 8, 2000, the last sales price of Freshstart common stock on the
Nasdaq SmallCap Market was $3.00. The public announcement of the merger
agreement occurred on December 23, 1999.

10
<PAGE>

Expense Table.

The following table lists the costs and expenses with respect to shares of
Medallion and shares of Freshstart as well as pro forma information for
Medallion common stock after giving effect to the merger. The table is based on
the net asset, fee and expense levels of Freshstart and Medallion for the
period ended March 31, 2000.

<TABLE>
<CAPTION>
Medallion Freshstart Medallion
(actual)(1) (actual)(1) (pro forma)(1)
----------- ----------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load (as a percentage of
offering price)..................... 5.28% -- 5.28%
Dividend Reinvestment Plan Fees(2)... -- -- --

Annual Expenses(3)
(as a percentage of net assets
attributable to common stock)
Management Fees(4)................... 0.14 -- 0.14
Interest Payments on Borrowed
Funds(5)............................ 16.79 17.56 16.93
Operating Expenses(6)................ 10.33 6.85 10.24
Other Expenses....................... 1.21 2.75 1.28
----- ----- -----
Total Annual Expenses.................. 28.47% 27.16% 28.59%
</TABLE>
--------
(1) Based on amounts for the three months ended March 31, 2000 (annualized).
(2) The expenses of Medallion's Dividend Reinvestment Plan are included in
stock record expenses, a component of "Other Operating Expenses." The
participants in the Dividend Reinvestment Plan will bear a pro rata share
of brokerage commissions incurred with respect to open market purchases.
See "Medallion's Dividend Reinvestment Plan."
(3) Assumes a net asset value of $161.1 million, which will be Medallion's
estimated shareholders' equity upon consummation of the merger. Operating
expenses, interest payments on borrowed funds and other expenses are
calculated on an annualized basis based on the three months ended March 31,
2000.
(4) Management expenses consist of fees paid to Medallion's investment adviser,
FMC Advisers, Inc. ("FMC").
(5) Interest payments on borrowed funds consist primarily of interest payable
under credit facilities with a bank syndicate, commercial paper, senior
secured notes and on subordinated SBA debentures.
(6) Operating expenses consist primarily of compensation and employee benefits,
data processing, advertising, travel and other marketing expenses,
occupancy costs and other similar expenses.

11
<PAGE>

Example

The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in Medallion, assuming the consummation of the merger
with Freshstart. These amounts assume no increase or decrease in leverage and
payment by Medallion of operating expenses at the levels set forth in the table
above.

An investor would pay the following expenses on a $1,000 investment,
assuming (i) a 5.0% annual return and (ii) reinvestment of all dividends and
distributions at net asset value:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C>
$339 $677 $888 $1,129
</TABLE>

This example as well as the information set forth in the table above should
not be considered a representation of the future expenses of Medallion. Actual
expenses may be greater or less than those shown. Moreover, while the example
assumes (as required by the Securities and Exchange Commission (the
"Commission")) a 5.0% annual return, Medallion's performance will vary and may
result in a return greater or less than 5.0%. In addition, while the example
assumes reinvestment of all dividends and distributions at net asset value,
participants in Medallion's Dividend Reinvestment Plan will receive shares
purchased by the Dividend Reinvestment Plan Agent at the market price in effect
at the time, which may be at, above or below net asset value. See "Medallion's
Dividend Reinvestment Plan."

The nature of the services for which Freshstart and Medallion pay management
fees is described below the caption "Comparative Investment Objectives and
Policies."

12
<PAGE>

RECENT DEVELOPMENTS

AMERITRANS TRANSACTION

On May 4, 2000, Medallion executed an Agreement and Plan of Merger with
Ameritrans Capital Corporation ("Ameritrans"), pursuant to which Ameritrans
will merge into and with a wholly-owned subsidiary of Medallion (the
"Ameritrans Transaction"). Ameritrans is a specialty finance company that
primarily engages in lending secured by taxicab medallions and is based in the
New York metropolitan area. The Ameritrans Transaction, which is structured to
qualify as a "pooling-of-interests" for accounting purposes, is subject to the
approval of the shareholders of Ameritrans, the satisfactory completion of due
diligence by Medallion by August 15, 2000, approval of certain lenders, as well
as the receipt of certain approvals from the U.S. Small Business
Administration, the U.S. Department of Justice and the Federal Trade Commission
and other customary closing conditions. Subject to the foregoing conditions,
the Ameritrans Transaction is expected to close in the fourth quarter of 2000.

The Ameritrans Transaction is structured as a tax-free exchange of shares of
common stock of Ameritrans for each share of common stock of Medallion. At
Medallion's closing common stock price of $16.50 on May 3, 2000, the Ameritrans
Transaction would be valued at approximately $17,000,000. The purchase price
represents a multiple of approximately 1.25 times the stated book value of
Ameritrans at December 31, 1999. Medallion expects to record a one-time pre-tax
charge of approximately $1,000,000 of acquisition-related costs in connection
with the Ameritrans Transaction.

Additional financial and other information about Ameritrans is contained in
Ameritrans' Annual Report on Form 10-K for the year ended June 30, 1999 and its
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, which is
incorporated herein by reference. See "Where You Can Find More Information."

FIRESTONE TRANSACTION

On August 4, 2000, Medallion executed a Purchase and Sale Agreement by and
among Citizens Bank of Massachusetts, Firestone Financial Corp., Firestone
Financial Canada, Ltd. ("Firestone Financial Canada" and together with
Firestone Financial Corp., "Firestone") and Firestone Financial, LLC, a wholly
owned subsidiary of Medallion, pursuant to which Medallion will purchase for
cash substantially all of the assets of Firestone (the "Firestone
Transaction"). Firestone is a leading provider of secured installment loan
lease and inventory financing to borrowers in North America, most of whom are
engaged in one or more of the vending machine, amusement machines, gaming
equipment and carnival equipment businesses. The Firestone Transaction is
subject to the receipt of certain approvals from the U.S. Department of Justice
and the Federal Trade Commission, the arrangement of financing satisfactory to
Medallion and other customary closing conditions. Subject to the foregoing
conditions, the Firestone Transaction is expected to close in the fourth
quarter of 2000.

13
<PAGE>

RISK FACTORS

In addition to the other information contained in this Proxy
Statement/Prospectus, holders of Freshstart common stock should carefully
consider the following risk factors.

This Proxy Statement/Prospectus contains forward-looking statements which
involve risks and uncertainties. Medallion's actual results may differ
significantly from the results discussed in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below.

Risk Relating to Integration of Freshstart and Medallion

The realization of certain benefits anticipated as a result of the merger
will depend in part on the integration of Freshstart's investment portfolio and
specialty finance business with Medallion and the successful inclusion of
Freshstart's investment portfolio in Medallion's financing operations. The
dedication of management resources to such integration may detract attention
from the day-to-day business of Medallion and there can be no assurance that
there will not be substantial costs associated with the transition process or
that there will not be other material adverse effects as a result of these
integration efforts. There can be no assurance that Freshstart's business can
be operated profitably or integrated successfully into Medallion's operations.
Such effects could have a material adverse effect on the financial results of
Medallion.

Interest Rate Spread

While the taxicab medallion loans and commercial installment loans
originated by Medallion in most cases bear interest at fixed rates, Medallion
finances a substantial portion of such loans by incurring indebtedness with
floating interest rates. As a result, Medallion's interest costs have increased
in the past and could increase in the future during periods of rising interest
rates, which may decrease the interest rate spread and thereby adversely affect
Medallion's profitability. Accordingly, Medallion, like most financial services
companies, faces the risk of interest rate fluctuations. Accordingly, if recent
increases in prevailing interest rates lead to a trend of higher interest
rates, Medallion's interest rate spread could decline. Although Medallion
intends to continue to manage its interest rate risk through asset and
liability management, including the use of interest rate caps, general rises in
interest rates will tend to reduce Medallion's interest rate spread in the
short term. In addition, Medallion relies on its counterparties to perform
their obligations under such interest rate caps.

Furthermore, loans made by Medallion typically may be prepaid by the
borrower upon payment of certain prepayment charges. A borrower is likely to
exercise prepayment rights at a time when the interest rate payable on the
borrower's loan is high relative to prevailing interest rates. In such a lower
interest rate environment, Medallion will have difficulty re-lending such
prepaid funds at comparable rates and, therefore, to the extent that
Medallion's cost of funds is not correspondingly reduced, such a decrease in
market interest rates could adversely affect Medallion.

Leverage

Medallion is leveraged as a result of its credit facilities with bank
syndicates, senior secured notes, commercial paper and long-term, subordinated
SBA debentures. Leverage poses certain risks for holders of Medallion common
stock, including possible higher volatility of both the net asset value of
Medallion and the market price of the Medallion common stock. Since interest is
paid to Medallion's creditors before any income is distributed to Medallion's
shareholders, fluctuations in the interest payable to such creditors affect the
yield to holders of Medallion common stock. In addition, income earned by
Medallion from operations and lending the proceeds of borrowings must exceed
the interest payable with respect to such borrowings in order for there to be
income available for distribution to shareholders. The high rate of
distribution of investment company taxable income required to maintain
Medallion's tax status as a RIC limits the funds that can be retained in the
business to cover periods of loss, provide for future growth and pay for
extraordinary items. In addition, in the

14
<PAGE>

event of a liquidation of Medallion, Medallion's creditors would have claims on
Medallion's assets superior to the claims of the holders of the Medallion
common stock. Furthermore, certain amounts could become payable to the SBA in
connection with Medallion's repurchase, at a discount, of preferred stock from
the SBA previously issued by MFC, which resulted in a realized gain in retained
earnings in the amount of the repurchase discount. Such discount is being
accreted to paid-in capital on a straight-line basis over 60 months; however,
if MFC is liquidated or loses its SBA license during the accretion period, the
SBA would have a claim for the remaining unaccreted amount attributable to the
subsidiary liquidating or losing its license. At March 31, 2000 the discount
was fully accreted.

At March 31, 2000 the Company's $367.7 million of outstanding debt was
comprised as follows: 47.7% bank debt, substantially all of which was at
variable effective rates of interest with a weighted average interest rate of
7.89% or 111 below the Prime Rate, 37.2% secured commercial paper with an
annual weighted average interest rate of 6.53% or 247 below the Prime Rate,
12.2% long-term senior secured notes fixed at an interest rate of 7.2% and 2.9%
subordinated SBA debentures, with fixed rates of interest with an annual
weighted average rate of 7.12%.

At March 31, 2000, Medallion had $175.5 outstanding on its credit facilities
with a bank syndicate consisting of an aggregate of $320 million revolving line
of credit. Amounts available under the Revolver are reduced by amounts
outstanding under the commercial paper program as the Revolver acts as a
liquidity facility for the commercial paper program. Substantially all
promissory notes evidencing Medallion's investments are held by a bank, as
collateral agent under the agreement. Medallion is required under the Revolver
to maintain minimum tangible net assets of $65,000,000 and certain financial
ratios, as defined therein. The Revolver agreement contains other restrictive
covenants, including a limitation of $1.5 million for capital expenditures per
annum. 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. The end of
period weighted average interest rate of the consolidated outstanding Revolver
borrowings at March 31, 2000 was 7.09%.

On March 13, 1998, MFC entered into a commercial paper agreement with
Salomon Smith Barney, Inc. 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. On August 3, 1999, MFC entered into
a commercial paper dealer agreement with USBancorp Investments, Inc. to sell
commercial paper under the same program as Salomon Smith Barney, Inc. 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. The commercial paper program ranks
on a pari passu basis with the Revolver. The commercial paper program has a
specified maturity date of June 30, 2001, which represents the maturity date of
MFC's Revolver, but may be terminated by the Company at anytime. Salomon Smith
Barney, Inc. intends to continue to participate in the program through June
2000. At March 31, 2000, Medallion had approximately $136.7 million outstanding
at an end of period weighted average interest rate of 6.56%. Commercial paper
outstanding is deducted from the Revolver as the Revolver acts as a liquidity
facility for the commercial paper.

On June 1, 1999, MFC issued $22.5 million of senior secured notes (the
Notes) that mature on June 1, 2004. The Notes bear a fixed rate of interest of
7.2% and interest is paid quarterly in arrears. The Notes rank pari passu with
the revolvers and commercial paper through inter-creditor agreements. On
September 1, 1999, the note holders purchased an additional $22.5 million under
the same terms and conditions. The proceeds of the Notes were used to prepay
certain of the Company's outstanding SBA debentures.

At March 31, 2000, Medallion has $10.5 million outstanding under
subordinated SBA debentures that have fixed rates of interest of 7.08% and
substantially all of which have a ten-year term. The remaining debentures have
maturities ranging from March 1, 2006 through June 1, 2007 and rates of 7.08%
per annum.

15
<PAGE>

At March 31, 2000, the weighted average annual rate of interest on all of
Medallion's borrowings was 7.26%. Based upon that rate, Medallion must achieve
annual returns on investments of at least 5.38% to cover annual interest
payments on the bank and subordinated SBA debentures described above. The
following table illustrates the effect of leverage to a shareholder assuming
Medallion's cost of funds at March 31, 2000 as described above and various
annual rates of return, net of expenses. The calculations set forth in the
table are hypothetical and actual returns may be greater or less than those
appearing below:

<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed return on investments (net of
expenses)(1)............................ -10% -5% 0% 5% 10%
Corresponding net income to common
shareholders(1)......................... -48.1% -32.4% -16.8% -1.2% 14.5%
</TABLE>
--------
(1) Assumes (i) $477.8 million in average loans outstanding, (ii) an average
cost of funds of 7.26%, (iii) $353.8 million in average debt outstanding
and (iv) $152.8 million of average shareholders' equity.

Industry and Geographic Concentration

Medallion loans collateralized by New York City taxicab medallions and
related assets comprised a substantial portion of Medallion's loan portfolio at
March 31, 2000. According to TLC data, over the past 20 years New York City
taxicab medallions have appreciated in value an average of 10.2% each year;
however, for sustained periods during that time, taxicab medallions declined in
value. Most of Medallion's commercial installment loans have been made to
retail dry cleaning and coin operated laundromat businesses in New York City
and a major portion of Medallion's taxicab advertising revenue is derived from
New York City taxicabs. There can be no assurance that Medallion will be able
to diversify geographically its operations or that an economic downturn in New
York City in general, or in the New York City taxicab, retail dry cleaning or
coin operated laundromat industries in particular, would not have an adverse
impact on Medallion. In addition to expanding geographically, Medallion has
expanded its financing operations through its acquisition in October 1997 of
Business Lenders, Inc., a specialty finance company focusing on long-term loans
to active businesses secured by real estate, and intends to continue to expand
its financing operations to include other industries and financial products and
there can be no assurance that management's experience with its current lending
activities will lead to success with such other industries and products.

Reliance on Management

The success of Medallion is largely dependent upon the efforts of senior
management. The death, incapacity or loss of the services of such individuals
could have an adverse effect on Medallion and there can be no assurance that
other qualified officers could be hired.

Substantial Influence by Existing Principal Shareholders

After giving effect to the issuance of Medallion common stock in connection
with the merger, two officers who are also directors of Medallion, together
with entities affiliated with them, will beneficially own approximately 17.8%
of the Medallion common stock outstanding. Because of their Medallion common
stock ownership, these shareholders, if they were to act together, could
influence the election of all members of Medallion's Board of Directors and
determine some corporate actions after the merger.

Risk Relating to Integration of Recent Acquisitions

On May 4, 2000, Medallion executed an Agreement and Plan of Merger with
Ameritrans Capital Corporation, pursuant to which Ameritrans will merge into
and with a wholly-owned subsidiary of Medallion. Ameritrans is a specialty
finance company that primarily engages in lending secured by taxicab medallions
and is based in the New York metropolitan area. On August 4, 2000, Medallion
executed an agreement to acquire substantially all of the assets of Firestone
Financial Corp. and Firestone Financial Canada, Ltd. Firestone is a leading
provider of secured installment loan lease and inventory financing to borrowers
in North America, most of whom are engaged in one or more of the vending
machine, amusement machines, gaming equipment and carnival equipment
businesses. By their nature, corporate acquisitions entail certain risks,
including those

16
<PAGE>

related to undisclosed liabilities, the entry into new markets and personnel
matters. Difficulties could also arise integrating the acquired operations or
managing problems due to sudden increases in the size of Medallion's loan
portfolio. In such instances, Medallion might be required to modify its
operating systems and procedures, hire additional staff, obtain and integrate
new equipment and complete other tasks appropriate for the assimilation of new
and increased business activities. There can be no assurance that Medallion
would be successful, if and when necessary, in minimizing these inherent risks
or in establishing systems and procedures which will enable it to effectively
achieve its desired results in respect of any such acquisition.

Availability of Funds

The Company's sources of liquidity are credit facilities with bank
syndicates, senior secured notes, fixed rate, long-term SBA debentures that are
issued to or guaranteed by the SBA, loan amortization and prepayments and a
secured commercial paper program with Salomon Smith Barney, Inc. and USBancorp
Investments, Inc. Salomon Smith Barney, Inc. will be participating in the
secured commercial paper program until June 2000. 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. 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. 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 $6.6 million of debt was available at March 31, 2000
at variable effective rates of interest averaging below the Prime Rate under
the Company's $320.0 million bank credit facilities. The Company has observed a
practice of minimizing credit facility fees associated with the unused
component of credit facilities by keeping the unused component as small as
possible and periodically increasing the amounts available under such credit
facilities only when necessary to fund portfolio growth.

Competition

Banks, credit unions and other finance companies, some of which are SBICs,
compete with Medallion in the origination of taxicab medallion loans and
commercial installment loans. Finance subsidiaries of equipment manufacturers
also compete with Medallion. Many of these competitors have greater resources
than Medallion and certain competitors are subject to less restrictive
regulations than Medallion. As a result, there can be no assurance that
Medallion will be able to continue to identify and complete financing
transactions that will permit it to continue to compete successfully.
Medallion's taxicab rooftop advertising business competes with other taxicab
rooftop advertisers as well as all segments of the out-of-home advertising
industry and other types of advertising media, including cable and network
television, radio, newspapers, magazines and direct mail marketing. Many of
these competitors have greater financial resources than Medallion and offer
several forms of advertising as well as production facilities. There can be no
assurance that Medallion will continue to compete with these businesses
successfully.

Credit Quality

Medallion's loans are not guaranteed by the SBA. Medallion's borrower base
consists primarily of small business owners that have limited resources. There
is generally no publicly available information about such small business
owners, and Medallion must rely on the diligence of its employees and agents to
obtain information in connection with Medallion's credit decisions. In
addition, these small businesses often do not have audited financial
statements. Typically, the success of small businesses and their ability to
repay Medallion's loans are dependent upon the management talents and efforts
of one person or a small group of persons, and the death, disability or
resignation of one or more of these persons could have an adverse impact on
their business. Moreover, small businesses may be more vulnerable to economic
downturns and often need substantial additional capital to expand or compete.
Such companies may also experience substantial variations in operating results.
Lending to small businesses therefore involves a high degree of business and
financial risk, which can result in substantial losses and accordingly should
be considered speculative. In addition, expansion of the portfolio and
increases in the proportion of the portfolio consisting of commercial
installment loans could have an adverse impact on the credit quality of the
portfolio.

17
<PAGE>

Portfolio Valuation

Under the 1940 Act, Medallion's loan portfolio must be recorded at fair
value or "marked to market." Unlike certain lending institutions, Medallion is
not permitted to establish reserves for loan losses, but adjusts quarterly the
valuation of its portfolio to reflect Medallion's estimate of the current
realizable value of the loan portfolio. Since no ready market exists for this
portfolio, fair value is subject to the good faith determination of Medallion's
management and the approval of Medallion's Board of Directors. In determining
such value, the directors may take into consideration various factors such as
the financial condition of the borrower, the adequacy of the collateral and
interest rates. For example, in a period of sustained increases in market rates
of interest, the Board of Directors could decrease its valuation of the
portfolio because the portfolio consists primarily of fixed-rate loans. These
fair valuation procedures are designed to approximate the value that would have
been established by market forces and are therefore subject to uncertainties
and variations from reported results. Based on the foregoing criteria,
Medallion determines net unrealized its loan portfolio of investments or the
amount by which Medallion's estimate of the current realizable value of its
portfolio is below its cost basis. At March 31, 2000, Medallion's net
unrealized depreciation on investments was approximately $8.6 million. Based
upon current market conditions and current loan to value ratios, Medallion's
Board of Directors believes that its net unrealized depreciation of investments
or the amount by which Medallion's estimate of the current realizable value of
its portfolio is below its cost bases. Based upon current market conditions and
current loan to value ratios, Medallion's Board of Directors believes that its
net unrealized depreciation of investments is adequate to reflect the fair
value of the portfolio. Because of the subjectivity of these estimates, there
can be no assurance that in the event of a foreclosure or in the sale of
portfolio loans, Medallion would be able to recover the amounts reflected on
its balance sheet. Further, costs associated with foreclosure proceedings, such
as a 5% New York City transfer tax assessed in connection with every medallion
transfer, may reduce Medallion's expected net proceeds.

Investments in equity securities and stock warrants are recorded at fair
value, represented as cost, plus or minus unrealized appreciation or
depreciation, respectively. The fair value of investments that have no ready
market, are determined by the Board of Directors based upon assets and revenues
of the underlying investee company as well as general market trends for
businesses in the same industry. Included in equity investments at March 31,
2000 are marketable and non-marketable securities of approximately $2,100,000
and $367,000, respectively. Approximately 10.1% of the equity investments at
March 31, 2000 are warrants to purchase shares that are attached to commercial
loans held by Medallion Capital. At December 31, 1999 Medallion's unrealized
depreciation on its equity investments was approximately $625,000.

Taxicab Industry Regulation

Every city in which Medallion originates medallion loans, and most other
major cities in the United States, limit the supply of taxicab medallions. In
many markets, regulation results in supply restrictions which, in turn, support
the value of medallions; consequently, actions which loosen such restrictions
and result in the issuance of additional medallions into a market could
decrease the value of medallions in that market and, therefore, the collateral
securing Medallion's then outstanding medallion loans, if any, in that market.
Medallion is unable to forecast with any degree of certainty whether any
potential increases in the supply of medallions will occur.

In New York City, Chicago, Boston and Cambridge, and in other markets where
Medallion originates medallion loans, taxicab fares are generally set by
government agencies, whereas expenses associated with operating taxicabs are
largely unregulated. As a consequence, in the short term, the ability of
taxicab operators to recoup increases in expenses is limited. Escalating
expenses, therefore, can render taxicab operation less profitable and make it
more difficult for borrowers to service loans from Medallion and could
potentially adversely affect the value of Medallion's collateral.

18
<PAGE>

Pass-Through Tax Treatment

Risks Associated with Distribution Requirements and Leverage

Medallion, together with some of its subsidiaries, has qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
In any year in which these companies so qualify under Subchapter M, they
generally will not be subject to federal income tax on investment company
taxable income (which includes, among other things, dividends and interest
reduced by deductible expenses) distributed to their shareholders. To so
qualify, these companies must meet certain income, distribution and
diversification requirements. However, because these companies use leverage,
they are subject to certain asset coverage ratio requirements set forth in the
1940 Act. These asset coverage requirements could, under certain circumstances,
prohibit these companies from making distributions that are necessary to
maintain Subchapter M status. In addition, the asset coverage and distribution
requirements impose significant cash flow management restrictions on Medallion
and limit Medallion's ability to retain earnings to cover periods of negative
income, provide for future growth and pay for extraordinary items, such as the
repayment of principal of debt incurred by Medallion. Qualification as a
regulated investment company under Subchapter M is made on an annual basis and,
although Medallion and some of its subsidiaries are qualified as regulated
investment companies, no assurance can be given that they will each continue to
qualify for such treatment. If these companies failed to elect to be treated as
regulated investment companies under Subchapter M, or were to fail to qualify
because the 1940 Act asset coverage requirements or the payment of
extraordinary items precluded distributions necessary to maintain Subchapter M
status or for any other reason, their respective incomes would become fully
taxable and a substantial reduction in the amount of income available for
distribution to Medallion and its shareholders would result.

The Small Business Investment Act of 1958 and regulations thereunder ("SBA
Regulations") restrict distributions by an SBIC. Consequently, an SBIC which is
also a regulated investment company could be prohibited by SBA Regulations from
making the distributions necessary to qualify as a regulated investment
company. Under such circumstances, in order to comply with the SBA Regulations
and the regulated investment company distribution requirements, the applicable
SBIC must request and receive a waiver of the SBA's restrictions. While the
current policy of the SBA's Office of SBIC Operations is to grant such waivers
if the SBIC makes certain offsetting adjustments to its paid-in capital and
surplus accounts, there can be no assurance that this will continue to be the
SBA's policy or that the relevant SBIC will have adequate capital to make the
required adjustments. In the absence of a waiver, compliance with the SBA
Regulations may result in loss of regulated investment company status and a
consequent imposition of an entity-level tax.

Risks Associated with Diversification Requirements

Medallion intends to continue to pursue an expansion strategy in its taxicab
rooftop advertising business and believes that there are growth opportunities
in this market. However, the asset diversification requirements under the Code
could restrict such expansion. These requirements provide, in part, that not
more than 25% of the value of a regulated investment company's total assets may
be invested in the securities (other than U.S. Government securities or
securities of other regulated investment companies) of any one issuer or two or
more issuers controlled by such regulated investment company which are engaged
in similar or related trades or businesses. Unlike Medallion's investments in
its regulated investment company subsidiaries, which are not subject to this
diversification test so long as these subsidiaries are regulated investment
companies, Medallion's investment in Media is subject to this test. The test is
initially calculated at the time the assets are acquired. At the time of the
commencement of Medallion's operations in May 1996, Media represented less than
25% of Medallion's assets and the diversification test was satisfied.
Subsequent growth of Media, if internally generated, will not retrigger the
test even if Media represents in excess of 25% of Medallion's assets. However,
under the Internal Revenue Code, the test must be reapplied in the event that
Medallion makes a subsequent investment in Media, lends to it or acquires
another taxicab rooftop advertising business. If such aggregate asset value
represents more than 25% of Medallion's total assets at that time, Medallion
would fail the diversification test. If that were to occur, Medallion would
lose its regulated investment company status with

19
<PAGE>

the consequences described above. Accordingly, Medallion's maintenance of
regulated investment company status could limit Medallion's ability to expand
its taxicab rooftop advertising business. It will be Medallion's policy to
expand its advertising business through internally generated growth and to only
consider an acquisition if, giving effect to the acquisition, the Code's
diversification requirements would be met.

Possible Volatility of Stock Price

The market price of Medallion's common stock, which is quoted on the Nasdaq
National Market, may be subject to significant fluctuations in response to
quarterly fluctuations in Medallion's revenues and financial results and other
factors. In particular, the realization of any of the risks described in these
"Risk Factors" could have a dramatic and adverse impact on such market price.

Dependence on Cash Flow from Subsidiaries

Medallion is a holding company and derives most of its operating income and
cash flow from its subsidiaries. As a result, Medallion relies entirely upon
distributions from its subsidiaries to generate the funds necessary to make
dividend payments and other distributions to its shareholders. Funds are
provided to Medallion by its subsidiaries through dividends and payments on
intercompany indebtedness, but there can be no assurance that such subsidiaries
will be in a position to continue to make such dividend or debt payments.

Certain Anti-Takeover Provisions

Certain provisions of Medallion's Certificate of Incorporation and the
Restated By-Laws may have the effect of discouraging a third party from making
an acquisition proposal for Medallion and thereby inhibit a change in control
of Medallion in circumstances that could give the holders of the Medallion
common stock the opportunity to realize a premium over the then prevailing
market price of the Medallion common stock. Such provisions may also adversely
affect the market price for the Medallion common stock. In addition, the
classification of Medallion's Board of Directors into three classes may have
the effect of delaying a change in control of Medallion.

Internal Control Structure

The objectives of an internal accounting control structure are to provide
management with reasonable assurance that assets are safeguarded against loss
from unauthorized use or disposition and that transactions are executed with
management's authorization. Moreover, the internal control structure is
designed to provide reasonable assurances that transactions are recorded
properly to permit the preparation of financial statements in accordance with
generally accepted accounting principles.

In performing their audit of Medallion's financial statements for the year
ended December 31, 1999, Medallion's independent auditors found conditions that
they believe to be material weaknesses in Medallion's internal accounting
control structure, arising in part from Medallion's conversion of its computer
software system in advance of the year 2000.

A material weakness is a significant deficiency in the design or operation
of one or more of the internal control structure elements. The existence of
such a condition means that the risk that errors or irregularities in amounts
that would be material to the financial statements of Medallion may not be
reduced to a relatively low level. Additionally, such errors or irregularities
may not be detected by employees within a timely period in the normal course of
performing their assigned functions. While Medallion believes that it can and
will remedy these conditions in a timely fashion, failure to do so could have a
material adverse effect on its business operations.

These matters were considered by the independent auditors during their audit
and do not modify their unqualified opinion, dated March 29, 2000, that the
consolidated financial statements of Medallion present fairly, in all material
respects, the financial position of Medallion and its subsidiaries as of
December 31, 1999 and 1998 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.

20
<PAGE>

MEDALLION SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth certain selected condensed historical
financial data of Medallion. The table is based on and should be read in
conjunction with Medallion's historical financial statements and notes thereto
incorporated by reference in this Proxy Statement/Prospectus. See "Where You
Can Find More Information."

<TABLE>
<CAPTION>
Three Months
Ended
Year Ended Year Ended March 31,
December 31, December 31, 2000
1998 1999 (unaudited)
------------ ------------ ------------
(dollars in thousands except
per share amounts)
<S> <C> <C> <C>
Statement Of Operations Data
Investment income...................... $ 35,157 $ 41,380 $ 13,794
Interest expense....................... 15,609 19,635 6,504
Net interest income.................... 19,548 21,745 7,290
Equity in earnings (losses) of
unconsolidated subsidiary (1)......... 1,200 (214) (319)
Other income........................... 1,459 2,112 745
Accretion of negative goodwill......... 722 722 181
Gain on sale of loans.................. 2,316 3,014 686
Operating expenses..................... 13,178 16,907 4,387
Amortization of goodwill............... 506 530 137
Income tax provision (benefit)........ (154) 46 --
Net investment income.................. 11,715 9,896 4,059
Realized gain (loss) on investments,
net................................... 1,291 22,746 (113)
Change in unrealized depreciation of
investments (2)....................... 2,676 (11,910) 270
Net increase in net assets resulting
from operations (3)................... 15,682 20,732 4216
Net increase in net assets resulting
from operations per share (3)......... 1.11 1.47 0.30
Dividends declared per share........... 1.20 1.31 0.35

<CAPTION>
March 31,
December 31, December 31, 2000
1998 1999 (unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Balance Sheet Data (In Thousands)
Investments
Medallion Loans........................ $266,062 $303,093 316,792
Commercial Installment Loans........... 106,423 162,034 173,749
Investments, net of unrealized
depreciation of investments........... 384,095 467,463 493,015
Total assets........................... 422,225 509,613 532,310
Notes payable and demand notes......... 115,600 190,450 175,500
Commercial Paper....................... 103,082 93,984 136,657
Senior Secured Notes................... -- 45,000 45,000
Subordinated SBA debentures............ 41,590 10,500 10,500
Total liabilities...................... 272,938 358,573 377,199
Total shareholders' equity............. 148,215 150,689 154,941

<CAPTION>
March 31,
December 31, December 31, 2000
1998 1999 (unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Selected Financial Ratios And Other
Data
Return on assets (4)................... 4.12% 4.45% 0.81%
Return on equity (5)................... 10.58 13.76 2.72
Average yield, e.o.p. (6).............. 9.93 9.91 9.96
Average cost of funds, e.o.p. (7)...... 6.42 7.09 6.91
Spread, e.o.p. (8)..................... 3.51 2.82 3.05
Other income ratio (9)................. 0.38 0.45 0.15
Operating expense ratio (10)........... 3.12 3.32 0.82
Medallion Loans as a percentage of
investments........................... 69.27 64.84 64.26
Commercial Installment Loans as a
percentage of investments............. 27.71 34.66 35.24
Investments to assets.................. 90.97 91.73 92.62
Equity to assets....................... 35.10 29.57 29.11
Debt to equity......................... 175.60 225.59 237.29
SBA debt to total debt................. 15.98 3.09 2.86
</TABLE>

21
<PAGE>

--------
(1) Equity in earnings (losses) of unconsolidated subsidiary represents the
net income (loss) for the period indicated from Medallion's investment in
Media.
(2) Change in unrealized depreciation of investments represents the (increase)
decrease for the period in the unrealized depreciation applied against
Medallion's investments to state them at fair value.
(3) Net increase in net assets resulting from operations is the sum of net
investment income, net realized gains or losses on investments and the
change in unrealized gains or losses on investments.
(4) Return on assets represents net increase in net assets resulting from
operations, for the year or period indicated, divided by average assets
during the stated period.
(5) Return on equity represents net increase in net assets resulting from
operations, for the year or period indicated, divided by total
shareholders' equity.
(6) Average yield, e.o.p. represents the end of period weighted average
interest rate on investments at the date indicated.
(7) Average cost of funds, e.o.p. represents the end of period 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 or period
indicated, divided by investments.
(10) Operating expense ratio represents operating expenses, for the year or
period indicated, divided by total assets.

22
<PAGE>

FRESHSTART SUMMARY CONSOLIDATED FINANCIAL DATA

The summary statement of operations and balance sheet data set forth below
are derived from Freshstart's audited financial statements, and should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Freshstart's financial statements,
including the notes thereto, and other financial information included in
Freshstart's Annual Report on Form 10-K and Freshstart's Quarterly Reports on
Form 10-Q for the quarters ended August 31, 1999, November 30, 1999 and
February 29, 2000 incorporated by reference herein.

<TABLE>
<CAPTION>
Nine Months
Ended
As of or For the Year Ended May 31, February 29,
--------------------------------------- 2000
1995 1996 1997 1998 1999 (unaudited)
------ ------ ------ ------- ------ ------------
(dollars in thousands, except per
share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Interest income......... $1,005 $1,004 $1,271 $ 2,464 $2,922 2,165
Operating expenses:
Interest expense....... 323 308 361 967 1,338 931
General and
administrative
expense............... 250 245 257 367 421 314
Other operating
expenses.............. 89 90 124 103 146 125
Total operating
expenses............... 662 643 742 1,437 1,905 1,370
Net operating income.... 343 361 529 1,027 1,017 795
Gains (losses) on
investments in small
business concerns:
Realized............... -- -- -- -- -- --
Unrealized(3).......... (2) (35) -- (139) (179) (518)
Income (loss) before
income taxes(2)........ 341 326 529 888 837 277
Income taxes............ 2 2 3 1 1 2
Net income.............. 339 324 526 887 836 275
Dividends on preferred
stock to SBA paid or
restricted............. 341 353 394 1,012 797
Income applicable to
common stock........... 325 340 505 851 802 3
Earnings per common
share (1).............. .27 .27 .29 .38 .36 .11
Weighted average common
shares outstanding
(1).................... 1,097 1,097 1,627 2,173 2,173 2,173
Balance Sheet Data:
Investments at cost.... 8,313 8,598 14,309 24,442 25,124 21,721
Unrealized appreciation
(depreciation) on
investments, Net...... (181) (181) (181) (320) (316) (816)
Investments at
estimated fair value.. 8,132 8,417 14,128 24,122 24,808 20,905
Cash and cash
equivalents........... 745 415 2,870 1,528 814 1,454
Total assets........... 9,203 9,238 17,351 26,248 26,258 22,930
SBA financing.......... 4,340 4,380 8,450 12,360 12,360 10,860
Total liabilities...... 6,034 6,068 10,133 19,155 19,127 15,695
Total shareholders'
equity................ 3,169 3,170 7,218 7,093 7,131 7,235
Other Selected Data:
Number of portfolio
companies at period
end.................... 241 176 229 277 242
Number of new portfolio
companies.............. 62 54 81 154 82
New advances to
portfolio companies.... -- -- -- -- --
Proceeds from
liquidation of
investments............ (406) (320) (5,711) (10,133) (681)
Estimated fair value of
investment portfolio at
period end............. 8,313 8,598 14,309 24,442 25,124
</TABLE>
--------
(1) The amount of dividends paid per share of Common Stock is based on the
actual amount of dividends paid to holders of Common Stock, in accordance
with Subchapter M of the Code, calculated on the basis of the weighted
average number of shares outstanding during each period. The average number
of shares has been calculated on a month-end average basis.
(2) The Company, since the fiscal year ended May 31, 1998, has elected and
qualified to be taxed a s a regulated investment company, and, therefore,
substantially all taxable income has been distributed to shareholders.
Accordingly, the Company only paid the minimum state and local taxes.
(3) Represents increases to unrealized depreciation and bad debt write-off of
investments to state them at the estimated fair market value.

23
<PAGE>

THE FRESHSTART SPECIAL MEETING

Purpose of the Freshstart Special Meeting

At the Freshstart Special Meeting, holders of Freshstart common stock will
consider and vote upon a proposal to approve and adopt the merger agreement and
such other matters as may properly be brought before the Freshstart Special
Meeting.

The Board of Directors of Freshstart has unanimously approved the merger
agreement and recommends a vote FOR approval and adoption of the merger
agreement.

Voting Information

This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the board of directors of Freshstart for the Special
Meeting. The cost of the solicitation of proxies will be borne by Freshstart.
Freshstart will pay brokers, nominees, fiduciaries, or other custodians their
reasonable expenses for sending proxy material to, and obtaining information
from, persons for whom they hold stock of Freshstart. Freshstart expects the
solicitation of proxies will be primarily by mail, but directors, officers and
other employees of Freshstart may also solicit in person, by telephone, or by
mail.

Only shareholders of record at the close of business on August 10, 2000 (the
"Record Date"), will be entitled to vote at the Special Meeting. The total
number of shares of stock outstanding and entitled to vote at the meeting as of
the Record Date consisted of 2,172,688 shares of Freshstart common stock. Each
share of Freshstart common stock is entitled to one vote.

If the accompanying proxy is executed and returned in time for the Special
Meeting, the shares covered thereby will be voted in accordance with the
instructions thereon. Any proxy may be revoked at any time before it is voted
by written notice, mailed or delivered to the Secretary of Freshstart, or by
revocation of a written proxy by request in person at the Special Meeting; but
if not so revoked, the shares represented by such proxy will be voted in the
manner directed by the shareholder. If no direction is made, proxies received
from shareholders will be voted "for" the proposal set forth in the Notice of
Meeting.

Freshstart has engaged a proxy solicitation firm to solicit proxies from
shareholders and has agreed to pay such firm a fee of approximately $10,000
plus expenses for its services.

Shareholder and Board Approvals

The merger agreement is being submitted at the Special Meeting for approval
by the shareholders of Freshstart. The approval of two-thirds of the
outstanding shares of Freshstart is required for the approval of the merger
agreement. Abstentions will have the same effect as casting a vote against the
merger agreement. The vote of the shareholders of Medallion is not being
solicited because their approval or consent is not required for the merger to
be consummated.

Pursuant to the Voting Agreements, Zindel Zelmanovitch, the President and a
director of Freshstart, and Neil Greenbaum, the Secretary and a director of
Freshstart, have agreed to vote their shares of Freshstart common stock held as
of the Freshstart Record Date in favor of the merger. A total of 127,984 shares
of Freshstart common stock are beneficially owned by Messrs. Zelmanovitch and
Greenbaum, representing approximately 5.9% of the outstanding Freshstart common
stock as of the Freshstart Record Date).

24
<PAGE>

On July 31, 2000, the name, address, and share ownership of persons who
beneficially owned 5% or more of the outstanding shares and the members of the
Board of Directors of Freshstart, and the percentage of shares of Medallion
common stock that would be owned by such persons upon consummation of the
merger based upon their holdings and outstanding shares at July 31, 2000 are as
follows:

<TABLE>
<CAPTION>
Percentage Percentage
Share Ownership Ownership of Ownership of
of Freshstart Before Medallion
Name of Beneficial Owner Freshstart(1) Merger After Merger
------------------------ --------------- ----------------- ------------
<S> <C> <C> <C>
Neil Greenbaum............. 142,848(2) 6.58% * %
29 Flamingo Road North
East Hills, NY 11576(1)

Zindel Zelmanovitch........ 91,744(3) 4.22% * %
1934 East 18th Street
Brooklyn, NY 11229(4)

Pearl Greenbaum............ 205,312(5) 9.45% 1.41%
300 Winston Drive
Cliffside Park, NJ 07010(1)

Michael L. Moskowitz....... 39,183(6) 1.80% * %
45 East 25th Street
New York, NY 10010(4)

Eugene Haber............... 176(7) * % * %
22 Eagle Lane
East Hills, NY 11576

Alan Work.................. 4,720(8) * % * %
54 Random Farms Drive
Chappaqua, NY 10514

John Hamill................ 38,500(9) 1.77% * %
8 Saxon Woods
Avon, CT 06001(1)

All officers and directors
as a group (7 persons).... 522,483 24.05% 3.58%
</TABLE>
--------
* Less than 1%.
(1) Pearl Greenbaum is the mother of Neil Greenbaum and the mother-in-law of
John Hamill.
(2) Includes 5,400 shares held by Mr. Greenbaum's children. Also includes
13,400 shares held in joint tenancy with Mr. Greenbaum's wife. Also
includes 10,260 shares held by the defined benefit plan of Pearland
Brokerage, Inc., of which Mr. Greenbaum is an administrator. Also includes
7,180 shares held by the Freshstart Venture Capital Money Purchase Plan,
of which Mr. Greenbaum is an administrator. Excludes 30,200 shares held by
his wife and 20,440 held by his mother and children as joint tenants, as
to which shares Mr. Greenbaum disclaims beneficial ownership.
(3) Includes 84,564 shares held in pension plans of which Mr. Zelmanovitch is
the beneficiary and 7,180 shares held by the Freshstart Venture Capital
Money Purchase Plan of which Mr. Zelmanovitch is an administrator.
(4) Mr. Zelmanovitch is the brother-in-law of Mr. Moskowitz.
(5) Includes 39,100 shares held in joint tenancy with Mrs. Greenbaum's
grandchildren. Also includes 33,760 shares held in joint tenancy with her
daughter, Karen Franklin. Also includes 10,260 shares held by the benefit
plan of Pearland Brokerage Inc. of which Mrs. Greenbaum is an
administrator. Excludes 93,240 shares held by the estate of her husband,
Andrew Greenbaum, as to which shares Mrs. Greenbaum disclaims beneficial
ownership.

25
<PAGE>

(6) Includes 9,000 shares held by M.L. Moskowitz & Co., Inc. of which Mr.
Moskowitz is a principal shareholder. Also includes 7,095 shares held by
the profit sharing plan of M.L. Moskowitz & Co. of which Mr. Moskowitz it
the trustee.
(7) Includes 132 shares held by Mr. Haber's wife.
(8) Includes 2,220 shares held by Mr. Work and his wife as joint tenants and
2,500 shares held by the pension plan of a company of which Mr. Work is
the sole trustee.
(9) Excludes (i) 10,200 shares held by Mr. Hamill's three children, (ii)
18,660 shares held by his mother-in-law, Pearl Greenbaum, and his children
as joint tenants and (iii) 72,500 shares held by his wife, as to all of
which shares Mr. Hamill disclaims beneficial ownership.

Quorum and Adjournments

Under New York law, a quorum is constituted by the presence in person or by
proxy of the holders of a majority of the outstanding shares of Freshstart.
Votes cast by proxy or in person at the Special Meeting will be tabulated by
the election inspectors appointed for the meeting who will determine whether or
not a quorum is present. Proxies properly executed and marked with a negative
vote or an abstention, or broker non-votes, will be considered to be present at
the Special Meeting for the purposes of determining the existence of a quorum
for the transaction of business. Broker non-votes exist where a broker proxy
indicates that the broker is not authorized to vote on a particular proposal.

In the event that a quorum is not present at the Special Meeting, or in the
event that a quorum is present at the Special Meeting but sufficient votes to
approve the merger agreement are not received, the persons named as proxies may
propose one or more adjournments of the Special Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares affected by the adjournment that are represented
at the Special Meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote those proxies that they are entitled to vote
FOR the merger agreement in favor of such adjournments, and will vote those
proxies required to be voted AGAINST such proposal against any adjournment.

Dissenters' Rights of Appraisal

Pursuant to Section 910 of New York Corporation Law, holders of Freshstart
common stock at the close of business on the Record Date have the right to
dissent from the merger and, if the merger agreement is approved and the merger
is consummated, receive payment of the fair value of their Freshstart common
stock (in lieu of Medallion common stock they would otherwise receive pursuant
to the merger) by complying with the requirements of Section 623 of New York
Corporation Law (the full text of which is set forth as Appendix B to this
Proxy Statement/Prospectus). Section 623 requires that any such shareholder who
wishes to exercise such appraisal rights must not vote in favor of the adoption
of the merger agreement, and must file with Freshstart, before shareholders
vote on the merger agreement, a written objection including a notice of
election to dissent, his name and residence address, the number of shares as to
which he dissents (shareholders may not dissent as to less than all of their
shares) and a demand for payment for his shares if the merger is effected. Such
objection is not required from any shareholder to whom Freshstart did not give
proper notice of the Annual Meeting. Within 10 days after the vote of
shareholders authorizing the merger, Freshstart must give written notice of
such authorization to each dissenting shareholder who filed written objection
or from whom written objection was not required. Any shareholder from whom
written objection was not required and who elects to dissent from the merger
must file with Freshstart, within 20 days after the giving of such notice to
him, a written notice of such election, stating his name and residence address,
the number of shares as to which he dissents and a demand for payment of the
fair value for his shares. At the time of filing the notice of election to
dissent or within one month thereafter, the shareholder must submit the
certificates representing his shares to Freshstart or its transfer agent for
notation thereon of the election to dissent, after which such certificates will
be returned to the shareholder. Failure to submit the certificates for such
notation may result in the loss of appraisal rights. Within 15 days after the
expiration of the period within which shareholders may file their

26
<PAGE>

notices of election to dissent or within 15 days after consummation of the
merger, whichever is later (but not later than 90 days after the shareholders'
vote authorizing the merger agreement), Freshstart must make a written offer
(which if the merger has not been consummated, may be conditioned upon such
consummation) to each shareholder who has filed such notice of election to pay
for his shares at a specified price which Freshstart considers to be their fair
value. If Freshstart fails to make the offer within such 15-day period, or if
any dissenting shareholder fails to agree to it within 30 days after it is
made, Freshstart shall institute a judicial proceeding within 20 days after the
expiration of the applicable period to determine the rights of dissenting
shareholders and to fix the fair market value of their shares of Freshstart
common stock. If Freshstart fails to institute such proceeding, a dissenting
shareholder may institute the same. A negative vote on the merger agreement
does not constitute a "written objection" required to be filed by a dissenting
shareholder. Failure to vote against the merger agreement will not constitute a
waiver of appraisal rights; however, since a proxy left blank will be voted FOR
the merger agreement, any Freshstart shareholder who wishes to exercise his
appraisal rights must either vote AGAINST the merger agreement or abstain.

The foregoing summary does not purport to be a complete statement of the
provisions of Section 623 of New York Corporation Law, and is qualified in its
entirety by reference to the attached Appendix B.

27
<PAGE>

THE MERGER

The following description of the merger and the merger agreement is a
summary and is not complete and is qualified by reference to the merger
agreement, which is attached as Appendix A and incorporated in this document by
reference. Shareholders of Freshstart and Medallion are urged to read the
merger agreement in its entirety.

General

The merger agreement provides that the merger will be completed if the
approval of the Freshstart shareholders required therefor is obtained and all
other conditions to the merger are satisfied or waived. Upon completion of the
merger, a subsidiary of Medallion, will be merged with and into Freshstart, and
Freshstart will become a wholly owned subsidiary of Medallion.

If the merger is completed, you will receive:

. $4.375 in Medallion common stock for each share of Freshstart common
stock that you own, if the average closing price of Medallion common
stock is between $19.51 and $23.50 during the period described in the
next paragraph;

Based upon the capitalization of Freshstart and Medallion as of the
Freshstart Record Date, the shareholders of Freshstart will own in the
aggregate approximately 3.86% of the outstanding Medallion common stock
following consummation of the merger. Such percentage could change depending on
fluctuations in the trading prices of Medallion common stock and the number of
shares of Medallion common stock and Freshstart common stock issued upon
exercise of outstanding Medallion stock options.

28
<PAGE>

Closing Date

The Closing Date of the merger will occur upon the filing of a Certificate
of Merger with the Secretary of State of the State of Delaware and the
Certificate of merger with the Secretary of State of the State of New York
(collectively, the "Certificates of Merger") or at such later date as is
specified on such certificate. The filing of the Certificates of Merger will
occur as soon as practicable after the satisfaction of the conditions set forth
in the merger agreement. The merger agreement may be terminated by either party
if the merger has not been consummated on or before September 30, 2000 and
under certain other conditions. See "The Merger Agreement--Conditions" and "--
Termination; Fees and Expenses."

Background of the Merger

During 1998, it became apparent to the Freshstart Board of Directors that
there were major operational challenges faced by Freshstart in the near term.
Specifically, the Freshstart Board of Directors believed that Freshstart was
unable to achieve growth through either internal means or the pursuit of
acquisitions and Freshstart was unable to raise additional investment capital
under acceptable terms. This was primarily due to:

. issues related to maintaining SSBIC status;

. liquidity issues regarding Freshstart's common stock;

. ability to compete with larger, better capitalized competitors; and

. the need to compete, due to margin compression on lending rates, in new
industry segments outside of Freshstart's historical operations.

Further, the Board believed that it could not grow Freshstart sufficiently
out of cash flow because as registered investment company it is required to
distribute not less than 90% of its annual earnings. As a result, in October
1998, the Board authorized Zindel Zelmanovitch, Freshstart's President, to
pursue strategic alternatives which could maximize shareholder value.

Freshstart and Medallion were pursuing ongoing discussions since 1997
relating to the possible acquisition of Freshstart by Medallion. In May 1998,
Freshstart engaged First Colonial Securities Group, Inc. as its financial
advisor to assist Freshstart in identifying and assessing strategic
alternatives. In November 1998, First Colonial introduced Freshstart to third
parties which had expressed an interest in acquiring Freshstart. After lengthy
discussions, the negotiations ceased due to regulatory issues.

In December 1998, Alvin Murstein, Chairman and Chief Executive Officer of
Medallion, contacted Neil Greenbaum the Secretary of Freshstart. Mr. Murstein
advised Mr. Greenbaum that it was Medallion's intention to make a proposal to
purchase Freshstart. This conversation was followed by a letter in 1999 wherein
Medallion offered to purchase Freshstart in a stock for stock transaction.

In April 1999, First Colonial circulated information regarding Freshstart to
a select number of potential purchasers, including community banks, specialty
finance companies and other financial service companies. In May 1999,
Freshstart received offers to purchase its business from (i) Medallion and (ii)
another third party.

After due deliberations, the Board of Directors of Freshstart determined in
June 1999 that Medallion's offer was the best opportunity to maximize
shareholder value. Discussions continued with Medallion during the summer of
1999 and Freshstart and Medallion entered into a letter of intent in August of
1999. The parties entered into definitive Agreement and Plan of Merger in
December 1999.

Freshstart's Reasons for the Merger

Freshstart's board of directors approved the merger after determining that
it was in the best interests of Freshstart's shareholders. In reaching its
conclusion to approve the merger, the board of directors considered the
following information and factors:

29
<PAGE>

. the general business and competitive conditions in Freshstart's
industry. In particular, the board considered Freshstart's growth
opportunities as an independent company compared with the growth
opportunities available as part of a larger company such as Medallion.
The board considered that merging with Medallion, which has significant
financial resources and a strong reputation and competitive position in
the taxicab medallion lending industry and the small business lending
industry, would give Freshstart the opportunity to grow and to reduce
its cost of funds;

. the potential cost synergies offered by the merger through the
elimination of certain duplicative operations and functions;

. the proposed purchase price represented a substantial premium over
Freshstart's book value;

. the increased liquidity offered by the merger to Freshstart's
shareholders. The board believed that the merger offered Freshstart's
shareholders the opportunity to own stock of a significantly larger and
more actively traded business enterprise and that Freshstart's
shareholders would have the opportunity to participate in the potential
growth of the combined company after the closing of the merger;

. the opportunity for Freshstart's shareholders to receive future cash
dividends with respect to their shareholdings;

. Medallion's and its subsidiaries' investment portfolios will provide
more diversity to Freshstart shareholders' holdings;

. information with respect to the financial condition, results of
operations and business of Medallion, including the due diligence review
by Freshstart's management and financial advisor regarding Medallion's
financial condition and prospects;

. the tax-free nature of the merger to Freshstart's shareholders, which
will permit those shareholders to receive Medallion common stock in a
tax-free exchange at a premium over the market price for Freshstart's
common stock. See "--Certain Federal Income Tax Consequences";

. Medallion could qualify Freshstart as a pass-through tax entity under
subchapter M;

. the opinion of First Colonial Securities Group, Inc. to the effect that,
as of that date and based on and subject to the matters described in the
opinion, the conversion ratio provided for in the merger was fair, from
a financial point of view, to the holders of Freshstart common stock,
and the related financial analyses performed by First Colonial
Securities Group, Inc. in connection with its opinion. See "--Opinion of
Financial Advisor to Freshstart"; and

. the likelihood of consummation of the merger, including the terms and
conditions of the merger agreement and the limited conditions to the
consummation of the merger.

The board of directors also considered certain potentially negative factors
in its deliberations concerning the merger, including, without limitation, the
following:

. the possibility that the merger would not be consummated following the
execution of the merger agreement;

. the risk that the combined company might not realize the anticipated
synergies and cost savings of the merger;

. the possible disruption of Freshstart's business pending completion of
the merger and risks associated with the integration by Medallion of
Freshstart and other businesses that Medallion has recently acquired and
whether the potential benefits sought in the merger and such other
acquisitions might not be fully realized; and

. the structure and amount of the option could affect the ability of
another bidder to propose an alternative transaction offering a premium
to the merger consideration.

30
<PAGE>

The board of directors concluded that the benefits of the transaction to
Freshstart and its shareholders outweighed the risks associated with the
foregoing factors.

The above discussion of the information and factors considered by the
Freshstart board is not all-inclusive but is believed to include all material
factors considered by the Freshstart board. In view of the variety of factors
considered by the Freshstart board, the Freshstart board did not find it
practicable to quantify or otherwise attempt to assign relative weights to the
specific factors considered in making its determination. In addition,
individual members of the Freshstart board may have given different weights to
different factors. Consequently, the Freshstart board did not quantify the
assumptions and results of its analysis in reaching its determination that the
merger is fair to, and in the best interests of, Freshstart and its
shareholders.

Recommendation of the Board of Directors of Freshstart

The Freshstart Board of Directors (including the non-interested members of
the Board of Directors) believes that the terms of the merger are fair to, and
in the best interests of, Freshstart and the Freshstart shareholders and has
unanimously approved the merger agreement and the related transactions.

THE FRESHSTART BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
FRESHSTART COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.

Medallion's Reasons for the Merger

Medallion believes that the acquisition of Freshstart will enhance two of
its existing core lines of business, taxicab medallion financing and small
business financing. Medallion also believes that its management experience and
lower cost of funds will enable it to improve Freshstart's profitability.
Medallion does not currently have a location in Queens, New York, where a large
amount of its customer base resides. In addition, Medallion does not currently
have a street-level presence within the New York City Metropolitan area. The
acquisition of Freshstart will satisfy both these needs.

Opinion of Financial Advisor to Freshstart

In May 1997, Freshstart engaged First Colonial Securities Group Inc., an
investment banking firm, to act as its exclusive financial advisor in
connection with the proposed transaction and to render an opinion as to the
fairness from a financial point of view to the holders of outstanding shares of
Freshstart common stock of the consideration to be received by such
shareholders. This engagement was renewed in January 1998. First Colonial was
selected by the Freshstart board of directors based on First Colonial's
qualifications, expertise and reputation, as well as First Colonial's historic
investment banking relationship and familiarity with Freshstart. First Colonial
rendered its oral opinion, subsequently confirmed in writing on March 8, 2000,
to the Freshstart board of directors that, as of such date, the consideration
to be received by Freshstart shareholders in the merger is fair from a
financial point of view to the holders of outstanding shares of Freshstart
common stock.

The full text of the opinion delivered by First Colonial to the Freshstart
board of directors dated March 8, 2000 which sets forth the assumptions made,
general procedures followed, matters considered, and limitations on the scope
of review undertaken by First Colonial in rendering its opinion, is attached as
Annex B to this proxy statement/prospectus and is incorporated into this proxy
statement/prospectus by reference. First Colonial's opinion is directed only to
the fairness, from a financial point of view, of the consideration to be
received by the holders of Freshstart common stock and does not constitute a
recommendation to any Freshstart shareholder as to how such shareholder should
vote with respect to the proposed transaction. The summary of First Colonial's
fairness opinion set forth below is qualified in its entirety by reference to
the full text of such fairness opinion attached to this proxy
statement/prospectus as Annex B. Freshstart shareholders are urged to read the
opinion carefully in its entirety.

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In reviewing the proposed transaction, and in arriving at its opinion,
First Colonial, among other things:

. reviewed the publicly available consolidated financial statements of
Medallion for recent years and interim periods to date and certain other
relevant financial and operating data of Medallion made available to
First Colonial from published sources;

. discussed the business, financial condition and prospects of Medallion
with certain members of its senior management;

. reviewed the publicly available consolidated financial statements of
Freshstart for recent years and interim periods to date and certain
other relevant financial and operating data of Freshstart made available
to First Colonial from published sources;

. reviewed certain internal financial and operating information relating
to Freshstart prepared by the senior management of Freshstart;

. discussed the business, financial condition and prospects of Freshstart
with certain members of its senior management;

. reviewed the recent reported prices and trading activity for the shares
of common stock of Medallion and Freshstart and compared such
information and certain financial information for Medallion and
Freshstart with similar information for certain other companies engaged
in businesses that First Colonial considered comparable;

. reviewed the financial terms, to the extent publicly available, of
certain merger and acquisition transactions that First Colonial
considered comparable;

. reviewed the merger agreement and stock option agreement;

. discussed with parties other than Medallion the possibility of a
transaction or series of transactions involving a business combination
with Freshstart; and

. performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and
financial, economic and market data as First Colonial deemed relevant.

First Colonial did not independently verify any of the information
concerning Freshstart or Medallion in connection with its review of the
proposed transaction and, for purposes of its opinion, First Colonial assumed
and relied upon the accuracy and completeness of all such information and
presentations. In connection with its opinion, First Colonial did not prepare
or obtain any independent valuation or appraisal of any of the assets or
liabilities of Freshstart or Medallion, nor did it conduct a physical
inspection of the properties and facilities of Freshstart or Medallion. With
respect to the financial forecasts and projections used in its analyses, First
Colonial assumed that they reflected the best currently available estimates
and judgments of the expected future financial performance of Medallion and
Freshstart. For the purposes of its opinion, First Colonial also assumed that
neither Freshstart nor Medallion was a party to any pending transactions,
including external financings, recapitalizations or material merger
discussions, other than the proposed transaction and those activities
undertaken in the ordinary course of conducting their respective businesses.
For purposes of its opinion, First Colonial assumed that the proposed
transaction will qualify as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended, for the Freshstart shareholders and that the
proposed transaction will be accounted for as a pooling of interests.

First Colonial's opinion is necessarily based upon market, economic,
financial and other conditions as they existed and can be evaluated as of the
date of the opinion and any subsequent change in conditions would require a
reevaluation of the opinion.

The following is a brief summary of certain financial analyses performed by
First Colonial in connection with providing its opinion to the Freshstart
board of directors on March 8, 2000. The summary of financial

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<PAGE>

analyses includes information presented in tabular format. You should read
those tables together with the text of each summary. The summary of the First
Colonial analyses set forth below does not purport to be a complete description
of the presentation by First Colonial to the Freshstart board of directors.

Pro Forma Ownership

Based on the closing price as of February 20, 2000 for shares of Medallion
Financial common stock, Freshstart common stock shareholders would receive an
exchange ratio of .25 shares of Medallion for each share of Freshstart they
own. Freshstart's 2,276,000 shares would be exchanged for 569,000 shares of
Medallion, or 4%, based on an existing 14,029,798 shares outstanding prior to
the transaction.

Analysis of Publicly Traded Companies Comparable to Freshstart

Using published Wall Street estimates and First Colonial research, First
Colonial compared, among other things, certain financial, trading and valuation
statistics and projected revenues for calendar 2000 as well as resulting
multiples for Freshstart to corresponding measures for publicly traded
financial service companies that First Colonial considered comparable to
Freshstart. The financial service companies that First Colonial considered
comparable to Freshstart were:

<TABLE>
<S> <C>
.Litchfield Financial .Winfield Capital
.Finova Corp. .Medallion Financial
.Finantra Capital .Ameritrans Capital
.Waterside Capital
</TABLE>

First Colonial determined the implied equity value of Freshstart to be in
the range of $9 million to $11 million by applying revenue multiples of
Freshstart and such comparable companies to projected calendar year 2000. Based
on projected $3.1 million in 2000 revenues for Freshstart, revenues derived
from discounting historical growth rates due to rising interest rates and
margin compression, First Colonial determined the proposed 3x revenues to be
paid to Freshstart Shareholders is in line with industry comparables.

Using First Colonial Research, First Colonial calculated the multiples of
market value to projected calendar year 2000 revenues. With respect to all
companies deemed comparable, this analysis yielded the following multiples: a
range of 2x to 5x projected calendar year 2000 revenues.

Using First Colonial Research, First Colonial calculated the multiples of
book value to actual current book value with respect to all companies deemed
comparable. This analysis yielded the following multiples; a range of 1.1x to
1.3x actual book value. Based on a current $3.26 per share book value, this
transaction values Freshstart at 1.25x book value or at the higher end of the
range. If the fact that Freshstart has $1.367 million worth of loans in non-
accrual status and only recently established a $750,000 loan loss reserve is
taken into consideration, the true book value is closer to $3 a share, making
the transaction a 1.35x multiple of book or above the range of comparable
transactions.

First Colonial noted that none of the comparable companies were identical to
Freshstart and that any analysis of the comparable companies necessarily
involved complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that would
necessarily affect the relative trading values, many of which are beyond the
control of either Freshstart or Medallion.

Analysis of Selected Mergers and Acquisitions Transactions

First Colonial compared the proposed transaction with selected mergers and
acquisitions. This analysis included 8 transactions involving companies in the
financial services industry announced since October 1999. No company or
transaction used in the above analyses is identical to Freshstart or the
proposed transaction. In examining these transactions, First Colonial analyzed,
among other things, the multiples of offer prices to

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<PAGE>

revenues for the last twelve-month period. These multiples ranged from 1.5x to
4x revenues for the last twelve-month period. Because the sample of
transactions was small and the range of multiples in the transactions was wide,
First Colonial did not determine a range of implied equity value of Freshstart
based on this analysis.

Premium Analysis

First Colonial compared the implied price of the offer as of December 23,
1999 to similar premiums for 8 financial services industry merger and
acquisitions transactions announced since 1999. First Colonial observed that
the average, excluding the high and low, premiums paid above the closing share
price on the first and twentieth trading days prior to announcement in these
transactions were 18% and 14%, respectively. This compared with the proposed
merger premium on the first trading day and twentieth trading day prior to
announcement to Freshstart shareholders of 12% and 10.3%, respectively, as of
January 20, 2000.

Other Analyses

First Colonial conducted other analyses as it deemed necessary, including
reviewing historical and projected financial, operating and trading data for
Freshstart and Medallion.

The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Such an opinion is therefore not readily
susceptible to partial analysis or summary description. Taking portions of the
analyses set out above, without considering the analysis as a whole, would, in
the view of First Colonial, create an incomplete and misleading picture of the
processes underlying the analyses considered in rendering the First Colonial
opinion. First Colonial did not form an opinion as to whether any individual
analysis or factor, positive or negative, considered in isolation, supported or
failed to support the First Colonial opinion. In arriving at its opinion, First
Colonial considered the results of its separate analyses and did not attribute
particular weight to any one analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis and factor. The analyses performed by First Colonial, particularly
those based on estimates and projections, are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely
as part of the First Colonial analysis of the fairness to Freshstart
shareholders, from a financial point of view, of the financial terms of the
transaction.

The foregoing description of First Colonial's opinion is qualified in its
entirety by reference to the full text of the opinion that is attached as Annex
B to this proxy statement/prospectus.

Interests of First Colonial in the Merger

First Colonial, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, corporate restructurings,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
First Colonial has acted as a financial advisor to the Freshstart board of
directors in connection with the proposed transaction.

In the past, First Colonial has provided investment banking and other
financial advisory services to Freshstart, and has received fees for rendering
these services. Additionally, Ben Lichtenberg, the Director of Investment
Banking at First Colonial, was a member of Freshstart's Board of Directors from
May 1997 to December 1998. First Colonial received $2,000 per month to render
financial advisory services inclusive of but not limited to: merger and
acquisition advisory, stock buybacks, creating market awareness of Freshstart,
providing ongoing capital markets advice and efforts to establish and maintain
orderly markets for Freshstart 's stock.

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<PAGE>

Pursuant to an engagement letter dated May 3, 1999, as amended, Freshstart
agreed to pay First Colonial, upon consummation of the merger, a fee of
$160,000, at closing, of the aggregate consideration paid in the transaction.
Freshstart also agreed to reimburse First Colonial for its reasonable out-of-
pocket expenses and to indemnify First Colonial against certain liabilities,
including liabilities under the federal securities laws or relating to or
arising out of First Colonial's engagement as financial advisor.

Interests of Certain Persons in the Merger

In considering the recommendation of the Board of Directors of Freshstart
with respect to the merger, holders of Freshstart common stock should be aware
that certain members of Freshstart's management, some of whom are or were
members of the Freshstart Board of Directors have certain interests in the
merger, in addition to those of the shareholders generally. The Board of
Directors of Freshstart was aware of these interests when it considered and
approved the merger and the merger agreement.

After the merger is completed, Mr. Zelmanovitch will enter into a non-
solicitation and release agreement. Under the non-solicitation and release
agreement, Mr. Zelmanovitch will receive a one time payment of $180,000 from
Medallion. In exchange for the payment, Mr. Zelmanovitch will agree to release
Freshstart from any and all payments dues to him under his employment agreement
with Freshstart. Additionally, Mr. Zelmanovitch will agree not to solicit to
enter into the employ of any other entity or to hire any of the current or
former employees of Medallion or Freshstart or any of Medallion's subsidiaries
during the three years prior to August 17, 1999. Also, Mr. Zelmanovitch will
agree not to be employed by or be affiliated with any company that has hired
any former employees of Medallion or Freshstart for a three year period
following the merger.

After the merger is completed, Mr. Greenbaum will enter into a release
agreement. Under the release agreement, Mr. Greenbaum will receive a one time
payment of $60,000 from Medallion. In exchange for the payment, Mr. Greenbaum
will agree to release Freshstart from any and all payments dues to him under
his employment agreement with Freshstart.

Mr. Greenbaum will also enter into a consulting agreement with Medallion for
a three year term. Under the consulting agreement, Mr. Greenbaum will be paid
commissions for the referral of financing clients. The amount of the
commissions will be based upon the size of the referred financings.

Medallion will indemnify and hold harmless directors, officers, and agents
of Freshstart as provided in Freshstart's Certificate of Incorporation or By-
laws, in effect on the date of the merger agreement with respect to matters
commencing on the Closing Date, for a period of six years from the Closing
Date.

The Merger Agreement

Terms of the Merger

At the Closing Date:

(i) each share of Freshstart common stock held by Freshstart or any
subsidiary of Freshstart on the closing date will be canceled, and no
payment will be made with respect thereto;

(ii) each remaining outstanding share of Freshstart common stock will be
converted into that number of shares of Medallion common stock determined
by an exchange ratio, assuming a value of $4.125 per share of Freshstart
common stock with cash in lieu of fractional shares; and

(iii) each issued and outstanding share of the capital stock of merger
Sub will be converted into and represent one fully paid and nonassessable
share of common stock, par value $0.01 per share, of Medallion.

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<PAGE>

As of the Closing Date, present holders of Freshstart common stock will
cease to have any rights as holders of such shares, but will have the rights
of holders of Medallion common stock. After the Closing Date, the stock
transfer books of Freshstart will be closed and there will be no further
transfers of Freshstart common stock.

Representations and Warranties

The merger agreement contains various representations and warranties
relating to, among other things:

. the due organization, power and standing of Freshstart and Medallion and
similar corporate matters;

. the capital structure of Freshstart and Medallion;

. subsidiaries of Freshstart and Medallion;

. the authorization, execution, delivery and enforceability of the merger
agreement;

. conflicts under charters or bylaws, violations of any instruments or law
and required consents or approvals;

. certain documents filed by each of Freshstart and Medallion with the
Commission and the accuracy of information contained therein;

. the absence of certain changes;

. Freshstart's and Medallion's investment portfolio;

. Freshstart's intellectual property;

. litigation;

. retirement and other employee benefit plans of Freshstart;

. employee matters involving Freshstart;

. corporate action approving the merger agreement;

. brokers' and finders' fees with respect to the merger;

. compliance with applicable laws;

. material liabilities;

. taxes and tax returns of Freshstart;

. material agreements and contracts;

. absence of material adverse changes and

. accounting matters.

Certain Covenants

Freshstart has agreed, among other things, prior to the consummation of the
merger, unless Medallion agrees in writing or as otherwise required or
permitted by the merger agreement, to conduct its operations according to its
usual, regular and ordinary course in substantially the same manner as
theretofore conducted and to promptly notify Medallion of any action, change
or event that has had, or could reasonably be expected to have, a material
adverse effect on the business, properties, assets, prospects, condition
(financial or otherwise), liabilities or results of operations of Freshstart
and its subsidiaries taken as a whole. In addition, Freshstart has agreed
that, among other things, prior to the consummation of the merger, unless
Medallion agrees in writing or as otherwise required or permitted by the
merger agreement, it shall not (and shall cause its subsidiaries not to):

36
<PAGE>

. amend its certificate of incorporation or bylaws;

. issue any shares of capital stock, effect any stock split or otherwise
change its capitalization;

. grant, confer or award any option, warrant, conversion right or other
right to acquire shares of its capital stock;

. increase any compensation or enter into or amend any employment
agreement with any of its present or future officers, directors or
employees, except in accordance with pre-existing contractual provisions
and except for annual increases consistent with past practice;

. adopt any new employee benefit plan or amend any existing employee
benefit plan;

. make any other payment on its capital stock; or

. acquire or dispose of any of its assets, subject to certain exceptions.

Each of Freshstart and Medallion has agreed that, among other things, unless
the other party agrees in writing or as otherwise required or permitted by the
merger agreement, it shall not, nor shall it permit any of its subsidiaries to,
take or cause to be taken any action, whether before or after the Closing Date,
which would disqualify the merger as a pooling of interests for accounting
purposes or as a tax-free reorganization.

No Shopping

Freshstart has agreed that it will not, directly or indirectly, initiate,
solicit or knowingly encourage, (including by way of furnishing information)
inquiries or submission of proposals or offers from any person relating to any
sale of all or any portion of the assets, business, properties of, or any
equity interest in, Freshstart or any business combination with Freshstart,
whether by merger, consolidation, purchase of assets, tender offer,
recapitalization, liquidation, dissolution or otherwise or any other
transaction, the consummation of which would or could impede, interfere with,
prevent or materially delay the merger (each, an "Acquisition Proposal").
Freshstart has also agreed to notify Medallion immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with it, provided that the Board of Directors of Freshstart may (i) furnish
information to, or enter into discussions or negotiations with, any person or
entity that makes or proposes to make an unsolicited bona fide proposal to
acquire Freshstart pursuant to a merger, consolidation, share exchange,
business combination, purchase of a substantial portion of its assets or other
similar transaction, if, and only to the extent that, (a) the Board of
Directors of Freshstart is advised by its legal counsel that such action is
required for the Board of Directors to comply with its fiduciary duties to
shareholders imposed by law, and (b) Freshstart promptly notifies Medallion if
any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, Freshstart or, to the knowledge of the Freshstart,
any of Freshstart's shareholders, and (iii) Freshstart furnishes to Medallion
copies of any such proposal prior to taking any action described in (i) above.

Indemnification

As provided in the merger agreement, Medallion has agreed that all rights to
indemnification existing in favor of the directors, officers or employees of
Freshstart as provided in Freshstart's Articles of Incorporation or Bylaws,
with respect to matters commencing on the Closing Date, shall survive the
merger and continue in full force and effect for a period of not less than six
years from the Closing Date.

Conditions

The respective obligations of Freshstart and Medallion to consummate the
merger are subject to the fulfillment of the following conditions, among
others:

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<PAGE>

. the written demand for payment pursuant to the New York Dissenters'
Rights Statute shall not have exceeded 4% in the aggregate, of the total
number of shares of Freshstart common stock outstanding immediately
before the Closing Date;

. the merger agreement and the transactions contemplated thereby shall
have been approved and adopted by the requisite vote of the holders of
the issued and outstanding shares of capital stock of Freshstart
entitled to vote thereon;

. the Registration Statement of which this Prospectus/Proxy Statement is a
part shall have become effective under the Securities Act and no stop
order with respect thereto shall be in effect;

. none of the parties to the merger agreement shall be subject to any
order or injunction against the consummation of the transactions
contemplated by the merger agreement;

. all consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of the merger agreement, including SBA approval, shall have
been obtained or made; and

. the Medallion common stock to be issued to Freshstart shareholders in
connection with the merger shall have been approved for listing on the
Nasdaq National Market, subject to official notice of issuance.

. the redemption by Freshstart of all of its outstanding shares of
preferred stock.

The obligations of each of Freshstart and Medallion to effect the merger are
also subject to the satisfaction or waiver by the other party prior to the
Closing Date of the following conditions, among others:

. the other party shall have performed in all material respects all
obligations required to be performed by it under the merger agreement
and the representations and warranties of the other party and its
subsidiaries set forth in the merger agreement shall be true in all
material respects as of the Closing Date;

. Freshstart shall have redeemed all of its outstanding shares of
preferred stock;

. Freshstart shall have received the opinion of Berlack, Israels &
Liberman LLP that the merger will qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Code;

. Medallion shall have received the opinion of Willkie Farr & Gallagher
that the merger will qualify as a tax free reorganization within the
meaning of Section 368(a) of the Code;

. Freshstart and Medallion shall have each received a letter from its
respective independent public accountants concurring as to the
appropriateness of pooling of interests accounting for the merger under
APB Opinion No. 16, provided that the merger is consummated as
contemplated in the merger agreement; and

. from the date of the merger agreement through the Closing Date, there
shall not have occurred any change, individually or together with other
changes, that has had, or would reasonably be expected to have, a
material adverse effect on in the financial condition, business, results
of operations or prospects of Freshstart and its subsidiaries, taken as
a whole.

Termination; Fees and Expenses

The merger agreement may be terminated and the merger may be abandoned at
any time prior to the Closing Date, before or after the approval by the
shareholders of Freshstart:

. by the mutual consent of Freshstart and Medallion by action of their
respective boards of directors;

. by action of the Board of Directors of either Freshstart or Medallion if
the merger shall not have been consummated by September 30, 2000;

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<PAGE>

. by action of the board of directors of Freshstart, if (i) in the
exercise of its good faith judgment as to its fiduciary duties to its
shareholders imposed by law, the board of directors of Freshstart
accepts an Acquisition Proposal being made for Freshstart, (ii) there
has been a breach by Medallion or Sub of any representation or warranty
contained in the merger agreement which would have or would be
reasonably likely to have a material adverse effect on the business,
properties, assets, prospects, condition (financial or otherwise),
liabilities or results of operations of Freshstart and its subsidiaries
taken as a whole and such breach is not cured within 10 days after
written notice of such breach, (iii) there has been a material breach by
Medallion of any covenant or agreement contained in the merger agreement
which is not curable or, if curable, is not cured within 10 days after
written notice of such breach; or (iv) if any of the conditions
precedent to Freshstart's obligations under the merger agreement have
not been met or waived by Freshstart at such time as any such condition
is no longer capable of satisfaction; and

. by action of the board of directors of Medallion, if (i) Freshstart or
holders of Freshstart common stock who are parties to the voting
agreements shall have breached any of their respective obligations under
the voting agreements in any material respect and such breach continues
for a period of 10 days after the receipt of notice of the breach from
Medallion, (ii) any of the conditions precedent to Medallion's
obligations under the merger Agreement have not been met or waived by
Medallion at such time as any such condition is no longer capable of
satisfaction or (iii) the average of the closing sales prices per share
of Medallion common stock on the Nasdaq National Market for the
Determination Period is less than $12.00.

If Freshstart terminates the merger agreement because its board of
directors, in the exercise of its good faith judgment as to its fiduciary
duties to its shareholders imposed by law, accepts an Acquisition Proposal
being made by a third party for Freshstart, and within 12 months thereafter
such Acquisition Proposal shall have been consummated, then pursuant to the
stock option agreement, Medallion may exercise the option to purchase 434,320
shares of Freshstart common stock at a price of $3.875 per share.

Certain Federal Income Tax Consequences

The following is a discussion of the material federal income tax
consequences of the merger and the exchange of Freshstart common stock for
shares of Medallion common stock. This discussion does not address all aspects
of taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
(including insurance companies, financial institutions, broker-dealers, tax-
exempt organizations, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws, nor does it discuss any state, local or foreign tax
considerations.

EACH FRESHSTART SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER AS A
RESULT OF SUCH HOLDER'S OWN PARTICULAR STATUS AND CIRCUMSTANCES, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.

Neither Medallion nor Freshstart has requested or will receive an advance
ruling from the Internal Revenue Service (the "IRS") as to the federal income
tax consequences of the merger. However, Medallion will receive an opinion of
its legal counsel, and Freshstart will receive an opinion of its legal counsel
relating to the federal income tax consequences of the merger. Such opinions
will be based upon assumptions described therein, and upon customary
representations provided by Medallion, Sub and Freshstart. Counsels' opinions
will also be based upon the Internal Revenue Code, the Treasury Regulations
thereunder, administrative rulings the IRS, and judicial authority, in each
case existing at the time such opinions are delivered. Any change in applicable
law or pertinent facts could affect the continuing validity of such opinions
and this discussion. In addition, an opinion of counsel is not binding upon the
IRS, and there can be no assurance, that the IRS will

39
<PAGE>

not take a position contrary to one or more positions reflected in counsels'
opinions, or that such opinions would be upheld by the courts if challenged by
the IRS. However, Medallion and Freshstart have agreed in the merger agreement
not to take any action which would disqualify the merger as a reorganization
which is tax-free to the shareholders of Freshstart pursuant to Section 368(a)
of the Internal Revenue Code. If it were determined that the merger did not
qualify as a reorganization, each Freshstart shareholder would be required to
recognize gain or loss equal to the difference between such shareholder's tax
basis in the Freshstart common stock and the fair market value of the Medallion
common stock received in the merger.

Based upon and subject to the foregoing, the opinions of counsel will state,
that the merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code and that Medallion, Sub, and Freshstart
will each be a party to the reorganization within the meaning of Section 368(b)
of the Internal Revenue Code. As a result of the foregoing:

(i) no gain or loss will be recognized by Medallion, Sub or Freshstart
as a result of the merger;

(ii) no gain or loss will be recognized by a Freshstart shareholder who
receives solely shares of Medallion common stock in exchange for Freshstart
common stock;

(iii) the receipt of cash in lieu of fractional shares of Medallion
common stock will be treated as if the fractional shares were distributed
as part of the exchange and then were redeemed by Medallion;

(iv) the tax basis of the shares of Medallion common stock received by a
Freshstart shareholder will be equal to the tax basis of the Freshstart
common stock exchanged therefor, excluding any basis allocable to a
fractional share of Medallion common stock for which cash is received; and

(v) the holding period of the shares of Medallion common stock received
by a Freshstart shareholder will include the holding period of the
Freshstart common stock exchanged therefor, provided that such Freshstart
common stock was held as a capital asset by such shareholder within the
meaning of Section 1221 of the Internal Revenue Code at the Effective Time
of the merger.

Accounting Treatment

It is expected that the merger will be accounted for as a pooling of
interests under APB Opinion No. 16 if the merger is closed and consummated in
accordance with the merger agreement. Medallion, Sub and Freshstart have agreed
not to intentionally take any action that would disqualify treatment of the
merger as a pooling of interests for accounting purposes.

Under the pooling of interests method of accounting, the historical basis of
the assets and liabilities of Medallion and Freshstart will be combined at the
Closing Date and carried forward at their previously recorded amounts, the
shareholders' equity accounts of Medallion and Freshstart will be combined on
the consolidated balance sheet of Medallion and no goodwill or other intangible
assets will be created. Consolidated financial statements of Medallion issued
after the merger will be restated retroactively to reflect the consolidated
operations of Medallion and Freshstart as if the merger had taken place prior
to the periods covered by such consolidated financial statements.

The unaudited pro forma financial information contained in this Proxy
Statement/ Prospectus has been prepared using the pooling-of-interests
accounting method to account for the merger. Consistent with pooling of
interests accounting treatment, the direct costs related to the merger will be
taken as a non-recurring charge to earnings in the quarter in which the merger
is consummated.

Certain Legal Matters

Certain federal or state regulatory requirements or approvals (in addition
to those that arise in connection with the registration of Medallion common
stock to be issued in the merger and the effectiveness of this Proxy

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Statement/Prospectus), including approval of the SBA, must be complied with or
obtained in connection with the merger.

Federal Securities Law Consequences

All Medallion common stock issued in connection with the merger will be
freely transferable, except that any Medallion common stock received by persons
who are deemed to be "affiliates" (as such term is defined under the Securities
Act) of Freshstart or Medallion prior to the merger may be sold by them only in
transactions permitted by the resale provisions of Rule 145 under the
Securities Act with respect to affiliates of Freshstart, or Rule 144 under the
Securities Act with respect to persons who are or become affiliates of
Medallion, or as otherwise permitted under the Securities Act. Persons who may
be deemed to be affiliates of Freshstart or Medallion generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party.

Affiliates may not sell their shares of Medallion common stock acquired in
connection with the merger, except pursuant to an effective registration under
the Securities Act covering such shares or in compliance with Rule 145 (or Rule
144 under the Securities Act in the case of persons who become affiliates of
Medallion) or another applicable exemption from the registration requirements
of the Securities Act. In general, under Rule 145, for one year following the
Closing Date an affiliate (together with certain related persons) would be
entitled to sell shares of Medallion common stock acquired in connection with
the merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144.
Additionally, the number of shares to be sold by an affiliate (together with
certain related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed the greater of 1% of
the outstanding shares of Medallion common stock or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale. Rule
145 would only remain available, however, to affiliates if Medallion remained
current with its informational filings with the Commission under the Exchange
Act. Beginning one year after the Closing Date, an affiliate would be able to
sell such Medallion common stock without such manner of sale or volume
limitations provided that Medallion was current with its Exchange Act
informational filings and such affiliate was not then an affiliate of
Medallion. Two years after the Closing Date, an affiliate would be able to sell
such shares of Medallion common stock without any restrictions so long as such
affiliate had not been an affiliate of Medallion for at least three months
prior thereto. See "The Merger Agreement--Certain Covenants."

Listing

It is a condition to the merger that the shares of Medallion common stock to
be issued in the merger be authorized for listing on the Nasdaq National
Market, subject to official notice of issuance.

Stock Option Agreement

Simultaneously with the execution of the letter of intent, Freshstart and
Medallion entered into a stock option agreement pursuant to which Freshstart
granted to Medallion an option, exercisable only under certain specified
circumstances, to purchase 434,320 shares of Freshstart common stock (which
equaled 19.9% of the shares of Freshstart common stock outstanding on the date
of the merger agreement), at an exercise price of $3.875 per share. The option
is exercisable at any time immediately prior to the occurrence of an Exercise
Event (as defined below) up to the earlier of (i) August 17, 2000, or (ii) upon
a determination by Medallion not to consummate the merger contemplated by the
Letter of Intent.

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COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES

Freshstart's Investment Objectives, Policies and Restrictions

Freshstart's investment objectives are to provide a high level of current
income for its shareholders through distributions, consistent with preservation
of capital, as well as long-term growth of net asset value. Freshstart seeks to
achieve its investment objectives by maximizing net interest income and fee
income from operations and expanding operations. There can be no assurance that
Freshstart will achieve its investment objectives.

Freshstart's only fundamental policies, that is, policies that cannot be
changed without the approval of the holders of a majority of Freshstart's
outstanding voting securities, as defined under the 1940 Act, are the
restrictions described in the following eighteen paragraphs. A "majority of
Freshstart's outstanding voting securities" as defined under the 1940 Act means
the lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares. The other policies and investment restrictions referred to
in this Prospectus, including Freshstart's investment objectives, are not
fundamental policies of Freshstart and may be changed by Freshstart's board of
directors without shareholder approval. Unless otherwise noted, whenever an
investment policy or limitation states a maximum percentage of Freshstart's
assets that may be invested in any security or other asset, or sets forth a
policy regarding quality standards, such standard or percentage limitation will
be determined immediately after and as a result of Freshstart's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
assets, or other circumstances will not be considered when determining whether
the investment complies with Freshstart's investment policies and limitations.
Freshstart's fundamental policies are as follows:

(1) Issuance of Senior Securities. Freshstart may issue preferred stock
and subordinated debentures to the SBA in the maximum amounts
permissible under the 1958 Act and the applicable regulations.

(2) Borrowing of Money. Freshstart has the power to borrow funds from
banks, trust companies, other financial institutions, the SBA or any
success or agency and/or other private or governmental sources, if
determined by Freshstart's Board of Directors to be in the best
interests of Freshstart.

(3) Underwriting. Freshstart has not engaged, and does not intend to
engage, in the business of underwriting the securities of other
issuers.

(4) Concentration of Investments. Freshstart may not concentrate 25% or
more of its total assets in securities of issuers in any industry
group except the taxicab industry. Freshstart will make at least 25%
of its investments for financing the purchase or continued ownership
of taxicab medallions, taxicabs and related assets. The balance of its
investments includes, and Freshstart intends to continue to finance,
the acquisition and/or operation of other small businesses. All of
Freshstart's loans are made to those persons defined by SBA
regulations as socially or economically disadvantaged persons or
entities and which are at least 50% owned by persons so defined as
socially or economically disadvantaged.

(5) Real Estate. Freshstart has not engaged, and does not intend to
engage, in the purchase and sale of real estate. However, Freshstart
may elect to purchase and sell real estate in order to protect any of
its prior investments which it considers at risk.

(6) Commodities Contracts. Freshstart has not engaged, and does not intend
to engage, in the purchase and sale of commodities or commodities
contracts.

(7) Loans. Freshstart has made, and will continue to make, loans to small
business concerns in accordance with the provisions of the 1958 Act
and the regulations issued by the SBA thereunder.

(8) Writing Options. Freshstart has not engaged, and does not intend to
engage, in the writing of options.

(9) Short Sales. Freshstart has not engaged, and does not intend to
engage, in short sales of securities.

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(10) Purchasing Securities on Margin. Freshstart has not engaged, and does
not intend to engage, in the purchase of securities on margin.

(11) Futures Contracts. Freshstart has not engaged, and does not intend to
engage, in the purchase or sale of futures contracts.

(12) Restricted Securities. Freshstart may invest up to 100% of its assets
in restricted securities.

(13) Types of Investments. Although Freshstart was organized primarily to
provide long term loan funds to small business concerns, Freshstart's
certificate of incorporation provides Freshstart with the authority to
invest in the equity capital of small business concerns. Accordingly,
Freshstart may make equity investments in small business concerns if
determined by its Board of Directors to be in the best interests of
Freshstart. Further, except as otherwise provided by applicable
regulations, there shall be no limitation on the amount of equity
investments Freshstart may make.

(14) Maximum Investment. Freshstart will not lend or otherwise invest more
than the lesser of (i) 10% of its total assets or (ii) 30% of its
paid-in capital attributable to its common stock with respect to any
one small business concern.

(15) Percentage of Voting Securities. The percentage of voting securities
of any one small business concern which Freshstart may acquire may not
exceed 49% of the outstanding voting equities of such small business
concern, except as set forth in paragraph (p).

(16) Management Control. Freshstart does not intend to invest in any
company for the purpose of exercising control of management. However,
Freshstart may elect to acquire control in order to protect any of its
prior investments which it considers at risk.

(17) Investment Companies. Freshstart has not invested, and does not intend
to invest, in the securities of other investment companies.

(18) Portfolio Turnover. Freshstart intends to make changes in its
portfolio when, in the judgment of its Board of Directors, such
changes will be in the best interest of Freshstart's shareholders in
light of the then existing business and financial conditions.
Freshstart does not anticipate that its loan portfolio will realize an
annual turnover in excess of 50%, although there can be no assurance
with respect thereto.

Medallion's Investment Objectives, Policies and Restrictions

Medallion's investment objectives are to provide a high level of current
income for its shareholders through quarterly distributions, consistent with
preservation of capital, as well as long-term growth of net asset value.
Medallion seeks to achieve its investment objectives by maximizing net interest
income and fee income from operations and expanding operations. There can be no
assurance that Medallion will achieve its investment objectives.

Medallion's only fundamental policies, that is, policies that cannot be
changed without the approval of the holders of a majority of Medallion's
outstanding voting securities, as defined under the 1940 Act, are the
restrictions described in the following seven paragraphs. A "majority of
Medallion's outstanding voting securities" as defined under the 1940 Act means
the lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares. The other policies and investment restrictions referred to
in this Prospectus, including Medallion's investment objectives, are not
fundamental policies of Medallion and may be changed by Medallion's board of
directors without shareholder approval. Unless otherwise noted, whenever an
investment policy or limitation states a maximum percentage of Medallion's
assets that may be invested in any security or other asset, or sets forth a
policy regarding quality standards, such standard or percentage limitation will
be determined immediately after and as a result of Medallion's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
assets, or other circumstances will not be considered when determining whether

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the investment complies with Medallion's investment policies and limitations.
Medallion's fundamental policies are as follows:

1. Medallion will at all times conduct its business so as to retain its
status as a business development company under the 1940 Act. In order to
retain that status, Medallion may not acquire any assets (other than non-
investment assets necessary and appropriate to its operations as a business
development company) if, after giving effect to such acquisition, the value
of its "qualifying assets," as described in Section 55(a) of the 1940 Act,
amount to less than 70% of the value of its total assets.

2. MFC and Medallion Capital 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. In 1998, Medallion Capital repaid the debenture associated with this
liquidating interest and no longer carries a balance. If MFC 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. MFC is
carrying a liquidating interest that includes amounts attributable to TCC,
however, the Company entered into an agreement with the SBA permitting the
merger of TCC into MFC without triggering repayment of TCC's liquidating
interest. At March 31, 2000 the liquidating interest was fully accreted.

3. Medallion may borrow funds and issue "senior securities" to the
maximum extent permitted under the 1940 Act. As a business development
company, Medallion may issue senior securities if, immediately after such
issuance, the senior securities will have an asset coverage of at least
200%. Under the 1940 Act, subordinated debentures issued to or guaranteed
by the SBA and preferred stock issued to the SBA by the Certain of
Medallion's subsidiaries may be considered senior securities issued by
Medallion requiring asset coverage of 200%; however, pursuant to an
exemptive order of the Commission, such debentures and preferred stock are
exempt from the asset coverage requirements of the 1940 Act.

4. Medallion will not (i) underwrite securities issued by others (except
to the extent that it may be considered an "underwriter" within the meaning
of the Securities Act in the disposition of restricted securities), (ii)
purchase or sell real estate or real estate mortgage loans unless acquired
as a result of ownership of securities or other instruments (except that
Medallion may purchase and sell real estate or interests in real estate in
connection with the orderly liquidation of investments or the foreclosure
of mortgages held by Medallion), (iii) engage in short sales of securities,
(iv) purchase securities on margin (except to the extent that it may
purchase securities with borrowed money), (v) write or buy put or call
options or (vi) engage in the purchase or sale of commodities or commodity
contracts, including futures contracts (except where necessary in working
out distressed loan or investment situations). Medallion and certain of its
subsidiaries may purchase interest rate caps and swaps covering up to 100%
of their variable rate debt. In addition, Medallion may sponsor the
securitization of loan portfolios.

5. Medallion and certain of its subsidiaries may originate loans and
loans with equity features. To the extent permitted under SBA Regulations,
Medallion may also make loans as permitted (i) under Medallion's 1996 Stock
Option Plan ("the 1996 Plan"), (ii) under the Director Plan and plans
providing for options for disinterested directors that might be adopted by
Medallion in the future and (iii) to officers and directors for the
purchase of common stock. Medallion holds all of the outstanding common
stock of the Founding Companies and may organize additional subsidiaries in
the future. Medallion may acquire restricted securities of small
businesses.

6. Certain of Medallion's subsidiaries shall not originate loans to, or
invest in the securities of, any entity if, immediately after such loan or
investment, more than 5% of the total assets of the RIC

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Subsidiary originating such loan or making such investment (taken at
current value) would be loaned to, or invested in the securities of such
entity, or acquire more than 10% of the outstanding voting securities of
any issuer, provided that this limitation does not apply to obligations
issued or guaranteed as to interest and principal by the U.S. Government or
its agencies or instrumentalities or to repurchase agreements secured by
such obligations, and that up to 25% of each subsidiary's total assets (at
current value) may be invested without regard to this limitation.

7. Medallion and certain of its subsidiaries shall lend or invest at
least 25.0% of their total assets (taken at current value) to or in
entities primarily engaged in the taxicab industry and shall not lend or
invest more than 25.0% of their total assets (taken at current value) to or
in entities primarily engaged in any other single industry, provided that
this limitation does not apply to obligations issued or guaranteed as to
interest and principal by the U.S. Government or its agencies or
instrumentalities or to repurchase agreements secured by such obligations
or to bank money-market instruments.

Portfolio Turnover

During the year ended December 31, 1996, Medallion originated loans totaling
$77.2 million in aggregate principal amount and experienced prepayments
totaling $47.2 million in aggregate principal amount. During the year ended
December 31, 1997, Medallion originated loans totaling $217.1 million in
aggregate principal amount and experienced prepayments totaling $112.3 million
in aggregate principal amount. During the year ended December 31, 1998,
Medallion originated loans totaling $244.5 million in aggregate principal
amount and experienced prepayments totaling $193.0 million in aggregate
principal amount. During the year ended December 31, 1999, Medallion originated
loans totaling $298.2 million in aggregate principal amount and experienced
prepayments totaling $224.7 million in aggregate principal amount. During the
quarter ended March 31, 2000, Medallion originated loans totaling $63.4 million
in aggregate principal amount and experienced prepayments totalling $37.7
million in aggregate principal amount. All borrowers have the right to prepay
loans made by Medallion at any time. Although Medallion experiences more
prepayments when interest rates are falling and fewer prepayments when interest
rates are rising, Medallion is unable to predict the level of prepayments it
will experience during any period of time.

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MEDALLION COMMON STOCK PRICES

Medallion common stock trades on the Nasdaq National Market under the symbol
"TAXI." The following table sets forth the high and low closing prices of the
Medallion common stock as reported by the Nasdaq National Market for each of
the quarters in the three year period ended December 31, 1999.

<TABLE>
<CAPTION>
High Low
--------- --------
<S> <C> <C>
2000
Quarter ended June 30, 1999............................ $17 5/16 $14 1/16
Quarter ended March 31, 2000........................... $19 7/32 $15 3/4

1997
Quarter ended March 31, 1997........................... $19 3/4 $14
Quarter ended June 30, 1997............................ $20 1/8 $16
Quarter ended September 30, 1997....................... $21 3/4 $17 3/4
Quarter ended December 31, 1997........................ $23 $20
</TABLE>

On August 11, 2000, the last sales price of Medallion common stock on the
Nasdaq National Market was $16.625. On August 8, 2000, the last sales price of
Freshstart common stock on the Nasdaq SmallCap Market was $3.00. The public
announcement of the merger agreement occurred on December 22, 1999.

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<PAGE>

DESCRIPTION OF MEDALLION CAPITAL STOCK

General

The authorized capital stock of Medallion consists of 1,000,000 shares of
preferred stock, and 50,000,000 shares of common stock. Upon completion of the
merger, Medallion will have outstanding 14,607,638 shares of common stock and
no shares of preferred stock. As of August 9, 2000, there were no shares of
preferred stock outstanding and 14,043,434 shares of common stock outstanding
and 85 record holders.

Common Stock

The holders of common stock are entitled to one vote for each share on all
matters voted upon by shareholders, including the election of directors.

Subject to the rights of any then outstanding shares of Preferred stock, the
holders of the common stock are entitled to such dividends as may be declared
in the discretion of the Board of directors out of funds legally available
therefor. Holders of common stock are entitled to share ratably in the net
assets of Medallion upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred stock then
outstanding. The holders of common stock have no preemptive rights to purchase
shares of stock of Medallion. Shares of common stock are not subject to any
redemption provisions and are not convertible into any other securities of
Medallion. All outstanding shares of common stock are, and the shares of common
stock to be issued pursuant to this Offering will be upon payment therefor,
fully paid and non-assessable.

Preferred Stock

Subject to the asset coverage requirements of the 1940 Act, Preferred stock
may be issued from time to time by the Board of Directors as shares of one or
more classes or series. Subject to the provisions of Medallion's Certificate
and limitations prescribed by law, the Board of directors is expressly
authorized to adopt resolutions to issue the shares, to fix the number of
shares and to change the number of shares constituting any series, and to
provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred stock, in each case without any further action or vote by the
shareholders. Medallion has no current plans to issue any shares of Preferred
stock of any class or series.

One of the effects of undesignated Preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of Medallion by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of Medallion's management.
The issuance of shares of the Preferred stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of common stock. For example, Preferred stock issued by Medallion may
rank prior to the common stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of common stock. Accordingly, the issuance of shares of Preferred stock may
discourage bids for the common stock or may otherwise adversely affect the
market price of the common stock.

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COMPARISON OF RIGHTS OF MEDALLION AND FRESHSTART SHAREHOLDERS

Medallion and Freshstart are incorporated under the laws of Delaware and New
York, respectively. Upon consummation of the merger, shareholders of Freshstart
will become shareholders of Medallion, and their rights will be governed by the
laws of Delaware, not New York. The rights of Medallion shareholders under
Medallion's Restated Certificate of Incorporation as amended ("Medallion's
Certificate") and Medallion's Bylaws differ in certain respects from the rights
of Freshstart shareholders under Freshstart's Certificate of Incorporation
("Freshstart's Certificate") and Freshstart's Bylaws. Certain significant
differences between the rights of Medallion shareholders and Freshstart
shareholders are summarized below. This summary does not, however, purport to
be a complete description of all of the differences between the rights of
shareholders of Freshstart and the rights of shareholders of Medallion.

Limitation on Directors' Liabilities

Medallion's Certificate of Incorporation provides that no director of
Medallion shall be liable to Medallion or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for liability:

. for any breach of the director's duty of loyalty to Medallion or its
shareholders;

. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. in respect of certain unlawful dividend payments or stock redemptions or
redemptions or repurchases pursuant to Section 174 of the Delaware
General Corporation Law; or

. for any transaction from which the director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of
Medallion and its shareholders (through shareholders' derivative suits
on behalf of Medallion) to recover monetary damages against a director
for breach of fiduciary duty as a director (including breaches resulting
from grossly negligent behavior), except in the situations described
above. These provisions will not limit the liability of directors under
Federal securities laws.

Delaware Law and Certain Provisions of the Certificate of Incorporation and the
By-Laws

Medallion's Certificate and By-Laws include provisions that could make more
difficult the acquisition of Medallion by means of a merger, tender offer, a
proxy contest or otherwise. These provisions, as described below, are expected
to discourage certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of Medallion
first to negotiate with Medallion. These provisions may also, however, inhibit
a change in control of Medallion in circumstances that could give the holders
of the common stock the opportunity to realize a premium over the then
prevailing market price of the common stock. In addition, such provisions could
adversely affect the market price for the common stock. Medallion believes that
the benefits of increased protection of its potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or
restructure Medallion outweigh the disadvantages of discouraging such proposals
because, among other things, negotiations with respect to such proposals could
result in an improvement of their terms.

Medallion's Certificate and the By-Laws provide that Medallion's Board of
Directors be divided into three classes of directors, with the term of each
class expiring in a different year. The By-Laws provide that the number of
directors will be fixed from time to time exclusively by the Board of
Directors, but shall consist of not more than 15 nor less than three directors.
A majority of the Board of Directors then in office has the sole authority to
fill any vacancies on the Board. The Certificate provides that directors may be
removed only by the affirmative vote of holders of at least 75% of the voting
power of all of the then outstanding shares of stock entitled to vote generally
in the election of directors ("Voting Stock"), voting together as a single
class.

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Medallion's Certificate provides that shareholder action can be taken only
at an annual or special meeting of shareholders and prohibits shareholder
action by written consent in lieu of a meeting. Medallion's Certificate and By-
Laws provide that special meetings of shareholders can be called by the
Chairman of the Board of Medallion, pursuant to a resolution approved by a
majority of the total number of directors which Medallion would have if there
were no vacancies on the Board, or by the shareholders owning at least 20% of
the stock entitled to vote at the meeting. The business permitted to be
conducted at any special meeting of shareholders is limited to the business
brought before the meeting by the Chairman of the Board, or at the request of a
majority of the members of the Board, or as specified in the shareholders'
notice of a meeting.

Medallion's By-Laws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of its Board, of candidates for
election as directors and with regard to business brought before an annual
meeting of shareholders of Medallion.

Medallion's Certificate and By-Laws contain provisions requiring the
affirmative vote of the holders of at least 75% of the Voting Stock, voting
together as a single class, to amend certain provisions of the Certificate
relating primarily to anti-takeover provisions and to the limitations on
director liability and to amend the By-Laws.

Medallion's Certificate empowers its Board, when considering a tender offer
or merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to shareholders. Such factors may include:

. comparison of the proposed consideration to be received by shareholders
in relation to the then current market price of the capital stock, the
estimated current value of Medallion in a freely negotiated transaction,
and the estimated future value of Medallion as an independent entity;

. the impact of such a transaction on the customers and employees of
Medallion, and its effect on the communities in which Medallion
operates; and

. the ability of Medallion to fulfill its objectives under applicable
statutes and regulations.

Medallion's Certificate prohibits Medallion from purchasing any shares of
Medallion's stock from any person, entity or group that beneficially owns 5% or
more of Medallion's Voting Stock at a price exceeding the average closing price
for the 20 trading days prior to the purchase date, unless a majority of
Medallion's disinterested shareholders approve the transaction. This
restriction on purchases by Medallion does not apply to any offer to purchase
shares of a class of Medallion's stock which is made on the same terms and
conditions to all holders of that class of stock, to any purchase of stock
owned by such a 5% shareholder occurring more than two years after such
shareholder's last acquisition of Medallion's stock, to any purchase of
Medallion's stock in accordance with the terms of any stock option or employee
benefit plan, or to any purchase at prevailing market prices pursuant to a
stock purchase program.

Certain Provisions of Delaware Law Regarding an Interested Shareholder

Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested shareholder,"
which is defined as a person who, together with any affiliates or associates of
such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested shareholder's proportionate
share ownership in the corporation) between an interested shareholder and a
corporation for a period of three years after the date the interested
shareholder becomes an interested shareholder, unless:

. the business combination is approved by the corporation's board of
directors prior to the date the interested shareholder becomes an
interested shareholder;

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<PAGE>

. the interested shareholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also
officers or by certain employee stock plans) in the transaction in which
it becomes an interested shareholder; or

. the business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock which is not owned by the interested shareholder.

New York Corporation Law vs. Delaware Corporation Law

Set forth below is a summary of certain significant differences between New
York Corporation Law and Delaware Corporation Law which may affect the
interests of shareholders.

(1) Dividends. Under both New York Corporation Law and Delaware Corporation
Law, a corporation may generally pay dividends out of surplus. In addition,
Delaware Corporation Law permits a corporation, under certain circumstances, to
pay dividends, if there is no surplus, out of its net profits for the fiscal
year in which the dividend is declared and for the preceding fiscal year.

(2) Loans to Directors. New York Corporation Law prohibits loans to
corporate directors unless authorized by shareholder vote. Delaware Corporation
Law permits the Board of Directors, without shareholder approval, to authorize
loans to corporate directors who are also officers. Medallion does not
presently intend to make any loans to its directors.

(3) Rights and Options. New York Corporation Law requires shareholder
approval of any incentive plan pursuant to which rights or options are to be
granted to directors, officers or employees. Delaware Corporation Law does not
require shareholder approval of such incentive plans (although various other
legal requirements may make such shareholder approval necessary or desirable,
i.e., Internal Revenue Code and Nasdaq National Market requirements).

(4) Consideration for Shares. New York Corporation Law provides that neither
obligations of the subscriber for future payments nor future services shall
constitute payment or part payment for shares of a corporation. Furthermore,
certificates for shares may not be issued until the full amount of the
consideration therefor has been paid. Delaware Corporation Law provides that a
corporation may issue partly paid shares of stock, and shares of stock may be
deemed to be fully paid if the corporation receives consideration having a
value not less than the par value of such shares and a binding obligation of
the subscriber to pay the balance of the subscription price.

(5) Dissenter's Rights. New York Corporation Law provides that, upon
compliance with the applicable requirements and procedures, a dissenting
shareholder has the right to receive the fair value of his shares if he objects
to:

. certain mergers;

. a consolidation;

. a share exchange;

. certain dispositions of substantially all of the assets of the
corporation; or

. certain amendments to the certificate of incorporation which adversely
affect the rights of such shareholder.

While Delaware Corporation Law also provides appraisal rights to dissenting
shareholders in the case of certain mergers or a consolidation, such appraisal
rights do not apply:

. in a merger, to shareholders of the surviving corporation if shareholder
approval of the merger is not required; or

50
<PAGE>

. in a merger or a consolidation, to any class of stock which is either
listed on a national securities exchange or held of record by more than
2,000 holders (unless shareholders are required to accept for their
shares in the merger or consolidation anything other than common stock
of the surviving corporation, common stock of another corporation that
is so listed or held, or cash in lieu of fractional shares of any such
corporation).

In addition, Delaware Corporation Law provides that a corporation may
provide in its certificate of incorporation for appraisal rights in the event
of:

. an amendment to its certificate of incorporation;

. any merger or consolidation in which the corporation is a constituent
corporation; or

. for dispositions of assets (there are no provisions for share exchanges
under Delaware Corporation Law).

(6) Indemnification of Officers and Directors. New York Corporation Law and
Delaware Corporation Law each provide that indemnification of its directors and
officers may not be made by a corporation in connection with derivative actions
where the director or officer is adjudged to be liable to the corporation,
unless and only to the extent that, in view of all the circumstances, such
director or officer is fairly and reasonably entitled to such indemnification.
New York Corporation Law additionally provides that indemnification may not be
made in connection with derivative actions where a claim is settled or
otherwise disposed of.

New York Corporation Law and Delaware Corporation Law also provide that the
indemnification and advancements of expenses granted pursuant to, or provided
by, such laws are not exclusive of any other rights to which a director or
officer may be entitled. New York Corporation Law additionally provides that no
indemnification may be made to or on behalf of any director or officer for
liability arising from actions taken in bad faith, intentional wrongdoing, or
where an improper personal benefit was derived. Delaware Corporation Law
contains no such express limitation.

(7) Vote Required for Mergers and Share Exchanges. New York Corporation Law
requires the affirmative vote of two-thirds of a corporation's outstanding
shares of voting stock to authorize a merger, consolidation, or disposition of
substantially all of its assets or a share exchange. Dissolution also requires
the affirmative vote of two-thirds of the outstanding shares of voting stock
for corporations incorporated before February 23, 1998, unless the certificate
of incorporation or an amendment thereto provides for a lesser number, which
may not be less than a majority of the voting stock. Freshstart's certificate
of incorporation has not been so amended. Delaware Corporation Law requires the
affirmative vote of a majority of the outstanding shares of voting stock to
authorize a merger, consolidation, dissolution, or disposition of substantially
all of its assets, or a share exchange.

Also, Delaware Corporation Law permits a merger without approval of the
shareholders of the surviving corporation if, among other things, no charter
amendment is involved, the stock of the surviving corporation is unaffected by
the merger and the merger results in no more than a 20% increase in outstanding
shares of common stock of such corporation. No such provision is contained in
New York Corporation Law.

(8) Written Actions of Shareholders. New York Corporation Law provides that
any action by shareholders may be taken without a meeting with the written
consent of all shareholders who would be entitled to vote at a meeting held for
such purposes or, if the certificate of incorporation so provides, of the
shareholders of the requisite number of shares of outstanding voting stock
necessary to take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Freshstart's Certificate of Incorporation does
not contain such a provision. Under Delaware Corporation Law, unless the
corporation's certificate of incorporation provides otherwise, any action that
could be taken at an annual or special meeting of shareholders may be taken by
a consent in writing setting forth the action to be taken which is signed by
the

51
<PAGE>

holders of the requisite number of shares of outstanding voting stock
necessary to take such action at a meeting at which all shares entitled to
vote thereon were present and voted. This difference between New York
Corporation Law and Delaware Corporation Law will not immediately affect the
interests of shareholders because Medallion's Certificate of Incorporation and
By-laws provide that shareholders may act without a meeting only with the
written consent of all shareholders who would be entitled to vote at a meeting
held for such purpose.

(9) Business Combinations with Interested Shareholders. Delaware
Corporation Law Section 203 is entitled "Business Combinations with Interested
Shareholders." Set forth below is a summary of the principal provisions of
Section 203. This summary does not purport to be complete, and Freshstart
shareholders are encouraged to read Section 203 for more detailed information.
Section 203 generally prohibits any Delaware corporation covered by Section
203 from engaging in any "business combination" with a person who is an
"interested shareholder" for a period of three (3) years following the date
such person became an interested shareholder, unless:

. the Board of directors approved either the interested shareholder or
business combination in question prior to the date such person became an
interested shareholder;

. upon consummation of the transaction which resulted in such person
becoming an interested shareholder, such interested shareholder owned at
least 85% of the voting stock of the corporation, excluding (for
purposes of determining the number of shares outstanding) stock held by
persons who are both directors and officers of the corporation or by
certain employee stock plans; or

. the business combination is approved by both the Board of directors of
the corporation and, at a shareholders' meeting, by two-thirds of the
outstanding voting stock not owned by such interested shareholder.

This prohibition is inapplicable to a business combination which is
proposed subsequent to the announcement, but prior to the consummation, of a
transaction which is a merger, asset transfer of 50% or more of the
corporation's assets, or tender or exchange offer for 50% or more of the
corporation's outstanding voting stock involving the corporation and certain
affiliated third parties, and which is approved or not opposed by a majority
of directors who were directors prior to any person becoming an interested
shareholder during the previous three (3) years or who were recommended for
election or elected to succeed such directors by a majority of such directors.
For purposes of Section 203, an "interested shareholder" means:

. any person who is the owner of 15% or more of the outstanding voting
stock of the corporation;

. any person who is an "affiliate" or "associate" (as defined in Section
203) of the corporation and was the owner of 15% or more of outstanding
voting stock of the corporation at any time within the previous three
(3) years; and

. affiliates and associates of such persons.

A "business combination," as used in Section 203, encompasses a broad
variety of transactions, including:

. a merger or consolidation of the corporation with the interested
shareholder;

. the sale, lease, exchange, mortgage, pledge, transfer or other
disposition of significant assets by the corporation to or with the
interested shareholder;

. various stock issuances by the corporation to the interested
shareholder;

. transactions involving the corporation which have the effect of
increasing the proportionate stock ownership of the interested
shareholder; and

. the receipt by the interested shareholder of any loans, advances,
guarantees, pledges or other financial benefits by or through the
corporation (for purposes of this definition, references to the
corporation generally include any majority-owned subsidiaries).

52
<PAGE>

. Section 203 generally applies to (a) any "public" corporation (i.e., one
with a class of voting stock which is either listed or authorized for
quotation on Nasdaq or with a national securities association, or held
of record by more than 2,000 persons), unless such corporation elects
(in the manner prescribed by Section 203) not be governed by Section
203; and (b) any non-"public" corporation which elects by a provision in
its certificate of incorporation to be governed by Section 203.
Medallions' Certificate of Incorporation expressly provides that
Medallion shall not be governed by this Section 203.

New York Corporation Law contains a provision somewhat comparable to Section
203 of Delaware Corporation Law. Section 912 of New York Corporation Law
generally prohibits a corporation for profit formed under the laws of New York
(a "domestic corporation") that is covered by Section 912 (as described below)
from engaging in any "business combination" with any "interested shareholder"
for a period of five (5) years following the date such person became an
interested shareholder, unless the board of directors approved either the
interested shareholder or the business combination in question prior to the
date such person became an interested shareholder. In addition, under Section
912, a domestic corporation covered by Section 912 generally may not engage in
a business combination with an interested shareholder at any time, unless:

. the board of directors approves either the interested shareholder or the
business combination in question prior to the date such person became an
interested shareholder;

. the business combination is approved by the disinterested shareholders
of the corporation at least five (5) years following the date such
person became an interested shareholder; or

. the business combination satisfies certain criteria relating to the
amount and nature of the consideration received in the business
combination by the shareholders of the domestic corporation.

For purposes of Section 912, an "interested shareholder" is any person who
beneficially owns 20% or more of the outstanding voting stock of the
corporation, or who is an "affiliate" or "associate" (as defined in Section
912) of the corporation and beneficially owned 20% or more of the outstanding
voting stock of the corporation at any time within the previous five (5) years.
The definition of "business combination" under Section 912 is substantially
similar to the definition of "business combination" under Section 203 of
Delaware Corporation Law. Section 912 applies only to a domestic corporation
that either:

. has a class of stock registered under the 1934 Act (unless such
corporation has elected by means of a provision in its certificate of
incorporation not be governed by this Section); or

. has elected by a provision in its certificate of incorporation to be
governed by Section 912. Freshstart is not currently covered by Section
912.

Appraisal Rights of Dissenting Shareholders

Pursuant to Section 910 of New York Corporation Law, holders of Freshstart
common stock at the close of business on the Record Date have the right to
dissent from the merger agreement and, if the merger agreement is approved and
the merger agreement is consummated, receive payment of the fair value of their
Freshstart common stock (in lieu of Medallion common stock they would otherwise
receive pursuant to the merger agreement) by complying with the requirements of
Section 623 of New York Corporation Law (the full text of which is set forth as
Appendix B to this Proxy Statement/Prospectus). Section 623 requires that any
such shareholder who wishes to exercise such appraisal rights must not vote in
favor of the adoption of the merger agreement, and must file with Freshstart,
before shareholders vote on the merger agreement, a written objection including
a notice of election to dissent, his name and residence address, the number of
shares as to which he dissents (shareholders may not dissent as to less than
all of their shares) and a demand for payment for his shares if the merger
agreement is effected. Such objection is not required from any shareholder to
whom Freshstart did not give proper notice of the Annual Meeting.

53
<PAGE>

Within 10 days after the vote of shareholders authorizing the merger
agreement, Freshstart must give written notice of such authorization to each
dissenting shareholder who filed written objection or from whom written
objection was not required. Any shareholder from whom written objection was not
required and who elects to dissent from the merger agreement must file with
Freshstart, within 20 days after the giving of such notice to him, a written
notice of such election, stating his name and residence address, the number of
shares as to which he dissents and a demand for payment of the fair value for
his shares.

At the time of filing the notice of election to dissent or within one month
thereafter, the shareholder must submit the certificates representing his
shares to Freshstart or its transfer agent for notation thereon of the election
to dissent, after which such certificates will be returned to the shareholder.
Failure to submit the certificates for such notation may result in the loss of
appraisal rights. Within 15 days after the expiration of the period within
which shareholders may file their notices of election to dissent or within 15
days after consummation of the merger agreement, which ever is later (but not
later than 90 days after the shareholders' vote authorizing the merger
agreement), Freshstart must make a written offer (which if the merger agreement
has not been consummated, may be conditioned upon such consummation) to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which Freshstart considers to be their fair value. If
Freshstart fails to make the offer within such 15-day period, or if any
dissenting shareholder fails to agree to it within 30 days after it is made,
then Freshstart shall institute a judicial proceeding within 20 days after the
expiration of the applicable period to determine the rights of dissenting
shareholders and to fix the fair market value of their shares of Freshstart
common stock. If Freshstart fails to institute such proceeding, a dissenting
shareholder may institute the same.

A negative vote on the merger agreement does not constitute a "written
objection" required to be filed by a dissenting shareholder. Failure to vote
against the merger agreement will not constitute a waiver of approval rights;
however, since a proxy left blank will be voted FOR the merger agreement, any
Freshstart shareholder who wishes to exercise his appraisal rights must either
vote AGAINST the merger agreement or abstain.

Determination Of Net Asset Value Of Medallion

The net asset value per share of Medallion common stock is determined
quarterly, as soon as practicable after and as of the end of each calendar
quarter, by dividing the value of total assets minus liabilities and negative
goodwill by the total number of shares of Medallion common stock outstanding on
a fully diluted basis at that date.

A substantial portion of Medallion's assets consists of the loans held in
the portfolios of the RIC Subsidiaries. The RIC Subsidiaries' respective boards
of directors value their respective loans in connection with their respective
determinations of net asset value. The net asset value per share of each
subsidiary's common stock is determined quarterly, as soon as practicable after
and as of the end of each calendar quarter, by dividing the value of total
assets minus liabilities by the total number of shares outstanding on a fully
diluted basis at that date.

In making its valuation determination, each of the boards of directors of
the RIC Subsidiaries adhere to a valuation policy approved by the SBA and
adopted by such Board of Directors. In calculating the value of the relevant
subsidiary's total assets, loans are valued at fair value as determined in good
faith by that subsidiary's Board of Directors. In making such determinations,
the Board of Directors value loans and nonconvertible debt securities for which
there exists no public trading market at cost plus amortized original issue
discount, if any, unless adverse factors lead to a determination of a lesser
value, at which time net unrealized depreciation of investments would be
recognized. Convertible debt securities and warrants are valued to reflect the
worth of the underlying equity security less the conversion or exercise price.
In valuing equity securities for which there exists no public trading market,
investment cost is presumed to represent fair value except in cases where the

54
<PAGE>

valuation policy provides that the board of directors may determine fair value
on the basis of (i) financings by unaffiliated investors, (ii) a history of
positive cash flow from operations for two years using conservative financial
measures such as earnings ratios or cash flow multiples, (iii) the market value
of comparable companies which are publicly traded (discounted for illiquidity)
and (iv) other pertinent factors.

A substantial portion of each of the RIC Subsidiaries' assets consists of
loans carried at fair values determined by such subsidiary's board of
directors. The determination of fair values involves subjective judgment not
susceptible to substantiation by auditing procedures performed by independent
public accountants. Accordingly, under current standards, the accountants'
opinion on the Financial Statements included in this Prospectus refers to the
uncertainty with respect to the possible effect on such Financial Statements of
such valuations.

55
<PAGE>

MEDALLION'S DIVIDEND REINVESTMENT PLAN

Pursuant to Medallion's Dividend Reinvestment Plan (the "Reinvestment
Plan"), a Medallion shareholder whose shares are registered in his own name can
have all distributions reinvested in additional shares of common stock by
American Stock Transfer & Trust Company (the "Plan Agent") if the shareholder
enrolls in the Reinvestment Plan by delivering an Authorization Form to the
Plan Agent prior to the corresponding dividend declaration date. The Plan Agent
will effect purchases of common stock under the Reinvestment Plan in the open
market. Holders of common stock who do not elect to participate in the
Reinvestment Plan will receive all distributions in cash paid by check mailed
directly to the shareholder of record (or if the common stock is held in street
or other nominee name, then to the nominee) as of the relevant record date, by
the Plan Agent, as dividend disbursing agent. Shareholders whose shares are
held in the name of a broker or nominee or shareholders transferring such an
account to a new broker or nominee should contact the broker or nominee to
determine whether and how they may participate in the Reinvestment Plan.

The Plan Agent serves as agent for the holders of common stock in
administering the Reinvestment Plan. After Medallion declares a dividend, the
Plan Agent will, as agent for the participants, receive the cash payment and
use it to buy common stock on the Nasdaq National Market or elsewhere for the
participants' accounts. The price of the shares will be the average market
price at which such shares were purchased by the Plan Agent.

Participants in the Reinvestment Plan may withdraw from the Reinvestment
Plan upon written notice to the Plan Agent. Such withdrawal will be effective
immediately if received not less than ten days prior to a dividend record date;
otherwise, it will be effective the day after the related dividend distribution
date. When a participant withdraws from the Reinvestment Plan or upon
termination of the Reinvestment Plan as provided below, certificates for whole
shares of common stock credited to his or her account under the Reinvestment
Plan will be issued and a cash payment will be made for any fractional share of
common stock credited to such account.

The Plan Agent will maintain each participant's account in the Reinvestment
Plan and will furnish monthly written confirmations of all transactions in such
account, including information needed by the shareholder for personal and tax
records. common stock in the account of each Reinvestment Plan participant will
be held by the Plan Agent in non-certificated form in the name of such
participant. Proxy materials relating to shareholders' meetings of Medallion
will include those shares purchased as well as shares held pursuant to the
Reinvestment Plan.

In the case of participants whose beneficially owned shares are held in the
name of banks, brokers or other nominees, the Plan Agent will administer the
Reinvestment Plan on the basis of the number of shares of common stock
certified from time to time by the record holders as the amount held for the
account of such beneficial owners.

The Plan Agent's fees for the handling or reinvestment of dividends and
other distributions will be paid by Medallion. Each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of distributions.
There are no other charges to participants for reinvesting distributions.

Distributions are taxable whether paid in cash or reinvested in additional
shares, and the reinvestment of distributions pursuant to the Reinvestment Plan
will not relieve participants of any U.S. federal income tax or state income
tax that may be payable or required to be withheld on such distributions.

Experience under the Reinvestment Plan may indicate that changes are
desirable. Accordingly, Medallion reserves the right to amend or terminate the
Reinvestment Plan as applied to any distribution paid subsequent to written
notice of the change sent to all shareholders of Medallion at least 90 days
before the record date for such distribution.

56
<PAGE>

The Reinvestment Plan also may be amended or terminated by the Plan Agent by
at least 90 days' written notice to all shareholders of Medallion. All
correspondence concerning the Reinvestment Plan should be directed to, and
additional information can be obtained from, the Plan Agent at 40 Wall Street,
46th Floor, New York, New York 10005.

57
<PAGE>

EQUIVALENT PER SHARE DATA

The following table sets forth certain data concerning the historical book
value per share, cash dividends declared per share and income (loss) per share
from continuing operations for Medallion, Freshstart and Ameritrans,
respectively, on a pro forma basis after giving effect to the mergers, as if
such transaction had occurred at the beginning of the period presented. The
information should be read in conjunction with the unaudited Pro Forma
Condensed Combining Financial Statements of Medallion contained elsewhere in
this Proxy Statement/Prospectus, the historical financial statements of
Medallion incorporated herein by reference and the historical financial
statements of Freshstart contained elsewhere herein. The unaudited pro forma
equivalent per share data shows for each share of Medallion common stock,
Freshstart common stock and Ameritrans common stock before the mergers and its
equivalent position after giving effect to the mergers.

<TABLE>
<CAPTION>
Three
Months Year ended December
Ended 31,
March 31, --------------------
2000 1999 1998 1997
----------- ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OF MEDALLION COMMON STOCK:
Income from continuing operations:
Historical:
Basic earnings per share.................. $ 0.30 $ 1.48 $ 1.12 $ 1.03
Diluted earnings per share................ $ 0.30 $ 1.47 $ 1.11 $ 1.02
Pro forma Medallion and Freshstart:
Basic earnings per share.................. $ 0.30 $ 1.45 $ 1.15 $ 1.07
Diluted earnings per share................ $ 0.30 $ 1.43 $ 1.14 $ 1.05
Pro forma Medallion, Freshstart and
Ameritrans:
Basic earnings per share.................. $ 0.31 $ 1.43 $ 1.15 $ 1.07
Diluted earnings per share................ $ 0.30 $ 1.42 $ 1.14 $ 1.06
Cash dividends declared (A):
Historical................................ $ 0.35 $ 1.31 $ 1.20 $ 0.92
Book Value (as of period end):
Historical................................ $11.05 $10.75 $10.58 $10.20
Pro forma Medallion and Freshstart........ $11.06 $10.76 $10.67 $10.43
Pro forma Medallion, Freshstart and
Ameritrans............................... $11.12 $10.85 $10.86 $10.65

PER SHARE OF FRESHSTART COMMON STOCK:
Income from continuing operations:
Historical
Basic earnings per share.................. $ 0.10 $ 0.14 $ 0.44 $ 0.51
Diluted earnings per share................ $ 0.10 $ 0.14 $ 0.44 $ 0.51
Equivalent pro forma Medallion and
Freshstart (B)
Basic earnings per share.................. $ 0.08 $ 0.36 $ 0.29 $ 0.27
Diluted earnings per share................ $ 0.08 $ 0.36 $ 0.29 $ 0.26
Cash dividends declared:
Historical................................ $ 0.04 $ 0.17 $ 0.47 $ 0.48
Equivalent pro forma Medallion and
Freshstart (B)............................ $ 0.09 $ 0.32 $ 0.31 $ 0.23
Book Value (as of period end)
Historical................................ $13.12 $12.91 $13.06 $17.75
Equivalent pro forma Medallion and
Freshstart (B)............................ $ 2.77 $ 2.69 $ 2.67 $ 2.61
</TABLE>

58
<PAGE>

<TABLE>
<CAPTION>
Three
Months Year ended December
Ended 31,
March 31, --------------------
2000 1999 1998 1997
----------- ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
PER SHARE OF AMERITRANS COMMON STOCK:
Income from continuing operations:
Historical
Basic earnings per share.................. $ 0.19 $ 0.74 $ 0.73 $ 0.72
Diluted earnings per share................ $ 0.19 $ 0.74 $ 0.73 $ 0.72
Equivalent pro forma Medallion, Freshstart
and Ameritrans (C)
Basic earnings per share.................. $ 0.18 $ 0.83 $ 0.67 $ 0.62
Diluted earnings per share................ $ 0.17 $ 0.82 $ 0.66 $ 0.61
Cash dividends declared:
Historical................................ $ 0.19 $ 0.73 $ 0.71 $ 0.53
Equivalent pro forma Medallion, Freshstart
and Ameritrans (C)........................ $ 0.20 $ 0.75 $ 0.71 $ 0.52
Book Value (as of period end)
Historical:............................... $13.04 $13.24 $13.54 $13.50
Equivalent pro forma Medallion, Freshstart
and Ameritrans (C)........................ $ 6.45 $ 6.29 $ 6.30 $ 6.18
</TABLE>
--------
(A) Pro forma Medallion and Freshstart combined and Pro forma Medallion,
Freshstart and Ameritrans combined cash dividends declared would be the
same as historical, as Medallion is the continuing entity.
(B) The equivalent pro forma per share amounts reflected above for Freshstart
are determined by multiplying the corresponding pro forma amounts per
share of Medallion common stock, by the exchange ratio of approximately
.25 shares of Medallion common stock in exchange for each share of
Freshstart common stock.
(C) The equivalent pro forma per share amounts reflected above for Ameritrans
are determined by multiplying the corresponding pro forma amounts per
share of Medallion/Freshstart common stock, by the exchange ratio of
approximately 0.58 shares of Medallion common stock in exchange for each
share of Ameritrans common stock.

59
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL CORP.

AMERITRANS CAPITAL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET SUMMARY

The following Unaudited Pro Forma Condensed Combining Balance Sheet presents
the combined financial position of Medallion and Freshstart as of March 31,
2000, assuming the merger had occurred as of March 31, 2000. The Unaudited Pro
Forma Condensed Combining Balance Sheet also gives effect to the pending
acquisition of Ameritrans pursuant to an agreement entered into on May 4, 2000.
See "Recent Developments" for a description of the Americans transaction.

The accompanying pro forma information is based on historical balance sheet
data of Medallion, Freshstart and Ameritrans as of March 31, 2000 giving effect
to the acquisitions under the pooling of interests method of accounting.

The Unaudited Pro Forma Condensed Combining Balance Sheet should be read in
conjunction with the Unaudited Pro Forma Condensed Combining Statements of
Income appearing elsewhere in this Proxy Statement/Prospectus and the Notes to
Unaudited Pro Forma Condensed Financial Information and the historical
financial statements and notes thereto of Medallion, Freshstart and Ameritrans
which are incorporated by reference in this Proxy Statement/Prospectus. See
"WHERE YOU CAN FIND MORE INFORMATION." The Unaudited Pro Forma Condensed
Combining Balance Sheet is presented for informational purposes only and is not
necessarily indicative of the combined financial position that would have
occurred if the acquisitions of Freshstart and Ameritrans had been consummated
on March 31, 2000 or which may be obtained in the future. For information
regarding the uncertainty of assumptions, estimates and expectations reflected
herein, see "FORWARD-LOOKING INFORMATION."

60
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL CORP.

AMERITRANS CAPITAL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET

<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------------------------------------------------
Pro Pro
Pro Forma Forma Pro Forma Forma
Medallion Freshstart Adjustments Combined Ameritrans Adjustments Combined
--------- ---------- ----------- -------- ---------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments....................... $493,015 $20,800 $513,815 $58,931 $572,746
Investments in unconsolidated
subsidiary....................... 3,333 -- 3,333 -- 3,333
-------- ------- ------ -------- ------- ------ --------
Total Investments................ 496,348 20,800 -- 517,148 58,931 -- 576,079
-------- ------- ------ -------- ------- ------ --------
Cash and Cash Equivalents......... 8,441 1,268 9,709 140 9,849
Accrued interest receivable....... 7,140 251 7,391 802 8,193
Receivable from sale of loans..... 3,132 -- 3,132 754 3,886
Fixed assets, net................. 2,240 19 2,259 116 2,375
Goodwill, net..................... 6,046 -- 6,046 -- 6,046
Servicing fee receivable.......... 5,405 -- 5,405 -- 5,405
Other assets, net................. 3,558 228 3,786 1,089 4,875
-------- ------- ------ -------- ------- ------ --------
Total assets..................... $532,310 $22,566 $ -- $554,876 $61,832 $ -- $616,708
======== ======= ====== ======== ======= ====== ========

LIABILITIES
Accounts payable and accrued
expenses......................... $ 7,263 $ 30 $1,000 $ 8,293 $ 443 $1,000 $ 9,736
Dividend payable.................. -- 19 19 297 316
Accrued interest payable.......... 2,279 119 2,398 403 2,801
Notes payable to banks and demand
notes............................ 175,500 3,000 178,500 38,600 217,100
Commercial Paper.................. 136,657 -- 136,657 -- 136,657
Senior Secured Notes.............. 45,000 -- 45,000 -- 45,000
SBA debentures payable............ 10,500 10,860 21,360 8,880 30,240
SBA Preferred Stock............... -- 1,410 1,410 -- 1,410
-------- ------- ------ -------- ------- ------ --------
Total liabilities................ 377,199 15,438 1,000 393,637 48,623 1,000 443,260
-------- ------- ------ -------- ------- ------ --------
Negative goodwill, net............ 170 -- 170 -- 170
-------- ------- ------ -------- ------- ------ --------

SHAREHOLDERS' EQUITY
Liquidating interest under
repurchase agreement............. -- -- -- -- --
Common stock ($.01 par value)..... 140 22 (16) 146 -- 10 156
Capital in excess of par value.... 142,052 7,049 16 149,117 13,048 (10) 162,155
Accumulated undistributed income.. 12,749 57 (1,000) 11,806 161 (1,000) 10,967
-------- ------- ------ -------- ------- ------ --------
Total shareholders' equity....... 154,941 7,128 (1,000) 161,069 13,209 (1,000) 173,278
-------- ------- ------ -------- ------- ------ --------
Total liabilities and
shareholders' equity............ $532,310 $22,566 $ -- $554,876 $61,832 $ -- $616,708
======== ======= ====== ======== ======= ====== ========
</TABLE>

See accompanying notes to unaudited Pro Forma Condensed Combining Financial
Statements.

61
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL CORP.

AMERITRANS CAPITAL CORPORATION

UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENTS OF INCOME SUMMARY

The following Unaudited Pro Forma Condensed Combining Statements of Income
give effect to Medallion's proposed acquisition of Freshstart by combining the
results of operations of Medallion for the three months ended March 31, 2000,
and for each of the three years in the period ending December 31, 1999 with the
results of operations of Freshstart for the three months ended March 31, 2000
and for each of the three years in the period ending December 31, 1999 on a
pooling of interests basis, assuming the merger had occurred as of the
beginning of each fiscal period presented. Earnings per share are based on the
exchange ratio of approximately 0.25 shares of Medallion Common Stock for each
share of Freshstart Common Stock as specified in the merger agreement. The
Unaudited Pro Forma Condensed Combining Statements of Income also give effect
to the pending acquisition of Ameritrans pursuant to an agreement entered into
on May 4, 2000. See "RECENT DEVELOPMENTS" for a description of the Ameritrans
transaction. The Unaudited Pro Forma Condensed Combining Statements of Income
should be read in conjunction with the Unaudited Pro Forma Condensed Combining
Balance Sheet appearing elsewhere in this Proxy Statement/Prospectus. See
"WHERE YOU CAN FIND MORE INFORMATION."

For information regarding the uncertainty of assumptions, estimates and
expectations reflected herein, see "FORWARD-LOOKING INFORMATION."

62
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL CORP.

AMERITRANS CAPITAL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME

<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
----------------------------------------------------------------------------
Historical Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
Medallion Freshstart Adjustments Combined Ameritrans Adjustments Combined
---------- ---------- ----------- --------- ---------- ----------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income....... $13,794 $ 700 $14,494 $1,613 $16,107
Investment expense...... 6,504 313 6,817 887 7,704
------- ----- ------ ------- ------ ---- -------
Net interest income..... 7,290 387 7,677 726 8,403
------- ----- ------ ------- ------ ---- -------
Equity in earnings
(losses) of
unconsolidated
subsidiary............. (319) -- (319) -- (319)
Other income............ 745 54 799 119 918
Accretion of negative
goodwill............... 181 -- 181 -- 181
Gain on sale of loans... 686 -- 686 -- 686
Operating expenses...... 4,387 170 4,557 479 5,036
Amortization of
goodwill............... 137 -- 137 -- 137
Income tax provision.... -- -- -- 7 7
------- ----- ------ ------- ------ ---- -------
Net investment income... 4,059 271 4,330 359 4,689
------- ----- ------ ------- ------ ---- -------
Realized gain (loss) on
investments, net....... (113) (57) (170) (29) (199)
Change in unrealized
depreciation of
investments............ 270 -- 270 -- 270
------- ----- ------ ------- ------ ---- -------
Net increase in net
assets resulting from
operations $ 4,216 $ 214 $ 4,430 $ 330 $ 4,760
======= ===== ====== ======= ====== ==== =======
Per Share Data:
Basic earnings per
share................ $ 0.30 $0.10 $ 0.30 $ 0.19 $ 0.31
Diluted earnings per
share................ $ 0.30 $0.10 $ 0.30 $ 0.19 $ 0.30
Basic weighted average
shares............... 14,027 2,173 (1,630) 14,570 1,746 (733) 15,583
Diluted weighted
average shares....... 14,094 2,173 (1,630) 14,637 1,751 (738) 15,650
</TABLE>

See accompanying notes to unaudited Pro Forma Condensed Combining Financial
Statements

63
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL

AMERITRANS CAPITAL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME

<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
----------------------------------------------------------------------------
Historical Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
Medallion Freshstart Adjustments Combined Ameritrans Adjustments Combined
---------- ---------- ----------- --------- ---------- ----------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income....... $41,380 $2,663 $44,043 $6,087 $ 50,130
Investment expense...... 19,635 1,311 20,946 2,794 23,740
------- ------ ------ ------- ------ ----- ---------
Net Interest Income..... 21,745 1,352 23,097 3,293 26,390
------- ------ ------ ------- ------ ----- ---------

Equity in losses of
unconsolidated
subsidiary............. (214) -- (214) -- (214)
Other Income............ 2,112 186 2,298 7 2,305
Accretion of negative
goodwill............... 722 -- 722 -- 722
Gain on sale of loans... 3,014 -- 3,014 -- 3,014
Operating expenses...... 16,907 528 17,435 1,892 19,327
Amortization of
goodwill............... 530 -- 530 -- 530
Income tax provision.... 46 -- 46 10 56
------- ------ ------ ------- ------ ----- ---------
Net investment income... 9,896 1,010 10,906 1,398 12,304
------- ------ ------ ------- ------ ----- ---------
Realized gain (loss) on
investments, net....... 22,746 -- 22,746 (115) 22,631
Change in unrealized
depreciation of
investments............ (11,910) (698) (12,608) -- (12,608)
------- ------ ------ ------- ------ ----- ---------
Net increase in net
assets resulting from
operations............. $20,732 $ 312 $21,044 $1,283 $ 22,327
======= ====== ====== ======= ====== ===== =========
Per Share Data:
Basic earnings per
share................. $ 1.48 $ 0.14 $ 1.45 $ 0.73 $ 1.43
Diluted earnings per
share................. $ 1.47 $ 0.14 $ 1.43 $ 0.73 $ 1.42
Basic weighted average
shares................ 14,018 2,173 (1,630) 14,561 1,746 (733) 15,574
Diluted weighted
average shares........ 14,123 2,173 (1,630) 14,666 1,747 (733) 15,680
</TABLE>

See accompanying notes to unaudited Pro Forma Condensed Combining Financial
Statements

64
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL CORP.

AMERITRANS CAPITAL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME

<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
----------------------------------------------------------------------------
Historical Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
Medallion Freshstart Adjustments Combined Ameritrans Adjustments Combined
---------- ---------- ----------- --------- ---------- ----------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income....... $35,157 $2,702 $37,859 $5,163 $43,022
Investment expense...... 15,609 1,295 16,904 2,082 18,986
------- ------ ------ ------- ------ ---- -------
Net Interest Income..... 19,548 1,407 20,955 3,081 24,036
------- ------ ------ ------- ------ ---- -------

Equity in earnings of
unconsolidated
subsidiary............. 1,200 -- 1,200 -- 1,200
Other Income............ 1,459 220 1,679 (2) 1,677
Accretion of negative
goodwill............... 722 -- 722 -- 722
Gain on sale of loans... 2,316 -- 2,316 58 2,374
Operating expenses...... 13,178 541 13,719 1,728 15,447
Amortization of
goodwill............... 506 -- 506 -- 506
Income tax (benefit).... (154) -- (154) -- (154)
------- ------ ------ ------- ------ ---- -------
Net investment income... 11,715 1,086 12,801 1,409 14,210
------- ------ ------ ------- ------ ---- -------

Realized gain (loss) on
investments, net....... 1,291 -- 1,291 (141) 1,150
Change in unrealized
depreciation of
investments............ 2,676 (136) 2,540 -- 2,540
------- ------ ------ ------- ------ ---- -------
Net increase in net
assets resulting from
operations $15,682 $ 950 $16,632 $1,268 $17,900
======= ====== ====== ======= ====== ==== =======
Per Share Data:
Basic earnings per
share................. $ 1.12 $ 0.44 $ 1.15 $ 0.73 $ 1.15
Diluted earnings per
share................. $ 1.11 $ 0.44 $ 1.14 $ 0.73 $ 1.14
Basic weighted average
shares................ 13,964 2,173 (1,630) 14,507 1,746 (733) 15,520
Diluted weighted
average shares 14,093 2,173 (1,630) 14,636 1,746 (733) 15,649
</TABLE>

See accompanying notes to unaudited Pro Forma Condensed Combining Financial
Statements

65
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL CORP.

AMERITRANS CAPITAL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME

<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
----------------------------------------------------------------------------
Historical Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
Medallion Freshstart Adjustments Combined Ameritrans Adjustments Combined
---------- ---------- ----------- --------- ---------- ----------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income....... $25,848 $1,789 $27,637 $4,354 $ 31,991
Investment expense...... 10,099 653 10,752 1,842 12,594
------- ------ ------ ------- ------ ---- --------
Net Interest Income..... 15,749 1,136 16,885 2,512 19,397
------- ------ ------ ------- ------ ---- --------

Equity in earnings of
unconsolidated
subsidiary............. 203 -- 203 -- 203
Other Income............ 980 115 1,095 (3) 1,092
Accretion of negative
goodwill............... 722 -- 722 -- 722
Gain on sale of loans... 336 -- 336 11 347
Operating expenses...... 6,167 422 6,589 1,443 8,032
Amortization of
goodwill............... 368 -- 368 -- 368
Income tax provision.... 929 -- 929 26 955
------- ------ ------ ------- ------ ---- --------
Net investment income... 10,526 829 11,355 1,051 12,406
------- ------ ------ ------- ------ ---- --------

Realized gain (loss) on
investments, net....... 78 -- 78 (147) (69)
Change in unrealized
depreciation of
investments............ 1,929 -- 1,929 -- 1,929
------- ------ ------ ------- ------ ---- --------
Net increase in net
assets resulting from
operations............. $12,533 $ 829 $13,362 $ 904 $ 14,266
======= ====== ====== ======= ====== ==== ========

Per Share Data:
Basic earnings per
share................. $ 1.03 $ 0.51 $ 1.07 $ .70 $ 1.07
Diluted earnings per
share................. $ 1.02 $ 0.51 $ 1.05 $ .70 $ 1.06
Basic weighted average
shares................ 12,124 1,627 (1,220) 12,531 1,299 (546) 13,284
Diluted weighted
average shares........ 12,272 1,627 (1,220) 12,679 1,299 (546) 13,432
</TABLE>

See accompanying notes to unaudited Pro Forma Condensed Combining Financial
Statements

66
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL CORP.

AMERITRANS CAPITAL CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS

Note 1:

It is contemplated that the pending acquisitions will be accounted for as
pooling of interests. Accordingly, pro forma financial information assumes that
the transactions were consummated as of the beginning of each of the periods
indicated herein. Certain reclassifications have been made to the accounts of
Freshstart and Ameritrans in the accompanying Unaudited Pro Forma Condensed
Combining Balance Sheet and Unaudited Pro Forma Condensed Combining Statements
of Income to conform to the Medallion presentation.

The pro forma financial information does not give effect to any potential
cost savings in connection with the pending acquisitions.

Note 2:

Freshstart

The number of shares of Medallion common stock to be issued pursuant to the
acquisition of Freshstart is based upon the number of Freshstart shares
outstanding as of March 31, 2000, and the exchange ratio of approximately 0.25
shares of Medallion common stock for each share of Freshstart common stock. The
excess of the par value of the Medallion common stock to be issued over the par
value of the Freshstart common stock to be acquired has been charged to Capital
in Excess of Par Value.

Ameritrans

The number of shares of Medallion common stock to be issued pursuant to the
acquisition of Ameritrans is based upon the number of Ameritrans shares
outstanding as of March 31, 2000, and the exchange ratio of approximately .58
shares of Medallion common stock for each share of Ameritrans common stock. The
excess of the par value of the Medallion common stock to be issued over the par
value of the Ameritrans common stock to be acquired has been charged to Capital
in Excess of Par Value.

Note 3:

Freshstart

Pro forma earnings per share amounts in the accompanying Unaudited Pro Forma
Condensed Combined Statements of Income are based on the weighted average
number of Basic and Diluted common shares of Medallion and Freshstart during
each period as adjusted for the exchange ratio of approximately 0.25
(calculated by dividing $4.125 by $16.50, as stipulated in the merger
agreement, based on an average 20-day closing price of $16.50).

Ameritrans

Pro forma earnings per share amounts in the accompanying Unaudited Pro Forma
Condensed Combined Statements of Income are based on the weighted average
number of Basic and Diluted common shares of Medallion and Ameritrans during
each period as adjusted for the exchange ratio of approximately 0.58
(calculated by dividing $9.64 by $16.50, as stipulated in the merger agreement,
based on an average 20-day closing price of $16.50).

67
<PAGE>

MEDALLION FINANCIAL CORP.

FRESHSTART VENTURE CAPITAL CORP.

AMERITRANS CAPITAL CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS--(Continued)

Note 4:

Freshstart

The effect of an estimated one-time charge of $1 million, to be taken by
Medallion in connection with the Freshstart acquisition, has been reflected in
the accompanying Unaudited Pro Forma Condensed Combining Balance Sheet as a
reduction in accumulated undistributed income and an increase in accounts
payable and accrued expenses.

Ameritrans

The effect of an estimated one-time charge of $1 million, to be taken by
Medallion in connection with the Ameritrans acquisition, has been reflected in
the accompanying Unaudited Pro Forma Condensed Combining Balance Sheet as a
reduction in accumulated undistributed income and an increase in accounts
payable and accrued expenses.

These charges have not been reflected in the Unaudited Pro Forma Condensed
Combining Statements of Income since they are nonrecurring.

68
<PAGE>

LEGAL PROCEEDINGS

Medallion and its subsidiaries have been named as defendants in various
legal proceedings incident to its business. Medallion's management intends to
vigorously defend these outstanding claims. In the opinion of such management,
based upon the advice of legal counsel, there is no proceeding pending, or to
the knowledge of management threatened, which if decided adversely to
Medallion, would have a material adverse impact on Medallion's results of
operations or financial condition.

OTHER MATTERS

It is not expected that any matters other than those described in this Proxy
Statement/Prospectus will be brought before the Freshstart Special Meeting. If
any other matters are presented, however, it is the intention of the persons
named in the Freshstart proxy to vote the proxy in accordance with the
discretion of the persons named in such proxy.

LEGAL MATTERS

The validity of the Medallion common stock to be issued in connection with
the merger will be passed upon for Medallion by Willkie Farr & Gallagher, New
York, New York. Certain legal matters relating to Freshstart will be passed
upon for Freshstart by Berlack, Israels & Liberman LLP, New York, New York.
Mario M. Cuomo, a director of Medallion who beneficially owns 7,370 shares of
Medallion common stock underlying stock options, is a partner in the law firm
of Willkie Farr & Gallagher.

EXPERTS

The consolidated financial statements of Medallion Financial Corp., included
in Medallion's Annual Report on Form 10-K and incorporated by reference in this
Registration Statement on Form N-14, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.

The consolidated financial statements of Freshstart Venture Capital Corp.
included in this Proxy Statement/Prospectus and in the Annual Report on Form
10-K of Freshstart Venture Capital Corp. for the year ended May 31, 1999, and
incorporated by reference in this Registrant Statement or Form N-14 have been
audited by the Office of Michael C. Finkelstein, independent auditors, as
stated in their report appearing herein (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to the uncertainty of
the valuation of investment securities) and have been so included in reliance
upon the report of such firm given upon their authority of as experts in
accounting and auditing.

The consolidated financial statements of Ameritrans Capital Corporation and
Elk Associates Funding Corporation, included in their respective Annual Reports
on Form 10-K and have been audited by Marcom & Kliegman LLP and incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

Medallion and Freshstart file annual, quarterly, and special reports, proxy
statements, and other information with the SEC. You may read and copy any
reports, statements, or other information filed by Medallion or Freshstart at
the SEC's public reference rooms at 450 5th Street, N.W., Washington, D.C.
20549, or at 7 World Trade Center, Suite 1300, New York, New York 10048, or at
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. The SEC also maintains an Internet site at
"http://www.sec.gov" that contain reports, proxy and information statements,
and other information regarding issuers, like Medallion and Freshstart, that
file electronically with the SEC.

69
<PAGE>

You can also inspect reports, proxy statements, and other information about
Medallion and Freshstart at the offices of the Nasdaq National Market, 1735 K
Street, N.W., Washington, D.C. 20006.

Medallion has filed with the SEC a Registration Statement on Form N-14 to
register the Medallion common stock to be issued in the merger. This Proxy
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of Medallion in addition to being a proxy statement of Freshstart
for the Special Meeting. As allowed by SEC rules, this Proxy
Statement/Prospectus does not contain all the information you can find in the
Registration Statement and the exhibits to the Registration Statement.

The SEC allows us to "incorporate by reference" information into this Proxy
Statement/Prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered part of this Proxy
Statement/Prospectus, except for any information superseded by information in
(or incorporated by reference in) this Proxy Statement/Prospectus.

This Proxy Statement/Prospectus incorporates by reference the documents
listed below that Medallion, Freshstart and Ameritrans have previously filed
with the SEC. These documents contain important information about Medallion,
Freshstart and Ameritrans and their finances.

<TABLE>
<CAPTION>
Medallion SEC Filings (File No. 814-00188) Period
------------------------------------------ ------
<S> <C>
Annual Report on Form 10-K................... Year ended December 31, 1999
Quarterly Reports on Form 10-Q............... Quarter ended March 31, 2000

<CAPTION>
Freshstart SEC Filings (File No. 814-00189) Period
------------------------------------------- ------
<S> <C>
Annual Report on Form 10-K................... Year ended May 31, 1999
Quarterly Reports on Form 10-Q............... Quarters ended August 31, 1999, November 30,
1999 and February 29, 2000
Current Report on Form 8-K................... Filed December 29, 1999

<CAPTION>
Ameritrans SEC Filings (File No. 0-22153) Period
----------------------------------------- ------
<S> <C>
Amended Annual Report on Form 10-K/A......... Year ended June 30, 1999
Annual Report on Form 10-K................... Year ended June 30, 1999
Annual Report on Form 10-K................... Year ended June 30, 1999
(Elk Associates Funding Corporation,
predecessor of Ameritrans)
Quarterly Report on Form 10-Q................ Quarters ended December 31, 1999 and
March 31, 2000
Current Report on Form 8-K................... Filed May 12, 2000
</TABLE>

Medallion and Freshstart are also incorporating by reference all additional
documents that either company may file with the SEC between the date of this
Proxy Statement/Prospectus and the date of the Special Meeting.

If you are a shareholder of Medallion or Freshstart, Medallion and
Freshstart may have sent you some of the documents incorporated by reference,
but you can obtain any of them from Medallion, Freshstart, or the SEC.
Documents incorporated by reference are available from Medallion or Freshstart
without charge, except for any exhibits to those documents unless we have
specifically incorporated by reference a particular exhibit in this Proxy
Statement/Prospectus. Shareholders may obtain documents incorporated by
reference in this Proxy Statement/Prospectus by requesting them in writing or
by telephone from the appropriate party at the following addresses:

Medallion Financial Corp. Freshstart Venture Capital Corp.
437 Madison Avenue, 38th Floor 24-25 Jackson Avenue
New York, NY 10022 Long Island City, NY 11101
Attention: Investor Relations Attention: Investor Relations
(212) 328-2100 (718) 361-8295

If you would like to request documents from Medallion or Freshstart, please
do so by to receive them before the Special Meeting.

70
<PAGE>

We have not authorized anyone to provide you with information that is
different from, or in addition to, what is contained or referred to in this
Proxy Statement/Prospectus. Medallion has supplied all information contained or
incorporated by reference in this Proxy Statement/ Prospectus relating to
Medallion, and Freshstart has supplied all such information relating to
Freshstart. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or buy, the securities offered by this
document or the solicitation of proxies is unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then the offer
presented in this document does not extend to you. The information contained in
this document speaks only as of the date of this document unless the
information specifically indicates that another date applies.

FORWARD-LOOKING INFORMATION

Certain statements contained in this Proxy Statement/Prospectus (including
information incorporated by reference) and other written and oral statements
made from time to time by Medallion and Freshstart do not relate strictly to
historical or current facts. As such, they are considered "forward-looking
statements" which provide current expectations or forecasts of future events.
Such statements can be identified by the use of words such as "anticipate,"
"believe," "could," "estimate," "expect," "forecast," "intend," "may," "plan,"
"possible," "project," "should," "will," and similar words or expressions.
Medallion's and Freshstart's respective forward-looking statements generally
relate to their respective growth strategies, financial results, product
development and regulatory approval programs, and sales efforts. You should
carefully consider forward-looking statements and understand that such
statements involve a variety of risks and uncertainties, known and unknown, and
may be affected by inaccurate assumptions. Because of that, we cannot guarantee
any forward-looking statement and actual results may differ materially. It is
not possible to foresee or identify all factors affecting Medallion's or
Freshstart's respective forward-looking statements, and investors therefore
should not consider any list of factors affecting Medallion's or Freshstart's
respective forward-looking statements to be an exhaustive statement of all
risks, uncertainties, or potentially inaccurate assumptions. Neither Medallion
nor Freshstart undertakes any obligation to update any forward-looking
statement.

Also, Medallion has historically been, and continues to be, actively engaged
in exploring business opportunities through investments and acquisitions. As
such, at any particular time, in addition to investments and acquisitions for
which definitive agreements have been executed and publicly announced,
Medallion is routinely reviewing several other investment and acquisition
opportunities of varying magnitude and significance or negotiating the terms of
such potential investments and acquisitions prior to the execution of
definitive agreements and public announcements thereof.

Although we cannot give a comprehensive list of all factors that may cause
actual results to differ from Medallion's or Freshstart's forward-looking
statements, the factors include those noted in Medallion's and Freshstart's SEC
filings incorporated by reference into this Proxy Statement/Prospectus, as well
as:

. changes in governmental laws, regulations, and accounting standards and
the enforcement thereof that may be adverse to Medallion or Freshstart;

. agency or government actions or investigations affecting the industry in
general or Medallion or Freshstart in particular;

. business acquisitions, dispositions, discontinuations or restructurings
by Medallion or Freshstart;

. the integration of businesses acquired by Medallion or Freshstart;

. the price and volume fluctuations in the stock markets and their effect
on the market prices of investment companies; and

. economic factors over which neither Medallion nor Freshstart has any
control, including changes in inflation, foreign currency rates, and
interest rates.

Medallion and Freshstart note these factors as permitted by the Private
Securities Litigation Reform Act of 1995.

71
<PAGE>

Appendix A
Execution Copy
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 22, 1999
BY AND AMONG
MEDALLION FINANCIAL CORP.,
FS MERGER CORP.,
AND
FRESHSTART VENTURE CAPITAL CORP.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I. The Merger; Effect of Merger........................... A-1
Section 1.1. The Merger............................................. A-1
Section 1.2. Effective Time of the Merger........................... A-1
Section 1.3. Effects of Merger...................................... A-1
ARTICLE II. The Surviving Corporation.............................. A-2
Section 2.1. Certificate of Incorporation........................... A-2
Section 2.2. By-Laws................................................ A-2
Section 2.3. Officers and Directors................................. A-2
ARTICLE III. Conversion of Shares................................... A-2
Section 3.1. Conversion of Shares................................... A-2
Section 3.2. Appraisal Rights....................................... A-3
Section 3.3. Parent to Make Certificates Available.................. A-3
Section 3.4. Dividends; Transfer Taxes.............................. A-4
Section 3.5. No Fractional Securities............................... A-4
Section 3.6. Closing of Company Transfer Books...................... A-4
Section 3.7. Stockholder Approval................................... A-4
Section 3.8. Tax Treatment.......................................... A-5
ARTICLE IV. Representations and Warranties of the Company.......... A-5
Section 4.1. Execution and Delivery................................. A-5
Section 4.2. Consents and Approvals................................. A-5
Section 4.3. No Breach.............................................. A-5
Section 4.4. Organization, Standing and Authority................... A-6
Section 4.5. Capitalization of the Company.......................... A-6
Section 4.6. Options and Other Stock Rights......................... A-6
Section 4.7. Subsidiaries........................................... A-6
Section 4.8. Corporate Records...................................... A-6
Section 4.9. Information in Disclosure Documents.................... A-7
Section 4.10. SEC Documents; Financial Statements.................... A-7
Section 4.11. Liabilities............................................ A-8
Section 4.12. No Material Adverse Change............................. A-8
Section 4.13. Compliance with Laws................................... A-8
Section 4.14. Permits................................................ A-8
Section 4.15. Actions and Proceedings................................ A-8
Section 4.16. Contracts and Other Agreements......................... A-8
Section 4.17. Investment Portfolio................................... A-10
Section 4.18. Real Property.......................................... A-10
Section 4.19. Intellectual Property.................................. A-11
Section 4.20. Receivables............................................ A-11
Section 4.21. Banking................................................ A-12
Section 4.22. Liens.................................................. A-12
Section 4.23. Employee Benefit Plans................................. A-12
Section 4.24. Employee Relations..................................... A-13
Section 4.25. Insurance.............................................. A-13
Section 4.26. Officers, Directors, Employees, Consultants............ A-14
Section 4.27. Transactions with Directors, Officers and Affiliates... A-14
Section 4.28. Operations of the Company.............................. A-14
Section 4.29. Brokerage.............................................. A-15
</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.30. Taxes................................................. A-15
Section 4.31. Execution and Validity of Employment Agreements....... A-16
Section 4.32. Environmental Laws.................................... A-16
Section 4.33. Accounting Matters.................................... A-17
Section 4.34. Company Action........................................ A-17
Section 4.35. Opinion of Financial Advisor.......................... A-17
Section 4.36. Hart-Scott-Rodino..................................... A-17
ARTICLE V. Representations and Warranties of Parent and Sub...... A-18
Section 5.1. Execution and Delivery................................ A-18
Section 5.2. Consents and Approvals................................ A-18
Section 5.3. No Breach............................................. A-18
Section 5.4. SEC Documents; Financial Statements................... A-19
Section 5.5. Shares of Parent Common Stock......................... A-19
Organization, Standing and Authority of Parent and
Section 5.6. Sub................................................... A-19
Section 5.7. Capitalization........................................ A-19
Section 5.8. Brokerage............................................. A-20
Section 5.9. Information in Disclosure Documents................... A-20
Section 5.10. No Material Adverse Change............................ A-20
Section 5.11. Sub Action............................................ A-20
Section 5.12. Options and Other Stock Rights........................ A-20
Section 5.13. Information in Disclosure Documents................... A-20
Section 5.14. Liabilities........................................... A-21
Section 5.15. Compliance with Laws.................................. A-21
Section 5.16. Permits............................................... A-21
Section 5.17. Actions and Proceedings............................... A-21
Section 5.18. Loan Portfolio........................................ A-21
ARTICLE VI. Covenants and Agreements.............................. A-21
Section 6.1. Conduct of Business................................... A-21
Section 6.2. Litigation Involving the Company...................... A-22
Continued Effectiveness of Representations and
Section 6.3. Warranties of the Parties............................. A-22
Section 6.4. Corporate Examinations and Investigations............. A-23
Section 6.5. Preparation of Company Restated Financial Statements.. A-23
Section 6.6. Registration Statement/Proxy Statement................ A-24
Section 6.7. Compliance with the Securities Act.................... A-24
Section 6.8. Nasdaq Listing........................................ A-24
Section 6.9. Acquisition Proposals................................. A-24
Section 6.10. No Shopping........................................... A-24
Section 6.11. Parent and Sub Approvals.............................. A-25
Section 6.12. Company Approvals..................................... A-25
Section 6.13. Distribution.......................................... A-25
Section 6.14. Expenses.............................................. A-25
Section 6.15. Further Assurances.................................... A-25
Section 6.16. Hart-Scott-Rodino..................................... A-25
Section 6.17. SBA Approval.......................................... A-26
Section 6.18. Execution of Non-Compete/Non-Solicitation Agreements.. A-26
Section 6.19. East Coast Waiver..................................... A-26
Section 6.20. Compliance with Legal Requirements.................... A-26
Section 6.21. Indemnification of Company Officers and Directors..... A-26
</TABLE>

ii
<PAGE>

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Conditions Precedent to Each Party's Obligation to
ARTICLE VII. Effect the Merger.................................... A-26
Section 7.1. Company Stockholder Approval......................... A-26
Section 7.2. Listing of Shares.................................... A-26
Section 7.3. Hart-Scott-Rodino.................................... A-26
Section 7.4. Effectiveness of Registration Statement.............. A-27
Section 7.5. SBA Approval......................................... A-27
Section 7.6. Litigation........................................... A-27
Conditions Precedent to the Obligation of Parent and
ARTICLE VIII. Sub to Effect the Merger............................. A-27
Section 8.1. Representations and Covenants........................ A-27
Section 8.2. Absence of Material Adverse Change................... A-27
Section 8.3. Receipt of Agreements................................ A-28
Section 8.4. Accountant's Letters................................. A-28
Section 8.5. Dissenting Shares.................................... A-28
Section 8.6. Opinions of Counsel to the Company................... A-28
Section 8.7. Tax Opinion.......................................... A-28
Section 8.8. Closing Conditions................................... A-28
Conditions Precedent to the Obligation of the Company
ARTICLE IX. to Effect the Merger................................. A-28
Section 9.1. Representations and Covenants........................ A-28
Section 9.2. Absence of Material Adverse Change................... A-29
Section 9.3. Receipt of Agreements................................ A-29
Section 9.4. Accountant's Letter.................................. A-29
Section 9.5. Opinion of Counsel to Parent......................... A-29
Section 9.6. Tax Opinion.......................................... A-29
Section 9.7. Fairness Opinion..................................... A-29
Section 9.8. Closing Conditions................................... A-29
ARTICLE X. Closing.............................................. A-29
Survival of Representations and Warranties;
ARTICLE XI. Indemnification...................................... A-29
Section 11.1. Survival of Representations and Warranties........... A-29
ARTICLE XII. Termination of Agreement............................. A-30
Section 12.1. Termination.......................................... A-30
Section 12.2. Effect of Termination................................ A-30
ARTICLE XIII. Definitions.......................................... A-30
Section 13.1. Definitions.......................................... A-30
ARTICLE XIV. Miscellaneous........................................ A-35
Section 14.1. Publicity............................................ A-35
Section 14.2. Notices.............................................. A-35
Section 14.3. Entire Agreement..................................... A-36
Section 14.4. Waivers and Amendments; Non Contractual Remedies;
Preservation of Remedies; Liability................. A-36
Section 14.5. Governing Law........................................ A-36
Section 14.6. Binding Effect; No Assignment........................ A-36
Section 14.7. Third Party Beneficiaries............................ A-36
Section 14.8. Counterparts......................................... A-36
Section 14.9. Exhibits and Schedules............................... A-36
Section 14.10. Headings............................................. A-36
Section 14.11. Submission to Jurisdiction; Venue.................... A-36
Section 14.12. Specific Performance................................. A-37
Section 14.13. Severability......................................... A-37
</TABLE>

iii
<PAGE>

Exhibits

<TABLE>
<C> <S>
Exhibit A Forms of Agreements entered into by each of the Named Executives
Exhibit B Form of East Coast Agreement
Exhibit C Form of Opinion of Berlack, Israels & Liberman LLP as Counsel to the
Company
Exhibit D Form of Opinion of Willkie Farr & Gallagher as Counsel to Parent and
Sub
Exhibit E Form of Affiliate Letter

Company Disclosure Schedule

<CAPTION>
Section Description
------- -----------
<C> <S>
4.4 Foreign Qualification; Organizational Documents
4.5 Stockholders; Option Holders
Subsidiary Qualification; Subsidiary Organizational Documents;
4.7 Investments
4.12 No Material Adverse Change
4.13 Compliance with Laws
4.15 Actions and Proceedings
4.16 Contracts and Other Agreements
4.17 Loan Portfolio
4.18 Real Property
4.21 Bank Accounts
4.23 Employee Benefit Plans
4.25 Insurance
4.26 Officers, Directors, Employees, Consultants
4.27 Transactions with Directors, Officers and Affiliates
4.28 Subsequent Events
4.30 Tax Jurisdictions

Parent Disclosure Schedule

<CAPTION>
Section Description
------- -----------
<C> <S>
5.6 Parent and Sub Organizational Documents
</TABLE>

iv
<PAGE>

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of December
22, 1999, is made by and among Medallion Financial Corp., a Delaware
corporation ("Parent"), FS Merger Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and FreshStart Venture Capital Corp., a New
York corporation (the "Company"). Certain terms used in this Agreement are
defined in Article XIII.

WITNESSETH:

WHEREAS, Parent and Sub desire to effect a business combination by means of
the merger of Sub with and into the Company;

WHEREAS, the Board of Directors of Parent and Sub and the stockholder of Sub
and the Board of Directors of the Company have approved the merger of Sub with
and into the Company (the "Merger"), upon the terms and subject to the
conditions set forth herein;

WHEREAS, as a condition and inducement to Parent to enter into this
Agreement and to incur the obligations set forth herein, Parent and the Company
have entered in the Stock Option Agreement, dated August 12, 1999, between the
Company and Parent (the "Option Agreement"), pursuant to which, among other
things, the Company has granted Parent an option to purchase shares of Company
Common Stock subject to certain conditions;

WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and

WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:

ARTICLE I.

The Merger; Effect of Merger

Section 1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with the applicable provisions of the Delaware
General Corporation Law, as amended, and any rules and regulations thereunder
(the "Delaware Corporation Law") and the New York Business Corporation Law, as
amended, and any rules and regulations thereunder (the "New York Corporation
Law"), Sub shall be merged with and into the Company and the separate existence
of Sub shall thereupon cease. The name of the Company, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall by virtue of the
Merger be changed to such name as Parent, in its sole discretion, may choose.

Section 1.2 Effective Time of the Merger. The Merger shall become effective
at such time as a properly executed Certificate of Merger or other appropriate
document is duly filed with the Secretaries of State of Delaware and New York,
which filing shall be made as soon as practicable following fulfillment or
waiver of the conditions set forth in Articles VII, VIII and IX hereof or such
later time as is specified in such filing (the "Effective Time").

Section 1.3. Effects of Merger.

(a) The Merger shall have the effects set forth in Section 259 of the
Delaware Corporation Law and Section 906 of the New York Corporation Law.

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<PAGE>

(b) By virtue of the approval of the Merger by the holders of Company Common
Stock, the holders of all Company Common Stock immediately prior to the
Effective Time (collectively, the "Company Stockholders" or individually, a
"Company Stockholder"), whether or not such stockholder voted in favor of the
Merger, shall be deemed to have approved the terms and conditions of this
Agreement, including, but not limited to, Article XI of this Agreement.

ARTICLE II.

The Surviving Corporation

Section 2.1 Certificate of Incorporation. The Certificate of Incorporation
of the Company as in effect immediately prior to the Effective Time shall be
the Certificate of Incorporation of the Surviving Corporation, and thereafter
may be amended in accordance with its terms and as provided by the New York
Corporation Law, except as provided by Section 6.21 hereof.

Section 2.2 By-Laws. The by-laws of the Company as in effect immediately
prior to the Effective Time shall be the by-laws of the Surviving Corporation,
and thereafter may be amended in accordance with their terms and as provided by
the New York Corporation Law.

Section 2.3 Officers and Directors. The officers and the directors of Sub
immediately prior to the Effective Time shall be the officers and directors of
the Surviving Corporation after the Effective Time, in each case until their
respective successors are duly elected and qualified.

ARTICLE III.

Conversion of Shares

Section 3.1 Conversion of Shares.

(a) Subject to Sections 3.2 hereof, at the Effective Time, by virtue of
the Merger and without any action on the part of any Company Stockholder:

(1) Conversion of Company Common Stock. Each outstanding share of
Company Common Stock shall be converted into that number of fully paid and
nonassessable shares of Parent Common Stock (or fraction thereof) equal to
the quotient (such quotient, the "Exchange Ratio") obtained by dividing (to
five places after the decimal point):

(a) (x) $4.025 by (y) the average of the closing sale prices per
share of Parent Common Stock on the Nasdaq National Market for the 10
trading days which immediately precede the Business Day three Business
Days preceding the Closing Date (the "Determination Period"); if such
average is between $12.00 and $15.99; or

(b) (x) $4.125 by (y) the average of the closing sale prices per
share of Parent Common Stock on the Nasdaq National Market for the
Determination Period; if such average is between $16.00 and $19.50; or

(c) (x) $4.375 by (y) the average of the closing sale prices per
share of Parent Common Stock on the Nasdaq National Market for the
Determination Period; if such average is between $19.51 and $23.50; or

(d) (x) $4.625 by (y) the average of the closing sale prices per
share of Parent Common Stock on the Nasdaq National Market for the
Determination Period; if such average is between $23.51 and $27.50; or

(e) (x) $4.875 by (y) the average of the closing sale prices per
share of Parent Common Stock on the Nasdaq National Market for the
Determination Period; if such average exceeds $27.51;

A-2
<PAGE>

If the average of the closing sale prices per share of Parent Common Stock
on the Nasdaq National Market for the Determination Period is less than
$12.00, then each outstanding share of Company Common Stock shall be
converted into that number of fully paid and nonassessable shares of Parent
Common Stock (or fraction thereof) equal to the quotient obtained by
dividing (to five places after the decimal point): (x) $4.025 by (y) the
average of the closing sale prices per share of Parent Common Stock on the
Nasdaq National Market for the Determination Period; provided, however,
Parent shall have the right to terminate this Agreement pursuant to Article
XII;

(f) If at any time after the commencement of the Determination
Period, but prior to the Effective Time, the outstanding shares of
Parent Common Stock shall be changed into a different number of shares
or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or
readjustment, or if a stock dividend thereon shall be declared with a
record date within such period, the Exchange Ratio shall be
correspondingly adjusted.

(2) Cancellation of Company Treasury Stock. All shares of Company Common
Stock which are held in the treasury of the Company shall be canceled and
shall cease to exist.

(b) Each issued and outstanding share of capital stock of Sub shall be
converted into one validly issued, fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.

Section 3.2. Appraisal Rights. Notwithstanding anything in this Agreement to
the contrary, but only in the circumstances and to the extent provided by the
New York Corporation Law, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and that are held by Company
Stockholders who were entitled to but did not vote such shares in favor of the
Merger and who shall have properly and timely delivered to the Company a
written demand for appraisal of their shares of Company Common Stock in
accordance with Sections 910 and 623 of the New York Corporation Law
("Dissenting Shares") shall not be converted into the right to receive, or be
exchangeable for, shares of Parent Common Stock. Instead, the holders thereof
shall be entitled to payment of the fair value of such shares in accordance
with the provisions of Sections 910 and 623 of the New York Corporation Law;
provided, however, that (i) if any holder of Dissenting Shares shall
subsequently withdraw his demand for payment of the fair value of such
Dissenting Shares or (ii) if any holder fails to establish and perfect his
entitlement to the relief provided in Sections 910 and 623 of the New York
Corporation Law, the rights and obligations of such holder to receive such fair
value shall terminate, and such Dissenting Shares shall thereupon be deemed to
have been converted into the right to receive, and to have become exchangeable
for, as of the Effective Time, shares of Parent Common Stock in accordance with
Section 3.1(a) hereof. The Company shall give Parent prompt notice of any
demands received by the Company for appraisal of Dissenting Shares, and Parent
shall have the right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the Company will not make
any payment with respect to, or settle or offer to settle, the demands of any
Dissenting Shares without the written consent of Parent. The Company shall
comply with the notice provisions of Section 623 of the New York Corporation
Law.

Section 3.3 Parent to Make Certificates Available.

(a) Prior to the Closing, Parent shall select a person or persons to act as
exchange agent for the Merger (the "Exchange Agent"), which person or persons
shall be reasonably acceptable to the Company. On the Closing Date, Parent
shall deliver to the Exchange Agent, in trust for the benefit of the Company
Stockholders (other than Company Stockholders who hold Dissenting Shares), a
stock certificate (issued in the name of the Exchange Agent or its nominee)
representing the Share Consideration. As soon as reasonably practicable after
the Effective Time but in no event more than five Business Days after the
Effective Time, Parent shall cause the Exchange Agent to send a notice and a
letter of transmittal to each Company Stockholder advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the Exchange
Agent for cancellation such holder's certificates representing Company Common
Stock ("Certificates"), in exchange for the Share Consideration. Each Company
Stockholder will be entitled to receive, upon surrender to the Exchange Agent
for cancellation of one or more Certificates, certificates representing the
number of shares of

A-3
<PAGE>

Parent Common Stock into which such shares are converted in the Merger, without
consideration of fractional shares as provided in Section 3.5. Parent Common
Stock into which Company Common Stock shall be converted in the Merger shall be
deemed to have been issued at the Effective Time (the "Share Consideration").
In the event that any Company Stockholder's Certificates have been lost, stolen
or destroyed, such Company Stockholder will be entitled to receive the Share
Consideration only after providing an affidavit of loss and indemnity bond, in
form satisfactory to the Exchange Agent.

(b) Any Company Stockholder who has not exchanged his Certificates for
Parent Common Stock in accordance with subsection (a) within six months after
the Effective Time shall have no further claim upon the Exchange Agent, and
shall thereafter look only to Parent and the Surviving Corporation for payment
in respect of his shares of Company Common Stock. Until so surrendered,
Certificates shall represent solely the right to receive the Share
Consideration. If any Certificates entitled to payment pursuant to Section 3.1
shall not have been surrendered for such payment prior to such date on which
any payment in respect thereof would otherwise escheat to or become the
property of any Governmental Entity, the shares of Company Common Stock
represented thereby shall, to the extent permitted by applicable law, be deemed
to be canceled and no money or other property will be due to the holder
thereof.

Section 3.4. Dividends; Transfer Taxes. No Distributions that are declared
or made with respect to Parent Common Stock will be paid to persons entitled to
receive certificates representing Parent Common Stock pursuant to this
Agreement until such persons surrender their Certificates. Upon such surrender,
there shall be paid to the person in whose name the certificates representing
such Parent Common Stock shall be issued Distributions which shall have become
payable with respect to such Parent Common Stock in respect of a record date
after the Effective Time. In no event shall the person entitled to receive such
Distributions be entitled to receive interest on such Distributions. In the
event that any certificates for any shares of Parent Common Stock are to be
issued in a name other than that in which the Certificates surrendered in
exchange therefor are registered, it shall be a condition of such exchange that
the Certificate or Certificates so surrendered shall be properly endorsed or be
otherwise in proper form for transfer (including signature guarantee) and that
the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such shares of Parent Common Stock in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to a holder of shares of Company Common Stock for any shares of
Parent Common Stock or dividends thereon delivered to a public official
pursuant to any applicable escheat laws.

Section 3.5. No Fractional Securities. Notwithstanding any other provision
of this Agreement, no certificates or scrip for shares of common stock
representing less than one share of Parent Common Stock shall be issued upon
the surrender for exchange of Certificates pursuant to this Article III and no
Distribution that is declared or made with respect to Parent Common Stock,
stock split or interest shall relate to any fractional security, and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder. Each holder of shares of Company Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Parent Common Stock (after taking into account
all Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to (x) such fractional part of a share of
Parent Common Stock multiplied by (y) the average of the closing sale prices
per share of Parent Common Stock on the Nasdaq National Market for the
Determination Period.

Section 3.6. Closing of Company Transfer Books. Immediately prior to the
Effective Time, the Company Common Stock transfer books shall be closed and no
transfer of Company Common Stock shall thereafter be made.

Section 3.7 Stockholder Approval. The Company shall take all action
necessary, in accordance with applicable law and its Certificate of
Incorporation and By-Laws, to convene a special meeting of the holders of

A-4
<PAGE>

Company Common Stock (the "Company Meeting") as promptly as practicable for the
purpose of considering and taking action upon this Agreement. The Board of
Directors of the Company has approved the Merger and adopted this Agreement and
recommended that holders of Company Common Stock vote in favor of and approve
the Merger and the adoption of this Agreement at the Company Meeting.

Section 3.8. Tax Treatment. The Merger is intended to constitute a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, and
Parent and the Company shall not report the transaction on any tax return in a
manner or take any action inconsistent therewith.

ARTICLE IV.

Representations and Warranties of the Company

The Company represents and warrants to Parent and Sub that, except as set
forth in the disclosure schedule attached hereto (the "Company Disclosure
Schedule"), which Company Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV and may be amended from time to time pursuant to the provisions hereof:

Section 4.1. Execution and Delivery. The Company has the corporate power and
authority to enter into this Agreement and each agreement, document or
instrument contemplated hereby or to be executed in connection herewith to
which the Company is a party (the "Company Documents") and, subject to approval
of this Agreement by the holders of the Company Common Stock, to carry out its
obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and the Company Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Company's Board of Directors. This Agreement constitutes the
valid and binding obligation of the Company and the Company Documents, when
executed and delivered, will constitute the valid and binding obligations of
the Company, in each case enforceable in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. Except for the approval of the holders of a
majority of the outstanding shares of Company Common Stock, no other corporate
proceedings on the part of the Company are necessary after the date of this
Agreement to authorize this Agreement and the Company Documents and the
transactions contemplated hereby and thereby.

Section 4.2. Consents and Approvals. The execution and delivery by the
Company of this Agreement and the Company Documents, the performance by the
Company of its obligations hereunder and thereunder, and the consummation by
the Company of the transactions contemplated hereby and thereby, as the case
may be, do not require the Company to obtain any consent, approval or action
of, or make any filing or registration with, or give any notice to, any person
or any Governmental Entity, other than (i) in connection, or in compliance,
with the provisions of the H-S-R Act, if applicable, and the Exchange Act,
which will be duly obtained or made, as the case may be, on or prior to the
Closing, and will be in full force and effect on the Closing Date, (ii) in the
case of the performance by the Company of its obligations hereunder and under
the Company Documents and the consummation by the Company of the transactions
contemplated hereby and by the Company Documents, the approval of the holders
of the Company Common Stock as specified in Section 4.1, (iii) the approval of
the United States Small Business Administration (the "SBA") and (iv) the filing
of the Certificate of Merger with the Secretaries of State of Delaware and New
York.

Section 4.3 No Breach. The execution, delivery and performance by the
Company of this Agreement and the Company Documents and the consummation by the
Company of the transactions contemplated hereby and thereby in accordance with
the terms and conditions hereof and thereof will not (i) violate any provision
of the Certificate of Incorporation or By-Laws of the Company; (ii) violate,
conflict with or result in the breach of any of the terms of, result in any
modification of the effect of, otherwise give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both,
constitute) a default under, any contract

A-5
<PAGE>

or other agreement or instrument to which the Company is a party or by or to
which the assets or properties of the Company may be bound or subject; (iii)
violate any order, judgment, injunction, award or decree of any Governmental
Entity against, or binding upon, or any agreement with, or condition imposed
by, any Governmental Entity, binding upon the Company, or upon the securities,
assets or business of the Company; (iv) violate any statute, law or regulation
of any jurisdiction as such statute, law or regulation relates to the Company,
or to the securities, assets or business of the Company; (v) result in the
creation or imposition of any lien or other encumbrance or the acceleration of
any indebtedness or other obligation of the Company; or (vi) result in the
breach of any of the terms or conditions of, constitute a default under, or
otherwise cause a violation of, any Permit of the Company; except in the case
of (ii) through (vi) above, for violations, conflicts, breaches, defaults,
modifications, impairments, liens or other encumbrances that would not,
individually or in the aggregate, have a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities,
operations or prospects of the Company, or adversely affect the consummation of
the transactions contemplated hereby (a "Company Material Adverse Effect").

Section 4.4. Organization, Standing and Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of New York and has all requisite corporate power and
authority to own, lease and operate its assets, properties and business and to
carry on its business as now being conducted or currently proposed to be
conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of such activities make
such qualification necessary, except where the failure to so qualify would not,
individually or in the aggregate, have a Company Material Adverse Effect. All
such jurisdictions are set forth on Section 4.4 of the Company Disclosure
Schedule. The copies of the Certificate of Incorporation and By-Laws of the
Company included as part of Section 4.4 of the Company Disclosure Schedule
constitute accurate and complete copies of such organizational instruments and
accurately reflect all amendments thereto through the date hereof.

Section 4.5. Capitalization of the Company. The authorized capital stock of
the Company consists of 5,000,000 shares of Company Common Stock and 10,000,000
shares of Company Preferred Stock. As of the date of this Agreement there were
2,172,688 shares of Company Common Stock and 1,410,000 shares of Company
Preferred Stock outstanding. As of the date hereof, there are no bonds,
debentures, notes or other indebtedness having the right to vote on any matters
on which the Company's stockholders may vote issued or outstanding.

Section 4.6. Options and Other Stock Rights. Except for options to purchase
Company Common Stock pursuant to the Stock Option Agreement, between the
Company and Parent, dated August 17, 1999, there is no (i) outstanding option,
warrant, call, unsatisfied preemptive right or other agreement of any kind to
purchase or otherwise to receive from the Company any of the outstanding,
authorized but unissued, unauthorized or treasury shares of Company Common
Stock, Company Preferred Stock or any other security of the Company, (ii)
outstanding security of any kind convertible into any security of the Company,
and (iii) outstanding contract or other agreement to purchase, redeem or
otherwise acquire any outstanding shares of Company Common Stock, Company
Preferred Stock or any other security of the Company.

Section 4.7. Subsidiaries.

(a) The Company does not have any direct or indirect Subsidiaries.

(b) As of the date hereof, the Company has not made any advances to or
investments in, and does not own any securities of or other interests in, any
other person.

Section 4.8. Corporate Records. The minute books of the Company reflect, for
the period beginning three years prior to the date hereof through and including
the date hereof, and true and complete copies of all

A-6
<PAGE>

such records have heretofore been delivered to Parent, all as in effect on the
date hereof. For the period beginning on the date of the Company's
incorporation through and including the date three years prior to the date
hereof, to the best of the Company's knowledge, the minute books of the Company
reflect all actions taken at all meetings, and by consents in lieu of meetings,
of the stockholders of the Company, the Board of Directs of the Company and all
committees thereof.

Section 4.9. Information in Disclosure Documents. None of the information
with respect to the Company to be included in (i) the joint prospectus/proxy
statement of the Company and Parent (the "Proxy Statement") required to be
mailed to the stockholders of the Company in connection with the Merger and
(ii) the Registration Statement to be filed with the Commission by Parent on
Form N-14 under the Securities Act for the purpose of registering the shares of
Parent Common Stock to be issued in the Merger (the "Registration Statement")
will, in the case of the Proxy Statement or any amendments or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments
or supplements thereto, and at the time of the Company Meeting, or, in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Date, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that this provision shall not
apply to statements or omissions in the Registration Statement or Proxy
Statement based upon information furnished by Parent for use therein. The Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act and the rules and regulations thereunder. No representation
or warranty made by the Company contained in this Agreement and no statement
contained in any certificate, list, exhibit or other instrument specified in
this Agreement, including without limitation the Company Disclosure Schedule,
as the same may be amended pursuant to the provisions hereof, contains any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.

Section 4.10. SEC Documents; Financial Statements.

(a) The Company has filed and will file with the SEC all forms, reports,
schedules, statements, exhibits and other documents (other than registration
statements on Form S-8 or reports on Form 11-K, in each case relating to
employee benefit plans) (collectively, the "Company SEC Documents") required to
be filed on or before the date hereof or the Closing Date, respectively, by it
under the Securities Act or the Exchange Act. The Company has furnished or made
available to Parent true and correct copies of all Company SEC Documents filed
by the Company since June 1, 1998 and will promptly furnish to Parent any other
Company SEC Document filed by or on behalf of the Company with the SEC from the
date hereof to the Closing Date. At the time filed, the Company SEC Documents
filed by the Company since June 1, 1998 (i) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (ii)
complied in all material respects with the applicable requirements of the
Securities Act or Exchange Act, as the case may be.

(b) The audited consolidated financial statements of the Company for the
three years ended May 31, 1999, together with the reports and opinions thereon
of Michael C. Finkelstein and the unaudited consolidated financial statements
of the Company for the three months ended August 31, 1999 (the "Company Interim
Financial Statements"), which are included in the Company SEC Documents and
have previously been delivered to Parent, are collectively referred to herein
as the "Company Financial Statements". The Company Financial Statements comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto; and fairly
present, in all material respects, on a consolidated basis, the financial
position of the Company at, and the results of its operations for, each of the
periods then ended and were prepared in conformity with GAAP applied on a
consistent basis, except as otherwise disclosed therein and, subject, in the
case of the Company Interim Financial Statements, to normal year-end
adjustments, the absence of footnote disclosures, and any other adjustments
described therein.

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(c) As at November 30, 1999, and as reflected in the Company's Form 10-Q,
which will be filed on or before January 15, 2000, the Company had a total
stockholders' equity of at least $8,480,000, including $1,410,000 of Company
Preferred Stock, and minimum total investments at book value of at least
$23,000,617, which is net of participations of $15,628,448 and a reduction of
$751,000 to state investments at fair value (compared to a fair value
adjustment to book value of $316,000, at August 31, 1999, resulting in a net
adjustment of $435,000, during the quarter ended at November 30, 1999).

Section 4.11. Liabilities.

(a) The Company does not have any direct or indirect liability, contingent
or otherwise, that is required by GAAP to be reflected or reserved for on the
financial statements of the Company (collectively, the "Liabilities"), that was
not adequately reflected or reserved against on the Audited Financial
Statements for the period ended May 31, 1999 or on the Company Interim
Financial Statements for the three-month period ended August 31, 1999, other
than (i) liabilities incurred in the ordinary course of business since June 1,
1999 consistent with past practices, or (ii) liabilities permitted by this
Agreement to be incurred in connection with the transactions contemplated by
this Agreement.

(b) No payments are due to the SBA as a result of the transactions
contemplated hereby, including, without limitation, any accrued interest or
dividends resulting from the Company's previous repurchase of its 3% preferred
stock from the SBA.

Section 4.12. No Material Adverse Change. Except as disclosed in Section
4.12 of the Company Disclosure Schedule, since August 31, 1999, there has been
no material adverse change in the management, assets, Liabilities, properties,
business, operations, financial condition, results of operations or prospects
of the Company.

Section 4.13. Compliance with Laws. Except as disclosed in Section 4.13 of
the Company Disclosure Schedule, the Company is not in violation of any
applicable order, judgment, injunction, award or decree, law, ordinance or
regulation or any other requirement of any Governmental Entity applicable to
the Company or any of its businesses. The Company has not received notice that
any such violation has been alleged or is being investigated.

Section 4.14. Permits. The Company has obtained all Permits that are
necessary for the ownership and conduct of its businesses as presently
conducted or currently proposed to be conducted, other than any Permits, the
absence of which would not, individually or in the aggregate, have a Company
Material Adverse Effect; such Permits are in full force and effect and are
sufficient for the ownership and conduct of such businesses as presently
conducted or currently proposed to be conducted; no violations exist or have
been recorded in respect of any Permit; and no proceeding is pending or, to the
knowledge of the Company, threatened, that would suspend, revoke or limit any
Permit.

Section 4.15. Actions and Proceedings. There are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental Entity against or
involving the Company or any of its directors, officers or employees (in their
capacities as such). Except as disclosed in Section 4.15 of the Company
Disclosure Schedule, as of the date of this Agreement there is no claim,
action, suit, litigation, legal, administrative or arbitration proceeding,
whether formal or informal (including, without limitation, any claim or notice
of intent to institute any matter), which is pending or, to the Company's
knowledge, threatened against or involving the Company or any of its directors,
officers or employees (in their capacities as such) or properties, capital
stock or assets.

Section 4.16. Contracts and Other Agreements.

(a) Section 4.16 of the Company Disclosure Schedule sets forth as of the
date of this Agreement each contract and other agreement as described below
(whether or not in writing) which is currently in effect (unless indicated
otherwise below) to which the Company is a party or by or to which its assets
or properties are bound, excluding agreements with portfolio companies included
in the Company's investment portfolio:

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(i) contracts and other agreements with any current or former officer,
director, employee, consultant, agent or other representative of the
Company, other than pursuant to Plans described in Section 4.23 of the
Company Disclosure Schedule;

(ii) contracts and other agreements with any labor union or association
representing any employee;

(iii) contracts and other agreements for the purchase or sale of
equipment or services, which involve the receipt or payment by the Company
of an amount in excess of $2,000 per month (in the aggregate in the case of
any related series of contracts and other agreements);

(iv) contracts and other agreements for the sale of any of the assets or
properties of the Company or for the grant to any person of any
preferential rights to purchase any of the assets or properties of the
Company, which involve the receipt or payment by the Company of an amount
in excess of $10,000 (in the aggregate in the case of any related series of
contracts and other agreements);

(v) contracts and other agreements calling for an aggregate purchase
price or payments in any one year of more than $10,000 payable by the
Company in any one case (in the aggregate in the case of any related series
of contracts and other agreements);

(vi) contracts and other agreements, whether or not currently in effect,
relating to the acquisition by the Company of any business of, or the
disposition of any business involving the Company to, any other person;

(vii) contracts relating to the disposition or acquisition of any
investment or of any interest in any person, which involved the receipt or
payment by the Company of an amount in excess of $10,000 (in the aggregate
in the case of any related series of contracts and other agreements);

(viii) joint venture and similar agreements which would involve the
receipt or payment by the Company of an amount in excess of $50,000 (in the
aggregate in the case of any related series of contracts or other
agreements);

(ix) contracts and other agreements, whether or not currently in effect,
under which the Company agreed to indemnify any party or to share tax
liability of any party, which could involve the payment by the Company of
an amount in excess of $10,000 (in the aggregate in the case of any related
series of contracts or other agreements);

(x) contracts and other agreements containing covenants of the Company,
or, to the Company's knowledge, its officers, directors or employees, not
to compete in or solicit employees in any line of business or with any
person in any geographical area or covenants of any other person not to
compete with or solicit employees from the Company in any line of business
or in any geographical area;

(xi) contracts and other agreements relating to the making of any loan
or other extension of credit by the Company or of any loan by the Company
to a stockholder, officer or director of the Company or from a stockholder
of the Company to the Company;

(xii) contracts and other agreements relating to the borrowing of money
by, or indebtedness of, the Company or the direct or indirect guaranty by
the Company of any obligation or indebtedness of any other person or
Governmental Entity (other than any accounts receivable or accounts payable
of the Company), including, without limitation, any (a) agreement or
arrangement relating to the maintenance of compensating balances, (b)
agreement or arrangement with respect to lines of credit, (c) agreement to
advance or supply funds to any other person other than in the ordinary
course of business, (d) agreement to pay for property, products or services
of any other person even if such property, products or services are not
conveyed, delivered or rendered, (e) keep-well, make-whole or maintenance
of working capital or earnings or similar agreement, and (f) guaranty with
respect to any lease or other similar periodic payments to be made by any
such person;

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(xiii) contracts and other agreements relating to the provision by or to
the Company of third party management or administration services, which
involve the receipt or payment by the Company of an amount in excess of
$10,000 (in the aggregate in the case of any related series of contracts
and other agreements);

(xiv) each Lease and lease of personal property which requires annual
lease payments in excess of $10,000;

(xv) contracts and other agreements pursuant to which the Company
obtains or grants insurance or reinsurance;

(xvi) contracts and other agreements between the Company and any
Governmental Entity;

(xvii) contracts and other agreements which require payments generated
by a change in control of the Company;

(xviii) contracts and other agreements with any stockholder, director or
officer of the Company; and

(xix) contracts and other agreements, whether or not currently in
effect, relating to disposal of any controlled or hazardous substance or
waste.

(c) There have been made available to Parent prior to the date hereof true
and complete copies of all of the contracts and other agreements set forth in
Section 4.16 of the Company Disclosure Schedule. Each such contract and other
agreement is valid, in full force and effect and binding upon the Company and,
to the Company's knowledge, the other parties thereto in accordance with its
terms, and the Company is not in default under any of them and the Company has
no knowledge of any threat of cancellation or termination thereunder, nor will
the consummation of the transactions contemplated by this Agreement result in
a default under any such contract or other agreement or the right to terminate
such contract or other agreement. No Permits or other documents or agreements
with, or issued by or filed with, any person, have been granted to any other
person that provide the right to use any real or tangible personal property
comprising any portion of the assets of the Company. The Company is not a
party to any contract, commitment, arrangement or agreement which would,
following the Closing, restrain or restrict Parent or any affiliate of Parent,
from operating the business of the Company in the manner in which it is
currently operated.

Section 4.17. Investment Portfolio.

(a) The Company's investment portfolio was acquired in the ordinary course
of business, and a true and complete list of the investments in such
portfolio, as of the date hereof, with information included thereon as to the
principal terms of, interest rate, and maturity date thereof, and type and
value of collateral thereon (if any), as of such date, is listed in Section
4.17 of the Company Disclosure Schedule. Except as disclosed in Section 4.17
of the Company Disclosure Schedule, none of the investments included in such
portfolio is in default in the payment of principal or interest or materially
impaired. By virtue of the preemption provisions contained in the Small
Business Investment Act of 1958, the loans included in the Company's
investment portfolio need not comply with the laws and regulations of each of
the various states in which the Company does business or in which the
Company's borrowers are located.

(b) Section 4.17 of the Company Disclosure Schedule sets forth as of the
date of this Agreement each contract and other agreement between the Company
and the portfolio companies in which it has invested. Each such contract and
other agreement is valid, in full force and effect and binding upon the
Company and, to the Company's knowledge, the other parties thereto in
accordance with its terms, and the Company is not in default under any of them
and the Company has no knowledge of any threat of cancellation or termination
thereunder, nor will the consummation of the transactions contemplated by this
Agreement result in a default under any such contract or other agreement or
the right to terminate such contract or other agreement.

Section 4.18. Real Property.

(a) Section 4.18 of the Company Disclosure Schedule sets forth a list and
summary description of all leases, subleases, licenses, occupancy agreements
or other agreements, written and oral, together with any

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amendments or modifications thereto (each a "Lease" and collectively, the
"Leases") with respect to (A) all real property leased by the Company (whether
as lessor or lessee and including those in the names of nominees or other
entities) and used or occupied in connection with the business of the Company
(the "Leased Real Property") and (B) all real property leased or subleased by
the Company, as lessor or sublessor, to third parties (such Section 4.18 of the
Company Disclosure Schedule to include the date of each Lease, the address of
the respective Leased Real Property, the amount of square feet of such Leased
Real Property, the Lease term commencement date, the Lease term expiration
date, any renewal options and any early termination provisions in each case
with respect to each portion of the Leased Real Property). The Company does not
own any real property.

(b) Each Lease is, with respect to the Company, in full force and effect,
and to the Company's knowledge, is in full force and effect with respect to
each other party thereto. The Company has performed all obligations required to
be performed by it to date under, and is not in default in respect of, any
Lease, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default by the Company. To the knowledge of the
Company, there is no default asserted thereunder by any other party thereto and
there are no unasserted defaults. All rentals and other payments due under each
such Lease have been duly paid.

(c) The Company has not received any notice of any violation of any
applicable building, zoning, land use or other similar statutes, laws,
ordinances, regulations, permits or other requirements (including, without
limitation, the Americans with Disabilities Act) in respect of the Leased Real
Properties, which has not been heretofore remedied, and there does not exist
any such violations which, individually or in the aggregate, could have a
Company Material Adverse Effect. The Company has not received any notice that
any operations on or uses of the Leased Real Properties constitute non-
conforming uses under any applicable building, zoning, land use or other
similar statutes, laws, ordinances, regulations, permits or other requirements.
The Company has no knowledge of nor has received any notice (other than
published notice not actually received) of any pending or contemplated rezoning
proceeding affecting the Leased Real Properties.

(d) The Company has not received notice from any insurance carrier regarding
defects or inadequacies in the Leased Real Properties, which, if not corrected,
would result in termination of the Company's insurance coverage therefor or an
increase in the cost thereof.

(e) To the knowledge of the Company, there is no pending or threatened: (i)
condemnation of any part of the Leased Real Properties by any Governmental
Entity; (ii) special assessment against any part of the Leased Real Properties;
or (iii) litigation against the Company for breach of any restrictive covenant
affecting any part of the Leased Real Properties.

(f) The improvements at the Leased Real Properties are in good condition and
repair, ordinary wear and tear excepted, and have not suffered any casualty or
other damage which has not been repaired.

Section 4.19. Intellectual Property.

The Company owns, or is licensed or otherwise has adequate right to use, all
patents, patent rights, trademarks, trademark rights, service marks, service
mark rights, trade names, trade name rights, copyrights, know-how, technology,
trade secrets and other proprietary information (collectively, the
"Intellectual Property Rights") which are material to the conduct of the
business of the Company. No claims have been asserted by any Person, and the
Company has not asserted a claim against any Person, with respect to any of the
Intellectual Property Rights owned or used by the Company, challenging or
questioning the validity or effectiveness of any license or agreement relating
thereto to which the Company is a party, in any case that would be reasonably
likely to have a Material Adverse Effect on the Company.

Section 4.20. Receivables. All accounts receivable and vendor receivables
reflected in the Company Interim Financial Statements, and all accounts
receivable and vendor receivables arising subsequent to August 31, 1999,
represent bona fide transactions that have arisen in the ordinary course of
business, are valid and

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existing and represent moneys due. The Company has made and will make
adjustments to the carrying value of such receivables reasonably considered
adequate for receivables not collectible in the ordinary course of its business
in accordance with GAAP, consistently applied.

Section 4.21. Banking. Section 21 of the Company Disclosure Schedule
contains a complete list of all of the bank accounts and lines of credit owned
or used by the Company, and the names of all persons with authority to withdraw
funds from, or execute drafts or checks on, each such account.

Section 4.22. Liens. The Company has good and marketable title to all of its
respective assets and properties, in each case free and clear of any lien or
other encumbrance, except for (i) liens or other encumbrances securing taxes,
assessments, governmental charges or levies, or the claims of materialmen,
carriers, landlords and like persons, all of which are not yet delinquent or
which are being contested in good faith or (ii) liens or other encumbrances of
a character that do not detract from the value of the property subject thereto
or impair the use of or the access to the property subject thereto, or impair
the operation of the Company or detract from its business.

Section 4.23 Employee Benefit Plans.

(a) Section 4.23(a) of the Company Disclosure Schedule sets forth all
"employee benefit plans", as defined in Section 3(3) of ERISA, and all other
employee benefit arrangements or payroll practices, including, without
limitation, any such arrangements or payroll practices providing severance pay,
sick leave, vacation pay, salary continuation for disability, retirement
benefits, deferred compensation, bonus pay, incentive pay, stock options,
hospitalization insurance, medical insurance, life insurance, scholarships or
tuition reimbursements, maintained by the Company or to which the Company is
obligated to contribute thereunder for current or former employees of the
Company or to which the Company has contributed or has been obligated to
contribute thereunder within the six-year period preceding the date hereof.
Each of the employee benefit plans, practices and arrangements set forth in
Section 4.23 of the Company Disclosure Schedule shall hereafter be referred to
as a "Plan" (or "Plans" as the context may require).

(b) None of the Plans is a "multiemployer plan," as defined in Section 3(37)
of ERISA or a "defined benefit plan," as defined in Section 3(35) of ERISA.

(c) Each of the Plans that are intended to qualify under Section 401(a) of
the Code, and the trusts maintained pursuant thereto, have been determined to
be exempt from federal income taxation under Section 501 of the Code by the IRS
(or remain within the remedial amendment period for obtaining an initial
determination of exemption from tax), and nothing has occurred with respect to
the operation of any such Plan which could cause the loss of such qualification
or exemption or the imposition of any liability, penalty or tax under ERISA or
the Code.

(d) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under the Plans or
by law to any funds or trusts established thereunder or in connection therewith
have been made by the due date thereof (including any valid extensions), and
all contributions for any period ending on or before the Effective Time which
are not yet due will have been paid or accrued on or prior to the Effective
Time.

(e) There has been no violation of ERISA, the Code or other applicable law
with respect to the filing of applicable reports, documents and notices
regarding the Plans with the Secretary of Labor or the Secretary of the
Treasury, or the furnishing of required reports, documents or notices to the
participants or beneficiaries of the Plans.

(f) True, correct and complete copies of the following documents, with
respect to each of the Plans, have been delivered to Parent by the Company: (i)
all plans and related trust documents, and amendments thereto; (ii) the most
recent IRS Forms 5500; (iii) the last IRS determination letter; and (iv)
summary plan descriptions.

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(g) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Plans, the assets of any of the trusts under
such plans or the plan sponsor or the plan administrator, or against any
fiduciary of the Plans with respect to the operation of such Plans (other than
routine benefit claims or actions seeking qualified domestic relations orders),
nor does the Company have knowledge of any threatened claim or lawsuit.

(h) The Plans have been maintained in accordance with their terms and with
all provisions of ERISA and the Code (including rules and regulations
thereunder) and other applicable federal and state laws and regulations, and
neither the Company nor any "party in interest" or "disqualified person" with
respect to the Plans has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or 4975 of the Code that could result in
liability to the Company or Parent. No fiduciary has any liability for breach
of fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any Plan.

(i) None of the Plans provide retiree life or retiree health benefits except
as may be required under applicable state law, Section 4980B of the Code or
Section 601 of ERISA or at the expense of the participant or the participant's
beneficiary. The Company have complied with the notice and health care
continuation requirements of Section 4980B of the Code and Sections 601 through
608 of ERISA.

(j) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any employee (current, former or retired) of the
Company, (ii) increase any benefits otherwise payable under any Plan or (iii)
result in the acceleration of the time of payment or vesting of any benefits
under any Plan.

Section 4.24. Employee Relations.

(a) The Company is in compliance with all laws regarding employment, wages,
hours, equal opportunity, collective bargaining and payment of social security
and other taxes. The Company is not engaged in any unfair labor practice or
discriminatory employment practice and no complaint of any such practice
against the Company has been filed or, to the Company's knowledge, threatened
to be filed with or by the National Labor Relations Board, the Equal Employment
Opportunity Commission or any other administrative agency, federal or state,
that regulates labor or employment practices, nor is any grievance filed or, to
the Company's knowledge, threatened to be filed, against the Company by any
employee pursuant to any collective bargaining or other employment agreement to
which the Company is a party or is bound. The Company is in compliance with all
applicable foreign, federal, state and local laws and regulations regarding
occupational safety and health standards, and has received no complaints from
any foreign, federal, state or local agency or regulatory body alleging
violations of any such laws and regulations.

(b) The employment of all persons employed by the Company is terminable at
will without any penalty or severance obligation of any kind on the part of the
employer. All sums due for employee compensation and benefits and all vacation
time owing to any employees of the Company have been duly and adequately
accrued on the accounting records of the Company. All employees of the Company
are either United States citizens or resident aliens specifically authorized to
engage in employment in the United States in accordance with all applicable
laws.

Section 4.25. Insurance. Section 4.25 of the Company Disclosure Schedule
sets forth a list of all policies or binders of errors and omissions, fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the Company (collectively, the "Insurance
Policies"). Such Insurance Policies are in full force and effect and are in
amounts of a nature which are adequate and customary for the Company's
business. In addition, Section 4.25 of the Company Disclosure Schedule sets
forth in respect of the Insurance Policies (i) a description of occurrences
reported involving amounts in excess of $10,000 and (ii) the aggregate amount
paid out under each such policy during the period from January 1, 1995 through
the date hereof. There have been no disputes regarding denial or nonpayment of
claims under any Insurance Policy.

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Section 4.26. Officers, Directors, Employees, Consultants. Section 4.26 of
the Company Disclosure Schedule sets forth (i) the name of each officer and
director of the Company and the amount of compensation paid during fiscal 1999
and the amount reasonably expected to be paid during fiscal 2000, (ii) the name
of each other employee or class of employees of the Company who either (x)
received compensation in fiscal 1999 in excess of $25,000 or (y) is anticipated
to receive, based on current compensation levels, compensation in fiscal 2000
in excess of $25,000, indicating the amount of such compensation for such
persons for fiscal 1999 and fiscal 2000; and (iii) a list of all employees
employed by the Company at November 30, 1999. The Company does not employ any
person as a consultant, whose employment cannot be terminated on not less than
30 days' notice without penalty.

Section 4.27. Transactions with Directors, Officers and Affiliates. Except
as disclosed in the Company SEC Documents or in Section 4.27 of the Company
Disclosure Schedule, since January 1, 1998, there have been no transactions
between the Company and any director, officer, employee, stockholder or other
affiliate of the Company or loans, guarantees or pledges to, by or for the
Company from, to, by or for any of such persons. Since January 1, 1998, other
than as disclosed in the Company SEC Documents or on Section 4.27 of the
Company Disclosure Schedule, none of the officers, directors or employees of
the Company, or any spouse or relative of any of such persons, has been a
director or officer of, or has had any direct or indirect interest in, any
firm, corporation, association or business enterprise which during such period
has been a supplier, customer or sales agent of the Company or has competed
with or been engaged in any business of the kind being conducted by the
Company, except for an investment in less than 5% of the outstanding equity of
any such firm, corporation, association or business enterprise, the equity of
which is publicly traded.

Section 4.28. Operations of the Company. Except as disclosed in Section 4.16
or 4.28 of the Company Disclosure Schedule and except as may result from the
transactions contemplated by this Agreement, since May 31, 1999, the Company
has not:

(i) amended its Certificate of Incorporation or by-laws or merged with
or into or consolidated with any other person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to change
in any manner the rights of its outstanding capital stock or the character
of its business;

(ii) issued or sold or purchased, or issued options or rights to
subscribe to, or entered into any contracts or commitments to issue or sell
or purchase, any shares of its capital stock or any of its bonds, notes,
debentures or other evidences of indebtedness;

(iii) entered into or amended any agreement with any labor union or
association representing any employee, or, except for Plans referred to in
Section 4.23 of the Company Disclosure Schedule, made any wage or salary
increase or bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, directors, employees,
consultants, agents or other representatives in excess of $10,000, or
commitment or agreement to make or pay the same;

(iv) except in the ordinary course of business consistent with past
practice, declared or made any Distributions to any stockholder or made any
direct or indirect redemption, retirement, purchase or other acquisition of
any shares of its capital stock;

(v) made any change in its accounting methods or practices or made any
change in depreciation or amortization policies, except as required by law
or GAAP;

(vi) made any loan or advance to its stockholders or to any of the
directors, officers or employees of the Company, consultants, agents or
other representatives, or otherwise than in the ordinary course of business
made any other loan or advance;

(vii) except in the ordinary course of business consistent with past
practice, (A) entered into any Lease; (B) sold, abandoned or made any other
disposition of any of its assets or properties; (C) granted or suffered any
lien or other encumbrance on any of its assets or properties; (D) entered
into or amended any

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contract or other agreement to which it is a party, or by or to which it or
its assets or properties are bound or subject which if existing on the date
hereof would need to be disclosed in Section 4.16 of the Company Disclosure
Schedule;

(viii) made or entered into any agreement to make any acquisition of all
or a substantial part of the assets, properties, securities or business of
any other person, other than investments in portfolio companies identified
on Section 4.17 of the Company Disclosure Schedule;

(ix) paid, directly or indirectly, any of its Liabilities before the
same became due in accordance with its terms or otherwise than in the
ordinary course of business;

(x) terminated or failed to renew, or received any written threat (that
was not subsequently withdrawn) to terminate or fail to renew, any contract
or other agreement that is or was material to the assets, liabilities,
properties, business, operations, condition (financial or otherwise),
operations or prospects of the Company;

(xi) made any revaluation of any assets or write-down of the value of
any receivables of the Company in excess of $10,000, other than
revaluations of the Company's investment portfolio on a quarterly basis in
the normal course of business consistent with past practice;

(xii) except in the ordinary course of business consistent with past
practice, accelerated the collection, or sale to third parties, of any
receivables of the Company, or delayed the payment of any payables of the
Company;

(xiii) entered into any other contract or other agreement or other
transaction that obligates the Company to pay an amount in excess of
$10,000, which contract is not terminable by the Company upon not more than
30 days' notice; or

(xiv) suffered any damage, destruction or loss, whether covered by
insurance or not, which has had or could have a Company Material Adverse
Effect.

Section 4.29. Brokerage. Except for First Colonial Securities Group, no
broker, agent or finder has acted, directly or indirectly, for the Company or,
to the knowledge of the Company, any of the Company Stockholders, nor has the
Company or, to the knowledge of the Company, any of the Company Stockholders,
incurred any obligation to pay any brokerage fee, agent's commission or
finder's fee or other commission in connection with the transactions
contemplated by this Agreement.

Section 4.30. Taxes.

(a) The Company has duly and timely filed all federal, state, local, foreign
and other tax returns and reports required to be filed by it on or before the
date hereof, and has either (i) paid all Taxes of the Company due and payable
or (ii) has accrued on the consolidated balance sheet of the Company included
in the Company Interim Financial Statements previously furnished to Parent (in
accordance with GAAP applied on a basis consistent with that of prior years)
all Taxes required to be accrued by the Company on or before the date hereof.
All of such returns or reports are true, accurate and complete and reflect the
Tax liability in all material respects for which the Company could be held
responsible and all Taxes for which the Company could be held responsible as
shown on such returns or reports as due and payable have been paid.

(b) The Company is not delinquent in the payment of any Taxes for which the
Company could be held responsible, nor has the Company requested any extension
of time within which to file any Tax return which return has not since been
filed, nor has the Company waived or tolled the running of any statute of
limitations with respect to any such Taxes.

(c) No deficiency for any Tax has been threatened, asserted or assessed
against the Company, and there are neither unresolved questions or claims, nor
proceedings or actions pending (including an audit of any tax return filed by
the Company with any federal, state, local or foreign taxing authority),
concerning either the Tax liability of the Company or the collection or
assessment of any Tax for any period for which returns have been filed or were
due.

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(d) The Company has delivered to Parent true and correct copies of any filed
tax returns (including information returns and Forms 1120) of the Company which
refer to any period of time from June 1, 1994, through the date of this
Agreement or to any event which occurred during that period of time. The
Company has not filed an election under Section 341(f) of the Code that is
applicable to the Company or any asset held by the Company. In addition, none
of the Company's debt is corporate acquisition indebtedness within the meaning
of Section 279 of the Code. The Company has not agreed, nor is required, to
make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. The Company is not subject to or a member of
any joint venture, partnership or other arrangement or contract which is
treated as a partnership for federal income tax purposes. The Company has
withheld and, if due, paid all Taxes required to have been withheld and, if
due, paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party. There are no pending
claims or assessments for Taxes payable by the Company. Neither the Company nor
any of its affiliates has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

(e) Section 4.30 of the Company Disclosure Schedule lists each state in
which the Company is required to file Tax returns.

(f) Except as disclosed in Section 4.30 of the Company Disclosure Schedule,
the amount of the Company's earnings and profits, as defined for purposes of
Subchapter C of the Code, at the end of fiscal year 1999, is set forth on, or
can be determined from the information set forth in, the financial statements
of the Company for the year ended May 31, 1999 and/or the income tax returns
(including information returns and Forms 1120) of the Company through the date
hereof, furnished to Parent by the Company. It is not anticipated that there
will be any change in any such amount other than by virtue of the ordinary
conduct of the Company's business from May 31, 1999 through the date of the
Closing.

(g) The Company intends to elect regulated investment company status under
Subchapter M of the Code for its fiscal year ending May 31, 2000.

(h) For each taxable year of its operation, the Company has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company; all of the Company's issued and outstanding
shares have been offered and sold in compliance in all material respects with
applicable federal and state securities laws.

Section 4.31. Execution and Validity of Agreements with Executives. The
Company is not a party to any contract, commitment, arrangement or agreement
which could, following the Closing, restrain or restrict the parties to the
Agreements with Executives from performing their respective obligations
thereunder.

Section 4.32. Environmental Laws.

(a) The Company (i) is in compliance in all respects with all Environmental
Laws; (ii) has obtained all necessary Environmental Permits, the failure of
which to obtain could have a Company Material Adverse Effect, all of which are
in full force and effect; and (iii) is in compliance with all terms and
conditions of such Environmental Permits.

(b) The Company has not violated or done any act which could give rise to
material liability under, and has not otherwise failed to act in a manner which
would expose it to material liability under, any Environmental Law. No event
has occurred which, upon the passage of time, the giving of notice, or failure
to act would reasonably be expected to give rise to material liability to the
Company under any Environmental Law.

(c) To the Company's knowledge, no Hazardous Material has been released,
spilled, discharged, dumped, disposed of, or otherwise come to be located in,
at or beneath any of the Leased Real Property or any properties or assets
formerly owned, operated or otherwise controlled by the Company and used in the
conduct of the Company's business (i) in violation of any Environmental Law, or
(ii) in such manner as would reasonably be expected to cause an environmental
liability of the Company.

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(d) To the Company's knowledge, there have been and are no: (i) aboveground
or underground storage tanks; (ii) surface impoundments for Hazardous
Materials; (iii) wetlands as defined under Environmental Law or (iv) asbestos
containing materials or PCBs or PCB-containing equipment, located within any
portion of the Leased Real Property, which individually or in the aggregate
could have a Company Material Adverse Effect.

(e) No liens have been placed upon any Leased Real Property in connection
with any actual or alleged liability under any Environmental Law.

(f) (i) There is no pending or, to the knowledge of the Company, threatened,
claim, litigation or administrative proceeding against the Company arising
under any Environmental Law; (ii) the Company has no ongoing negotiations with
or agreements with any Governmental Entity relating to any Remedial Action or
other environmentally-related claim; (iii) the Company has not submitted notice
pursuant to Section 103 of CERCLA or analogous statute or notice under any
applicable Environmental Law reporting a release of a Hazardous Material into
the environment; and (iv) the Company has not received any notice, claim,
demand, suit or request for information from any Governmental Entity or private
entity with respect to any liability or alleged liability under any
Environmental Law, nor to the knowledge of the Company, has any other entity
whose liability therefor, in whole or in part, may be attributed to the
Company, received such notice, claim, demand, suit or request for information.
Neither the Company, nor to the Company's knowledge, any prior owner or
operator of the Leased Real Property has generated, disposed of, or arranged
for the disposal of any Hazardous Material except in compliance with
Environmental Law.

(g) The Company has not, and, to the knowledge of the Company, no other
entity whose liability therefor, in whole or in part, may be attributed to the
Company has, disposed of any Hazardous Material at any location which is
identified on the current or proposed (i) National Priorities List under 40
C.F.R. 300 Appendix B, (ii) CERCLIS list or (iii) the Leaking Underground
Storage Tank list or any analogous state list.

(h) The Company has provided to Parent all environmental studies and reports
pertaining to the Leased Real Property, the operations conducted thereon and
the Company made by or at the direction of the Company or otherwise in the
Company's possession.

Section 4.33. Accounting Matters. Neither the Company nor, to the knowledge
of the Company, any Company Stockholder or any affiliates thereof, has taken or
agreed to take any action that would prevent Parent from accounting for the
business combination to be effected by the Merger as a "pooling of interests".

Section 4.34. Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of all directors
present (a) determined that the Merger is advisable and fair and in the best
interests of the Company and its stockholders, (b) approved the Merger in
accordance with the applicable provisions of the New York Corporation Law and
(c) recommended the approval of this Agreement and the Merger by the holders of
the Company Common Stock and directed that the Merger be submitted for
consideration by the Company's stockholders at the Company Meeting.

Section 4.35. Opinion of Financial Advisor. The Board of Directors of the
Company has received, on the date of this Agreement, the oral opinion of First
Colonial Securities Group, to be confirmed in writing, to the effect that, as
of such date, the aggregate Share Consideration to be received by the Company's
shareholders in the Merger is fair to the Company's shareholders from a
financial point of view. A copy of the written opinion of First Colonial
Securities Group will be delivered to Parent as soon as practicable after the
date of this Agreement.

Section 4.36. Hart-Scott-Rodino. The Company, together with all entities
which it controls, has (i) annual net sales of less than $25,000,000 and (ii)
total assets of less than $25,000,000, each determined pursuant to Section
801.11 of the Premerger Notification Rules to the H-S-R Act.

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ARTICLE V.

Representations and Warranties of Parent and Sub

Parent and Sub represent and warrant to the Company that, except as set
forth in the disclosure schedule attached hereto (the "Parent Disclosure
Schedule"), which Parent Disclosure Schedule and shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article V:

Section 5.1. Execution and Delivery. Each of Parent and Sub has the
corporate power and authority to enter into this Agreement and each agreement,
document or instrument contemplated hereby or to be delivered in connection
herewith to which such person is a party (the "Parent Documents") and to carry
out its respective obligations hereunder and thereunder. The execution,
delivery and performance by Parent and Sub of this Agreement and the Parent
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of Parent and Sub, as applicable (and, in the case of this Agreement,
by the Board of Directors of Sub and by Parent as the sole stockholder of Sub).
This Agreement constitutes the valid and binding obligation of Parent and Sub
and the Parent Documents will constitute the valid and binding obligations of
Parent and Sub, when executed by such person, in each case, enforceable in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. No other corporate
proceedings on the part of Parent or Sub are necessary to authorize this
Agreement or the Parent Documents and the transactions contemplated hereby and
thereby.

Section 5.2. Consents and Approvals. The execution and delivery by Parent
and Sub of this Agreement and the Parent Documents to which such person is a
party, the performance by Parent and Sub of their respective obligations
hereunder and thereunder and the consummation by Parent and Sub of the
transactions contemplated hereby and thereby do not require Parent or Sub to
obtain any consent, approval or action of, or make any filing or registration
with or give any notice to, any Governmental Entity, other than (i) in
connection, or in compliance, with the provisions of the H-S-R Act, the
Securities Act, the Exchange Act and the corporation, securities or blue sky
laws or regulations of various states, all of which will be duly obtained or
made, as the case may be, on or prior to the Closing, and will be in full force
and effect on the Closing Date, (ii) the approval of the SBA, (iii) the filing
of the Certificate of Merger with the Secretaries of State of Delaware and New
York and (iv) as to which the failure to so obtain, file or register would not
have a material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities, or operations of Parent and its
Subsidiaries, taken as a whole, or prevent the consummation of the transactions
contemplated hereby (a "Parent Material Adverse Effect").

Section 5.3. No Breach. The execution, delivery and performance by Parent
and Sub of this Agreement and the Parent Documents to which it is a party and
the consummation of the transactions contemplated hereby and thereby in
accordance with the terms and conditions hereof and thereof will not (i)
violate any provision of the Certificate of Incorporation or By-Laws of Parent
or Sub; (ii) violate, conflict with or result in the breach of any of the terms
of, result in any modification of the effect of, otherwise give any other
contracting party the right to terminate, or constitute (or with notice or
lapse of time or both, constitute) a default under, any contract or other
agreement or instrument to which Parent or Sub is a party or by or to which the
assets or properties of Parent or Sub may be bound or subject; (iii) violate
any order, judgment, injunction, award or decree of any Governmental Entity
against, or binding upon, or any agreement with, or condition imposed by, any
Governmental Entity, binding upon Parent or Sub, or upon the securities, assets
or business of Parent or Sub; (iv) violate any statute, law or regulation of
any jurisdiction as such statute, law or regulation relates to Parent or Sub,
or to the securities, assets or business of Parent or Sub; (v) result in the
creation or imposition of any lien or other encumbrance or the acceleration of
any indebtedness or other obligation of Parent or Sub; or (vi) result in the
breach of any of the terms or conditions of, constitute a default under, or
otherwise cause an impairment of, any Permit of Parent or Sub; except in the
case of (ii) through (vi) for violations, conflicts, breaches, defaults,
modifications, impairments, liens or other encumbrances that would not,
individually or in the aggregate, have a Parent Material Adverse Effect.

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Section 5.4. SEC Documents; Financial Statements.

(a) Parent has filed and will file with the SEC all forms, reports,
schedules, statements, exhibits and other documents (other than registration
statements on Form S-8 or reports on Form 11-K, in each case relating to
employee benefit plans) (collectively, the "Parent SEC Documents") required to
be filed on or before the date hereof or the Closing Date, respectively, by it
under the Securities Act or the Exchange Act. Parent has furnished or made
available to the Company true and correct copies of all Parent SEC Documents
filed by Parent since December 31, 1997 and will promptly furnish to the
Company any other Parent SEC Document filed by or on behalf of Parent with the
SEC from the date hereof to the Closing Date. At the time filed, the Parent SEC
Documents filed by Parent since December 31, 1998 (i) did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading and (ii)
complied in all material respects with the applicable requirements of the
Securities Act or Exchange Act, as the case may be.

(b) The audited consolidated financial statements of Parent for the period
from January 1, 1998 to December 31, 1998, together with the report and opinion
thereon of Arthur Andersen LLP, and the unaudited consolidated financial
statements of Parent for the nine months ended September 30, 1999 (the "Parent
Interim Financial Statements"), which are included in the Parent SEC Documents
and have previously been delivered to the Company, are collectively referred to
herein as the "Parent Financial Statements". The Parent Financial Statements
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto; and fairly present, in all material respects, on a consolidated basis,
the financial position of Parent at, and the results of its operations for,
each of the periods then ended and were prepared in conformity with GAAP
applied on a consistent basis, except as otherwise disclosed therein and,
subject, in the case of the Parent Interim Financial Statements, to normal
year-end adjustments, the absence of footnote disclosures, and any other
adjustments described therein.

Section 5.5. Shares of Parent Common Stock. The shares of Parent Common
Stock will, when issued and delivered to the Company Stockholders pursuant to
Section 3.1(a), be duly authorized, validly issued, fully paid, non-assessable,
and free of all liens and other encumbrances of any kind or nature whatsoever.

Section 5.6. Organization, Standing and Authority of Parent and Sub. Each of
Parent and Sub is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, and has all requisite power and authority
to own, lease and operate its assets, properties and businesses and to carry on
its businesses as now being conducted or currently proposed to be conducted.
Parent is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of such activities make such qualification
necessary, except where the failure to so qualify would not, individually or in
the aggregate, have a Parent Material Adverse Effect. Sub has not engaged in
any business (other than certain organizational matters) since the date of its
incorporation. The copies of the Certificate of Incorporation and By-Laws of
Parent and Sub included as part of Section 5.6 of the Parent Disclosure
Schedule constitute accurate and complete copies of such organizational
instruments and accurately reflect all amendments thereto through the date
hereof.

Section 5.7. Capitalization.

(a) The authorized capital stock of Parent consists of 50,000,000 shares of
Parent Common Stock and 1,000,000 shares of preferred stock, par value $.01 per
share. As of November 8, 1999, there were 14,020,133 shares of Parent Common
Stock and no shares of preferred stock outstanding and there have been no
material changes in such numbers through the date hereof. As of the date
hereof, there are no bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which Parent's stockholders may vote issued or
outstanding. All outstanding shares of Parent Common Stock are duly authorized
and are validly issued, fully paid and nonassessable.

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(b) The authorized capital stock of Sub consists of 100 shares of Sub Common
Stock, all of which are duly authorized, validly issued, fully paid and
nonassessable.

Section 5.8. Brokerage. No broker, agent or finder has acted, directly or
indirectly, for Parent or Sub. Parent and Sub have not incurred any obligation
to pay any brokerage fees, agent's commissions or finder's fee or commission in
connection with the transactions contemplated by this Agreement.

Section 5.9. Information in Disclosure Documents. None of the information
supplied by Parent or Sub for inclusion in the Registration Statement and the
Proxy Statement will, in the case of the Proxy Statement or any amendments or
supplements thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, or, in the case of the Registration
Statement, at the time it becomes effective and at the Effective Date, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this provision shall not apply to
statements or omissions in the Registration Statement or Proxy Statement based
upon information furnished by the Company for use therein. The Registration
Statement will comply as to form in all material respects with the provisions
of the Securities Act, and the rules and regulations promulgated thereunder.
The Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. No
representation or warranty made by Parent contained in this Agreement and no
statement contained in any certificate, list, exhibit or other instrument
specified in this Agreement, including without limitation the Parent Disclosure
Schedule, contains any untrue statement of a material fact or omits or will
omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.

Section 5.10. No Material Adverse Change. Since December 31, 1998, there has
been no material adverse change in the management, assets, liabilities,
properties, business, operations, financial condition or results of operations
of Parent.

Section 5.11. Sub Action. The Board of Directors of Sub (at a meeting duly
called and held) has by the requisite vote of all directors present approved
the Merger in accordance with the provisions of Section 251 of the Delaware
Corporation Law.

Section 5.12. Options and Other Stock Rights. Except for options to purchase
Parent Common Stock outstanding under Parent's 1996 Stock Option Plan and
Parent's Amended and Restated 1996 Non-Employee Directors Stock Option Plan,
each as amended to date, there is no (i) outstanding option, warrant, call,
unsatisfied preemptive right or other agreement of any kind to purchase or
otherwise to receive from Parent any of the outstanding, authorized but
unissued, unauthorized or treasury shares of Parent Common Stock, Parent
Preferred Stock or any other security of the Parent, (ii) outstanding security
of any kind convertible into any security of Parent, and (iii) outstanding
contract or other agreement to purchase, redeem or otherwise acquire any
outstanding shares of Parent Common Stock, Parent Preferred Stock or any other
security of Parent.

Section 5.13. Information in Disclosure Documents. None of the information
with respect to Parent or its subsidiaries to be included in (i) the joint
prospectus/proxy statement of the Company and Parent (the "Proxy Statement")
required to be mailed to the stockholders of the Company in connection with the
Merger and (ii) the Registration Statement to be filed with the Commission by
Parent on Form N-14 under the Securities Act for the purpose of registering the
shares of Parent Common Stock to be issued in the Merger (the "Registration
Statement") will, in the case of the Proxy Statement or any amendments or
supplements thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the Company Meeting, or,
in the case of the Registration Statement, at the time it becomes effective and
at the Effective Date, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which

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they were made, not misleading; provided, however, that this provision shall
not apply to statements or omissions in the Registration Statement or Proxy
Statement based upon information furnished by the Company for use therein. The
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. No
representation or warranty made by Parent contained in this Agreement and no
statement contained in any certificate, list, exhibit or other instrument
specified in this Agreement, as the same may be amended pursuant to the
provisions hereof, contains any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.

Section 5.14. Liabilities. Neither Parent nor any of its Subsidiaries has
any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, except (a) liabilities or obligations disclosed or
reserved against in the unaudited consolidated interim financial statements of
Parent as of and for the three months ended September 30, 1999 included in
Parent SEC Documents or disclosed in the footnotes thereto or in the footnotes
to the audited consolidated financial statements of Parent as of and for the
fiscal year ended December 31, 1998 included in Parent SEC Documents or
otherwise disclosed in Parent's 1998 Form 10-K or in Parent's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999, and (b) liabilities or
obligations which do not, individually or in the aggregate, have a Material
Adverse Effect on Parent.

Section 5.15. Compliance with Laws. Except as disclosed in Section 5.15 of
the Parent Disclosure Schedule, Parent is not in violation of any applicable
order, judgment, injunction, award or decree, law, ordinance or regulation or
any other requirement of any Governmental Entity applicable to Parent or any of
its businesses; Parent has not received notice that any such violation has been
alleged or is being investigated.

Section 5.16. Permits. Parent has obtained all Permits that are necessary
for the ownership and conduct of its businesses as presently conducted or
currently proposed to be conducted, other than any Permits, the absence of
which would not, individually or in the aggregate, have a Parent Material
Adverse Effect; such Permits are in full force and effect and are sufficient
for the ownership and conduct of such businesses as presently conducted or
currently proposed to be conducted; no violations exist or have been recorded
in respect of any Permit; and no proceeding is pending or, to the knowledge of
Parent, threatened, that would suspend, revoke or limit any Permit.

Section 5.17. Actions and Proceedings. There are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental Entity against or
involving Parent or any of its directors, officers or employees (in their
capacities as such). Except as disclosed in Section 5.17 of the Parent
Disclosure Schedule, as of the date of this Agreement there is no claim,
action, suit, litigation, legal, administrative or arbitration proceeding,
whether formal or informal (including, without limitation, any claim or notice
of intent to institute any matter), which is pending or, to Parent's knowledge,
threatened against or involving the Company or any of its directors, officers
or employees (in their capacities as such) or properties, capital stock or
assets, except where the failure of any of the foregoing to be true does not
individually or in the aggregate have a Parent Material Adverse Effect on
Parent.

Section 5.18. Loan Portfolio. Parent's loan portfolio was acquired in the
ordinary course of business. All loans included in such portfolio comply with
all laws and regulations of each of the states to which Parent is subject
relating thereto.

ARTICLE VI.

Covenants and Agreements

Each of Parent, Sub and the Company (as applicable) covenant and agree as
follows:

Section 6.1. Conduct of Business. (a) Prior to the Effective Date, unless
Parent shall otherwise agree in writing:

(i) The Company shall carry on its respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, and shall use its best efforts to preserve intact their

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present business organizations, keep available the services of their
present officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be unimpaired at the
Effective Date, except such impairment as would not have a Company Material
Adverse Effect. The Company shall (i) maintain insurance coverages and its
books, accounts and records in the usual manner consistent with prior
practices; (ii) comply in all material respects with all laws, ordinances
and regulations of Governmental Entities applicable to the Company; (iii)
maintain and keep its properties and equipment in good repair, working
order and condition, ordinary wear and tear excepted; and (iv) perform in
all material respects its obligations under all contracts and commitments
to which it is a party or by which it is bound, in each case other than
where the failure to so maintain, comply or perform, either individually or
in the aggregate, would result in a Company Material Adverse Effect.

(ii) The Company shall not undertake any of the actions specified in
Section 4.28.

(iii) The Company shall not take or cause to be taken any action,
whether before or after the Effective Date, which would disqualify the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.

(iv) The Company shall not (i) originate any loans secured by taxicab
medallions ("Medallion Loans") in an amount greater than 97% of the
purchase price or the fair market value whichever is lower; (ii) originate
any subordinated Medallion Loans; or (iii) originate any loans to small
businesses secured by equipment and other collateral; without the consent
of Parent.

(b) Prior to the Effective Date, unless the Company shall otherwise consent
in writing (which shall not be unreasonably withheld), Parent shall in all
material respects carry on its respective businesses in the usual, regular and
ordinary course, provided, that for purposes of this Section 6.1(b), "ordinary
course" shall mean any activities or business related, directly or indirectly,
to lending, financing, leasing and the like, as well as to the taxicab industry
in general.

Section 6.2. Litigation Involving the Company. Prior to the Closing Date,
the Company shall notify Parent of any actions or proceedings of the type
required to be described in Sections 4.15, 4.30 or 4.32 that are threatened or
commenced against the Company, or against any officer or director, property or
asset of the Company, or with respect to the Company's affairs, promptly upon
the Company becoming aware thereof, and of any requests of the Company or, to
the knowledge of the Company, any Company Stockholder, for additional
information or documentary materials by any Governmental Entity in connection
with the transactions contemplated hereby promptly upon the Company becoming
aware thereof. As to compliance with such requests for such information, the
Company shall consult with and obtain the consent of Parent, which consent
shall not be withheld unreasonably; provided that such consent shall be
unnecessary where such information is required by law to be provided.

Section 6.3. Continued Effectiveness of Representations and Warranties of
the Parties. From the date hereof through the Closing Date, (a) the Company
shall use all reasonable efforts to conduct its affairs in such a manner so
that, except as otherwise contemplated or permitted by this Agreement, the
representations and warranties of the Company contained in Article IV shall
continue to be true and correct in all material respects (or in all respects in
the case of any representation or warranty which refers to a Company Material
Adverse Effect or otherwise includes a concept of materiality) on and as of the
Closing Date as if made on and as of the Closing Date, (i) except that any such
representations and warranties that are given as of a particular date and
relate solely to a particular date or period shall be true and correct in all
material respects (or in all respects in the case of any representation or
warranty which refers to a Company Material Adverse Effect or otherwise
includes a concept of materiality) as of such date or period, and (ii) in the
case of Section 4.12 only, except for such changes with respect thereto (x)
which are contemplated by this Agreement or (y) which are attributable to the
execution of this Agreement, or the announcement or contemplation of the
transactions proposed herein;

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(b) Parent and Sub shall use their respective reasonable efforts to conduct
their affairs in such a manner so that, except as otherwise contemplated or
permitted by this Agreement, the representations and warranties contained in
Article V shall continue to be true and correct in all material respects (or in
all respects in the case of any representation or warranty which refers to a
Parent Material Adverse Effect or otherwise includes a concept of materiality)
on and as of the Closing Date as if made on and as of the Closing Date, (i)
except that any such representations and warranties that are given as of a
particular date and relate solely to a particular date or period shall be true
and correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Parent Material Adverse Effect or
otherwise includes a concept of materiality) as of such date or period, and
(ii) in the case of Section 5.10 only, except for such changes with respect
thereto (x) which are contemplated by this Agreement or (y) which are
attributable to the execution of this Agreement, or the announcement or
contemplation of the transactions proposed herein; (c) the Company shall
promptly notify Parent and Sub of any event, condition or circumstance
occurring from the date hereof through the Closing Date of which the Company
becomes aware that would cause any material revisions to the Company Disclosure
Schedule provided by the Company pursuant to this Agreement, or that would
constitute a violation or breach of this Agreement by the Company; and (d)
Parent and Sub shall promptly notify the Company of any event, condition or
circumstance occurring from the date hereof through the Closing Date of which
it becomes aware that would cause any material revisions to the Parent
Disclosure Schedule provided by Parent or Sub pursuant to this Agreement, or
that would constitute a violation or breach of this Agreement by Parent or Sub.
No such notification shall be deemed an amendment to the Disclosure Schedules
to this Agreement, except as otherwise provided by this Agreement.

Section 6.4. Corporate Examinations and Investigations.

(a) The Company shall cooperate with Parent as Parent shall reasonably
request in connection with the Parent's due diligence review of the Company, to
the extent necessary to confirm the accuracy of the Company's representations
and warranties.

(b) If this Agreement terminates, the parties hereto and their respective
affiliates shall keep confidential and shall not use or retain in any manner
any information or documents obtained from any other party concerning its
assets, liabilities, properties, business or operations, unless readily
ascertainable from public or published information or trade sources or already
known or subsequently developed by it independently of any investigation of any
other party, or received from a third party not under an obligation to such
other party to keep such information confidential.

Section 6.5. Preparation of Company Restated Financial Statements. Promptly
after the execution of this Agreement, the Company shall cause to be prepared
(i) the consolidated balance sheet of the Company as of December 31, 1996,
1997, 1998 and, if required in order to make all necessary filings with the
SEC, 1999, together with the respective related consolidated statements of
income, shareholders' equity and cash flows for the 12 months ended December
31, 1999 (if applicable), 1998, 1997, and 1996, and (ii) the information
required by Item 301 "Selected Financial Data" of Regulation S-K of the SEC for
the 12 months ended December 31, 1996, 1995 and 1994 (the "Company Restated
Financial Statements"). The Company Restated Financial Statements shall be
prepared in accordance with GAAP applied on a basis consistent with that used
in, and in accordance with the same accounting principles applied in, the
preparation of the Company Financial Statements and shall include all
information and schedules as are required by Regulation S-X of the SEC. The
Company shall cause Michael C. Finkelstein to audit the Company's Restated
Financial Statements, other than the Selected Financial Data for 1996, 1995 and
1994, and shall cause Michael C. Finkelstein to issue, on or prior to the
Effective Date, an opinion containing no qualifications or exceptions with
respect to the scope of its audit or otherwise on the Company Restated
Financial Statements that such accountants have audited the Company Restated
Financial Statements in accordance with generally accepted auditing standards
and that the Company Restated Financial Statements were prepared in accordance
with GAAP. The Company shall cause the Company Restated Financial Statements,
together with the opinion of Michael C. Finkelstein referenced above, to be
delivered to Parent on or prior to the Effective Date. In connection with the
preparation of Parent's securities law filings, Arthur Andersen LLP shall have
access to Michael C. Finkelstein's work papers and personnel.

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Section 6.6. Registration Statement/Proxy Statement. As promptly as
practicable after the execution of this Agreement, the Company and Parent shall
prepare and file with the SEC preliminary proxy materials which shall
constitute the preliminary Proxy Statement and a preliminary prospectus with
respect to the Parent Common Stock to be issued in connection with the Merger.
As promptly as practicable after comments are received from the SEC with
respect to the preliminary proxy materials and after the furnishing by the
Company and Parent of all information required to be contained therein, the
Company shall file with the SEC the definitive Proxy Statement and Parent shall
file with the SEC the definitive Proxy Statement and the Registration Statement
and Parent and the Company shall use all reasonable efforts to cause the
Registration Statement to become effective as soon thereafter as practicable.

Section 6.7. Compliance with the Securities Act.

(a) Prior to the Effective Date the Company shall cause to be delivered to
Parent an opinion (satisfactory to counsel for Parent) of Berlack, Israels &
Liberman LLP, identifying all persons who were, in its opinion, at the time of
the Company Meeting convened in accordance with Section 3.7, "affiliates" of
the Company as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act (the "Affiliates").

(b) The Company shall use its best efforts to obtain a written agreement
from each person who is identified as a possible Affiliate in the opinion
referred to in clause (a) above, in the form previously approved by the
parties, that he or she will not offer to sell, sell or otherwise dispose of
any of the Parent Common Stock issued to him or her pursuant to the Merger,
except in compliance with Rule 145 or another exemption from the registration
requirements of the Securities Act. The Company shall deliver such written
agreements to Parent on or prior to the Effective Date. The Company shall use
its best efforts to cause each person who is identified as an Affiliate in such
opinion to deliver to Parent, on or prior to the earlier of (i) the mailing of
the Proxy Statement/Prospectus or (ii) the 30th day prior to the Effective
Date, a written agreement, in substantially the form attached hereto as Exhibit
E, that such Affiliate will not thereafter sell or in any other way reduce such
Affiliate's risk relative to any Parent Common Stock received in the Merger
(within the meaning of the SEC's Financial Reporting Release No. 1,
"Codification of Financing Reporting Policies," (S) 201.01 (47 F.R. 21030)
(April 15, 1982)), until such time as financial results (including combined
sales and net income) covering at least 30 days of post-merger operations have
been published, except as permitted by Staff Accounting Bulletin No. 76 issued
by the SEC. As soon as is reasonably practicable but in no event later than 45
days after the end of the first fiscal quarter of Parent ending at least 30
days after the Effective Date, Parent will publish results including at least
30 days of combined operations of Parent and the Company as referred to in the
written agreements provided for by this Section 6.7(b).

Section 6.8. Nasdaq Listing. Parent shall use its reasonable best efforts to
list on the Nasdaq National Market, the Parent Common Stock to be issued
pursuant to the Merger.

Section 6.9. Acquisition Proposals. The Company will notify Parent promptly
if any inquiries or proposals are received by, any information is requested
from, or any negotiations or discussions are sought to be initiated or
continued with, the Company or, to the knowledge of the Company, any of the
Company Stockholders, in each case in connection with any acquisition, business
combination or purchase of all or any material portion of the assets of, or any
equity interest in, the Company, and will furnish to Parent a copy of any such
proposal received by any of them.

Section 6.10. No Shopping. Subject to the fiduciary duties of the Board of
Directors of the Company, as advised in writing by outside counsel, prior to
the earlier of (i) the Effective Time or (ii) the termination of this
Agreement, the Company shall not, directly or indirectly, through any officer,
director, employee, representative, agent, financial advisor or otherwise (x)
solicit, initiate or knowingly encourage (including by way of furnishing
information) inquiries or submission of proposals or offers from any person
relating to any

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sale of all or any portion of the assets, business, properties of (other than
immaterial or insubstantial assets), or any equity interest in, the Company or
any business combination with the Company, whether by merger, consolidation,
purchase of assets, tender offer, recapitalization, liquidation, dissolution or
otherwise or any other transaction, the consummation of which would or could
impede, interfere with, prevent or materially delay the Merger (each, an
"Acquisition Proposal") or (y) participate in any negotiation regarding, or
furnish to any other person any information with respect to, or otherwise
knowingly cooperate in any way with, or knowingly assist in, facilitate or
encourage, any effort or attempt by any other person to do or seek to do any of
the foregoing.

Section 6.11. Parent and Sub Approvals. Parent and Sub shall take all
reasonable steps necessary or appropriate to obtain as promptly as practicable
all necessary approvals, authorizations and consents of any person or
Governmental Entity required to be obtained by Parent and Sub to consummate the
transactions contemplated hereby, and will cooperate with the Company in
seeking to obtain all such approvals, authorizations and consents. Parent and
Sub shall use all reasonable efforts to provide such information to such
persons, bodies and authorities as such persons, bodies or authorities or the
Company may reasonably request.

Section 6.12. Company Approvals. The Company shall take all reasonable steps
necessary or appropriate to obtain as promptly as practicable all necessary
approvals, authorizations and consents of any third party or Governmental
Entity required to be obtained by the Company to consummate the transactions
contemplated hereby and will cooperate with Parent in seeking to obtain all
such approvals, authorizations and consents. The Company shall use all
reasonable efforts to provide such information to such persons, bodies and
authorities as such persons, bodies and authorities or Parent may reasonably
request.

Section 6.13. Distribution. The Company shall not declare, set aside or pay
any Distribution, except in the ordinary course of business consistent with
past practice, without the consent of Parent which shall not be unreasonably
withheld.

Section 6.14. Expenses. Except as otherwise specifically provided herein,
Parent, Sub and the Company shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement
and the transactions contemplated hereby, including, without limitation, all
fees and expenses of investment bankers, agents, representatives, counsel and
accountants ("Transaction Expenses"). In any action, suit or proceeding under
or to enforce any provision of this Agreement, the prevailing party shall be
entitled to recover its reasonable attorney's fees and other out-of-pocket
expenses from the losing party.

Section 6.15. Further Assurances.

(a) Each of Parent, Sub and the Company shall execute such documents and
other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby. Each of Parent, Sub and the Company shall use all reasonable efforts to
cause all actions to effectuate the Closing for which such party is responsible
under this Agreement to be taken as promptly as practicable, including using
all reasonable efforts to obtain all necessary waivers, consents and approvals
(including, but not limited to, if applicable, filings under the H-S-R Act and
with all applicable Governmental Entities) and to lift any injunction or other
legal bar to the Merger (and, in each case, to proceed with the Merger as
expeditiously as possible). Notwithstanding the foregoing, there shall be no
action required to be taken and no action will be taken in order to consummate
and make effective the transactions contemplated by this Agreement if such
action, either alone or together with another action, would result in a Company
Material Adverse Effect or a Parent Material Adverse Effect.

(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Parent, the Company and the Surviving Corporation
shall take all such necessary action.

Section 6.16 Hart-Scott-Rodino. If applicable, each of the Company and
Parent (i) shall use their best efforts to file, and to cause their "ultimate
parent entities" to file, as soon as practicable a "Notification and

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Report Form For Certain Mergers and Acquisitions" under the H-S-R Act with
respect to the Merger and the transactions contemplated hereby, (ii) shall take
all other actions as may be necessary, desirable or convenient to obtain the
required approval under the H-S-R Act and (iii) will comply at the earliest
practicable date with any request for additional information received by it
from the FTC or Justice pursuant to the H-S-R Act.

Section 6.17. SBA Approval. Each of the Company and Parent (i) shall use
their best efforts, and shall take all actions as may be necessary, desirable
or convenient, to obtain the approval of the SBA with respect to the Merger and
the transactions contemplated hereby and (ii) will comply at the earliest
practicable date with any request for additional information received by it
from the SBA.

Section 6.18. Execution of Agreements with Executives. Each of the Named
Executives shall execute and deliver an agreement as of the date hereof, in
substantially the forms attached hereto as Exhibits A-1 and A-2 (the
"Agreements with Executives"), which Agreements with Executives shall become
effective as of the Closing Date.

Section 6.19. East Coast Agreement. East Coast Waiver Parent and Zindel
Zelmanovitch shall execute and deliver an agreement as of the date hereof, in
substantially the form attached hereto as Exhibit B (the "East Coast
Agreement").

Section 6.20. Compliance with Legal Requirements. Immediately after the
Merger, the Company shall hold at least 90% of the fair market value of its net
assets and at least 70% of the fair market value of its gross assets held
immediately prior to the Merger.

Section 6.21. Indemnification of Company Officers and Directors. Parent
agrees, for a period of six years following the Effective Time, not to amend
the indemnification provisions set forth in the Certificate of Incorporation or
By-Laws of the Surviving Corporation in a manner that would adversely affect
the rights of the Company's officers, directors and employees to
indemnification thereunder and agrees to cause the Surviving Corporation to
fulfill and honor such obligations to the maximum extent permitted by law;
provided, however, that nothing in this Section 6.21 shall prevent Parent from
effecting any merger, reorganization or consolidation of the Surviving
Corporation, provided that, Parent agrees to satisfy any amounts that would
have been payable by the Surviving Corporation (or any successor) and that were
not otherwise paid pursuant to the indemnification provisions set forth in the
Certificate of Incorporation or By-Laws of the Surviving Corporation for a
period commencing at the Effective Time and continuing six years thereafter.

ARTICLE VII.

Conditions Precedent to Each Party's Obligation
to Effect the Merger

The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing of the following
conditions, any one or more of which may be waived by them, to the extent
permitted by law:

Section 7.1. Company Stockholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved and adopted by the
requisite vote of the Company's stockholders.

Section 7.2. Listing of Shares. The shares of Parent Common Stock issuable
in the Merger shall have been approved for listing on the Nasdaq National
Market.

Section 7.3. Hart-Scott-Rodino. If applicable, all applicable waiting
periods with respect to any "Notification and Report Form For Certain Mergers
and Acquisitions" required to be filed by Parent, the Company or any of their
"ultimate parent entities" in compliance with the H-S-R Act in connection with
the transactions contemplated hereby shall have passed, or early termination of
such waiting periods shall have been granted.

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Section 7.4. Effectiveness of Registration Statement. The Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and remain in effect.

Section 7.5. SBA Approval. The SBA shall have approved the Merger, this
Agreement and the transactions contemplated hereby, including the waiver of any
payments due to the SBA as a result of the Company's previous repurchase of its
3% preferred stock from the SBA and any accrued interest or dividends due to
the SBA as a result of the transactions contemplated hereby and any liens on
the Company's assets or properties in favor of the SBA.

Section 7.6. Litigation. No action, suit or proceeding shall have been
instituted and be continuing or be threatened by any Governmental Entity to
restrain, modify or prevent the carrying out of the transactions contemplated
hereby; no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger
or limiting or restricting Parent's conduct or operation of the business of the
Company after the Merger shall have been issued; no action, suit or proceeding
seeking any of the foregoing shall have been instituted by any third party that
has or is reasonably likely to materially impair the Company's or Parent's
ability to consummate the transactions contemplated hereby or have a Company
Material Adverse Effect.

ARTICLE VIII.

Conditions Precedent to the Obligation of
Parent and Sub to Effect the Merger

The obligation of Parent and Sub to effect the Merger shall be subject to
the satisfaction on or prior to the Closing of the following additional
conditions, any one or more of which may be waived by them, to the extent
permitted by law:

Section 8.1. Representations and Covenants. The representations and
warranties of the Company contained in this Agreement (including those
contained in the Company Disclosure Schedule, as the same may be amended from
time to time pursuant to the provisions hereof) shall be true and correct in
all material respects (or in all respects in the case of any representation or
warranty which refers to a Company Material Adverse Effect or otherwise
includes a concept of materiality) on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date, (i) except that
any such representations and warranties that are given as of a particular date
and relate solely to a particular date or period shall be true and correct in
all material respects (or in all respects in the case of any representation or
warranty which refers to a Company Material Adverse Effect or otherwise
includes a concept of materiality) as of such date or period, and (ii) in the
case of Section 4.12 only, except for such changes with respect thereto (x)
which are contemplated by this Agreement or (y) which are attributable to the
execution of this Agreement, or the announcement or contemplation of the
transactions proposed herein. The Company and the Company Stockholders who are
parties to a Voting Agreement, dated the date hereof (the "Voting Agreement"),
shall have performed and complied, respectively, in all material respects with
all covenants and agreements required by this Agreement and the Voting
Agreement to be performed or complied with by the Company or such Company
Stockholders on or prior to the Closing Date. The Company shall have delivered
to Parent and Sub certificates, dated the Closing Date, and signed by an
Executive Officer of the Company to the foregoing effect.

Section 8.2. Absence of Material Adverse Change. There shall have been no
material adverse change in the business, operations or financial condition of
the Company, except for such changes with respect thereto (x) which are
contemplated by this Agreement or (y) which are attributable to the execution
of this Agreement, or the announcement or contemplation of the transactions
proposed herein.

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Section 8.3. Receipt of Agreements. On the date hereof, Parent shall have
received executed originals of (i) the Voting Agreement, (ii) the Agreements
with Executives and (iii) the East Coast Agreement.

Section 8.4. Accountant's Letters.

(a) Parent shall have received a letter from Arthur Andersen LLP regarding
the firm's concurrence with Parent management's conclusions as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Agreement.

(b) Parent shall have received a letter of Michael C. Finkelstein, the
Company's independent auditor, dated a date within two Business Days before the
date on which the Registration Statement shall become effective and addressed
to Parent, in form and substance reasonably satisfactory to Parent and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.

Section 8.5. Dissenting Shares. The number of shares of Company Common Stock
for which written demand for payment has been made pursuant to Section 910 of
the New York Corporation Law, shall not exceed 4% in the aggregate, of the
total number of shares of Company Common Stock outstanding immediately before
the Effective Time.

Section 8.6. Opinions of Counsel to the Company. Parent shall have received
the opinion of Berlack, Israels & Liberman LLP, counsel to the Company, dated
the Closing Date, in substantially the form of Exhibit C.

Section 8.7. Tax Opinion. Parent shall have received a favorable opinion of
Willkie Farr & Gallagher, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and that the Company, Parent and Sub will each be a party
to that reorganization within the meaning of Section 368(b) of the Code.

Section 8.8 Closing Conditions. Documentation or other information shall
have been received in a form reasonably satisfactory to Parent and Sub which
evidences that the conditions set forth in this Article VIII have been
satisfied.

ARTICLE IX.

Conditions Precedent to the Obligation of the
Company to Effect the Merger

The obligation of the Company to effect the Merger shall be subject to the
satisfaction on or prior to the Closing of the following additional conditions,
any one or more of which may be waived by the Company, to the extent permitted
by law:

Section 9.1. Representations and Covenants. The representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Parent Material Adverse Effect or
that includes a concept of materiality) on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date, (i) except
that any such representations and warranties that are given as of a particular
date and relate solely to a particular date or period shall be true and correct
in all material respects (or in all respects in the case of any representation
or warranty which refers to a Parent Material Adverse Effect or that includes a
concept of materiality) as of such date or period, and (ii) in the case of
Section 5.10 only, except for such

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changes with respect thereto (x) which are contemplated by this Agreement or
(y) which are attributable to the execution of this Agreement, or the
announcement or contemplation of the transactions proposed herein. Parent and
Sub shall have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or complied
with by Parent or Sub on or prior to the Closing Date. Parent and Sub shall
have delivered to the Company certificates of an Executive Officer of Parent
and Sub, dated the Closing Date, to the foregoing effect.

Section 9.2. Absence of Material Adverse Change. There shall have been no
material adverse change in the business, operations or financial condition of
Parent and its Subsidiaries, taken as a whole, except for such changes with
respect thereto (x) which are contemplated by this Agreement or (y) which are
attributable to the execution of this Agreement or the announcement or
contemplation of the transactions proposed herein.

Section 9.3. Receipt of Agreements. On the date hereof, the Company shall
have received executed originals of the Agreements with Executives.

Section 9.4. Accountant's Letter. The Company shall have received a letter
from Michael C. Finkelstein indicating that Michael C. Finkelstein has
performed certain specified procedures and nothing has come to such firm's
attention which would cause it to believe that matters exist which would
preclude Parent from accounting for the merger as a pooling of interests under
Accounting Principles Board Opinion No. 16 without consideration of the
Agreement and any actions contemplated thereby.

Section 9.5. Opinion of Counsel to Parent. The Company Stockholders shall
have received the opinion of Willkie Farr & Gallagher, counsel to Parent, dated
the date of the Closing, in substantially the form of Exhibit D.

Section 9.6. Tax Opinion. The Company shall have received a favorable
opinion of Berlack, Israel & Liberman LLP, counsel to the Company, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that the
Company, Parent and Sub will each be a party to that reorganization within the
meaning of Section 368(b) of the Code.

Section 9.7. Fairness Opinion. The Company shall have received the written
opinion of First Colonial Securities Group, dated the Closing Date, to the
effect that, as of such date, the aggregate Share Consideration to be received
by the Company's Shareholders in the Merger is fair to the Company's
Shareholders from a financial point of view.
Section 9.8. Closing Conditions. Documentation or other information shall
have been received in a form reasonably satisfactory to the Company which
evidences that the conditions set forth in this Article IX have been satisfied.

ARTICLE X.

Closing

The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of Willkie Farr & Gallagher, 787
Seventh Avenue, New York, New York, at 10:00 a.m. local time on the Closing
Date or at such other time and place as the parties may mutually agree.

ARTICLE XI.

Survival of Representations and Warranties; Indemnification

Section 11.1 Survival of Representations and Warranties. Notwithstanding any
right of Parent and Sub to investigate fully the affairs of the Company, or any
right of the Company to investigate fully the accuracy of the representations
and warranties of Parent and Sub, and notwithstanding any knowledge of facts
determined or determinable by Parent, Sub or the Company, as the case may be,
pursuant to such investigation or right of

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<PAGE>

investigation, Parent, Sub and the Company, as the case may be, have the right
to rely fully upon the representations, warranties, covenants and agreements of
the Company, Parent and Sub, as the case may be, contained in this Agreement.
The representations and warranties of Parent, Sub and the Company and the
covenants to be performed by the Company prior to the Effective Time shall
survive the execution and delivery hereof and the Closing hereunder in
accordance with the applicable statute of limitations, provided, however, that
the representation of the Company contained in Section 4.33 hereof shall
survive only until the Effective Time.

ARTICLE XII.

Termination of Agreement

Section 12.1. Termination. This Agreement may be terminated prior to the
Closing as follows:

(a) by either Parent or the Company if the Merger shall not have been
consummated on or before June 30, 2000;

(b) by the Company if any of the conditions specified in Article VII or
IX have not been met or waived by the Company at such time as any such
condition is no longer capable of satisfaction;

(c) by Parent if any of the conditions specified in Article VII or VIII
have not been met or waived by Parent at such time as any such condition is
no longer capable of satisfaction;

(d) by Parent if the Company or the Company Stockholders who are parties
to the Voting Agreement shall have breached any of their respective
obligations under Article VI of this Agreement or the Voting Agreement in
any material respect and such breach continues for a period of ten days
after the receipt of notice of the breach from Parent;

(e) by the Company if Parent or Sub shall have breached any of their
respective obligations under Article VI of this Agreement in any material
respect and such breach continues for a period of ten days after the
receipt of notice of the breach from the Company;

(f) by the Company if its Board of Directors, in the exercise of its
fiduciary duties, accepts an Acquisition Proposal;

(g) by Parent if the average of the closing sales prices per share of
Parent Common Stock on the NASDAQ National Market for the Determination
Period is less than $12.00; or

(h) at any time on or prior to the Closing Date, by mutual written
consent of Parent, Sub and the Company.

Section 12.2. Effect of Termination. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described above, this
Agreement shall become void and be of no further force and effect, except for
the provisions of this Agreement relating to the obligations of parties under
Sections 6.4(c), 6.14, 6.15, 12.2 and 12.3. None of the parties hereto shall
have any liability in respect to a termination of this Agreement prior to
Closing, except to the extent that termination results from the intentional,
willful or knowing violation of the representations, warranties, covenants or
agreements of such party under this Agreement and except as provided in Section
12.3 hereof.

ARTICLE XIII.

Definitions

Section 13.1. Definitions. The following terms when used in this Agreement
shall have the following meanings:

"Agreements with Executives" has the meaning set forth in Section 6.18.

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"Acquisition Proposal" has the meaning set forth in Section 6.10.

"affiliate" (or "affiliates" as the context may require), with respect to
any person, means any other person controlling, controlled by or under common
control with such person.

"Affiliates" has the meaning set forth in Section 6.7(a).

"Agreement" has the meaning set forth in the preamble.

"Business Day" means any day other than a Saturday or a Sunday, or a day on
which banking institutions in the State of New York are obligated by law or
executive order to close.

"CERCLA" shall mean the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. (S)(S) 9601 et seq. as amended.

"Certificates" has the meaning set forth in Section 3.3(a).

"Closing" has the meaning set forth in Article X.

"Closing Date" means (a) the third Business Day following the day on which
the last of all conditions to the consummation of the transactions contemplated
hereby (other than conditions which contemplate only delivery or filing of one
or more documents contemporaneously with the Closing) have been satisfied or
waived, or (b) such other date as the parties hereto agree in writing.

"Code" has the meaning set forth in the recitals.

"Company" has the meaning set forth in the preamble.

"Company Common Stock" means the common stock of the Company, having a par
value of $.01 (one cent) per share.

"Company Disclosure Schedule" has the meaning set forth in the preamble to
Article IV.

"Company Documents" has the meaning set forth in Section 4.1.

"Company Financial Statements" has the meaning set forth in Section 4.10.

"Company Interim Financial Statements" has the meaning set forth in Section
4.10.

"Company Material Adverse Effect" has the meaning set forth in Section 4.3.

"Company Meeting" has the meaning set forth in Section 3.8(a).

"Company Preferred Stock" means the 4% preferred stock of the Company,
having a par value of one ($1.00) dollar per share, and which is restricted
solely for issuance to the SBA.

"Company Restated Financial Statements" has the meaning set forth in Section
6.5.

"Company SEC Documents" has the meaning set forth in Section 4.10.

"Company Stockholders" has the meaning set forth in Section 1.3(b).

"contracts and other agreements" mean all contracts, agreements, supply
agreements, undertakings, indentures, notes, bonds, loans, instruments, leases,
mortgages, commitments or other binding arrangements.

"Delaware Corporation Law" has the meaning set forth in Section 1.1.

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<PAGE>

"Determination Period" has the meaning set forth in Section 3.1.

"Dissenting Shares" has the meaning set forth in Section 3.2.

"Distribution" means any distribution of cash, securities or property on or
in respect of the Company Common Stock, or Parent Common Stock, as the case may
be, whether as a dividend or otherwise.

"Effective Time" has the meaning set forth in Section 1.2.

"Environmental Laws" means all federal, state, and local laws, ordinances,
rules, regulations, codes, duties under the common law or orders, including,
without limitation, any requirements imposed under any Permits, licenses,
judgments, decrees, agreements or recorded covenants, conditions, restrictions
or easements, the purpose of which is to protect the environment, human health,
safety or welfare, or which pertain to Hazardous Materials.

"Environmental Permits" shall mean all Permits, licenses, approvals,
authorizations, consents or registrations required under applicable
Environmental Laws in connection with the ownership, use and/or operation by
the Company of its properties.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the regulations and rulings issued thereunder.

"Exchange Agent" has the meaning set forth in Section 3.3(a).

"Exchange Ratio" has the meaning set forth in Section 3.1(a)(1).

"Executive Officers" means, as to Parent and the Company, respectively, its
chairman of the board, its president, any vice president (executive, senior or
other), secretary, treasurer or chief financial officer, if any, or any other
officer or employee having supervisory responsibility for a principal business
function.

"Form S-8" has the meaning set forth in Section 6.22.

"FTC" means the Federal Trade Commission or any successor agency or
department.

"GAAP" means generally accepted accounting principles in the United States
of America from time to time in effect.

"Governmental Entities" means (a) any international, foreign, federal,
state, county, local or municipal government or administrative agency or
political subdivision thereof, (b) any governmental agency, authority, board,
bureau, commission, department or instrumentality, (c) any court or
administrative tribunal, (d) any non-governmental agency, tribunal or entity
that is vested by a governmental agency with applicable jurisdiction, or (e)
any arbitration tribunal or other non-governmental authority with applicable
jurisdiction.

"Hazardous Materials" means (i) any substance or material regulated or
identified under Environmental Laws; (ii) gasoline, diesel fuel or other
petroleum hydrocarbons, PCBs or asbestos; or (iii) any pollutant, toxic
substance, or contaminant.

"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.

"Insurance Policies" has the meaning set forth in Section 4.25.

"Intellectual Property Rights" has the meaning set forth in Section 4.19(a).

A-32
<PAGE>

"IRS" means the Internal Revenue Service or any successor agency or
department.

"Justice" means the Antitrust Division of the Department of Justice or any
successor agency or department.

"Leased Real Property" has the meaning set forth in Section 4.18(a).

"Leases" has the meaning set forth in Section 4.18(a).

"Liabilities" has the meaning set forth in Section 4.11.

"lien or other encumbrance" (or "liens or other encumbrances" or "liens or
other encumbrance" or "lien or other encumbrances" as the context may require
or any similar formulation) means any lien, claim, pledge, mortgage,
assessment, security interest, charge, option, right of first refusal,
easement, servitude, adverse claim, transfer restriction under any stockholder
or similar agreement or other encumbrance of any kind.

"Merger" has the meaning set forth in the recitals.

"Named Executive" means each of Zindel Zelmanovitch and Neil Greenbaum.

"New Parent Stock Option" has the meaning set forth in Section 3.6.

"New York Corporation Law" has the meaning set forth in Section 1.1.

"1940 Act" shall mean the Investment Company Act of 1940, as amended, and
the regulations and rulings issued thereunder.

"Parent" has the meaning set forth in the preamble.

"Parent Common Stock" means the common stock, par value $.01 per share, of
Parent.

"Parent Disclosure Schedule" has the meaning set forth in the preamble to
Article V.

"Parent Documents" has the meaning set forth in Section 5.1.

"Parent Financial Statements" has the meaning set forth in Section 5.4.

"Parent Interim Financial Statements" has the meaning set forth in Section
5.4.

"Parent Material Adverse Effect" has the meaning set forth in Section 5.2.

"Parent SEC Documents" has the meaning set forth in Section 5.4.

"Permits" (or "Permit" as the context may require) mean all licenses,
permits, certificates, certificates of occupancy, orders, approvals,
registrations, authorizations, inspections, qualifications and filings with and
under all federal, state, local or foreign laws and Governmental Entities.

"person" (or "persons" as the context may require) means any individual,
corporation, partnership, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, Governmental Entity or
other entity.

"Plan" or "Plans" has the meaning set forth in Section 4.23(a).

"property" (or "properties" as the context may require) means real, personal
or mixed property, tangible or intangible.

A-33
<PAGE>

"Proxy Statement" has the meaning set forth in Section 4.9.

"Receiving Party" has the meaning set forth in Section 14.1.

"Registration Statement" has the meaning set forth in Section 4.9.

"Releasing Party" has the meaning set forth in Section 14.1.

"Remedial Action" shall mean any action required to (i) clean up, remove or
treat Hazardous Materials; (ii) prevent a release or threat of release of any
Hazardous Material; (iii) perform pre-remedial studies, investigations or post-
remedial monitoring and care; (iv) cure a violation of Environmental Law or (v)
take corrective action under sections 3004(u), 3004(v) or 3008(h) of the
Resource Conservation Recovery Act, 42 U.S.C. (S)(S) 6901 et seq. or analogous
state law.

"SBA" has the meaning set forth in Section 4.2.

"SEC" means the Securities and Exchange Commission or any successor agency
or department.

"Securities Act" means the Securities Act of 1933, as amended, and the
regulations and rulings issued thereunder.

"Share Consideration" has the meaning set forth in Section 3.3(a).

"Sub" has the meaning set forth in the preamble hereof.

"Sub Common Stock" means the common stock, par value $.01 per share, of Sub.

"Subsidiaries" (or "Subsidiary" as the context may require), means each
entity as to which a person, directly or indirectly, owns or has the power to
vote, or to exercise a controlling influence with respect to, 50% or more of
the securities of any class of such entity, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election
of directors (or persons performing similar functions) of such entity.

"Surviving Corporation" has the meaning set forth in Section 1.1.

"Taxes" (or "Tax" as the context may require) means all federal, state,
county, local, foreign and other taxes (including, without limitation, income,
intangibles, premium, excise, sales, use, gross receipts, franchise, ad
valorem, severance, capital levy, transfer, employment and payroll-related, and
property taxes, import duties and other governmental charges and assessments),
and includes interest, additions to tax and penalties with respect thereto.

"Transaction Expenses" has the meaning set forth in Section 6.14.

"Voting Agreement" has the meaning set forth in Section 8.1.

A-34
<PAGE>

ARTICLE XIV.

Miscellaneous

Section 14.4. Publicity. So long as this Agreement is in effect, prior to
making a press release or other public statement with respect to the
transactions contemplated by this Agreement, any party (a "Releasing Party")
will consult with the other party (the "Receiving Party") and provide such
other party with a draft of such press release, except as may otherwise be
required by law or stock exchange regulations.

Section 14.2. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered, express mail or
nationally recognized courier service, postage prepaid. Any such notice shall
be deemed given when so delivered personally or successfully sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mails, as follows:

(i) if to Parent or Sub to:

Medallion Financial Corp.
437 Madison Avenue
New York, NY 10022
Attention: Andrew Murstein, President
Telecopy No.: (212) 328-2125

and

Medallion Financial Corp.
437 Madison Avenue
New York, NY 10022
Attention: Allen S. Greene, Chief Operating Officer
Telecopy No.: (212) 328-2125

with a concurrent copy to:

Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Christopher E. Manno, Esq.
Telecopy No.: (212) 728-8111

(ii) if to the Company to:

FreshStart Venture Capital Corp.
24-25 Jackson Avenue
Long Island City, NY 11101
Attention: Zindel Zelmanovitch, President
Telecopy No.: (718) 361-8295

with, prior to the Closing, a concurrent copy to:

Berlack, Israels & Liberman LLP
120 West 45th Street
New York, NY 10036
Attention: Alan N. Forman
Telecopy No.: (212) 704-0196

Any party may by notice given in accordance with this Section 14.2 to the
other parties designate another address or person for receipt of notices
hereunder.

A-35
<PAGE>

Section 14.3. Entire Agreement. This Agreement (including the exhibits and
schedules hereto) and the agreements contemplated hereby, including but not
limited to the Option Agreement, contain the entire agreement among the parties
with respect to the subject matter hereof, and supersede all prior agreements,
written or oral, with respect thereto.

Section 14.4. Waivers and Amendments; Non Contractual Remedies; Preservation
of Remedies; Liability. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof. Nor
shall any waiver on the part of any party of any such right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided are
cumulative and, except as provided (i) in Section 12.2 and (ii) if the Closing
occurs, in Section 11.2(a), are not exclusive of any rights or remedies that
any party may otherwise have at law or in equity. The rights and remedies of
any party based upon, arising out of or otherwise in respect of any inaccuracy
in or breach of any representation, warranty, covenant or agreement contained
in this Agreement shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in this Agreement (or
in any other agreement between the parties) as to which there is no inaccuracy
or breach. The limitations on claims set forth in this Section 14.4 and
elsewhere in this Agreement (including Article XI) shall not apply in the case
of fraud on the part of the Company.

Section 14.5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.

Section 14.6. Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns and heirs and legal representatives. Neither this Agreement, nor
any right hereunder, may be assigned by any party without the prior written
consent of the other party hereto; provided, however, that Parent and Merger
Subsidiary may assign their rights (but not their obligations) hereto to their
Subsidiaries.

Section 14.7. Third Party Beneficiaries. Except for Sections 3.6, 6.22(b)
and 6.23, nothing in this Agreement is intended or shall be construed to give
any person, other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein.

Section 14.8. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.

Section 14.9. Exhibits and Schedules. The exhibits and schedules hereto are
a part of this Agreement as if fully set forth herein. All references herein to
Articles, Sections, subsections, clauses, exhibits and schedules shall be
deemed references to such parts of this Agreement, unless the context shall
otherwise require.

Section 14.10. Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.

Section 14.11. Submission to Jurisdiction; Venue. Any action or proceeding
against any party hereto with respect to this Agreement shall be brought in the
courts of the State of Delaware or of the United States for the District of
Delaware, and, by execution and delivery of this Agreement, each party hereto
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each party
hereto irrevocably consents to the service of process at any of the
aforementioned

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<PAGE>

courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth in Section 14.2, such service to become effective 30 days after such
mailing. Nothing herein shall affect the right of any party hereto to serve
process on any other party hereto in any other manner permitted by law. Each
party hereto irrevocably waives any objection which it may now have or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to above and hereby further irrevocably waives and agrees not
to plead or claim in any such court that any such action or proceeding brought
in any such court has been brought in an inconvenient forum.

Section 14.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.

Section 14.13. Severability. If any court of competent jurisdiction
determines that any provision of this Agreement is not enforceable in
accordance with its terms, then such provision shall be deemed to be modified
so as to apply such provision, as modified, to the protection of the legitimate
interests of the parties hereto to the fullest extent legally permissible and
shall not affect the validity or enforceability of the remaining provisions of
this Agreement.

[Signature Pages Follow.]

IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.

Medallion Financial Corp.

/s/ Alvin Murstein
By:
------------------------------
Name: Alvin Murstein
Title: Chief Executive Officer

FS Merger Corp.

/s/ Alvin Murstein
By:
------------------------------
Name: Alvin Murstein
Title: Chairman

Freshstart Venture Capital Corp.

/s/ Zindel Zelmanovitch
By:
------------------------------
Name: Zindel Zelmanovitch
Title: President

A-37
<PAGE>

Appendix A-1

THIS AMENDMENT NO. 1 to that certain agreement and Plan of Merger, dated as
of December 22, 1999 (the "Merger Agreement"), by and among Medallion
Financial Corp., FS Merger Corp. and Freshstart Venture Capital Corp. is made,
executed and delivered as of this 19th day of June, 2000 by the parties hereto
pursuant to Section 14.4 of the Merger Agreement. All capitalized terms not
otherwise defined shall have the meanings ascribed to such terms in the Merger
Agreement.

WITNESSETH:

WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Code;
and

WHEREAS, the parties desire to extend the termination date for the Merger
Agreement.

NOW, THEREFORE, the parties hereto agree as follows:

1.1 Amendment. Section 7.7 of the Merger Agreement hereby states:

"Section 7.7. Redemption of Preferred Stock. The Company shall have
redeemed all of the outstanding shares of Company Preferred Stock."

1.2 Amendment. Section 12.1 of the Merger Agreement hereby states:

"Section 12.1 Termination. This Agreement may be terminated prior to the
Closing as follows:

(a) by either Parent or the Company if the Merger shall not have been
consummated on or before August 15, 2000;

(b) by the Company if any of the conditions specified in Article VII
or IX have not been met or waived by the Company at such time as any
such condition is no longer capable of satisfaction;

(c) by Parent if any of the conditions specified in Article VII or
VIII have not been met or waived by Parent at such time as any such
condition is no longer capable of satisfaction;

(d) by Parent if the Company or the Company Stockholders who are
parties to the Voting Agreement shall have breached any of their
respective obligations under Article VI of this Agreement or the Voting
Agreement in any material respect and such breach continues for a period
of ten days after the receipt of notice of the breach from Parent;

(e) by the Company if Parent or Sub shall have breached any of their
respective obligations under Article VI of this Agreement in any
material respect and such breach continues for a period of ten days
after the receipt of notice of the breach from the Company;

(f) by the Company if its Board of Directors, in the exercise of its
fiduciary duties, accepts an Acquisition Proposal;

(g) by Parent if the average of the closing sales prices per share of
Parent Common Stock on the NASDAQ National Market for the Determination
Period is less than $12.00; or

(h) at any time on or prior to the Closing Date, by mutual written
consent of Parent, Sub and the Company."

1.3. Counterparts. This agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto.

1.4. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.

A-1-1
<PAGE>

IN WITNESS WHEREOF, the parties have executed this agreement on the date
first above written.

Medallion Financial Corp.

/s/ Andrew Murstein
By: _________________________________
Name: Andrew Murstein
Title:President

FS Merger Corp.

/s/ Andrew Murstein
By: _________________________________
Name: Andrew Murstein
Title:President

Freshstart Venture Capital Corp.

/s/ Zindel Zelmanovitch
By: _________________________________
Name: Zindel Zelmanovitch
Title:President

A-1-2
<PAGE>

Appendix A-2

THIS AMENDMENT NO. 2 to that certain agreement and Plan of Merger, dated as
of December 22, 1999 (the "Merger Agreement"), by and among Medallion Financial
Corp., FS Merger Corp. and Freshstart Venture Capital Corp. is made, executed
and delivered as of this 10th day of August, 2000 by the parties hereto
pursuant to Section 14.4 of the Merger Agreement. All capitalized terms not
otherwise defined shall have the meanings ascribed to such terms in the Merger
Agreement.

W I T N E S S E T H:

WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Code;
and

WHEREAS, the parties desire to extend the termination date for the Merger
Agreement.

NOW, THEREFORE, the parties hereto agree as follows:

1.1 Amendment. Section 12.1 of the Merger Agreement hereby states:

"Section 12.1 Termination. This Agreement may be terminated prior to the
Closing as follows:

(a) by either Parent or the Company if the Merger shall not have
been consummated on or before September 30, 2000;

(b) by the Company if any of the conditions specified in Article VII
or IX have not been met or waived by the Company at such time as any
such condition is no longer capable of satisfaction;

(c) by Parent if any of the conditions specified in Article VII or
VIII have not been met or waived by Parent at such time as any such
condition is no longer capable of satisfaction;

(d) by Parent if the Company or the Company Stockholders who are
parties to the Voting Agreement shall have breached any of their
respective obligations under Article VI of this Agreement or the Voting
Agreement in any material respect and such breach continues for a
period of ten days after the receipt of notice of the breach from
Parent;

(e) by the Company if Parent or Sub shall have breached any of their
respective obligations under Article VI of this Agreement in any
material respect and such breach continues for a period of ten days
after the receipt of notice of the breach from the Company;

(f) by the Company if its Board of Directors, in the exercise of its
fiduciary duties, accepts an Acquisition Proposal;

(g) by Parent if the average of the closing sales prices per share
of Parent Common Stock on the NASDAQ National Market for the
Determination Period is less than $12.00; or

(h) at any time on or prior to the Closing Date, by mutual written
consent of Parent, Sub and the Company."

1.2. Counterparts. This agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.

A-2-1
<PAGE>

1.3. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.

IN WITNESS WHEREOF, the parties have executed this agreement on the date
first above written.

Medallion Financial Corp.

/s/ Andrew Murstein
By: _________________________________
Name: Andrew Murstein
Title:President

FS Merger Corp.

/s/ Andrew Murstein
By: _________________________________
Name: Andrew Murstein
Title:President

Freshstart Venture Capital Corp.

/s/ Zindel Zelmanovitch
By: _________________________________
Name: Zindel Zelmanovitch
Title:President

A-2-2
<PAGE>

APPENDIX B

SELECTED PROVISIONS OF NEW YORK BUSINESS CORPORATION LAW

Section 623. Procedure to Enforce Shareholders' Right to Receive Payment for
Shares.

(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a vote, or at such
meeting but before the vote, written objection to the action. The objection
shall include a notice of his election to dissent, his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares if the action is taken. Such
objection is not required from any shareholder to whom the corporation did not
give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.

(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall
give written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to
the proposed action and who thereby is deemed to have elected not to enforce
his right to receive payment for his shares.

(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (merger of subsidiary
corporation) or paragraph (c) of section 907 (merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election
to dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.

(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.

(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenter's rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by
the board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been taken in
the interim.

B-1
<PAGE>

(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate
bearing such notation, each new certificate issued therefor shall bear a
similar notation together with the name of the original dissenting holder of
the shares and a transferee shall acquire no rights in the corporation except
those which the original dissenting shareholder had at the time of the
transfer.

(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares at
a specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment
to each such shareholder who has submitted the certificates representing his
shares to the corporation, as provided in paragraph (f), of an amount equal to
eighty percent of the amount of such offer, or (2) as to each shareholder who
has not yet submitted his certificates a statement that advance payment to him
of an amount equal to eighty percent of the amount of such offer will be made
by the corporation promptly upon submission of his certificates. If the
corporate action has not been consummated at the time of the making of the
offer, such advance payment or statement as to advance payment shall be sent to
each shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does
not constitute a waiver of any dissenters' rights. If the corporate action has
not been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than
a twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such balance
sheet or profit and loss statement or statements were previously furnished, nor
if in connection with obtaining the shareholders' authorization for or consent
to the proposed corporate action the shareholders were furnished with a proxy
or information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be
paid for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.

(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:

(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in

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which the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation,
whose shares are to be valued, was located.

(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.

(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in
such other manner as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.

(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature
of the transaction giving rise to the shareholder's right to receive
payment for shares and its effects on the corporation and its shareholders,
the concepts and methods then customary in the relevant securities and
financial markets for determining fair value of shares of a corporation
engaging in a similar transaction under comparable circumstances and all
other relevant factors. The court shall determine the fair value of the
shares without a jury and without referral to an appraiser or referee. Upon
application by the corporation or by any shareholder who is a party to the
proceeding, the court may, in its discretion, permit pretrial disclosure,
including, but not limited to, disclosure of any expert's reports relating
to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101
of the civil practice law and rules.

(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.

(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of
interest which the corporation would have had to pay to borrow money during
the pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.

(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by any or all dissenting shareholders who are parties to the
proceeding against the corporation if the court find any of the following:
(A) that the fair value of the shares as determined materially exceeds the
amount which the

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corporation offered to pay; (B) that no offer or required advanced payment
was made by the corporation; (C) that the corporation failed to institute
the special proceeding within the period specified therefor; or (D) that
the action of the corporation in complying with its obligations as provided
in this section was arbitrary, vexatious or otherwise not in good faith. In
making any determination as provided in clause (A), the court may consider
the dollar amount or the percentage, or both, by which the fair value of
the shares as determined exceeds the corporate offer.

(8) Within sixty days after final determination of the proceedings, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented
by certificates.

(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be canceled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.

(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:

(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or

(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares,
which right the corporation shall be obliged to satisfy when the
restrictions of this paragraph do not apply.

(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty
days.

(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.

(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).

(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (merger or consolidation of domestic and
foreign corporations).

Section 910. Right of Shareholder to Receive Payment for Shares Upon merger or
Consolidation, or Sale, Lease, Exchange or Other Disposition of
Assets, or merger.

(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:

(1) Any shareholder entitled to vote who does not assent to the taking
of an action specified in clauses (A), (B), or (C).

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(A) Any plan of merger or consolidation to which the corporation is
a party; except that the right to receive payment of the fair value of
his shares shall not be available.

(i) To a shareholder of the parent corporation in a merger
authorized by section 905 (merger of parent and subsidiary
corporations) or paragraph (c) of section 907 (merger or
consolidation of domestic and foreign corporations); or

(ii) To a shareholder of the surviving corporation in a merger
authorized by this article, other than a merger specified in
subclause (i), unless such merger effects one or more of the changes
specified in subparagraph (b)(6) of section 806 (Provisions as to
certain proceedings) in the rights of the shares held by such
shareholder; or

(iii) Notwithstanding subclause (ii) of this clause, to a
shareholder for the shares of any class or series of stock, which
shares or depository receipts in respect thereof, at the record date
fixed to determine the shareholders entitled to receive notice of
the meeting of shareholders to vote upon the plan of merger or
consolidation, were listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc.

(B) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation which requires
shareholder approval under section 909 (Sale, lease, exchange or other
disposition of assets) other than a transaction wholly for cash where
the shareholders' approval thereof is conditioned upon the dissolution
of the corporation and the distribution of substantially all its net
assets to the shareholders in accordance with their respective
interests within one year after the date of such transaction.

(C) Any share exchange authorized by section 913 in which the
corporation is participating as a subject corporation; except that the
right to receive payments of the fair value of his shares shall not be
available to a shareholder whose shares have not been acquired in the
exchange or to a shareholder for the shares of any class or series of
stock, which shares or depository receipts in respect thereof, at the
record date fixed to determine the shareholders entitled to receive
notice of the meeting of shareholders to vote upon the plan of
exchange, were listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc.

(2) Any shareholder of the subsidiary corporation in a merger authorized
by section 905 or paragraph (c) of section 907, or in a share exchange
authorized by paragraph (g) of section 913, who files with the corporation
a written notice of election to dissent as provided in paragraph (c) of
section 623.

(3) Any shareholder, not entitled to vote with respect to a plan of
merger or consolidation to which the corporation is a party, whose shares
will be canceled or exchanged in the merger or consolidation for cash or
other consideration other than shares of the surviving or consolidated
corporation or another corporation.

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