<PAGE>
As filed with the Securities and Exchange Commission on October 20, 1999
Registration No. 333-63951
Investment Company
Act File No. 811-8847
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1 [ ] Post-Effective Amendment No.___
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.
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
ANNUAL 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 Annual Meeting of Stockholders
to be held on ________ ___, 1999
The Annual Meeting of Stockholders of Elk Associates Funding
Corporation, a New York corporation ("Elk"), will be held at the offices of
Stursberg & Veith, 405 Lexington Avenue, Suite 4949, New York, New York, on
_______________, 1999, 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 August 2, 1999, 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 in
exchange 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 elect 10 directors to serve until the next Annual Meeting and until
their successors are chosen and qualified.
3. To ratify and approve the selection by the Board of Directors of Marcum &
Kliegman, LLP as Elk's independent public accountants for the fiscal year ended
June 30, 1999.
4. 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
__________ __, 1999, 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
___________, 1999
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
_______________ __, 1999
-----------------------------------------------------
PROXY STATEMENT
ELK ASSOCIATES FUNDING CORPORATION
747 Third Avenue, 4th Floor
New York, New York 10017
(800) 214-1047
-----------------------------------------------------
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, among other things, 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 August 2, 1999 (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 Corporation ("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 Annual Meeting of Stockholders of Elk to be held on _______
___, 1999, 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 (a) the adoption
of the Share Exchange Plan, (b) to elect 10 (10) directors to serve until the
next Annual Meeting and until their successors are chosen and qualified, (c) to
ratify and approve the selection by the Board of Directors of Marcum & Kliegman,
LLP as Elk's independent public accountants for the fiscal year ended June 30,
1999, and (d) to consider and act upon such other matters as may properly come
before the meeting or any adjournment thereof. In considering whether or not to
have an adjournment, management will consider what is in the best interest of
the stockholders, 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 AMTC, 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 _______ ___,
1999, which has been filed with the Securities and Exchange Commission ("SEC")
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
<TABLE>
<CAPTION>
<S> <C>
SUMMARY ....................................................................................................... 1
INFORMATION CONCERNING THE ANNUAL 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....................................................................... 7
Federal Income Tax Consequences........................................................................ 7
Accounting Treatment................................................................................... 8
Unaudited Pro Forma Capitalization..................................................................... 8
FEES AND EXPENSES............................................................................................... 10
INFORMATION CONCERNING ELK...................................................................................... 11
General .............................................................................................. 11
SBIC Benefits.......................................................................................... 15
Selected Financial Information......................................................................... 15
Loan Portfolio; Valuation.............................................................................. 17
Taxi Medallion Finance Industry and Market Overview.................................................... 18
Commercial (Non-Taxi) Loans -- Overview................................................................ 21
Competition............................................................................................ 22
Investment Policies.................................................................................... 22
The Small Business Investment Act of 1958.............................................................. 24
The Investment Company Act of 1940; Election to Become a BDC........................................... 27
Security Ownership of Principal Stockholders and Management............................................ 28
Management............................................................................................. 30
Compliance with Section 16(a) of the 1934 Act.......................................................... 00
Committees of the Board and Meeting Attendance......................................................... 33
Compensation of Directors and Executive Officers....................................................... 34
Report of the Board of Directors as to Compensation Matters............................................ 00
Compensation Philosophy................................................................................ 00
Executive Compensation Program......................................................................... 00
Interlocks and Insider Participation................................................................... 00
Stock Performance Graph................................................................................ 00
Stock Option Plans..................................................................................... 35
Certain Transactions................................................................................... 37
Conflicts of Interest Policies......................................................................... 38
Description of Capital Stock........................................................................... 38
Elk Common Stock....................................................................................... 39
Market Information..................................................................................... 39
Tax Considerations..................................................................................... 40
Taxation of a Regulated Investment Company............................................................. 40
Taxation of SBICs...................................................................................... 41
State Taxes............................................................................................ 42
INFORMATION CONCERNING AMERITRANS............................................................................... 42
General .............................................................................................. 42
Investment Policies.................................................................................... 42
Corporate Organizational Matters....................................................................... 43
Certificate of Incorporation........................................................................... 44
By-Laws .............................................................................................. 45
Indemnification of Directors and Officers.............................................................. 46
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
New York Corporation Law vs. Delaware Corporation Law................................................ 47
Federal Regulation................................................................................... 50
Management and Principal Stockholders................................................................ 51
Description of Capital Stock......................................................................... 51
Market Information................................................................................... 52
Tax Considerations................................................................................... 52
Elk Capital Corporation.............................................................................. 53
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS................................................................... 54
EXPERTS ..................................................................................................... 54
OTHER MATTERS................................................................................................. 55
ADDITIONAL INFORMATION........................................................................................ 55
</TABLE>
EXHIBITS
A. Agreement and Plan of Share Exchange between Ameritrans
Capital Corporation and Elk Associates Funding Corporation
B. Selected Provisions of Delaware Corporation Law
Section 623. Procedure to Enforce Stockholders'
Right to Receive Payment for Shares
Section 910. Right of Stockholder to Receive
Payment for Shares Upon Merger or
Consolidation, or Sale, Lease,
Exchange or Other Disposition of
Assets, or Share Exchange
PROXY
STATEMENT OF ADDITIONAL INFORMATION
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL 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 Annual Meeting of Stockholders of Elk (the "Annual Meeting")
called for ________ ___, 1999 at 10:00 a.m. (New York Time) at the offices of
Stursberg & Veith, 405 Lexington Avenue, New York, New York. The purposes of the
Annual Meeting are (i) to vote on the adoption of the Share Exchange Plan. 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 August
2, 1999, a copy of which is attached hereto as Exhibit A (the "Share Exchange
Plan"); (ii) to elect 10 directors to serve until the next Annual Meeting and
until their successors are chosen and qualified, (iii) to ratify and approve the
selection by the Board of Directors of Marcum & Kliegman, LLP as Elk's
independent public accountants for the fiscal year ended June 30, 1999, and (iv)
to consider and act upon such other matters as may properly come before the
meeting or any adjournment thereof. In considering whether or not to have an
adjournment, management will consider what is in the best interest of the
stockholders.
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, 2000. 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 February 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 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. The Restricted
Capital Account was $256,916 at June 30, 1999, representing less than 1% of
Elk's loan portfolio of approximately $51,100,000 as of that date.
As of June 30, 1999, approximately 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 1% 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 or other subsidiaries it may form or
acquire.
To the best of its knowledge, Elk has never experienced any material
losses of principal in connection with taxi financings since it began making
loans to the owners of New York City taxicab medallions, taxicabs and related
assets in 1980, nor since it began making taxi medallion loans in Boston,
Chicago and Miami in 1995. 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
<PAGE>
related assets, represented approximately 79% of Elk's loan portfolio as of
June 30, 1999. 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% 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,
1999 was $256,916.
Elk elected, effective September 28, 1998, to become a business
development company ("BDC") under the 1940 Act. See "INFORMATION CONCERNING ELK
- -- Investment Company Act of 1940; 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 has also elected
to become a BDC pursuant to the 1940 Act. See "INFORMATION CONCERNING ELK --
Investment Company Act of 1940; Election to Become a BDC."
Following the consummation of the Share Exchange, Ameritrans will be
the parent corporation of both Elk and Elk Capital. In addition, Ameritrans
plans to engage in broader and more diversified investment and lending
activities directly and, if it is in the best interests of its stockholders,
through Elk Capital and/or other subsidiaries it may form or acquire. 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.
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."
-2-
<PAGE>
It is expected that the initial capitalization of Ameritrans and Elk
Capital will be funded by up to $963,000 of the $3.0 million gross proceeds of
Elk's January 1998 private placement of its Common Stock, or through
borrowings by Ameritrans. On July 12, 1999, Ameritrans filed a Registration
Statement on Form N-2 relating to the proposed sale of 1,100,000 shares
(1,265,000 shares if the underwriters' over-allotment option is exercised) of
its common stock after completion of the Share Exchange. It is anticipated that
approximately half the net proceeds of such offering will be allocated to the
operations of Ameritrans and Elk Capital and half to the operations of Elk.
There is no assurance that this offering will be completed on the proposed terms
or at all.
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 as they are currently receiving from Elk, 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 was $256,916 as of June 30, 1999)
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.
-3-
<PAGE>
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, 1999, Elk had 1,745,600 shares of Common Stock
outstanding. The directors, officers, and principal stockholders of Elk,
owning an aggregate of approximately 60% 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 3% 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.
Election of Directors
A further purpose of the Annual Meeting is to elect 10 directors to
serve until the next Annual Meeting and until their successors are chosen and
qualified. Elk will continue to operate its current business, and the persons
elected as directors of Elk will continue to act in that capacity, whether or
not the Share Exchange is completed. All of the 10 nominees are presently
directors of Elk.
Ratification of Auditors
Another purpose of the Annual Meeting is to ratify and approve the
selection by the Board of Directors of Marcum & Kliegman, LLP as Elk's
independent public accountants for the fiscal year ended June 30, 1999.
The Board of Directors recommends a vote "FOR" ratification of the appointment
of Marcum & Kliegman, LLP as independent auditors.
INFORMATION CONCERNING THE ANNUAL MEETING
Date, Time, Place, and Purpose
The Annual Meeting will be held on __________ __, 1999 at 10:00 a.m.
(New York Time) at the offices of Stursberg & Veith, 405 Lexington Avenue, New
York, New York. The purposes of the Annual Meeting are (i) to consider and vote
on the adoption of the Share Exchange Plan, pursuant to which the Share Exchange
would be effected; (ii) to elect 10 directors to serve until the next Annual
Meeting and until their successors are chosen and qualified, (iii) to ratify and
approve the selection by the Board of Directors of Marcum & Kliegman, LLP as
Elk's independent public accountants for the fiscal year ended June 30, 1999,
and (iv) to consider and act upon such other matters as may properly come before
the meeting or any adjournment thereof.
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<PAGE>
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 Annual 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 Annual Meeting by
properly executed proxies will, unless such proxies have been previously
revoked, be voted at the Annual 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, for the election of the named nominees as directors of Elk, and for the
ratification of Marcum & Kliegman, LLP as independent auditors.
Management of Elk does not know of any other matters which will be
brought before the Annual Meeting. If, however, other matters are presented to
the Annual Meeting, all duly executed proxies will be voted in the discretion
of the proxy holders.
Any stockholder has the power to revoke his or her 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 Annual 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
_________ ___, 1999 (the "Record Date") will be entitled to notice of and to
vote at the Annual 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. The directors, officers, and principal stockholders of Elk owning
an aggregate of approximately 60% 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 affirmative vote of the holders of a majority of the Elk Common
Stock present or represented at the Annual Meeting is required for the election
of directors. The proxies will be voted to elect as directors the 10 nominees
named below, unless authority to vote for the election of directors is withheld
by marking the proxy to that effect or the proxy is marked with the names of
directors as to whom authority to vote is withheld. The proxy may not be voted
for more than 10 directors.
The affirmative vote of a majority of the Elk Common Stock present or
represented at the meeting is required to ratify and approve the selection of
Marcum & Kliegman, LLP as independent public accountants for Elk for fiscal
1999. Except as otherwise instructed, the proxies will be voted for the
ratification and approval of Marcum & Kliegman, LLP.
PROPOSAL NO. 1
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 to this Proxy Statement/Prospectus.
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.
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<PAGE>
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 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 a BDC
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.
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<PAGE>
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 __________ ___, 1999.
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, which approval has been received; (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 3% of the shares of Elk
Common Stock entitled to vote at the Annual Meeting; and (5) the absence of any
governmental order or action prohibiting the Share Exchange.
Elk has received approval from the SBA to transfer up to $963,000 of
the net proceeds of its January 1998 private offering to Ameritrans. It is
intended that, if necessary, such funds will be used, in part, to purchase the
shares of any Elk stockholders who exercise their appraisal rights and/or for
costs and expenses of the reorganization. These funds do not constitute a
portion of Elk's "Regulatory Capital" as that term is defined in the 1958 Act or
the regulations of the SBA. Therefore, the use of a portion of these funds to
buy out dissenting Elk stockholders or for costs and expenses of the
reorganization will not constitute a violation of the 1958 Act or any SBA
regulations.
In addition, in order for Ameritrans and Elk to operate in the manner
contemplated by this Proxy Statement/Prospectus and consummate the Share
Exchange, exemptions from certain provisions under the 1940 Act are required.
An exemptive order granting such exemptions (the "Exemptive Order") to Elk
and Ameritrans must be issued by the Securities and Exchange Commission ("SEC")
prior to the stockholders' meeting. The management of Elk and Ameritrans
anticipates that the order will be granted prior to the meeting. If the order is
not granted, however, the meeting will be adjourned.
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;
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<PAGE>
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 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, 1999. 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 Elk 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).
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<PAGE>
This financial information should be read in conjunction with the financial
statements for the years ended June 30, 1999 and 1998, and the related notes,
together with the opinion of Marcum & Kliegman, LLP dated August 11, 1999,
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.
Net Assets as of June 30, 1999 Immediately Before Acquisition:
<TABLE>
<CAPTION>
Ameritrans Elk Adjustments Combined
---------- --- ----------- --------
<S> <C> <C> <C> <C>
Common Stock (Ameritrans--
5,000,000 shares, $.0001 par
value, authorized, 1 share
outstanding; Elk-- 2,000,000
shares, $.01 par value,
authorized, 1,745,600 shares
outstanding) $17,456 $17,456
Preferred Stock (Ameritrans--
1,000,000 shares, $.01 par
value, authorized, none
outstanding; Elk --none
authorized or outstanding) ____ ____ ____
Additional paid-in capital 13,197,277 13,197,277
Restricted capital 256,916 256,916
Accumulated undistributed
investment income, net 4,815 4,815
Accumulated other comprehensive income 261,753 261,753
Unrealized loss in value of
investments (loan loss reserve) (380,000) (380,000)
Total Net Assets: 13,358,217 13,358,217
</TABLE>
Net Assets as of June 30, 1999 Immediately After Acquisition:
<TABLE>
<CAPTION>
Ameritrans Elk Adjustments Combined
---------- --- ----------- --------
<S> <C> <C> <C> <C>
Common Stock (Ameritrans--
5,000,000 shares, $.0001 par
value , authorized, 1,745,600
shares outstanding; Elk--
2,000,000 shares, $.01 par
value, authorized, 1,745,600
shares outstanding) $ 175(1) $17,456 ($17,456)(2) $ 175
Preferred Stock (Ameritrans --
1,000,000 shares, $.01 par
value, authorized, none
outstanding; Elk-- none
authorized or outstanding) ____ ____ ____
Additional paid-in capital 13,358,042 13,197,277 (13,340,761) 13,214,558
Restricted capital 256,916 256,916
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Accumulated undistributed
investment income, net 4,815 4,815
Accumulated other comprehensive income 261,753 261,753
Unrealized loss in value of
investments (loan loss reserve) (380,000) (380,000)
Total Net Assets: $13,358,217 13,358,217 (13,358,217) 13,358,217
</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.
The Board of Directors of Elk recommends a vote FOR Proposal No. 1.
PROPOSAL NO. 2
ELECTION OF DIRECTORS
The affirmative vote of the holders of a majority of the Elk Common
Stock present or represented at the meeting is required for the election of
directors. The persons named in the proxy will vote, as permitted by the By-Laws
of Elk, to elect as directors the 10 nominees named below, unless authority to
vote for the election of directors is withheld by marking the proxy to that
effect or the proxy is marked with the names of directors as to whom authority
to vote is withheld. The proxy may not be voted for more than 10 directors. All
of the 10 nominees are presently directors of Elk.
Each director will be elected to hold office until the next annual
meeting of stockholders and until his or her successor is elected and qualified.
If a nominee becomes unavailable, the person acting under the proxy may vote the
proxy for the election of a substitute. It is not presently contemplated that
any of the nominees will be unavailable.
The following persons are the 10 nominees for election as director of
Elk:
Gary C. Granoff
Ellen M. Walker
Lee A. Forlenza
Steven Etra
Marvin Sabesan
Paul Creditor
Allen Kaplan
John L. Acierno
John R. Laird
Howard F. Sommer
Certain information concerning the nominees is contained in various
subsections of "INFORMATION CONCERNING ELK," below. See "-- Management" and "--
Committees of the Board and Meeting Attendance" for the positions and offices
held by of each nominee, his or her age, the date on which he or she became a
director of Elk, his or her principal occupation and business experience for the
last five (5) years and the names of other publicly-held companies in which he
or she serves as a director. See "-- Compensation of Directors and Executive
Officers," "-- Executive Compensation Program" and "-- Stock Option Plans" for
descriptions of the compensation paid to directors and the plans in which
directors may be eligible to participate. See "-- Security Ownership of
Principal Stockholders and Management" and "-- Compliance with Section 16(a) of
the 1934 Act" for information regarding the security ownership of directors. See
"-- Certain Transactions" and "-- Conflicts of Interest Policies" for
information regarding transactions with Elk and certain directors.
PROPOSAL NO. 3
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL 1999
The Board of Directors, including a majority of directors who are not
interested persons of Elk, subject to stockholder approval, has selected Marcum
& Kliegman, LLP as independent public accountants to be employed by Elk for the
fiscal year ending June 30, 1999, to sign or certify such financial statements,
or any portions thereof, as may be filed by Elk with the SEC or any other
authorities at any time. The employment of such independent public accountants
for such purpose is subject to approval by the stockholders at this meeting. No
member of Marcum & Kliegman, LLP or any associate thereof has a direct or
indirect material financial interest in Elk or any of its affiliates.
The affirmative vote of a majority of the Elk Common Stock present or
represented at the meeting is required to ratify and approve the selection of
Marcum & Kliegman, LLP as independent public accountants for Elk for fiscal
1999.
A representative of Marcum & Kliegman, LLP will be present at the
Annual Meeting of Stockholders for the purpose of answering stockholder
questions and making any other appropriate statement.
The Board of Directors of Elk recommends a vote FOR Proposal No. 3.
FEES AND EXPENSES
The purpose of the following table is to assist stockholders in
understanding the various costs and expenses that stockholders in Elk bear, and
that, upon completion of the Share Exchange, stockholders in Ameritrans will
bear, directly or indirectly.
FEE TABLE(1)
Annual Expenses (as a percentage of net assets attributable
to Common Stock)(2)
Interest Payments on Borrowed Funds..............................17.8%(3)
Other Expenses...................................................13.9%(4)
Total Annual Expenses..............................................31.7%
- ------------------------------------
(1) Based on amounts for Elk for the fiscal year ended June 30, 1999. There will
be no underwriter and, consequently, no underwriting discounts or
commissions, associated with the Share Exchange.
(2) Assumes a net asset value of $13.7 million, which will be Ameritrans'
estimated stockholders' equity upon completion of the Share Exchange.
Operating expenses, interest payments on borrowed funds, and other expenses
are calculated based on Elk's operations for the fiscal year ended June 30,
1999.
(3) Interest payments on borrowed funds consist primarily of interest payable
under credit agreements with banks and on subordinated SBA debentures. See
"INFORMATION CONCERNING ELK -- General -- Elk's Loans; Short-term
Borrowings."
(4) Operating expenses consist primarily of general and administrative expenses,
including compensation and employee benefits, professional fees, rent,
travel and other marketing expenses, and various costs associated with
collections. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS -- Operating Expenses" in the Statement
of Additional Information.
EXAMPLE:
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in Ameritrans. These amounts assume no increase or
decrease in leverage and are based upon payment by Ameritrans of operating
expenses at the levels set forth in the table above.
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An Ameritrans stockholder would pay the following expenses on a $1,000
investment, assuming a 5.0% annual return:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$301 $862 $1,371 $2,447
This example, as well as the information set forth in the table above,
should not be considered a representation of the future expenses of Ameritrans.
Actual expenses may be greater or less than those shown. Moreover, while the
example assumes (as required by the SEC) a 5.0% annual return, Ameritrans'
performance will vary and may result in a return greater or less than 5.0%.
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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 February, 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 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. The
Restricted Capital Account was $256,916 at June 30, 1999, representing less than
1% of Elk's loan portfolio of approximately $51,100,000 as of that date.
As of June 30, 1999, almost 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 June 30, 1999, Elk is only required to maintain less than
$256,916 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 or
other subsidiaries it may form or acquire. See "INFORMATION CONCERNING
AMERITRANS."
To the best of its knowledge, Elk has never experienced any material
losses of principal in connection with taxi financings since it began making
loans to the owners of New York City taxicab medallions, taxicabs and related
assets in 1980, nor since it began making taxi medallion loans in Boston,
Chicago, and Miami in 1995. 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 79% of Elk's loan portfolio as of June 30, 1999. 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
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<PAGE>
discount of 65% 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, 1999, was $256,916.
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: 7
World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60611. 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 SEC on the Internet at www.sec.gov. Elk's Common Stock
is listed on the Nasdaq SmallCap Market and, after the Share Exchange,
Ameritrans' Common Stock will be listed on the Nasdaq SmallCap Market. Reports,
proxy statements and other information can also be inspected at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
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 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 ended June 30, 1996, 1997, 1998 and 1999 of $.73, $.74, $.57,
and $.72 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 Ameritrans' subsidiary Elk Capital.
Elk's Loans -- Elk obtained a license to operate as an SSBIC from the
SBA on July 24, 1980. Until February 1997, as an SSBIC, Elk's primary business
was to provide long-term loan funds at commercially competitive rates of
interest (which at June 30, 1999, ranged from 8.25% to 18% 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 February 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 Elk
into an SBIC. As an SBIC, Elk is permitted to lend to persons who are not
"disadvantaged"
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<PAGE>
provided Elk maintains a level of loans to disadvantaged persons equal to the
SBA's liquidating interest resulting from the 3% Preferred Stock repurchase.
This limitation will terminate upon full amortization of the 3% Preferred Stock
repurchase discount, which is scheduled to occur in November 1999. Although Elk,
as of June 30, 1999, was only required to have $256,916 of its total loan
portfolio invested with "disadvantaged" persons, approximately 95%, or in excess
of $48,500,000 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.
SBA Regulations set forth a ceiling on the interest rate that an SBIC
may charge its borrowers. Currently, this ceiling is the higher of 19% for loans
and 14% for debt securities or, alternatively, rates calculated with reference
to the weighted average cost of the SBIC's qualified borrowings, as determined
pursuant to SBA Regulations, or the SBA's current debenture rate. The
maximum rate of interest that Elk was permitted to charge under the SBA
Regulations as of June 30, 1999 was 19% for loans and 14% for debt securities.
See " -- The Small Business Act of 1958."
To date, the large majority of Elk's loans have been 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,
1999, approximately $19,800,000, or 39%, of the aggregate principal amount
of its outstanding loans of $51,100,000 represented loans made to finance the
purchase or continued ownership of New York City taxicab medallions and related
assets. An aggregate of approximately $15,800,000, or 31%, consisted of loans
to finance the purchase or refinancing of taxi medallions in Chicago and the
balance of approximately $15,500,000, or 30%, consisted of loans to various
commercial borrowers, of which approximately $2,700,000 was invested in
Boston taxi medallion financing and $1,950,000 was invested in Miami taxi
medallion financing. See " -- Loan Portfolio; Valuation" below. Elk has
agreed with the SBA that it must maintain a non-taxi investment/loan portfolio
(included with the combination of its assets acquired and receivables on assets
acquired in the future) in an amount not less than its outstanding SBA
guaranteed leverage (i.e., debentures) issued since 1995, which amount is
currently $2,470,000.
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. Commencing in 1995,
Elk has been expanding 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
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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 stockholders 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, 1999, Elk maintained
three (3) lines of credit totaling $35,000,000. At June 30, 1999, Elk had
$31,000,000 outstanding under these lines. In September 1999, Elk's banks
approved an increase in its credit lines to an aggregate of $40,000,000. The
loans, which mature through November 1999, 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 comply with certain terms, covenants
and conditions, and has pledged its loans receivable and other assets as
collateral for the lines of credit.
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,
1999 totaled $910,000 or 1.7% 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
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<PAGE>
of Elk. Unless necessary to protect a prior investment of Elk that 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 stockholders 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 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 makes loans to, or investments
in, small businesses, to the extent of 300% of the SBIC's "Leverageable
Capital," as defined in the applicable SBA Regulations. However, the
percentage of allowable leverage decreases if the SBIC's Leverageable Capital
exceeds $15,000,000. 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% 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.
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.
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Selected Financial Information
The following financial information has been derived in part from and
should be read in conjunction with, Elk's consolidated financial statements and
the related notes for the years ended June 30, 1999, 1998 and 1997, which are
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.
<TABLE>
<CAPTION>
Statement of
Operations Fiscal Year Ended
Data June 30,
-----------------------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment
Income $2,629,901 $3,084,412 $4,023,795 $4,606,456 $5,583,894
---------- ---------- ---------- ---------- ----------
Interest Expense 1,002,959 1,105,993 1,582,700 1,840,731 2,440,051
Other Expenses 960,474 1,108,505 1,408,034 1,852,262 1,903,182
---------- ---------- ---------- ---------- ----------
Total Expenses 1,963,433 2,214,498 2,990,734 3,692,993 4,343,233
---------- ---------- ---------- ---------- ----------
Investment
Income Before
Credit
(provision)
for Loan Gains
(losses) and
Gains (Losses)
on Assets
Acquired and
Income Taxes 666,468 869,914 1,033,061 913,463 1,240,661
---------- ---------- ---------- ---------- ----------
Credit
(provision)
for Loan Gains
(losses) and
Gains (Losses)
on Assets
Acquired(1) (13,515) 44,292 (8,923) (14,649) (11,272)
Other Income 24,885 38,798 7,200
Benefit of
(Provision for)
Income
Taxes(2) -- (5,945) (28,676) (3,271) 769
---------- ---------- ---------- ---------- ----------
Net Income $652,953 $908,261 $1,020,347 $934,341 $1,237,358
Net Income Per
Common Share (Basic
and Diluted) $ .66 $ .73 $ .79 $ .62 $ .71
======== ======== ========== ======== ==========
Common Stock
Dividends Paid $ -- $937,028 $946,655 $986,724 $1,256,832
======== ======== ======== ======== ==========
Weighted
Average
Shares of
Common Stock
Outstanding - Basic 988,953 1,247,120 1,283,600 1,518,969 1,745,600
- Diluted 1,750,684
======= ========= ========== ========= =========
</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 $78,000, ($24,000), ($24,000) and $222,748 for the
years ended June 30, 1995, 1996, 1997 and 1998, respectively. It is
estimated that the amount of loans written off for income tax purposes for
the year ended June 30, 1999 will be $146,465. See "LOAN PORTFOLIO;
VALUATION -- Collection Experience".
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(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 stockholders. Therefore, only
minimal taxes were required to be paid.
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Loan Portfolio; Valuation
The following table sets forth a classification of Elk's outstanding
loans as of June 30, 1999:
<TABLE>
<CAPTION>
Maturity Balance
Number Interest Date (in Outstanding
TYPE OF LOAN of Loans Rate months) June 30, 1999
------------ -------- ---- ------- -------------
New York City:
<S> <C> <C> <C> <C> <C>
Taxi medallion 123 8.25-12% 1-240 $19,818,871
Radio car service 34 1-15% 1-59 285,562
Chicago taxi medallion 417 11-15% 15-84 15,825,539
Boston taxi medallion 25 9.25-14% 21-60 2,717,995
Miami taxi medallion 38 12-18% 100-120 1,943,335
Other loans:
Restaurant 2 10-12% 1-66 243,629
Hairdresser 2 12% 7 97,836
Car wash 1 11.5% 36 214,234
Ambulance service 1 10.5% 6 4,907
Bagel store 1 14% 37 22,123
Dry cleaner 25 9-18% 31-120 3,657,590
Laundromat 19 10-17% 12-120 3,951,498
Laundry equipment 1 9.5% 51 170,333
Financial services 1 14% 3 4,980
Black car service (real property) 1 12% 23 196,132
Auto sales 3 10.5-13% 1-43 477,839
Registered investment advisor 1 14% 3 169,012
Embroidery manufacturer 1 12% 53 84,814
Theater 1 16% 53 166,492
Retirement home 1 15% 78 300,000
Garden Center 1 14% 90 431,304
Auto Center 1 12% 78 122,536
Commercial Construction 1 16% 80 197,371
--- -----------
Total Loans Receivable 701 $51,103,932
=== ===========
</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
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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
stockholders 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 18% per annum. As of June 30, 1999, the average annual weighted rate
per loan was approximately 11.0%. 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, 1999, 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 material loss of principal in any taxi medallion loan.
Taxi Medallion Finance Industry and Market Overview
The New York City Taxi Medallion Industry and Market. Under current
law, the number of taxi medallions that may be issued by New York City is
limited to 12,187. There are two types of medallions: corporate and
individual owner-driver. Of the total of 12,187 medallions, 7,058 are
corporate medallions and 5,129 are for individually owned cabs. A corporate
medallion is issued for a cab owned by a corporation that owns a minimum of
two cabs and two corporate medallions (i.e., one corporate medallion per
cab). An individual owner-driver may not own more than one cab and one
medallion. Corporate medallions are used by large fleet concerns with many
taxis and many drivers or by small corporations owning at least two
medallions and two taxis driven by two owner-drivers (the so-called
"minifleet").
Only 11,787 medallions could be issued until August 8, 1995, when
a law permitting the issuance of up to 400 additional taxi medallions over a
three-year period went into effect. 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 June 1999, was that individually owned medallions sold
for approximately $210,000 and corporate medallions sold for approximately
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$260,000 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 corporate medallions that were resold by their holders
varied each year from approximately 245 to 440, which suggests that there were
between 122 and 220 minifleet corporations in need of financing each year,
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 $450,000, the dollar volume of New York
City minifleet financings might range from $49 million 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 to $75
million a year.
In addition to financings for 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, and to be 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.
New York Marketing Strategy for Medallion Financing. Medallion
transfers in the New York City market are usually handled through medallion
brokers, who have frequent contact with taxi 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 are the same party or related parties.
Elk has received a significant number of referrals from certain
medallion brokers in New York. Elk also receives referrals from financing
brokers and its borrowers. In addition, Elk occasionally places advertisements
in local industry newspapers and magazines. Elk also uses brokers, advertising
and referrals in connection with its taxi lending business in the Chicago,
Boston, and Miami markets.
Chicago Taxi Medallion Industry and Market. As part of its geographic
diversification strategy, Elk studied the Chicago taxi medallion market in 1994,
and began making loans in Chicago in April, 1995. The taxi market and medallion
system in Chicago is regulated by the City of Chicago Department of Consumer
Services, Public Vehicle Operations Division. The number of taxi medallions is
limited by city ordinances, and until 1988, these ordinances gave control of 80%
of the medallions to the two largest taxi operators in Chicago, Yellow Cab Co.,
and Checker Taxi Co., Inc.
Since 1988, the taxi industry in Chicago has shifted toward more
individual ownership. Over the succeeding 10 years, the Yellow Cab Co. and
Checker Taxi Co., Inc., pursuant to a new ordinance, gave 1,300 medallions back
to the City, and the City added 100 medallions each year. These medallions were
distributed in a lottery system to taxi drivers who had never owned a medallion.
By July, 1997, there were a total of 5,700 medallions issued in Chicago, of
which
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<PAGE>
Yellow Cab Co. owned approximately 2,071, and the remaining 3,629 were owned by
individual owner drivers, or by individual operators who had purchased multiple
medallions.
In December, 1997, the City Council increased the number of medallions
by 1,000 additional medallions, to be issued over a period of the succeeding
three years. Of these medallions, 500 will be issued in lotteries to taxi
drivers who never owned a medallion, and the other 500 will be auctioned to the
highest bidder. In the November 1998 auction of 150 medallions, there were 499
bids to purchase medallions, and the winning bid prices ranged from $57,000 to
$63,000 per medallion. In August 1999, 150 medallions were auctioned, there were
more than 1,400 bids, and the winning bid prices ranged from $67,000 to $71,000.
The prices at these auctions were approximately the same as open market prices
for taxi medallions that were sold in Chicago at same times.
On January 21, 1999, the Yellow Cab Co. auctioned 175 medallions in a
sealed bid auction at prices equal to the current open market value price for
medallions. The Yellow Cab Co. is continuing to sell a limited number of
medallions at current open market prices, in order to become a medallion service
business serving the individual owner drivers who acquire the medallions.
It has been Elk's experience that as the Chicago market has expanded,
it has also become more competitive. In addition, as the City of Chicago and now
Yellow Cab Co. supply medallions to the market place, Elk expects that the taxi
medallion market will continue to grow, with more and more owner-drivers and
individual owner-operators of multiple medallions. To the extent that there are
more owner-operators and individual owner-operators of multiple medallions in
the market, Elk believes that there will be increased opportunities for us to
serve this market.
Chicago city regulations set forth certain qualifications that all
owners of taxi medallions must meet, and require that all security interests in
medallions be registered with the Department of Consumer Services. The
Department of Consumer Services also is involved (along with the City Council)
in setting taxi fares, and in setting maximum lease rates that may be charged by
owners to lessees of taxis, who drive them on a daily, weekly, or monthly basis.
Chicago Marketing Strategy for Medallion Financing. At the present
time, most medallion sales in Chicago are handled through brokers or attorneys.
An active market place has developed in Chicago for the purchase and resale of
medallions. Elk's most recent experience, in April 1999, was that medallions
were selling for between $60,000 and $65,000 per medallion. In addition, the
City of Chicago imposes a 5% transfer tax on a medallion held for two years or
more, a 10% transfer tax on a medallion held for between one and two years, and
a 25% transfer tax on a medallion held less than one year. The recent imposition
of the transfer taxes, in addition to being a source of revenue to the City, was
also scaled in order to inhibit speculation in the purchase and resale of taxi
medallions without the intent of actually operating taxis.
Elk believes that as many as 1,000 medallions are bought each year by
purchasers, and at today's market value, this would give gross potential volume
of approximately $65,000,000. If 80% of these purchases were financed, the
annual market for loans to purchase medallions would be $52,000,000 per annum.
In addition to purchases and sales of medallions, a substantial market exists
for refinancing the indebtedness of existing owners. Based on the number of
medallions currently issued and to be issued, Elk believes the market for
financing transfers could exceed $60,000,000 per year.
Boston Taxi Medallion Industry and Market. Elk began to review the
Boston taxi market in the fall of 1994 and began making loans in this market in
1995. Since 1930, the Boston Police Commissioner has had exclusive jurisdiction
over the regulation of taxi operations,
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including the issuance and transfer of medallions. The Hackney Carriage Unit of
the Boston Police Department deals with taxi regulatory issues.
By statute, the number of medallions issued in the City of Boston may
not exceed 1,525, subject to increase or decrease in the Police Commissioner's
discretion. The number of medallions remained essentially unchanged from the
late 1940's until January 1999, when the City sold 75 additional medallions at
auction. Prices at this auction exceeded $140,000 per medallion. The City of
Boston has announced that it will auction another 75 medallions in September
1999.
Under the applicable statutes and rules, Boston taxi medallions are
assignable, subject to the approval of the Police Commissioner. In practice,
transfer applications are submitted to the Hackney Carriage Unit, which has
issued guidelines and forms for transfers. Loans by financial institutions or
individuals are secured by taxi medallions and assets are routinely allowed in
accordance with the Hackney Carriage Unit's "Procedures for Recording Secured
Party Interest."
Boston Marketing Strategy for Medallion Financing. The Boston taxi
market services the City of Boston, which includes Logan Airport. Elk's
marketing efforts have included retention of a local attorney, advertising in
the CARRIAGE NEWS, a local trade newspaper, and the use of forwarding brokers.
Elk's efforts have resulted in a loan portfolio of approximately $2,700,000 as
of June 30, 1999.
Medallion Industry in Metro-Dade County (Miami Area), Florida. Elk
began to investigate the Miami area taxi market in 1995, and began making loans
in 1996. The Miami taxi industry has been regulated on a county-wide basis in
Metro-Dade County, Florida since 1981. The Passenger Transportation Regulatory
Division (the "PTRD") of the Metro-Dade County Consumer Services Division
oversees taxi operations and licenses in accordance with the Metro-Dade County
Code.
Until April 1999, each taxi operator in Metro-Dade County was required
to obtain a "For-Hire" license. The number of licenses was limited to one
license for each 1,000 of population in the county. With approximately 2,100,000
residents in the county, 2,100 licenses could have been issued; however, only
1,827 licenses are currently authorized, of which 1,824 have been issued. In
1991, a For-Hire license loan program was approved, authorizing the use of loans
to purchase (but not to refinance) licenses and taxis. Any lender must be a
licensed lending institution authorized to do business in Florida. Elk is
currently one of only two lending institutions that are authorized to make loans
to the taxi industry in Metro-Dade County. Transfers of licenses and financing
arrangements are subject to prior approval by the PTRD and the County Board of
Commissioners.
For-Hire licenses were considered a privilege, not a property right.
However, since licenses were limited in number, the marketplace created a
"market price" or value in connection with the transfer of the license right to
a purchaser. As of April 1999, the Metro- Dade County Code was amended to create
a "medallion," or property right, system with a view to attracting traditional
financing providers to provide the taxi industry with additional funding
sources. Existing For-Hire licenses were automatically converted into
medallions.
According to official Metro-Dade County publications, approximately
one-third of the currently outstanding licenses are owned by individuals or
corporations that own and operate only one license. Other than 106 licenses held
by one owner, the balance of the licenses are owned mainly by holders of from
two to five licenses. The number of license transfers has been generally
increasing in recent years, with a high of 197 transfers in 1997, with an
average
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reported price of $51,658. However, Elk believes that the present market price
of licenses/medallions in Metro-Dade County is between $65,000 and $70,000 per
medallion.
Miami Area Marketing Strategy for Medallion Financing. Elk believes
that the recent change to a medallion system and an emphasis on individual
operator-ownership of medallions for the future will open a large new market for
taxi medallion financing in the Miami area. Since this is an emerging market,
Elk is currently developing strategies to develop contacts and market Elk's
financing to potential purchasers of medallions, and in the event refinancing is
permitted, to those owners who may wish to refinance their medallions in the
future. As of June 30, 1999, the total principal amount of Elk's outstanding
taxi loans in the Miami area was approximately $1,950,000.
Commercial (Non-Taxi) Loans -- Overview
Elk began making loans to diversified (non-taxi) small businesses
("Commercial Loans") in the New York City metropolitan area in 1985, in order to
diversify its loan portfolio, which until that time had consisted almost
entirely of loans to owners of New York City taxi medallions. After a period of
losses in its Commercial Loan portfolio from 1991 to 1994, Elk has been
increasing this portfolio on a selective basis since 1995, with a concentration
on loans to operators of retail dry cleaners and laundromats. Recently, Elk has
also begun geographically expanding its Commercial Loan portfolio, with loans in
South Florida, Massachusetts, and North Carolina.
Elk has chosen to concentrate its Commercial Loan portfolio in loans
secured by retail dry cleaning and coin-operated laundromat equipment because of
certain characteristics similar to taxi medallion lending that make these
industries attractive candidates for profitable lending. These factors include:
(i) relatively high fixed rates of interest ranging from approximately 325 to
700 basis points over the prevailing Prime Rate at the time of origination, (ii)
low historical repossession rates, (iii) vendor recourse in many cases, (iv)
significant equity investments by borrowers, (v) an active market for
repossessed equipment, and for resale of businesses as going concerns through
transfers of the leasehold and business equipment to new operators, and (vi) a
collateral service life that is frequently twice as long as the term of the
loans. Elk estimates that there are approximately 4,000 retail dry cleaners and
approximately 3,000 laundromats in the New York City metropolitan area. In
addition, Elk believes that specialization in the dry cleaning and laundromat
industries will permit relatively low administrative costs because documentation
and terms of credit are standardized, and the consistency among the loans has
simplified credit review and portfolio analysis.
Elk further believes that other niche industries with similar
characteristics will provide additional loan portfolio growth opportunities.
Elk's other Commercial Loans are currently spread among other industries,
including auto sales, retirement home, garden center, commercial construction,
car wash, theater, restaurant, and financial services.
Elk's Commercial Loans finance either the purchase of the equipment and
related assets necessary to open a new business or the purchase or improvement
of an existing business, and Elk has originated Commercial Loans in principal
amounts up to $1,000,000. Elk generally retains these loans, although from time
to time it sells participation interests in its loans to diversify risk, or
purchases participation interests in loans generated by other SBICs.
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
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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 stockholder meeting at which at least 50% of the outstanding shares of
Common Stock are present.
(a) Issuance of Senior Securities. Elk may issue 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.
(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.
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<PAGE>
(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.
(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.
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(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.
(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
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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.
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
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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 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; Election to Become a BDC
Ameritrans and Elk are closed-end, non-diversified management
investment companies that have elected to be treated as BDCs and, as such, are
subject to regulation under the 1940 Act. The 1940 Act contains prohibitions and
restrictions relating to transactions between investment companies and their
affiliates, principal underwriters and affiliates of those affiliates or
underwriters. In addition, the 1940 Act provides that a BDC 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 its outstanding voting
securities," as defined under the 1940 Act.
BDCs are permitted, under specified conditions, to issue multiple
classes of indebtedness and one class of stock (collectively, "senior
securities," as defined under the 1940 Act) senior to the shares of Common
Stock offered hereby if their asset coverage of such indebtedness and all senior
securities is at least 200% immediately after each such issuance. Subordinated
SBA debentures, preferred stock guaranteed by or issued to the SBA by Elk,
and Elk bank borrowings 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
Elk meets the applicable asset coverage ratios at the time of the declaration
of the dividend or distribution or repurchase. Ameritrans and Elk have
requested that the SEC grant certain relief from the asset coverage ratios
applicable to BDCs.
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Under the 1940 Act, a BDC may not acquire any asset other than
Qualifying Assets unless, at the time the acquisition is made, certain
Qualifying Assets represent at least 70% of the value of the company's total
assets. The principal categories of Qualifying Assets relevant to Elk's
proposed business are the following:
(1) Securities purchased in transactions not involving a public
offering from the issuer of such securities, which issuer is an eligible
portfolio company. An "eligible portfolio company" is defined in the 1940 Act as
any issuer which:
(a) is organized under the laws of, and has its principal
place of business in, the United States;
(b) is not an investment company other than an SBIC
wholly-owned by the BDC; and
(c) satisfies one or more of the following requirements:
(i) the issuer does not have a class of securities with
respect to which a broker or dealer may extend margin
credit; or
(ii) the issuer is controlled by a BDC and the BDC has an
affiliated person serving as a director of issuer;
(iii) the issuer has total assets of not more than
$4,000,000 and capital and surplus (stockholders' equity
less retained earnings) of not less than $2,000,000, or
such other amounts as the SEC may establish by rule or
regulation; or
(iv) the issuer meets such requirements as the SEC may
establish from time to time by rule or regulation.
(2) Securities for which there is no public market and which are
purchased in transactions not involving a public offering from the issuer of
such securities where the issuer is an eligible portfolio company which is
controlled by the BDC.
(3) Securities received in exchange for or distributed on or with
respect to securities described in (1) or (2) above, or pursuant to the exercise
of options, warrants or rights relating to such securities.
(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. Elk believes that the common stock of Elk to be held by
Ameritrans will be Qualifying Assets.
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Security Ownership of Principal Stockholders and Management
The following table sets forth certain information as to (i) those
persons who, to Elk's knowledge, owned 5% or more of its outstanding
Common Stock as of June 30, 1999, (ii) each of Elk's directors and (iii) all
of Elk's officers and directors as a group. Except as set forth below or in
"Management," the address of each person listed below is the address of Elk.
Percentage of
Number of Shares of Outstanding
Name Common Stock Owned Common Stock Owned
- ---- ------------------- ------------------
*Gary C. Granoff 350,708(1) 19.0%
*Ellen M. Walker 57,374(2) 3.1%
*Lee A. Forlenza 48,095(3) 2.6%
*Steven Etra 133,016(4) 7.2%
Marvin Sabesan 84,417(5) 4.8%
Paul Creditor 7,556(6) **
Allen Kaplan 10,556(7) **
John L. Acierno 5,556(8) **
John R. Laird 100 **
Howard F. Sommer -- **
Dan M. Granoff 155,979(9) 8.9%
Children's Hospital
Oakland Research
Institute
747 52nd Street
Oakland, CA
Alexander Nash 96,600(10) 5.5%
20 W. Lincoln Avenue
Valley Stream, NY
Paul D. Granoff 143,179(11) 8.2%
c/o Rush-Copley
Medical Center
1900 Ogden Avenue
Aurora, IL 60504
All Officers and 726,890(12) 38.9%
Directors as a group
(12 persons)
- ------------------------------------
* Gary C. Granoff, Ellen M. Walker, Lee A. Forlenza, and Steven Etra are each
"interested persons" with respect to Ameritrans and Elk, as such term is
defined in the 1940 Act.
** Less than 1%.
1. Excludes (i) 24,933 shares owned directly or indirectly by Mr. Granoff's
wife, as to which he disclaims beneficial ownership and (ii) 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 (i) 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; (ii)
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35,321 shares held by Mr. Granoff as trustee for his children and other
family members; (iii) 261 shares held by GCG Associates Inc., a corporation
owned by Mr. Granoff ; (iv) 76,084 shares owned by DAPARY Management Corp.,
a corporation controlled by Mr. Granoff and (v) 30,000 shares issuable upon
the exercise of five-year options issued under the 1998 Employee Plan. See
"-- Stock Option Plans -- 1998 Employee Plan."
2. Includes (i) 200 shares held by Ms. Walker as custodian for her son; (ii)
22,800 shares held by various trusts of which Ms. Walker is a trustee and
as to which she disclaims beneficial ownership (Mr. Granoff retains a
reversionary interest in 21,000 of such shares), and (iii) 20,000 shares
issuable upon the exercise of ten-year options issued under the 1998
Employee Plan. See "-- Stock Option Plans -- 1998 Employee Plan."
3. Includes 17,500 shares issuable upon the exercise of ten-year options
issued to under the 1998 Employee Plan. See "-- Stock Option Plans -- 1998
Employee Plan."
4. Includes (i) 29,022 shares held by Mr. Etra and his wife as joint tenants;
(ii) 27,000 shares held by Mr. Etra's wife; (iii) 1,500 shares held by Mr.
Etra's son; (iv) 10,000 shares held by SRK Associates LLC, a limited
liability company controlled by Mr. Etra, (v) 10,000 shares held by Lance's
Property Development Corp. Pension Plan, of which Mr. Etra is a trustee and
(vi) 17,500 shares issuable upon the exercise of ten-year options issued
under the 1998 Employee Plan. See "-- Stock Option Plans -- 1998 Employee
Plan."
5. 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. Also includes 5,556 shares
issuable upon the exercise of ten-year options issued under Elk's 1998
Non-Employee Director Plan (the "1998 Director Plan"). See "- Stock Option
Plans - 1998 Director Plan."
6. Includes 5,556 shares issuable upon the exercise of ten-year options issued
under the 1998 Director Plan. See "- Stock Option Plans - 1998 Director
Plan."
7. Includes 5,556 shares issuable upon the exercise of ten-year options issued
under the 1998 Director Plan. See "- Stock Option Plans - 1998 Director
Plan."
8. Consists of 5,556 shares issuable upon the exercise of ten-year options
issued under the 1998 Director Plan. See - Stock Option Plans - 1998
Director Plan."
9. Includes (i) 10,900 shares owned by a charitable foundation, of which N.
Henry Granoff, his wife, Jeannette Granoff, Gary C. Granoff and Dr. Dan M.
Granoff are the trustees, and (ii) 2,800 shares held in an IRA rollover
account for the benefit of Dr. Granoff.
10. Includes (i) 6,500 shares held by Dr. Nash as custodian for his daughter
and (ii) 52,900 shares held by his wife, as to which shares Dr. Nash
disclaims beneficial ownership.
11. Includes 40,049 shares held by Paul Granoff directly, 77,630 held by
Granoff Family Partners Ltd., of which Dr. Paul 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.
12. Includes 100,000 shares issuable upon the exercise of 30,000 five-year and
70,000 ten-year options issued under the 1998 Employee Plan and 22,224
shares issuable upon the exercise of ten-year options issued under the 1998
Director Plan. See "- Stock Option Plans - 1998 Employee Plan -- 1998
Director Plan."
<PAGE>
Except pursuant to applicable community property laws or as described
above, each person listed in the table above has sole voting and investment
power, and is both the owner of record and the beneficial owner of his or
her respective shares.
Persons listed above, for as long as they continue to be officers
and/or directors of Elk or 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 Board
Funding Corporation of Directors
747 Third Avenue
New York, New York
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
Name Address Position
- ---- ------- --------
<S> <C> <C>
Ellen M. Walker(1)(2) c/o Elk Associates Vice President, General Counsel
Funding Corporation and Director
747 Third Avenue
New York, New York
Lee A. Forlenza(1)(2) c/o Elk Associates Vice President and Director
Funding Corporation
747 Third Avenue
New York, New York
Steven Etra 55-25 58th Street Vice President and Director
Maspeth, New York
Margaret Chance(2) c/o Elk Associates Secretary
Funding Corporation
747 Third Avenue
New York, New York
Silvia M. 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
57 West 38th Street
New York, New York
Paul Creditor 747 Third Avenue, Ste. 4C Director
New York, New York
Allen Kaplan c/o Team Systems, Inc. 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
John R. Laird 481 Canoe Hill Road Director
New Canaan, CT
Howard F. Sommer c/o New York Community Director
Investment Co., LLC
120 Broadway
New York, NY
</TABLE>
- ------------------------------------
(1) Ellen M. Walker, Gary C. Granoff and Lee A. Forlenza are officers and
stockholders in the law firm of Granoff, Walker & Forlenza, P.C.
(2) As BDCs under the 1940 Act, a majority of the directors of both Ameritrans
and Elk are required to be individuals who are not "interested persons" of
the company. Gary C. Granoff, Ellen M. Walker, Lee A. Forlenza,
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<PAGE>
Steven Etra, Margaret Chance and Silvia Mullens are each "interested
persons" with respect to both Elk and Ameritrans, as such term is defined
in the 1940 Act.
Gary C. Granoff, age 51, has been President and a director of
Ameritrans since its formation and of Elk 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-six years and is presently an officer
and stockholder 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"), Elk'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, and he has been a director of Enviro-Clean
of America, Inc. since September 1999. 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) from The George
Washington University.
Ellen M. Walker, age 44, has been a Vice President, General Counsel
and a director of Ameritrans since its formation and a Vice President and
General Counsel of Elk since July 1983. She was a director of Elk from July 1983
to August 1994, and has been a director of Elk since 1995. Ms. Walker has
been a practicing attorney for more than seventeen years and she is presently an
officer and stockholder 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 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 42, has been a Vice President and a director of
Ameritrans since its formation, a Vice President of Elk since March 1992, and a
director of Elk since January 1995. Mr. Forlenza has been a practicing attorney
since February 1983 and is presently an officer and stockholder 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 has been 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.
<* 1 moved from here; text not shown>
Steven Etra, age 50, has been a Vice President and a director of Ameritrans
since its inception, a Vice President of Elk since January 1999, and a director
of Elk since November 1995. Mr. Etra 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 and has been a director of Enviro-Clean of America, Inc. since January
1999. Mr. Etra has extensive business experience in investing in emerging
companies.
Margaret Chance, age 45, has been Secretary of Ameritrans since its
inception and Secretary of Elk 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.
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<PAGE>
** 1 Silvia Maria Mullens, age 48, has been a Vice President of
Ameritrans since its inception, a Vice President of Elk since 1996, and the
Loan Administrator of Elk since February 1994. Prior to joining Elk, 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.
Marvin Sabesan, age 70, has been a director of Ameritrans since its
inception and a director of Elk 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.
Paul Creditor, age 63, has been a director of Ameritrans since its
inception and a director of Elk since November 1995. Mr. Creditor 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 49, has been a director of Ameritrans since its
inception and a director of Elk since November 1995. Mr. Kaplan has been since
November 1986, Vice President and Chief Operating Officer of Team Systems, Inc.,
a company which manages and operates more than 200 New York City medallion
taxis. 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 41, has been a director of Ameritrans since its
inception and a director of Elk since October 1997. Mr. Acierno 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 1,300 vehicles servicing the
greater New York Metropolitan 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.
John R. Laird, age 57, has been a director of Ameritrans and of Elk
since January 1999. Mr. Laird has been a private investor since 1994, when he
retired from Shearson Lehman Brothers Inc. ("Shearson"). Mr. Laird served as
President and Chief Executive Officer of the Shearson Lehman Brothers Division
of Shearson and as a member of the Shearson Executive Committee from 1992 to
1994. Mr. Laird was also Chairman and Chief Executive Officer of The Boston
Company, a subsidiary of Shearson, from 1990 until its sale by Shearson in 1993.
From 1977 to 1989 Mr. Laird was employed by American Express in various
capacities including Senior Vice President and Treasurer. He also is and has
been a member of boards of various cultural and philanthropic organizations,
including but not limited to, the Corporate Advisory Committee of the Boston
Museum of Fine Arts and the Board of Overseers for the Boston Symphony
Orchestra. Mr. Laird received a B.S. in finance and an M.B.A. from
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<PAGE>
Syracuse University and attended the Advanced Management Program at Harvard
Business School.
Howard F. Sommer, age 59, has been a director of Ameritrans and of Elk
since January 1999. Mr. Sommer has been President and Chief Executive Officer of
New York Community Investment Company L.L.C., an equity investment fund
providing long-term capital to small businesses throughout the State of New
York, since 1995. Mr. Sommer was President of Fundex Capital Corporation from
1978 to 1995, President of U.S. Capital Corporation from 1973 to 1995, worked in
management consulting from 1971 to 1973 and held various positions at IBM and
Xerox Corporations from 1962 to 1971. Mr. Sommer was also a member of the Board
of Directors for the National Association of Small Business Investment
Companies, serving on its executive committee from 1989 to 1993 and as Chairman
of the Board in 1994. He received a B.S. in electrical engineering from City
College of New York and attended the Graduate School of Business at New York
University.
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.
Compliance with Section 16(a) of the 1934 Act
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires Elk's officers and directors, and persons who own more than 10% of the
Elk Common Stock, to file initial reports of beneficial ownership and changes in
beneficial ownership with the SEC and to furnish Elk with copies of all reports
filed.
Based solely on a review of the forms furnished to Elk, or written
representations from certain reporting persons, Elk believes that all persons
who were subject to Section 16(a) in fiscal 1999 complied with the filing
requirements.
Committees of the Board and Meeting Attendance
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 Elk, review the consolidated financial
statements of Elk and review with the independent public accountants the
results of their audit.
The 1998 Employee Plan Committee consists of Messrs. Sabesan, Kaplan,
Creditor and Acierno. The function of the 1998 Employee Plan Committee is to
administer Elk's 1998 Employee Plan.
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.
The Board of Directors does not have standing nominating or
compensation committees. The Board of Directors held four formal meetings during
fiscal 1999. Mr. Acierno attended 25% of the Board meetings and all committee
meetings, Mr. Kaplan attended 50% of the Board meetings and all committee
meetings, and each other director attended 100% of the meetings of the Board of
Directors and all committees of the Board on which he or she served.
-36-
<PAGE>
Compensation of Directors and Executive Officers
The following table sets forth certain compensation information for the
fiscal year ended June 30, 1999 for Elk's (i) Chief Executive Officer; (ii)
Directors and (iii) up four of Elk's most highly compensated executive officers,
other than the Chief Executive Officer, whose total annual salary and bonus
exceed $100,000 (the "Named Executive Officers").
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 $648,000 for Elk for fiscal
1999. This amount includes officers' salaries, other salaries, and employee
benefits.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
(Shares of Common Stock
Other Annual issuable upon
Name and Principal Position Salary($) Compensation($) exercise of options)
- --------------------------- --------- --------------- --------------------
<S> <C> <C> <C>
Gary C. Granoff, President and Chairman of the 225,712 44,000(1) 30,000(3)
Board of Directors
Ellen M. Walker, Vice President, General 103,917 15,000(2) 20,000(3)
Counsel and Director
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
(Shares of Common
Stock issuable upon
Directors Fees($) exercise of options)
----------------- --------------------
<S> <C> <C>
Lee A. Forlenza, Vice President and 51,750(4) 17,500(3)
Director
Steven Etra, Vice President and 5,000(5) 17,500(3)
Director
Marvin Sabesan, Director 5,000 5,556(6)
Paul Creditor, Director 5,000 5,556(6)
Allen Kaplan, Director 5,000 5,556(6)
John L. Acierno, Director 3,500 5,556(6)
John R. Laird, Director 3,250
Howard F. Sommer, Director 3,250
</TABLE>
- ------------------------------------
(1) Consists of $20,000 of reimbursed expenses and a $24,000 contribution to
Elk's Simplified Employee Pension Plan ("SEP").
(2) Consists of a $15,000 contribution to the SEP.
(3) Consists of shares issuable upon the exercise of options granted under
Elk's 1998 Employee Incentive Stock Option Plan (the "1998 Employee Plan").
(4) Includes $45,000 of salary and a $6,750 contribution to the SEP paid to Mr.
Forlenza in his capacity as an officer of Elk.
(5) Includes $2,500 of salary paid to Mr. Etra in his capacity as an officer of
Elk, and $2,500 of director's fees paid to Mr. Etra prior to his
appointment as an officer of Elk.
(6) Consists of shares issuable upon the exercise of options granted under
Elk's 1998 Non-Employee Director Stock Option Plan (the "1998 Director
Plan").
No cash bonuses were paid to any officers in fiscal 1999. Salary
increases were authorized for Gary C. Granoff ($15,000), Ellen M. Walker
($10,000) and Lee A. Forlenza ($5,000), effective July 1, 1999. The other
officers are receiving, in the aggregate, the same compensation from Elk and/or
Ameritrans as was paid by Elk as of the end of the fiscal year ended June 30,
1999. However, if the Share Exchange is completed, it is anticipated that future
compensation will be allocated between Elk and Ameritrans, based upon factors
determined by their respective Boards of Directors. The Boards of Directors may
increase such compensation, in the form of salary increases for bonuses, for the
fiscal year ending June 30, 2000.
Elk has a policy of paying its directors who are not employees fees of
$750 for each meeting attended. Elk pays each non-affiliated director a minimum
fee of $2,000 per year in addition to the fees paid for each meeting attended.
Eligible non-employee directors are entitled to participate in Elk's 1998
Director Plan. The non-employee directors receive no other compensation for
their services to Elk.
Employee directors of Elk are eligible to participate in Elk's
Simplified Employee Pension Plan and its 1998 Employee Plan. Elk does not
provide any other pension or retirement plan with respect to its directors or
employees.
-38-
<PAGE>
The following table sets forth certain information regarding options
granted during the fiscal year ended June 30, 1999 by Elk to the following Named
Executive Officers:
<TABLE>
<CAPTION>
Option Grants -- Individual Grants
Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of
Underlying Granted to Exercise Stock Price
Options Employees in Price Expiration Appreciation for
Name Granted(#) Fiscal Year ($/share)(1) Date Option Term(2)
- ---- ---------- ------------- ------------ ---------- --------------------
5%($) 10%($)
------- -------
<S> <C> <C> <C> <C> <C> <C>
Gary C. Granoff 30,000 30.0% 9.77 1/11/04 47,400 136,800
Ellen M. Walker 20,000 20.0% 8.88 1/11/09 112,400 284,400
Aggregated Option Exercises in the Last Fiscal Year and Year-End Option Values
Shares Acquired on Unexercised Options Value of In-The-Money
Name Exercise at Year End Options at Year End(1)
- ---- ------------------ ------------------- ---------------------
Gary C. Granoff 0 30,000 $51,000
Ellen M. Walker 0 20,000 $40,400
</TABLE>
- ------------------------------------
(1) All the options are currently exercisable.
Report of the Board of Directors as to Compensation Matters
The objectives of Elk's executive compensation program are to establish
compensation levels designed to enable Elk to attract, retain and reward
executive officers who contribute to the long-term success of Elk so as to
enhance stockholder value. The Board of Directors makes decisions each year
regarding executive compensation, including annual base salaries and bonus
awards, and the 1998 Employee Plan Committee, consisting of non-interested
directors, will make decisions each year regarding stock option grants. Option
grants are key components of the executive compensation program and are intended
to provide executives with an equity interest in Elk so as to link a meaningful
portion of the compensation of Elk's executives with the performance of Elk's
Common Stock. This report is submitted by the full Board of Directors and
addresses the compensation policies for fiscal 1999 as they affected Gary C.
Granoff, in his capacity as the Chief Executive Officer of the Company, as well
as each of Elk's other officers.
-39-
<PAGE>
Compensation Philosophy
Elk's executive compensation philosophy is based on the belief that
competitive compensation is essential to attract, motivate and retain highly
qualified and industrious employees. Elk's policy is to provide total
compensation that is competitive for comparable work and comparable corporate
performance. The compensation program includes both motivational and
retention-related compensation components. Bonuses may be included to encourage
effective performance relative to current plans and objectives. Stock options
are included to help retain productive people and to more closely align their
interests with those of stockholders.
In executing its compensation policy, Elk seeks to relate compensation
with Elk's financial performance and business objectives, reward high levels of
individual performance and tie a significant portion of total executive
compensation to both the annual and long-term performance of Elk. While
compensation survey data are useful guides for comparative purposes, Elk
believes that a successful compensation program also requires the application of
judgment and subjective determinations of individual performance, and to that
extent the Board of Directors applies judgment in reconciling the program's
objectives with the realities of retaining valued employees.
Executive Compensation Program
Annual compensation for Elk's executives consists of two principal
elements: cash compensation, consisting of salaries and bonuses, and stock
options.
Cash Compensation
In setting the annual base salaries for Elk's executives, the Board of
Directors reviews the aggregate salary and bonus compensation for individuals in
comparable positions with other companies, including competitors of Elk, and
adjusts such amounts to reflect individual performance. Many of these companies
are specialty finance companies. Elk also regularly compares the salary levels
of its executive officers with other leading companies.
Increases in annual base salary are based on a review and evaluation of
the performance of the activity for which the executive has responsibility, the
impact of that activity on Elk and the skills and experience required for the
job, coupled with a comparison of these elements with similar elements for other
executives both inside and outside Elk.
Cash bonuses are tied directly to Elk's financial performance and the
contribution of the executive to such performance.
Equity Ownership
Executive officer compensation also includes long-term incentives
afforded by options to purchase shares of Common Stock. The purposes of Elk's
stock ownership program are to (i) highlight and reinforce the mutuality of
long-term interests between employees and the stockholders and (ii) to assist in
the attraction and retention of critically important key executives, managers
and individual contributors who are essential to Elk's growth and development.
Elk's stock option plans were adopted in 1998. The purpose of these
plans is to orient Elk's executive officers and non-employee directors to longer
term success. The options granted to date under the 1998 Employee Plan were
granted to persons who had been associated with Elk for at least five (5) years
and, consequently, were immediately vested in full. Options granted in the
future under the 1998 Employee Plan (or the Ameritrans 1999 Employee Plan, if
the Share Exchange is completed) may be immediately vesting or may vest over a
period of years after the date of grant. If employees leave Elk before the end
of these vesting periods, they would forfeit the unvested portions of these
awards.
<PAGE>
The number of shares of Elk Common Stock subject to option grants under
the 1998 Employee Plan is generally intended to reflect the significance of the
executive's current and anticipated contributions to Elk. The exercise price of
options granted by Elk is required under the 1940 Act to equal not less than
100% of the fair market value per share on the date of grant (110% for options
granted to any holder of 10% or more of the outstanding Elk Common Stock). Prior
to determining the 1999 option grants to Elk's executives, the Board of
Directors considered the equity compensation policies of competitors and other
companies, both privately held and publicly traded, with comparable
capitalizations. The value realizable from exercisable options is dependent upon
the extent to which Elk's performance is reflected in the price of the Elk
Common Stock at any particular point in time. However, the decision as to
whether such value will be realized through the exercise of an option in any
particular year is primarily determined by each individual within the limits of
the vesting schedule and not by the Board of Directors.
The grant of options under the 1998 Director Plan and the Ameritrans
1999 Director Plan is automatic.
Simplified Employee Pension Plan
In 1996, Elk adopted a simplified employee pension plan covering all
eligible employees of Elk. Contributions to the plan are at the discretion of
the Board of Directors. During the fiscal year ended June 30, 1999,
contributions amounted to $64,137.
Gary C. Granoff's Fiscal 1999 Compensation
The Board of Directors has set Gary C. Granoff's total annual
compensation at a level it believes to be competitive with the chief executive
officers of similarly capitalized specialty finance companies. Gary C. Granoff,
in his capacity as Chief Executive Officer, is eligible to participate in the
same executive compensation program available to Elk's other senior executives.
Interlocks and Insider Participation
Elk does not currently have a compensation committee, and the Board of
Directors as a whole considers executive compensation matters. Each of Messrs.
Granoff, Forlenza and Etra and Ms. Walker, all of whom are executive officers
and directors of Elk, is an "interested person" as such term is defined in
Section 2(a)(19) of the 1940 Act.
-40-
<PAGE>
Stock Option Plans
The descriptions of the stock option plans set forth below are
qualified in their entirety by reference to the text of the plans.
1998 Employee Plan.
Elk's Board of Directors, including a majority of the non-interested
directors, has adopted, subject to stockholder 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
stockholder value. The 1998 Employee Plan was approved by the stockholders at
the Elk Annual Meeting of Stockholders held on 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,
options to purchase an aggregate of 100,000 shares of Common Stock had been
granted to various officers. Options for 70,000 shares are exercisable for 10
years from the date of grant at a price of $8.88 per share (the fair market
value of the Common Stock on the date of grant), and options for 30,000 shares
are exercisable for five (5) years from the date of grant at a price of $9.77
per share. Accordingly, 25,000 shares of Common Stock were available for future
awards under the 1998 Employee Plan.
-41-
<PAGE>
An employee stock option plan (the "Ameritrans Employee Plan") that is
substantially identical to the 1998 Employee Plan has been adopted by Ameritrans
and received stockholder approval. If the Share Exchange is completed, the
Ameritrans Employee Plan will be the successor to the 1998 Employee Plan, and
options issued under the 1998 Employee Plan will be deemed to have been issued
by Ameritrans and will be issuable to purchase Ameritrans common stock.
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 stockholders 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 stockholders). 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 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.
Non-Employee Director Plan.
Elk's Board of Directors adopted, subject to stockholder approval, a
stock option plan for non-employee directors (the "1998 Director Plan") in order
to link the personal interests of such non-employee directors to the long-term
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financial success of Elk and the growth of stockholder value. The 1998 Director
Plan was approved by the stockholders at the Elk Annual Meeting of Stockholders
held on September 28, 1998. The 1998 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. A non-employee director stock option plan (the
"Ameritrans Director Plan;" together with the 1998 Director Plan, the "Director
Plans") that is substantially identical to the 1998 Director Plan has been
adopted by Ameritrans and received stockholder approval. If the Share Exchange
is completed, the Ameritrans Director Plan will be the successor to the Director
Plan, and options issued under the 1998 Director Plan will be deemed to have
been issued by Ameritrans and will be issuable to purchase Ameritrans common
stock. Elk and Ameritrans submitted an application for, and on August 31, 1999
(the "Approval Date"), received an exemptive order relating to the Director
Plans. In accordance with the provisions of the 1940 Act, the automatic grant of
options under the Director Plans could not occur until after the date of the
Approval Date. Accordingly, on August 31, 1999, options to purchase 5,556 shares
of Elk Common Stock at an exercise price of $9.00 per share were granted to each
of Messrs. Sabesan, Creditor, Kaplan, and Acierno.
The total number of shares for which options may be granted from time
to time under the 1998 Director Plan is 75,000 shares.
The 1998 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 1998 Director Plan will be administered by a committee of directors
who are not eligible to participate in the 1998 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 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.
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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 1998 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 1998 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 stockholders 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.
Certain Transactions
Elk pays legal fees, on a fixed or hourly basis, for loan closing
services relating to loans other than New York taxi and radio car loan closings
to Granoff, Walker & Forlenza, P.C. ("Granoff, Walker") whose stockholders are
officers and directors of Elk and Ameritrans. Such services related to New York
taxi and radio car loans are provided by the officers and employees of Elk. Elk
paid Granoff, Walker fees of $62,987 during the fiscal year ended June 30, 1999.
Elk generally charges its borrowers loan origination fees to generate income to
offset the legal fees paid by Elk for loan closing services.
Elk also rents office space from Granoff, Walker and share certain
office expenses with that firm. For the fiscal year ended June 30, 1999, Elk
paid $39,600 in rent and $85,138 in shared overhead expense. For the year ending
June 30, 2000, Elk has agreed to pay $39,600 in rent and a minimum of $59,400 in
expenses and $22,000 for other shared expenses, which amount is subject to
adjustment if actual expenses vary.
During the fiscal year ended June 30, 1998, Granoff, Walker
exercised an option in its lease, at Elk's request, 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"). Until Elk and/or Ameritrans
require the Additional Space, the law firm sublets the Additional Space to
outside tenants under short-term arrangements. 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
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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 the operations of Elk and Ameritrans expand, they could
occupy all or part of the Additional Space without the inconvenience and
expense of having to relocate their offices .
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 stockholders. 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
The authorized capital stock of Elk consists of 3,000,000 shares of
Common Stock, par value $.01 per share, of which 1,745,600 shares are issued and
outstanding. As of August 5, 1999, there were approximately 274 holders of
record of Elk Common Stock. Elk's Certificate of Incorporation was amended on
May 2, 1999 to eliminate its authorized preferred stock.
The Elk Common Stock is currently 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 AMTC, and
the listing of the Elk 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 98% of its
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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.
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 tables show the closing high and low bid prices per share
of Common Stock as reported by the National Quotation Bureau, Inc. or directly
by dealers maintaining a market in the Common Stock (through June 22, 1998) and
the high and low sale prices per share of Common Stock as reported by Nasdaq
(from June 23, 1998), for the fiscal years ended June 30, 1998 and 1999 and for
the current fiscal year to date.
Bid
Elk High Low
- --- ---- ---
Fiscal 1998
1st Quarter...................................... 6.25 5.125
2nd Quarter...................................... 6.625 6.25
3rd Quarter...................................... 7.125 6.625
4th Quarter (to June 22, 1998)................... 9.75 7.125
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Elk Sale
----------------------
High Low
Fiscal 1998
4th Quarter (from June 23, 1998)............. $9.50 $9.50
Fiscal 1999
1st Quarter.................................. 11.25 7.75
2nd Quarter.................................. 11.00 9.125
3rd Quarter.................................. 10.625 8.875
4th Quarter ................................. 14.00 8.6815
Fiscal 2000
1st Quarter.................................. 14.125 8.6875
2nd Quarter (to October 12, 1999)............ -- --
There were no sales of Elk Common Stock in the period from October 1
through 12, 1999. On ______________ ____, 1999, the high and low bid for a share
of Elk Common Stock were __________, and the high and low ask were ______ and
______, 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.
(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.
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(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 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.
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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. 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.
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:
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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 be Qualifying
Assets. See "INFORMATION CONCERNING ELK -- The Investment Company Act of 1940;
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.
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.
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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 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
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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.
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."
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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 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.
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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 stockholders
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.
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.
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(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 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
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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 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 stockholders' 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
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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
stockholder 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 stockholder"
for a period of five (5) years following the date such person became an
interested stockholder, unless the Board of Directors approved either the
interested stockholder or the business combination in question prior to the date
such person became an interested stockholder. In addition, under Section 912, a
domestic corporation covered by Section 912 generally may not engage in a
business combination with an interested stockholder at any time, unless (i) the
Board of Directors approves either the interested stockholder or the business
combination in question prior to the date such person became an interested
stockholder, (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 stockholder, 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 the
domestic corporation. For purposes of Section 912, an "interested stockholder"
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 ; Election to Become a BDC."
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Ameritrans has also elected to become a BDC. See "INFORMATION
CONCERNING ELK -- The Investment Company Act of 1940; 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 appraisal rights
by holders of Elk Common Stock). See "INFORMATION CONCERNING ELK -- Security
Ownership of Principal Stockholders and Management."
Two stock option plans, the Ameritrans Employee Plan and the Ameritrans
Director Plan, which are substantially identical to the Elk 1998 Employee Plan
and the Elk Director Plan, have been adopted by Ameritrans and received
stockholder approval. If the Share Exchange is completed, the Ameritrans plans
will be the successors to the Elk plans, and options issued under the Elk plans
will be deemed to have been issued by Ameritrans and will be issuable to
purchase Ameritrans common stock. See " INFORMATION CONCERNING ELK - Stock
Option Plans."
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, $.01 par value. 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.
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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 AMTC, and the listing of the Elk 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 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
stockholders.
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.
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(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."
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.
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The funds necessary to finance the initial organization and
capitalization 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 (less any amounts used
to purchase the shares of Elk stockholders who dissent from the Share Exchange
Plan) 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 Annual Meeting. Within 10 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
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.
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EXPERTS
The financial statements of Elk for the years ended June 30, 1999, 1998
and 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 11, 1999 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 Annual Meeting, other than those specified in the Notice of
Annual Meeting of Stockholders dated ______________________ _______, 1999 and
this Proxy Statement/Prospectus. However, if any other matters are properly
presented to the Annual 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 2000 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.
The Board of Directors invites stockholders to attend the Annual
Meeting. Whether or not you plan to attend, you are urged to complete, date,
sign and return the enclosed proxy in the accompanying envelope. Prompt response
will greatly facilitate arrangements for the meeting, and your cooperation will
be appreciated. Stockholders who attend the meeting may vote their stock
personally even though they have sent in their proxies.
ADDITIONAL INFORMATION
Ameritrans has filed with the SEC, 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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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 2nd day of August, 1999 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 one (1) share
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.
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.
<PAGE>
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. No shares of preferred stock are currently
authorized or 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 , 1999,
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 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.
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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 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 may be changed prior to
the Effective Date by the issuance of additional shares of Elk Common 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
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.
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<PAGE>
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 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, and 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, and (ii) Elk's consolidated balance sheet as
of March 31, 1998 and 1999, and the related statement of income, stockholders'
equity, cash flows and operations for
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<PAGE>
the period then ended, and statement of changes in net assets for the period
then ended. 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 March 31, 1999, except as to assets and property disposed
of since March 31, 1999, 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 March 31, 1999, 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.
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.
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<PAGE>
(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 three percent
(3%) 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:
(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.
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<PAGE>
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
Attention: President
Elk Associates Funding Corporation
747 Third Avenue, 4th Floor
New York, New York 10017
Attention: President
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
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Selected Provisions of Delaware Corporation Law EXHIBIT B
Section 623. Procedure to Enforce Shareholders' Right to Receive Payment for
Shares.
(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation before the 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 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
<PAGE>
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 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
<PAGE>
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.
(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.
<PAGE>
(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.
(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
<PAGE>
corporation shall exercise the option by written notice given to him
within twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice
to be given by a corporation to a shareholder under this section shall be given
in the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations).
Section 910. Right of Shareholder to Receive Payment for Shares Upon Merger or
Consolidation, or Sale, Lease, Exchange or Other Disposition of Assets, or 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 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
<PAGE>
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.
<PAGE>
PROXY PROXY
ELK ASSOCIATES FUNDING CORPORATION
Proxy for Annual Meeting of
Stockholders on __________ , 1999
The undersigned, having received notice of a Annual Meeting of Stockholders 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 Annual Meeting of Stockholders of Elk to be held at
the offices of Stursberg & Veith, 405 Lexington Avenue, Suite 4949, New York,
New York on __________, 1999, at 10:00 a.m. (New York Time) and any adjournment
thereof.
1. To adopt an Agreement and Plan of Share Exchange dated August 2, 1999 between
Elk and Ameritrans Corporation, as described in the accompanying Proxy
Statement/ Prospectus.
FOR___ AGAINST___ ABSTAIN___
2. To Elect Directors
FOR electing all nominees listed (as recommended in the proxy
statement) except as marked below _______
Gary C. Granoff, Ellen M. Walker, Lee A. Forlenza, Marvin Sabesan,
Steven Etra, Paul Creditor, Allen Kaplan, John L. Acierno, John R.
Laird, and Howard F. Sommer.
WITHHOLD AUTHORITY to vote for all nominees listed
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that person's name in the space provided.)
-----------------------------------------------------------------
3. To ratify and approve the appointment of Marcum & Kliegman, LLP as Elk's
independent public accountants for the fiscal year ended June 30, 1999.
FOR___ AGAINST___ ABSTAIN___
4. 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 specification is made, the Proxy will be voted for the
nominees named in the Proxy Statement to represent the holders of Common Stock
and in favor of Proposals 1 and 3. The persons named as proxies have
discretionary authority, which they intend to exercise in favor of the proposals
referred to and according to their best judgment as to other matters which
properly come before the meeting.
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
____________________, 1999
This Statement of Additional Information is not a prospectus and should be read
in conjunction with a Proxy Statement/Prospectus, also dated ______________,
1999, 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 the Annual
Meeting of Stockholders on __________, 1999, at which Elk stockholders will be
asked (a) 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, (b) to
elect 10 directors to serve until the next Annual Meeting and until their
successors are chosen and qualified, (c) to ratify and approve the selection by
the Board of Directors of Marcum & Kliegman, LLP as Elk's independent public
accountants for the fiscal year ended June 30, 1999, and (d) to consider and act
upon such other matters as may properly come before the meeting or any
adjournment thereof, 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.......................................3
Financial Statements.......................................................F-1
<PAGE>
Selected Financial Data
The table below contains certain summary historical financial
information of Elk. You should read these tables in conjunction with the
consolidated financial statements of Elk and the related notes for the years
ended June 30, 1999, 1998 and 1997 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Statement of Operations Fiscal Year Ended
Data June 30,
- -------------------------- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
==== ==== ==== ==== ====
<S> <C> <C> <C> <C> <C>
Investment Income $2,629,901 $3,084,412 $4,023,795 $4,606,456 $5,583,894
---------- ---------- ---------- ---------- ----------
Interest Expense 1,002,959 1,105,993 1,582,700 1,840,731 2,440,051
Other Expenses 960,474 1,108,505 1,408,034 1,852,262 1,903,182
---------- ---------- ---------- ---------- ----------
Total Expenses 1,963,433 2,214,498 2,990,734 3,692,993 4,343,233
---------- ---------- ---------- ---------- ----------
Investment Income Before
Credit (provision) for Loan
Gains (losses) and Gains
(Losses) on Assets Acquired
and Income Taxes 666,468 869,914 1,033,061 913,463 1,240,661
---------- ---------- ---------- ---------- ----------
Credit (provision) for Loan
Gains (losses) and Gains
(Losses) on Assets Acquired (13,515) 44,292 (8,923) (14,649) (11,272)
Other Income 24,885 38,798 7,200
Benefit of (Provision for)
Income Taxes(1) -- (5,945) (28,676) (3,271) 769
---------- ---------- ---------- ---------- ----------
Net Income 652,953 908,261 1,020,347 934,341 1,237,358
Other Comprehensive Income -- -- 58,241 140,548 62,964
---------- ---------- ---------- ---------- ----------
Total Comprehensive Income $652,953 $908,261 $1,078,588 $1,074,889 $1,300,322
========== ========== ========== ========== ==========
Net Income Per Common
Share (Basic and Diluted) $ .66 $ .73 $ .79 $ .62 $ .71
========== ========== ========== ========== ==========
Common Stock Dividends
Paid $ -- $ 937,028 $ 946,655 $ 986,724 $1,256,832
========== ========== ========== ========== ==========
Weighted Average Shares of
Common Stock Outstanding
Basic 988,953 1,247,120 1,283,600 1,518,969 1,745,600
Diluted 1,750,684
========== ========== ========== ========== ==========
</TABLE>
-2-
<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 Statement of Additional
Information.
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 For the Years ended June 30, 1999 and 1998
Total Investment Income
Elk's investment income increased $977,438 to $5,583,894 for the year
ended June 30, 1999, when compared with the year ended June 30, 1998. The
increase was due to an increase in interest earned on the loan portfolio
($1,088,940) off-set by a decrease in other fees and income ($111,502). This
reflects Elk's decision to maximize stockholders' return by maximizing the use
of bank financing.
Operating Expenses
Interest expenses increased $599,320 to $2,440,051 when compared with
the prior year due to Elk's strategy to maximize bank financing which rose to
$31,000,000 as of June 30, 1999, as compared to $22,085,000 at June 30, 1998.
Other operating expenses increased to $1,914,454 for the year ended June 30,
1999, as compared with $1,866,911 in the prior year. The increase in operating
expenses was due increases in various administrative expenses and was partially
offset by a decrease in bad debt expense. Bad debt expense decreased $81,283 to
$146,465 during the year ended June 30, 1999, as compared with the year ended
June 30, 1998.
Net Income
Net income for the year ended June 30, 1999 increased $303,017 to
$1,237,358 when compared with the year ended June 30, 1998. The increase
reflects the benefit of Elk's decision to maximize the use of leverage on bank
financing.
-3-
<PAGE>
Results of Operations For the Years ended June 30, 1998 and 1997.
Total Investment Income.
Elk's investment income for the fiscal year ended June 30, 1998
increased to $4,606,456 from $4,023,795, or 14.5%, when compared with the year
ended June 30, 1997. This increase was mainly due to an increase in its loan
portfolio. The portfolio increased from $33,249,206, as of June 30, 1997 to
$41,590,000 as of June 30, 1998, as part of our strategy to maximize stockholder
rate of return primarily through the utilization of bank financing.
Operating Expenses.
Interest expense for the year ended June 30, 1998 increased to
$1,840,731 as compared to $1,582,700 for the similar period ended June 30, 1997.
This increase was mainly due to increased bank borrowings of $22,085,000 as of
June 30, 1998, compared to $16,820,000 as of June 30, 1997.
Other operating expenses increased to $1,866,911 as compared to
$1,416,957 for the year ended June 30, 1997. This increase was mainly due to a
$227,748 increase in bad debt expense, in addition to various increases in the
administrative fees.
Net Income.
Net income for the year ended June 30, 1998, decreased $86,006, as
compared to the year ended June 30, 1997. This decrease was mainly caused by an
increase in the bad debt expense of $227,748.
-4-
<PAGE>
Balance Sheet and Reserves
Total assets increased by $9,111,063 as of June 30, 1999 as compared to
June 30, 1998. This increase was due to management's decision to expand its
portfolio in the Chicago taxi medallion market plus increases in the diversified
loan portfolio. This expansion was financed by an increase in bank debt of
$8,915,000 during the 1999 fiscal year.
Liquidity and Capital Resources
Prior to this Offering, Elk funded its operations through private
placements of its securities, bank financing, and the issuance to the SBA of its
subordinated debentures.
In 1994, Elk agreed to repurchase 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% from the original issue price of $10
per share. As a condition of 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 ending November 10, 1999. 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, 1999 was $256,916.
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 from the SBA. In connection with the purchase, all dividends in
arrears on the preferred stock were extinguished.
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
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.
At June 30, 1999, 78% of Elk's indebtedness was represented by
indebtedness to its banks and 22% by the debentures issued to the SBA with fixed
rates of interest ranging from 6.12 to 8.20%. Elk currently may borrow up to
$40,000,000 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 is determined by the Board of Directors to be in the best
interests of the company. No assurance can be given that, if applied for, 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.
Like Elk, Ameritrans will distribute at least 90% of its investment
company taxable income and, accordingly, we will continue to rely upon external
sources of funds to finance growth. In order to provide the funds necessary for
our expansion strategy, we expect to raise additional capital and to incur, from
time to time, additional bank indebtedness and (if deemed
-5-
<PAGE>
necessary by management) to obtain SBA loans. There can be no assurances that
such additional financing will be available on acceptable terms.
Year 2000 Compliance
We have been taking steps to address and prevent problems in connection
with the year 2000 ("Year 2000"). Such problems are expected to occur due to the
inability of computer systems to properly recognize and process date-sensitive
information relating to the Year 2000 and beyond. Year 2000 issues may affect
our information technology systems ("IT") and non-information technology
systems ("Non-IT"). The following are the IT systems that we use:
o We use a computer program to track our receivable loans ("Loan Track").
To address Year 2000, in February 1998 we engaged the consultant who
originally developed Loan Track for us, to test, upgrade and certify
Loan Track as Year 2000-compliant. The consultant completed all of such
tasks, and the Year 2000-compliant Loan Track program is now in use in
our regular operations. We also use the standard Peachtree(TM)
accounting system for general in-house accounting functions. The
version of Peachtree we currently use has been upgraded to be Year
2000-compliant.
o We also use other industry-wide programs such as Windows 95 and Word
Perfect. It is expected that either the current versions are Year
2000-compliant or that Year 2000-compliant upgrade versions will be
obtained in the near future. In addition, during the past 12 months and
at present, we have been replacing or upgrading our computer hardware
with equipment that will be Year 2000-compliant.
Non-IT systems have been defined as embedded technology, such as
micro-controllers, that may be included in elevators and other equipment and
machinery. Most of our Non-IT systems consist of office equipment. We have
inventoried our Non-IT systems, and we are in the process of contacting our
office equipment and telecommunications suppliers and landlord to determine the
status of their Year 2000 readiness. We do not believe that we face material
Year 2000 issues with respect to our Non-IT systems.
Costs in connection with Year 2000 compliance have been (i) to review
and upgrade existing IT systems; (ii) to analyze Year 2000 readiness of our
banks and customers and (iii) to analyze Non-IT Year 2000 compliance. To date,
such costs have aggregated approximately $10,000 and, for the most part, have
been for IT review and upgrades. Such costs are being treated as expenses.
During June and July 1999 we replaced certain hardware and purchased additional
software and communications systems at a cost of approximately $55,000, and
these costs are being capitalized and depreciated over a five year period. We do
not believe that other costs associated with Year 2000 compliance will be
material or that they will have a material effect on our financial condition.
We are dependent on banks for financing and for normal banking
operations. In surveying Year 2000 readiness, we have received oral, and we are
in the process of obtaining written, assurances from our banks that they are
taking the actions necessary to be Year 2000-compliant so that neither the
banks' nor their customers' business will be interrupted due to Year 2000
difficulties.
Our portfolio companies are taxi and taxi-medallion owners and other
small businesses, which, to the best of our knowledge, use computer equipment
and software only to a limited extent in the operation of their businesses. We
are in the process of surveying certain of our
-6-
<PAGE>
vendors to assess their potential Year 2000 exposure and to confirm that they
are making arrangements for their own Year 2000 compliance.
To date we have attempted to comply fully with Year 2000 compliance
requirements, and we are in the process of determining the compliance of our
banks and customers. Our failure, or the failure of third parties, to adequately
address Year 2000 issues could have a material adverse effect on our financial
condition or results of operations. However, given the nature of our portfolio
companies and the industries in which they operate, we anticipate that few of
our customers would actually suffer material adverse effects from Year 2000. We
believe that our reasonably likely maximum risk is (i) a material increase in
our credit losses due to Year 2000 problems affecting our portfolio companies
and our banks and (ii) disruption in financial markets, causing us liquidity
stress.
At this point, our management is unable to quantify the amount of
potential losses and disruptions due to Year 2000 issues, but is in the process
of developing a contingency plan.
-7-
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
INDEX TO FINANCIAL STATEMENTS
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................................... F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets at June 30, 1999 and June 30, 1998 .......................................... F-2-3
Statements of Income for the years ended June 30, 1999, 1998 and 1997 ...................... F-4
Statements of Comprehensive Income for the years ended June 30, 1999, 1998 and 1997 ........ F-5
Statements of Stockholders' Equity for the years ended June 30, 1999, 1998 and 1997 ........ F-6-7
Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997 .................. F-8-9
Schedule of Loans as of June 30, 1999 ...................................................... F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..................................................... F-11-25
</TABLE>
<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, 1999 and 1998, and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows for the years ended June 30, 1999, 1998 and 1997 and the schedule
of loans as of June 30, 1999. 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, 1999 and 1998, and
the results of their operations and their cash flows for the years ended June
30, 1999, 1998 and 1997 in conformity with generally accepted accounting
principles.
As explained in Note 1, the consolidated financial statements include loans
valued at $50,723,932 and $41,295,000 as of June 30, 1999 and 1998,
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.
MARCUM & KLIEGMAN LLP
New York, NY
August 11, 1999, except for Note 15(b) as to which is dated August 31, 1999
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
------
1999 1998
----------------------------------
<S> <C> <C>
Loans receivable $51,103,932 $41,590,000
Less: allowance for loan losses (380,000) (295,000)
------------ ------------
50,723,932 41,295,000
Cash and cash equivalents 542,290 1,755,429
Accrued interest receivable 714,626 516,110
Assets acquired in satisfaction of loans 612,491 400,470
Receivables from debtors on sales of assets acquired in
satisfaction of loans 409,939 451,222
Equity securities 909,386 629,179
Furniture, fixtures and leasehold improvements, net 105,440 102,247
Prepaid expenses and other assets 492,697 250,081
----------- -----------
TOTAL ASSETS $54,510,801 $45,399,738
=========== ===========
</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 30,1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1999 1998
---------------------------------
<S> <C> <C>
LIABILITIES
Debentures payable to SBA $ 8,880,000 $ 8,880,000
Notes payable, banks 31,000,000 22,085,000
Accrued expenses and other liabilities 223,458 204,099
Accrued interest payable 354,918 221,704
Dividends payable 314,208 314,208
----------- -----------
TOTAL LIABILITIES 40,772,584 31,705,011
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value: 3,000,000 shares
authorized; 1,745,600 shares issued and outstanding 17,456 17,456
Additional paid-in-capital 13,197,277 12,485,825
Restricted capital 256,916 968,368
Retained earnings 4,815 24,289
Accumulated other comprehensive income 261,753 198,789
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,738,217 13,694,727
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $54,510,801 $45,399,738
=========== ===========
</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, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest on loans receivable $5,197,667 $4,108,727 $3,660,825
Fees and other income 386,227 497,729 362,970
---------- ---------- ----------
TOTAL INVESTMENT INCOME 5,583,894 4,606,456 4,023,795
---------- ---------- ----------
OPERATING EXPENSES
Interest 2,440,051 1,840,731 1,582,700
Salaries and employee benefits 533,352 495,889 469,060
Legal fees 303,995 336,700 307,127
Miscellaneous administrative expenses 886,995 739,875 604,347
Loss on assets acquired in satisfaction of Loans,
net 11,272 14,649 8,923
Directors' fee 32,375 52,050 27,500
Bad debt expense 146,465 227,748 --
---------- ---------- ----------
TOTAL OPERATING EXPENSES 4,354,505 3,707,642 2,999,657
---------- ---------- ----------
OPERATING INCOME 1,229,389 898,814 1,024,138
---------- ---------- ----------
OTHER INCOME (EXPENSES)
(Write-off) gain of non-cash receivable -- (25,000) 25,000
Net gain (loss) from rental activities 7,200 6,125 (11,233)
Recoveries -- 57,673 11,118
---------- ---------- ----------
TOTAL OTHER INCOME 7,200 38,798 24,885
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,236,589 937,612 1,049,023
INCOME TAX (BENEFIT) EXPENSE (769) 3,271 28,676
---------- ---------- ----------
NET INCOME $1,237,358 $ 934,341 $1,020,347
========== =========== ==========
Weighted Average Shares Outstanding
- Basic 1,745,600 1,518,969 1,283,600
========== =========== ==========
- Diluted 1,750,684 1,518,969 1,283,600
========== =========== ==========
Net Income Per Common Share
- Basic $0.71 $0.62 $0.79
===== ===== =====
- Diluted $0.71 $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 COMPREHENSIVE INCOME
For the Years Ended June 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
NET INCOME $1,237,358 $ 934,341 $1,020,347
OTHER COMPREHENSIVE INCOME
Unrealized gain on equity securities 62,964 140,548 58,241
---------- ---------- ----------
TOTAL COMPREHENSIVE INCOME $1,300,322 $1,074,889 $1,078,588
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares of Common Additional
Common Stock Stock $0.01 Paid-In Restricted
Outstanding Par Value Capital Capital
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE - July 1, 1996 1,283,600 $12,836 $ 8,179,545 $2,391,268
Transfer of restricted capital -- -- 711,448 (711,448)
Dividends paid -- -- -- --
Net income -- -- -- --
Unrealized gain on equity
securities -- -- -- --
--------- ------- ----------- ----------
BALANCE - June 30, 1997 1,283,600 12,836 8,890,993 1,679,820
Transfer of restricted capital -- -- 711,452 (711,452)
Dividends paid -- -- -- --
Net income -- -- -- --
Unrealized gain on equity
securities -- -- -- --
Proceeds from sale of
common stock, net of direct
costs 462,000 4,620 2,883,380 --
--------- ------- ----------- ----------
BALANCE - June 30, 1998 1,745,600 17,456 12,485,825 968,368
Transfer of restricted capital -- -- 711,452 (711,452)
Dividends declared -- -- -- --
Net income -- -- -- --
Unrealized gain on equity
securities -- -- -- --
--------- ------- ----------- ----------
BALANCE - June 30, 1999 1,745,600 $17,456 $13,197,277 $ 256,916
========= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
[RESTUBED TABLE FOR ABOVE]
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Restricted Other
Retained Retained Comprehensive
Earnings Earnings Income Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE - July 1, 1996 $ 317,186 $ -- $ -- $10,900,835
Transfer of restricted capital -- -- -- --
Dividends paid (946,655) -- -- (946,655)
Net income 995,347 25,000 -- 1,020,347
Unrealized gain on equity
securities -- -- 58,241 58,241
----------- -------- -------- -----------
BALANCE - June 30, 1997 365,878 25,000 58,241 11,032,768
Transfer of restricted capital -- -- -- --
Dividends paid (1,300,930) -- -- (1,300,930)
Net income 959,341 (25,000) -- 934,341
Unrealized gain on equity
securities -- -- 140,548 140,548
Proceeds from sale of
common stock, net of direct
costs -- -- -- 2,888,000
----------- -------- -------- -----------
BALANCE - June 30, 1998 24,289 -- 198,789 13,694,727
Transfer of restricted capital -- -- -- --
Dividends declared (1,256,832) -- -- (1,256,832)
Net income 1,237,358 -- -- 1,237,358
Unrealized gain on equity
securities -- -- 62,964 62,964
----------- -------- -------- -----------
BALANCE - June 30, 1999 $ 4,815 $ -- $261,753 $13,738,217
=========== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,237,358 $ 934,341 $ 1,020,347
------------ ------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 63,649 49,890 53,546
Write-off (gain) on non-cash receivable -- 25,000 (25,000)
Increase in accrued interest receivable (198,516) (107,945) (114,078)
Increase in prepaid expenses and other assets (267,071) (30,616) (27,318)
Decrease (increase) in accrued expenses and other
liabilities 19,358 92,096 (28,893)
Increase (decrease) in accrued interest payable 133,214 40,456 (15,204)
------------ ----------- -----------
TOTAL ADJUSTMENTS (249,366) 68,881 (156,947)
------------ ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 987,992 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 (9,599,670) (8,177,183) (9,062,902)
Payments for building improvements on assets
acquired in satisfaction of loans -- -- (13,974)
Purchases of equity securities (217,242) (52,450) (243,040)
Acquisition of furniture, fixtures and leasehold
improvements (42,387) (37,468) (18,530)
------------ ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (9,859,299) (8,267,101) (9,338,446)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable, banks, net 8,915,000 5,265,000 10,195,000
Payments for loan costs -- -- (15,050)
Proceeds from debentures payable to SBA -- -- 430,000
Repayment of debentures payable to SBA -- -- (408,000)
Net proceeds from sale of common stock -- 2,888,000 --
Dividends paid (1,256,832) (986,724) (946,655)
------------ ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 7,658,168 $ 7,166,276 $ 9,255,295
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For the Years Ended June 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $(1,213,139) $ (97,603) $ 780,249
CASH AND CASH EQUIVALENTS - Beginning 1,755,429 1,853,032 1,072,783
----------- ---------- ==========
CASH AND CASH EQUIVALENTS - Ending $ 542,290 $1,755,429 $1,853,032
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest $ 2,306,837 $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 $ 381,500 $ 26,090 $ 140,914
Exchange of preferred stock for a note resulting
in a noncash gain of $25,000 $ -- $ -- $ 125,000
Unrealized gain on equity securities $ 62,694 $ 140,548 $ 58,241
Transfer of restricted capital $ 711,452 $ 711,452 $ 711,448
Declaration of cash dividend $ 314,208 $ 314,208 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
SCHEDULE OF LOANS
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity
Number Interest Dates Balance
Type of Loan of Loans Rates (In Months) Outstanding
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York City:
Taxi medallion 123 8.25 - 12% 1 - 240 $19,818,871
Radio car service 34 1 - 15% 1 - 59 285,562
Chicago:
Taxi medallion 417 11 - 15% 15 - 84 15,825,539
Boston:
Taxi medallion 25 9.25 - 14% 21 - 60 2,717,995
Miami:
Taxi medallion 38 12 - 18% 100 - 120 1,943,335
Other loans:
Restaurant 2 10 - 12% 1 - 66 243,629
Hairdresser 2 12% 7 97,836
Car wash 1 11.5% 36 214,234
Ambulance service 1 10.5% 6 4,907
Bagel store 1 14% 37 22,123
Dry cleaners 25 9 - 18% 31 - 120 3,657,590
Laundromats 19 10 - 17% 12 - 120 3,951,498
Laundry equipment 1 9.5% 51 170,333
Financial services 1 14% 3 4,980
Black car service (real property) 1 12% 23 196,132
Auto sales 3 10.5 - 13% 1 - 43 477,839
Registered investment advisor 1 14% 3 169,012
Embroidery manufacturer 1 12% 53 84,814
Theater 1 16% 53 166,492
Retirement home 1 15% 78 300,000
Garden center 1 14% 90 431,304
Auto center 1 12% 78 122,536
Construction 1 16% 80 197,371
-----------
Total Loans Receivable 51,103,932
Less: Allowance for loan losses (380,000)
-----------
Loans Receivable, net $50,723,932
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<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 to make business loans.
The Company makes loans to taxi owners, to finance the acquisition and
operation of the medallion taxi businesses and related assets, and to
other small businesses in the New York City, Chicago, Miami, and Boston
markets.
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, 1999 and 1998, approximately 79% and 85% 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-11
<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, 1999 and 1998
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 stockholders. 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 stockholders as well as meet
other requirements under the Code. In order to preserve this election
for fiscal 1999, 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 SFAS No. 128, "Earnings per Share". 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. At June 30,
1999, the Company had 100,000 options outstanding, of which 30,000
options are considered antidilutive and the remaining 70,000 options
are dilutive and resulted in common stock equivalents of 5,084 shares.
F-12
<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, 1999 and 1998, loan costs amounted to
$129,331 and $153,786, respectively, net of accumulated amortization of
$114,650 and $90,195, respectively. Amortization expense for the years
ended June 30, 1999, 1998 and 1997 was $24,455, $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.
Basis of 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.
Comprehensive Income
During the year ended June 30, 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS 130 requires the reporting of
comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net
income.
Stock-Based Compensation
In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation" was issued. SFAS 123 prescribes accounting and reporting
standards for all stock-based compensation plans, including employee
stock options, restricted stock, employee stock purchase plans and
stock appreciation rights. SFAS 123 requires compensation expense
F-13
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
Stock-Based Compensation, continued
to be recorded (i) using the new fair value method or (ii) using the
existing accounting rules prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and related interpretations with pro forma disclosure of what net
income and earnings per share would have been had the Company adopted
the new fair value method The Company intends to continue to account
for its stock based compensation plans in accordance with the
provisions of APB 25.
Business Segment
During the year ended June 30, 1999, the Company adopted SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information",
which supersedes SFAS No. 14, "Financial Reporting for Segments of A
Business Enterprise". SFAS No. 131 establishes standards for the way
that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected
information about operating segments in interim financial statements
regarding products and services, geographic areas and major customers.
SFAS No. 131 defines operating segments as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. The Company has
determined that under SFAS No. 131, it operates in one segment of
financing services. The Company's customers and operations are within
the United States.
Loan Sales and Servicing Fee Receivable
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" was issued in June 1996.
SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This
statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. It requires that liabilities and derivatives
incurred or obtained by transferors as part of a transfer of financial
assets be initially measured at fair value. SFAS 125 also requires that
servicing assets be measured by allocating the carrying amount between
the assets sold and retained interests based on their relative fair
values at the date of transfer. Additionally, this statement requires
that the servicing assets and liabilities be subsequently measured by
(a) amortization in proportion to and over the period of estimated net
servicing income or loss and (b) assessment for asset impairment or
increased obligation based on their fair values. SFAS 125 also requires
the Company's excess servicing rights be measured at fair market value
and reclassified as interest only receivables and accounted for in
accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". As required by SFAS 125, the Company
adopted in the new requirements effective January 1, 1997.
Implementation of SFAS 125 did not have any material impact on the
financial statements of the Company.
F-14
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 1 - Organization and Summary of Significant Accounting Policies, continued
New Accounting Pronouncements
In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the
Costs of Start-Up Activities" was issued. This SOP provides guidance on
the financial reporting of start-up costs and organization costs. It
requires the costs of start-up activities and organization costs to be
expensed as incurred. The SOP is effective for financial statements for
fiscal year beginning after December 15, 1998. The Company does not
expect that the adoption of SOP No. 98-5 will have a material impact on
its financial statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and is required to be adopted in years
beginning after June 15, 1999, which has been deferred to June 30,
2000. Management does not anticipate that the adoption of the new
statement will have a significant effect on results of operations or
the financial position of the Company.
NOTE 2 - Assets Acquired in Satisfaction of Loans
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.
<TABLE>
<CAPTION>
Assigned
Radio Mortgage
Real Estate Cars Artwork and Note Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - July 1, 1997 $ 487,483 $ 41,077 $ 53,250 $ -- $ 581,810
Additions 26,090 -- -- -- 26,090
Recoup on sale of assets
previously sold -- 43,376 -- -- 43,376
Sales (192,560) (45,168) -- -- (237,728)
Write-offs (8,078) -- (5,000) -- (13,078)
--------- -------- -------- -------- ---------
Balance - June 30, 1998 312,935 39,285 48,250 -- 400,470
Additions -- -- -- 381,500 381,500
Sales (122,000) (8,044) -- -- (130,044)
Write-offs and payments -- (10,000) (10,000) (19,435) (39,435)
--------- -------- -------- -------- ---------
Balance - June 30, 1999 $ 190,935 $ 21,241 $ 38,250 $362,065 $ 612,491
========= ======== ======== ======== =========
</TABLE>
F-15
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
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 $762,000 and $569,000 at June 1999 and 1998 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. At June 30, 1999 and 1998 approximately $743,000 and
$546,000 respectively, of these loans were fully collateralized as to
principal and interest. Interest receivable at June 30, 1999 and 1998
totaled approximately $78,000 and $35,000 respectively, for such loans.
The following table sets forth certain information concerning impaired
loans as of June 30, 1999 and 1998:
1999 1998
---------------------------------
Impaired loans with an allowance $ 167,212 $174,952
Impaired loans without an allowance 1,512,456 571,896
---------- --------
Total impaired loans $1,679,668 $746,848
========== ========
Allowance for impaired loans $157,886 $150,626
======== ========
Average balance of impaired loans $1,213,258 $524,101
========== ========
Transactions in the allowance for loan losses are summarized as follows:
Balance - July 1, 1997 $325,000
Recoveries, net (30,000)
--------
Balance - June 30, 1998 295,000
Additions, net 85,000
--------
Balance - June 30, 1999 $380,000
========
F-16
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 4 - Equity Securities
Equity securities consist of the following as of June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Chicago Miami Investment Dry Telecom-
Taxicab Taxicab Advisory Cleaner munications
Medallions Medallions Firm Company Company Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - July 1, 1997 $380,966 $21,215 $20,000 $14,000 $ -- $436,181
Purchase of securities 39,100 5,265 50,000 14,000 -- 108,365
Sale of securities (50,936) (4,979) -- -- -- (55,915)
Unrealized gain 75,297 65,251 -- -- -- 140,548
-------- ------- ------- ------- -------- --------
Balance - June 30, 1998 444,427 86,752 70,000 28,000 -- 629,179
Purchase of securities 128,754 4,102 -- -- 150,000 282,856
Sale of securities (15,613) -- (50,000) -- -- (65,613)
Unrealized gain (loss) 85,897 (22,933) -- -- -- 62,964
-------- ------- ------- ------- -------- --------
Balance - June 30, 1999 $643,465 $67,921 $20,000 $28,000 $150,000 $909,386
======== ======= ======= ======= ======== ========
</TABLE>
At June 30, 1999, the fair value of the Chicago Taxicab Medallions was
increased, resulting in an unrealized gain, and the fair value of the
Miami Taxicab Medallions was decreased resulting in a reduction in the
unrealized gain recorded in prior periods. The fair value of the other
equity securities approximated cost. At June 30, 1998, the fair value
of the Chicago Taxicab Medallions and Miami Taxicab Medallions was
increased resulting in an unrealized gain. The fair value of the other
equity securities approximated cost.
F-17
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 5 - Debentures Payable to SBA
At June 30, 1999 and 1998 debentures payable to the SBA consist of
subordinated debentures with interest payable semiannually, as follows:
<TABLE>
<CAPTION>
1999 1998
Current Effective Principal Principal
Issue Date Due Date Interest Rate Amount Amount
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 1993 September 2003 6.12 (1) $1,500,000 $1,500,000
September 1993 September 2003 6.12 2,220,000 2,220,000
---------- ----------
(Forward) $3,720,000 $3,720,000
---------- ----------
</TABLE>
F-18
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 5 - Debentures Payable to SBA, continued
<TABLE>
<CAPTION>
Current 1998
Effective 1999 Principal Principal
Issue Date Due Date Interest Rate Amount Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Forward) $3,720,000 $3,720,000
September 1994 September 2004 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 was 3.12% from inception through September 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 capital 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. In addition, the SBA has a junior collateral
interest to the banks' debt. (See Note 6).
NOTE 6 - Notes Payable to Banks
At June 30, 1999 and 1998 the Company had loan agreements with three
(3) banks and four (4) banks for lines of credit aggregating
$35,000,000 and $33,500,000 respectively. At June 30, 1999 and 1998,
the Company had $31,000,000 and $22,085,000 respectively, outstanding
under these lines. The loans, which mature through December 31, 1999,
bear interest based on the Company's choice of the lower of either the
reserve adjusted LIBOR rate plus 150 basis points or the banks' 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.
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 was required to maintain compensating
balances of 5% of loan balance outstanding with each individual bank
for the year ended June 30, 1998. The compensating balance requirements
were eliminated during the year ended June 30, 1999.
F-19
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 7 - Preferred Stock
Pursuant to a preferred stock repurchase agreement dated November 10,
1994, the Company repurchased all cumulative preferred stock from the
SBA for $3.50 per share, or an aggregate $1,915,449. 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 stockholders. The amount restricted under this
agreement at June 30, 1999 and 1998 was approximately $256,000 and
$968,000, respectively.
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.
In September 1998, the stockholders of the Company approved and in
February 1999 the SBA approved an amendment to the Certificate of
Incorporation of the Company eliminating all of the authorized Series A
and Series B preferred stock of the Company. This amendment to the
Certificate of Incorporation was filed and became effective on May 21,
1999.
NOTE 8 - Common Stock
For the year ended June 30, 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 direct related expenses of $115,000.
F-20
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 8 - Common Stock, continued
In September 1998, the stockholders of the Company approved and in
February 1999, the SBA approved an amendment to the Certificate of
Incorporation increasing the total authorized shares of $0.01 par value
common stock to 3,000,000 shares authorized. This amendment to the
Certificate of Incorporation was filed and became effective on May 21,
1999.
On June 28, 1999, the Company declared a cash dividend of $0.18 per
common share, for a total of $314,208 which was paid on July 12, 1999.
NOTE 9 - Income Taxes
The provision for income tax expense (benefit) for the years ended June
30, 1999, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Federal $1,689 $(1,014) $ 4,568
State and City (2,458) 4,285 24,108
------- ------- -------
$ (769) $ 3,271 $28,676
======== ======= =======
</TABLE>
The above provision represents income taxes incurred on undistributed
income for the respective years.
NOTE 10 - Related Party Transactions/Commitments
Related Party Transactions
The Company paid $62,987, $43,234 and $43,645 to a related law firm for
the years June 30, 1999,1998 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 services.
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 each for the years ended June 30, 1999, 1998 and
1997, respectively. The Company also shares overhead costs and
reimburses for office and salary expenses from this affiliated entity.
Overhead costs and reimbursed office and salary expenses amounted to
$85,138, $81,308 and $51,513 for the years ended June 30, 1999, 1998
and 1997, respectively.
F-21
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 11 - Commitments and Contingencies
Interest Rate Swap
On June 8, 1998, the Company entered into a $10,000,000 interest rate
Swap transaction with a bank expiring on June 8, 2001. On October 13,
1998, the Company entered into an additional interest rate swap
transaction with the same bank for $5,000,000 expiring on October 8,
2001. These Swap transactions were entered into to protect the Company
from an upward movement in interest rates relating to outstanding bank
debt (see Note 6 for terms and effective interest rates). These Swap
transactions call for a fixed rate of 5.86% and 4.95%, respectively 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.
Interest Rate Cap
At March 20, 1997, the Company was a party to one $5 million notional
interest rate cap. This cap, which expired 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 and recorded as an adjustment to
interest expense. Payments received under this cap would be credited to
interest expense.
Loan commitments
At June 30, 1999 and 1998, the Company had commitments to make loans
totaling approximately $4,058,000 and $2,568,000 respectively, at
interest rates ranging from 8.25% to 18%.
NOTE 12 - 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, 1999, 1998 and 1997, contributions amounted to
$64,137, $63,435 and $58,805, respectively.
F-22
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 13 - Incentive Stock Option Plan
During September 1998, the Company adopted an employee incentive stock
option plan, an aggregate of 125,000 shares of common stock are
authorized for issuance under the plan. The plan provides that options
may be granted to attract and retain key employees of the Company.
Options granted under the plan are exercisable for periods ranging from
five to ten years. In addition, the option price will be at least
market value or at least 110% of market value of the common stock on
the grant date for employees and stockholders who own more than 5% of
the common stock, respectively. In January 1999, the Company granted
100,000 options to certain key employees at an exercise price ranging
from $8.875 to $9.7625 per share.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
SFAS 123. The fair market value for these options was estimated at the
date of grant using a Black-Scholes option-pricing model with the
following weighted-average assumptions for the year ended June 30,
1999.
Assumptions
----------------------------------------------------------------------
Risk-free rate 4.68%
Dividend yield 7.5%
Volatility factor of the expected market
price of the Company's common stock 0.49
Average life 8.5 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options.
The Company's pro forma information for the year ended June 30, 1999 is
as follows:
Pro forma net income $1,035,958
==========
Pro forma net income per share
- basic $0.59
=====
- diluted $0.59
=====
F-23
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 13 - Incentive Stock Option Plan, continued
The weighted average fair value of options granted during the year
ended June 30, 1999 was $2.01 for shares. The weighted average
remaining contractual life of options exercisable at June 30, 1999 is
7.5 years.
NOTE 14 - 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 SFAS 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. 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%), an investment advisory firm (2%), a dry cleaner (3%),
Miami taxicab medallions (7%) and a Telecommunications Company (17%)
(see Note 4).
Debentures Payable to Small Business Administration - The fair value of
debentures as of June 30, 1999 and 1998 were approximately $8,989,000
and $9,035,000, respectively, and were 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:
F-24
<PAGE>
- --------------------------------------------------------------------------------
ELK ASSOCIATES FUNDING CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
NOTE 14 - Fair Value of Financial Instruments, continued
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 15 - Subsequent Events
(a) Agreement and Plan of Share Exchange
The Company entered into an Agreement and Plan of Share Exchange with
Ameritrans Capital Corporation, a newly-formed Delaware corporation
("Ameritrans") by the stockholders of the Company, pursuant to which
each outstanding share of common stock of the Company would be
exchanged for one share of common stock of Ameritrans. Pursuant to this
Share Exchange Agreement, the ownership of each outstanding share of
the Company's common stock would automatically vest in Ameritrans and
the holders of the outstanding shares of the Company's common stock
would automatically become entitled to receive one share of Ameritrans'
common stock. This agreement has been approved by the board of
directors of the Company and is subject to approval by the stockholders
of the Company. In addition, Ameritrans has filed Form N-14, a proxy
registration statement under the Securities Act of 1933 with the SEC
and applied for certain "exemptive" orders to permit Ameritrans to act
as a holding company. The SEC is currently reviewing these filings.
(b) Non-Employee Directors Stock Option Plan
On August 31, 1999, the SEC approved a Non-Employee Directors Stock
Option Plan with an aggregate of 75,000 options authorized for
issuance. On this same date, 20,000 options were granted to
non-employee directors with an exercise price to be determined by the
Board of Directors.
F-25
<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 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
<PAGE>
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.
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.
<PAGE>
8.1 Elk Employee Stock Option Plan.*
8.2 Elk Non-Employee Director Stock Option Plan.*
8.3 Ameritrans Employee Stock Option Plan
8.4 Ameritrans Non-Employee Director 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.
14.2 Consent of Stursberg & Veith -- contained in their opinion.
16 Power of Attorney -- contained on signature page and previously filed.
- ------------------------------------
* Previously filed.
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 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.
<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 20 day of October, 1999.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Gary C. Granoff President and Chairman of the Board October 20, 1999
- --------------- of Directors
Gary C. Granoff
* Vice President, General Counsel and October 20, 1999
- --------------- Director
Ellen M. Walker
* Vice President and Director October 20, 1999
- ---------------
Lee A. Forlenza
* Vice President and Director October 20, 1999
- ---------------
Steven Etra
* Director October 20, 1999
- ---------------
Marvin Sabesan
* Director October 20, 1999
- ---------------
Paul Creditor
* Director October 20, 1999
- ---------------
Allen Kaplan
* Director October 20, 1999
- ---------------
John L. Acierno
*By: Gary C. Granoff
- -------------------
Gary C. Granoff
</TABLE>
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>
<S> <C> <C>
/s/ John R. Laird
- --------------------- Director October 20, 1999
John R. Laird
/s/ Howard F. Sommer
- --------------------- Director October 20, 1999
Howard F. Sommer
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------- ------- ----
<S> <C> <C>
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 Elk Employee Stock Option Plan.*
8.2 Elk Non-Employee Director Stock Option Plan.*
8.3 Ameritrans Employee Stock Option Plan
8.4 Ameritrans Non-Employee Director 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.
14.2 Consent of Stursberg & Veith-- contained in their opinion.
16. Power of Attorney -- contained on signature page and previously filed.
</TABLE>
- ------------------------------------
* Previously filed.
<PAGE>
AMERITRANS CAPITAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
============= ==============
Number Shares
ACC-
============= ==============
SEE REVERSE FOR
CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
This Certifies that CUSIP 03073H108
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.0001
EACH OF THE COMMON STOCK OF
======================= AMERITRANS CAPITAL CORPORATION =========================
transferables the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent and registered by the
Registrar
Witness the seal of the Corporation and the facsimile signature its
duly authorized officers.
Dated:______________
/s/ Gary C. Granoff [CORPORATE SEAL] /s/ Margaret Chance
- ------------------- -------------------
PRESIDENT SECRETARY
================================================================================
COUNTERSIGNEE:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
TRANSFER AGENT
AND REGISTRAR
_____________________
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenant with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - _______ Custodian ________
under Uniform Gifts to Minors
Act _______________
(State)
Additional abbreviations may also be used though not in the above list:
AMERITRANS CAPITAL CORPORATION
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations, or restrictions of such
preferences and/or rights. This certificate and the shares represented thereby
are issued and shall be held subject to all the provisions of the Certificate of
Incorporation and all amendments thereto and resolutions of the Board of
Directors providing for the issue of shares of Preferred Stock (copies of which
may be obtained from the secretary of the Corporation), to all of which the
holder of this certificate by acceptance hereof assents.
For value received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------------
| |
| |
| |
------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________ shares of the Capital
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of sbustitution in the premises.
Dated ___________________
_________________________________________________________
The signature to this assignment must correspond with the
Notice: name as written upon the face of the certificate in every
particular, without alteration or enlargement or any change
whatever.
Signature(s) Guaranteed:
_________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVES SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 8.3
AMERITRANS CAPITAL CORPORATION
1999 INCENTIVE STOCK OPTION PLAN
The purpose of the 1999 Incentive Stock Option Plan (the "Plan") is to
attract and retain key employees of Ameritrans Capital 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 $0.0001 par value (the "Common Stock").
1. Administration of the Plan.
The administration of the Plan shall be under the general supervision
of the 1999 Employee Plan Committee of the Board of Directors of the Company
(the "1999 Employee Plan Committee"). Within the limits of the Plan, the 1999
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 1999 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 1999 Employee Plan Committee may delegate its
authority under the Plan to a sub-committee of the 1999 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 1999 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 1999 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 1999 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 1999 Employee Plan
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 1999 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
<PAGE>
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 1999 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 1999 Employee Plan Committee or such later date
as the 1999 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 1999 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 1999 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.
To the extent permitted by law, the 1999 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 1999 Employee Plan Committee may determine.
6. Term of Option and Dates of Exercise.
(a) Exercisability. The 1999 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.
<PAGE>
(b) Effect of Disability, Death or Termination of Employment. The 1999
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 1999 Employee Plan Committee, to exercise rights of the
optionee in the case of the optionee's death.
(c) Other Conditions. The 1999 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 1999 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 1999 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 1999 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 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
<PAGE>
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 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 Option(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 Option(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
<PAGE>
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.
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.
14. Successor to Elk Associates Funding Corporation Non-Employee Director
Stock Option Plan.
(a) Notwithstanding anything herein, this Plan shall be effective
only upon the consummation of a Share Exchange Plan with Elk Associates Funding
Corporation ("Elk") pursuant to which each outstanding share of the common
stock, par value $0.01 per share of Elk (the "Elk Common Stock"), would vest in
the Company, Elk would become a wholly-owned subsidiary of Ameritrans, and the
holders of all the outstanding shares of Elk Common Stock would become the
stockholders of the Company and receive one share of the Company for each share
of Elk owned (the "Share Exchange").
(b) Upon completion of the Share Exchange, and without any further
action on the part of the Company or of Elk, this Plan will be deemed to be the
successor plan to the Elk Associates Funding Corporation 1998 Incentive Stock
Option Plan (the "Elk 1998 Incentive Plan"), and options issued under the Elk
1998 Incentive Plan will be deemed to have been issued pursuant to this Plan,
and (iii) upon consummation of the Share Exchange, options, if any, granted
under the Elk 1998 Incentive Plan would be treated as options granted under this
Plan and will be exercisable only to purchase shares of the Company's Common
Stock.
This Plan was approved by the Board of Directors on May 21, 1999. This
Plan was approved by the Shareholders on May 21, 1999.
<PAGE>
Exhibit 8.4
AMERITRANS CAPITAL CORPORATION
Non-Employee Director Stock Option Plan
This Non-Employee Director Stock Option Plan dated _________, 1999 (the
"Plan") governs options to purchase Common Stock, $0.0001 par value (the "Common
Stock"), of Ameritrans Capital 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.
(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.
<PAGE>
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 $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
<PAGE>
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.
(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 stockholder 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 stockholder 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.
11. Successor to Elk Associates Funding Corporation Non-Employee Director
Stock Option Plan.
(a) Notwithstanding anything herein, this Plan shall be effective
only upon the consummation of a Share Exchange Plan with Elk Associates Funding
Corporation ("Elk") pursuant to which each outstanding share of the common
stock, par value $0.01 per share of Elk (the "Elk Common Stock"), would vest in
the Company, Elk would become a wholly-owned subsidiary of Ameritrans, and the
holders
<PAGE>
of all the outstanding shares of Elk Common Stock would become the stockholders
of the Company and receive one share of the Company for each share of Elk owned
(the "Share Exchange").
(b) Upon completion of the Share Exchange, and without any further
action on the part of the Company or of Elk, this Plan will be deemed to be the
successor plan to the Elk Associates Funding Corporation Non-Employee Director
Stock Option Plan (the "Elk Director Plan"), election or appointment as a
director of Elk will be deemed to be election or appointment as a director of
the Company for purposes of Sections 6(a) and (b) hereof, and options issued
under Section 6(a) (Initial Grant of Options) of the Elk Director Plan will be
deemed to have been issued pursuant to this Plan, and (iii) upon consummation of
the Share Exchange, options, if any, granted under the Elk Director Plan would
be treated as options granted under this Plan and will be exercisable only to
purchase shares of the Company's Common Stock.
This Plan was approved by the Board of Directors on May 21, 1999. This Plan was
approved by the Stockholders on May 21, 1999. This Plan was approved by the
Securities and Exchange Commission on August 31, 1999.
<PAGE>
Exhibit 11.1
October 20, 1999
Ameritrans Capital Corporation
747 Third Avenue - 4th Floor
New York, New York 10017
Ladies and Gentlemen:
We have acted as counsel to Ameritrans Capital Corporation, a
corporation organized under the laws of the State of Delaware (the "Company"),
in connection with the preparation of a registration statement on Form N-14 (the
"Registration Statement") under the Securities Act of 1933 relating to the
issuance by the Company of up to 1,745,600 shares (the "Shares") of common
stock, par value $0.0001 per share, of the Company (the "Common Stock") in
connection with the proposed one-for-one share exchange with the holders of the
outstanding common stock, par value $.01 per share (the "Elk Common Stock"), of
Elk Associates Funding Corporation ("Elk"), a corporation organized under the
laws of the State of New York.
We have examined copies of the certificate of incorporation and by-laws
of the Company, and the amendments thereto, the Registration Statement, all
resolutions adopted by the Company's Board of Directors and other records and
documents that we have deemed necessary for the purpose of this opinion. We have
also examined and relied upon such other documents, papers, statutes and
authorities as we have deemed necessary to form a basis for the opinion
hereinafter expressed. In our examination, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies submitted
to us. As to various questions of fact material to our opinion, we have relied
on statements and certificates of officers and representatives of the Company
and public officials.
Based upon and subject to the foregoing, we are of the opinion that the
Shares, when duly issued in exchange for the shares of Elk Common Stock in the
manner and on the terms described in the Registration Statement, will be duly
authorized, validly issued, fully paid and nonassessable under the General
Corporation Law of the State of Delaware as in effect on this date.
<PAGE>
This opinion is limited to the laws of the State of New York, the
General Corporation Law of the State of Delaware and the federal laws of the
United States typically applicable to transactions described in the Registration
Statement, and we do not express any opinion with respect to the laws of any
other country, state or jurisdiction.
This opinion letter is limited to the matters stated herein and no
opinion is implied or may be inferred beyond the matters expressly stated.
This letter speaks only as of the date hereof and is limited to present
statutes, regulations and administrative and judicial interpretations. We
undertake no responsibility to update or supplement this letter after the date
hereof.
We consent to the filing of this opinion as an exhibit to the
Registration Statement or any amendment thereto and to the reference to us in
the Proxy Statement/Prospectus included as part of the Registration Statement.
In giving this consent, we do not hereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Commission.
Very truly yours,
/s/ Stursberg & Veith
<PAGE>
Exhibit 14.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders 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 11, 1999, with respect to the consolidated financial statements for the
years ended June 30, 1999, 1998 and 1997.
Marcum & Kliegman LLP
New York, New York
October 20, 1999
