As filed with the Securities and Exchange Commission on September 22, 1998
- --------------------------------------------------------------------------------
Registration No.______
Investment Company
Act File No. 811-8847
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Ameritrans Capital Corporation
(Exact Name of Registrant as Specified in Charter)
(800) 214-1047
(Area Code and Telephone Number)
747 Third Avenue, 4th Floor, New York, New York 10017
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
Gary C. Granoff, Ameritrans Capital Corporation
747 Third Avenue, 4th Floor, New York, New York 10017
with a copy to:
Walter Stursberg, Esq., Stursberg & Veith
405 Lexington Avenue, Suite 4949, New York, New York 10174-4902
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the effectiveness of this Registration Statement and after the satisfaction or
waiver of all other conditions to the share exchange between the Registrant and
Elk Associates Funding Corporation pursuant to the Agreement and Plan of Share
Exchange described in the Proxy Statement/Prospectus included as part of this
Registration Statement.
<TABLE>
<CAPTION>
Calculation of Registration Fee under the Securities Act of 1933
Title of Securities Amount Being Proposed Maximum Offering Proposed Maximum Amount of
Being Registered Registered(1) Price Per Share(2) Aggregate Offering Price(2) Registration Fee(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.0001 par value per
share 1,745,600 $9.125 $15,928,600.00 $4,698.94
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon an estimate of the maximum number of shares of common stock
of the Registrant that will be issuable in the share exchange.
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file further amendment which specifically states that this Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said section 3(a) may determine.
<PAGE>
AMERITRANS CAPITAL CORPORATION
Registration Statement on Form N-14
Cross-Reference Sheet Required by Rule 481(a) under the Securities Act of
1933 Showing the Location in the Proxy Statement/Prospectus
of the Information Required by
Part A of Form N-14
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
Location or Section
in Proxy Statement/
Form N-14 Item Prospectus
- -------------- -------------------
<S> <C>
1. Beginning of Registration Statement
and Outside Front Cover Page of
Prospectus............................................................. Cross-Reference Sheet; Cover Page
of Proxy Statement/Prospectus
2. Beginning and Outside Back Cover Page
of Prospectus.......................................................... Table of Contents
3. Synopsis Information and Risk Factors.................................. SUMMARY
4. Information About the Transaction...................................... THE SHARE EXCHANGE
5. Information About the Registrant....................................... INFORMATION CONCERNING AMERITRANS
CAPITAL CORPORATION
6. Information About the Company Being
Acquired............................................................... INFORMATION CONCERNING ELK
ASSOCIATES FUNDING CORPORATION
7. Voting Information..................................................... INFORMATION CONCERNING THE
SPECIAL MEETING
8. Interest of Certain Persons
and Experts............................................................ EXPERTS
9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters........................................................... Not Applicable
</TABLE>
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
747 Third Avenue
4th Floor
New York, New York 10017
Notice of Special Meeting of Shareholders
to be held on , 1998
A Special Meeting of Shareholders of Elk Associates Funding Corporation, a
New York corporation ("Elk"), will be held in _________________, on ___________,
1998, at 10:00 a.m. (New York Time) to consider and act upon the following
matters:
1. To consider and vote upon the adoption of an Agreement and Plan of Share
Exchange (the "Share Exchange Plan") dated _______ ___, 1998, between Ameritrans
Capital Corporation, a newly-formed Delaware corporation ("Ameritrans"), and
Elk, pursuant to which each outstanding share of common stock of Elk would be
exchanged for one share of common stock of Ameritrans. Pursuant to this share
exchange (the "Share Exchange"), the ownership of each outstanding share of Elk
common stock would automatically vest in Ameritrans (making Ameritrans the
holder of all outstanding shares of Elk common stock), and the holders of the
outstanding shares of Elk common stock would automatically become entitled to
receive one share of Ameritrans common stock for each share of Elk common stock
held by them (making the former holders of Elk common stock the holders of all
of the shares of capital stock of Ameritrans then outstanding). A more complete
description of the Share Exchange is contained in the enclosed Proxy
Statement/Prospectus, and a copy of the Share Exchange Plan is attached as
Exhibit A to the Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the meeting
or any adjournment or adjournments of the meeting.
Holders of record of Elk common stock at the close of business on
____________, 1998, are entitled to notice of and to vote at the meeting. The
stock transfer books of Elk will remain open.
If the Share Exchange Plan is approved by Elk stockholders at the meeting
and effected by Elk, any stockholder who (i) files with Elk, before the vote on
the adoption of the Share Exchange Plan, a written objection to the proposed
Share Exchange Plan that includes notice of his election to dissent, his name
and address, the number of shares of Elk common stock held, and a demand for
payment of the fair value of his shares if the Share Exchange is effected; (ii)
does not vote his shares in favor of the Share Exchange Plan; 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 Ameritrans common stock pursuant to the Share
Exchange. Elk and any such stockholder 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 STOCKHOLDERS" in
the accompanying Proxy Statement/Prospectus for a more complete description of
the rights of dissenting stockholders.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
Margaret Chance, Secretary
___________, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES.
<PAGE>
PROXY STATEMENT/PROSPECTUS
September , 1998
-----------------------------------------------------------
PROXY STATEMENT
ELK ASSOCIATES FUNDING CORPORATION
747 Third Avenue, 4th Floor
New York, New York 10017
(212) 355-2449
-----------------------------------------------------------
PROSPECTUS
AMERITRANS CAPITAL CORPORATION
747 Third Avenue, 4th Floor
New York, New York 10017
(800) 214-1047
1,745,600 Shares of Common Stock,
$.0001 par value per share
-----------------------------------------------------------
This Proxy Statement/Prospectus is being furnished to stockholders of Elk
Associates Funding Corporation, a New York corporation ("Elk"), in connection
with the proposed share exchange (the "Share Exchange") between Ameritrans
Capital Corporation, a newly-formed Delaware corporation ("Ameritrans"), and
Elk, in accordance with an Agreement and Plan of Share Exchange between
Ameritrans and Elk, dated ___________, 1998 (the "Share Exchange Plan"). Both
Ameritrans and Elk are closed-end management investment companies registered
under the Investment Company Act of 1940, and Elk is a small business investment
company ("SBIC") registered under the Small Business Investment Company Act of
1958, as amended (the "1958 Act"). Pursuant to the terms of the Share Exchange
Plan, each outstanding share of common stock, par value $.01 per share, of Elk
("Elk Common Stock") would be exchanged for one (1) share of common stock,
$.0001 par value per share, of Ameritrans ("Ameritrans Common Stock"), making
Ameritrans the holder of all outstanding shares of Elk Common Stock and the
parent corporation of Elk. The former holders of Elk Common Stock would become
the holders of all of the shares of capital stock of Ameritrans then
outstanding. Ameritrans would serve as the parent corporation of Elk. It is
contemplated that Ameritrans will engage in broader and more diversified
investment and lending business activities directly, as well as through a newly
formed subsidiary ("Elk Capital"), which business activities Elk, as an SBIC, is
not permitted to transact under the 1958 Act. This Proxy Statement/Prospectus is
being furnished to Elk stockholders for the purposes of (1) the solicitation of
proxies by the Board of Directors of Elk for use at the Special Meeting of
Stockholders of Elk to be held on , 1998, at 10:00 a.m. (New York Time) at the
offices of Stursberg & Veith, 405 Lexington Avenue, New York, New York, and at
any adjournment thereof, at which Elk stockholders will be asked to consider and
vote upon the adoption of the Share Exchange Plan, and (2) the offer and
issuance of up to 1,745,600 shares of Ameritrans Common Stock issuable to
holders of Elk Common Stock pursuant to the terms of the Share Exchange Plan.
<PAGE>
Since June 22, 1998, Elk's Common Stock has been listed on the Nasdaq
SmallCap Market under the symbol EKFG. If the Share Exchange is completed,
Ameritrans' Common Stock will be listed on the Nasdaq SmallCap Market under the
symbol ___________, and the listing of Elk's Common Stock will be terminated.
-----------------------------------------------------------
This Proxy Statement/Prospectus sets forth concisely the information
about Ameritrans that a prospective investor should know before investing and
should be retained for future reference. Additional information about Ameritrans
is included in a Statement of Additional Information, also dated _________
, 1998, which has been filed with the Securities and Exchange Commission and
has been distributed to Elk stockholders along with this Proxy
Statement/Prospectus. Copies of such Statement of Additional Information are
available upon oral or written request without charge from Ameritrans Capital
Corporation, Attn: Secretary, 747 Third Avenue, 4th Floor, New York, New York
10017, (800) 214-1047.
-----------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY .................................................................... 1
INFORMATION CONCERNING THE SPECIAL MEETING................................... 4
Date, Time, Place and Purpose....................................... 4
Voting and Revocation of Proxies.................................... 4
Record Date and Shares entitled to Vote............................. 5
Vote Required....................................................... 5
THE SHARE EXCHANGE........................................................... 5
Background.......................................................... 5
Effect of the Share Exchange........................................ 6
Effective Date...................................................... 6
Conditions to the Share Exchange.................................... 6
Federal Income Tax Consequences..................................... 7
Accounting Treatment................................................ 8
Unaudited Pro Forma Capitalization.................................. 8
INFORMATION CONCERNING ELK................................................... 10
General ........................................................... 10
Selected Financial Information...................................... 14
Loan Portfolio; Valuation........................................... 16
The New York City Taxi Medallion Industry and Market................ 18
Marketing Strategy for Medallion Financing.......................... 19
Competition......................................................... 19
Investment Policies................................................. 19
The Small Business Investment Act of 1958........................... 21
The Investment Company Act of 1940.................................. 24
Election to Become a BDC............................................ 25
Security Ownership of Principal Stockholders and Management......... 26
Management.......................................................... 28
Description of Capital Stock........................................ 35
Market Information.................................................. 36
Tax Considerations.................................................. 37
INFORMATION CONCERNING AMERITRANS............................................ 39
General ........................................................... 39
Investment Policies................................................. 39
Corporate Organizational Matters.................................... 41
Federal Regulation.................................................. 48
Management and Principal Stockholders............................... 48
Description of Capital Stock........................................ 49
Market Information.................................................. 49
Tax Considerations.................................................. 49
Elk Capital Corporation............................................. 51
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS.................................. 51
EXPERTS .................................................................... 52
OTHER MATTERS................................................................ 52
ADDITIONAL INFORMATION....................................................... 52
EXHIBITS
PROXY
AMERITRANS STATEMENT OF ADDITIONAL INFORMATION
FINANICAL STATEMENTS
<PAGE>
SUMMARY
This Proxy Statement/Prospectus is being furnished to stockholders of Elk
Associates Funding Corporation, a New York corporation ("Elk"), in connection
with the proposed share exchange (the "Share Exchange") between Ameritrans
Capital Corporation, a Delaware corporation ("Ameritrans"), and Elk, in
accordance with an Agreement and Plan of Share Exchange between Ameritrans and
Elk dated _________ ____, 1998, a copy of which is attached hereto as Exhibit A
(the "Share Exchange Plan"). A Special Meeting of Stockholders of Elk (the
"Special Meeting") has been called for , 1998 at 10:00 a.m. (New York Time) at
the offices of Stursberg & Veith, 405 Lexington Avenue, New York, New York, for
the purposes of voting on the adoption of the Share Exchange Plan.
Elk
Elk was formed on July 9, 1979 for the purpose of operating as a
Specialized Small Business Investment Company ("SSBIC"), licensed under the
Small Business Investment Act of 1958, (the "1958 Act"), and regulated and
financed in part by the U.S. Small Business Administration (the "SBA"). Elk was
granted a license to operate as an SSBIC by the SBA on July 24, 1980, is
registered as a closed-end, non-diversified management investment company under
the Investment Company Act of 1940 (the "1940 Act"), and has elected to be taxed
as a "regulated investment company" under the Internal Revenue Code of 1954, as
amended (the "Code") since the fiscal year ended June 30, 1984. Elk intends to
elect to be taxed as a regulated investment company for the fiscal year ending
June 30, 1999. Elk's business has historically been to provide financing to
persons who qualify under SBA regulations as socially or economically
disadvantaged persons or to entities which are at least 50% owned by such
persons ("Disadvantaged Concerns").
The 1958 Act was amended on September 30, 1996, and in connection
therewith, Elk entered into an agreement with the SBA in March, 1997, and
amended its Certificate of Incorporation, the effect of which was to convert Elk
from an SSBIC to a Small Business Investment Company ("SBIC"). As such, Elk may
now lend to persons who are not "disadvantaged" so long as Elk's aggregate loans
to Disadvantaged Concerns are at least equal to the sum of (i) the remaining
amount of Elk's subsidized SBA debentures outstanding, which was $1,500,000 at
June 30, 1998 (but which will no longer have a subsidized rate of interest as of
September 30, 1998, and will therefore be excluded from this computation), and
(ii) the remaining amount of Elk's unamortized Restricted Capital Account (as
hereinafter defined) resulting from the repurchase by Elk of its 3% Preferred
Stock from the SBA, which Restricted Capital Account was $968,368 at June 30,
1998. The remaining outstanding (i) principal balance of SBA subordinated
debentures and (ii) Restricted Capital Account as of June 30, 1998, aggregating
$2,468,368, represented less than 10% of Elk's loan portfolio of $41,295,000 as
of that date.
As of June 30, 1998, more than 95% of Elk's loans and investments qualified
as loans to Disadvantaged Concerns. As a result of Elk's conversion to an SBIC,
Elk is only required to maintain approximately 10% of its portfolio as loans to
such persons. Accordingly, while Elk intends to continue to make loans to
Disadvantaged Concerns, particularly in connection with the ownership of
taxicabs and related assets in the New York City, Chicago, Boston, and Miami
markets, where many of the borrowers may qualify as Disadvantaged Concerns, Elk
intends to diversify its activities by lending and investing in a broader range
of businesses eligible for investments by SBICs under the 1958 Act ("Small
Business Concerns"), many of which, it is anticipated, may not be Disadvantaged
Concerns. In addition, Ameritrans, the new parent company, would have the
ability to acquire or engage directly in businesses other than that of Elk,
either directly or through Elk Capital.
To the best of its knowledge, Elk has never experienced any losses of
principal during its 18 year history of making loans in connection with the
ownership of New York City taxicab medallions, taxicabs and related assets, and
its approximately 40 months of making taxi medallion loans in Boston, Chicago
and Miami. Elk will continue to make loans in these markets without the
historical restriction of lending solely to Disadvantaged Concerns. Loans made
by Elk for the purpose of financing the purchase or continued ownership of
taxicab medallions, taxicabs and related assets, represented approximately 84.5%
of Elk's
<PAGE>
loan portfolio as of June 30, 1998. Loans made to finance the acquisition and/or
operation of other Small Business Concerns constitute the balance of Elk's
current loan portfolio, and it intends to continue to make such loans.
By Agreement dated November 10, 1994, Elk repurchased all of the 547,271
outstanding shares of its 3% preferred stock from the SBA for an aggregate price
of $1,915,449, representing a discount of 65.0% from the original aggregate
issuance price of $10 per share. As a condition precedent to the repurchase, Elk
granted the SBA a liquidating interest in a newly established restricted capital
surplus account (the "Restricted Capital Account"). The Restricted Capital
Account is equal to the amount of the net repurchase discount in which the SBA
received a liquidating interest amortized over 60 months commencing November 10,
1994. However, if Elk is liquidated or if a material violation of SBA
regulations occurs during the amortization period, the SBA would receive the
remaining unamortized amount of the Restricted Capital Account prior to the
stockholders of Elk receiving any amounts on their Common Stock. The unamortized
balance of the SBA's liquidating interest at June 30, 1998 was $968,368.
Elk has elected, effective September 28, 1998, to become a business
development company ("BDC") under the 1940 Act. See "INFORMATION CONCERNING ELK
- -- Election to Become a BDC."
Ameritrans
Ameritrans was formed as a Delaware corporation on February 12, 1998, for
the purposes of (1) acquiring and owning all of the outstanding Elk Common Stock
pursuant to the Share Exchange, and (2) engaging in broader and more diversified
investment and lending business activities directly, as well as through a
newly-formed subsidiary, Elk Capital, which business activities Elk, as an SBIC,
is not permitted to transact under the 1958 Act. Any such activities or
operations would conform to the investment policies of Ameritrans described
below. Ameritrans is registered under the 1940 Act as a closed-end,
non-diversified management investment company. Ameritrans will also elect to
become a BDC pursuant to the 1940 Act prior to the completion of the Share
Exchange. See "INFORMATION CONCERNING ELK -- Election to Become a BDC."
Following the consummation of the Share Exchange, Ameritrans plans to
engage in broader and more diversified investment and lending activities
directly and, if it is in the best interests of its shareholders, through Elk
Capital. It is anticipated that Elk Capital will also make investments and/or
loans and engage in businesses Elk is not permitted to make under the 1958 Act.
As a result, stockholders should realize that, in approving the Share
Exchange Plan, they are giving broad discretion to the management of Ameritrans.
In addition to serving as the parent corporation of both Elk and Elk
Capital, Ameritrans intends to engage in certain investment or other activities
directly (and indirectly through Elk Capital and/or other subsidiaries).
The investment policies of Ameritrans will allow greater flexibility in its
investment and lending business activities than the investment policies of Elk.
Because Ameritrans will not be licensed under the 1958 Act, it will not issue
any debt or equity securities to the SBA. In addition, because it is anticipated
that Ameritrans will engage as described above in a broader range of investment
activities than does Elk, the ownership of Ameritrans Common Stock may be
subject to a higher degree of risk than is the ownership of Elk Common Stock.
See "INFORMATION CONCERNING AMERITRANS -- Investment Policies." In addition,
Ameritrans intends to make application to the Securities and Exchange Commission
("SEC") for an increase in the limitations imposed by the 1940 Act with respect
to the asset coverage ratios set forth in the 1940 Act.
It is expected that the funds necessary to finance the capitalization of
Ameritrans and Elk Capital will be provided by Elk to Ameritrans from the
approximately $3.0 million of gross proceeds from the private placement
-2-
<PAGE>
of 462,000 shares of common stock of Elk completed in January, 1998 (up to a
maximum of $963,000), or through borrowings by Ameritrans.
The directors and officers of Ameritrans are the same individuals who serve
as the directors and officers of Elk. It is expected that following the
consummation of the Share Exchange, such officers and directors will initially
receive the same compensation, but such compensation will be allocated between
Elk and Ameritrans, based upon factors determined by their respective Boards of
Directors. Such officers and directors may also receive increases in
compensation from time to time as determined by the Boards of Directors.
Ameritrans and/or Elk may also hire additional personnel as such personnel are
needed in connection with the expansion and diversification of their lending
and/or investment activities. See "INFORMATION CONCERNING AMERITRANS --
Management and Principal Stockholders." The rights of the holders of Ameritrans
Common Stock will be substantially the same as the rights of holders of Elk
Common Stock. See "INFORMATION CONCERNING AMERITRANS -- Description of Capital
Stock." The Certificate of Incorporation and By-laws of Ameritrans will differ
in certain respects from the Certificate of Incorporation and By-laws of Elk
and, whereas Elk is governed by New York Business Corporation Law, Ameritrans is
governed by Delaware General Corporation Law. For a description of the
significant differences, see "INFORMATION CONCERNING AMERITRANS -- Corporate
Organizational Matters."
The Share Exchange
Pursuant to the terms of the Share Exchange Plan, each share of Elk Common
Stock would be exchanged for one share of Ameritrans Common Stock. As a result
of the Share Exchange, (i) Ameritrans would be the sole holder of all of the
outstanding Elk Common Stock, and (ii) the former holders of the outstanding
shares of Elk Common Stock (other than those dissenting stockholders who
exercise appraisal rights, as described below) would be the sole holders of
outstanding Ameritrans Common Stock (which would represent the only capital
stock of Ameritrans outstanding at the time of the Share Exchange), and would
hold the Ameritrans Common Stock in the same relative proportions as they hold
Elk Common Stock at the time of the Share Exchange. See "THE SHARE EXCHANGE."
As an SBIC, Elk is allowed to make investments only to Small Business
Concerns, and a portion of its loans (which is expected to be $790,505 as of
September 30, 1998) must be made to Disadvantaged Concerns. The purpose of the
Share Exchange is to secure to the holders of Elk Common Stock the benefit of a
more diversified investment strategy, which the Board of Directors of Elk
believes would be in the best interests of Elk's stockholders. After
consideration of the relevant business and legal issues, Elk's Board of
Directors has concluded that the best way to establish an entity that may pursue
a strategy that includes, but is not limited to, investments in Disadvantaged
and Small Business Concerns, and the investment activities of which would accrue
to the benefit of the current holders of Elk Common Stock, is to effect the
Share Exchange, which would create a parent corporation (Ameritrans) that would
be owned by the current holders of Elk Common Stock and that would own all of
the outstanding Elk Common Stock. Ameritrans could then engage in broader and
more diversified lending business activities directly or indirectly through its
newly-formed subsidiary, Elk Capital, which business activities would be free
from the restrictions imposed by the 1958 Act. Because Elk and Elk Capital would
be subsidiaries of Ameritrans, the income derived from the activities of Elk and
Elk Capital, as well as from any activities of Ameritrans (either directly or
through other subsidiaries), would benefit the current holders of Elk Common
Stock (who, by virtue of the Share Exchange, would be the holders of Ameritrans
Common Stock).
The Share Exchange is intended to constitute a tax-free transfer under
Section 351 of the Code, in which case (1) no gain or loss would be recognized
by either Ameritrans or Elk, and (2) no gain or loss would be recognized by Elk
stockholders (except with respect to any cash received by holders of Elk Common
Stock exercising appraisal rights). See "THE SHARE EXCHANGE -- Federal Income
Tax Consequences."
The adoption of the Share Exchange Plan requires the affirmative vote of
the holders of two-thirds (66.67%) of the outstanding shares of Elk Common
Stock. As of June 30, 1998, Elk had 1,745,600 shares
-3-
<PAGE>
of Common Stock outstanding. Certain directors and officers of Elk owning an
aggregate of approximately 56% of the outstanding shares of Elk Common Stock
have expressed an intention to vote in favor of the adoption of the Share
Exchange Plan. The Share Exchange is also subject to the approval of the SBA.
Holders of Elk Common Stock who object to the Share Exchange may elect to
receive payment of the fair value of their shares of Elk Common Stock (as
determined by agreement with Elk or by a court) in lieu of the Ameritrans Common
Stock they would otherwise receive pursuant to the Share Exchange. In order to
enforce his or her right to receive such payment, a dissenting stockholder must
(1) file with Elk, before the stockholder vote on the Share Exchange Plan is
taken, a written objection to the Share Exchange that includes a notice of his
or her election to dissent, his or her name and address, the number of shares of
Elk Common Stock held by him and a demand for payment of the fair value of such
shares if the Share Exchange is consummated, (2) not vote in favor of the
adoption of the Share Exchange Plan, and (3) otherwise comply with the
requirements of Section 623 of New York Business Corporation Law, the full text
of which is set forth as Exhibit B hereto. Any deviation from such requirements
may result in the forfeiture of appraisal rights. Failure to vote against the
Share Exchange Plan will not constitute a waiver of appraisal rights; however,
since a proxy left blank will be voted FOR the adoption of the Share Exchange
Plan, any Elk stockholder who wishes to exercise his or her appraisal rights
with respect to the Share Exchange must either vote AGAINST the Share Exchange
Plan or abstain. See "APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS."
The Board of Directors of Elk has determined that if the holders of more
than 2% of the outstanding shares exercise their appraisal rights, Elk may
determine not to proceed with the Share Exchange.
THE BOARD OF DIRECTORS OF ELK BELIEVES THAT THE SHARE EXCHANGE IS IN THE
BEST INTERESTS OF ELK STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE SHARE EXCHANGE
PLAN, AND UNANIMOUSLY RECOMMENDS THAT ELK STOCKHOLDERS VOTE FOR THE ADOPTION OF
THE SHARE EXCHANGE PLAN.
INFORMATION CONCERNING THE SPECIAL MEETING
Date, Time, Place and Purpose
The Special Meeting will be held on , 1998 at 10:00 a.m. (New York Time) at
the offices of Stursberg & Veith, 405 Lexington Avenue, New York, New York. The
purpose of the Special Meeting is to consider and vote on the adoption of the
Share Exchange Plan, pursuant to which the Share Exchange would be effected.
Voting and Revocation of Proxies
The proxy accompanying this Proxy Statement/Prospectus is solicited by the
Board of Directors of Elk for use at the Special Meeting. Holders of Elk Common
Stock are requested to complete, date and sign the accompanying proxy and return
it promptly in the enclosed envelope.
All shares of Elk Common Stock represented at the Special Meeting by
properly executed proxies will, unless such proxies have been previously
revoked, be voted at the Special Meeting in accordance with the instructions
indicated thereon. In the absence of such instructions, the shares represented
by such proxies will be voted in favor of the adoption of the Share Exchange
Plan.
Management of Elk does not know of any other matters which will be brought
before the Special Meeting. If, however, other matters are presented to the
Special Meeting, all duly executed proxies will be voted in the discretion of
the proxy holders.
-4-
<PAGE>
Any stockholder has the power to revoke his proxy at any time before it is
voted by (i) delivering written notice of such revocation to the Secretary of
Elk, (ii) filing a duly executed proxy bearing a later date, or (iii) appearing
at the Special Meeting and electing to vote in person.
In addition to solicitation by mail, directors, officers and employees of
Elk may solicit proxies from holders of Elk Common Stock personally or by
telephone. The expense, if any, of such solicitation shall be borne by Elk.
Record Date and Shares entitled to Vote
Holders of record of Elk Common Stock as of the close of business on
_______ ___, 1998 (the "Record Date") will be entitled to notice of and to vote
at the Special Meeting. At the close of business on the Record Date, there were
issued and outstanding and entitled to vote a total of 1,745,600 shares of Elk
Common Stock.
Vote Required
Under the law of the State of New York and the Certificate of Incorporation
of Elk, the adoption of the Share Exchange Plan must be approved by the
affirmative vote of the holders of two-thirds (66.67%) of the shares of Elk
Common Stock outstanding on the Record Date, with each share entitled to one (1)
vote. Certain directors and officers of Elk owning an aggregate of approximately
56% of the outstanding shares of Elk Common Stock have expressed an intention to
vote in favor of the adoption of the Share Exchange Plan.
THE SHARE EXCHANGE
Set forth below is a description of the principal aspects of the Share
Exchange. This description does not purport to be complete and is qualified in
its entirety by reference to the Share Exchange Plan, a copy of which is
attached as Exhibit A.
Background
Elk is licensed as an SBIC under Section 301(c) of the 1958 Act, and as
such, it may invest only in Small Business Concerns that qualify under
applicable rules and regulations of the SBA. The majority of such investments by
Elk has consisted of loans for the purchase of taxicab medallions and related
taxicab assets.
The Board of Directors of Elk believes that a more diversified investment
strategy would be in the best interests of Elk and its stockholders. Elk's Board
of Directors has further concluded that such diversification would be best
accomplished by the organization or acquisition of a company which would be able
to invest in other business concerns without regard to their social or economic
status or to other limitations imposed by the 1958 Act and the rules and
regulations promulgated thereunder, thus enabling the Elk stockholders to reap
the economic benefits from such business diversification. Accordingly, after
analysis of the legal and regulatory issues involved, Elk's Board of Directors
approved a reorganization of Elk, consisting of the following steps: (1) the
organization of Ameritrans, and its registration, for tax reasons, as an
investment company under the 1940 Act; (2) the acquisition by Ameritrans of all
of the outstanding Elk Common Stock from the current Elk stockholders in
exchange for Ameritrans Common Stock. An exchange ratio of one (1) share of Elk
Common Stock for each share of Ameritrans Common Stock was chosen in order to
produce the same number of outstanding shares of Ameritrans Common Stock as
there were Elk Common Stock; and (3) the acquisition by Ameritrans of Elk
Capital. As a result of this reorganization, the current holders of Ameritrans
Common Stock would own all of the shares of capital stock of Elk then
outstanding. Ameritrans would be the parent corporation of both Elk and Elk
Capital.
The first part of this reorganization, the organization of Ameritrans, its
registration as an investment company, its election to become a BDC and the
acquisition of Elk Capital has been completed. The purpose of the Share
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<PAGE>
Exchange is to effect the second step. The consummation of the Share Exchange
will accomplish the final part of this reorganization.
Effect of the Share Exchange
On the Effective Date of this Share Exchange, as defined below, each
outstanding share of Elk Common Stock (other than shares as to which appraisal
rights have been exercised) will be exchanged for one (1) share of Ameritrans
Common Stock with the ownership of each share of Elk Common Stock automatically
vesting in Ameritrans and the holders of the outstanding shares of Elk Common
Stock automatically becoming entitled to receive one (1) share of Ameritrans
Common Stock for each share of Elk Common Stock held by them. As a result, as of
the Effective Date, (1) Ameritrans will be the sole holder of all of the
outstanding Elk Common Stock, and (2) the persons holding Elk Common Stock as of
the Effective Date will be the sole holders of the shares of Ameritrans Common
Stock then outstanding (which will comprise all of the capital stock of
Ameritrans then outstanding) in the same relative proportions as they held Elk
Common Stock (subject to any changes resulting from the exercise of appraisal
rights). As of the date of this Proxy Statement/Prospectus, there were issued
and outstanding 1,745,600 shares of Elk Common Stock and one (1) share of
Ameritrans Common Stock (which share will be redeemed by Ameritrans upon
completion of the Share Exchange).
The status of Elk as a licensed SBIC under the 1958 Act and as registered
under the 1940 Act will be unaffected by the Share Exchange.
As of the Effective Date, Ameritrans will automatically become the sole
holder of Elk Common Stock, and the holders of Elk Common Stock will
automatically become entitled to receive one (1) share of Ameritrans Common
Stock for each share of Elk Common Stock, despite the fact that new stock
certificates representing Elk Common Stock and Ameritrans Common Stock will not
have been issued to Ameritrans or the holders of Elk Common Stock, respectively.
As soon as practicable following the Effective Date, Elk will issue to
Ameritrans a stock certificate representing such number of shares of Elk Common
Stock as are issued and outstanding as of the Effective Date, and Ameritrans
will send to the former holders of Elk Common Stock written instructions on how
to exchange their Elk Common Stock certificates for certificates representing
shares of Ameritrans Common Stock.
Effective Date
The Share Exchange will become effective on the date (the "Effective Date")
of the filing of a Certificate of Exchange regarding the Share Exchange with the
New York Department of State, in accordance with Section 913 of New York's
Business Corporation Law. Such filing will be made as soon as practicable
following the satisfaction or waiver of all conditions to the Share Exchange
(described below), including the adoption of the Share Exchange Plan by the
holders of Elk Common Stock. It is currently anticipated that the Effective Date
will be on or about ______ ___, 1998.
Conditions to the Share Exchange
The Share Exchange Plan specifically provides that the obligation of
Ameritrans and Elk to consummate the Share Exchange is subject to the
fulfillment (or waiver) on or prior to the Effective Date of certain conditions,
including the following: (1) the approval of the Share Exchange Plan by the
holders of at least two-thirds (66.67%) of the outstanding shares of Elk Common
Stock; (2) the approval of the Share Exchange by the SBA, in accordance with the
requirements of the 1958 Act; (3) the registration (or the availability of an
exemption therefrom) under the Securities Act of 1933 (the "1933 Act"), of the
shares of Ameritrans Common Stock to be issued to the former holders of Elk
Common Stock pursuant to the Share Exchange, and the compliance with all
applicable state securities laws in connection with the issuance of such
Ameritrans Common Stock; (4) the exercise of appraisal rights by the holders of
not more than 2% of the shares of Elk Common Stock entitled to vote at the
Special Meeting; and (5) the absence of any governmental order or action
prohibiting the Share Exchange.
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<PAGE>
In addition, Elk has or will represent to the SBA that it will not
consummate the Share Exchange if the number of stockholders exercising appraisal
rights would result in a violation of the prohibition under the 1958 Act of
stock repurchases which reduce its paid-in capital and paid-in surplus by more
than 2% in a single fiscal year. Elk anticipates utilizing up to $963,000 of the
proceeds raised in its January, 1998, private placement to purchase the shares
of stockholders who exercise their appraisal rights.
In addition, in order for Ameritrans and Elk to operate in the manner
contemplated by this Proxy Statement/Prospectus following the Share Exchange,
exemptions from certain provisions under the 1940 Act are required. The SEC has
issued an exemptive order to Elk and Ameritrans dated , 1998, granting such
exemptions (the "Exemptive Order").
Federal Income Tax Consequences
The Share Exchange is intended to constitute a tax-free transfer under Section
351 of the Code. If Section 351 of the Code is applicable, (1) no gain or loss
for federal income tax purposes will be recognized by Ameritrans or Elk as a
result of the Share Exchange; (2) no gain or loss will be recognized by holders
of Elk Common Stock upon the receipt of Ameritrans Common Stock in exchange for
their Elk Common Stock pursuant to the Share Exchange; (3) the basis of the
Ameritrans Common Stock received by each holder of Elk Common Stock pursuant to
the Share Exchange will be equal to the basis of the Elk Common Stock which was
converted into such Ameritrans Common Stock pursuant to the Share Exchange; (4)
the holding period for tax purposes of the Ameritrans Common Stock received by
each holder of Elk Common Stock will include the period for which such
stockholder held the Elk Common Stock that was converted into such Ameritrans
Common Stock, provided that such Elk Common Stock was held as a capital asset at
the time of the Share Exchange; and (5) a holder of Elk Common Stock who
exercises appraisal rights with respect to his or her Elk Common Stock and who
receives payment for such shares in cash will recognize a capital gain or
ordinary loss for federal income tax purposes (provided such stock was held as a
capital asset at the time of the Share Exchange), in an amount equal to the
excess (if any) of the amount of cash received over such stockholder's tax basis
in his or her Elk Common Stock. Management of Elk has been advised by its
independent public accountants that although there can be no assurance that the
Internal Revenue Service (the "IRS") will not take a different position, they
believe that Section 351 should be applicable to the Share Exchange.
The belief that the foregoing tax consequences will apply is based upon
certain assumptions and subject to certain qualifications, including the
assumption that (i) Elk is not under the jurisdiction of a court in a Title 11
or similar case, (ii) the current holders of Elk Common Stock will not, pursuant
to a plan or intent existing on or prior to the Effective Date, dispose of as
much as 20% of the Ameritrans Common Stock received pursuant to the Share
Exchange, (iii) there is no other class of Ameritrans stock outstanding which
would represent as much as 20% of the voting stock or 20% of the number of
shares of non-voting stock (if any) outstanding, and (iv) the investment company
exception to Section 351 of the Code (351(e)) does not apply since the transfer
will not result in a diversification of the Elk stockholders' interests.
If the IRS were to challenge successfully the tax-free status of the Share
Exchange, each holder of Elk Common Stock would have to recognize a gain or loss
with respect to his or her Elk Common Stock exchanged for Ameritrans Common
Stock pursuant to the Share Exchange in an amount equal to the difference (if
any) between (a) the fair market value of the Elk Common Stock exchanged by such
stockholder pursuant to the Share Exchange over (b) such stockholder's basis in
the Ameritrans Common Stock converted pursuant to the Share Exchange. In such
event, an Elk stockholder's tax basis in the Ameritrans Common Stock received
pursuant to the Share Exchange would be equal to the fair market value of such
Ameritrans Common Stock, and his or her tax holding period for such Ameritrans
Common Stock would not include the period for which he held his or her Elk
Common Stock.
The foregoing discussion of federal income tax consequences is intended
only as a general summary and does not deal with all aspects of federal taxation
that may be relevant in connection with the Share Exchange. In addition, state,
local or foreign income tax consequences to Elk stockholders may be different
from the federal income tax consequences described above. Accordingly, each Elk
stockholder
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<PAGE>
is urged to consult his or her own tax advisor as to the federal, state, local
or foreign income tax effects of the Share Exchange.
Accounting Treatment
The Share Exchange which represents a recapitalization of Elk will be
accounted for on a historical cost basis. The assets and liabilities of Elk and
Ameritrans will be recorded at their combined bases as of the Effective Date of
the Share Exchange.
Unaudited Pro Forma Capitalization
Set forth below is a table showing the pro forma capitalization of
Ameritrans and Elk as of June 30, 1998. The Share Exchange is accounted for on a
historical cost basis, and therefore the total net assets of Ameritrans
immediately after the Share Exchange are the same as the total net assets of Elk
(comprised of Common Stock plus accumulated undistributed investment income less
unrealized loss in value of investments) immediately before the Share Exchange
(see the footnotes to this table). This financial information has been derived
in part from and should be read in conjunction with the financial statements and
the related notes together with the opinion of Marcum & Kliegman, LLP dated
August 12, 1998, included in the Statement of Additional Information, which has
been filed with the SEC and has been distributed to Elk stockholders along with
this Proxy Statement/Prospectus.
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<PAGE>
Net Assets as of June 30, 1998 Immediately Before Acquisition:
<TABLE>
<CAPTION>
Ameritrans Elk Adjustments Combined
---------- --- ----------- --------
<S> <C> <C> <C> <C>
Common Stock (Ameritrans 5,000,000 shares of $17,456 $17,456
$.0001 par value stock authorized, 1 share
outstanding; Elk 2,000,000 shares of $.01
par value stock authorized, 1,745,600
shares outstanding)
Preferred Stock (Ameritrans 1,000,000 shares of --
$.01 par value stock authorized, none outstanding;
Elk 1,300,000 shares of $10.00 par value stock authorized, no
shares outstanding)
Additional paid-in capital 12,485,825 12,485,825
Restricted capital 968,368 968,368
Accumulated undistributed investment 319,289 319,289
income, net
Unrealized gain on equity securities 198,789 198,789
Unrealized loss in value of investments
(loan loss reserve) (295,000) (295,000)
--------- ---------
Total Net Assets: 13,694,727 13,694,727
========== ==========
</TABLE>
Net Assets as of June 30, 1998 Immediately After Acquisition:
<TABLE>
<CAPTION>
Ameritrans Elk Adjustments Combined
---------- --- ----------- --------
<S> <C> <C> <C> <C>
Common Stock (Ameritrans 5,000,000
shares of $.0001 par value stock authorized,
1,745,600 shares outstanding;
Elk 2,000,000 shares of
$.01 par value stock authorized,
1,745,600 outstanding) $175(1) $175
Elk Common Stock (2,000,000 shares of
$.01 par value stock authorized,
1,745,600 outstanding) $17,456 ($17,456)(2)
Elk Preferred Stock (1,300,000 shares of
$10.00 par value stock authorized, none
outstanding)
Additional paid-in capital 13,694,552 12,485,825 (13,677,271) 12,503,106
Restricted capital 968,368 968,368
Accumulated undistributed investment
income, net 319,289 319,289
Unrealized gain on equity securities 198,789 198,789
Unrealized loss in value of investments
(loan loss reserve) (295,000) (295,000)
----------- ----------- ------------ -----------
Total Net Assets: $13,694,727 $13,694,727 ($13,694,727) $13,694,727
=========== =========== ============= ===========
</TABLE>
- --------
1 To record shares of Ameritrans issued for net assets (Common Stock plus
accumulated undistributed investment income less unrealized loss in value of
investments) of Elk.
2 To eliminate equity of subsidiary (Elk) in consolidation.
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<PAGE>
INFORMATION CONCERNING ELK
General
Elk was formed on July 9, 1979, as a New York corporation for the purpose
of operating as a Specialized Small Business Investment Company ("SSBIC"),
licensed under the Small Business Investment Act of 1958 (the "1958 Act"), and
regulated and financed in part by the U.S. Small Business Administration (the
"SBA"). Elk was granted a license to operate as an SSBIC by the SBA on July 24,
1980, is registered as a closed-end, non-diversified management investment
company under the Investment Company Act of 1940 (the "1940 Act"), and has
elected to be taxed as a "regulated investment company" under the Internal
Revenue Code of 1954, as amended (the "Code") since the fiscal year ended June
30, 1984. Elk, which elected on September 28, 1998 to become a business
development company ("BDC") under the 1940 Act, intends to elect to be taxed as
a regulated investment company for the fiscal year ending June 30, 1999. Elk's
business has historically been to provide financing to persons who qualify under
SBA regulations as socially or economically disadvantaged persons or to entities
which are at least 50% owned by such persons ("Disadvantaged Concerns").
The 1958 Act was amended on September 30, 1996, and in connection
therewith, Elk entered into an agreement with the SBA in March, 1997, and
amended its Certificate of Incorporation the effect of which was to convert Elk
from an SSBIC to a Small Business Investment Company ("SBIC"). As such, Elk may
now lend to persons who are not "disadvantaged" so long as Elk's aggregate loans
to Disadvantaged Concerns are at least equal to the sum of (i) the remaining
amount of Elk's subsidized SBA debentures outstanding which was $1,500,000 at
June 30, 1998 (but which will no longer have a subsidized rate of interest as of
September 30, 1998, and therefore be excluded from this computation), and (ii)
the remaining amount of Elk's unamortized restricted capital account (the
"Restricted Capital Account") resulting from the repurchase by Elk of its 3%
Preferred Stock from the SBA, which Restricted Capital Account was $968,368 at
June 30, 1998. The remaining outstanding (i) principal balance of SBA
subordinated debentures and (ii) Restricted Capital Account as of June 30, 1998,
aggregating $2,468,368, represented less than 10% of Elk's loan portfolio of
$41,295,000 as of that date.
As of June 30, 1998, more than 95% of Elk's loans and investments qualified
as loans to Disadvantaged Concerns. As a result of Elk's conversion to an SBIC,
and as of September 30, 1998, Elk is only required to maintain less than
$968,368 of its portfolio as loans to such persons. Accordingly, while Elk
intends to continue to make loans to disadvantaged persons, particularly in
connection with the ownership of taxicabs and related assets especially in the
New York City and Chicago markets, where many of the borrowers may qualify as
Disadvantaged Concerns, Elk intends to diversify its activities by lending and
investing in a broader range of businesses eligible for investments by SBICs
under the 1958 Act ("Small Business Concerns"), many of which, it is
anticipated, may not be Disadvantaged Concerns. In addition, Ameritrans, the new
parent company, would have the ability to acquire or engage directly in
businesses other than that of Elk, either directly or through Elk Capital. See
"INFORMATION CONCERNING AMERITRANS."
To the best of its knowledge, Elk has never experienced any losses of
principal during its 18 year history of making loans in connection with the
ownership of New York City taxicab medallions, taxicabs and related assets, and
its 40 months of making taxi medallion loans in Boston, Chicago, and Miami. Elk
will continue to make loans in these markets without the historical restriction
of lending solely to Disadvantaged Concerns. Loans made by Elk for the purpose
of financing the purchase or continued ownership of taxicab medallions, taxicabs
and related assets represented approximately 84.5% of Elk's loan portfolio as of
June 30, 1998. Loans made to finance the acquisition and/or operation of other
small businesses constitute the balance of Elk's loan portfolio, and it intends
to continue to make such loans.
By Agreement dated November 10, 1994, Elk repurchased all of the 547,271
outstanding shares of its 3% preferred stock from the SBA for an aggregate price
of $1,915,449, representing a discount of 65.0% from the original aggregate
issuance price of $10 per share. As a condition precedent to the repurchase, Elk
granted the SBA a liquidating interest in a newly established restricted capital
surplus account (the "Restricted Capital Account"). The Restricted Capital
Account is equal to the amount of the
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<PAGE>
net repurchase discount in which the SBA received a liquidating interest
amortized over 60 months commencing November 10, 1994. However, if Elk is
liquidated or if a material violation of SBA regulations occurs during the
amortization period, the SBA would receive the remaining unamortized amount of
the Restricted Capital Account prior to the stockholders of Elk receiving any
amounts on their Common Stock. The unamortized balance of the SBA's liquidating
interest at June 30, 1998, was $968,368.
Elk, as a BDC, is required to file certain reports and other information
pursuant to the 1940 Act and the Securities Exchange Act of 1934 (including
annual and quarterly reports, and certain stockholder reports and proxy
statements), with the SEC. Copies of such reports and information may be
inspected and copied at the Public Reference Room of the SEC, 450 Fifth Street,
N.W., Washington, D.C., 20549, as well as at the following regional offices: 55
Federal Plaza, New York, New York 10278; Everett McKinley Dirksen Building, 219
South Dearborn Street, Chicago, Illinois, 60604; and Suite 500, East 5757
Wilshire Boulevard, Los Angeles, California, 90036-3648. Copies of such
material, or any portion thereof, may be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C., 20549, at
prescribed rates, or on the EDGAR web page of the Securities and Exchange
Commission on the Internet at www.sec.gov.
Elk registered under the 1940 Act for the fiscal year commencing July 1,
1983, and has declared and paid dividends to holders of Common Stock in the
aggregate amounts of $1.08, $1.31, $1.39, $1.51, $1.37, $1.24, $.43, $.33 and
$.22 per share for the fiscal years ended June 30, 1984 through June 30, 1992.
Elk did not pay dividends during the fiscal years ended June 30, 1993, 1994 and
1995. Elk recommenced paying dividends for the fiscal year beginning July 1,
1995 and ending June 30, 1996 and since that time, has paid dividends per share
for the fiscal years commencing July 1, 1995, 1996, and 1997 of $.73, $.74 and
$.57, respectively. In December 1994 and September 1995 Elk raised additional
capital of $450,000 and $1,249,585, respectively, less private placement costs
of $76,445 and $21,482, respectively. These proceeds were used to repurchase
Elk's 3% Preferred Stock held by the SBA pursuant to a preferred stock
repurchase agreement. In connection with the purchase, all dividends in arrears
on the 3% Preferred Stock were extinguished.
In addition, during January 1998, Elk completed a private placement of
462,000 shares of common stock at $6.50 per share for aggregate gross proceeds
of $3,003,000 less offering expenses of $115,000. The net proceeds were utilized
to repay bank indebtedness and for working capital. A portion of the proceeds
were temporarily used to reduce bank indebtedness, up to a maximum of $963,000,
were allocated by Elk toward the organization and capitalization of its new
parent company, Ameritrans, and its subsidiary Elk Capital.
Elk's Loans -- Elk obtained a license to operate as an SSBIC from the SBA
on July 24, 1980. Until March 1997, as an SSBIC, Elk's primary business has been
to provide long-term loan funds at commercially competitive rates of interest
(which at June 30, 1998, ranged from 8.25% to 16.5% per annum) to persons
defined by SBA regulations as socially or economically disadvantaged persons (or
entities which are at least 50% owned by persons so defined), in connection with
the financing of diversified businesses. In March 1997, Elk entered into an
agreement with the SBA (the "SBA Agreement") and amended its certificate of
incorporation, the effect of both of which steps converted the Company into an
SBIC. As an SBIC, Elk is permitted to lend to persons who are not
"disadvantaged" provided Elk maintains a level of loans to disadvantaged persons
equal to the sum of its outstanding SBA subsidized debentures and the SBA's
liquidating interest resulting from the 3% Preferred Stock repurchase. Such
limitation as to the SBA subsidized debentures in the principal amount of
$1,500,000 will terminate as of September 30, 1998, when the debentures are no
longer subsidized, and the limitation as to the SBA's liquidating interest
terminates upon full amortization of the 3% Preferred Stock repurchase discount
is scheduled to occur in November, 1999. Although Elk, as of June 30, 1998, was
only required to have $2,468,368 of its total loan portfolio invested with
"disadvantaged" persons, more than 95%, or in excess of $37,800,000 of the
portfolio, was so invested. Elk anticipates that its present ability to pursue
investments and loans with persons who are not "disadvantaged" will afford it
greater opportunities to make investments that enhance Elk's profitability.
-11-
<PAGE>
Under current SBA regulations the rate of interest which Elk may charge on
loans may not exceed the higher of either Elk's weighted average cost of
qualified borrowings, as determined pursuant to SBA regulations without regard
to subsidized interest rates, or the current debenture rate, plus, in either
case, seven (7) percentage points, rounded off to the next lower eighth of one
percent; provided, however, that if the current debenture rate is 8% per annum
or lower, Elk is permitted to charge up to 15%. The maximum rate of interest on
debt financings allowed to be charged by SBICs to their borrowers for loans
originated during August 1998 was 19%.
Over the Company's 18 year history, the large majority of Elk's loans were
made to purchasers or owners of New York City taxicab medallions (as described
in greater detail below). Since Elk commenced operations it has made over
$175,000,000 in loans to New York City taxicab medallion owners. As of June 30,
1998, approximately $18,862,618, or 46%, of the aggregate principal amount of
its outstanding loans of $41,295,000 represented loans made to finance the
purchase or continued ownership of New York City taxicab medallions and related
assets. An aggregate of $13,557,342, or 33%, consisted of loans to finance the
purchase or refinancing of taxi medallions in Chicago and the balance of
$8,871,064, or 21%, consisted of loans to various commercial borrowers, of which
$990,086 was invested in Boston taxi medallion financing and $1,480,459 was
invested in Miami taxi medallion financing. See "Loan Portfolio; Valuation"
below. Pursuant to the SBA Agreement, Elk is not required to maintain any level
of non-taxicab medallion secured loans. However, Elk has agreed that subject to
the SBA rolling over two (2) debentures, each in the principal amount of
$2,040,000, Elk will maintain a non-taxi investment/loan portfolio (included
with the combination of its assets acquired and receivables on assets acquired
in the future) in the minimum amount of $1,020,000. See "INVESTMENT POLICIES
- --Concentration of Investments."
Although Elk has historically directed a significant portion of its
financing operations toward purchasers or owners of taxicab medallions in New
York, the New York market has become increasingly more competitive, affording
Elk more limited opportunities to make profitable loans. During the past
approximately 40 months, Elk has expanded its taxicab lending business into the
Chicago, Boston, and Miami markets, where its taxi lending business has
increased and continued to be profitable.
Elk intends to continue to expand into new markets both in the taxi
industry as well as into other industries determined by management to offer
investment opportunities. The loans that Elk plans to pursue will be made to a
variety of businesses of all types provided that the loans made are in a
majority of cases secured by real estate, business assets, equipment or other
collateral deemed adequate by management.
In connection with its lending to owners of taxicabs, Elk will, however,
only make loans to borrowers who meet the standards required to operate these
vehicles by the New York City Taxi and Limousine Commission or other regulatory
agencies having jurisdiction in those markets where Elk engages in business. Elk
may revise the nature of its loan portfolio at such time as its Board of
Directors determines, in its sole discretion, that such revision is in the best
interests of Elk in light of then existing business and financial conditions.
Elk does not currently anticipate that its loan portfolio will realize an annual
turnover in excess of 50%. Elk will not lend to, 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 in any one small business concern. Elk has not
made, and is prohibited by applicable SBA regulations from making, loans to
officers, directors or principal shareholders of Elk or "associates" of Elk, as
such term is defined in applicable SBA regulations.
Short-Term Borrowings -- Elk is authorized to borrow money and issue
debentures, promissory notes and other obligations, subject to SBA regulatory
limitations. Other than the subordinated debentures issued to the SBA, Elk has
to date borrowed funds only from banks. As of June 30, 1998, Elk maintained four
(4) lines of credit totaling $33,500,000 with an overall lending limit of
$25,000,000. At June 30, 1998, Elk had $22,085,000 outstanding under these
lines. The loans, which mature through November 1998, bear interest based on an
effective rate of interest equal to approximately 150 basis points above Libor
plus certain fees. Upon maturity, Elk anticipates extending the lines of credit
for another year as has been the practice in previous years. Pursuant to the
terms of the loan agreements, Elk is required to
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<PAGE>
comply with certain terms, covenants and conditions. Elk has pledged its loans
receivable and other assets as collateral for the above lines of credit and is
required to maintain certain compensating balances. At June 30, 1998,
compensating balances of approximately $1,104,250 were maintained by the Company
in accordance with these agreements. As of September 1, 1998 Elk has increased
its lines of credit and overall lending limit to $35,000,000 and its banks have
now eliminated the requirement for compensating balances.
Pursuant to the SBA Agreement, Elk agreed to limit the aggregate of its
indebtedness based on a computation of a borrowing base each quarter. The
borrowing base computation is calculated to determine that the total amount of
debt due on the senior bank debt and SBA debentures does not exceed
approximately 80% of the value of performing loans and investments in Elk's
portfolio. Loans that are more than 90 days in arrears are valued at a lower
amount in computing the borrowing base.
In connection with the SBA Agreement, Elk has also entered into an
intercreditor agreement (the "Intercreditor Agreement") and a custodian
agreement (the "Custodian Agreement") with its banks and the SBA. Pursuant to
the Custodian Agreement, the banks and the SBA appointed Israel Discount Bank of
New York as the custodian to hold certain notes, security agreements, financing
statements, assignments of financing statements, and other instruments and
securities as part of the collateral for Elk's indebtedness to the banks and the
SBA. The Intercreditor Agreement sets forth the respective rights and priorities
of the banks and the SBA with respect to the repayment of indebtedness to the
banks and the SBA and as to their respective interests in the collateral.
Pursuant to the Intercreditor Agreement, the banks consented to the grant by Elk
to the SBA of a security interest in the collateral, which security interest
ranks junior in priority to the security interests of the banks.
Scope of Business Activities -- Elk has not purchased, and does not intend
to purchase, commodities or commodity contracts and it has not engaged, nor does
it intend to engage, in the business of underwriting the securities of other
issuers. In addition, Elk does not intend to purchase any small business except
as may be necessary in the event of a foreclosure on the security for a
particular loan. Elk does not intend to engage in the purchase or sale of real
estate (except to the extent necessary with respect to any defaulted loans, or
disposing of assets acquired) or in investments in the securities of other
investment companies.
As described above, Elk has been organized primarily to provide long-term
loan funds to Small Business Concerns. While Elk has made, and intends to
continue to make loans for financing the purchase or continued ownership of
taxicab medallions, taxicabs and related assets, Elk intends to diversify its
investments into other businesses to the extent permitted by the 1958 Act and
the rules and regulations promulgated thereunder. If the Share Exchange Plan is
approved, Ameritrans intends to invest in businesses which would not qualify for
investment by Elk under the 1958 Act.
Although Elk's certificate of incorporation provides Elk with the authority
to invest in the equity capital of Small Business Concerns, Elk makes equity
investments in Small Business Concerns on a selective basis, and only to a
limited extent. Equity securities in Elk's investment portfolio at June 30, 1998
totaled $629,179 or 1.4% of total assets. Elk reserves the right, however, to
make additional equity investments if determined by Elk's Board of Directors to
be in the best interest of Elk. Unless necessary to protect a prior investment
of Elk which is at risk, such equity investments shall not exceed 20% of Elk's
total assets. Elk has one (1) wholly-owned subsidiary, EAF Holding Corporation,
formed in 1992, the sole activities of which are to own and operate certain real
estate assets acquired in satisfaction of loans.
SBIC Benefits
General. As an SBIC, Elk is eligible to receive certain financing from the
SBA on favorable terms, and Elk and its shareholders are entitled to certain tax
benefits, both described below. The SBA has a certain amount of discretion in
determining the type and amount of financing that will be made available to an
SBIC. Therefore, there can be no assurance as to the nature and amount of SBA
financing that may
-13-
<PAGE>
actually be obtained by Elk. Furthermore, there are certain restrictions and
requirements to which Elk is subject by virtue of its being an SBIC.
Background. Small Business Investment Companies ("SBICs") were created
under the 1958 Act as a vehicle for providing equity capital, long-term loan
funds and management assistance to small businesses. In general, the SBA
considers a business to be "small," and therefore eligible to receive loans from
an SBIC, only if (i) its net worth does not exceed $18,000,000 and if the
average of its net annual income after taxes for the preceding two years was not
more than $6,000,000 or (ii) it meets the size standard for the industry in
which it is primarily engaged, pursuant to SBA regulations. In addition, an SBIC
is required to allocate a portion of its portfolio to the financing of concerns
that (i) together with their affiliates do not have net worth in excess of $6
million and do not have an average net income after taxes for the preceding two
years in excess of $2 million or (ii) meet the size standard for the industry in
which they are primarily engaged. SBICs are licensed, regulated and sometimes
financed in part by the SBA.
Benefits. The principal benefits to Elk as a result of its being licensed
as an SBIC are as follows:
The SBA is authorized to guaranty full repayment of all principal and
interest on debentures issued by an SBIC that loans funds to, but does not
invest in the equity of, small businesses to the extent of 300% of such SBIC's
Leverageable Capital, as defined in the applicable SBIC regulations. The term of
such debentures is typically 10 years. The SBA will guarantee such debentures
only after such an SBIC has demonstrated a need for such debentures as evidenced
by the SBIC's investment activity and its lack of sufficient funds available for
investments; provided, however, that an SBIC that has invested at least 50%
percent of its Leverageable Capital and outstanding leverage shall be presumed
to lack sufficient funds available for investment. Generally, such debentures
will bear interest at a fixed rate that is based on the rate which is set by the
underwriters of the pooled debentures sold through SBIC Funding Corp. After
maturity, debentures may be refinanced by the SBA by new debentures with 10 year
terms. The aggregate amount of debentures with an interest rate subsidy of an
SBIC may not exceed 200% of an SBIC's Leverageable Capital or $35,000,000,
whichever is less. An SBIC applying for leverage in excess of $35,000,000 is
subject to SBA leverage formulas and limitations applicable to SBICs. The
subsidized debentures most recently purchased by the SBA from Elk during
September 1993 bear interest at the rate of 3.12% per annum for the first five
(5) years of their terms and 6.12% per annum for the remaining five (5) years of
their terms. As described above, subsequent to a change in the law, Elk
converted to an SBIC in March 1997. In addition, in March 1997, Elk refinanced
$408,000 of maturing debentures plus accrued interest and a user fee, an
aggregate of $430,000, at an unsubsidized fixed rate of 7.38% per annum, plus an
annual 1% user fee for a 10 year term.
With respect to debentures guaranteed after July 1, 1991, the SBA's claim
against an SBIC is subordinated, in the event of such SBIC's insolvency, only in
favor of present and future indebtedness outstanding to lenders and only to the
extent that the aggregate amount of such indebtedness does not exceed the lesser
of 200% of such SBIC's paid-in capital and paid-in surplus (as adjusted pursuant
to SBA regulations), or $10,000,000. However, the SBA may agree to a
subordination in favor of one or more loans from certain lenders, in its sole
discretion. Pursuant to the SBA Agreement and the Intercreditor Agreement, the
SBA agreed to a subordination in favor of Elk's banks; provided, however, that
Elk is required to keep its overall debt to certain levels based upon the
performance of its portfolio.
Selected Financial Information
The following financial information has been derived in part from and
should be read in conjunction with, Elk's financial statements and the related
notes included in the Statement of Additional Information, which has been filed
with the SEC and has been distributed to Elk shareholders along with this Proxy
Statement/Prospectus.
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<PAGE>
Elk Associates Funding Corporation and Subsidiary
For the Years Ended June 30, 1994, 1995, 1996, 1997 and 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment Income $ 2,824,881 $ 2,629,901 $ 3,084,412 $ 4,023,795 $ 4,606,456
----------- ----------- ----------- ----------- -----------
Interest Expense 1,136,458 1,002,959 1,105,993 1,582,700 1,840,731
Other Expenses 926,798 960,474 1,108,505 1,408,034 1,852,262
----------- ----------- ----------- ----------- -----------
Total Expenses 2,063,256 1,963,433 2,214,498 2,990,734 3,692,993
----------- ----------- ----------- ----------- -----------
Investment Income Before Taxes,
Credit (Provision) for Loan Gains
(Losses) and Gains (Losses) on
Assets Acquired and Income Taxes 761,625 666,468 869,914 1,033,061 913,463
Credit (Provision) for Loan Gains
(Losses) and Gains (Losses) on
Assets Acquired(1) (473,317) (13,515) 44,292 (8,923) (14,649)
Other Income -- -- -- 24,885 38,798
(Provision) for Income Taxes (State
and Federal)(2) -- -- (5,945) (28,676) (3,271)
----------- ----------- ----------- ----------- -----------
Net Income $ 288,308 $ 652,953 $ 908,261 $ 1,020,347 $ 934,341
=========== =========== =========== =========== ===========
Net Income Per Common Share $ .31 $ .66 $ .73 $ .79 $ .62
=========== =========== =========== =========== ===========
Common Stock Dividends Paid $ -- $ -- $ 937,028 $ 946,655 $ 986,724
=========== =========== =========== =========== ===========
Weighted average
Shares of Common Stock
Outstanding 943,683 988,953 1,247,120 1,283,600 1,518,969
=========== =========== =========== =========== ===========
</TABLE>
- ----------
(1) Reference is made to Elk's Statements of Income for information on annual
provisions for loan loss reserves and losses on assets acquired. It should be
noted that the provision for loan losses and losses on assets acquired reflects
the amounts taken in accordance with generally accepted accounting principles.
The actual amount of loans written off or (recoveries) for income tax purposes
were $351,454, $78,000, ($24,000), ($24,000) and $222,748 for years ended June
30, 1994, 1995, 1996, 1997, and 1998, respectively. See "LOAN PORTFOLIO;
VALUATION -- Collection Experience".
(2) Elk, since the fiscal year ended June 30, 1984, has elected and qualified to
be taxed as a regulated investment company and substantially all taxable income
was required to be distributed to shareholders. Therefore, only minimal taxes
were required to be paid.
-15-
<PAGE>
Loan Portfolio; Valuation
The following table sets forth a classification of Elk's outstanding loans
as of June 30, 1998:
<TABLE>
<CAPTION>
Maturity Balance
Number Interest Date (in Outstanding
TYPE OF LOAN of Loans Rate months) June 30, 1998
- ------------ -------- ------ --------- -------------
<S> <C> <C> <C> <C>
New York City:
Taxi medallion 99 8.25-12% 1-119 $18,862,618
Radio car service 49 1-15% 1-59 298,976
Chicago:
Taxi medallion 415 12-16.5% 21-48 13,557,342
Boston:
Taxi medallion 16 10-14% 33-89 990,086
Miami:
Taxi medallion 30 13-16.5% 112-120 1,480,459
Other loans:
Restaurant 2 10-12% 1-66 260,329
Embroidery manufacturer 1 12% 59 96,000
Retirement home 1 15% 84 300,000
Theater 1 16% 59 174,452
Hairdresser 2 12% 7 122,461
Car wash 1 11.5% 36 220,292
Ambulance service 1 10.5% 6 9,952
Bagel store 1 14% 43 29,614
Dry cleaner 13 10-14.5% 43-121 1,382,032
Laundromat 11 9-15% 24-72 1,751,619
Grocery/deli 3 12.5-13% 31-64 794,019
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Maturity Balance
Number Interest Date (in Outstanding
TYPE OF LOAN of Loans Rate months) June 30, 1998
- ------------ -------- ------ --------- -------------
<S> <C> <C> <C> <C>
Financial services 1 14% 1 9,980
Black car service (real property) 1 12% 5 223,815
Auto sales 4 10.5-13% 1-49 856,942
Registered investment advisor 1 14% 97 169,012
------- -----------
Total Loans Receivable 653 $41,590,000
===========
</TABLE>
Loans made by Elk to finance the purchase or continued ownership of taxi
medallions, taxicabs and related assets are typically secured by such
medallions, taxicabs and related assets. Loans made by Elk to finance the
acquisition and/or operation of retail or manufacturing businesses are typically
secured by real estate and other assets. In the case of loans to corporate
owners, the loans are almost always personally guaranteed by the shareholders of
the borrower. Elk generally obtains first mortgages, but occasionally has
participated in certain financings where it has obtained a second mortgage on
collateral. Elk has obtained a relatively higher rate of interest in connection
with these subordinated financings. Elk has not committed more than 5% of its
assets to any one business concern in Elk's portfolio. The interest rate charged
by Elk on its currently outstanding loans ranges from 8.25% to 16.5% per annum.
As of June, 1998, the average annual weighted rate per loan was approximately
11.2%. The average term of Elk's currently outstanding loans is approximately 48
months.
Valuation -- As an SBIC, Elk is required by applicable SBA regulations to
submit to the SBA semi-annual valuations of its investment portfolio, as
determined by its Board of Directors, which considers numerous factors including
but not limited to the financial strength of its borrowers to determine "good"
or "bad" status, and fluctuations in interest rates to determine marketability
of loans. Reference is made to Footnotes 1, 2, and 3 of Notes to Financial
Statements for the year ended June 30, 1998, for a discussion of Elk's method of
valuation of its current portfolio of loans. In the event Elk invests in the
future in securities for which price quotations are readily available, Elk will
value such investments at their fair market value, based on such quoted prices.
With respect to securities for which price quotations are not readily available,
such securities will be valued at fair market value as determined by the Board
of Directors.
Collection Experience -- Elk has historically had a greater success with
taxi medallion financings than financings made in the radio car service business
or in its diversified (non-taxi) loan portfolio. Substantially all of Elk's
provisions for loan losses and losses on assets acquired that occurred during
the period of 1991 through 1994 were related to business loans secured by real
estate and radio car loans. In addition, during the period 1991 through 1995,
Elk had difficulty selling off real estate acquired on defaulted loans as a
result of a depressed real estate market. To its knowledge, Elk has never had a
loss of principal in any taxi medallion loan during Elk's 18 years of operation.
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<PAGE>
The New York City Taxi Medallion Industry and Market
As presently provided by law, the number of medallions for New York City
taxicabs that may be issued by New York City is limited to 12,187. There are two
types of medallions: (1) corporate and (2) individual owner-driver. Of the total
supply of 12,187 medallions, 7,058 are corporate medallions and 5,129 are for
individually owned cabs. A corporate medallion is issued with respect to a cab
owned by a corporation with a minimum of two (2) cabs and two (2) corporate
medallions (i.e., one (1) corporate medallion per cab). An individual
owner-driver may not own more than one (1) cab and one (1) medallion. Corporate
medallions are used by large fleet concerns with many taxicabs and many drivers
or by small corporations owning two (2) medallions and two (2) taxicabs driven
by two (2) owner-drivers (the so-called "minifleet").
Until August 1995, only 11,787 medallions were permitted to be issued. On
August 8, 1995, a bill permitting the City of New York to issue up to 400
additional taxi medallions over a three-year period was signed by the Governor
of the State of New York and approved by the New York City Council. The New York
City Taxi and Limousine Commission (the "TLC") conducted the sale of 133
medallions in May 1996, 133 medallions in October 1996, and 134 medallions on
October 1, 1997. Of these new medallions, 160 were sold to individuals and the
balance to minifleets in lots of two.
At the present time, most medallion sales are handled through brokers. As a
result, an active marketplace has developed for the purchase and resale of
medallions. The price of a medallion varies with supply and demand. Elk's most
recent experience, in August, 1998, was that individually owned medallions
currently sold for approximately $220,000 and corporate medallions sold for
approximately $275,000 each. In addition, a 5% New York city transfer tax and
various brokerage commissions are additional expenses incurred in the
acquisition and sale of a medallion.
Based upon statistics obtained from the TLC, from 1989 through 1998, the
number of issued corporate medallions that were sold by the holders thereof
varied each year from approximately 245 to 440, which suggests that there were a
maximum of between 122 and 220 minifleet corporations in need of financing each
year (taking into consideration the fact that each taxicab minifleet needs at
least two (2) medallions), while the number of individual owner medallions sold
each year varied from 250 to 415. Assuming that a typical minifleet financing
for purchases of medallions might involve a sum of approximately $400,000, the
dollar volume of New York City minifleet financings might range from $49 million
up to $88 million a year. Assuming that a typical individual medallion financing
for a purchase of a medallion involves a sum of approximately $180,000, the
dollar volume of New York City individual medallion financing might range from
$45 million up to $75 million a year.
In addition to purchases and sales of medallions, a substantial market
exists for refinancing the indebtedness of existing minifleet or individual
medallions. Management estimates this market to exceed that of the market for
financing transfers or in excess of $100,000,000 per year.
A prospective medallion owner must meet the requirements of the TLC, which
approves all sales and transfers. In general, the requirements are that the
prospective owner have no criminal record, that the purchase funds be derived
from legitimate sources, and that the taxi vehicle and meter meet specifications
set by the TLC. Also required is a clearance from prior insurers of the seller
in the form of letters stating that there are no outstanding claims for personal
injuries in excess of insurance coverage.
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<PAGE>
Marketing Strategy for Medallion Financing
Medallion transfers in the New York City market are usually handled through
medallion brokers who have frequent contact with taxicab owners and drivers.
Medallion brokers locate buyers for sellers of medallions and sellers for buyers
of medallions, and then typically employ a financing broker to arrange for the
financing of the medallion purchases. In many cases the medallion broker and the
financing broker may be the same party or related parties. Presently, to the
knowledge of Elk, there are approximately 35 medallion and financing brokers in
New York City. Medallion brokers customarily receive a brokerage fee of
approximately $3,000 to $5,000 per medallion transfer, the cost of which fee is
typically split between the buyer and seller. The financing broker, who assists
in securing any needed financing for the buyer, generally receives a commission
of from 1% to 4% from the borrower on the entire financed portion of the
transaction.
Elk has in the past received a significant number of referrals from certain
medallion brokers in New York. Elk also receives referrals from financing
brokers and its current borrowers. In addition, Elk occasionally places
advertisements in local industry newspapers and magazines. Elk also uses
brokers, advertising and referrals in connection with its taxicab lending
business in the Chicago, Boston, and Miami markets.
Elk does not plan to make any significant increases in the amount of its
radio car loans in the future.
Competition
Banks, credit unions, and other finance companies, some of which are SSBICs
and SBICs, compete with Elk in the origination of medallion loans and commercial
installment loans. Finance subsidiaries of equipment manufacturers also compete
with Elk. Many of these competitors have greater resources than Elk and certain
competitors are subject to less restrictive regulations than Elk. As a result,
Elk expects to continue to encounter substantial competition from such lenders,
many of which are well-established. Therefore, there can be no assurance that
Elk will be able to identify and complete financing transactions that will
permit it to compete successfully.
Investment Policies
The investment policies set forth herein constitute fundamental policies of
Elk pursuant to the 1940 Act, which may be changed only by the vote of the
lesser of (i) a majority of its outstanding Common Stock, or (ii) 67% of the
number of shares of Common Stock present in person or by proxy at a duly held
shareholder meeting at which at least 50% of the outstanding shares of Common
Stock are present.
(a) Issuance of Senior Securities. Elk may issue preferred stock and
subordinated debentures to the SBA in the maximum amounts permissible under the
1958 Act and the applicable regulations.
(b) Borrowing of Money. Elk has the power to borrow funds from banks, trust
companies, other financial institutions, the SBA or any successor agency and/or
other private or governmental sources, if determined by Elk's Board of Directors
to be in its best interests.
(c) Underwriting. Elk has not engaged, and does not intend to engage, in
the business of underwriting the securities of other issuers.
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<PAGE>
(d) Concentration of Investments. Elk may not concentrate 25% or more of
its total assets in securities of issuers in any industry group except the
taxicab industry. Elk 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 Elk intends to continue to
finance, the acquisition and/or operation of other small businesses.
(e) Real Estate. Elk has not engaged, and does not intend to engage, in the
purchase and sale of real estate. However, Elk may elect to purchase and sell
real estate in order to protect any of its prior investments which it considers
at risk.
(f) Commodities Contracts. Elk has not engaged, and does not intend to
engage, in the purchase and sale of commodities or commodities contracts.
(g) Loans. Elk 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.
(h) Writing Options. Elk has not engaged, and does not intend to engage, in
the writing of options.
(i) Short Sales. Elk has not engaged, and does not intend to engage, in
short sales of securities.
(j) Purchasing Securities on Margin. Elk has not engaged, and does not
intend to engage, in the purchase of securities on margin.
(k) Futures Contracts. Elk has not engaged, and does not intend to engage,
in the purchase or sale of futures contracts.
(l) Restricted Securities. Elk may invest up to 100% of its assets in
restricted securities.
(m) Types of Investments. Although Elk was organized primarily to provide
long term loan funds to Small Business Concerns, Elk's certificate of
incorporation provides Elk with the authority to invest in the equity capital of
Small Business Concerns. Accordingly, Elk may make equity investments in Small
Business Concerns if determined by its Board of Directors to be in the best
interests of Elk. Further, except as otherwise provided by applicable
regulations, there shall be no limitation on the amount of equity investments
Elk may make.
(n) Maximum Investment. Elk 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.
(o) Percentage of Voting Securities. The percentage of voting securities of
any one Small Business Concern which Elk may acquire may not exceed 49% of the
outstanding voting equities of such Small Business Concern.
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<PAGE>
(p) Management Control. Elk does not intend to invest in any company for
the purpose of exercising control of management. However, Elk may elect to
acquire control in order to protect any of its prior investments which it
considers at risk.
(q) Investment Companies. Elk has not invested, and does not intend to
invest, in the securities of other investment companies.
(r) Portfolio Turnover. Elk 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 Elk's stockholders in light of the then existing business and
financial conditions. Elk 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.
The Small Business Investment Act of 1958
As the holder of a license from the SBA to operate as an SBIC, Elk
qualifies for certain financing from the SBA on favorable terms as described
above under the heading "Certain Financial Information," but is subject to
certain restrictions and requirements under the 1958 Act and regulations
promulgated by the SBA under such act (the "SBA Regulations"). These
restrictions and requirements include, but are not limited to, the following:
(i) The interest rate charged by an SBIC on loans to small businesses
may not exceed the higher of either an SBIC's certified weighted average
cost of qualified borrowings, computed in accordance with SBA Regulations,
or the current debenture rate, plus, in either case, seven (7) percentage
points, rounded off to the next lower eighth of one percent; provided,
however, that if the current debenture rate is 8% per annum or lower, an
SBIC is permitted to charge up to 15%.
(ii) The aggregate commitments by an SBIC to any single small business
enterprise may not exceed 30% of the aggregate paid-in capital and paid-in
surplus of the SBIC.
(iii) Management and advisory services must be performed by an SBIC in
accordance with a written contract and certain record-keeping requirements
must be satisfied.
(iv) The term of SBIC loans to small businesses may not exceed 20
years.
(v) Prior written consent of the SBA is required in the event of any
proposed transfer of control of an SBIC and any proposed transfer of 10% or
more of any class of an SBIC's stock ownership by any person or group of
persons acting in concert owning 10% or more of any class of an SBIC's
stock.
(vi) Limitations are imposed on the ability of the officers,
directors, managers or 10% stockholders of an SBIC to become an officer,
director, manager or 10% stockholder of another SBIC.
(vii) Prior written consent of the SBA is required in the event of a
merger, consolidation or reorganization of an SBIC.
(viii) SBIC funds in excess of $2,000 not invested or loaned to small
businesses and not applied to the conduct of its operations are required to
be deposited in, or invested in time deposits of, federally-insured banks.
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<PAGE>
(ix) Corporate SBICs issuing debentures after April 25, 1994 are
required to amend their articles of incorporation to indicate that they
have consented, in advance, to the SBA's right to require the removal of
officers or directors and to the appointment of the SBA or its designee as
receiver of the SBIC for the purpose of continuing to operate the company
upon the occurrence of certain events of default. The regulations divide
the events of default into three categories.
The first category consists of three events that automatically accelerate
all outstanding debentures without notice or demand to the SBIC, and allow the
SBA to apply for receivership of the SBIC without the SBIC's objection. The
events are insolvency, a voluntary assignment for the benefit of creditors, and
the filing of a voluntary or involuntary petition for relief under the
Bankruptcy Code.
Under the second category, upon written notice, the SBA may demand
immediate repayment or redemption of all outstanding debentures or take any
other action permitted under the 1958 Act, specifically including institution of
proceedings for the appointment of the SBA or its designees as a receiver of the
SBIC. Nine (9) violations are included in this category, and no opportunities to
cure the default are afforded the SBIC. This category of violations includes:
fraud; fraudulent transfers; willful conflicts of interest; willful
non-compliance of one or more of the substantive provisions of the 1958 Act or
of a substantive regulation; repeated events of default; transfer of control;
non-cooperation with remedial steps that the SBA may prescribe; non-notification
of events of default; and non-notification of events of default to others. For
the first six (6) violations listed above the SBIC will have consented to the
SBA's right to require the SBIC to replace officers or directors, with persons
approved by the SBA, and to the SBA's appointment as receiver for the purpose of
continuing operations.
Under the third category, which includes nine (9) violations, the SBA
affords the SBIC the opportunity to cure its violations. If the SBIC fails to
cure to the SBA's satisfaction, the SBA may declare the SBIC's entire
indebtedness evidenced by the debentures to be immediately due and payable. The
violations in this category include: excessive compensation; improper
distributions; failure to make a timely payment of an SBA obligation; failure to
maintain minimum regulatory capital; capital impairment; failure to pay any
amount when due on any obligation greater than $100,000; nonperformance or
violation of the terms and conditions of any note, debenture, or other
obligation of the SBIC issued to, held or guaranteed by the SBA, or of any
agreement with, or conditions imposed by, the SBA; failure to comply with one or
more of the substantive provisions of the 1958 Act or regulations thereunder;
and failure to maintain certain investment ratios for leverage in excess of 300%
of Leverageable Capital, as defined in the 1958 Act. For the first three
violations listed above, if an SBIC fails to cure such violations the SBA can
require the removal of officers and directors and/or the appointment of its
designee as receiver of the SBIC.
In addition, if an SBIC repeatedly fails to comply with one or more
"non-substantive" provisions of the 1958 Act or the regulations thereunder, the
SBA, after written notification and until such condition is cured, may deny
additional leverage to such SBIC and/or require such SBIC to take such actions
as the SBA may determine to be appropriate under the circumstances. If the SBA
requires the licensee to bring itself into full compliance and it fails to do
so, the SBA may accelerate its leverage and take other remedies, including a
receivership.
(x) As with debentures, corporate SBICs issuing preferred stock after
April 25, 1994 are required to amend their articles of incorporation to
indicate that they have consented, in advance, to the SBA's right to
require the removal of officers or directors and to the appointment of the
SBA or its designees as receiver of the SBIC for the purpose of continuing
to operate the SBIC upon the occurrence of certain events of default. The
regulations divide the events of default into four (4) categories.
-22-
<PAGE>
The first category consists of six (6) events, the occurrence of any of
which will permit SBA, upon notice to the SBIC, to require the SBIC to replace,
with individuals approved by the SBA, one or more of its officers and/or
directors. In addition, the SBA can apply for the institution of an operating
receivership, with the SBA or its designee as receiver. The events are:
equitable or legal insolvency, or a capital impairment percentage of 100% or
more and such capital impairment is not cured within the time limits set by the
SBA in writing; a voluntary assignment for the benefit of creditors; the filing
of a voluntary or involuntary petition for relief under the bankruptcy code;
transfer of control; fraud; and fraudulent transfers.
The second category consists of willful conflicts of interest; willful or
repeated non-compliance with one or more of the substantive provisions of the
1958 Act or any substantive regulation promulgated thereunder; and failure to
comply with a restriction imposed on the SBIC pursuant to the third category.
Upon the occurrence of any such event, and only if the SBIC fails to remove the
person(s) the SBA identifies as responsible for such occurrence and/or cure such
occurrence to the SBA's satisfaction within a time period determined by the SBA,
upon written notice, the SBA may replace one or more of the SBIC's officers
and/or directors or obtain the appointment of the SBA or its designee as
receiver of the SBIC.
The third category lists eleven (11) events, the occurrence of any of which
will allow the SBA, on written notice to the SBIC, to prohibit the SBIC from
making any additional investments except for investments pursuant to legally
binding commitments entered into by the SBIC prior to such notice and, subject
to the SBA's prior written approval, investments that are necessary to protect
the SBIC's investment; to prohibit distributions by the SBIC to any party other
than the SBA, its agent or trustee, until all leverage is redeemed and amounts
due are paid; to require all commitments to the SBIC to be funded at the
earliest time(s) permitted in accordance with the SBIC's articles of
organization; and to review and re-determine the SBIC's approved management
compensation. This category of events includes the occurrence of any event
listed in the first two categories; the SBIC's failure to maintain its minimum
regulatory capital; capital or liquidity impairment and failure to cure the
impairment within time limits set by SBA in writing; improper distributions;
excessive compensation; failure to pay any amounts due under preferred
securities, unless otherwise permitted by the SBA; noncompliance with one or
more of the substantive provisions of the 1958 Act, or any substantive
regulation promulgated thereunder; failure to maintain diversity between
management and ownership, if applicable to such SBIC; failure to maintain
investment ratios for leverage in excess of 300% of Leverageable Capital or
preferred securities in excess of 100% of Leverageable Capital, if applicable to
such SBIC, as of the end of each fiscal year; nonperformance of one or more of
the terms and conditions of any preferred security or of any agreement with or
conditions imposed by SBA in its administration of the 1958 Act and the
regulations promulgated thereunder; and failure to take appropriate steps to
accomplish such actions as the SBA may have required for repeated
non-substantive violations of the 1958 Act or the regulations promulgated
thereunder.
Under the fourth category if an SBIC repeatedly fails to comply with any
one or more of the non-substantive provisions of the 1958 Act or any
non-substantive regulation promulgated thereunder, the SBA, after written
notification to the SBIC and until such condition is cured to the SBA's
satisfaction, can deny additional leverage to such SBIC and/or require such SBIC
to take such actions as the SBA may determine to be appropriate under the
circumstances.
(xi) An SBIC may not control (as such term is defined under applicable SBA
Regulations) its investee companies except to the extent temporarily required to
protect its investment. Additionally, SBA Regulations require SBICs to conduct
active operations. An SBIC is inactive and thus violates SBA Regulations if at
the close of any fiscal year it has more than 25% of its assets in idle funds
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<PAGE>
and if it has failed to provide financing aggregating 25% of the average amount
of its idle funds during the past eighteen months. The SBA requires the SBIC to
submit written justification of such inactivity.
(xii) As part of the regulatory framework, SBICs are subject to
examinations by SBA agents at least bi-annually and are required to pay
examination fees and maintain certain records, files, internal control
programs and reports. Moreover, the SBA is authorized to suspend an SBIC's
license, issue cease and desist orders, remove officers and directors of an
SBIC, subpoena witnesses and records, apply for injunctions to the
appropriate district court, and apply for further acts of enforcement to
the appropriate U.S. Circuit Court of Appeals.
The foregoing summary of certain requirements under the 1958 Act and
regulations thereunder does not purport to be complete and investors are urged
to consult the 1958 Act and regulations thereunder for more detailed
information. See below under the heading "Tax Considerations" for a discussion
of the taxation of SBICs.
The Investment Company Act of 1940
Elk registered as an investment company under the 1940 Act on July 8, 1983.
Prior to such date, Elk was exempt from regulation under the 1940 Act. The 1940
Act imposes various substantive requirements upon registered investment
companies, and compliance with these requirements can in many cases be time
consuming, burdensome and expensive. These requirements include, but are not
limited to, the following:
(i) The Board of Directors of Elk must be composed of at least 40% of
persons who are not "interested persons" as that term is defined in the
1940 Act (e.g., persons who are not affiliates, counsel, accountants,
investment advisors of or to Elk).
(ii) Any arrangement which provides for joint participation by Elk and
any affiliate (as that term is defined in the 1940 Act) of Elk in any
transaction, and Company loans to, purchases from, or sales to, any such
affiliate must be approved in advance by the Commission.
(iii) Any management advisory contract between Elk and an investment
adviser must be (a) in writing, (b) initially approved by shareholders
holding a "majority of the outstanding voting stock" (as defined in the
1940 Act) of Elk and annually thereafter by either Elk's Board of Directors
or a majority of its outstanding voting stock, (c) non-assignable by the
adviser, and (d) terminable by the directors or a majority of the voting
shareholders upon 60 days' notice.
(iv) Elk is required to prepare and file various annual and periodic
reports and proxy materials with the Commission.
(v) Elk's fundamental investment policies may not be changed without
the approval of a "majority of the outstanding voting stock" (as defined in
the 1940 Act). See "Investment Policies."
(vi) Elk is required to comply with special journal and ledger
accounting rules and record-keeping requirements relating to all business
transactions, and will be subject to inspections by representatives of the
Commission without warning.
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<PAGE>
(vii) Elk may not (i) issue more than one (1) class of stock senior to
the Common Stock or (ii) issue warrants or rights unless they expire in 120
days or less and are issued ratably to all members of a class of voting
securities.
(viii) Elk must adopt a Code of Ethics which is designed to prevent
insiders from competing with Elk for investments. The Code of Ethics must
require that Elk maintain records of all security transactions of
directors, officers and employees with information relating to Elk's
investments. See "Management -- Conflicts of Interest Policies."
(ix) Holders of 10% or more of any class of Elk's voting securities
and its directors and officers are subject to short-swing profit liability
under Section 16(b) of the Securities Exchange Act of 1934, for purchases
and sales of securities of Elk within a six-month period of each other.
(x) Elk may not issue any of its securities for services or property
other than cash (except as a dividend or distribution to its shareholders
or in connection with a reorganization).
(xi) Elk may not sell any of its Common Stock for less than the
current net asset value of such stock except (a) with the consent of a
majority of the holders of its Common Stock, (b) in connection with an
offering to all holders of the Common Stock, (c) upon the exercise of an
outstanding warrant or (d) upon the conversion of a convertible security in
accordance with its terms.
The foregoing summary of certain requirements of the 1940 Act does not
purport to be complete, and investors are urged to consult the 1940 Act for more
detailed information.
Election to Become a BDC
Elk elected to become a BDC effective September 28, 1998. Ameritrans has
also elected to be treated as a BDC, which also subjects each company to
continuing regulation under the 1940 Act. The 1940 Act contains prohibitions and
restrictions relating to transactions between BDCs and their affiliates,
principal underwriters, and affiliates of those affiliates or underwriters. In
addition, the 1940 Act provides that a company may not change the nature of its
business so as to cease to be, or to withdraw its election as, a BDC unless so
authorized by the vote of a "majority of the company's outstanding voting
securities," as defined under the 1940 Act.
A BDC is permitted, under specified conditions, to issue multiple classes
of indebtedness and one class of stock (collectively, "senior securities," as
defined under the 1940 Act) senior to the shares of its common stock if the
company's asset coverage of such indebtedness and all senior securities is at
least 200% immediately after each such issuance. Subordinated debentures and
preferred stock guaranteed by or issued to the SBA, are not subject to this
asset coverage test. In addition, while senior securities are outstanding,
provision must be made to prohibit the declaration of any dividend or other
distribution to stockholders (except stock dividends) or the repurchase of such
securities or shares unless the BDC meets the applicable asset coverage ratios
at the time of the declaration of the dividend or distribution or repurchase.
The Exemptive Order grants, among other things, certain relief from the asset
coverage ratios applicable to BDCs.
Under the 1940 Act, a BDC may not acquire any asset other than assets of
the type listed in Section 55(a) of the 1940 Act ("Qualifying Assets") unless,
at the time the acquisition is made, certain Qualifying
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<PAGE>
Assets represent at least 70% of the value of the company's total assets. The
principal categories of Qualifying Assets relevant to the proposed business of
Ameritrans are the following:
(1) Securities purchased in transactions not involving a public offering
from the issuer of such securities, which issuer is an eligible
portfolio company. An "eligible portfolio company" is defined in the
1940 Act as any issuer which:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than an SBIC or SSBIC
wholly-owned by the business development company; and
(c) does not have any class of securities with respect to which a
broker or dealer may extend margin credit.
(2) Securities of any eligible portfolio company which is controlled by
the business development company.
(3) Securities received in exchange for or distributed on or with respect
to securities described in (1) or (2) above, or pursuant to the
exercise of options, warrants, or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a BDC must have been organized (and have its principal place
of business) in the United States for the purpose of making investments in the
types of securities described in (1) or (2) above. In order to count securities
as Qualifying Assets for the purpose of the 70% test, the BDC must either
control the issuer of the securities or must make available to the issuer of the
securities significant managerial assistance; except that, where the BDC
purchases such securities in conjunction with one or more other persons acting
together, one of the other persons in the group may make available the required
managerial assistance. In addition, at least 50% of the members of a BDC's Board
of Directors must be persons who are "disinterested" as that term is defined in
the 1940 Act.
Security Ownership of Principal Stockholders and Management
The following table sets forth certain information as to those persons who,
to the knowledge of Elk, owned 5% or more of the outstanding Common Stock of Elk
as of June 30, 1998, and as to the officers and directors of Elk as a group:
Number of Shares of Percentage of outstanding Elk
Name Common Stock Owned Common Stock owned
- ---- ------------------ ------------------
*Gary C. Granoff 320,708(1) 18.4%
*Ellen M. Walker 37,374(2) 2.1%
*Lee A. Forlenza 30,435 1.7%
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<PAGE>
Number of Shares of Percentage of outstanding Elk
Name Common Stock Owned Common Stock owned
- ---- ------------------ ------------------
*Margaret Chance 3,400(3) .2%(5)
*Silvia Mullens -- None
Marvin Sabesan 78,861(4) 4.5%
Steven Etra 115,516(6) 6.6%
Paul Creditor 2,000 .1%(5)
Allen Kaplan 5,000 .3%(5)
Dan M. Granoff 145,979(7) 8.4%
Alexander Nash 96,600(8) 5.5%
John L. Acierno -- None
Paul D. Granoff 143,179(9) 8.2%
------- ----
Officers, Directors and 5% 979,052 56.0%
stockholders as a group
(13 persons)
- ----------
* Gary C. Granoff, Ellen Walker, Lee A. Forlenza, Margaret Chance and Silvia
Mullens are each "interested persons" with respect to Elk, as such term is
defined in the 1940 Act.
(1) Excludes 24,933 shares owned directly or indirectly by Mr. Granoff's wife,
as to which he disclaims beneficial ownership. Also excludes 10,500 shares
owned by one of Mr. Granoff's sons, as to which shares he does not exercise
any control and disclaims beneficial ownership. Includes 10,900 shares
owned by The Granoff Family Foundation, a charitable foundation of which
Mr. Granoff and his father, mother, and brother, Dan M. Granoff, are
trustees. Also includes 35,321 shares held by Mr. Granoff as trustee for
his children and other family members. Also includes 261 shares held by GCG
Associates Inc., a corporation owned by Mr. Granoff. Also includes 76,084
shares owned by DAPARY Management Corp., a corporation controlled by Mr.
Granoff.
(2) Includes 200 shares held by Ms. Walker as custodian for her son. Includes
22,800 shares held by various trusts of which Ms. Walker is a trustee and
as to which she disclaims benefical ownership. Mr. Granoff retains a
reversionary interest in 21,000 of such shares.
(3) Includes 200 shares held by Ms. Chance as custodian for her daughter.
(4) Includes 21,387 shares held by Mr. Sabesan and his wife as joint tenants
and 28,551 shares held by his wife. Mr. Sabesan disclaims beneficial
ownership of the 28,551 shares held by his wife.
(5) Less than 1%.
(6) Includes 29,022 shares held by Mr. Etra and his wife as joint tenants,
27,000 shares held by his wife and 1,500 shares held by Mr. Etra's son.
Also includes 10,000 shares held by SRK Associates LLC, a limited liability
company controlled by Mr. Etra. Also includes 10,000 shares held by Lance's
Property Development Corp. Pension Plan, of which pension plan Mr. Etra is
a trustee.
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<PAGE>
(7) Excludes 10,900 shares owned by a charitable foundation, of which N. Henry
Granoff, his wife, Jeannette Granoff, Gary C. Granoff and Dan M. Granoff
are the trustees. Includes 2,800 shares held in an IRA rollover account for
the benefit of Dr. Granoff.
(8) Includes 6,500 shares held by Dr. Nash as custodian for his daughter. Also
includes 52,900 shares held by his wife, as to which shares Dr. Nash
disclaims beneficial ownership.
(9) Includes 40,049 shares held by Dr. Paul Granoff directly, 77,630 held by
Granoff Family Partners Ltd., of which Dr. Granoff is a general partner,
and 25,500 shares held by the Granoff Pediatric Associates Profit Sharing
Plan. Excludes 14,127 shares held by Dr. Granoff's wife, of which shares he
disclaims beneficial ownership.
Except as otherwise indicated above, the persons listed in the above table
have sole voting and investment power, and are both the owners of record and the
beneficial owners, with respect to their respective shares.
All of the persons listed above, for as long as they continue to hold 5%
percent or more of Elk's outstanding Common Stock, will be deemed "affiliated
persons" of Elk, as such term is defined in the 1940 Act.
Management
Directors and Executive Officers
The following table sets forth certain information concerning the directors
and executive officers of Elk:
<TABLE>
<CAPTION>
Name Address Position
- ---- ------- --------
<S> <C> <C>
Gary C. Granoff(1)(2) c/o Elk Associates President and Chairman of
Funding Corporation Board of Directors
747 Third Avenue
New York, New York
Ellen M. Walker(1)(2) c/o Elk Associates Vice President, General
Funding Corporation Counsel and Director
747 Third Avenue
New York, New York
Lee A. Forlenza(1)(2) c/o Elk Associates Vice President and
Funding Corporation Director
747 Third Avenue
New York, New York
Margaret Chance(2) c/o Elk Associates Secretary
Funding Corporation
747 Third Avenue
New York, New York
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name Address Position
- ---- ------- --------
<S> <C> <C>
Silvia Mullens(2) c/o Elk Associates Vice President
Funding Corporation
747 Third Avenue
New York, New York
Marvin Sabesan c/o Pearl River Textiles, Inc. Director
990 Sixth Avenue
New York, New York
Steven Etra 55-25 58th Street Director
Maspeth, New York
Paul Creditor 747 Third Avenue, Ste. 4C Director
New York, New York
Allen Kaplan c/o Team Systems Director
30-17 40th Avenue
Long Island City, New York
John L. Acierno c/o Executive Charge, Inc. Director
1440 39th Street
Brooklyn, New York
</TABLE>
- ----------
(1) Ellen M. Walker, Gary C. Granoff and Lee A. Forlenza are officers and
shareholders in the law firm of Granoff, Walker & Forlenza, P.C. and in
Gemini Capital Corporation.
(2) Gary C. Granoff, Ellen M. Walker, Lee A. Forlenza, Margaret Chance and
Silvia Mullens are each "interested persons" with respect to Elk, as such
term is defined in the 1940 Act.
Gary C. Granoff, age 50, has been President and a director of the Company
since its formation in July 1979 and Chairman of the Board of Directors since
December 1995. Mr. Granoff has been a practicing attorney for the past
twenty-five years and is presently an officer and shareholder in the law firm of
Granoff, Walker & Forlenza, P.C. Mr. Granoff is a member of the bar of the State
of New York and the State of Florida and is admitted to the United States
District Court of the Southern District of New York. Mr. Granoff is also
President and the sole stockholder of GCG Associates, Inc. ("GCG"), the
Company's former investment adviser. He has served as President and the sole
stockholder of Seacrest Associates, Inc., a hotel operator, since August 1994.
Mr. Granoff has also been President and a director since June 1996 of Gemini
Capital Corporation ("Gemini"), a company primarily engaged in the business of
making consumer loans. In February 1998, Mr. Granoff was elected to and is
presently serving as a trustee on the Board of Trustees of The George Washington
University. Mr. Granoff holds a Bachelor of Business Administration degree in
Accounting, and a Juris Doctor degree with honors, both of which degrees were
obtained at The George Washington University.
Ellen M. Walker, age 42, has been a Vice President and General Counsel of
the Company since July 1983 and a director of the Company from July 1983 to
August 1994. She again became a director of the Company in 1995. Ms. Walker has
been a practicing attorney for more than seventeen years and she is presently an
officer and shareholder in the law firm of Granoff, Walker & Forlenza, P.C. Ms.
Walker is a member of the Bar of the State of New York and she is admitted to
the United States District Court of the Southern District of New York. Since
August 1983 Ms. Walker has been Vice President of
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<PAGE>
GCG. Ms. Walker has been a director, Vice President and General Counsel of
Gemini since June 1996. Ms. Walker received a Bachelor of Arts degree from
Queens College and obtained her Juris Doctor degree with honors from Brooklyn
Law School.
Lee A. Forlenza, age 40, has been a Vice President of the Company since
March 1992. Mr. Forlenza has been a practicing attorney since February 1983 and
is presently an officer and shareholder in the law firm of Granoff, Walker &
Forlenza, P.C. Since March 1992 Mr. Forlenza has been an investment analyst for
GCG. Mr. Forlenza has also been Vice President, Secretary and a director of
Gemini since June 1996. Mr. Forlenza was Vice President of True Type Printing,
Inc. from 1976-1995 and President since May 1995. From 1983 through 1986 Mr.
Forlenza was an attorney with the SBA. Mr. Forlenza graduated Phi Beta Kappa
from New York University and obtained his Juris Doctor degree from Fordham
University School of Law.
Silvia Mullens, age 45, has been the Loan Administrator of the Company
since February 1994. She was elected a Vice President of the Company in 1996.
Prior to joining the Company, she was the Legal Coordinator for Castle Oil
Corporation from September 1991 through June 1993 and from June 1993 through
January 1994, a legal assistant specializing in foreclosures in the law firm of
Greenberg & Posner. Ms. Mullens received a B.A. from Fordham University and an
M.B.A. from The Leonard Stern School of Business Administration of New York
University.
Margaret Chance, age 42, has been Secretary of the Company and involved in
loan administration since November 1980. Ms. Chance is the office manager of
Granoff, Walker & Forlenza, P.C. and has served as the Secretary of GCG
Associates Inc., since January 1982. Ms. Chance holds a paralegal certificate.
Marvin Sabesan, age 69, has been a director of the Company since July 1982.
Mr. Sabesan has been employed by Pearl River Textiles, Inc. as an executive
since 1990. He was an Executive Vice President of N.O.L. Inc., a lingerie
company, from 1988 to 1990. Mr. Sabesan was an Executive Vice President of A.J.
Schneierson & Son, a clothing manufacturer from 1971 to 1987.
Steven Etra, age 49, has been Sales Manager since 1975 of Manufacturers
Corrugated Box Company, a company owned by Mr. Etra's family for more than
seventy-five years. Mr. Etra has also been a director of Gemini since June 1996.
Mr. Etra has extensive business experience in investing in emerging companies.
Paul Creditor, age 61, has been a practicing attorney since 1961, engaging
in the general practice of law and specializing in corporate law. From 1974
through 1979 he served as an elected Judge in Suffolk County, New York. He also
served as counsel to the New York State Constitutional Convention and various
State Agencies and Commissions.
Allen Kaplan, age 47, is Vice President and Chief Operating Officer of Team
Systems, Inc., a company which manages and operates more than 200 New York City
Medallion taxicabs. Mr. Kaplan is currently Vice President of the Metropolitan
Taxicab Board of Trade, a trade association consisting of 22 member fleets
representing 1,200 New York City medallions.
John L. Acierno, age 39, has served as president of Executive Charge Inc.
and its affiliated companies for the last ten years. During that time, Executive
Charge Inc. has become the largest executive sedan operation in the United
States with over 1,100 vehicles servicing the greater New York Metropolitan
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<PAGE>
area. His background includes practicing law as a labor attorney for Proskauer
Rose and serving as counsel for R.H. Macy & Co. Mr. Acierno was founder and
immediate past president for the last six years of the Black Car Assistance
Corporation, the organization which serves as the New York black car industry
association. He was named International Taxicab and Limousine Association
Premium Service Operator of the Year for 1996. Mr. Acierno graduated Phi Beta
Kappa from Tufts University, and Cum Laude from Cornell Law School.
Elk's directors are actively involved in the oversight of its affairs,
including financial and operational issues, credit and loan policies, asset
valuation, and strategic direction.
Committees of the Board
Elk has a standing Audit Committee and a standing Holding Company
Committee.
The Audit Committee is comprised of Paul Creditor, John Acierno and Gary
Granoff. The function of the Audit Committee is to review the internal
accounting control procedures of the Company, review the consolidated financial
statements of the Company and review with the independent public accountants the
results of their audit.
The Holding Company Committee consists of Steven Etra and Lee Forlenza. The
purpose of the Holding Company Committee is to oversee the formation and
capitalization of, and the transactions with, Ameritrans.
Executive Compensation
The following table sets forth all remuneration for services rendered to
Elk during the periods indicated to (i) each of the executive officers and (ii)
all executive officers as a group.
The following individuals were paid the cash compensation set forth
opposite their names for the period July 1, 1997, through June 30, 1998:
<TABLE>
<CAPTION>
Name of Individual
or Number of Capacities in
Persons in Group Which Served Cash Compensation(1)
---------------- ------------ --------------------
<S> <C> <C>
Gary C. Granoff President $215,712 plus simplified employee pension
plan ("SEP") contributions of $24,000 and
$20,000 of reimbursable expenses.
Ellen M. Walker Vice President $103,917 plus $15,588 in SEP contributions.
Counsel
Lee A. Forlenza Vice President $45,673 plus $6,851 in SEP contributions.
Silvia Mullens Vice President $59,063 plus $8,859 in SEP contributions.
Margaret Chance Secretary $53,160 plus $7,974 in SEP contributions.
All executive officers $560,797
as a group (5 persons)
</TABLE>
- ----------
(1) Officers' salaries constitute a major portion of Elk's total "management fee
compensation," which must be approved by the SBA. The SBA has approved total
officer and employee compensation of $648,000 for Elk. This amount includes
officers' salaries, other salaries and employee benefits.
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<PAGE>
The Company is currently paying the foregoing individuals compensation at
the same rate as was paid during the fiscal year ended June 30, 1998. The Board
of Directors may increase such compensation and/or award bonuses for the 1998
fiscal year during the current fiscal year, but has not done so to date.
Elk has a policy of paying its directors who are not employees fees of $750
for each meeting attended. Commencing July 1, 1996, Elk paid each non-affiliated
director a minimum fee of $2,000 per year in addition to the fees paid for each
meeting attended. For the years ended June 30, 1997, and June 30, 1998,
respectively, fees and expenses paid to non-affiliated directors were
approximately $27,500 and $52,050, respectively, in the aggregate. For the year
ended June 30, 1998, the members of the Holding Company Committee were paid an
aggregate of $8,000 for work performed in connection with the proposed Share
Exchange.
Stock Option Plan
Elk's Board of Directors, including a majority of the non-interested
directors, has adopted, subject to shareholder approval, an employees stock
option plan (the "1998 Employee Plan") in order to link the personal interests
of key employees to the long-term financial success of Elk and the growth of
shareholder value. The 1998 Plan will be submitted for approval of stockholders
at the Annual Meeting of Shareholders scheduled for September 28, 1998. The 1998
Employee Plan authorizes the grant of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code for the purchase of an aggregate of
125,000 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock to employees of Elk. By adopting the 1998 Employee
Plan, the Board believes that Elk will be better able to attract, motivate and
retain as employees people upon whose judgment and special skills the success of
Elk in large measure depends. As of the date of this Proxy Statement/Prospectus,
no options to purchase shares of Common Stock have been granted under the 1998
Employee Plan. Accordingly, 125,000 shares of Common Stock were available for
future awards under the 1998 Employee Plan.
The 1998 Employee Plan will be administered by the 1998 Employee Plan
Committee of the Board of Directors, which will be comprised solely of
non-employee directors (who are "outside directors" within the meaning of
Section 152(m) of the Internal Revenue Code of 1986, as amended (the "Code") and
"disinterested persons" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "1934 Act") (the "Committee")). The Committee can make
such rules and regulations and establish such procedures for the administration
of the 1998 Employee Plan as it deems appropriate.
The exercise price of an incentive stock option must be at the fair market
value of Elk's Common Stock on the date of grant (110% of the fair market value
for shareholders who, at the time the option is granted, own more than 10% of
the total combined classes of stock of Elk or any subsidiary). No employees may
exercise more than $100,000 in options held by them in any year.
No option may have a term of more than ten years (five years for 10% or
greater shareholders). Options generally may be exercised only if the option
holder remains continuously associated with Elk or a subsidiary from the date of
grant to the date of exercise. However, options may be exercised upon
termination of employment or upon death or disability of any employee within
certain specified periods.
The following is a general summary of the federal income tax consequences
under current tax law of incentive stock options ("ISOs"). It does not purport
to cover all of the special rules, including special rules relating to persons
subject to the reporting requirements of Section 16 under the 1934 Act who do
not hold the shares acquired upon the exercise of an option for at least six
months after the date of grant
-32-
<PAGE>
of the option and special rules relating to the exercise of an option with
previously-acquired shares, or the state or local income or other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of an ISO.
Upon the exercise of an ISO, the optionee will not recognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to him or her, the optionee will recognize
long-term capital gain or loss and Elk will not be entitled to a deduction.
However, if the optionee disposes of such shares within the required holding
period, all or a portion of the gain will be treated as ordinary income and Elk
will generally be entitled to deduct such amount.
In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax.
Elk's Board of Directors has adopted subject to shareholder approval, a
stock option plan for non-employee directors (the "Director Plan") in order to
link the personal interests of such non-employee directors to the long-term
financial success of Elk and the growth of shareholder value. The Director Plan
will be submitted for approval of stockholders at the Annual Meeting of
Shareholders scheduled for September 28, 1998. Elk will also submit an
application for an exemptive order relating to this plan to the Commission if it
is approved by the stockholders. The Director Plan provides for the automatic
grant of options to directors of Elk who are not employees, officers or
interested persons of Elk (an "Eligible Director"). By adopting the Director
Plan, the Board believes that Elk will be better able to attract, motivate and
retain as directors people upon whose judgment and special skills the success of
Elk in large measure depends. In accordance with the provisions of the 1940 Act,
the automatic grant of options under the Director Plan will not occur until
after the date of the approval (the "Approval Date") of the Director Plan by the
Commission. There can be no assurance that the Commission will approve the
Director Plan.
The total number of shares for which options may be granted from time to
time under the Director Plan is 75,000 shares.
The Director Plan provides that an Eligible Director serving on Elk's Board
of Directors who has served as a director for at least one year prior to the
Approval Date will automatically receive on the Approval Date the grant of an
option to purchase the number of shares of Common Stock determined by dividing
$50,000 by the fair market value of the Common Stock on the Approval Date. With
respect to any Eligible Director who is elected or reelected as a director of
Elk after the Approval Date such elected director will automatically receive on
the date such director has served as a director of Elk for one year of such
election or reelection an option to purchase the number of shares of Common
Stock determined by dividing $50,000 by the fair market value of the Common
Stock on the date of the first anniversary such director became a director of
Elk.
The Director Plan will be administered by a committee of directors who are
not eligible to participate in the Directors Plan (the "Committee"). Options
become exercisable with respect to such shares granted on the date on which the
option was granted, so long as the optionee remains an Eligible Director. No
option may be exercised more than five years after the date on which it is
granted. The number of shares available for options, the number of shares
subject to outstanding options and their
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exercise prices will be adjusted for changes in outstanding shares such as stock
splits and combinations of shares. Shares purchased upon exercise of options, in
whole or in part, must be paid for in cash or by means of unrestricted shares of
Common Stock or any combination thereof.
The following is a general summary of the federal income tax consequences
under current tax law of non-qualified stock options ("NQSOs"). It does not
purport to cover all of the special rules, including special rules relating to
persons subject to the reporting requirements of Section 16 under the 1934 Act
who do not hold the shares acquired upon the exercise of an option for at least
six months after the date of grant of the option and special rules relating to
the exercise of an option with previously-acquired shares, or the state or local
income or other tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.
Upon the exercise of a NQSO, the optionee will recognize ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares
acquired on the date of exercise over the exercise price thereof, and Elk will
generally be entitled to a deduction for such amount at that time. If the
optionee later sells shares acquired pursuant to the exercise of a NQSO, he or
she will recognize long-term or short-term capital gain or loss, depending on
the period for which the shares were held. Long-term capital gain is generally
subject to more favorable tax treatment than ordinary income or short-term
capital gains.
If the option does not have a readily ascertainable fair market value, an
optionee will not recognize taxable income for federal income tax purposes upon
the grant of an NQSO.
Options granted under the Director Plan will not be transferable other than
by the laws of descent and during the optionee's life may be exercised only by
the optionee. All rights to exercise options will terminate after the optionee
ceases to be an Eligible Director. If the optionee dies before expiration of the
option, his legal successors may have the right to exercise the option in whole
or in part within one year of death.
The Director Plan may be terminated at any time by the Board of Directors,
and will terminate ten years after the effective date of the Director Plan. The
Board of Directors may not materially increase the number of shares authorized
under the plan or materially increase the benefits accruing to participants
under the plan without the approval of the shareholders of Elk.
The exercise or conversion price of the options issued pursuant to the
Director Plan shall be not less than current market value at the date of
issuance, or if no such market value exists, the current net asset value of such
voting securities.
The descriptions of the 1998 Employee Plan and the Director Plan set forth
herein are qualified in their entirety by reference to the text of the plans.
Certain Transactions
Prior to January 1, 1996, Elk paid an annual legal retainer fee for the
purposes of providing loan closing services to a firm, certain of whose officers
are officers and directors of Elk. Effective January 1, 1996, the legal fee
retainer being paid to such law firm was terminated, and legal services related
to New York taxi and radio car loan closings are being provided by the officers
and employees of Elk. Closing fees related to all other loans are paid by Elk
based on a fixed or hourly fee. Elk paid $43,231 to the law firm for legal
services during the year ended June 30, 1998. Elk generally charges its
borrowers
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loan origination fees to generate income to offset expenses incurred by Elk for
legal fees paid by Elk for loan closing services.
Elk also rents office space from the above-mentioned law firm and shares
certain office expenses with that firm. For the fiscal year ended June 30, 1998,
Elk paid $39,600 in rent and $59,400 in shared overhead expense and $21,908 of
other reimbursable shared overhead expense. For the year ending June 30, 1999,
Elk has agreed to pay $39,600 in rent and a minimum of $59,400 in expenses,
which amount is subject to adjustment if actual expenses vary.
During the fiscal year ended June 30, 1998, Granoff, Walker & Forlenza,
P.C. exercised an option in its lease, at the request of Elk, and rented an
additional 1,800 square feet of office space contiguous with the offices of Elk
at a below market rent (the "Additional Space"). The law firm intends to sublet
the Additional Space to outside tenants. In the event all or a portion of the
Additional Space is vacant, Elk's Board of Directors has agreed to reimburse the
law firm for the additional rent due. The estimated maximum amount of rent for
which Elk would be responsible is $58,000 per year, less any sublet rental
income received from the outside tenants. At present, the Additional Space is
fully occupied thus requiring no reimbursement payment from Elk, although some
liability under the reimbursement obligation may occur in the future. In the
event Elk's operations expand, Elk could occupy the contiguous space for its own
use without the inconvenience and expense of Elk having to relocate to larger
office space.
Conflicts of Interest Policies
The Board of Directors of Elk has adopted policies governing potential
conflicts of interest between Elk and its directors and officers. Together,
these policies comprise Elk's "Code of Ethics" as required under the 1940 Act.
These policies generally provide that no officer, director or employee of
Elk will make any loan which might be deemed to be appropriate for Elk, unless
and until such transaction is first approved by a majority of the directors of
Elk who are not "interested persons" of Elk within the meaning of the 1940 Act
and who have no financial or other material interest in the transaction. A loan
would not be deemed to be appropriate for Elk if in any manner such loan (or
investment) would in any way violate SBA Regulations in effect at the time of
making such loan or investment. In reviewing any such transaction, the directors
will examine, among other factors, whether the transaction would deprive Elk of
an opportunity or whether it would otherwise conflict with the best interests of
Elk and its shareholders. A complete record of any such review and the results
of the review will be maintained by Elk as part of its permanent records.
Description of Capital Stock
As of ____________, 1998, there were approximately 375 holders of record of
Elk Common Stock. The authorized capital stock of Elk consists of 2,000,000
shares of Common Stock, par value $.01 per share, of which 1,745,600 shares are
issued and outstanding, and 1,300,000 shares of Preferred Stock, none of which
are issued and outstanding. The Board of Directors of Elk has approved an
amendment to the Certificate of Incorporation increasing the authorized number
of shares of Common Stock to 3,000,000 and deleting the 1,300,000 authorized
shares of Preferred Stock subject to the approval of (i) the shareholders at the
Annual Meeting of Shareholders scheduled for September 28, 1998, and (ii) the
SBA.
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If the Share Exchange is completed, Ameritrans' Common Stock will be listed
on the Nasdaq SmallCap Market under the symbol ___________, and the listing of
Elk's Common Stock will be terminated.
Elk Common Stock
The holders of Elk Common Stock are entitled to one (1) vote per share on
all matters submitted to a vote of stockholders. Holders of Elk Common Stock
have neither cumulative voting rights (which means that the holders of a
majority of the outstanding shares of Elk Common Stock may elect all of the
directors of Elk) nor any preemptive rights. Holders of Elk Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In order to qualify as a
"regulated investment company" under the Code, Elk is required to distribute as
dividends to its stockholders, for each fiscal year, at least 90% of its
investment company taxable income and 90% of the excess of its tax-exempt income
over certain disallowed deductions. In addition, in order to avoid a
non-deductible 4% excise tax on any undistributed income of Elk, Elk is required
to distribute as dividends, within each calendar year, at least 97% of its
ordinary income for such calendar year and 98% of its capital gain net income
for the one-year period ending on October 31 of such calendar year. See "Tax
Considerations." In the event of a liquidation, dissolution or winding up of
Elk, holders of Elk Common Stock will be entitled to receive, subject to the
prior right of the SBA to receive any amounts due to it on account of its
remaining liquidating interest in the repurchased shares of Elk Preferred Stock,
a ratable portion of the assets of Elk remaining after provision for payment of
creditors. All of the outstanding shares of Elk Common Stock are fully paid and
non-assessable.
The transfer agent for Elk Common Stock is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004.
Preferred Stock
Elk Preferred Stock may be issued only to the SBA. As of the date hereof,
Elk has no shares of Preferred Stock outstanding. However, the Board of
Directors of Elk has approved an amendment to the Certificate of Incorporation
deleting the 1,300,000 authorized shares of Preferred Stock subject to the
approval of (i) the shareholders at the Annual Meeting of Shareholders scheduled
for September 28, 1998, and (ii) the SBA.
Market Information
The Elk Common Stock is traded in the over-the-counter market on a limited
basis. The Elk Common Stock was listed on the Nasdaq SmallCap Market on June 22,
1998, under the symbol EKFG. Due to the limited number of transactions involving
the Elk Common Stock during the periods presented below, it does not appear that
an established public trading market has developed with respect to these
securities. The following table shows the closing high and low bid prices for a
share of Elk Common Stock as reported by Nasdaq, the National Quotation Bureau,
Inc., or directly by dealers maintaining a market in the Elk Common Stock for
the fiscal years ended June 30, 1997 and 1998 and for the current fiscal year to
date.
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Bid
-----------------------
High Low
1997
1st Quarter......................................... 4.75 4.625
2nd Quarter......................................... 4.75 4.75
3rd Quarter......................................... 5.125 4.75
4th Quarter......................................... 5.125 5.125
1998
1st Quarter......................................... 6.25 5.125
2nd Quarter......................................... 6.625 6.25
3rd Quarter......................................... 7.125 6.625
4th Quarter......................................... 9.75 7.125
1999
1st Quarter.........................................
2nd Quarter (to ___________, 1998)..................
On ___________, 1998, the closing "bid" and "ask" prices for a share of Elk
Common Stock were ____ and ____ respectively, as reported by Nasdaq.
Tax Considerations
The following discussion is a general summary of the federal income tax
principles applicable to Elk, based on the currently existing provisions of the
Code and the regulations thereunder. This summary does not purport to be a
complete description of the tax considerations applicable to Elk or to the
holders of Elk Common Stock. After the Share Exchange, these principles will, in
general, continue to apply to Elk, but the sole direct holder of Elk Common
Stock will be Ameritrans.
Taxation of a Regulated Investment Company
Elk has elected for each taxable year since fiscal 1984, and expects to
continue to elect, to be treated as a "regulated investment company" under
Section 851 of the Code. A regulated investment company may deduct, for federal
income tax purposes, most dividends paid to stockholders, thereby avoiding
federal income taxation at the corporate level on amounts distributed to
stockholders as dividends. In order for Elk to qualify as a regulated investment
company for a given fiscal year, it must meet each of the following conditions
for that fiscal year:
(1) Elk must be registered as an investment company under the 1940 Act at
all times during the year.
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(2) At least 90% of Elk's gross income for the year must be derived from
interest, gains on the sale or other disposition of stock or other securities,
dividends and payment with respect to securities loans.
(3) Less than 30% of Elk's gross income must be derived from the sale or
other disposition of securities held for less than three months.
(4) At the close of each quarter, at least 50% of the value of Elk's total
assets must be represented by cash, cash items (including receivables), and
securities. There are also limitations on the extent to which Elk's holdings may
be concentrated in the securities of a single issuer.
(5) Elk must distribute as dividends at least 90% of its investment company
taxable income (as defined in Section 852 of the Code), as well as 90% of the
excess of its tax-exempt income over certain disallowed tax-exempt interest
deductions.
In order to avoid the imposition of a non-deductible 4% excise tax on
undistributed income of Elk, Elk is required, under the terms of the Revenue Act
of 1987 as embodied in Section 4982 of the Code, to distribute within each
calendar year at least 97% of its ordinary income for such calendar year and 98%
of its capital gain net income for the one-year period ending on October 31 of
such calendar year.
Dividends distributed by Elk to Ameritrans will constitute ordinary income
to Ameritrans to the extent derived from non-capital gain income of Elk, and
will ordinarily constitute capital gain income to Ameritrans to the extent
derived from capital gains of Elk. However, since Ameritrans also intends to
qualify as a regulated investment company, Ameritrans will, in general, not be
subject to a corporate level tax on its income to the extent that it makes
distributions to its stockholders. See "INFORMATION CONCERNING AMERITRANS -- Tax
Considerations." If Elk fails to continue to qualify as a regulated investment
company for any reason in any fiscal year, it will not be entitled to a federal
income tax deduction for dividends distributed, and will instead be liable to
pay corporate level tax on its earnings. Further, if Elk fails to qualify as a
regulated investment company, such failure will cause Ameritrans to fail to
qualify for regulated investment company status as well, as long as Elk stock
held by Ameritrans represents more than 25% of Ameritrans' assets. In such a
case, Ameritrans will be taxed on dividends received from Elk, subject to the
deduction for corporate dividends received, which is currently 70%. Thus, if Elk
fails to qualify as a regulated investment company for any reason, its earnings
would be taxed at three levels: to Elk, in part to Ameritrans, and finally, when
they are distributed by Ameritrans, to its stockholders.
Taxation of SBICs
As a result of Elk's status as a licensed SBIC under the 1958 Act, Elk and
its stockholders qualify for the following tax benefits:
(1) Under Section 243 of the Code, Elk may deduct 100% of the dividends
received by it from domestic corporations in which it has made equity
investments, regardless of whether such corporations are subsidiaries of Elk (in
contrast to the generally applicable 70% deduction under the Code). Because Elk
generally makes long-term loans rather than equity investments, this potential
benefit is not likely to be of practical significance to Elk or its
stockholders.
(2) Under Section 1243 of the Code, losses sustained on Elk's investments
in the convertible debentures, or stock derived from convertible debentures, of
Small Business Concerns are treated as ordinary
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losses rather than capital losses to Elk. Because Elk does not presently intend
to purchase convertible debentures, however, this potential benefit is not
likely to be of practical significance to Elk or its stockholders.
(3) Under Section 1242 of the Code, Elk's stockholders are entitled to take
an ordinary rather than a capital loss deduction on losses resulting from the
worthlessness or the sale or exchange of Elk Common Stock.
State Taxes
The foregoing discussion relates only to federal income tax matters. Elk is
also subject to state and local taxation. Stockholders should consult with their
own tax advisors with respect to the state and local tax considerations
pertaining to Elk and to Ameritrans.
INFORMATION CONCERNING AMERITRANS
General
Ameritrans was formed as a Delaware corporation on February 12, 1998, for
the purposes of (1) acquiring and owning all of the outstanding Elk Common Stock
pursuant to the Share Exchange, and (2) engaging in broader and more diversified
investment and lending business activities directly, as well as through a
newly-formed subsidiary, Elk Capital, which business activities Elk, as an SBIC,
is not permitted to transact under the 1958 Act. Ameritrans has no current plans
to engage in any such other investment activities or operations, and any such
activities or operations would conform to the investment policies of Ameritrans
described below. Ameritrans is registered under the 1940 Act as a closed-end,
non-diversified management investment company. Ameritrans will also elect to
become a BDC pursuant to the 1940 Act upon the completion of the Share Exchange
or as soon thereafter as practicable. See "The Investment Company Act of 1940 --
Election to Become a BDC."
Ameritrans, as a BDC, will be required to file certain reports pursuant to
the 1940 Act and the Securities Exchange Act of 1934 and other information
(including annual and quarterly reports and certain stockholder reports and
proxy statements) with the SEC. Copies of such reports and information may be
inspected and copied at the Public Reference Room of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the following regional offices: 25
Federal Plaza, New York, New York 10278; Everett McKinley Dirksen Building 219
South Dearborn Street, Chicago, Illinois 60604; and Suite 500, East 5757
Wilshire Boulevard, Los Angeles, California 90036-3648. Copies of such material,
or any portion thereof, may be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates,
or on the EDGAR web page of the Securities and Exchange Commission on the
Internet at www.sec.gov.
Investment Policies
Ameritrans' investment objectives will be to provide a high level of
current income for its stockholders through quarterly distributions, consistent
with preservation of capital, as well as long term growth of net asset value.
Ameritrans will seek to achieve its investment objectives by maximizing net
interest income and income from operations and expanding operations. There can
be no assurance that Ameritrans will achieve its investment objectives.
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Ameritrans' only fundamental policies, that is, policies that cannot be
changed without the approval of the holders of a majority of Ameritrans'
outstanding voting securities, as defined under the 1940 Act, are the
restrictions described below. A "majority of Ameritrans' 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
Ameritrans' investment objectives, are not fundamental policies of Ameritrans
and may be changed by Ameritrans' Board of Directors without stockholder
approval. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of Ameritrans' 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 Ameritrans' 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
Ameritrans' investment policies and limitations. Ameritrans' fundamental
policies are as follows:
1. Ameritrans will at all times conduct its business so as to retain its
status as a BDC under the 1940 Act. In order to retain that status, Ameritrans
may not acquire any assets (other than non-investment assets necessary and
appropriate to its operations as a BDC) if, after giving effect to such
acquisition, the value of its "Qualifying Assets," amount to less than 70% of
the value of its total assets. Ameritrans believes that the securities it
proposes to acquire in connection with the acquisition of the Elk, as well as
temporary investments it makes with its funds, will generally by Qualifying
Assets. See "INFORMATION CONCERNING ELK -- Election to Become a BDC."
2. Ameritrans may borrow funds and issue "senior securities" to the maximum
extent permitted under the 1940 Act. As a BDC, Ameritrans 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 Elk
may be considered senior securities issued by Ameritrans requiring asset
coverage of 200%; however, pursuant to the Exemptive Order, such debentures and
preferred stock are exempt from the asset coverage requirements of the 1940 Act.
3. Ameritrans 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 of 1933 in the disposition of restricted securities), (ii)
engage in short sales of securities, (iii) purchase securities on margin (except
to the extent that it may purchase securities with borrowed money), (iv) write
or buy put or call options, or (v) 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). Ameritrans and Elk may
purchase interest rate caps and swaps covering up to 100% of their variable rate
debt. In addition, Ameritrans may sponsor the securitization of loan portfolios.
4. Ameritrans and Elk may originate loans and loans with equity features.
To the extent permitted under SBA Regulations, Ameritrans may also make loans as
permitted (i) under its existing stock option plans, (ii) under plans providing
for options for disinterested directors that might be adopted by Ameritrans in
the future, and (iii) to officers and directors for the purchase of Ameritrans
Common Stock.
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Ameritrans will hold all of the outstanding common stock of Elk and may organize
additional subsidiaries in the future. Ameritrans may acquire restricted
securities of small businesses.
Corporate Organizational Matters
If the holders of Elk Common Stock approve the adoption of the Share
Exchange Plan and the Share Exchange is consummated, they will no longer be
stockholders of Elk, but will instead become stockholders of Ameritrans.
Ameritrans is governed by its own Certificate of Incorporation and By-laws,
which are different from the Certificate of Incorporation and By-laws of Elk in
certain material respects, and, as a Delaware corporation, is governed by the
Delaware General Corporation Law ("Delaware Corporation Law"), which differs
from the New York Business Corporation Law ("New York Corporation Law"), under
which Elk is incorporated, in certain material respects. Set forth below is a
summary of the significant differences between the Certificates of Incorporation
of Elk and Ameritrans, the By-laws of Elk and Ameritrans, and New York
Corporation Law and Delaware Corporation Law.
Certificate of Incorporation
In addition to differences in the corporate name, corporate purpose (see
"INFORMATION CONCERNING ELK -- Investment Policies" and "Investment Policies,"
above) and authorized capital stock (see "INFORMATION CONCERNING ELK --
Description of Capital Stock," above, and "Description of Capital Stock,"
below), Ameritrans' Certificate of Incorporation differs from Elk's Certificate
of Incorporation in the following significant respects:
(1) Liability of Directors -- Ameritrans' Certificate of Incorporation
includes a provision (the "Liability Provision"), authorized under Section
102(b)(7) of Delaware Corporation Law and the 1940 Act, the personal liability
of a director to Ameritrans or its stockholders for monetary damages resulting
from the breach of his fiduciary duty as a director. Under Delaware Corporation
Law, this provision may not be construed to eliminate or limit a director's
liability for any of the following: breaches of the director's duty of loyalty
to the corporation or its stockholders; acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; payment of a
dividend or approval of stock repurchase which is illegal under Section 174 of
Delaware Corporation Law; and transactions from which the director derives an
improper personal benefit. In addition, under the 1940 Act, this provision may
not be construed to protect a director against liability to the corporation or
its stockholders for acts or omissions involving willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
The Liability Provision precludes actions for monetary damages against
directors of Ameritrans only with respect to certain violations of a director's
duty of care. Under Delaware Corporation Law, absent this provision, directors
could be held liable for negligence in the performance of their duty of care.
The Liability Provision absolves directors of Ameritrans of monetary liability
to Ameritrans and its stockholders for negligence in exercising their business
judgment. A stockholder can prosecute an action against a director for monetary
damages only if he can show a breach of the duty of loyalty, gross negligence or
reckless disregard of his duties, a failure to act in good faith, intentional
misconduct or willful misfeasance, a knowing violation of the law, an illegal
dividend or stock repurchase or an improper personal benefit. The Liability
Provision does not affect the ability of Ameritrans or its stockholders to seek
equitable remedies (such as an injunction or rescission) against a director for
breach of his fiduciary duty and does not limit the liability of directors under
other laws such as the federal securities laws. The Liability Provision also
does
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not limit the liability of officers or employees of Ameritrans or any director
acting in his capacity as an officer or employee of Ameritrans.
Elk's Certificate of Incorporation has no provision corresponding to the
Liability Provision. However, a section was added to New York Corporation Law in
1987 which authorizes a New York corporation to eliminate or limit the personal
liability of directors to a corporation or its stockholders for monetary damages
in substantially the same manner and to substantially the same extent as is
authorized under Delaware Corporation Law; and, were it not for the
reorganization of Elk contemplated by the Share Exchange Plan, Elk's Board of
Directors would submit for stockholder approval at the next meeting of
stockholders a proposal to amend Elk's Certificate of Incorporation to include a
limitation of liability provision virtually identical to the Liability Provision
included in Ameritrans' Certificate of Incorporation.
The provisions of the Delaware and New York Corporation Law authorizing the
Liability Provision are part of a nationwide legislative response to an increase
in the extent to which directors have been subjected to personal liability and
to recent changes in the market for directors' liability insurance. In recent
years, directors of public companies have increasingly become subject to
substantial personal liability for actions taken or omitted by them as
directors, as well as to significant expenses in defending their conduct. The
proliferation of these suits has in large part made it difficult to obtain
directors' liability insurance. This unavailability or significantly increased
cost of directors' liability insurance has been perceived as a threat to the
quality and stability of the governance of corporations because directors have
become unwilling, in many instances, to serve without the protection provided by
such insurance and, in other cases, have become inhibited in making business
decisions that would be in the best interest of the corporations.
The Board of Directors of both Elk and Ameritrans (which are comprised of
the same eight (8) persons) believe that the Liability Provision included in
Ameritrans' Certificate of Incorporation is in the best interests of Ameritrans
and its stockholders and that it will enhance Ameritrans' ability to attract and
retain individuals to serve as directors and allow such individuals to exercise
their independent business judgment on behalf of Ameritrans. Although the
Liability Provision limits the exposure of a director to monetary liability for
his actions as a director, the Boards of Directors of Elk and Ameritrans believe
that the diligence exercised by directors stems primarily from their desire to
act in the best interest of the corporation and its stockholders and not from a
fear of monetary damage awards, and that the level of scrutiny and care
exercised by directors will not be lessened by this limitation.
(2) Written Actions of Stockholders -- Under Delaware Corporation Law,
unless otherwise provided in the Certificate of Incorporation, any action
required or permitted to be taken at an annual or special meeting of
stockholders may be taken by the execution of a written consent setting forth
the action to be taken and signed by the holders of the requisite number of
shares of outstanding voting stock necessary to take such action.
Elk's Certificate of Incorporation does not have a similar provision
because New York Corporation Law provides that stockholders may take an action
by written consent without a meeting only if such written action is signed by
all stockholders who would be entitled to vote at a meeting held for such
purpose.
(3) Amendments to Certificate of Incorporation -- Elk's Certificate of
Incorporation expressly provides that it may not be amended without the prior
written approval of the SBA (which is required under the 1958 Act). Because
Ameritrans will not be licensed under the 1958 Act, no similar provision is
required or included in Ameritrans' Certificate of Incorporation.
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By-Laws
Ameritrans' By-laws differ from Elk's By-laws in the following significant
respects:
(1) Special Meetings of Stockholders -- Ameritrans' By-laws provide that
special meetings of stockholders may be called by the President or the Board of
Directors or the holders of at least 20% of the outstanding shares of voting
stock.
(2) Amendments to By-Laws -- Ameritrans' By-laws provide that they may be
amended by either the directors of Ameritrans or by the stockholders of
Ameritrans. Elk's By-laws provide that they may be amended only by the Board of
Directors or the stockholders of Elk.
(3) Indemnification of Directors and Officers -- See "Indemnification of
Directors and Officers."
Indemnification of Directors and Officers
While the Liability Provision in its Certificate of Incorporation
eliminates the liability of its directors to Ameritrans or its stockholders for
monetary damages with respect to certain actions, the Liability Provision (i) is
inapplicable to certain types of claims or actions by Ameritrans or its
stockholders, (ii) is inapplicable to claims or actions brought by parties other
than Ameritrans or its stockholders, (iii) does not protect a director against
the substantial legal and other expenses he may incur in defending himself
against a claim or action (even one against which he is protected by the
Liability Provision) and (iv) affords no protection to officers of Ameritrans.
Accordingly, Ameritrans' Bylaws include a provision (the "Indemnification
Provision") which requires Ameritrans to indemnify its directors and officers,
to the maximum extent permitted by Delaware Corporation Law and by the 1940 Act,
against liabilities and damages incurred in their capacity as directors or
officers of Ameritrans.
Under Delaware Corporation Law, a director or officer of a corporation (i)
shall be indemnified by the corporation for all expenses of litigation or other
legal proceedings brought against him by virtue of his position as a director or
an officer to the extent he is successful, on the merits or otherwise, in such
litigation or proceeding, (ii) may be indemnified by the corporation for the
expenses, judgments, fines and amounts paid in settlement of such litigation or
proceedings (other than an action by or in the rights of a corporation, which is
hereinafter referred to as a "derivative action"), even if he is not successful,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation (and, in the case of a criminal
proceeding, had no reason to believe that his conduct was unlawful), and (iii)
may be indemnified by the corporation for expenses of a derivative action, even
if he is not successful, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
provided that indemnification may not be made in the case of a derivative action
if the director or officer is adjudged to be liable to the corporation, unless a
court determines that, despite such adjudication but in view of all the
circumstances, he is entitled to indemnification of such expenses. The
indemnification described in (ii) and (iii) above may be made only upon the
determination, by (a) a majority of disinterested directors, (b) a committee of
such directors designated by a majority of such directors, (c) under certain
circumstances, independent legal counsel in a written opinion, or (d) the
stockholders, that indemnification because the applicable standard of conduct
has been met. Expenses incurred by a director or officer in defending an action
may be advanced by the corporation prior to the final disposition of such action
upon receipt of an undertaking by such director or officer to repay such
expenses if it is ultimately determined that he is not entitled to be
indemnified in connection with the proceeding to which the expenses relate.
These provisions or Delaware Corporation Law, by their terms, are not exclusive
of any other rights
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to which those seeking indemnification or advances of expenses may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
The 1940 Act prohibits the inclusion in Ameritrans' Certificate of
Incorporation or certain other organizational instruments of Ameritrans of a
provision which purports to protect any director or officer of Ameritrans
against liability to Ameritrans or its stockholders for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. The Indemnification Provision therefore specifically
provides that indemnification shall only be made to the extent permitted by the
1940 Act. This limitation would prohibit indemnification in certain situations
in which it may have been permitted under Delaware Corporation Law, such as a
situation in which a director or officer has been guilty of gross negligence but
not bad faith or willful misconduct, or a situation in which the stockholders
(but not the disinterested directors or independent legal counsel) determine
that indemnification is proper because the director or officer met the
applicable standard of conduct.
Because the Board of Directors of Ameritrans believes that the provisions
of Delaware Corporation Law concerning the indemnification of directors and
officers, which substantially define the substantive and procedural content of
the Liability Provision, are vague or inadequate in certain respects,
Ameritrans' Board of Directors has entered into an indemnity agreement (the
"Indemnity Agreement") with each of its directors and officers. Such Indemnity
Agreement was approved by the written consent of the shareholders of Ameritrans
prior to the Share Exchange. The Indemnity Agreement clarifies or modifies the
indemnification provisions of Delaware Corporation Law as follows: (i) the
Indemnity Agreement establishes the presumption that the director or officer has
met the applicable standard of conduct required for indemnification, and
provides that prompt indemnification shall be made unless a determination is
made by a majority of Ameritrans' disinterested directors or independent counsel
that the director or officer has not met the applicable standard of conduct;
(ii) if the disinterested directors determine that the director or officer has
not met the applicable standard of conduct, the Indemnity Agreement permits the
director or officer to petition a court for an independent determination of
whether such officer or director is entitled to indemnification under the
Indemnity Agreement; (iii) the Indemnity Agreement provides that expenses shall
be promptly advanced to a director or officer upon receipt of an undertaking by
him to repay amounts so advanced if it is ultimately determined that
indemnification of such expenses is not permissible, provided that either (a)
such director or officer shall have provided appropriate security for such
undertaking, (b) Ameritrans shall be insured against losses arising from any
such advance payments or (c) either a majority of the disinterested directors or
independent legal counsel in a written opinion shall have determined, based upon
a review of readily available facts, that there is reason to believe that such
director or officer will be found entitled to indemnification; (iv) the
Indemnity Agreement specifically provides that the indemnification provisions
applicable to a derivative suit cover amounts paid in settlement; and (v) the
Indemnity Agreement specifically permits partial indemnification to be made in
the event that the director or officer is not entitled to full indemnification.
Ameritrans may in the future elect to purchase directors' or officers'
liability insurance, as is permitted by Delaware Corporation Law. However, the
coverage of such insurance is limited, and the premiums on such insurance are
becoming increasingly expensive.
The Board of Directors of both Elk and Ameritrans believe that the
Indemnification Provision and the Indemnity Agreement are in the best interests
of Ameritrans and its stockholders and that they will help Ameritrans to attract
and retain qualified persons to serve as directors and officers and to enable
them to exercise their independent business judgment without excessive concern
for the costs and liabilities associated with possible litigation.
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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 stockholders.
(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 stockholder vote. Delaware Corporation
Law permits the Board of Directors, without stockholder approval, to authorize
loans to corporate directors who are also officers. Ameritrans does not
presently intend to make any loans to its directors.
(3) Rights and Options -- New York Corporation Law requires stockholder
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 stockholder approval of such incentive plans (although various other
legal requirements may make such stockholder approval necessary or desirable,
i.e., Internal Revenue Code 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
stockholder has the right to receive the fair value of his shares if he objects
to (i) certain mergers, (ii) a consolidation, (iii) a share exchange, (iv)
certain dispositions of substantially all of the assets of the corporation, or
(v) certain amendments to the certificate of incorporation which adversely
affect the rights of such stockholder. While Delaware Corporation Law also
provides appraisal rights to dissenting stockholders in the case of certain
mergers or a consolidation, such appraisal rights do not apply (a) in a merger,
to stockholders of the surviving corporation if stockholder approval of the
merger is not required, or (b) 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 stockholders 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 (i) an
amendment to its certificate of incorporation, (ii) any merger or consolidation
in which the corporation is a constituent corporation, or (iii) 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
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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. Elk'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
stockholders 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 Stockholders -- New York Corporation Law provides
that any action by stockholders may be taken without a meeting with the written
consent of all stockholders who would be entitled to vote at a meeting held for
such purposes or, if the certificate of incorporation so provides, of the
stockholders 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. Elk'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 stockholders may be taken by a
consent in writing setting forth the action to be taken which is signed by the
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
stockholders because Ameritrans' Certificate of Incorporation and By-laws
provide that stockholders may act without a meeting only with the written
consent of all stockholders who would be entitled to vote at a meeting held for
such purpose.
(9) Business Combinations with Interested Stockholders -- Delaware
Corporation Law Section 203 is entitled "Business Combinations with Interested
Stockholders." Set forth below is a summary of the principal provisions of
Section 203. This summary does not purport to be complete, and Elk stockholders
are encouraged to read Section 203 for more detailed information. Section 203
generally prohibits any
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Delaware corporation covered by Section 203 from engaging in any "business
combination" with a person who is an "interested stockholder" for a period of
three (3) years following the date such person became an interested stockholder,
unless (i) the Board of Directors approved either the interested stockholder or
business combination in question prior to the date such person became an
interested stockholder, (ii) upon consummation of the transaction which resulted
in such person becoming an interested stockholder, such interested stockholder
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 (iii) 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 stockholder. 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
stockholder" means (a) any person who is the owner of 15% or more of the
outstanding voting stock of the corporation, (b) 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 (c) affiliates and associates
of such persons. A "business combination," as used in Section 203, encompasses a
broad variety of transactions, including (i) a merger or consolidation of the
corporation with the interested stockholder, (ii) the sale, lease, exchange,
mortgage, pledge, transfer or other disposition of significant assets by the
corporation to or with the interested stockholder, (iii) various stock issuances
by the corporation to the interested stockholder, (iv) transaction involving the
corporation which have the effect of increasing the proportionate stock
ownership of the interested stockholder and (v) the receipt by the interested
stockholder 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). 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 to 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. Ameritrans' Certificate of
Incorporation expressly provides that Ameritrans shall 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 (i) 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, (ii) the business combination is approved by the disinterested
stockholders of the corporation at least five (5) years following the date such
person became an interested shareholder, or (iii) the business combination
satisfies certain criteria relating to the amount and nature of the
consideration received in the business combination by the stockholders of
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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 (1) 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 to be governed by this Section) or (2) has elected by a
provision in its certificate of incorporation to be governed by Section 912. Elk
is not currently covered by Section 912.
Federal Regulation
Ameritrans will be registered as a closed-end, non-diversified management
investment company under the 1940 Act. This status as a registered investment
company entitles Ameritrans to elect to be treated as a "regulated investment
company" under the Code, which entitles Ameritrans and its stockholders to
certain tax benefits. See "Tax Considerations," below. However, Ameritrans'
status as a registered investment company also subjects Ameritrans to the same
restrictions and obligations under the 1940 Act to which Elk is subject (as
modified by the Exemptive Order). For a summary of such restrictions and
obligations, see "INFORMATION CONCERNING ELK -- The Investment Company Act of
1940."
Ameritrans has also elected to become a BDC. See "INFORMATION CONCERNING
ELK -- Election to Become a BDC."
Ameritrans is not licensed as an SBIC under the 1958 Act, and thus is
neither eligible to raise funds from the SBA on relatively favorable terms, nor
subject to the restrictions and obligations imposed by the 1958 Act (except as
they relate to Elk or any other licensee under the 1958 Act that may be owned or
acquired by Ameritrans).
Management and Principal Stockholders
The directors and officers of Ameritrans are identical to the current
directors and officers of Elk. Ameritrans' directors and officers are currently
receiving no compensation from Ameritrans. It is currently anticipated that if
the Share Exchange is consummated, the directors and officers of Ameritrans will
initially receive in the aggregate from Ameritrans and/or Elk the same
compensation in the aggregate that Elk officers and directors receive, but such
compensation would be allocated between Elk and Ameritrans, based upon factors
determined by their respective Boards of Directors. Such officers and directors
may also receive increases in compensation from time to time as determined by
their respective Boards of Directors. Ameritrans and/or Elk may also hire
additional personnel as such personnel are needed in connection with the
expansion and diversification of Elk's lending and/or investment activities. See
"INFORMATION CONCERNING ELK -- Management."
There is currently one (1) outstanding share of capital stock of
Ameritrans, which is owned by Gary C. Granoff. If the Share Exchange is
completed, this share will be redeemed by Ameritrans. It is anticipated that the
outstanding capital stock of Ameritrans immediately following the Share Exchange
will consist of 1,745,600 shares of Ameritrans Common Stock in the same relative
proportions as they hold Elk Common Stock as of the Effective Date of the Share
Exchange (subject to any changes resulting from the exercise of
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appraisal rights by holders of Elk Common Stock). See "INFORMATION CONCERNING
ELK -- Security Ownership of Principal Stockholders and Management."
Description of Capital Stock
The authorized capital stock of Ameritrans consists of 5,000,000 shares,
$.0001 par value, of Ameritrans Common Stock and 1,000,000 shares of "blank
check" preferred stock. One (1) share of Ameritrans Common Stock is issued and
outstanding, which share will be returned to Ameritrans upon completion of the
Share Exchange. No preferred stock is currently issued or outstanding. The
holders of Ameritrans Common Stock are entitled to one (1) vote per share on all
matters submitted to a vote of stockholders. Holders of Ameritrans Common Stock
have neither cumulative voting rights (which means that the holders of a
majority of the outstanding shares of Ameritrans Common Stock may elect all of
the directors of Ameritrans) nor any preemptive rights. Holders of Ameritrans
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. In order to
qualify as a "regulated investment company" under the Code, Ameritrans is
required to distribute as dividends to its stockholders, for each fiscal year,
at least 90% of its taxable income and 90% of the excess of its tax-exempt
income over certain disallowed deductions. In addition, in order to avoid a
non-deductible 4% excise tax on any undistributed income of Ameritrans,
Ameritrans is required to distribute as dividends, within each calendar year, at
least 97% of its ordinary income for such calendar year and 98% of its capital
gain net income for the one-year period ending on October 31 of such calendar
year. See "INFORMATION CONCERNING AMERITRANS -- Tax Considerations." In the
event of a liquidation, dissolution or winding up of Ameritrans, holders of
Ameritrans Common Stock will be entitled to receive a ratable portion of the
assets of Ameritrans remaining after provision for payment of creditors. All of
the shares of Ameritrans Common Stock issuable pursuant to the Share Exchange
will be fully paid and non-assessable.
The transfer agent for Ameritrans Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
Market Information
There is currently no public market for Ameritrans Common Stock. If the
Share Exchange is completed, Ameritrans' Common Stock will be listed on the
Nasdaq SmallCap Market under the symbol ___________, and the listing of Elk's
Common Stock will be terminated. See "INFORMATION CONCERNING ELK -- Market
Information."
Tax Considerations
The following discussion is a general summary of the federal income tax
principles applicable to Ameritrans, based on the currently existing provisions
of the Code and the regulations thereunder. This summary does not purport to be
a complete description of the tax considerations applicable to Ameritrans or to
the holders of Ameritrans Common Stock. Persons currently holding Elk Common
Stock are urged to consult with their own tax advisors concerning the tax
considerations pertaining to Ameritrans.
Ameritrans has elected to be treated as a "regulated investment company"
under Section 851 of the Code. A regulated investment company may deduct, for
federal income tax purposes, most dividends paid to stockholders, thereby
avoiding federal income taxation at the corporate level on stockholder
dividends. In addition, because Elk currently qualifies for treatment as a
regulated investment company, Ameritrans
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anticipates that the dividends it receives from Elk will not be subject to
corporate taxation at the level of Elk. Elk Capital will not be treated as a
"regulated investment company" and therefore it is contemplated its earnings
will not be distributed to shareholders.
In order for Ameritrans to qualify as an regulated investment company for a
given fiscal year, it must meet each of the following conditions for that fiscal
year:
(1) Ameritrans must be registered as an investment company under the 1940
Act at all times during the year.
(2) At least 90% of Ameritrans' gross income for the year must be derived
from interest, gains on the sale or other disposition of stock or other
securities, dividends and payments with respect to securities loans.
(3) Less than 30% of Ameritrans gross income must be derived from the sale
of other disposition of securities held for less than three months.
(4) At the close of each quarter, at least 50% of the value of Ameritrans'
total assets must be represented by cash, cash items (including receivables),
and securities. There are also limitations on the extent to which Ameritrans'
holdings may be concentrated in the securities of a single issuer. However,
these concentration limitations are not applicable to investments in other
regulated investment companies. If Elk or Elk Capital fail to qualify as
regulated investment companies in any fiscal year, the concentration
prohibitions will likely be violated.
(5) Ameritrans must distribute as dividends at least 90% of its investment
company taxable income (as defined in Section 852 of the Code) as well as 90% of
the excess of its tax-exempt income over certain disallowed tax-exempt interest
deductions in order to be allowed a tax deduction for dividends.
In order to avoid the imposition of a non-deductible 4% excise tax on
undistributed income of Ameritrans, Ameritrans is required, under the terms of
the Revenue Act of 1987 as embodied in Section 4982 of the Code, to distribute
within each calendar year at least 97% of its ordinary income for such calendar
year and 98% of its capital gain net income for the one-year period ending on
October 31 of such calendar year.
Dividends distributed by Ameritrans to its stockholders constitute ordinary
income to such stockholders to the extent derived from ordinary income and
short-term capital gains of Ameritrans (such as interest from loans by
Ameritrans). Any long-term capital gain dividends distributed by Ameritrans
would constitute capital gain income to Ameritrans stockholders.
The tax benefits available to a qualified regulated investment company are
prospective, commencing with the fiscal year in which all the conditions listed
above are met, and would not permit Ameritrans to avoid income tax at the
corporate level on income earned during prior taxable years. If Ameritrans fails
to qualify as a regulated investment company for a given fiscal year, Ameritrans
will not be entitled to a federal income tax deduction for dividends
distributed, and amounts distributed as stockholder dividends by Ameritrans will
therefore be subject to federal income tax at both the corporate level and the
individual level. In addition, if Elk fails to qualify as a regulated investment
company, such failure may cause Ameritrans to fail to qualify for regulated
investment company status as well. See "INFORMATION CONCERNING ELK -- Tax
Considerations."
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Elk Capital Corporation
Ameritrans currently intends to engage in a broad range of investment and
financial services business, not permitted under the 1958 Act, directly and
indirectly through Elk Capital and/or other subsidiaries. Ameritrans has not yet
formulated any definitive plans concerning the business or operations of Elk
Capital. Consequently, stockholders should realize that, in approving the Share
Exchange Plan, they are giving broad discretion to the management of Ameritrans
with respect to the acquisition and the operations of Elk Capital.
The funds necessary to finance the organization and capitalization and/or
acquisition of Elk Capital will be provided from Elk from the proceeds from
Elk's January 1998 private placement that may be transferred to Ameritrans or
through borrowings by Ameritrans from an institutional lender. Elk may allocate
up to $963,000 of the proceeds of such private placement for operating capital
to be used by Ameritrans and/or Elk Capital.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Section 910 of New York Corporation Law, holders of Elk Common
Stock at the close of business on the Record Date have the right to dissent from
the Share Exchange and, if the Share Exchange Plan is approved and the Share
Exchange is consummated, receive payment of the fair value of their Elk Common
Stock (in lieu of Ameritrans Common Stock they would otherwise receive pursuant
to the Share Exchange) by complying with the requirements of Section 623 of New
York Corporation Law (the full text of which is set forth as Exhibit B to this
Proxy Statement/Prospectus). Section 623 requires that any such stockholder who
wishes to exercise such appraisal rights must not vote in favor of the adoption
of the Share Exchange Plan, and must file with Elk, before stockholders vote on
the Share Exchange Plan, a written objection including a notice of election to
dissent, his name and residence address, the number of shares as to which he
dissents (stockholders may not dissent as to less than all of their shares) and
a demand for payment for his shares if the Share Exchange is effected. Such
objection is not required from any stockholder to whom Elk did not give proper
notice of the Special Meeting. Within ten days after the vote of stockholders
authorizing the Share Exchange, Elk must give written notice of such
authorization to each dissenting stockholder who filed written objection or from
whom written objection was not required. Any stockholder from whom written
objection was not required and who elects to dissent from the Share Exchange
must file with Elk, 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 stockholder must submit the certificates
representing his shares to Elk or its transfer agent for notation thereon of the
election to dissent, after which such certificates will be returned to the
stockholder. 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 stockholders may file their notices of election to dissent or
within 15 days after consummation of the Share Exchange, whichever is later (but
not later than 90 days after the stockholders' vote authorizing the Share
Exchange Plan), Elk must make a written offer (which if the Share Exchange has
not been consummated, may be conditioned upon such consummation) to each
stockholder who has filed such notice of election to pay for his shares at a
specified price which Elk considers to be their fair value. If Elk fails to make
the offer within such 15-day period, or if any dissenting stockholder fails to
agree to it within 30 days after it is made, Elk shall institute a judicial
proceeding within 20 days after the expiration of the applicable period to
determine the rights of dissenting stockholders and to fix the fair market value
of their shares of Elk Common Stock. If Elk fails to institute such proceeding,
a dissenting stockholder may institute the same. A negative vote on the Share
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Exchange Plan does not constitute a "written objection" required to be filed by
a dissenting stockholder. Failure to vote against the Share Exchange Plan will
not constitute a waiver of appraisal rights; however, since a proxy left blank
will be voted FOR the Share Exchange Plan, any Elk stockholder who wishes to
exercise his appraisal rights must either vote AGAINST the Share Exchange Plan
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 Exhibit B.
EXPERTS
The financial statements of Elk for the years ended June 30, 1998 and June
30, 1997, contained in the Statement of Additional Information of Ameritrans
have been audited by Marcum & Kliegman LLP, independent public accountants, as
indicated in their report dated August 12, 1998 with respect thereto and are
incorporated herein. Such financial statements have been incorporated in
reliance upon such reports given upon the authority of said firm as experts in
accounting and auditing.
The legality of the shares of Ameritrans Common Stock to be issued pursuant
to the Share Exchange will be passed upon for Ameritrans by Stursberg & Veith,
which is counsel to both Ameritrans and Elk.
OTHER MATTERS
The Board of Directors of Elk does not know of any other matters which may
come before the Special Meeting, other than those specified in the Notice of
Special Meeting of Shareholders dated _____________, 1998 and this Proxy
Statement/Prospectus. However, if any other matters are properly presented to
the Special Meeting, the persons named in the accompanying proxy intend to
exercise the discretion conferred by any duly executed proxies to vote, or
otherwise to act, in accordance with their judgment on such matters.
If the Share Exchange is not consummated, any proposal which a Elk
stockholder intends to present at the 1998 Annual Meeting of Stockholders of Elk
must be received by Elk at its principal executive offices a reasonable time
before the management of Elk commences solicitation of proxies for such meeting,
for such proposal to be included in the Proxy Statement for such meeting.
ADDITIONAL INFORMATION
Ameritrans has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement on Form N-14 under both the 1933 Act
and the 1940 Act which relates to Ameritrans, Elk and the shares of Ameritrans
Common Stock being offered hereby. For further information pertaining to
Ameritrans, Elk and the Ameritrans Common Stock being offered hereby, reference
is hereby made to such Registration Statement, including the exhibits and
financial statements filed therewith.
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<PAGE>
Exhibit A
AGREEMENT AND PLAN OF SHARE EXCHANGE
between
AMERITRANS CAPITAL CORPORATION
and
ELK ASSOCIATES FUNDING CORPORATION
THIS AGREEMENT AND PLAN OF SHARE EXCHANGE (this "Plan") is made as of this
_____ day of __________, 1998 by and between Ameritrans Capital Corporation, a
Delaware corporation ("Ameritrans") and Elk Associates Funding Corporation, a
New York corporation ("Elk").
WHEREAS, the respective Boards of Directors of Ameritrans and Elk deem it
advisable and in the best interests of their respective stockholders that
Ameritrans and Elk engage in a share exchange (the "Share Exchange") pursuant to
this Plan and Section 913 of the Business Corporation Law of the State of New
York ("New York BCL") pursuant to which Ameritrans would acquire all of the
outstanding shares of common stock of Elk in exchange for shares of common stock
of Ameritrans;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
Elk and Ameritrans hereby agree as follows:
ARTICLE I
SHARE EXCHANGE
1.1. Acquiring Corporation. Ameritrans shall be the acquiring corporation,
within the meaning of Section 913 of New York BCL, in the Share Exchange.
1.2. Subject Corporation. Elk shall be the subject corporation, within the
meaning of Section 913 of New York BCL, in the Share Exchange.
1.3. Share Exchange. Pursuant to the terms of this Plan and Section 913 of
New York BCL, Ameritrans and Elk shall participate in the Share Exchange,
pursuant to which each share of common stock, par value $.01 per share, of Elk
("Elk Common Stock") issued and outstanding on the Effective Date of the Share
Exchange (as defined in Section 1.7 below) shall be exchanged for 1,745,600
shares of common stock, $.0001 par value per share, of Ameritrans ("Ameritrans
Common Stock"). As of the Effective Date of the Share Exchange, (i) the
ownership of each issued and outstanding share of Elk Common Stock shall
automatically vest in Ameritrans, whether or not the certificates representing
such shares have been surrendered for exchange by the holders thereof; and (ii)
the holders of issued and outstanding shares of Elk Common Stock shall
automatically become entitled to receive one (1) share of Ameritrans Common
Stock for each share of Elk Common Stock held, and the certificates representing
such shares of Elk Common Stock shall represent only the right to receive such
shares of Ameritrans Common Stock and shall cease to represent shares of Elk
Common Stock.
<PAGE>
1.4. Treasury Shares. Notwithstanding the provisions of Section 1.3, any
shares of Elk Common Stock held by Elk as treasury shares as of the Effective
Date ("Treasury Shares") shall not be exchanged for shares of Ameritrans Common
Stock, but shall be cancelled as of the Effective Date.
1.5. Dissenting Stockholders. Notwithstanding the provisions of Section
1.3, any holder of shares of Elk Common Stock who is entitled to dissenter's
rights pursuant to Section 910 of New York BCL and who filed a written objection
to this Plan in accordance with Section 623(a) of New York BCL and did not vote
in favor of the Share Exchange shall not become entitled to receive one (1)
share of Ameritrans Common Stock for each share of Elk Common Stock held by such
holder on the Effective Date (with such shares of Elk Common Stock referred to
herein as "Dissenting Shares") pursuant to the Share Exchange, but shall instead
have the rights provided for in Section 623 of New York BCL; and as of the
Effective Date, the certificates representing the Dissenting Shares shall
represent only the rights provided for in Section 623 of New York BCL and shall
cease to represent shares of Elk Common Stock.
1.6. Preferred Stock. Each share of preferred stock, $10. par value per
share, of Elk ("Elk Preferred Stock") issued and outstanding as of the Effective
Date, if any (all of which will be held by the United States Small Business
Administration), shall be unaffected by the Share Exchange. No shares are
presently outstanding.
1.7. Effective Date. The Effective Date of the Share Exchange shall be the
date on which a certificate of exchange for the Share Exchange is executed and
filed with the New York Department of State in accordance with Section 913 of
New York BCL. Such execution and filing shall occur on ________, 1998, or if all
conditions (set forth in Article V hereof) to the obligation of Ameritrans or
Elk to consummate the Share Exchange have not been satisfied or waived as of
such date, as soon as practicable following the satisfaction or waiver of all
conditions to the obligation of Ameritrans or Elk to consummate the Share
Exchange.
1.8. Exchange of Elk Common Stock Certificates. From and after the
Effective Date, each holder of a certificate representing shares of Elk Common
Stock which were issued and outstanding as of the Effective Date (excluding
Treasury Shares and Dissenting Shares) shall have the right to surrender such
certificate to Ameritrans in exchange for a certificate representing such number
of shares of Ameritrans Common Stock as is determined by multiplying the number
of shares of Elk Common Stock formerly represented by the surrendered
certificate by one. Such exchange shall be made in accordance with written
instruction which will be sent by Ameritrans, as soon as practicable following
the Effective Date. Between the Effective Date and the time of such certificate
exchange, each certificate representing shares of Elk Common Stock that were
issued and outstanding as of the Effective Date (excluding Treasury Shares and
Dissenting Shares) shall be deemed for all corporate purposes to represent such
number of shares of Ameritrans Common Stock as is determined by multiplying the
number of shares of Elk Common Stock formerly represented by such certificate by
one. No transfers of the shares of Elk Common Stock issued and outstanding as of
the Effective Date shall be recognized by, or recorded on the books of, either
Elk or Ameritrans between the Effective Date and the date of such certificate
exchange. Holders of shares of Elk Common Stock issued and outstanding as of the
Effective Date (excluding Treasury Shares and Dissenting Shares) shall be
considered to be stockholders of record of Ameritrans for purposes of any
dividends or distributions declared by Ameritrans to be payable to stockholders
of record of Ameritrans as of the date between the Effective Date and the date
of such certificate exchange.
1.9. Issuance to Ameritrans of Elk Common Stock Certificate. From and after
the Effective Date, Ameritrans, as the sole holder of shares of Elk Common
Stock, shall be entitled to receive a certificate
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<PAGE>
from Elk representing such number of shares of Elk Common Stock as is equal to
the number of shares of Elk Common Stock issued and outstanding as of the
Effective Date (excluding Treasury Shares); and Elk shall promptly issue such
stock certificate to Ameritrans. Between the Effective Date and the date of
issuance of such stock certificate, Ameritrans shall be deemed for all corporate
purposes to be the sole holder of Elk Common Stock.
ARTICLE II
CAPITALIZATION
2.1. Capitalization of Ameritrans. The authorized capital stock of
Ameritrans consists of 5,000,000 shares of Ameritrans Common Stock, $.0001 par
value, one (1) of which, as of the date hereof, is issued and outstanding and
entitled to vote on the Plan. The number of authorized shares of Ameritrans
Common Stock may be changed prior to the Effective Date by an amendment to the
Certificate of Incorporation of Ameritrans, upon a vote of the Board of
Directors and stockholders (if any) of Ameritrans; and shares of Ameritrans
Common Stock may be issued prior to the Effective Date, upon a vote of the Board
of Directors of Ameritrans.
2.2. Capitalization of Elk. The authorized capital stock of Elk consists of
(i) 3,000,000 shares of Elk Common Stock, $.01 par value, of which, as of the
date hereof, 1,745,600 shares are issued and outstanding. The outstanding shares
of Elk Common Stock are entitled to vote on this Plan. The number of authorized
shares of Elk Common Stock or Elk Preferred Stock may be changed prior to the
Effective Date by an amendment to the Certificate of Incorporation of Elk, upon
a vote of the Board of Directors and stockholders (if any) of Elk. The number of
outstanding shares of Elk Common Stock or Elk Preferred Stock may be changed
prior to the Effective Date by the issuance of additional shares of Elk Common
Stock or Elk Preferred Stock, upon a vote of the Board of Directors of Elk.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AMERITRANS
Ameritrans represents and warrants to Elk as follows:
3.1. Corporate Status of Ameritrans. Ameritrans is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Ameritrans is a registered management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act").
3.2. Authority for Plan. Ameritrans has the corporate power to enter into
this Plan and to carry out its obligations hereunder. The execution and delivery
of this Plan and the consummation of the Share Exchange have been duly
authorized by the Board of Directors of Ameritrans, and no other corporate
proceedings on the part of Ameritrans are necessary to authorize the execution
and delivery of this Plan and the consummation of the Share Exchange. The
execution and delivery of this Plan and the consummation of the Share Exchange
will not (i) conflict with or result in a violation of any provision of the
Certificate of Incorporation or By-laws of Ameritrans or (ii) with or without
the giving of notice or the lapse of time, or both, conflict with, or result in
any violation of or default under, or in any right to accelerate or the creation
of any lien, charge or encumbrance pursuant to, or right of termination under,
any provision of any mortgage, indenture, lease, agreement or other instrument,
permit, concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Ameritrans or any of its
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<PAGE>
properties. Other than in connection with or in compliance with the provision of
Section 913 of New York BCL, and applicable federal and state securities laws,
no authorization, consent or approval of, or declaration of, filing for the
execution and delivery of this Plan to Ameritrans or the consummation by
Ameritrans of the Share Exchange. This Plan has been duly executed and delivered
by Ameritrans and is a valid and binding obligation of Ameritrans enforceable in
accordance with its terms.
3.3. Prior Activities. Ameritrans has not engaged in any business or other
activity prior to the date of this Plan, other than matters relating to
corporate organization, capitalization and financing and matters incidental to
this Plan.
3.4. Best Efforts. Ameritrans shall use its best efforts, to the extent
reasonable, to satisfy all conditions to the obligation of Ameritrans or Elk to
consummate the Share Exchange.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ELK
Elk represents and warrants to Ameritrans as follows:
4.1. Corporate Status of Elk. Elk (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
and (ii) has all requisite corporate power and authority to own, lease and
operate its properties and to conduct its business as it is now being conducted.
Elk is a registered management investment company under the 1940 Act. Elk is
licensed to operate as a small business investment company under Section 301(d)
of the Small Business Investment Act of 1958, as amended (the "1958 Act").
4.2. Subsidiaries and Other Ownership Interests. Except as listed on
Schedule 1 attached hereto or its financial statements, Elk does not own,
directly or indirectly, any capital stock or other equity interest in any
corporation, partnership, firm, association or other business organization,
entity or enterprise.
4.3. Authority for Plan. Elk has the corporate power to enter into this
Plan and to carry out its obligations hereunder. The execution and delivery of
this Plan and the consummation of the Share Exchange have been duly authorized
by Elk's Board of Directors and, except for the approval of this Plan by its
stockholders as required by Section 913 of the New York BCL, no other corporate
proceedings on the part of Elk are necessary to authorize the execution and
delivery of this Plan and the consummation of the Share Exchange. The execution
and delivery of this Plan and the consummation of the Share Exchange will not
(i) conflict with or result in a violation of any provision of the Certificate
of Incorporation or Bylaws of Elk or (ii) with or without the giving of notice
or the lapse of time, or both, conflict with, or result in any violation of or
default under, or in any right to accelerate or the creation of any lien, charge
or encumbrance pursuant to, or right of termination under, any provision of any
mortgage, indenture, lease, agreement or other instrument, permit, concession,
grant, franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Elk or any of its properties, except for such
conflicts, violations or defaults as have been consented to or waived by the
appropriate party. Other than in connection with or in compliance with the
provision of Section 913 of New York BCL, and applicable federal and state
securities laws, and for the approval of the Small Business Administration (the
"SBA") required under the 1958 Act, no authorization, consent or approval of, or
declaration of, or filing with or notice to any governmental body or authority
is necessary for the execution and delivery of this Plan by Elk
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<PAGE>
or the consummation by Elk of the Share Exchange. This Plan has been duly
executed and delivered by Elk and is a valid and binding obligation of Elk
enforceable in accordance with its terms.
4.4. Financial Statements. Elk has furnished to Ameritrans true and
complete copies of (i) Elk's consolidated balance sheet as of June 30, 1998 and
1997 and the related statement of income, stockholders' equity, cash flows and
operations for the years then ended, statement of changes in net assets for the
fiscal year then ended, accompanied by the report of Marcum & Kliegman LLP, the
independent accountants of Elk. Such financial statements (i) are in accordance
with the books and records of Elk, (ii) present fairly the financial position
and results of operations and cash flow of Elk for the periods indicated, and
(iii) have been prepared in accordance with generally accepted accounting
principles consistently applied (except as otherwise stated therein).
4.5. Assets. Elk has good and clear record and marketable title to, or a
valid leasehold interest in, all of the assets and property shown on its balance
sheet as of June 30, 1998, except as to assets and property disposed of since
June 30, 1998 in the ordinary course of business and in a manner consistent with
past practice. None of such assets or properties is subject to any mortgage,
pledge, lien security interest, lease or other encumbrance, except for those
incurred or made in the ordinary course of business which do not materially
impair the usefulness of such assets or properties in the conduct of the
business of Elk.
4.6. Absence of Changes. Since June 30, 1998, and except as otherwise
contemplated by this Plan, Elk has not undergone any material adverse change of
any nature in its financial condition, business, operations, properties or
prospects.
4.7. Compliance with Applicable Laws. The business of Elk is not being
conducted in violation of any applicable law, ordinance, regulation, decree or
order of any governmental entity, except for violations which either singly or
in the aggregate do not and are not expected to have a material adverse effect
on the financial condition, business, operations, properties or prospects of
Elk.
4.8. Litigation. There is no material investigation or review by a
governmental entity with respect to Elk pending or, to the best of Elk's
knowledge, threatened; there is no claim, action, suit or proceeding pending, or
to the best of Elk's knowledge, threatened against or affecting Elk or any of
its assets at law or in equity, which either singly or in the aggregate may have
any material adverse effect on the financial condition, business, operations,
properties or prospects of Elk; and there is no basis or grounds, to the best of
Elk's knowledge, for any such claim, action, suit, proceeding, investigation or
review.
4.9. Tax Matters. Elk has timely and appropriately filed all federal,
state, local and foreign tax returns required to be filed by it or on its
behalf. All taxes shown by such returns to be due and payable have been fully
paid or are reflected as a liability in Elk's financial statements, and in Elk's
opinion it has no material liability for such taxes in excess of the amount so
paid or accrued.
4.10. Best Efforts. Elk shall use its best efforts, to the extent
reasonable, to satisfy all conditions to the obligation of Ameritrans or Elk to
consummate the Share Exchange.
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<PAGE>
ARTICLE V
CONDITIONS PRECEDENT
5.1. General Conditions. The obligations of Ameritrans and Elk to
consummate the Share Exchange shall be subject to the fulfillment on or prior to
the Effective Date of the following conditions:
(a) Stockholder Approval. This Plan shall have been approved by the
holders of at least two-thirds of the outstanding shares of Elk Common
Stock, as required by Section 913 of New York BCL.
(b) SBA Approval. The Plan shall have been approved by the SBA in
accordance with the requirements of the 1958 Act.
(c) Compliance with Securities Laws. The shares of Ameritrans Common
Stock to be issued to the holders of Elk Common Stock issued and
outstanding as of the Effective Date pursuant to the terms of this Plan
shall have been duly registered under the Securities Act of 1933, or an
exemption from such registration shall be available. The issuance of such
shares of Ameritrans Common Stock pursuant to the terms of this Plan shall
be permissible under all applicable state securities laws, and all actions
or filings required under such state securities laws in connection with the
issuance of such Ameritrans Common Stock shall have been effected.
(d) Appraisal Rights. Holders of not more than (two) 2% of the shares
of Elk Common Stock entitled to vote at the meeting of Elk stockholders at
which the Plan is approved shall have exercised their right to receive
payment for their shares of Elk Common Stock pursuant to Section 623 of New
York BCL by (i) filing with Elk a written objection to this Plan before the
stockholder vote on this Plan is taken and (ii) not voting in favor of this
Plan.
(e) No Governmental Proceedings. No injunction or restraining or other
order issued by a court of competent jurisdiction which prohibits the
consummation of the Share Exchange shall be in effect, and no governmental
action or proceeding shall have been commenced or threatened in writing
seeking any injunction or restraining or other order which seeks to
prohibit, restrain, invalidate or set aside consummation of the Plan.
5.2. Conditions Precedent to Obligation of Ameritrans. The obligation of
Ameritrans to consummate the Share Exchange shall be subject to the fulfillment
prior to the Effective Date of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Elk set forth in Article IV shall be true and correct in
all material respects as of the Effective Date, except as contemplated by
this Plan.
(b) No Adverse Change. There shall not have occurred any material
adverse change in the financial condition, business, operations, properties
or prospects of Elk between the date of this Plan and the Effective Date.
5.3. Conditions Precedent to Obligation of Elk. The obligation of Elk to
consummate the Share Exchange shall be subject to the fulfillment prior to the
Effective Date of the following condition:
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<PAGE>
(a) Accuracy of Representations and Warranties. The representations
and warranties of Ameritrans set forth in Article III shall be true and
correct in all material respects as of the Effective Date, except as
contemplated by this Plan.
ARTICLE VI
TERMINATION
6.1. Termination. This Plan shall terminate and the shall not become
effective, and no party to this Plan shall have any obligation to proceed with
the Share Exchange, upon mutual agreement of the Board of Directors of
Ameritrans and Elk.
6.2. Effect of Termination. In the event this Plan terminates pursuant to
Section 6.1, all further obligations of the parties hereto under this Plan shall
terminate without further liability to the other party hereto.
ARTICLE VII
MISCELLANEOUS
7.1. Amendments. This Plan may be amended at any time before the Effective
Date by a written instrument signed by each party hereto, except that following
approval of this plan by the stockholders of Elk, no amendment shall be made
which adversely affects the consideration payable to such stockholders pursuant
to the Share Exchange.
7.2. Assignment. No party to this Plan may assign any of its rights or
delegate any of its duties under this Plan without the written consent of the
other party to this Plan.
7.3. Non-survival of Representations and Warranties. The respective
representations and warranties of the parties to this Plan set forth in Articles
III and IV shall expire and be terminated as of the Effective Date.
7.4. Notices. All notices and other communications under this Plan shall be
in writing and shall be deemed given if delivered by hand, sent via a reputable
nationwide courier service or deposited in the United States mail (postage
prepaid), in each case to the applicable party at the following address:
Ameritrans Capital Corporation
747 Third Avenue, 4th Floor
New York, New York 10017
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<PAGE>
7.5. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the
date first written above.
AMERITRANS CAPITAL CORPORATION
By: --------------------------------
Gary C. Granoff
President
ELK ASSOCIATES FUNDING CORPORATION
By: -------------------------------
Gary C. Granoff
President
-8-
<PAGE>
EXHIBIT B
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 vote,
written objection to the action. The objection shall include a notice of his
election to dissent, his name and residence address, the number of 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 of 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
<PAGE>
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.
(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
from 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 this 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
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Regulation 14C of the United States the 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 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.
-3-
<PAGE>
(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 each 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 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 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 cancelled 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.
-4-
<PAGE>
(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).
910 Right of Shareholder to Receive Payment for Shares Upon Merger or
Consolidation, or Sale, Lease, Exchange or Other Disposition of Assets, or Share
Exchange.
(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 subparagraphs (A), (B) or (C).
(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 surviving corporation in a merger
authorized by section 905 (Merger of subsidiary corporation) or
paragraph (c) of section 907 (Merger or consolidation of domestic and
foreign corporations); and
(ii) To a shareholder of the surviving corporation in a merger
authorized by this article, other than a merger specified in
subparagraph (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.
(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
-5-
<PAGE>
its 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.
(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.
-6-
<PAGE>
PROXY PROXY
ELK ASSOCIATES FUNDING CORPORATION
Proxy for Special Meeting of
Shareholders on ____________, 1998
The undersigned, having received notice of a Special Meeting of
Shareholders and revoking all prior proxies, hereby appoint(s) Gary C. Granoff,
Ellen M. Walker and Margaret Chance with full power of substitution, as proxies
to represent and vote as designated below, all shares of common stock of Elk
Associates Funding Corporation ("Elk") which the undersigned would be entitled
to vote if personally present at the Special Meeting of Shareholders of Elk to
be held at the offices of Stursberg & Veith, 405 Lexington Avenue, Suite 4949,
New York, New York on _______________, 1998, at 10:00 a.m. (New York Time) and
any adjournment thereof.
1. To adopt an Agreement and Plan of Share Exchange dated _______________, 1998
between Elk and Ameritrans Corporation, as described in the accompanying Proxy
Statement/ Prospectus.
FOR |_| AGAINST |_| ABSTAIN |_|
2. To transact such other business as may properly come before the meeting or
any adjournment of the meeting.
FOR |_| AGAINST |_| ABSTAIN |_|
The shares represented by this Proxy will be voted as directed by the
undersigned. If NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL SPECIFIED
ABOVE, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL
If the undersigned hold(s) any of the shares of common stock of Elk in a
fiduciary, custodial or joint capacity or capacities, this Proxy is signed by
the undersigned in every such capacity as well as individually.
Date:
--------------------------------
-------------------------------------
-------------------------------------
Signature(s)
When signed as an attorney, executor, administrator or other fiduciary,
please give your full title as such. Joint owners should each sign.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF ELK
<PAGE>
Ameritrans Capital Corporation
4th Floor
747 Third Avenue
New York, New York 10017
STATEMENT OF ADDITIONAL INFORMATION
____________ ____, 1998
This Statement of Additional Information is not a prospectus and should be
read in conjunction with a Proxy Statement/Prospectus, also dated ____________
____, 1998, which has been prepared and distributed to stockholders of Elk
Associates Funding Corporation, a New York corporation ("Elk"), for the purposes
of (1) the solicitation of proxies by the Board of Directors of Elk for use at a
Special Meeting of Stockholders on ____________ ____, 1998, at which Elk
stockholders will be asked to consider and vote upon the adoption of an
Agreement and Plan of Share Exchange between Ameritrans Capital Corporation, a
Delaware corporation ("Ameritrans"), and Elk, pursuant to which each outstanding
share of common stock of Elk would be exchanged for one (1) share of common
stock of Elk, and (2) the offer and issuance of up to 1,745,600 shares of common
stock of Ameritrans to holders of common stock of Elk pursuant to the terms of
such share exchange. A copy of the Proxy Statement/Prospectus may be obtained
from the Secretary of Ameritrans, 4th Floor, 747 Third Avenue, New York, New
York 10017, (800) 214-1047.
The financial statements of Elk included in this Statement of Additional
Information have been examined by Marcum & Kliegman, LLP, independent public
accountants, as stated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
No financial statements for Ameritrans are included in this Statement of
Additional Information because Ameritrans has not yet been capitalized nor has
it engaged in any operations and will not do so until such time as the share
exchange with Elk is consummated.
THE SECURITIES DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROXY
STATEMENT/PROSPECTUS OR THIS STATEMENT OF ADDITIONAL INFORMATION.
Table of Contents
Selected Financial Data......................................2
Management's Discussion and
Analysis of Financial Condition
and Results of Operations..................................4
Financial Statements.........................................6
<PAGE>
Selected Financial Data
The following financial information has been derived in part from and
should be read in conjunction with, Elk's financial statements and the related
notes included in the Statement of Additional Information, which has been filed
with the SEC and has been distributed to Elk shareholders along with this Proxy
Statement/Prospectus.
-2-
<PAGE>
Elk Associates Funding Corporation and Subsidiary
For the Years Ended June 30, 1994, 1995, 1996, 1997 and 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment Income $ 2,824,881 $ 2,629,901 $ 3,084,412 $ 4,023,795 $ 4,606,456
----------- ----------- ----------- ----------- -----------
Interest Expense 1,136,458 1,002,959 1,105,993 1,582,700 1,840,731
Other Expenses 926,798 960,474 1,108,505 1,408,034 1,852,262
----------- ----------- ----------- ----------- -----------
Total Expenses 2,063,256 1,963,433 2,214,498 2,990,734 3,692,993
----------- ----------- ----------- ----------- -----------
Investment Income Before Taxes,
Credit (Provision) for Loan Gains
(Losses) and Gains (Losses) on
Assets Acquired and Income Taxes 761,625 666,468 869,914 1,033,061 913,463
Credit (Provision) for Loan Gains
(Losses) and Gains (Losses) on
Assets Acquired(1) (473,317) (13,515) 44,292 (8,923) (14,649)
Other Income -- -- -- 24,885 38,798
(Provision) for Income Taxes (State
and Federal)(2) -- -- (5,945) (28,676) (3,271)
----------- ----------- ----------- ----------- -----------
Net Income $ 288,308 $ 652,953 $ 908,261 $ 1,020,347 $ 934,341
=========== =========== =========== =========== ===========
Net Income Per Common Share $ .31 $ .66 $ .73 $ .79 $ .62
=========== =========== =========== =========== ===========
Common Stock Dividends Paid $ -- $ -- $ 937,028 $ 946,655 $ 986,724
=========== =========== =========== =========== ===========
Weighted Average
Shares of Common Stock
Outstanding 943,683 988,953 1,247,120 1,283,600 1,518,969
=========== =========== =========== =========== ===========
</TABLE>
- ----------
(1) Reference is made to Elk's Statements of Income for information on annual
provisions for loan loss reserves and losses on assets acquired. It should be
noted that the provision for loan losses and losses on assets acquired reflects
the amounts taken in accordance with generally accepted accounting principles.
The actual amount of loans written off or (recoveries) for income tax purposes
were $351,454, $78,000, ($24,000), ($24,000) and $222,748 for years ended June
30, 1994, 1995, 1996, 1997, and 1998, respectively. See "LOAN PORTFOLIO;
VALUATION -- Collection Experience".
(2) Elk, since the fiscal year ended June 30, 1984, has elected and qualified to
be taxed as a regulated investment company and substantially all taxable income
was required to be distributed to shareholders. Therefore, only minimal taxes
were required to be paid.
-3-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion is intended to assist in the analysis of the financial
condition and results of operations of Elk. The information contained in this
section should be read in conjunction with the summary financial information and
the financial statements and notes thereto appearing in this Prospectus.
GENERAL
Elk's principal activity is making small and medium sized business loans as
permitted under the 1958 Act. Historically, Elk's earnings have been derived
primarily from net interest income, which is the difference between interest
earned on interest-earning assets consisting of small and medium size business
loans, and the interest paid on interest-bearing liabilities consisting of
indebtedness to Elk's banks and subordinated debentures issued to the SBA. Net
interest income is a function of the net interest rate spread, which is the
difference between the average yield earned on interest-earning assets and the
average interest rate paid on interest-bearing liabilities, as well as the
average balance of interest-earning assets as compared to interest-bearing
liabilities. Unrealized depreciation on loans and investments is recorded when
Elk adjusts the value of a loan to reflect management's estimate of the fair
value, as approved by the Board of Directors. See Note 1 of "Notes to the
Financial Statements."
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
TOTAL INVESTMENT INCOME. Elk's gross investment income increased 30% from
$3,084,412 for the fiscal year ended June 30, 1996, to $4,023,795 for the fiscal
year ended June 30, 1997, and had an increase of 14.5% to $4,606,456 for the
fiscal year ended June 30, 1998. The increases during the fiscal periods ended
June 30, 1997 and 1998, were mainly attributable to increases in the loan
portfolio from $24,141,421 at June 30, 1996, to $33,249,206 at June 30, 1997 and
an increase to $41,590,000 at June 30, 1998.
INTEREST EXPENSE. Interest expense increased from $1,582,700 for the fiscal
year ended June 30, 1997, to $1,840,731 for the fiscal year ended June 30, 1998.
These increases were chiefly attributable to increased interest costs of SBA
subordinated debentures, as well as additional borrowings from Elk's banks.
Elk's outstanding borrowings under its bank lines of credit and its outstanding
debentures with the SBA increased from $25,700,000 at June 30, 1997, to
$30,965,000 at June 30, 1998.
OPERATING EXPENSES. Elk's operating expenses consist primarily of general
and administrative expenses, including salaries, professional fees, rent, and
various costs associated with collections. Operating expenses increased from
$1,114,450 at June 30, 1996, to $1,416,957 at June 30, 1997. Operating expenses
increased to $1,866,911 during the fiscal period ended June 30, 1998. These
increases were mainly attributable to increased overhead which resulted from
expanded operations, and with respect to the fiscal year ended June 30, 1998,
Elk experienced a bad debt in the amount of $227,748, which was classified as an
operating expense.
UNREALIZED DEPRECIATION OF LOANS. Elk values its loan portfolio
periodically to determine the fair value. Elk had $325,000 and $295,000 of
unrealized depreciation on its loan portfolio for the years ended June 30, 1997
and 1998, respectively. Elk had a total of 7 and 17 loans aggregating $301,354
and $746,848, respectively, for the fiscal years ended June 30, 1997 and 1998,
which were delinquent with unpaid accrued interest of $2,865 and $34,616. Based
-4-
<PAGE>
upon recent appraisals, Elk anticipates that, as of June 30, 1998, a substantial
portion of the principal amount of such loans would be collected upon
foreclosure of such loans, if necessary. There can be no assurances, however,
that the collateral securing such loans will be adequate in the event of
foreclosure.
LIQUIDITY AND CAPITAL RESOURCES
To date, Elk has funded its operations through private placements of its
securities, bank financing, and the issuance to the SBA of its subordinated
debentures, in order to make loans, increase its leverageable capital, and pay
its operating expenses.
Elk distributes at least 90% of its investment company taxable income and,
accordingly, Elk will continue to rely upon external sources of funds to finance
growth. At June 30, 1998, 71% of Elk's indebtedness was represented by
indebtedness to its banks and 29% by the debentures issued to the SBA with fixed
rates of interest ranging from 3.12 to 8.20%. Elk currently may borrow up to
$35,000,000 under its existing lines of credit, subject to the limitations
imposed by its borrowing base agreement with its banks and the SBA, the
statutory and regulatory limitations imposed by the SBA, and the availability of
funds. In addition, Elk is presently eligible to apply for additional leverage
from the SBA if it was determined by the Board of Directors to be in the best
interests of the company. No assurance can be given that, if applied, such
additional financing will be approved by the SBA.
Loan amortization and prepayments also provide a source of funding for Elk.
Prepayments on loans are influenced significantly by general interest rates,
economic conditions and competition.
In addition, in order to provide the funds necessary for Elk's expansion
strategy, Elk expects to raise additional capital (or obtain capital from
Ameritrans through private and/or public sales of Ameritrans' securities) and to
incur, from time to time, additional bank indebtedness and (if deemed necessary
by its management) to obtain SBA loans. There can be no assurances that such
additional financing will be available on terms acceptable to Elk.
In January, 1998, Elk completed a private placement of a total of 462,000
shares of Common Stock and received net proceeds of approximately $2,888,000.
The net proceeds received allowed Elk to obtain an increase in its bank line of
credit and, if it deems appropriate, additional leverage with the SBA.
-5-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
ELK ASSOCIATES FUNDING CORPORATION
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets at
June 30, 1998 and 1997 F-2
Consolidated Statements of Income for
the years ended June 30, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for
the years ended June 30, 1998 and 1997 F-6
Schedule of Loans F-8
Notes to Consolidated Financial Statements F-9
-6-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Elk Associates Funding Corporation and Subsidiary
(A Small Business Investment Company Licensed by the SBA)
We have audited the accompanying consolidated balance sheets of Elk Associates
Funding Corporation and Subsidiary as of June 30, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended and the schedule of loans as of June 30, 1998. These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and schedule referred to
above present fairly, in all material respects, the financial position of Elk
Associates Funding Corporation and Subsidiary as of June 30, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As explained in Note 1, the consolidated financial statements include loans
valued at $41,295,000 and $32,924,206 as of June 30, 1998 and 1997,
respectively, whose values have been estimated by the Board of Directors in the
absence of readily ascertainable market values. We have reviewed the procedures
used by the Board of Directors in arriving at their estimate of the value of
such loans and have inspected underlying documentation and, in the
circumstances, we believe the procedures are reasonable and the documentation is
appropriate. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for such loans existed, and the differences could be
material.
/s/ Marcum & Kliegman LLP
August 12, 1998
New York, New York
F-1
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Loans receivable $ 41,590,000 $ 33,249,206
Less: allowance for loan losses (295,000) (325,000)
------------ ------------
41,295,000 32,924,206
Cash and cash equivalents 1,755,429 1,853,032
Accrued interest receivable 516,110 408,165
Assets acquired in satisfaction of loans 400,470 581,810
Receivables from debtors on sales of assets acquired
in satisfaction of loans 451,222 488,493
Equity securities 629,179 436,181
Furniture, fixtures and leasehold improvements, net 102,247 90,214
Prepaid expenses and other assets 250,081 243,920
------------ ------------
TOTAL ASSETS $ 45,399,738 $ 37,026,021
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES
Debentures payable to SBA $ 8,880,000 $ 8,880,000
Notes payable, banks 22,085,000 16,820,000
Accrued expenses and other liabilities 204,099 112,005
Accrued interest payable 221,704 181,248
Dividends payable 314,208 -0-
----------- -----------
TOTAL LIABILITIES 31,705,011 25,993,253
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A, 3 percent cumulative preferred stock, $10 par
value, 547,271 shares authorized, none outstanding -0- -0-
Series B, 4 percent cumulative preferred stock, $10 par
value, 752,729 shares authorized, none outstanding -0- -0-
Common stock, $.01 par value: 2,000,000 shares
authorized; 1,745,600 and 1,283,600 shares issued and
outstanding, respectively 17,456 12,836
Additional paid-in-capital 12,485,825 8,890,993
Restricted capital 968,368 1,679,820
Retained earnings 24,289 365,878
Restricted retained earnings -0- 25,000
Unrealized gain on equity securities 198,789 58,241
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,694,727 11,032,768
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,399,738 $37,026,021
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INVESTMENT INCOME
Interest on loans receivable $ 4,108,727 $ 3,660,825
Fees and other income 497,729 362,970
----------- -----------
TOTAL INVESTMENT INCOME 4,606,456 4,023,795
----------- -----------
OPERATING EXPENSES
Interest 1,840,731 1,582,700
Salaries and employee benefits 495,889 469,060
Legal fees 336,700 307,127
Miscellaneous administrative expenses 739,875 604,347
Loss on assets acquired in satisfaction of loans, net 14,649 8,923
Directors' fee 52,050 27,500
Bad debt expense 227,748 -0-
----------- -----------
TOTAL OPERATING EXPENSES 3,707,642 2,999,657
----------- -----------
OPERATING INCOME 898,814 1,024,138
----------- -----------
OTHER INCOME (EXPENSES)
(Write-off) gain of noncash receivable (25,000) 25,000
Net gain (loss) from rental activities 6,125 (11,233)
Recoveries 57,673 11,118
----------- -----------
TOTAL OTHER INCOME 38,798 24,885
----------- -----------
NET INCOME BEFORE INCOME TAXES 937,612 1,049,023
INCOME TAXES 3,271 28,676
----------- -----------
NET INCOME $ 934,341 $ 1,020,347
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,518,969 1,283,600
=========== ===========
NET INCOME PER COMMON SHARE $ 0.62 $ 0.79
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Series A Series B
Shares of Preferred Preferred Shares of Common
Preferred Stock - 3% Stock - 4% Common Stock Additional
Stock Cumulative Cumulative Stock $.01 Par Paid-In
Outstanding $10 Par $10 Par Outstanding Value Capital
----------- --------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1996 -0- $ -0- $ -0- 1,283,600 $12,836 $ 8,179,545
Transfer of restricted capital -0- -0- -0- -0- -0- 711,448
Dividends paid -0- -0- -0- -0- -0- -0-
Net income -0- -0- -0- -0- -0- -0-
Unrealized gain on equity
securities -0- -0- -0- -0- -0- -0-
----- ----- ----- --------- ------- -----------
BALANCE, June 30, 1997 -0- -0- -0- 1,283,600 12,836 8,890,993
Transfer of restricted
capital -0- -0- -0- -0- -0- 711,452
Dividends declared -0- -0- -0- -0- -0- -0-
Net income -0- -0- -0- -0- -0- -0-
Unrealized gain on equity
securities -0- -0- -0- -0- -0- -0-
Proceeds from sale of
common stock, net of direct
costs -0- -0- -0- 462,000 4,620 2,883,380
----- ----- ----- --------- ------- -----------
BALANCE, June 30, 1998 -0- $ -0- $ -0- 1,745,600 $17,456 $12,485,825
===== ===== ===== ========= ======= ===========
<CAPTION>
Unrealized
Restricted Gain on
Restricted Retained Retained Equity
Capital Earnings Earnings Securities Total
---------- ----------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1996 $2,391,268 $ 317,186 $ -0- $ -0- $10,900,835
Transfer of restricted capital (711,448) -0- -0- -0- -0-
Dividends paid -0- (946,655) -0- -0- (946,655)
Net income -0- 995,347 25,000 -0- 1,020,347
Unrealized gain on equity
securities -0- -0- -0- 58,241 58,241
---------- ----------- ------- -------- -----------
BALANCE, June 30, 1997 1,679,820 365,878 25,000 58,241 11,032,768
Transfer of restricted
capital (711,452) -0- -0- -0- -0-
Dividends declared -0- (1,300,930) -0- -0- (1,300,930)
Net income -0- 959,341 (25,000) -0- 934,341
Unrealized gain on equity
securities -0- -0- -0- 140,548 140,548
Proceeds from sale of
common stock, net of direct
costs -0- -0- -0- -0- 2,888,000
---------- ----------- ------- -------- -----------
BALANCE, June 30, 1998 $ 968,368 $ 24,289 $ -0- $198,789 $13,694,727
========== =========== ======= ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 934,341 $ 1,020,347
------------ ------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 49,890 53,546
Write-off (gain) on noncash receivable 25,000 (25,000)
Increase in accrued interest receivable (107,945) (114,078)
Increase in prepaid expenses and other assets (30,616) (27,318)
Decrease (increase) in accrued expenses and other liabilities 92,096 (28,893)
Increase (decrease) in accrued interest payable 40,456 (15,204)
------------ ------------
TOTAL ADJUSTMENTS 68,881 (156,947)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,003,222 863,400
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans receivable, assets acquired in
satisfaction of loans and receivables from debtors
on sales of assets acquired in satisfaction of loans (8,177,183) (9,062,902)
Payments for building improvements on assets
acquired in satisfaction of loans -0- (13,974)
Purchases of equity securities (52,450) (243,040)
Acquisition of furniture, fixtures and leasehold
improvements (37,468) (18,530)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (8,267,101) (9,338,446)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, banks, net 5,265,000 10,195,000
Payments for loan costs -0- (15,050)
Proceeds from debentures payable to SBA -0- 430,000
Repayment of debentures payable to SBA -0- (408,000)
Net proceeds from sale of common stock 2,888,000 -0-
Dividends paid (986,724) (946,655)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 7,166,276 $ 9,255,295
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS $ (97,603) $ 780,249
CASH AND CASH EQUIVALENTS - Beginning 1,853,032 1,072,783
----------- -----------
CASH AND CASH EQUIVALENTS - Ending $ 1,755,429 $ 1,853,032
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 1,840,276 $ 1,597,904
Income taxes $ 8,048 $ 31,260
Noncash investing and financing activities:
Conversion of loans to assets acquired in
satisfaction of loans $ 26,090 $ 140,914
Exchange of preferred stock for a note resulting in
a noncash gain of $25,000 $ -0- $ 125,000
Unrealized gain on equity securities $ 140,548 $ 58,241
Transfer of restricted capital $ 711,452 $ 711,448
On June 22, 1998, the Company declared a cash dividend of
$0.18 per common share which was paid on July 7, 1998 $ 314,208 $ -0-
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
SCHEDULE OF LOANS
June 30, 1998
<TABLE>
<CAPTION>
Maturity
Number Interest Dates Balance
Type of Loan of Loans Rates (In Months) Outstanding
- ------------ -------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
New York City:
Taxi medallion 99 8.25-12% 1 - 119 $18,862,618
Radio car service 49 1-15% 1 - 59 298,976
Chicago:
Taxi medallion 415 12-16.5% 21 - 48 13,557,342
Boston:
Taxi medallion 16 10-14% 33 - 89 990,086
Miami:
Taxi medallion 30 13-16.5% 112 - 120 1,480,459
Other loans:
Restaurant 2 10-12% 1 - 66 260,329
Hairdresser 2 12% 7 122,461
Car wash 1 11.5% 36 220,292
Ambulance service 1 10.5% 6 9,952
Bagel store 1 14% 43 29,614
Dry cleaner 13 10-14.5% 43 - 121 1,382,032
Laundromat 11 9-15% 24 - 72 1,751,619
Grocery/deli 3 12.5-13% 31 - 64 794,019
Financial services 1 14% 1 9,980
Black car service (real property) 1 12% 5 223,815
Auto sales 4 10.5-13% 1 - 49 856,942
Registered investment advisor 1 14% 97 169,012
Embroidery manufacturer 1 12% 59 96,000
Theater 1 16% 59 174,452
Retirement home 1 15% 84 300,000
---- -----------
Total Loans Receivable 653 41,590,000
===
Less: Allowance for Loan Losses (295,000)
-----------
Loans Receivable, Net $41,295,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies
Organization and Principal Business Activity
Elk Associates Funding Corporation (the "Company"), a New York corporation,
is licensed by the Small Business Administration ("SBA") to operate as a
Small Business Investment Company ("SBIC") under the Small Business
Investment Act of 1958, as amended. The Company has also registered as an
investment company under the Investment Company Act of 1940.
The Company primarily makes loans and investments to persons who qualify
under SBA regulations as socially or economically disadvantaged and loans
and investments to entities which are at least 50 percent owned by such
persons.
Effective February 21, 1997, the SBA approved the Company's election to
provide nondisadvantaged business financing to small business concerns
pursuant to SBA regulations and letter of agreement with the Company (see
Note 12).
Loans and the Allowance for Loans Losses
Loans are stated at cost, net of participation with other lenders, less an
allowance for possible losses. This amount represents the fair value of
such loans as determined in good faith by the Board of Directors. The
allowance for loan losses is maintained at a level that, in the Board of
Directors' judgement, is adequate to absorb losses inherent in the
portfolio. The allowance for loan losses is reviewed and adjusted
periodically by the Board of Directors on the basis of available
information, including the fair value of the collateral held, existing risk
of individual credits, past loss experience, the volume, composition and
growth of the portfolio, and current and projected economic conditions.
Because of the inherent uncertainty in the estimation process, the
estimated fair values of the loans may differ significantly from the values
that would have been used had a ready market existed for such loans and the
differences could be material. As of June 30, 1998 and 1997, approximately
85% and 87%, respectively, of all loans are collateralized by New York
City, Boston, Chicago, and Miami taxicab medallions.
Accounting Standard for Impairment of Loans
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 114 as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosure", a loan is determined to be impaired
if it is probable that the contractual amounts due will not be collected in
accordance with the terms of the loan. The SFAS generally requires that
impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. As all of the
Company's loans are collateral dependent, impairment is measured based on
the fair value of the collateral. If the fair value of the impaired loan is
less than the recorded investment in the loan (including accrued interest,
net of deferred loan fees or costs, and unamortized premium or discount)
the Company recognized an impairment by creating a valuation allowance with
a corresponding charge to the provision for loan losses. The Company
individually evaluates all loans for impairment. See Note 3 for further
discussion.
F-9
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
Loans Receivable
Loans are placed on nonaccrual status once they become 180 days past due as
to principal or interest. In addition, loans that are not fully
collateralized and in the process of collection are placed on nonaccrual
status when, in the judgement of management, the ultimate collectibility of
interest and principal is doubtful.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to
be cash equivalents.
The Company has cash balances in banks in excess of the maximum amount
insured by the FDIC as of June 30, 1998 and 1997.
Income Taxes
The Company has elected to be taxed as a Regulated Investment Company under
the Internal Revenue Code. A Regulated Investment Company will generally
not be taxed at the corporate level to the extent its income is distributed
to its shareholders. In order to be taxed as a Regulated Investment
Company, the Company must pay at least 90 percent of its net investment
company taxable income to its shareholders as well as meet other
requirements under the Code. In order to preserve this election for fiscal
1998, the Company intends to make the required distributions to its
stockholders in accordance with applicable tax rules.
Depreciation and Amortization
Depreciation and amortization of furniture, fixtures and leasehold
improvements is computed on the straight-line method at rates adequate to
allocate the cost of applicable assets over their expected useful lives.
Net Income per Share
During the year ended June 30, 1998, the Company adopted the provision of
Statements of Financial Accounting Standards No. 128 "Earnings per Share"
("SFAS No. 128"). SFAS No. 128 eliminates the presentation of primary and
fully dilutive earnings per share ("EPS") and requires presentation of
basic and diluted EPS. Basic EPS is computed by dividing income (loss)
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS is based on the
weighted-average number of shares of common stock and common stock
equivalents outstanding at year end. Common stock equivalents have been
excluded from the weighted-average shares for 1998 and 1997, as inclusion
is anti-dilutive. All prior period EPS data has been restated to conform to
the new pronouncement.
F-10
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
Loan Costs
Loan costs are included in prepaid expenses and other assets. Amortization
of loan costs is computed on the straight-line method over ten (10) years.
At June 30, 1998 and 1997, loan costs amounted to $153,786 and $178,241,
respectively, net of accumulated amortization of $90,195 and $65,750,
respectively. Amortization expense for the year ended June 30, 1998 and
1997 was $24,455 and $23,283, respectively.
Assets Acquired in Satisfaction of Loans
Assets acquired in satisfaction of loans are carried at estimated fair
value less selling costs. Losses incurred at the time of foreclosure are
charged to the allowance for loan losses. Subsequent reductions in
estimated net realizable value are recorded as losses on assets acquired in
satisfaction of loans.
Interest Rate Cap
At March 20, 1997, the Company was a party to one $5 million notional
interest rate cap. This cap, which expires on March 20, 1999, was purchased
by the Company to protect it from the impact of upward movements in
interest rates related to its outstanding bank debt. The cap provided
interest rate protection in the event that the three month LIBOR rate
exceeded 6.75 percent. The premium paid for the purchase of this cap was
amortized over its life as an adjustment of interest expense. Payments
received under this cap would be credited to interest expense.
Consolidation
The consolidated financial statements include the accounts of EAF Holding
Corporation ("EAF"), a wholly-owned subsidiary of the Company. All
intercompany transactions have been eliminated. EAF was formed in June 1992
and began operations in December 1993. The purpose of EAF is to own and
operate certain real estate assets acquired in satisfaction of loans.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. Estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses and the fair
value of financial instruments.
Reclassification
Certain accounts in the prior year financial statements have been
reclassified for comparative purposes to conform with the presentation in
the current year financial statements. These reclassifications have no
effect on previously reported income.
F-11
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Assets Acquired in Satisfaction of Loans
During the years ended June 30, 1998 and 1997, the carrying value of Assets
Acquired in Satisfaction of Loans increased by additions of approximately
$26,000 and $141,000, respectively, and recoup on sales of assets
previously sold of approximately $43,000 and -0-, respectively, and
decreased by sales and cash payments of approximately $238,000 and $-0- and
write-offs of approximately $13,000 and $-0-, respectively.
Sales of assets acquired in satisfaction of loans for the years ended June
30, 1998 and 1997, included approximately $193,000 and $-0- of real estate
and $45,000 and $-0- of radio car rights, respectively.
Receivables from Debtors on Sales of Assets Acquired in Satisfaction of
Loans represent loans to borrowers arising out of the sales of defaulted
assets. Pursuant to an SBA regulation, these loans are presented separately
in the accompanying consolidated balance sheets.
NOTE 3 - Loans Receivable
All loans on nonaccrual status have been classified as impaired. The
Company recognizes interest income on a cash basis on these loans if the
principal is fully secured. However, where there is doubt regarding the
ultimate collectibility of the loan principal, cash receipts, whether
designated as principal or interest, are applied to reduce the carrying
value of the loan. The Company has loans totaling approximately $569,000
and $87,000 at June 30, 1998 and 1997, respectively, which are still
accruing interest but are not performing according to the terms of the
contract and accordingly these loans are impaired under SFAS 114 as amended
by SFAS 118. At June 30, 1998 and 1997, approximately $546,000 and $41,000,
respectively, of these loans were fully collateralized as to principal and
interest. Interest income recorded during the years ended June 30, 1998 and
1997 totaled approximately $35,000 and $3,000, respectively, for such
loans.
The following table sets forth certain information concerning impaired
loans as of June 30, 1998 and 1997:
1998 1997
-------- --------
Impaired loans with an allowance $174,952 $260,127
Impaired loans without an allowance 571,896 41,227
-------- --------
Total impaired loans $746,848 $301,354
======== ========
Allowance for impaired loans $150,626 $178,000
======== ========
Average balance of impaired loans $524,101 $497,521
======== ========
F-12
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - Loans Receivable, continued
Transactions in the allowance for loan losses are summarized as follows:
Balance, July 1, 1996 $301,000
Additions, net 24,000
--------
Balance, June 30, 1997 325,000
Write-off, net (30,000)
--------
Balance, June 30, 1998 $295,000
========
NOTE 4 - Equity Securities
Equity securities consisted of the following as of June 30, 1998:
<TABLE>
<CAPTION>
Chicago Miami Investment Dry Grocery
Taxicab Taxicab Advisory Cleaner and
Medallions Medallions Firm Company Market Total
---------- ---------- ---- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 $200,900 -0- $20,000 $14,000 $ -0- $ 234,900
Purchase of securities 121,825 21,215 -0- -0- 100,000 243,040
Sale of securities -0- -0- -0- -0- (100,000) (100,000)
Unrealized gain 58,241 -0- -0- -0- -0- 58,241
-------- ------- ------- ------- -------- ---------
Balance, June 30, 1997 380,966 21,215 20,000 14,000 -0- 436,181
Purchase of securities 39,100 5,265 50,000 14,000 -0- 108,365
Sale of securities (50,936) (4,979) -0- -0- -0- (55,915)
Unrealized gain 75,297 65,251 -0- -0- -0- 140,548
-------- ------- ------- ------- -------- --------
Balance, June 30, 1998 $444,427 $86,752 $70,000 $28,000 $ -0- $629,179
======== ======= ======= ======= ======== ========
</TABLE>
F-13
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Equity Securities, continued
At June 30, 1998, the fair value of the Chicago Taxicab Medallions and the
Miami Taxicab Medallions was increased resulting in an unrealized gain. The
fair value of the other equity securities approximated cost. At June 30,
1997, the fair value of the Chicago Taxicab Medallions was increased
resulting in an unrealized gain. The fair value of the other equity
securities approximated cost.
NOTE 5 - Debentures Payable to SBA
At June 30, 1998 and 1997 debentures payable to the SBA consist of
subordinated debentures with interest payable semiannually, as follows:
<TABLE>
<CAPTION>
Current 1998 1997
Effective Principal Principal
Issue Date Due Date Interest Rate Amount Amount
-------------- -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
September 1993 September 2003 3.12(1) $1,500,000 $1,500,000
September 1993 September 2003 6.12 2,220,000 2,220,000
September 1994 September 2003 8.20 2,690,000 2,690,000
December 1995 December 2005 6.54 1,020,000 1,020,000
June 1996 June 2006 7.71 1,020,000 1,020,000
March 1997 March 2007 7.38(2) 430,000 430,000
---------- ----------
$8,880,000 $8,880,000
========== ==========
</TABLE>
(1) Interest rate increases to 6.12% on September 30, 1998
(2) The Company is also required to pay an additional annual user fee of
1% on this debenture
Under the terms of the subordinated debentures, the Company may not
repurchase or retire any of its common stock or make any distributions to
its stockholders other than dividends out of retained earnings (as computed
in accordance with SBA regulations) without the prior written approval of
the SBA.
NOTE 6 - Notes Payable to Banks
At June 30, 1998 and 1997, the Company had loan agreements with four banks
for lines of credit aggregating $33,500,000 and $20,000,000, respectively.
At June 30, 1998 and 1997, the Company had $22,085,000 and $16,820,000,
respectively outstanding under these lines. The loans which mature at
various dates through November 30, 1998 bear interest based on the
Company's choice of the lower of either the reserve adjusted LIBOR rate
plus 150 basis points or the bank's prime rates including certain fees
which make the effective rates range from approximately prime minus 1/4% to
prime minus 1/2%. Upon maturity, the Company anticipates extending the
lines of credit for another year as has been the practice in previous
years.
F-14
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - Notes Payable to Banks, continued
Pursuant to the terms of the agreements the Company is required to comply
with certain terms, covenants and conditions. The Company pledged its loans
receivable and other assets as collateral for the above lines of credit and
since January, 1998 is required to maintain compensating balances of 5%.
Prior to January, 1998 and for 1997, the Company was required to maintain
10% compensating balances with each bank. At June 30, 1998 and 1997,
average compensating balances of $1,104,250 and $1,682,000, respectively,
were maintained by the Company in accordance with these agreements.
NOTE 7 - Preferred Stock
At June 30, 1995, the Company had 547,271 shares of 3 percent preferred
stock issued to the SBA. Cumulative dividends not declared or paid as of
June 30, 1995 were approximately $533,000. During August 1995, the Company
completed the repurchase of all such shares of preferred stock from the SBA
pursuant to a preferred stock repurchase agreement dated November 10, 1994.
Pursuant to this agreement, the Company repurchased all 547,271 shares of 3
percent cumulative preferred stock from the SBA for $3.50 per share, or an
aggregate of $1,915,449. The repurchase price was at a substantial discount
to the original issuance price of $10 per share. In connection with the
repurchase, all dividends in arrears on the preferred shares were
extinguished.
As a condition precedent to the repurchase, the Company granted the SBA a
liquidating interest in a newly established restricted capital surplus
account. The surplus account is equal to the amount of the net repurchase
discount. The initial value of the liquidating interest was $3,557,261
which is being amortized over a 60-month period on a straight-line basis.
Should the Company be in default under the repurchase agreement at any
time, the liquidating interest will become fixed at the level immediately
preceding the event of default and will not decline further until such time
as the default is cured or waived. The liquidating interest shall expire on
(i) sixty months from the date of the repurchase agreement, or (ii) if any
event of default has occurred and such default has been cured or waived,
such later date on which the liquidating interest is fully amortized.
Should the Company voluntarily or involuntarily liquidate prior to the
amortization of the liquidating interest, any assets which are available,
after the payment of all debts of the Company, shall be distributed first
to the SBA until the fair market value of such assets is equal to the
amount of the liquidating interest. Such payment, if any, would be prior in
right to any payments made to the Company's shareholders. The remaining
amount restricted under this agreement at June 30, 1998 and 1997 was
approximately $968,000 and $1,680,000, respectively.
F-15
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - Preferred Stock, continued
During 1992, the Company authorized the issuance of 752,729 shares of a new
Series B cumulative preferred stock with a 4 percent dividend and a $10 par
value. All preferred shares are restricted solely for issuance to the SBA.
No sales of the Series B preferred shares have occurred to date. On
September 30, 1996, Congress passed a law that in effect prevents the SBA
from making any further purchase of 4% preferred stock from any specialized
small business investment company. Accordingly, the Company does not
anticipate being able to sell any of its authorized Series B Cumulative
Preferred Stock in the future.
NOTE 8 - Common Stock
On June 22, 1998, the Company declared a cash dividend of $0.18 per common
share, or a total of $314,208, and paid July 7, 1998.
During 1998, the Company completed the sale, as part of a private placement
offering, of 462,000 shares of common stock. Total proceeds from the sale
of common stock amounted to $2,888,000 net of directly related expenses of
$115,000.
NOTE 9 - Income Taxes
The provision for income taxes for the years ended June 30, 1998 and 1997
consists of the following:
1998 1997
------- ------
Federal (benefit) $(1,014) $ 4,568
State and city 4,285 24,108
------- -------
$ 3,271 $28,676
===== =======
NOTE 10 - Related Party Transactions
The Company paid $43,234 and $43,645 to a related law firm for the years
ended June 30, 1998 and 1997, respectively, for the services provided. The
Company generally charges its borrowers loan origination fees to generate
income to offset expenses incurred by the Company for legal fees paid by
the company for loan closing costs.
The Company rents office space on a month-to-month basis from an affiliated
entity without a formal lease agreement. Rent expense amounted to $39,600
for both the years ended June 30, 1998 and 1997.
F-16
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - Commitments
On June 8, 1998, the Company entered into a $10,000,000 interest rate Swap
transaction with a bank. This Swap transaction was entered into to protect
the Company from an upward movement in interest rates relating to
outstanding bank debt. The Swap transaction calls for a fixed rate of 5.86%
for the Company and if the floating one month LIBOR rate is below the fixed
rate then the Company is obligated to pay the bank for the difference in
rates. When the one month LIBOR rate is above the fixed rate then the bank
is obligated to pay the Company for the differences in rates. This
transaction expires on June 8, 2001.
At June 30, 1998 and 1997, the Company had commitments to make loans
totaling $2,568,000 and $1,190,282, respectively, at interest rates ranging
from 9.5% to 16%.
NOTE 12 - Regulatory Matters
The Company entered into an agreement with the SBA, subject to certain
regulatory limitations, on September 9, 1993. As part of the agreement, the
Company agreed to limit the aggregate amount of its senior indebtedness,
consisting of bank debt and the SBA debentures, to certain specific levels
based upon performing assets; the Company agreed to grant the SBA a
subordinate lien on the Company's assets and to have the Company's notes
maintained by a separate custodian; and the Company agreed to provide
periodic financial reports to the SBA on a quarterly basis.
Effective February 21, 1997, the SBA approved the Company's election to
provide non-disadvantaged business financing to small business concerns
pursuant to SBA regulations and letter of agreement with the Company,
subject to amending the Company's certificate of incorporation to make such
financings. The Company's stockholders approved the amendment to the
certificate of incorporation, which amendment was filed on February 27,
1997 (see Note 1).
NOTE 13 - Fair Value of Financial Instruments
The following disclosures represent the Company's best estimate of the fair
value of financial instruments, determined on a basis consistent with
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments".
The estimated fair values of the Company's financial instruments are
derived using estimation techniques based on various subjective factors
including discount rates. Such estimates may not necessarily be indicative
of the net realizable or liquidation values of these instruments. Fair
values typically fluctuate in response to changes in market or credit
conditions. Additionally, valuations are presented as of a specific point
in time and may not be relevant in relation to the future earnings
potential of the Company. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Company will realize in a
current market exchange.
F-17
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - Fair Value of Financial Instruments, continued
The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
Loans Receivable - The fair value of loans is estimated at cost net of
the allowance for loan losses. The Company believes that the rates of
these loans approximate current market rates (see Note 3).
Equity Securities - The Company's equity securities consist of
investments in corporations who own and operate Chicago Taxicab
Medallions (71%), two investment advisory firms (11%), a dry
cleaner (4%), and Miami Taxicab Medallions (14%) (see Note 4).
Debentures Payable to Small Business Administration - The fair
value of debentures as of June 30, 1998 was approximately
$9,035,000 and was estimated by discounting the expected future
cash flows using the current rate at which the SBA has extended
similar debentures to the Company (see Note 5).
The fair value of financial instruments that are short-term or
reprice frequently and have a history of negligible credit losses
is considered to approximate their carrying value. Those
instruments include balances recorded in the following captions:
ASSETS LIABILITIES
------ -----------
Cash Notes payable, banks
Accrued interest receivable Accrued interest
payable
Assets acquired in satisfaction of loans
Receivables from debtors on sales of
assets acquired in satisfaction of loans
NOTE 14 - Defined Contribution Plan
On April 15, 1996 the Company adopted a simplified employee
pension plan covering all eligible employees of the Company.
Contributions to the plan are at the discretion of the Board of
Directors. During the years ended June 30, 1998 and 1997,
contributions amounted to $63,435 and $58,805, respectively.
F-18
<PAGE>
AMERITRANS CAPITAL CORPORATION
Form N-14
Part C. Other Information
Item 15. Indemnification.
The Certificate of Incorporation of Ameritrans Capital Corporation
("Ameritrans") includes a provision (the "Liability Provision"), authorized
under Section 102(b)(7) of the Delaware General Corporation Law, which
eliminates, to the extent permitted by the Delaware General Corporation Law and
the Investment Company Act of 1940 (the "1940 Act"), the personal liability of a
director to Ameritrans or its stockholders for monetary damages resulting from
the breach of his fiduciary duty as a director. Under the Delaware General
Corporation Law, this provision may not be construed to eliminate or limit a
director's liability for any of the following: breaches of the director's duty
of loyalty to the corporation or its stockholders; acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
payment of a dividend or approval of a stock repurchase which is unlawful under
Section 174 of the Delaware General Corporation Law; and transactions from which
the director derives an improper personal benefit. In addition, under the 1940
Act, this provision may not be construed to protect a director against liability
to the corporation or its stockholders for acts or omissions involving willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Liability Provision precludes actions for monetary damages against
directors of Ameritrans only with respect to certain violations of a director's
duty of care. Under the Delaware General Corporation Law, absent this provision,
directors could be held liable for negligence in the performance of their duty
of care. The Liability Provision absolves directors of Ameritrans of monetary
liability to Ameritrans and its stockholders for negligence in exercising their
business judgment. A stockholder can prosecute an action against a director for
monetary damages only if he can show a breach of the duty of loyalty, gross
negligence or reckless disregard of his duties, a failure to act in good faith,
intentional misconduct or willful misfeasance, a knowing violation of the law,
an unlawful dividend or stock repurchase, or an improper personal benefit. The
Liability Provision does not affect the ability of Ameritrans or its
stockholders to seek equitable remedies (such as an injunction or rescission)
against a director for breach of his fiduciary duty and does not limit the
liability of directors under other laws, such as the federal securities laws.
The Liability Provision also does not limit the liability of officers or
employees of Ameritrans or any director acting in his capacity as an officer or
employee of Ameritrans.
In addition, Ameritrans' By-Laws also includes a provision (the
"Indemnification Provision") that requires Ameritrans to indemnify its directors
and officers, to the maximum extent permitted by the Delaware General
Corporation Law and by the 1940 Act, against liabilities and damages incurred in
their capacity as directors or officers of Ameritrans. Under the Delaware
General Corporation Law, a director or officer of a corporation (i) shall be
indemnified by the corporation for all expenses of litigation or other legal
proceedings brought against him by virtue of his position as a director or
officer to the extent he is successful, on the merits or otherwise, in such
litigation or proceeding, (ii) may be indemnified by the corporation for the
expenses, judgments, fines, and amounts paid in settlement of such litigation or
proceedings (other than an action by or in the right of a corporation, which is
hereinafter referred to as a "derivative action"), even if he is not successful,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation (and, in
<PAGE>
the case of a criminal proceeding, had no reason to believe that his conduct was
unlawful), (iii) may be indemnified by the corporation for expenses of a
derivative action, even if he is not successful, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, provided that indemnification may not be made in the case of
a derivative action if the director or officer is adjudged to be liable to the
corporation, unless a court determines that, despite such adjudication but in
view of all the circumstances, he is entitled to indemnification of such
expenses, only upon the determination, by (a) a majority of directors who are
not a party to the action (even though less than a quorum), (b) by a committee
of such directors designated by a majority of such disinterested directors, (c)
under certain circumstances, independent legal counsel in a written opinion, or
(d) the stockholders, that indemnification is proper because the applicable
standard of conduct has been met. Expenses incurred by a director or officer in
defending an action may be advanced by the corporation prior to the final
disposition of such action upon receipt of an undertaking by such director or
officer to repay such expenses if it is ultimately determined that he is not
entitled to be indemnified in connection with the proceeding to which the
expenses relate. These provisions of the Delaware General Corporation Law, by
their terms, are not exclusive of any other rights to which those seeking
indemnification or advances of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise.
The 1940 Act prohibits the inclusion in Ameritrans' Certificate of
Incorporation or certain other organizational instruments of Ameritrans of a
provision which purports to protect any director or officer of Ameritrans
against liability to Ameritrans or its stockholders for willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. Accordingly, the Indemnification Provision specifically
provides that indemnification shall only be made to the extent permitted by the
1940 Act.
Ameritrans has entered into an indemnity agreement (the "Indemnity
Agreement") with each of its directors and officers. The Indemnity Agreement
clarifies or modifies the indemnification provisions of the Delaware General
Corporation Law as follows: (i) the Indemnity Agreement establishes the
presumption that the director or officer has met the applicable standard of
conduct required for indemnification and provides that prompt indemnification
shall be made unless a determination is made by a majority of Ameritrans
disinterested directors, independent counsel, or a majority of Ameritrans'
stockholders that the director or officer has not met the applicable standard of
conduct; (ii) if the disinterested directors determine that the director or
officer has not met the applicable standard of conduct, the Indemnity Agreement
permits the director or officer to petition a court for an independent
determination of whether such officer or director is entitled to indemnification
under the Indemnity Agreement; (iii) the Indemnity Agreement provides that
expenses shall be promptly advanced to a director or officer upon receipt of an
undertaking by him to repay amounts so advanced if it is ultimately determined
that indemnification of such expenses is not permissible, provided that either
(a) such director or officer shall have provided appropriate security for such
undertaking, (b) Ameritrans shall be insured against losses arising from any
such advance payments, or (c) either a majority of the disinterested directors
(even though less than a quorum), a committee of such directors designated by
such disinterested directors, or independent legal counsel in a written opinion
shall have determined, based upon a review of readily available facts, that
there is reason to believe that such director or officer will be found entitled
to indemnification; (iv) the Indemnity Agreement specifically provides that the
indemnification provisions applicable to a derivative suit cover amounts paid in
settlement; and (v) the Indemnity Agreement specifically permits partial
indemnification to be made in the event that the director or officer is not
entitled to full indemnification.
C-2
<PAGE>
Ameritrans may in the future elect to purchase directors' and officers'
liability insurance, as is permitted by the Delaware General Corporation Law.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions or,
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Item 16. Exhibits.
1.1 Certificate of Incorporation of Ameritrans.
2.1 By-laws of Ameritrans.
4.1 Agreement and Plan of Share Exchange between Ameritrans and Elk
Associates Funding Corporation (included as Exhibit A to the Proxy
Statement/Prospectus included as a part of this Registration
Statement).
5.1 Specimen certificate for shares of Ameritrans common stock.*
8.1 Employee Stock Option Plan.
8.2 Non-Employee Director Stock Option Plan.
11.1 Opinion of Stursberg & Veith.*
13.1 Form of indemnity agreement between Ameritrans and each of its
directors and officers.
14.1 Consent of Marcum and Kliegman, LLP.
14.3 Consent of Stursberg & Veith -- contained in their opinion.
16 Power of Attorney -- contained on signature page.
- ----------
* To be filed by amendment.
Item 17. Undertakings.
1. The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the 1933 Act, the reoffering
prospectus will contain the information called for by the
C-3
<PAGE>
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
2. The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the registrant in the City of New York and State of New
York on the 22nd day of September, 1998.
AMERITRANS CAPITAL CORPORATION
By: Gary C. Granoff
--------------------------------
Gary C. Granoff, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Know all men by these presents, that each of the undersigned constitutes
and appoints Gary C. Granoff, as his true and lawful attorney-in-fact and agent,
with full power of substitution, for him, and in his name, place, and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this registration statement or any registration statement
relating to the offering to which this registration statement relates that is
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933
and any post-effective amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Gary C. Granoff President and Chairman of the September 22, 1998
- ----------------------------- Board of Directors
Gary C. Granoff
Ellen M. Walker Vice President, General Counsel September 22, 1998
- ----------------------------- and Director
Ellen M. Walker
Lee A. Forlenza Vice President and Director September 22, 1998
- -----------------------------
Lee A. Forlenza
Marvin Sabesan Director September 22, 1998
- -----------------------------
Marvin Sabesan
Director
Steven Etra Director September 22, 1998
- -----------------------------
Steven Etra
Paul Creditor Director September 22, 1998
- -----------------------------
Paul Creditor
Allen Kaplan Director September 22, 1998
- -----------------------------
Allen Kaplan
John L. Acierno Director September 22, 1998
- -----------------------------
John L. Acierno
</TABLE>
C-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Page
------ ------- ----
1.1 Certificate of Incorporation of Ameritrans.
2.1 By-laws of Ameritrans.
4.1 Agreement and Plan of Share Exchange between Ameritrans and Elk
Associates Funding Corporation (included as Exhibit A to the
Proxy Statement/Prospectus included as a part of this
Registration Statement).
5.1 Specimen certificate for shares of Ameritrans common stock.*
8.1 Employee Stock Option Plan.
8.2 Non-Employee Director Stock Option Plan.
11.1 Opinion of Stursberg & Veith.*
13.1 Form of indemnity agreement between Ameritrans and each of its
directors and officers.
14.1 Consent of Marcum and Kliegman, LLP.
14.3 Consent of Stursberg & Veith -- contained in their opinion.
16. Power of Attorney -- contained on signature page.
- ---------
* To be filed by amendment.
Exhibit 1.1
Ameritrans Capital Corporation
(a Delaware corporation)
ARTICLE I
NAME
The name of the corporation (the "Corporation") shall be:
Ameritrans Capital Corporation
ARTICLE II
DURATION
The Corporation shall continue in existence perpetually unless sooner
dissolved according to law.
ARTICLE III
PURPOSES
The purposes for which the Corporation is organized are:
To acquire, develop, or engage in any business venture or enterprise
whatsoever; to own and operate any business venture or enterprise whatsoever; to
acquire, hold, and dispose of real or personal property and property of any kind
or nature, tangible or intangible; and generally to do any act convenient to the
foregoing;
To do all and everything necessary, suitable, convenient, or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the objects herein enumerated or incidental to the powers herein named or which
shall at any time appear conducive or expedient for the protection or benefit of
the Corporation, with all the powers hereafter conferred by the laws under which
this Corporation is organized; and
To engage in any and all other lawful purposes, activities, and pursuits,
whether similar or dissimilar to the foregoing, for which corporations may be
organized under the General Corporation Law of Delaware, and to exercise all
powers allowed or permitted thereunder.
ARTICLE IV
AUTHORIZED SHARES
The Corporation shall have authority to issue an aggregate of 6,000,000
shares, of which 5,000,000 shares shall be Common Stock par value $.0001 per
share and 1,000,000 shall be Preferred Stock par value $.01 per share.
<PAGE>
No holder of shares of any class of the Corporation or of any security or
obligation convertible into, or of any warrant, option, or right to purchase,
subscribe for, or otherwise acquire shares of any class of the Corporation,
whether now or hereafter authorized, shall, as such holder, have any preemptive
right whatsoever to purchase, subscribe for, or otherwise acquire shares of any
class of the Corporation, whether now or hereafter authorized.
The following is a statement of the designations and the powers,
preferences, and rights, and the relative participating, optional, or other
special rights, and the qualifications, limitations, and restrictions of the
shares of each class:
i. Except as any provision of law, any provision herein or elsewhere in
the Certificate of Incorporation may otherwise provide, each share of
Common Stock of the Corporation shall have the same rights,
privileges, interests and attributes, and shall be subject to the same
limitations, as every other share of the Corporation and shall entitle
the holder of record of any such issued and outstanding share to
receive an equal proportion of any cash dividends which may be
declared, set apart or paid, an equal proportion of any distributions
of the authorized but unissued shares of the Corporation and/or its
treasury shares, if any, which may be made, an equal proportion of the
distribution of any bonds or property of the Corporation, including
the shares or bonds of other corporations, which may be made, and an
equal proportion of any distributions of the net assets of the
Corporation (whether stated capital or surplus) which may be made upon
the liquidation, dissolution, or winding up of the affairs of the
Corporation, whether voluntary or involuntary; provided, that any
distributions of the authorized but unissued shares of the Corporation
and/or its treasury shares, if any, shall be made only in respect of
shares of the same class, and, provided further, that no statement
herein contained shall be deemed to limit, curtail, or divest the
authority of the Board of Directors of the Corporation to make any
proper distributions, including distributions of authorized but
unissued shares, in relation to its treasury shares, if any. Each
issued and outstanding share of Common Stock shall entitle the holder
of record thereof to one vote per share.
ii. Preferred Stock may be issued from time to time in one or more series,
each of such series to have such designations, relative rights and
limitations as may be fixed in the resolution or resolutions providing
for the issue of such series adopted by the Board of Directors of the
Corporation as hereinafter provided. Any shares of Preferred Stock
which may be redeemed, purchased or acquired by the Corporation may be
reissued except as otherwise provided herein or by law. Different
series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes
unless expressly provided for in the resolutions creating such series
or required by applicable law.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issuance of the shares thereof, to determine and fix such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative participating, optional or other special rights, and qualifications,
limitations or restrictions thereof
-2-
<PAGE>
including, without limitation, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the fullest extent now or hereafter permitted by the General
Corporation Law of the State of Delaware. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by
law.
ARTICLE V
LIMITATION OF LIABILITY
A director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of a director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the General Corporation Law of Delaware, as it may
from time to time be amended or any successor provision thereto, or (iv) for any
transaction from which a director derived an improper personal benefit.
ARTICLE VI
REGISTERED OFFICE AND REGISTERED AGENT
The name and address of the Corporation's registered agent and office in
the state of Delaware is United Corporate Services, Inc., 15 East North Street,
Dover, County of Kent, 19903. Either the registered office or the registered
agent may be changed in the manner provided by law.
ARTICLE VII
AMENDMENT
The Corporation reserves the right to amend, alter, change, or repeal all
or any portion of the provisions contained in its Certificate of Incorporation
from time to time in accordance with the laws of the state of Delaware, and all
rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE VIII
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Corporation elects not to be governed by the provisions of section 203
of the General Corporation Law regarding business combinations with interested
shareholders.
ARTICLE IX
ADOPTION AND AMENDMENT OF BYLAWS
The initial bylaws of the Corporation shall be adopted by the board of
directors. The power to alter, amend, or repeal the bylaws or adopt new bylaws
shall be vested in the board of directors, but the
-3-
<PAGE>
stockholders of the Corporation may also alter, amend, or repeal the bylaws or
adopt new bylaws. The bylaws may contain any provisions for the regulation or
management of the affairs of the Corporation not inconsistent with the laws of
the state of Delaware now or hereafter existing.
ARTICLE X
DIRECTORS
The governing board of the Corporation shall be known as the board of
directors. The number of directors comprising the board of directors shall be
fixed, and may be increased or decreased from time to time, in the manner
provided in the bylaws of the Corporation.
ARTICLE XI
The name and address of the sole incorporator is as follows:
Paula S. Zimmerman c/o Stursberg & Veith
405 Lexington Avenue
Suite 4949
New York, New York 10174-4902
THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware does make this certificate, hereby declaring and certifying
that this is her act and deed and the facts herein stated are true, and
accordingly has hereunto set her hand this 12th day of February, 1998.
/S/ Paula S. Zimmerman
------------------------------
Paula S. Zimmerman
-4-
Exhibit 2.1
BY-LAWS
of
AMERITRANS CAPITAL CORPORATION
ARTICLE I
Offices
1. The corporation may have offices at such places within or without the
State of Delaware as the board of directors may from time to time determine or
as the business of the corporation may require.
ARTICLE II
Stockholders' Meetings
1. Place of all meetings. All meetings of stockholders shall be held at
such place or places in or outside of the State of Delaware as the board of
directors may from time to time determine or as may be designated in the notice
of meeting or waiver of notice thereof, subject to any provisions of the laws of
Delaware.
2. Annual meeting of stockholders. The annual meeting of stockholders shall
be held each year on the first Friday in the fourth month following the close of
the fiscal year commencing at some time between 10 a.m. and 3 p.m. if not a
legal holiday, and if a legal holiday, then on the day following at the same
time. In the event that such an annual meeting is not held as herein provided
for, the annual meeting may be held as soon thereafter as convenient. Such
subsequent meeting shall be called in the same manner as hereinafter provided
for special meetings of stockholders. Written notice of the time and place of
the annual meeting shall be given by mail to each stockholder entitled to vote
at least ten days prior to the date thereof, unless waived as provided by
Article IX of these By-laws.
3. Special meetings of stockholders. Special meetings of stockholders may
be called at any time by order of the board of directors or the executive
committee and shall be called by the president or secretary at the written
request of the holders of 25% of the shares of stock then outstanding and
entitled to vote, stating the purpose or purposes thereof. Notice of all such
meetings of the stockholders, stating the time, place, and the purposes thereof
shall be given by mail as soon as possible to each stockholder entitled to vote
thereat at his last known address or by delivering the same personally at least
ten days before the meeting. Meetings of the stockholders may be held at any
time without notice when all the stockholders entitled to vote thereat are
represented in person or by proxy.
4. Voting at stockholder's meetings. At all meetings of the stockholder's,
each stockholder entitled to vote for each share of stock standing on record in
his name, subject to any restrictions or qualifications set forth in the
Certificate of Incorporation or any amendment thereto.
<PAGE>
5. Quorum at stockholder's meetings. At any stockholders' meeting, a
majority of the stock outstanding and entitled to vote thereat represented in
person or by proxy shall constitute a quorum. Whether or not a quorum is present
the meeting may be adjourned from time to time by a vote of the holders of a
majority of the shares present. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting if held at the time specified in the notice thereof.
When a quorum is present at any meeting, a majority in interest of the stock
entitled to vote represented thereat shall decide any question brought before
such meeting unless the question is one upon which, by express provision of law
or of the Certificate of Incorporation or of these By-laws, a different vote is
required, in which case such express provision shall govern.
6. List of stockholders to be filed, etc. At least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the election, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder,
shall be prepared by the secretary. Such list shall be open to the examination
of any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the City where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The original or duplicate stock ledger shall be
the only evidence as to who are the stockholders entitled to examine such list
or the books of this corporation or to vote in person or by proxy at such
meeting.
ARTICLE III
Board of Directors
1. Number and qualification. A board of directors shall be elected at each
annual meeting of stockholders, or at a special meeting held in lieu thereof as
above provided. Each of the directors shall hold office until the annual meeting
next after his election and until his successor shall be elected and shall
qualify, or until his death in office or his earlier resignation or removal in
the manner hereinafter provided. The number of directors shall be such as may be
determined by the incorporators or from time to time by the stockholders or by
the board of directors. In case of any increase in the number of directors
between elections by the stockholders, the additional directorships shall be
considered vacancies and shall be filled in the manner prescribed in Article V
of these By-laws. Directors need not be stockholders.
2. Powers of directors. The business and affairs of the corporation shall
be managed by or under the direction of the board of directors which may
exercise all the powers possessed by the corporation itself and do all such
lawful acts and things as are not inconsistent with the laws of the State of
Delaware, with the Certificate of Incorporation, or with these By-laws. The
board of directors shall have authority from time to time to set apart out of
any assets of the corporation otherwise available for dividends a reserve or
reserves of working capital, or for any such proper purpose or purposes, and to
abolish or add to any such reserve or reserves from time to time as the board
may deem to be in the interests of the corporation; and the board shall likewise
have power, subject to the provisions of the Certificate of Incorporation, to
determine in its discretion what part of the earned surplus and/or net assets of
the corporation in excess of such reserve or reserves shall be declared in
dividends and paid to the stockholders of the corporation.
-2-
<PAGE>
3. Compensation of directors. The board of directors may from time to time
by resolution authorize the payment of fees or compensation, to the directors
for services as such to the corporation, including, but not limited to, fees and
traveling expenses for attendance at all meetings of the board or of the
executive or other committees, and determine the amount of such fees and
compensation. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
4. Directors' meetings. Meetings of the board of directors may be held
either within or outside the State of Delaware. A quorum shall be a majority of
directors.
The board of directors elected at any stockholders' meeting shall at the
close of that meeting, without further notice if a quorum of directors be then
present, or as soon thereafter as may be convenient, hold a meeting for the
election of officers and the transaction of any other business. At such meeting
they shall elect a president, one or more vice presidents, a secretary and a
treasurer, and such other officers as they may deem proper, none of whom except
the president need be members of the board of directors.
The board of directors may from time to time provide for the holding of
regular meetings with or without notice and may fix the times and places at
which such meetings are to be held. Meetings other than regular meetings may be
called at any time by the president and must be called by the president or by
the secretary upon the written request of any director or a majority of the
executive committee.
Notice of each meeting, other than a regular meeting (unless required by
the board of directors), shall be given to each director by mailing the same to
each director at his residence or business address at least two days before the
meeting or by delivering the same to him personally or by telephone or telegraph
to him at least one day before the meeting unless, in case of exigency, the
president or secretary shall prescribe a shorter notice to be given personally
or by telephone, telegraph, facsimile transmission, cable or wireless to all or
any one or more of the directors at their respective residences or places of
business.
Notice of all meetings shall state the time and place of such meeting, but
need not state the purposes thereof unless otherwise required by statute, the
Certificate of Incorporation, the By-laws, of the board of directors.
5. Manner of Acting. Except as herein otherwise provided, and except as
otherwise provided by the General Corporation Law, the act of the Board shall be
the act by vote of a majority of the directors present at a meeting, a quorum
being present. The quorum and voting provisions herein stated shall not be
construed as conflicting with any provisions herein of the General Corporation
Law and these By-Laws which govern a meeting of directors to be held to fill
vacancies and newly created directorships in the Board.
6. Executive committee. The board of directors may provide for an executive
committee of two or more directors and shall elect the members thereof to serve
at the pleasure of the board and may designate one of such members to act as
chairman. The board shall have the power at any time to change the membership of
the committee, to fill vacancies in it, or to dissolve it.
During the intervals between the meetings of the board of directors, the
executive committee shall possess and may exercise any or all of the powers of
the board of directors in the management of the
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business and affairs of the corporation to the extent authorized by resolution
adopted by a majority of the entire board of directors.
The executive committee may determine its rules or procedure and notice to
be given of its meetings, and it may appoint such committees and assistants as
it shall from time to time deem necessary. A majority of the members of the
committee shall constitute a quorum.
7. Other committees. The board of directors by resolution may provide for
such other standing or special committees as it deems desirable and may
discontinue the same at its pleasure. Each such committee shall have the powers
and perform such duties, not inconsistent with law, as may be assigned to it by
the board of directors.
8. Notice of Nominations. (a) Nominations for the election of directors may
be made by the board of directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in writing,
delivered or mailed by first class United States mail, postage prepaid, to the
secretary of the corporation not less than 14 days nor more than 50 days prior
to any meeting of the stockholders called for election of directors; provided,
however, that if less than 21 days' notice of the meeting is given to
stockholders, such written notice shall be delivered or mailed, as prescribed,
to the secretary of the corporation not later than the close of the seventh day
following the day on which notice of the meeting was mailed to the stockholders.
Notice of nominations which are proposed by the board of directors shall be
given by the Chairman on behalf of the board. (b) Each notice under subsection
(a) shall set forth (i) the name, age, business address and, if known, residence
address of each nominee proposed in such notice, (ii) the principal occupation
or employment of each such nominee and (iii) the number of shares of stock of
the corporation which are beneficially owned by each such nominee. (c) The
Chairman of the meeting may, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the foregoing
procedure and if he shall so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
9. Chairman of the Board. The Chairman of the Board (hereinafter sometimes
called the "Chairman") if appointed by the board of directors, when present
shall preside at all meetings of the stockholders, the board of directors and
the Executive Committee. The Chairman shall perform such other duties as the
board of directors or Executive Committee may prescribe from time to time.
ARTICLE IV
Officers
1. Titles and election. The officers of this corporation shall be a
president, one or more vice presidents, a secretary and a treasurer who shall be
elected at the annual meeting of the board of directors. Each of the officers
shall hold office until the next annual meeting after his election and until his
successor shall be elected and shall qualify, or until his death in office or
earlier resignation or removal in the manner herein specified. Any person may
hold more than one office if the duties thereof can be consistently performed by
the same person, and to the extent permitted by law.
The board of directors, in its discretion, may at any time elect or appoint
a chairman of the board of directors, who shall be a director, and one or more
vice presidents, assistant secretaries and assistant treasurers and such other
officers or agents as it may deem advisable, all of whom shall hold office at
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the pleasure of the board and shall have such authority and shall perform such
duties as the board shall prescribe from time to time.
The board of directors may require any officer, agent or employee to give
bond for the faithful performance of this duties in such form and with such
sureties as the board may require.
2. Duties. Subject to such extension, limitations, and other provisions as
the board of directors or the By-laws may from time to time prescribe, the
following officers shall have the following powers and duties:
(a) President. The president shall be the chief executive officer of
the corporation and shall have the general supervision of the business,
affairs and property of the corporation and over its officers subject to
the control of the board of directors and Executive Committee. In the
absence or inability to act of the Chairman, the president shall preside at
all meetings of the stockholders and the board of directors and shall have
and perform all the powers and duties of the Chairman, subject to the
control of the board of directors and Executive Committee. The president or
a vice president, unless some other person is authorized by the board of
directors or Executive Committee, shall sign all certificates representing
shares of stock of the corporation and all bonds, deeds and contracts of
the corporation. In general, the president shall exercise the powers and
authority and perform all of the duties commonly incident to the office of
president and shall have such other powers and perform such other duties as
may be assigned to him from time to time by the board of directors or
Executive Committee. The same individual may be elected or appointed
Chairman of the Board and President.
(b) Vice President. The vice president or vice presidents shall
perform such duties as may be assigned to them by the board of directors
and, in the absence or disability of the president, the vice presidents in
order of seniority shall exercise all powers and duties pertaining to the
office of the president.
(c) Secretary. The secretary shall keep the minutes of all meetings of
stockholders and of the board of directors, give and serve all notices,
attend to such correspondence as may be assigned to him, keep in safe
custody the seal of the corporation, and affix such seal to all such
instruments properly executed as may require it, and shall have such other
duties and powers as the board of directors shall prescribe from time to
time.
(d) Treasurer. Subject to the direction of the Vice President-Finance,
if any, the treasurer, in all cases subject to the direction of the board
of directors, shall have the care and custody of the monies, funds,
valuable papers and documents of the corporation (other than his own bond,
if any, which shall be in the custody of the president), and shall have and
exercise, under the supervision of the board of directors, all the powers
and duties commonly incident to his office. He shall deposit all funds of
the corporation in such bank or banks, trust company or trust companies, or
with such firm or firms doing a banking business as the board of directors
shall designate. He may endorse for deposit of collection all checks,
notes, etc. payable to the corporation or to its order. He shall keep
accurate books of account of the corporation's transactions, which shall be
the property of the corporation, and, together with all its property in his
possession, shall be subject at all times to the inspection and control of
the board of directors. He shall do and perform such other duties as may
from time to time be assigned to him by the Vice President-Finance. The
treasurer shall be subject in every way to the order of the board of
directors and/or the president of the corporation, whenever they may
require it, an account of all his transactions and of the financial
condition of the corporation.
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3. Delegation of authority. The board of directors or the Executive
Committee may at any time delegate the powers and duties of any officer for the
time being to any other officer, director or employee.
4. Salaries. The salaries of all officers shall be fixed by the board of
directors or the Executive Committee, and the fact that any officer is a
director shall not preclude him from receiving a salary or from voting upon the
resolution providing the same.
ARTICLE V
Resignation, Removals and Vacancies
1. Resignation. Any director, officer, or agent may resign at any time by
giving written notice thereof to the board of directors, the president, or the
secretary. Any such resignation shall take effect at the time specified therein
or, if the time be not specified, upon receipt thereof; and unless otherwise
specified therein, the acceptance of any resignation shall not be necessary to
make it effective.
2. Removals. The holders of the Common and Preferred Stock, voting together
as one class, at any meeting called for such purpose may, by vote of the
majority of the issued and outstanding shares of the Common and Preferred Stock
entitled to vote, remove from office, with or without cause, any director
elected by such Stockholders, and elect his successor. Directors who are elected
solely by the holders of a Class of Preferred Stock, by vote of the majority of
the issued and outstanding shares of such class of Preferred Stock, remove from
office, with or without cause, any such director, and elect his successor. The
board of directors, by a majority vote of the total number of directors at a
meeting called for such purpose, may remove from office any officer of the
corporation with or without cause. The board may delegate the powers and duties
for the time being of any officer to any other officer or to any director.
3. Vacancies. When the office of any director or officer becomes vacant,
whether by reason of increase in the number of directors or otherwise, the
remaining director or directors, although less than a quorum, may elect a
successor for such office who shall hold the same for the unexpired term, or the
directors may reduce their number by the number of such vacancies in the board
provided such reduction shall not reduce the board to less than one.
ARTICLE VI
Capital Stock
1. Certificates of stock. Every stockholder shall be entitled to a
certificate or certificates for shares of the capital stock of the corporation
in such form as may be prescribed by the board of directors, duly numbered
setting forth the number and kind of shares represented thereby. Such
certificates shall be signed by the president or a vice president and by the
treasurer or an assistant treasurer or by the secretary or an assistant
secretary. Any of such signatures and the corporate seal affixed to any stock
certificate may be in facsimile.
In case any officer who has signed, or whose facsimile signature has been
used on a certificate has ceased to be an officer before the certificate has
been delivered, such certificate may nevertheless be adopted and issued and
delivered by the corporation, or its transfer agent, as though the officer who
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signed such certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon, had not ceased to be such officer of
the corporation.
2. Transfer of stock. Shares of the capital stock of the corporation shall
be transferable only upon the books of the corporation by the holder in person
or by attorney duly authorized and upon the surrender of the certificate or
certificates properly assigned and endorsed. If the corporation has a transfer
agent or agents or transfer clerk and registrar of transfers acting on its
behalf, the signature of any office or representative thereof may be in
facsimile.
The board of directors may appoint a transfer agent and one or more
co-transfer agents and a registrar of transfer and may make all such rules and
regulations as it deems expedient concerning the issue, transfer and
registration of shares of stock.
3. Transfer books. The board of directors may fix a date, not exceeding
sixty days preceding the date of any meeting of stockholders, or the date for
the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall come into
effect,as a record date for the determination of the stockholders entitled to
notice of and to vote at any such meeting, or entitled to receive payment of any
such dividend, or any such allotment of rights, or to exercise the rights in
respect to any such change, conversion or exchange of capital stock, and in such
case only stockholders of record on the date so fixed shall be entitled to such
notice of and vote at such meeting or to receive payment of such dividend, or
allotment of rights, or exercise such rights, as the case ma be, notwithstanding
any transfer of any stock on the books of the corporation after any such record
date fixed as aforesaid. The record date shall not precede the date upon which
the resolution fixing the record date is adopted.
4. Lost certificates. In case of loss or mutilation or theft or destruction
of a certificate of stock of this corporation, a duplicate certificate may be
issued upon such terms as the board of directors may determine.
ARTICLE VII
Fiscal Year, Bank Deposits, Checks, etc.
1. Fiscal year. The fiscal year of the corporation will commence on the
first day of January of each year or at such other time as the board of
directors may designate.
2. Bank deposits, checks, etc. The funds of the corporation shall be
deposited in the name of the corporation in such banks or trust companies as the
board of directors may from time to time designate.
All checks, drafts, notes or other obligations for the payment of money
shall be signed by such persons as the board of directors may from time to time
by resolution may direct or authorize.
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ARTICLE VIII
Books and Records
1. Place of keeping books. Unless otherwise expressly required by the laws
of Delaware, the books and records of this corporation may be kept outside of
the State of Delaware at such place or places as may be designated from time to
time by the board of directors.
2. Examination of books. Except as otherwise provided in the Certificate of
Incorporation or in these By-laws, the board of directors shall have the power
to determine from time to time whether and to what extent and at what times and
places and under what conditions and regulations the accounts, records and books
of this corporation, or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any account or
book or document of this corporation except as prescribed by statute or
authorized by express resolution of the stockholders or of the board of
directors.
ARTICLE IX
Notices
1. Requirements of notice. Whenever notice is required to be given by
statute or by these By-laws, it shall not mean personal notice unless so
specified, but such notice may be given in writing by depositing the same in a
post office or letter box, postpaid and addressed to the person to whom such
notice is directed at the address of such person on the records of the
corporation, and such notice shall be deemed given at the time when the same
shall be thus mailed.
2. Waivers. Any stockholder, director or officer may, in writing or by
telegram or cable or facsimile transmission, or facsimile transmission at any
time waive any notice or other formality required by statute or these By-laws.
Such waiver of notice, whether given before or after any meeting, shall be
deemed equivalent to notice. Presence of a stockholder either in person or by
proxy at any stockholders' meeting and presence of any director at any meeting
of the board of directors shall constitute a waiver of such notice as may be
required by any statute or these By-laws.
ARTICLE X
Seal
The corporate seal of the corporation shall be circular in form and shall
contain the name of the corporation the year of its creation and the words
"Corporate Seal, Delaware."
ARTICLE XI
Powers of Attorney
The board of directors may authorize one or more of the officers of the
corporation to execute powers of attorney delegating to named representatives or
agents power to represent or act on behalf of the corporation, with or without
power of substitution.
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ARTICLE XII
Indemnification of Directors and Officers
1. Definitions. As used in this article, the term "person" means any past,
present or future director or officer of the corporation or a designated officer
of an operating division of the corporation.
2. Indemnification granted. The corporation shall indemnify, to the full
extent and under the circumstances permitted by the Delaware General Corporation
Law in effect from time to time, any person as defined above, made or threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that he is or was a director, officer of the corporation, or is or
was serving at the specific request of the corporation as a director, officer or
employee or agent of another company or other enterprise in which the
corporation should own, directly or indirectly, an equity interest or of which
it may be a creditor.
This right of indemnification shall not be deemed exclusive of any other
rights to which a person indemnified herein may be entitled by By-law,
agreement, vote of stockholders or disinterested directors or otherwise, and
shall continue as to a person who has ceased to be a director, officer,
designated officer, employee or agent and shall inure to the benefit of the
heirs, executors, administrators and other legal representatives of such person.
It is not intended that the provisions of this article be applicable to, and
they are not to be construed as granting indemnity with respect to, matters as
to which indemnification would be in contravention of the laws of Delaware or of
the Unites States of America whether as a matter of public policy or pursuant to
statutory provision.
3. Miscellaneous. The board of directors may also on behalf of the
corporation grant indemnification to any individual other than a person defined
herein to such extent and in such manner as the Board in its sole discretion
from time to time and at any time determine.
ARTICLE XIII
Amendments
These By-laws may be amended or repealed at any meeting of stockholders or
at any meeting of the board of directors, as provided in Article II and Article
III hereof, respectively, provided in the notice of such meeting thereof shall
contain a statement of substance of the proposed amendment or repeal.
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Exhibit 8.1
ELK ASSOCIATES FUNDING CORPORATION
1998 INCENTIVE STOCK OPTION PLAN
The purpose of the 1998 Incentive Stock Option Plan (the "Plan") is to
attract and retain key employees of Elk Associates Funding Corporation (the
"Company") and its affiliates, to provide an incentive for them to achieve
long-range performance goals, and to enable them to participate in the long-term
growth of the Company by the granting of Incentive Stock Options (individually
referred to herein as an "Option" and collectively as "Options") to purchase the
Company's common stock, par value $0.01 par value (the "Common Stock").
1. Administration of the Plan.
The administration of the Plan shall be under the general supervision of
the 1998 Employee Plan Committee of the Board of Directors of the Company (the
"1998 Employee Plan Committee"). Within the limits of the Plan, the 1998
Employee Plan Committee shall determine the individuals to whom, and the times
at which, Options shall be granted, the type of Option to be granted, the
duration of each Option, the price and method of payment for each Option, and
the time or times within which (during its term) all or portions of each Option
may be exercised. The 1998 Employee Plan Committee may establish such rules as
it deems necessary for the proper administration of the Plan, make such
determinations and interpretations with respect to the Plan and Options granted
under it as may be necessary or desirable and include such further provisions or
conditions in Options granted under the Plan as it deems advisable. To the
extent permitted by law, the 1998 Employee Plan Committee may delegate its
authority under the Plan to a sub-committee of the 1998 Employee Plan Committee.
2. Shares Subject to the Plan.
(a) Number of Shares. The aggregate number of shares of Common Stock of the
Company which may be optioned under the Plan is 125,000 shares. In the event
that the 1998 Employee Plan Committee in its discretion determines that any
stock dividend, split-up, combination or reclassification of shares,
recapitalization or other similar capital change affects the Common Stock such
that adjustment is required in order to preserve the benefits or potential
benefits of the Plan or any Option granted under the Plan, the maximum aggregate
number and kind of shares or securities of the Company as to which Options may
be granted under the Plan and as to which Options then outstanding shall be
exercisable, and the option price of such Options, shall be appropriately
adjusted by the 1998 Employee Plan Committee (whose determination shall be
conclusive) so that the proportionate number of shares or other securities as to
which Options may be granted and the proportionate interest of holders of
outstanding Options shall be maintained as before the occurrence of such event.
(b) Effect of Certain Transactions. In order to preserve a Participant's
(as defined below) rights under an Option in the event of a change in control of
the Company, the 1998 Employee Plan Committee in its discretion may, at the time
an Option is made or at any time thereafter, take one or more of the following
actions: (i) provide for the acceleration of any time period relating to the
exercise or payment of the Option, (ii) provide for payment to the Participant
of cash or other property with a fair market value equal to the amount that
would have been received upon the exercise or payment of the Option had the
Option been exercised or paid upon the change in control, (iii) adjust the terms
of the Option in a manner determined by the 1998 Employee Plan Committee to
reflect the change in control,
<PAGE>
(iv) cause the Option to be assumed, or new rights substituted therefor, by
another entity, or (v) make such other provision as the 1998 Employee Plan
Committee may consider equitable to the Participant and in the best
interests of the Company, provided such action shall comply with Section
424 of the Code and will not render any Incentive Stock Option granted
hereunder to be other than an incentive stock option for purposes of
Section 422 of the Code.
(c) Restoration of Shares. If any Option expires or is terminated
unexercised or is forfeited for any reason, the shares subject to such Option,
to the extent of such expiration, termination or forfeiture, shall again be
available for granting pursuant to Options under the Plan, subject, however, in
the case of Incentive Stock Options, to any requirements under the Code (as
defined below).
(d) Reservation of Shares. The Company shall at all times while the Plan is
in force reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
3. Grant of Options; Eligible Persons.
(a) Types of Options. Options shall be granted under the Plan either as
incentive stock options ("Incentive Stock Options"), as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or as Options
that do not meet the requirements of Section 422 ("Nonstatutory Stock Options").
Options may be granted from time to time by the 1998 Employee Plan Committee,
within the limits set forth in Sections 1 and 3 of the Plan, to all employees of
the Company or of any parent corporation or subsidiary corporation of the
Company (as defined in Sections 424(e) and (f), respectively, of the Code) (such
individuals collectively referred to herein as "Participants").
(b) Date of Grant. The date of grant for each Option shall be the date on
which it is approved by the 1998 Employee Plan Committee or such later date as
the 1998 Employee Plan Committee may specify. No Incentive Stock Options shall
be granted hereunder after ten years from the date on which the Plan was
approved by the Board of Directors.
4. Form of Options.
Options granted hereunder shall be evidenced by a writing delivered to the
optionee specifying the terms and conditions thereof and containing such other
terms and conditions not inconsistent with the provisions of the Plan as the
1998 Employee Plan Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles. The form of such Options may vary among optionees.
5. Option Price.
The price at which shares may from time to time be optioned shall be determined
by the 1998 Employee Plan Committee, provided that such price shall not be less
than the current market value of the Common Stock on the date of grant, and
provided further that no Incentive Stock Option shall be granted to any
individual who is ineligible to be granted an Incentive Stock Option because his
ownership of stock of the Company or its parent or subsidiary corporations
exceeds the limitations set forth in Section 422(b)(6) of the Code unless such
option price is at least 110% of the current market value of the Common Stock on
the date of grant.
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To the extent permitted by law, the 1998 Employee Plan Committee may in its
discretion permit the option price to be paid in whole or in part by a note or
in installments or with shares of Common Stock of the Company or such other
lawful consideration as the 1998 Employee Plan Committee may determine.
6. Term of Option and Dates of Exercise.
(a) Exercisability. The 1998 Employee Plan Committee shall determine the
term of all Options, the time or times that Options are exercisable and whether
they are exercisable in installments, provided that the term of each Option
granted under the Plan shall not exceed a period of ten years from the date of
its grant, and provided further that no Incentive Stock Option shall be granted
to any individual who is ineligible to be granted such Option because his
ownership of stock of the Company or its parent or subsidiary corporations
exceeds the limitations set forth in Section 422(b)(6) of the Code unless the
term of his Incentive Stock Option does not exceed a period of five years from
the date of its grant. In the absence of such determination, the Option shall be
exercisable at any time or from time to time, in whole or in part, during a
period of ten years from the date of its grant or, in the case of an Incentive
Stock Option, the maximum term of such Option.
(b) Effect of Disability, Death or Termination of Employment. The 1998
Employee Plan Committee shall determine the effect on an Option of the
disability, death, retirement or other termination of employment of an optionee
and the extent to which, and during the period which, the optionee's estate,
legal representative, guardian, or beneficiary on death may exercise rights
thereunder. Any beneficiary on death shall be designated by the optionee, in the
manner determined by the 1998 Employee Plan Committee, to exercise rights of the
optionee in the case of the optionee's death.
(c) Other Conditions. The 1998 Employee Plan Committee may impose such
conditions with respect to the exercise of Options, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable.
(d) Withholding. The optionee shall pay to the Company, or make provisions
satisfactory to the 1998 Employee Plan Committee for payment of, any taxes
required by law to be withheld in respect of any Options under the Plan no later
than the date of the event creating the tax liability. The Company and any
parent corporation or subsidiary corporation of the Company (as defined in
Sections 424(e) and (f), respectively, of the Code) may, to the extent permitted
by law, deduct any such tax obligations from any payment of any kind otherwise
due to the optionee.
(e) Amendment of Options. The 1998 Employee Plan Committee may amend,
modify or terminate any outstanding Option, including substituting therefor
another Option of the same or different type, changing the date of exercise or
realization and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the optionee's consent to such action shall be required
unless the 1998 Employee Plan Committee determines that the action, taking into
account any related action, would not materially and adversely affect the
optionee.
7. Non-transferability.
Options granted under the Plan shall not be transferable by the holder thereof
otherwise than by will or the laws of descent and distribution or, in the case
of a Nonstatutory Stock Option, to the extent consistent with qualifying for the
exemption provided by Rule 16b-3 under the Securities Exchange Act
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of 1934 (the "Exchange Act"), pursuant to a qualified domestic relations order,
and shall be exercisable, during the holder's lifetime, only by him or her or
such permitted transferee.
8. No Right to Employment.
No persons shall have any claim or right to be granted an Option, and the grant
of an Option shall not be construed as giving an optionee the right to continued
employment. The Company expressly reserves the right at any time to dismiss an
optionee free from any liability or claim under the Plan, except as specifically
provided in the applicable Option.
9. No Rights as a Shareholder.
Subject to the provisions of the applicable Option, no optionee or any person
claiming through an optionee shall have any rights as a shareholder with respect
to any shares of Common Stock to be distributed under the plan until he or she
becomes the holder thereof.
10. Amendment or Termination.
The Board of Directors of the Company may amend, suspend or terminate the Plan
or any portion thereof at any time, subject to any shareholder approval that the
Board of Directors determines to be necessary or advisable, provided that the
Participant's consent will be required for any amendment, suspension or
termination that would adversely affect the rights of the Participant under any
outstanding Options.
11. Adjustment of Shares; Merger or Consolidation, Etc. of the Company.
(a) Recapitalization, Etc. In the event there is any change in the
outstanding Common Stock of the Company by reason of any reorganization,
recapitalization, stock split, stock dividend, combination of shares, or
otherwise, there shall be substituted for or added to each share of Common Stock
theretofore appropriated or thereafter subject, or which may become subject, to
any Option, the number and kind of shares of stock or other securities into
which each outstanding share of Common Stock shall be so changed or for which
each such share shall be exchanged, or to which each such share shall be
exchanged, or to which each such share shall be entitled, as the case may be,
and the per share price thereof also shall be appropriately adjusted.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Stock Option shall comply with the rules of Section 424(a) of the Code
and (ii) in no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder to be other than an incentive stock
option for purposes of Section 422 of the Code.
(b) Merger, Consolidation, or Change in Control of Company. Upon (i) the
merger or consolidation of the Company with or into another corporation
(pursuant to which the stockholders of the Company immediately prior to such
merger or consolidation will not, as of the date of such merger or
consolidation, own a beneficial interest in shares of voting securities of the
corporation surviving such merger or consolidation having at least a majority of
the combined voting power of such corporation's then outstanding securities), if
the agreement of merger or consolidation does not provide for (1) the
continuance of the Options granted hereunder or (2) the substitution of new
options for Options granted hereunder, or for the assumption of such Options by
the surviving corporation, (ii) the dissolution, liquidation, or sale of all or
substantially all the assets of the Company to a person unrelated to the Company
or to a direct or indirect owner of a majority of the voting power of the
Company's then outstanding voting securities (such sale of assets being referred
to as an "Asset Sale") or (iii) the Change
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<PAGE>
in Control of the Company, then the holder of any such Option theretofore
granted and still outstanding (and not otherwise expired) shall have the right
immediately prior to the effective date of such merger, consolidation,
dissolution, liquidation, Asset Sale, or Change in Control of the Company to
exercise such Options(s) in whole or in part without regard to any installment
provision that may have been made part of the terms and conditions of such
Options(s); provided that all conditions precedent to the exercise of such
Option(s), other than the passage of time, have occurred. The Company, to the
extent practicable, shall give advance notice to affected Optionees of such
merger, consolidation, dissolution, liquidation, Asset Sale, or Change in
Control of the Company. Unless otherwise provided in the subject award agreement
or merger, consolidation, or Asset Sale agreement, all such Options which are
not so exercised shall be forfeited as of the effective time of such merger,
consolidation, dissolution, liquidation, or Asset Sale (but not in the case of a
Change in Control of the Company). In the event the Company becomes a subsidiary
of another corporation (the "Parent Company") with respect to which the
stockholders of the Company (as determined immediately before such transaction)
own, immediately after such transaction, a beneficial interest in shares of
voting securities of the Parent Company having at least a majority of the
combined voting power of such Parent Company's then outstanding securities,
there shall be substituted for Options granted hereunder, options to purchase
common stock of the Parent Company. The substitution described in the
immediately preceding sentence shall be effected in a manner such that any
option granted by the Parent Company to replace an incentive stock option
granted hereunder shall satisfy the requirements of Section 422 of the Code.
Notwithstanding the foregoing, the holder of any such Option shall not have the
right to exercise such Option if such exercise would render any Incentive Stock
Options granted hereunder to be other than an incentive stock option for
purposes of Section 422 of the Code.
(c) Definition of Change in Control of the Company. As used herein, a
"Change in Control of the Company" shall be deemed to have occurred if any
person (including any individual, firm, partnership or other entity), together
with all Affiliates and Associates (as defined under Rule 12b-2 of the General
Rules and Regulations promulgated under the Exchange Act) of such person (but
excluding (i) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any subsidiary of the Company, (ii) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of the Company, (iii) the
Company or any subsidiary of the Company, or (iv) only as provided in the
immediately following sentence, a Participant together with all Affiliates and
Associates of the Participant) who is not a stockholder or an Affiliate or
Associate of a stockholder of the Company on the date of stockholder approval of
the Plan is or becomes the beneficial Owner (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing 40% or more of the combined voting power of the
Company's then outstanding securities. The provisions of clause (iv) of the
immediately preceding sentence shall apply only with respect to the Option(s)
held by the Participant who, together with his Affiliates or Associates, if any,
is or becomes the direct or indirect Beneficial Owner of the percentage of
securities set forth in such clause.
12. Stockholder Approval.
The Plan is subject to approval by the stockholders of the Company by the
affirmative vote of the holders of a majority of the shares of capital stock of
the Company entitled to vote thereon and present or represented at a meeting
duly held in accordance with the laws of the State of New York, or by any other
action that would be given the same effect under the laws of such jurisdiction,
which action in either case shall be taken within twelve (12) months from the
date the Plan was adopted by the Board of Directors.
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<PAGE>
In the event such approval is not obtained, all Options granted under the Plan
shall be void and without effect.
13. Governing Law.
The provisions of the plan shall be governed by and interpreted in accordance
with the laws of the State of New York.
This Plan was approved by the Board of Directors on _________, 1998. This Plan
was approved by the Shareholders on September ___, 1998.
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Exhibit 8.2
ELK ASSOCIATES FUNDING CORPORATION
Non-Employee Director Stock Option Plan
This Non-Employee Director Stock Option Plan dated ___________ __, 1998 (the
"Plan") governs options to purchase Common Stock, $0.01 par value (the "Common
Stock"), of Elk Associates Funding Corporation (the "Company") granted on or
after the date hereof by the Company to members of the Board of Directors (the
"Board") of the Company who are not also employees, officers or interested
persons (as defined in Section 2 below) of the Company. The purpose of the Plan
is to attract and retain qualified persons to serve as Directors of the Company
and to encourage ownership of stock of the Company by such Directors so as to
provide additional incentives to promote the success of the Company.
1. Administration of the Plan.
Grants of stock options (individually referred to herein as an "Option" and
collectively as "Options") under the Plan shall be automatic as provided in
Section 6 hereof. However, all questions of interpretation with respect to the
Plan and Options granted under it shall be determined by a committee (the
"Committee") consisting of the Directors of the Company who are not eligible to
participate in the Plan, and such determination shall be final and binding upon
all persons having an interest in the Plan.
2. Persons Eligible to Participate in the Plan.
Members of the Board who are not also officers or employees of the Company shall
be eligible to participate in the Plan ("Eligible Directors").
3. Shares Subject to the Plan.
(a) Number of Shares. The aggregate number of shares of Common Stock of the
Company which may be optioned under this Plan is 75,000 shares. In the event of
a stock dividend, split-up, combination or reclassification of shares,
recapitalization or similar capital change relating to the Common Stock, the
maximum aggregate number and kind of shares or securities of the Company as to
which Options may be granted under this Plan and as to which Options then
outstanding shall be exercisable, and the exercise price of such Options, shall
be appropriately adjusted by the Committee (whose determination shall be
conclusive) so as to preserve the value of the Option.
(b) Effect of Certain Transactions. In order to preserve an Eligible
Director's rights under an Option in the event of a change in control of the
Company, the Committee in its discretion may, on the Date of Grant (as defined
in Section 6(b) below) or at any time thereafter, take one or more of the
following actions: (i) provide for the acceleration of any time period relating
to the exercise or payment of the Option, (ii) provide for payment to the
Eligible Director of cash or other property with a fair market value equal to
the amount that would have been received upon the exercise or payment of the
Option had the Option been exercised or paid upon the change in control, (iii)
adjust the terms of the Option in a manner determined by the Committee to
reflect the change in control, (iv) cause the Option to be assumed, or new
rights substituted therefor, by another entity, or (v) make such other provision
as the Committee may consider equitable to the Eligible Director and in the best
interest of the Company.
<PAGE>
(c) Restoration of Shares. If any Option expires or is terminated
unexercised or is forfeited for any reason, the shares subject to such Option,
to the extent of such expiration, termination or forfeiture, shall again be
available for granting pursuant to Options under the Plan.
(d) Reservation of Shares. The Company shall at all times while the Plan is
in force reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
4. Types of Options.
All Options granted under this Plan shall be non-statutory options not entitled
to special tax treatment under Section 422 of the Internal Revenue Code of 1986,
as amended.
5. Form of Options.
Options granted hereunder shall be evidenced by a writing delivered to the
optionee specifying the terms and conditions thereof and containing such other
terms and conditions not inconsistent with the provisions of the Plan as the
Committee considers necessary or advisable to achieve the purposes of the Plan
or comply with applicable tax and regulatory laws and accounting principles.
6. Grant of Options and Option Terms.
(a) Initial Grant of Options. On the later of (i) date of the approval of
the Plan (the "Approval Date") by the Securities and Exchange Commission in
accordance with the 1940 Act, or (ii) the first anniversary of the election or
appointment of such Director to the Board (the "First Anniversary Date"),
providing such Director is then serving, each of the following Directors shall
automatically be granted Options to purchase the number of shares of Common
Stock determined by dividing $50,000 by the Current Market Value (as defined in
Section 6(c) below) on the date indicated opposite each Director's name (the
"Initial Grants") provided each such Director is serving on the Company's Board
as an Eligible Director on the Approval Date or the First Anniversary Date, as
the case may be:
Name of Director Automatic Grant Date
---------------- --------------------
Paul Creditor Approval Date
John Acierno Approval Date
Alan Kaplan Approval Date
Marvin Sabesan Approval Date
(b) Automatic Grant of Options. At each annual meeting of the stockholders
of the Company after the Approval Date, each new Eligible Director elected at
such meeting shall automatically be granted on such new Eligible Director's
First Anniversary Date of such election an Option to purchase the number of
shares of Common Stock determined by dividing $50,000 by the Current Market
Value of the Common Stock on such First Anniversary Date of such election. In
addition, upon the election of an Eligible Director other than at an annual
meeting of stockholders (whether by the Board or the stockholders and whether to
fill a vacancy or otherwise), each such Eligible Director shall automatically be
granted an Option on the First Anniversary Date of the election of an Eligible
Director other than at an annual meeting of stockholders to purchase that number
of shares that is determined by dividing
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<PAGE>
$50,000 by the Current Market Value of the Common Stock on the First Anniversary
Date of such election. After the Initial Grants have been made, all subsequent
grants of Options to Eligible Directors upon the First Anniversary Date of their
election to the Board shall be referred to as "Automatic Grants." The "Date of
Grant" for the Initial Grants shall be the Approval Date and the Date of Grant
for the Automatic Grants shall be the First Anniversary Date of the election as
a new Eligible Director, whether at an annual meeting or otherwise, as the case
may be. No Options shall be granted hereunder after ten years from the date on
which this Plan was initially approved and adopted by the Board.
(c) Exercise Price. The price at which shares may from time to time be
optioned shall be determined by the Committee, provided that such price shall
not be less than the current market value (the "Current Market Value") of the
Common Stock on the date of grant, or if no such market value exists, then the
current net asset value of the Common Stock of the Company or such other lawful
consideration as the Committee may determine.
(d) Term of Option. The term of each Option granted under this Plan shall
be five years from the Date of Grant.
(e) Period of Exercise. Options granted under this Plan shall become
exercisable commencing 12 months after the Date of Grant. Directors holding
exercisable Options under this Plan who cease to be Eligible Directors for any
reason, other than death, may exercise the rights they had under such Options at
the time they ceased to be an Eligible Director; provided, however, no
additional Options held by such Directors shall be exercisable thereafter. Upon
the death of a Director, those entitled to do so under the Director's will or
the laws of descent and distribution shall have the right, at any time within
twelve months after the date of death, to exercise in whole or in part any
rights that were available to the Director at the time of his or her death.
Options granted under the Plan shall terminate, and no rights thereunder may be
exercised, after the expiration of five years from their Date of Grant.
(f) Method of Exercise and Payment. Options may be exercised only by
written notice of the Company at its executive offices accompanied by payment of
the full exercise price for the shares of Common Stock as to which they are
exercised. The exercise price shall be paid in cash or by check or by the
surrender of unrestricted shares of Common Stock or by any combination of the
foregoing. Upon receipt of such notice and payment,the Company shall promptly
issue and deliver to the optionee (or other person entitled to exercise the
Option) a certificate or certificates for the number of shares as to which the
exercise is made.
(g) Non-transferability. Options granted under this Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution, and shall be exercisable, during the holder's lifetime, only
by him or her.
(h) Withholding. The optionee shall pay to the Company, or make provisions
satisfactory to the Company for payment of, any taxes required by law to be
withheld in respect of any Options under the Plan no later than the date of the
event creating the tax liability. The Company and any parent corporation or
subsidiary corporation of the Company (as defined in Sections 424(e) and (f),
respectively, of the Code) may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the optionee.
7. Limitation of Rights.
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<PAGE>
(a) No Right to Continue as a Director. Neither the Plan nor the granting
of an Option or any other action taken pursuant to the Plan, shall constitute an
agreement or understanding, express or implied that the Company will retain an
optionee as a Director for any period of time or at any particular rate of
compensation.
(b) No Stockholders' Rights for Options. No Director shall have any rights
as a stockholders with respect to the shares covered by his or her Option until
the date he or she exercises such Option and pays the Option price to the
Company, and no adjustment will be made for dividends or other rights for which
the record date is prior to the date such Option is exercised and paid for.
8. Amendment or Termination.
The Board may amend, suspend or terminate the Plan or any portion thereof at any
time, subject to any shareholder approval that the Board determines to be
necessary or advisable, provided that the Participant's consent will be required
for any amendment, suspension or termination that would adversely affect the
rights of the Participant under any outstanding Options.
9. No Fractional Shares. All grants of Options shall be rounded to the nearest
whole share and no Options representing fractional shares shall be issued.
10. Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of New York.
This Plan was approved by the Board of Directors on ___________ __, 1998. This
Plan was approved by the Shareholders on ___________ __, 1998. This Plan was
approved by the Securities and Exchange Commission on ___________ __, 199__.
-4-
Exhibit 13.1
INDEMNITY AGREEMENT
This Agreement is made as of the ______ day of ______________, 19___ by
Ameritrans Capital Corporation, a Delaware corporation (the "Corporation"), and
____________ ("Indemnitee"), a Director or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, Indemnitee is concerned about protection from expenses of
litigation and may not be willing to serve or continue to serve as a Director or
Officer without adequate protection, and the Corporation desires Indemnitee to
serve in such capacity.
NOW, THEREFORE, the Corporation and Indemnitee do hereby agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to serve as
a Director or Officer of the Corporation for so long as he is duly
elected or appointed or until such time as he tenders his resignation
in writing.
2. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, whether brought by or in
the right of the Corporation or otherwise and whether of a civil,
criminal, administrative, or investigative nature, in which the
Corporation may be or may have been involved as a party or
otherwise, by reason of the fact that Indemnitee is or was a
Director or Officer of the Corporation, by reason of any action
taken by his or of any inaction on his part while acting as such
a Director or Officer, or by reason of the fact that he is or was
serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise; in each case whether or not
he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification or
reimbursement can be provided under this Agreement.
(b) The term "Expenses" shall include, without limitation, expenses
of investigations, judicial or administrative proceedings or
appeals, amounts paid in settlement by or on behalf of
Indemnitee, attorneys' fees and disbursements, and any expenses
of establishing a right to indemnification under Paragraph (7) of
this Agreement,
<PAGE>
but shall not include the amount of judgments, fines, or
penalties against Indemnitee.
(c) References to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise tax
assessed with respect to any employee benefit plan; references to
"serving at the request of the Corporation" shall include any
service as a Director, Officer, employee, or agent of the
Corporation which imposes duties on, or involves services by,
such Director, Officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably
believed to be in the interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Agreement.
3. Indemnity in Third-Party Proceedings. The Corporation shall indemnify
Indemnitee in accordance with the provisions of this Paragraph 3 if
Indemnitee is a party to or threatened to be made a party to or
otherwise involved in any Proceeding (other than a Proceeding by or in
the right of the Corporation to procure a judgment in its favor) by
reason of the fact that Indemnitee is or was a Director or Officer of
the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise,
against all Expenses, judgments, fines, and penalties, actually and
reasonably incurred by Indemnitee in connection with the defense or
settlement of such Proceeding, but only if Indemnitee acted in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation and, in the case of a
criminal proceeding, in addition, did not have reasonable cause to
believe that his conduct was unlawful. The termination of any such
Proceeding by judgment, order of court, settlement, conviction, or
upon a plea of nolo contendere, or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith
and in a manner which he reasonably believed to be in or not opposed
to the best interests of the Corporation, and with respect to any
criminal proceeding, that such person had reasonable cause to believe
that his conduct was unlawful.
4. Indemnity in Proceedings by or in the Right of the Corporation. The
Corporation shall indemnify Indemnitee in accordance with the
provisions of this Paragraph 4 if Indemnitee is a party to or
threatened to be made a party to any Proceeding by or in the right of
the Corporation to procure a judgment in its favor by reason of the
fact that Indemnitee is or was a Director or Officer of the
Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against all
Expenses actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such Proceeding, but only if he
acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Corporation, except
that no indemnification for Expenses shall be made under this
Paragraph 4 in respect of any claim, issue, or matter as to which
Indemnitee shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation, unless
and only to the extent that any court in which such Proceeding was
brought shall determine
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<PAGE>
upon application that, despite the adjudication of liability and in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Expenses or such court shall
otherwise deem proper the payment of such Expenses.
5. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has
been successful on the merits or otherwise in defense of any
Proceeding or in defense of any claim, issue, or matter therein,
including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
6. Advances of Expenses. Expenses incurred by the Indemnitee pursuant to
Paragraphs 3 and 4 in any Proceeding shall be paid by the Corporation
in advance of the final disposition of such Proceeding upon the
written request of Indemnitee if Indemnitee shall undertake to repay
such amount to the extent that it is ultimately determined that
Indemnitee is not entitled to indemnification, provided that as a
condition to any such advance, either (a) such Indemnitee provides a
security for such undertaking, (b) the Corporation is insured against
losses arising from any lawful advances, or (c) a majority of the
disinterested directors of the Corporation or any independent legal
counsel in a written opinion, determines, based on a review of readily
available facts, that there is a reason to believe that such
Indemnitee will be found entitled to indemnification hereunder.
7. Right of Indemnitee to Indemnification Upon Application; Procedure
Upon Application. Any indemnification under Paragraphs 3 and 4 shall
be made no later than 60 days after receipt by the Corporation of the
written request of Indemnitee, unless a determination is made within
said 60-day period by (1) the Board of Directors by a majority vote of
directors who were not parties to such Proceeding, (2) by a committee
of such directors designated by a majority of such directors, or (3)
independent legal counsel in a written opinion (which counsel shall be
appointed if such a quorum is not obtainable because of the absence of
the requisite number of disinterested directors), that the Indemnitee
has not met the relevant standards for indemnification set forth in
Paragraphs 3 and 4.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent
jurisdiction. The burden of proving the indemnification is not
appropriate shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or independent legal
counsel) to have made a determination prior to the commencement of
such action that indemnification is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an
actual determination by the Corporation (including its Board of
Directors or independent legal counsel) that Indemnitee has not met
such applicable standard of conduct, shall be a defense to the action
or create a presumption that Indemnitee has not met the applicable
standard of conduct. Indemnitee's expenses reasonably incurred in
connection with successfully establishing his right to
indemnification, in whole or in part, in any such Proceeding shall
also be indemnified by the Corporation.
8. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under the Corporation's Certificate
of Incorporation, as amended, its By-
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<PAGE>
Laws, as amended, any agreement, any vote of shareholders or
disinterested Directors, the General Corporation Law of the State of
Delaware, or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office.
The indemnification under this Agreement shall continue as to
Indemnitee even though he may have ceased to be a Director or Officer
of the Corporation and shall inure to the benefit of the heirs and
personal representatives of Indemnitee.
9. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines, or penalties actually and
reasonably incurred by him in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount
thereof, the Corporation shall nevertheless indemnify Indemnitee for
the portion of such Expenses, judgments, fines, or penalties to which
Indemnitee is entitled.
10. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall, nevertheless, indemnify Indemnitee as to Expenses,
judgments, fines, and penalties with respect to any Proceeding to the
full extent permitted by any applicable portion of this Agreement that
shall not have been invalidated or by any other applicable law.
11. Notice. Indemnitee shall, as a condition precedent to his right to be
indemnified under this Agreement, give to the Corporation notice in
writing as soon as practicable of any claim made against him for which
indemnity will or could be sought under this Agreement. Notice to the
Corporation shall be directed to Ameritrans Capital Corporation, 4th
Floor, 747 Third Avenue, New York, New York 10017, Attention:
President (or such other address as the Corporation shall designate in
writing to Indemnitee), together with a copy thereof to Walter
Stursberg, Esq., Stursberg & Veith, 405 Lexington Avenue, New York,
New York 10174. Notice delivered by mail, by hand, or by overnight
delivery services shall be deemed received (i) three days after the
date postmarked if sent by prepaid mail, properly addressed or (ii)
upon delivery by hand or by overnight delivery service. In addition,
Indemnitee shall give the Corporation such information and cooperation
as it may reasonably require and shall be within Indemnitee's power.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
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<PAGE>
14. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed and signed as of the day and year first above written.
AMERITRANS CAPITAL CORPORATION
By:
---------------------------------
INDEMNITEE
------------------------------------
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Exhibit 14.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Elk Associates Funding Corporation and Subsidiary
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form N-14) and the inclusion of our report dated August
12, 1998, with respect to the consolidated financial statements for the years
ended June 30, 1998 and 1997.
Marcum & Kliegman LLP
New York, New York
September 22, 1998
