FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ELK ASSOCIATES FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
New York 11-2502336
(State of Incorporation (I.R.S. Employer
or organization) Identification No.)
747 Third Avenue, 4th Floor, New York, New York 10017
(Address of principal executive offices)
Securities to be Registered Pursuant to Section 12 (g)of the Act:
Name of each Exchange
Title of each class on which each class
to be registered is to be registered
Common Stock, $.01 par value NASDAQ
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. Description of Registrant's Securities to be Registered.
As of the date of this Registration Statement, the authorized common stock
consisted of 2,000,000 shares, par value $.01 (the "Common Stock") of Elk
Associates Funding Corporation (the "Company").
Each share of Common Stock is entitled to one vote on all matters submitted
to a vote of shareholders. The Common Stock does not have cumulative voting
rights, which means that the holders of a majority of the outstanding shares of
Common Stock may elect all of the directors of the Company. The Common Stock
does not have any preemptive rights.
Upon liquidation, dissolution or winding up of the affairs of the Company,
its assets remaining after provision for payment of creditors, would be
distributed pro rata among holders of the Common Stock.
Dividends may be paid in cash or stock to the holders of the Common Stock
when and if declared by the Board of Directors out of funds legally available
therefor. In order to qualify as a "regulated investment company" for federal
income tax purposes, the Company is required to distribute annually as dividends
at least 90% of its taxable income, to the extent earned. As of the date of this
Registration Statement, the Company had issued and outstanding 1,283,600 shares
of Common Stock with 370 holders of record.
<PAGE>
ITEM 2. Exhibits
Exhibit
No. Description
--- -----------
1 Form N-SAR for Year Ended June 30, 1996
2 Form N-SAR for the Six-Month Period Ended December 31, 1995
3 Definitive Proxy Statement dated January 27, 1997
4.1 Certificate of Incorporation, as amended
4.2 By-Laws
5 Specimen Stock Certificate
6 Financial Statements for the fiscal year ended June 30, 1996
7 Financial Statements for the Six-Month Period Ended December 31, 1995
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
Elk Associates Funding Corp.
By: /s/ Gary C. Granoff
-----------------------
Gary C. Granoff,
President
Dated: February 7, 1997
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
1 Form N-SAR for Year Ended June 30, 1996
2 Form N-SAR for the Six-Month Period Ended December 31, 1995
3 Definitive Proxy Statement dated January 27, 1997
4.1 Certificate of Incorporation, as amended
4.2 By-Laws
5 Specimen Stock Certificate
6 Financial Statements for the fiscal year ended June 30, 1996
7 Financial Statements for the Six-Month Period Ended December 31, 1995
EXHIBIT 1
---------
<PAGE>
FORM N-SAR
SEMI-ANNUAL REPORT
FOR REGISTERED INVESTMENT COMPANIES
Report for six month period ending: / / (a)
or fiscal year ending: 06/30/96 (b)
Is this a transition report?: (Y/N) N
Is this an amendment to a previous filing: (Y/N) N
Those items or sub-items with a box "/" after the item number should be
completed only if the answer has changed from the previous filing on this
form.
1. A. Registrant Name: Elk Associates Funding Corporation
B. File Number: 811-3786
C. Telephone Number:212-421-2111
2. A. Street: 747 Third Avenue, 4th Floor
B. City: New York
C. State: New York
D. Zip Code: 10017 Zip Ext:
E. Foreign Country: Foreign Postal Code:
3. Is this the first filing on this form by Registrant? (Y/N) N
4. Is this the last filing on this form by Registrant? (Y/N) N
5. Is Registrant a small business investment company (SBIC) (Y/N) Y
[If answer is "Y" (Yes), complete only items 89 through 110.]
6. Is Registrant a unit investment trust (UIT?) (Y/N) N
[If answer is "Y" (Yes), complete only items 111 through 132.]
7. A. Is Registrant a series or multiple portfolio company? N
[If answer is "N" (No), go to item 8.]
B. How many separate series or portfolios did Registrant have
at the end of the period?
SMALL BUSINESS INVESTMENT COMPANIES
INVESTMENT ADVISER
89. A. / Adviser Name (if any):
B. / File number: 801 -
C. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
89. A. / Adviser Name (if any):
B. / File number: 801 -
C. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
TRANSFER AGENT
90. A. / Transfer Agent Name (if any):
B. / File number:
C. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
90. A. / Transfer Agent Name (if any):
B. / File number: -
C. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
INDEPENDENT PUBLIC ACCOUNTANT
91. A. / Accountant Name:
B. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
91. A. / Accountant Name:
B. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
95.Sales, repurchases, and redemptions of Registrant's securities during
the period:
Class of Security
Number of Shares Net
or Principal Consideration
Amount of Debt Received or Paid
($000's omitted) ($000's omitted)
Common Stock:
A./Sales 250 1,250
B./Repurchases
Preferred Stock:
C./Sales
D./Repurchases and redemptions 547 1,915
Debt Securities
E./Sales $ 2,040 $2,040
F./Repurchases and redemptions $ 1,986 $1,986
96. Securities of Registrant registered on a National Securities Exchange or
listed on NASDAQ;
Title of each class of securities
CUSIP or Ticker
NASDAQ No.
Symbol
A./
B./
C./
FINANCIAL INFORMATION
97. A. / How many months do the answers to items 97 and 98
cover?
12 Months
For period covered by this form
INCOME ($000's omitted)
B.Net interest income
$ 2,751
C.Net dividend income
$
D.Account maintenance fees
$
E.Net other income
$ 333
EXPENSES
F.Gross advisory fees
$ 210
G.Gross administrator(s) fees
(Negative answers allowed for 97H through 97S)
$
H.Salaries and other compensation
$
I.Shareholder servicing agent fees
$ 10
J.Custodian fees
$
K.Postage
$
L.Printing expenses
$ 7
M.Directors' fees
$ 23
N.Registration fees
$
O.Taxes
$
P.Interest
$ 1,106
Q.Bookkeeping fees paid to anyone performing this service
$ 47
R.Auditing fees
$ 46
S.Legal fees
$ 186
Expenses (Negative answers allowed on this screen for
97 T through 97W and 97Z only For period covered by this form
($000's omitted)
T.Marketing/distribution payments including payments
pursuant to a Rule 12b-1 plan $
U.Amortization of organization expenses
$
V.Shareholder meeting expenses
$
W.Other expenses $ 541
X.Total expenses
$ 2,176
Y.Expense reimbursements
$
Z.Net investment income
$ 908
AA.Realized capital gains
$
BB.Realized capital losses
$
CC.1.Net unrealized appreciation during the period
$ 0
2.Net unrealized depreciation during the period
$ 0 ***
DD.Total income dividends for which record date passed
during the period $ 0
EE.Total capital gains distributions for which period
record date passed during the period $
98. Payments per share outstanding during the entire current
period:
A. Dividends from net investment income $ .73
NOTE: show in fractions of a cent if so declared
B. Distributions of capital gains $
C. Other distributions $
NOTE: show in fractions of a cent if so declared
* Negative answer permitted in this field.
**Items 98A and 98B should be of the form mn.nnnn (where n = integer).
_____________
***Includes provision for loan recoveries of $24 leaving a remaining
reserve balance of $301.
99. Assets, liabilities, shareholders' equity:
As of the end of
current reporting
period (000's
omitted)
A.Cash
$ 1,073
B.Repurchase Agreements
$
C.Short-term debt securities other than repurchase
agreements
$23,840
D.Long-term debt securities including convertible debt
$
E.Preferred, convertible preferred and adjustable rate
preferred stock
$
F.Common stock
$
G.Options on equities
$
H.Options on all futures
$
I.Other investments Assets Acquired in Liquidation
$ 235
J.Receivables from portfolio instruments sold $
K. Receivables from affiliated persons $
L. Other receivables $ 819*
M. All other assets $ 754**
N. Total assets $ 26,721
* Includes receivables from debtors on sales of assets acquired
in satisfaction of loans of $525.
** Includes assets acquired in satisfaction of loans of $427.
As of the end of
current reporting
period (000's
omitted except for
per share
amounts and
number of
accounts)
O.Payables for portfolio instruments purchased
$
P.Amounts owned to affiliated persons
$
Q.Senior long-term debt
$ 8,858
R.All other liabilities
$ 6,962
S.Senior equity
$
T.Net assets of common shareholders
$ 10,901
U.Number of shares outstanding
$ 1,284
V.Net asset value per share (to nearest cent)
$ 8.49*
*
W.Mark-to-market net asset value per share for
money market funds only (to 4 decimals)
$ N/A**
X.Total number of shareholder accounts
$ 208
Y.Total value of assets in segregated accounts
$ N/A
100.Monthly average net assets during current
reporting period ($000's omitted)
$ 8,523
101.Market price per share at end of period
$ ***
* Net asset value per share must be of the form nnn.nn (where n = integer).
** Value must be of the form nnn.nnnn (where n = integer).
***On June 30, 1996, the closing bid quotation and the closing ask
quotation for the Common Stock, as reported by the National
Quotation Bureau, Incorporated, were 4.625 and 7.50 respectively.
****Does not include shares held in street name.
102.A.Is the Registrant filing any of the following attachments
with the current filing of Form N-SAR? N
NOTE: If answer is "Y" (Yes), mark those items below being filed
as an attachment to this form or incorporated by reference.
N
B.Matters submitted to a vote of security holders
N
C.Policies with respect to security investments
N
D.Legal proceedings
N
E.Changes in security for debt
N
F.Defaults and arrears on senior securities
N
G.Changes in control of Registrant
N
H.Terms of new or amended securities
N
I.Revaluation of assets or restatement of capital share account
N
J.Changes in Registrant's certifying accountant
N
K.Changes in accounting principles and practices
N
L.Mergers N
M. Actions required to be reported pursuant to Rule 2a-7 N
N. Transactions effected pursuant to Rule 10f-3 N
O.Information required to be filed pursuant to existing
exemptive orders
N
Attachment information (Cont. on Screen 53)
Attachment information (Cont. from Screen 52)
102.P.1.Exhibits N
2.Any information called for by instructions to sub-item 102 P2
N
3.Any information called for by instructions to sub-item 102 P3
N
103./Does the Registrant have any wholly-owned investment company
subsidiaries whose operating & financial data are consolidated
with that of Registrant in this report? (Y/N) N
[If answer is "N" (No), go to item 105]
104./List the "811" numbers and names of Registrant's wholly-owned
investment company subsidiaries consolidated in this report. NONE
811 Numbers Subsidiary Name
For period ending 6/30/96 If filing more than one
_______ Page 46, "X" box _______
File number 811-3786
________
ANNUAL SUPPLEMENT
Page 53 is to be filed only once each year at the end of
Registrant's fiscal year.
105. Fidelity bond(s) in effect at the end of period:
A_/_Insurer Name
B_/_Second Insurer
C_X_Aggregate face amount of coverage for Registrant on all
bonds on which it is named as an insured ($000's omitted)
$300
_________________________________________________________ _____
106. A_/_Is the bond part of a joint fidelity bond(s)
shared with other investment companies or other entities? ______
y/n
B_/_If the answer to 106A is "Y" (yes), how many other
investment companies or other entities are covered by the
bond?
__________________________________________________________ ______
NOTE: Count each series as a separate investment company. y/n
107. A_/_Does the mandatory coverage of the fidelity bond
have a deductible?_________________________________________ ______
y/n
B_/_If the answer to 107A is "Y" (yes), what is the
amount of the deductible? ________________________________ ______
y/n
108. A_/_ Were any claims with respect to this Registrant
filed under the bond during the period?___________________ _______
y/n
B_/_If the answer to 108A is "Y" (yes), what was the
total amount of such claim(s)?_____________________________ $_______
109. A_/_Were any losses incurred with respect to this
Registrant that could have been filed as a claim under the
fidelity bond but were not?________________________________ ______
y/n
B_/_If the answer to sub-item 109A is "Y" (yes), what
was the total amount of such losses? ($000's omitted)______ $_____
110. A_/_Are Registrant's officers and directors covered as
officers and directors of Registrant under any errors and
omissions insurance policy owned by the Registrant or any one
else?_________________________________________________________ ______
y/n
B_/_Were any claims filed under such policy during the
period with respect to Registrant?____________________________ ______
y/n
SIGNATURE PAGE TO
FORM N-SAR FOR
ELK ASSOCIATES FUNDING CORPORATION
FOR THE SIX MONTHS ENDED
JUNE 30, 1996
This report is signed on behalf of the Registrant in the City of New York
on the 28th day of AUGUST, 1996.
ELK ASSOCIATES FUNDING CORPORATION
BY: /s/ GARY C. GRANOFF
----------------------
GARY C. GRANOFF
PRESIDENT
WITNESS:
/s/ MARGARET CHANCE
- --------------------
MARGARET CHANCE
SECRETARY
ELK\FORMNSAR.F96
EXHIBIT 2
---------
<PAGE>
FORM N-SAR
SEMI-ANNUAL REPORT
FOR REGISTERED INVESTMENT COMPANIES
Report for six month period ending: 12/31/95 (a)
or fiscal year ending: / / (b)
Is this a transition report?: (Y/N) N
Is this an amendment to a previous filing: (Y/N) N
Those items or sub-items with a box "/" after the item number should be
completed only if the answer has changed from the previous filing on this
form.
1. A. Registrant Name: Elk Associates Funding Corporation
B. File Number: 811-3786
C. Telephone Number:212-421-2111
2. A. Street: 747 Third Avenue, 4th Floor
B. City: New York
C. State: New York
D. Zip Code: 10017 Zip Ext:
E. Foreign Country: Foreign Postal Code:
3. Is this the first filing on this form by Registrant? (Y/N) N
4. Is this the last filing on this form by Registrant? (Y/N) N
5. Is Registrant a small business investment company (SBIC) (Y/N) Y
[If answer is "Y" (Yes), complete only items 89 through 110.]
6. Is Registrant a unit investment trust (UIT?) (Y/N) N
[If answer is "Y" (Yes), complete only items 111 through 132.]
7. A. Is Registrant a series or multiple portfolio company? N
[If answer is "N" (No), go to item 8.]
B. How many separate series or portfolios did Registrant have
at the end of the period?
SMALL BUSINESS INVESTMENT COMPANIES
INVESTMENT ADVISER
89.A. / Adviser Name (if any):
B. / File number: 801 -
C. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
89.A. / Adviser Name (if any):
B. / File number: 801 -
C. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
TRANSFER AGENT
90.A. / Transfer Agent Name (if any): Continental Stock Transfer & Trust
Company
B. / File number: 84-34
C. / City: 2 Broadway, New York State: NY Zip Code: 10004 Zip Ext.
/ Foreign Country: Foreign Postal Code:
90.A. / Transfer Agent Name (if any):
B. / File number: -
C. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
INDEPENDENT PUBLIC ACCOUNTANT
91.A. / Accountant Name:
B. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
91.A. / Accountant Name:
B. / City: State: Zip Code: Zip Ext.
/ Foreign Country: Foreign Postal Code:
95.Sales, repurchases, and redemptions of
Registrant's securities during the period:
Class of Security
Number of Shares Net
or Principal Consideration
Amount of Debt Received or Paid
($000's omitted)
($000's omitted)
Common Stock:
A./Sales
250 1,250
B./Repurchases
Preferred Stock:
C./Sales
D./Repurchases and redemptions
547 1,915
Debt Securities
E./Sales $ 1,020 $1,020
F./Repurchases and redemptions
$ 993 $ 993
96. Securities of Registrant registered on a National Securities Exchange or
listed on NASDAQ;
Title of each class of securities
CUSIP or Ticker
NASDAQ No.
Symbol
A./
B./
C./
FINANCIAL INFORMATION
97. A. / How many months do the answers to items 97 and 98
cover?
6 Months
For period covered by this form
INCOME ($000's omitted)
B.Net interest income
$ 1,347
C.Net dividend income
$
D.Account maintenance fees
$
E.Net other income
$ 178
EXPENSES
F.Gross advisory fees
$ 210
G.Gross administrator(s) fees
(Negative answers allowed for 97H through 97S)
$
H.Salaries and other compensation
$
I.Shareholder servicing agent fees
$ 5
J.Custodian fees
$
K.Postage
$
L.Printing expenses
$ 5
M.Directors' fees
$ 11
N.Registration fees
$
O.Taxes
$
P.Interest
$ 558
Q.Bookkeeping fees paid to anyone performing this service
$ 32
R.Auditing fees
$ 20
S.Legal fees
$ 111
Expenses (Negative answers allowed on this screen for
97 T through 97W and 97Z only For period covered by this form
($000's omitted)
T.Marketing/distribution payments including payments pursuant to a
Rule 12b-1 plan $
U.Amortization of organization expenses
$
V.Shareholder meeting expenses
$
W.Other expenses $ 160
X.Total expenses
$ 1,112
Y.Expense reimbursements
$
Z.Net investment income
$ 413
AA.Realized capital gains
$
BB.Realized capital losses
$
CC.1.Net unrealized appreciation during the period
$ 0
2.Net unrealized depreciation during the period
$ 0 **
DD.Total income dividends for which record date passed
during the period $ 0
EE.Total capital gains distributions for which period
record date passed during the period $
98. Payments per share outstanding during the entire current
period:
A. Dividends from net interest income $ .59
NOTE: show in fractions of a cent if so declared
B. Distributions of capital gains $
C. Other distributions $
NOTE: show in fractions of a cent if so declared
* Negative answer permitted in this field.
**Items 98A and 98B should be of the form mn.nnnn (where n = integer).
99. Assets, liabilities, shareholders' equity:
As of the end of
current reporting
period (000's
omitted)
A.Cash
$ 1,066
B.Repurchase Agreements
$
C.Short-term debt securities other than repurchase
agreements
$23,354
D.Long-term debt securities including convertible debt
$
E.Preferred, convertible preferred and adjustable rate
preferred stock
$
F.Common stock
$
G.Options on equities
$
H.Options on all futures
$
I.Other investments Assets Acquired in Liquidation
$ 24
J.Receivables from portfolio instruments sold $
K. Receivables from affiliated persons $
L. Other receivables $ 952*
M. All other assets $ 841**
N. Total assets $ 26,237
* Includes receivables from debtors on sales of assets acquired in
satisfaction of loans of $638.
** Includes assets acquired in satisfaction of loans of $ 537
As of the end of
current reporting
period (000's
omitted except for
per share
amounts and
number of
accounts)
O.Payables for portfolio instruments
$
P.Amounts owned to affiliated persons
$
Q.Senior long-term debt
$ 8,831
R.All other liabilities
$ 6,820
S.Senior equity
$
T.Net assets of common shareholders
$ 10,586
U.Number of shares outstanding
$ 1,284
V.Net asset value per share (to nearest cent)
$ 8.24*
*
W.Mark-to-market net asset value per share for
money market funds only (to 4 decimals)
$ N/A**
X.Total number of shareholder accounts
$ 216
Y.Total value of assets in segregated accounts
$ N/A
100.Monthly average net assets during current
reporting period ($000's omitted)
$ 8,365
101.Market price per share at end of period
$ ***
* Net asset value per share must be of the form nnn.nn (where n = integer).
** Value must be of the form nnn.nnnn (where n = integer).
***On December 29, 1995, the high and low bid quotations and the high and
the low ask quotations for the Common Stock, as reported by the National
Quotation Bureau, Incorporated, were 4 and 4, and 7 and 7 respectively.
****Does not include shares held in street name.
102.A.Is the Registrant filing any of the following attachments
with the current filing of Form N-SAR? N
NOTE: If answer is "Y" (Yes), mark those items below being filed
as an attachment to this form or incorporated by reference.
N
B.Matters submitted to a vote of security holders
N
C.Policies with respect to security investments
N
D.Legal proceedings
N
E.Changes in security for debt
N
F.Defaults and arrears on senior securities
N
G.Changes in control of Registrant
N
H.Terms of new or amended securities
N
I.Revaluation of assets or restatement of capital share account
N
J.Changes in Registrant's certifying accountant
N
K.Changes in accounting principles and practices
N
L.Mergers N
M. Actions required to be reported pursuant to Rule 2a-7 N
N. Transactions effected pursuant to Rule 10f-3 N
O.Information required to be filed pursuant to existing
exemptive orders
N
Attachment information (Cont. on Screen 53)
Attachment information (Cont. from Screen 52)
102.P.1.Exhibits N
2.Any information called for by instructions to sub-item 102 P2
N
3.Any information called for by instructions to sub-item 102 P3
N
103./Does the Registrant have any wholly-owned investment company
subsidiaries whose ooperating & financial data are consolidated
with that of Registrant in this report? (Y/N) N
[If answer is "N" (No), go to item 105]
104./List the "811" numbers and names of Registrant's wholly-owned
investment company subsidiaries consolidated in this report. NONE
811 Numbers Subsidiary Name
SIGNATURE PAGE TO
FORM N-SAR FOR
ELK ASSOCIATES FUNDING CORPORATION
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995
This report is signed on behalf of the Registrant in the City of New York
on the 5th day of March, 1996.
ELK ASSOCIATES FUNDING CORPORATION
BY: GARY C. GRANOFF
----------------------
GARY C. GRANOFF
PRESIDENT
WITNESS:
MARGARET CHANCE
- -----------------
MARGARET CHANCE
SECRETARY
ELK\FORMNSAR.F96
EXHIBIT 3
---------
<PAGE>
Notice of Annual Meeting of Shareholders
To Be Held on February 26, 1997
To the Shareholders:
The Annual Meeting of Shareholders of Elk Associates Funding Corporation
(the "Company") will be held at the offices of Stursberg & Veith, 405 Lexington
Avenue, Suite 4949, New York, New York on February 26, 1997 at 10:30 a.m. to
consider and act upon the following matters:
1. To elect eleven directors to serve until the next Annual Meeting and
until their successors are chosen and qualified.
2. To amend the Company's certificate of incorporation to allow the Company
to invest in or make loans to non-disadvantaged firms.
3. To ratify the selection by the Board of Directors of Marcum & Kliegman
LLP as the Company's independent public accountants for the fiscal year ending
June 30, 1997.
4. To consider and act upon such other matters as may properly come before
the meeting or any adjournment thereof.
Shareholders of record at the close of business on January 15, 1997 will be
entitled to notice of and to vote at the meeting. The stock transfer books of
the Company will remain open.
All shareholders are cordially invited to attend the meeting.
By Order of the Board of Directors
MARGARET CHANCE, Secretary
January 27, 1997
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 ASSURE REPRESENTATION OF YOUR SHARES.
<PAGE>
Elk Associates Funding Corporation
747 Third Avenue - 4th Floor
New York, New York 10017
Proxy Statement for
Annual Meeting of Shareholders
February 26, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Elk Associates Funding Corporation (the
"Company") for use at the Annual Meeting of Shareholders to be held on February
26, 1997 and at any adjournment of that meeting. In considering whether or not
to have an adjournment, management will consider what is in the best interest of
the shareholders. All proxies will be voted as marked. Proxies marked as
abstaining (including proxies containing broker non-votes) on any matters to be
acted upon by shareholders will be treated as present at the meeting for
purposes of determining a quorum but will not be counted as votes cast on such
matters. Any proxy may be revoked by a shareholder at any time before it is
exercised by written or oral request to Margaret Chance, Secretary of the
Company. The date of mailing of this Proxy Statement is expected to be on or
about January 27, 1997.
The Board of Directors has fixed January 15, 1997 as the record date for
the determination of shareholders entitled to vote at the Annual Meeting. At the
close of business on January 15, 1997 there were outstanding and entitled to
vote 1,283,600 shares of common stock (the "Common Stock") of the Company. Each
share is entitled to one vote.
The following table sets forth information concerning ownership of the
Company's Common Stock as of January 15, 1997 by each person known by the
Company to be the beneficial owner of more than five (5%) percent of the Common
Stock.
Percent of
Common Stock Common Stock
Name and Address Beneficially Owned Outstanding
- ---------------- ------------------ -----------
Gary C. Granoff (1)(2) 237,446 (3)(4) 18.5%
c/o Elk Associates
Funding Corporation
747 Third Ave.
4th Floor
New York, New York
Paul D. Granoff, M.D. (1) 89,630 (5) 6.98%
132 North Buckingham Drive
Aurora, Illinois
N. Henry Granoff (1) 80,649 (3)(6) 6.28%
2000 South Ocean Blvd
Palm Beach, Florida
<PAGE>
Marvin Sabesan 72,145 (9) 5.62%
188 Gannet Court
Manhasset, New York
Dan M. Granoff, M.D. (1) 95,130 (3)(8) 7.41%
1085 Creston Road
Berkeley, California
Alexander Nash, M.D. 72,600 (7) 5.66%
12 Ridgeway
Kings Point, New York
- ----------
(1) N. Henry Granoff is the father of Gary C., Dan M. and Paul D. Granoff.
(2) Gary Granoff may be deemed a "control person" of the Company within the
meaning of the 1940 Act.
(3) Excludes 10,900 shares owned by a charitable foundation of which N. Henry
Granoff, his wife Jeannette Granoff, Gary C. Granoff and Dan M. Granoff are
the trustees.
(4) Includes 25,218 shares held in various trusts of which Mr. Granoff is a
trustee and 6,000 shares held for the benefit of one of Mr. Granoff's sons,
with respect to which he is custodian. With respect to these 31,218 shares,
Mr. Granoff disclaims beneficial ownership for purposes other than Rule
13d-3 of the Securities Exchange Act of 1934, as amended. Excludes 7,537
shares owned directly by Mr. Granoff's wife as to which shares he disclaims
beneficial ownership. Also excludes 19,466 shares owned directly by Mr.
Granoff's children as to which shares he does not exercise any control and
disclaims beneficial ownership. Includes 72,875 shares held by a
corporation controlled by Mr. Granoff and 261 shares held by a corporation,
wholly-owned by Mr. Granoff. Excludes 22,800 shares held by various trusts
for the benefit of Mr. Granoff's children, of which shares Mr. Granoff
disclaims beneficial ownership until such time as 21,000 of such shares
revert to him.
(5) Includes 2,000 shares held by Dr. Paul Granoff directly, 77,630 held by
Granoff Family Partners Ltd. of which Dr. Granoff is a general partner, and
10,000 shares held by the Granoff Pediatric Associates Profit Sharing Plan.
Excludes 10,127 shares held by Dr. Paul Granoff's wife as to which shares
he disclaims beneficial ownership. Excludes 9,654 shares owned directly by
Dr. Granoff's children as to which shares he does not exercise any control
and disclaims beneficial ownership.
(6) Excludes 33,499 shares owned by Mr. Granoff's wife, as to which shares Mr.
Granoff disclaims beneficial ownership. Mr. Granoff's shares are registered
in the N. Henry Granoff Revocable Trust dated May 19, 1987.
(7) Includes 1,500 shares held by Alexander Nash, M.D. as custodian for his
daughter. Also includes 42,900 shares held by his wife, as to which shares
Alexander Nash, M.D. disclaims beneficial ownership.
(8) Excludes 12,000 shares owned directly by Dr. Granoff's children as to which
shares he does not exercise any control and disclaims beneficial ownership.
(9) Includes 21,387 shares held with his wife as joint tenants, 2,207 shares
held with one of his children as joint tenants, and 28,551 shares held by
his wife. Mr. Sabesan disclaims beneficial ownership as to the 28,551
shares held by his wife.
-2-
<PAGE>
Except as otherwise indicated above, the persons listed in the above table
have voting and investment power with respect to their respective shares.
All of the persons listed above, for as long as they continue to hold five
(5%) percent or more of the Company's outstanding Common Stock, will be deemed
"affiliated persons" of the Company, as such term is defined in the 1940 Act.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The affirmative vote of the holders of a majority of the 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 the
Company, to elect as directors the eleven 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 eleven directors.
Each director will be elected to hold office until the next annual meeting
of shareholders 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.
Two of the nominees for director will be completing and submitting
applicable documents to the U. S. Small Business Administration (the "SBA") for
approval of their becoming directors of the Company. Such approval would occur
within ninety days of submission of the documents. If the nominees are not
approved, the Board of Directors reserves the right to fill any vacancy
occurring therefrom.
The following sets forth the name of each nominee and the positions and
offices held by him or her, his or her age, the date on which he or she became a
director of the Company, his or her principal occupation and business experience
for the last five years, the names of other publicly-held companies in which he
or she serves as a director:
Gary C. Granoff, age 48, has been President and a director of the Company
since its formation in July 1979 and Chairman of the Board of Directors since
December 1995. Mr. Granoff has been a practicing attorney for the past
twenty-three years and is presently an officer in the law firm of Granoff,
Walker & Forlenza, P.C. Mr. Granoff is a member of the bar of the State of New
York and the State of Florida and is admitted to the United States District
Court of the Southern District of New York. Mr. Granoff is also President and
the sole stockholder of GCG Associates, Inc. ("GCG"), the Company's former
investment adviser. He has served as President and the sole stockholder of
Seacrest Associates, Inc., a hotel operator, since August 1994. Mr. Granoff has
also been President and a director since June 1996 of
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<PAGE>
Gemini Capital Corporation ("Gemini"), a company primarily engaged in the
business of making consumer loans.
Ellen M. Walker, age 41, has been a Vice President and General Counsel of
the Company since July 1983 and a director of the Company from July 1983 to
August 1994. She again became a director of the Company in 1995. Ms. Walker has
been a practicing attorney for more than ten years and she is presently an
officer and shareholder in the law firm of Granoff, Walker & Forlenza, P.C. Ms.
Walker is a member of the Bar of the State of New York and she is admitted to
the United States District Court of the Southern District of New York. Since
August 1983 Ms. Walker has been Vice President of GCG. Ms. Walker has been a
director, Vice President and General Counsel of Gemini since June 1996.
Lee A. Forlenza, age 39, has been a Vice President of the Company since
March 1992. Mr. Forlenza has been a practicing attorney since February 1983 and
is presently an officer and shareholder in the law firm of Granoff, Walker &
Forlenza, P.C. Since March 1992 Mr. Forlenza has been an investment analyst for
GCG. Mr. Forlenza has also been Vice President, Secretary and a director of
Gemini since June 1996. Mr. Forlenza was Vice President of True Type Printing
Co., Inc. from 1976-1995 and President since May 1995. From 1983 through 1986
Mr. Forlenza was an attorney with the SBA.
Marvin Sabesan, age 69, has been a director of the Company since July 1982.
Mr. Sabesan has been employed by Pearl River Textiles, Inc. as an executive
since 1990. He was an Executive Vice President of N.O.L. Inc., a lingerie
company, from 1988 to 1990. Mr. Sabesan was an Executive Vice President of A.J.
Schneierson & Son, a clothing manufacturer from 1971 to 1987.
Herbert G. Kanarick, age 65, has been a director of the Company since
October 1994. Mr. Kanarick has been a partner of S. P. Cooper & Company, an
accounting firm since 1970. Mr. Kanarick serves as a peer reviewer for the
American Institute of Certified Public Accountants reviewing the quality of work
of other accounting firms. He is a trustee of the investment program for Long
Island Lutheran High School in Brookville, New York.
Steven Etra, age 48, has been Sales Manager since 1975 of Manufacturer's
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.
Steven R. Busch, age 51, has been a director of the Company since October
1994. Mr. Busch has been Chairman and Founder of B-H Investment Group, Inc.
since November 1996 and a Managing Partner of Van Eck Associates Inc. since May
1996. Previously, from 1989 to 1994, Mr. Busch was Executive Vice President of
Lehman Brothers, Inc. and the Senior Credit Officer of The Boston Safe Deposit
and Trust Company, a subsidiary of Lehman Brothers, Inc. From 1986 to 1989 Mr.
Busch was Vice President, Manager and head of the Mortgage Backed Securities
finance department of Security Pacific Merchant Bank. From 1963 to 1986, Mr.
Busch was a Vice President of JP Morgan and Co. In addition, Mr. Busch has
-4-
<PAGE>
been an independent director of Plaza Consulting Corp. since December 1996. From
January 1995 to April 1996, Mr. Busch was a director of Taj Mahal Holding
Corporation and TM/GP Corporation which corporations merged with Trump Hotels &
Casino Resorts, Inc. Mr. Busch has also been an advisor to the Permanent Mission
of Bosnia and Herzegovina to the United Nations since 1994.
Paul Creditor, age 61, has been a practicing attorney since 1961, engaging
in general practice law and specializing in corporate law. From 1974 through
1979 he served as an elected Judge in Suffolk County, New York.
Allen Kaplan, age 46, is Vice President and Chief Operating Officer of Team
Systems, Inc., a company which manages and operates more than 200 New York City
Medallion taxicabs. Mr. Kaplan is currently Vice President of the Metropolitan
Taxicab Board of Trade, a trade association consisting of 22 member fleets
representing 1,200 New York City medallions.
Dan M. Granoff, M.D., age 52, has been Vice President of Scientific Affairs
of Chiron Vaccines at Chiron Corporation since September 1993. From 1980 to
1993, Dr. Granoff was a professor of pediatrics and Head of the Infectious
Disease Division of Washington University Medical School in St. Louis, Missouri.
Prior to joining Chiron Corporation, Dr. Granoff was also a consultant to the
pharmaceutical industry and served on the scientific advisory board of Connaught
Laboratories, Inc., one of the largest suppliers of vaccines in the U.S. Dr.
Granoff received both his A.B. and M.D. degrees from Johns Hopkins University.
Alexander Nash, M.D., age 47, has been a practicing physician since 1979
and for the past 15 years an attending anesthesiologist at Franklin Hospital
Medical Center. He has acted as the sole proprietor of the Pain Management
Office since 1986, the first outpatient facility for the treatment of acute and
chronic pain in Western Nassau County, and President and Chief Executive Officer
of ABP IC, Inc., a medical supplies and equipment exporting company. In 1973 Dr.
Nash graduated from Moscow Medical School, and immigrated with his family to the
United States.
During the fiscal year ended June 30, 1996, the Company's Board of
Directors held four (4) meetings. Each director attended at least 75% of such
meetings.
The Company does not have standing audit or nominating committees. The
Company has an Audit and Compliance Committee consisting of Marvin Sabesan, Lee
A. Forlenza and Margaret Chance. The Company recently formed a compensation
committee.
The following is information regarding additional officers of the Company:
Margaret Chance, age 41, has been Secretary of the Company 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.
-5-
<PAGE>
Silvia Maria DiGirolamo, age 45, has been the Loan Administrator of the
Company since February 1994. She was elected a Vice President of the Company,
subject to SBA approval, at the meeting of the board of directors held on
December 11, 1996. Prior to joining the Company, she was the Legal Coordinator
for Castle Oil Corporation from September 1991 through June 1993 and from June
1993 through January 1994, a legal assistant specializing in foreclosures in the
law firm of Greenberg & Posner. Ms. DiGirolamo received a B.A. from Fordham
University and an M.B.A. from The Leonard Stern School of Business
Administration.
The following table sets forth information concerning ownership of the
Company's Common Stock as of January 15, 1997 by each existing director, nominee
to become a director and officer of the Company and by all directors and
officers of the Company as a group.
Percent of
Common Stock Common Stock
Name Beneficially Owned Outstanding
- ---- ------------------ -----------
*Gary C. Granoff(1) 237,446 18.5%
*Ellen M. Walker 31,374 2.44%
*Lee A. Forlenza 18,505 1.44%
*Margaret Chance 2,900 (5)
*Silvia DiGirolamo None --
Marvin Sabesan 72,145 5.62%
Herbert G. Kanarick 44,205 3.44%
Steven Etra 52,516 4.09%
Steven R. Busch 2,000 (5)
Paul Creditor None --
Allen Kaplan 5,000 (5)
Dan M. Granoff 95,130 7.4%
Alexander Nash 72,600 5.7%
------- -----
Officers and Directors 633,821 49.4%
of the Company as a
group (11 persons)
- ----------
* Messrs. Gary C. Granoff, Ms. Ellen Walker, Mr. Lee A. Forlenza, Ms.
Margaret Chance and Ms. Silvia DiGirolamo are each "interested persons"
with respect to the Company, as such term is defined in the 194 Act.
(1) Gary C. Granoff, see Notes (3) and (4) on page 2.
(2) Includes 200 shares held by Ms. Walker as custodian for her son. Includes
22,800 shares held by various trusts of which Ms. Walker is a trustee and
as to which she disclaims beneficial ownership.
(3) Includes 200 shares held by Ms. Chance as custodian for her daughter.
-6-
<PAGE>
(4) Includes 21,387 shares held by Mr. Sabesan and his wife as joint tenants,
2,207 shares held with one of his children as joint tenants, and 28,551
shares held by his wife. Mr. Sabesan disclaims beneficial ownership as to
the 28,551 shares held by his wife.
(5) Less than one (1%) percent.
(6) Includes 200 shares held by Mr. Kanarick's wife, as to which shares he
disclaims beneficial ownership. Includes 44,005 shares owned by J. R.
Realty Corporation, a subsidiary of Murres Corporation, a majority of the
shares of which are owned by a trust of which Mr. Kanarick is the sole
trustee.
(7) Includes 29,022 shares held with his wife as joint tenants and 20,000
shares held by his wife.
(8) Includes 1,000 shares held by Mr. Busch's wife.
(9) Dan M. Granoff, M.D., see Notes (1), (3) and (8) on page 2.
(10) Alexander Nash, M.D., see Note (7) on page 2.
Effective May 1, 1991, the Securities and Exchange Commission promulgated
new rules under Section 16 of the Securities Exchange Act of 1934. The Company
believes that during the preceding year its executive officers and directors
have complied with all Section 16 filings.
Executive Compensation
The following table sets forth all remuneration for services rendered to
the Company during the year ended June 30, 1996 paid to or accrued for the
account of (i) each of the executive officers and (ii) all executive officers as
a group.
For the period July 1, 1995 through December 31, 1995 the Company paid GCG
an aggregate of $210,000 for management services rendered to the Company. The
Company also paid to Granoff, Walker & Forlenza, P.C. ("GWF") a monthly legal
retainer for performing New York City taxi loan closings which retainer was paid
at the rate of $9,000 per month and constituted $54,000 for the first six months
of the fiscal year. This retainer ended on December 31, 1995. GWF was paid an
additional $48,902 for collection services, litigation of collection of
defaulted loans and certain non-taxi related closings. Finally, $12,047 was paid
to GWF for disbursements or reimbursements of shared costs for office equipment.
Commencing January 1, 1996 and thereafter, the Company has agreed to pay
GWF a monthly reimbursement of $7,250 for shared costs consisting of $3,333.33
for shared rent per month and $3,916.67 for shared employee costs for GWF
employee secretarial, photocopy, banking and receptionist services.
From January 1, 1996 through June 30, 1996 the Company changed from
utilizing the services of GCG to a direct salary basis for the investment
advisor services of its officers and
-7-
<PAGE>
employees. The following individuals were paid the cash compensation set forth
opposite their names for the period January 1, 1996 through June 30, 1996:
<TABLE>
<CAPTION>
Name of Individual
or Number of Persons Capacities in
in Group Which Served Cash Compensation(1)
-------- ------------ --------------------
<S> <C> <C>
Gary C. Granoff President $90,797 plus simplified employee pension plan
("SEP") contributions of
$13,127 and $7,500 of reimbursable expenses.
Ellen M. Walker Vice President $39,787 plus $5,625 in SEP
Counsel contributions.
Lee A. Forlenza Vice President $12,019 plus $1,803 in SEP contributions.
Silvia DiGirolamo Vice President $24,038 plus $3,608 in SEP contributions.
Margaret Chance Secretary $2,600 plus $390 in SEP contributions.
All executive officers as
a group (5) persons $201,294
</TABLE>
- ----------
(1) Officers' salaries constitute a major portion of the Company'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 the Company.
This amount includes officers' salaries, other salaries and employee benefits.
For the period July 1, 1996 through June 30, 1997, the Company anticipates
paying cash compensation, excluding future bonuses that may be granted by the
Company's Board of Directors, as follows:
Gary C. Granoff $205,000 plus $15,000 reimbursable expense
and $22,500 in SEP contributions.
Ellen M. Walker $94,000 plus $14,100 in SEP contributions.
Lee A. Forlenza $35,000 plus $5,250 in SEP contributions.
Silvia DiGirolamo $55,500 plus $8,350 in SEP contributions.
Margaret Chance $49,000 plus $7,350 in SEP contributions.
All executive offices as
a group (5) persons $511,050
The Company has a policy of paying its directors who are not employees fees
of $750 for each meeting attended. Commencing July 1, 1996 the Company will in
addition, pay each non-affiliated director a minimum fee of $2,000 per year in
addition to the fees paid for each meeting attended. For the year ended June 30,
1996, fees and expenses paid to non-affiliated directors were approximately
$23,400 in the aggregate.
-8-
<PAGE>
PROPOSAL NO. 2
AMENDMENT TO COMPANY'S CERTIFICATE OF INCORPORATION
On September 30, 1996, the Small Business Programs Improvement Act (the
"Improvement Act") was enacted. The Improvement Act repealed Section 301(d) of
the Small Business Investment Company Act of 1958 (the "1958 Act") which was the
section of the 1958 Act under which the Company was originally licensed as an
SSBIC. The effect of the Improvement Act is that an SSBIC licensee like the
Company may, subject to SBA approval of an amendment to the licensee's articles
of incorporation, make investments in or loans to firms other than
"disadvantaged businesses" as defined by Sec. 107.50 of applicable SBA
Regulation. The proposed amendment is attached hereto as Exhibit A. Because
Congress did not prescribe how Sec. 301(d) licensees like the Company might
operate in the future if they amended their articles of incorporation, the SBA
is in the process of developing regulations as to the guidelines a licensee like
the Company must follow if it desires to make investments in and loans to
non-disadvantaged firms. In this regard, the SBA has advised the Company that
the Company must enter into an agreement with the SBA prior to obtaining SBA
approval to the amendment to the articles of incorporation which will provide
among other things that prior to the Company making any non-301(d) investments
that the Company have in its portfolio 301(d) investments with an aggregate cost
at least equal to the sum of the Company's outstanding subsidized leverage,
liquidating interest held by the SBA as a result of the preferred stock buy back
and unamortized dividends,if any. As of November 30, 1996, the Company had
$1,500,000 of outstanding subsidized leverage and $2,094,833 liquidating
interest. The Company had no unamortized dividends. If the amendment to the
Company's certificate of incorporation in the form attached hereto as Exhibit A,
is approved by shareholders and by the SBA, the Company would be able to make a
significant amount of new investments in non-disadvantaged firms, assuming
$3,594,833 in the aggregate of outstanding subsidized leverage and liquidating
interest, is retained in qualifying loans. This amount will diminish at the rate
of $59,287 per month assuming that the SBA's liquidating interest continues to
amortize. The $1,500,000 debenture will be considered unsubsidized in October
1998.
Because the Company's management believes that it would be in the best
interests of the Company to amend its articles of incorporation to provide that
the Company may invest in other than disadvantaged firms, the Company proposes
to amend its articles of incorporation, subject to shareholder approval and to
SBA approval.
The Company's Board of Directors recommends a vote FOR Proposal No. 2.
-9-
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, including a majority of Directors who are not
interested persons of the Company, subject to shareholder approval, has selected
Marcum & Kliegman LLP as independent public accountants to be employed by the
Company for the fiscal year ended June 30, 1997 to sign or certify such
financial statements, or any portions thereof, as may be filed by the Company
with the Securities and Exchange Commission or any other authorities at any
time. The employment of such independent public accountants for such purpose is
subject to ratification by the shareholders at this meeting. No member of Marcum
& Kliegman LLP or any associate thereof has a direct or indirect material
financial interest in the Company or any of its affiliates.
The Board of Directors has chosen to utilize the firm of Marcum & Kliegman
LLP and to discontinue utilizing Deloitte & Touche LLP due to considerable
savings that the Company will obtain. These savings result from the Company
having taken recent steps to generate all of its own accounting data and thereby
allowing it to be able to conduct this aspect of its business operation without
the use of the CPA firm of Tanton and Company LLP which previously acted as the
Company's controller and which rendered bookkeeping services. In addition,
Tanton and Company LLP recently merged into Marcum & Kliegman LLP, and the
combined firm has eight partners and a total professional staff of 90, making it
one of the top 100 accounting firms in the United States. The Company expects to
save approximately $30,000 per year in its total accounting fees as a result of
generating its own accounting data, and by changing audit firms from Deloitte &
Touche LLP to Marcum & Kliegman LLP.
The affirmative vote of a majority of the Common Stock present or
represented at the meeting is required to ratify the selection of Marcum &
Kliegman LLP as independent public accountants for the Company.
A representative of Marcum & Kliegman LLP will not be present at the Annual
Meeting of Shareholders.
The Board of Directors of the Company recommends a vote FOR Proposal No. 3.
OTHER MATTERS
The Board of Directors does not know of any other matters which may
come before the meeting. However, if any other matters are properly presented to
the meeting, it is the intention of the persons named in the accompanying proxy
to vote, or otherwise to act, in accordance with their judgment on such matters.
-10-
<PAGE>
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone and
personal interview.
Deadline for Submission of Shareholder Proposals
Proposals of shareholders intended to be presented at the 1997 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices not later than September 22, 1997 for consideration for
inclusion in the proxy statement for that meeting. Further, all shareholder
proposals must meet certain federal securities law requirements before they will
be included in the Company's 1997 proxy statement.
Requests for Financial Statements
The Company will furnish, without charge, a copy of its financial
statements for the fiscal year ended June 30, 1996 to shareholders who make
written request to the Company at 747 Third Avenue, 4th Floor, New York, NY
10017 or call the Company collect at (212) 355- 2449.
The Board of Directors invites shareholders 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. Shareholders who attend the meeting may vote their stock personally
even though they have sent in their proxies.
By Order of the Board of Directors
MARGARET CHANCE, Secretary
January 27, 1997
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<PAGE>
PROXY FOR HOLDERS OF COMMON STOCK
Elk Associates Funding Corporation
The undersigned Common Shareholder of Elk Associates Funding Corporation
(the "Company") hereby constitutes and appoints Gary C. Granoff, Ellen M. Walker
and Margaret Chance, and each of them, singly, proxies and attorneys of the
undersigned, with full power of substitution to each, for and in the name of the
undersigned to vote and act upon all matters (unless and except as expressly
limited below) at the Annual Meeting of Shareholders of the Company to be held
on February 26, 1997 at the offices of Stursberg & Veith, 405 Lexington Avenue -
Suite 4949, New York, New York, at 10:30 a.m., and at any and all adjournments
thereof, in respect of all Common Stock of the Company held by the undersigned
or in respect of which the undersigned would be entitled to vote or act, with
all the powers the undersigned would possess if personally present. All proxies
heretofore given by the undersigned in respect of said meeting are hereby
revoked.
PROPOSAL 1. 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, Herbert Kanarick, Steven Etra, Steven R.
Busch, Paul Creditor, Allen Kaplan, Dan M. Granoff and
Alexander Nash.
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.)
- -----------------------------------------------------------------
PROPOSAL 2. To approve an amendment to the Company's certificate
of incorporation.
____FOR ____AGAINST ____ABSTAIN
(continued and to be signed on reverse side)
-12-
<PAGE>
PROPOSAL 3. To ratify the appointment of Marcum & Kliegman LLP
as independent public accountants for the fiscal year
ended June 30, 1997.
____FOR ____AGAINST ____ABSTAIN
PROPOSAL 4. To consider such other matters as may properly come before the
meeting.
____FOR ____AGAINST ____ABSTAIN
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Specify desired action by checkmarks in the appropriate spaces. The Proxy will
be voted as specified. If no specification is made, the Proxy will be voted for
the nominees named in the Proxy Statement to represent the Common Shareholders
and in favor of Proposals 2, 3 and 4. The persons named 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.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED
ENVELOPE AS SOON AS POSSIBLE.
Dated:__________________________
--------------------------------
(Signature of Shareholder)
--------------------------------
(Signature of Shareholder)
The signature(s) on this Proxy
should correspond exactly with the
shareholder's name as stencilled
hereon. In the case of joint
tenants, co-executors or
co-trustees, both should sign.
Person(s) signing as Attorney,
Executor, Administrator, Trustee or
Guardian should provide full title.
-13-
EXHIBIT 4.1
-----------
<PAGE>
CERTIFICATE OF INCORPORATION
ELK ASSOCIATES FUNDING CORPORATION
Under Section 402 of the Business Corporation Law
The undersigned, for the purpose of forming a corporation pursuant to
Section 402 of the Business Corporation Law of the State of New York, does
hereby certify and set forth:
FIRST: The name of the corporation is ELK ASSOCIATES FUNDING CORPORATION.
SECOND: As used in this Certificate of Incorporation, the term "Act" means
the Small Business Investment Act of 1958, as amended.
THIRD: This corporation is organized and chartered solely for the purpose
of performing the functions and conducting the activities contemplated under the
Small Business Investment Act of 1958, as amended from time to time, and will
provide assistance solely to small business concerns which will contribute to a
well-balanced national economy by facilitating ownership in such concerns by
persons whose participation in the free enterprise system is hampered because of
social or economic disadvantages.
In accordance with the aforesaid statement of purposes of this corporation,
this corporation shall have the following powers and authorities to carry out
said purposes:
<PAGE>
(a) To operate under the name set forth in FIRST above and to operate
solely as a small business investment company qualified under Section 301(d) of
the Act;
(b) To issue in consideration for cash or such other consideration
permitted by the Regulations the number of shares or stock indicated in
Paragraph FOURTH herein;
(c) To borrow money and issue its debenture bonds, promissory notes, or
other obligations under such general conditions and subject to such limitations
and regulations as the Small Business Administration may prescribe;
(d) To provide equity capital to small business concerns (as defined by the
Small Business Administration) under conditions authorized by Section 304 of the
Act and pertinent sections of the Regulations, with the right to sell or dispose
of securities so acquired in such manner and under such terms and conditions as
the Licensee shall determine;
(e) To make long-term loans (as defined by the Small Business
Administration) to small business concerns (as defined by the Small Business
Administration) for the purposes and in the manner and subject to the conditions
described in Section 305 of the Act; with the right to sell or dispose of such
loans in such manner and under such terms and conditions as the Company shall
determine;
(f) To acquire and make commitments for obligations and securities of a
single enterprise only within the limitations established by Section 306 of the
Act, unless such limitations are waived by the Small Business Administration;
(g) To undertake its operations in cooperation with banks or other
financial institutions, as contemplated under section 308(a) of the Act;
(h) To provide consulting and advisory services to small business concerns
on a fee basis;
(i) To invest funds not reasonably needed for its current operations only
in direct obligations of, or obligations guaranteed as to principal and interest
by, the United States Government;
(j) To conduct its operations in accordance with and subject to regulations
prescribed by the Small Business Administration;
-2-
<PAGE>
(k) To submit to and pay for examinations made by direction of the Small
Business Administration by examiners selected, employed or approved by the Small
Business Administration;
(l) To make reports to the Small Business Administration at such time and
in such form as the Small Business Administration may require;
(m) To conduct its operation under the Act in the County of Nassau, State
of New York, without limitation however, as to the residence, domicile, or place
of business of parties with which it transacts its business, or otherwise deals
in accordance with regulations issued by SBA;
(n) To regulate its business and conduct its affairs in a manner not
inconsistent with the Act and regulations prescribed by the Small Business
Administration thereunder;
(o) To adopt and use a corporate seal;
(p) To have succession for a period of not less than thirty (30) years
subject to dissolution in accordance with the laws of the State of New York and
subject to forfeiture of its license from the Small Business Administration for
violation of law or of regulations issued under the Act;
(q) To make contracts;
(r) To sue and be sued, complain and defend in any court of law or equity;
(s) By its Board of Directors, to appoint such officers and employees as
may be deemed proper, define their authority and duties, fix their compensation,
require bonds of such of them as it deems advisable and fix the penalty thereof,
dismiss such officers or employees, or any thereof, at pleasure, and appoint
others to fill their places;
(t) To adopt by-laws regulating the manner in which its stock shall be
transferred, its officers and employees appointed, its property transfered, and
the privileges granted to it by law exercised and enjoyed;
(u) To maintain its principal office at 2 Fir Drive, Great Neck, New York
and to establish branch offices or agencies within its operating territory
subject to the approval of the Small Business Administration;
(v) To acquire, hold, operate and dispose of any property (real, personal
or mixed) whenever necessary or appropriate to the carrying out of its lawful
functions;
-3-
<PAGE>
(w) To exercise such incidental powers as may reasonably be necessary to
carry out the business for which the corporation is established.
FOURTH: The total number of authorized shares of capital stock of this
corporation shall consist of 86,000 shares of which 85,000 shares shall be
preferred stock having a par value of $10.00 each and 1,000 shares shall be
common stock having no par value. The designation of each class, the number of
shares of each class and the par value, if any, of the shares of each class, are
as follows:
NUMBER OF SHARES CLASS PAR VALUE PER SHARE
---------------- ----- -------------------
85,000 Preferred $10.00
1,000 Common No Par Value
FIFTH: The designation, preferences, privileges and voting powers of the
shares of each class of shares of capital stock which the corporation is
authorized to issue and the restrictions or qualifications thereof, shall be as
follows:
(a) PREFERRED STOCK
(i) Issuance of Preferred Stock to Small Business Administration and
Preferred Stockholders Right of Dividend Payments. Preferred stock may only be
issued to the Government of the United states of America Small Business
Administration pursuant to applicable provisions of the Small Business
Investment Act of 1958, as amended, and the regulations promulgated thereunder.
Subject to the sound discretion of the Board of Directors, the Small Business
Administration shall be paid from the retained earnings of the corporation, an
annual dividend of three (3%)
-4-
<PAGE>
percent of the par value of its preferred stock, payable from the date of
issuance. Such dividends shall be payable on a preferred and cumulative basis so
that no amount shall be set aside or paid to any other class of stock until the
full amount of dividends due the Small Business Administration at the annual
rate of three (3%) percent cumulated to the intended date of payment, shall have
been paid to the Small Business Administration.
(ii) Redemption Rights. The corporation may, at its option, redeem the
whole or any part of the Small Business Administration's outstanding preferred
stock on any dividend payment date where at least thirty (30) days prior written
notice has been given to the Small Business Administration. The corporation
shall pay the Small Business Administration the par value of the shares to be
redeemed ($50,000.00) minimum per transaction), and accumulated dividends.
(iii) Redemption, Liquidation or Distribution of Assets. Before any
redemption of stock not purchased by the Small Business Administration, or
liquidation in whole or in part, or any distribution of assets to other
stockholders, the Small Business Administration shall be entitled to preferred
payment in full of the amounts stated in FOURTH (a)(i) above and the par value
of its preferred stock issued and outstanding. Notwithstanding the foregoing,
such par value need not be paid to the Small Business Administration before the
distribution of ordinary dividends from retained earnings to other shareholders.
(iv) The Small Business Administration shall not be
-5-
<PAGE>
entitled to vote on any matters for which a vote of the shareholders of the
corporation may be sought.
B. COMMON STOCK
The voting power of shares of capital stock in this corporation shall be
vested solely in the shares of common capital stock and the preferred capital
stock shall have no voting power whatsoever. Subsequent to payment of the
amounts due in accordance with this Paragraph FIFTH (A) of this Certificate of
Incorporation to the Small Business Administration on account of its preferred
stock hereinabove described (or other obligations currently due the Small
Business Administration in accordance with applicable SBA Regulations), the
common stockholders shall be entitled to receive dividends and distributions on
a share and share alike basis, when, as and if declared by the Board of
Directors of the corporation.
SIXTH: This Certificate of Incorporation shall not be amended without the
prior written approval of the Small Business Administration.
SEVENTH: The office of the corporation is to be located in the Town of
North Hempstead, County of Nassau, State of New York.
EIGHTH: The Secretary of State is designated as agent of the corporation
whom process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the corporation
served upon him is:
GARY C. GRANOFF, ESQ.
2 Park Avenue, Suite 2204
New York, New York 10016
-6-
<PAGE>
NINTH: The fiscal year of this corporation shall terminate on May 31.
IN WITNESS WHEREOF, this certificate has been subscribed to this 25th day
of June, 1979, by the undersigned who affirms that the statements made herein
are true under the penalties of perjury.
/S/Gary C. Granoff
------------------
GARY C. GRANOFF
2 Park Avenue, Suite 2204
New York, NY 10016
-7-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ELK ASSOCIATES FUNDING CORPORATION
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the corporation is ELK ASSOCIATES FUNDING CORPORATION.
SECOND: The certificate of incorporation of the corporation was filed by
the Department of State on July 9, 1979.
THIRD: The amendments of the certificate of incorporation of the
corporation effected by this certificate of amendment are as follows: (a) to
increase the aggregate number of shares which the corporation shall have
authority to issue by authorizing 35,000 additional shares, of the par value of
$10.00 each, of the same class as its presently authorized Preferred Stock; (b)
to add provisions denying preemptive rights to the holders of the Common Stock
of the corporation; and (c) to add provisions authorizing the Board of Directors
of the corporation to adopt, amend or repeal the by-laws of the corporation.
<PAGE>
FOURTH: To accomplish the foregoing amendments, Article FOURTH of the
certificate of incorporation of the corporation, relating to the number of
authorized shares of the capital stock of the corporation and Paragraph B of
Article FIFTH of the certificate of incorporation of the corporation, relating
to rights of the holders of the Common Stock of the corporation, are hereby
amended to read in their entirety as follows and, further, the following new
Articles TENTH relating to the adoption, amendment or repeal of the by-laws of
the corporation is added to the certificate of incorporation of the corporation:
"FOURTH: The total number of authorized shares of capital
stock of this corporation shall consist of 121,000 shares of
which 120,000 shares shall be preferred stock having a par
value of $10.00 each and 1,000 shares shall be common stock
having no par value. The designation of each class, the
number of shares of each class and the par value, if any, of
the shares of each class, are as follows:
NUMBER OF PAR VALUE PER
SHARES CLASS SHARE
--------- ----- -------------
120,000 Preferred $10.00
1,000 Common No Par Value
-2-
<PAGE>
"FIFTH: B. COMMON STOCK
The voting power of shares of capital stock in this corporation shall be
vested solely in the shares of common capital stock and the preferred capital
stock shall have no voting power whatsoever. Subsequent to payment of the
amounts due in accordance with this Paragraph FIFTH (A) of this Certificate of
Incorporation to the Small Business Administration on account of its preferred
stock hereinabove described (or other obligations currently due the Small
Business Administration in accordance with applicable SBA Regulations), the
common stockholders shall be entitled to receive dividends and distributions on
a share and share alike basis, when, as and if declared by the Board of
Directors of the corporation. No holder of any shares of the Common Stock of the
corporation shall, because of his ownership of such shares, have a preemptive or
other right to purchase, subscribe for, or take any part of any shares, notes,
debentures, bonds, or other securities convertible into or carrying options or
warrants to purchase shares of the corporation issued, optioned, or sold by it,
whether the shares be authorized by this certificate of incorporation or be
authorized by an amended certificate duly filed and in effect at the time of the
issuance or sale of such shares or of such notes, debentures, bonds, or other
securities convertible into or carrying options or warrants to purchase shares
of the corporation. Any part of the shares authorized by this certificate of
incorporation or by an amended certificate duly filed, and any notes,
debentures, bonds, or other securities convertible into or carrying options or
-3-
<PAGE>
warrants to purchase shares of the corporation may at any time be issued,
optioned for sale and sold, or disposed of by the corporation pursuant to the
resolution of its Board of Directors to such persons and upon such terms and
conditions as may, to such Board, seem proper and advisable without first
offering to existing shareholders the said shares or the said notes, debentures,
bonds, or other securities convertible into or carrying options or warrants to
purchase shares of the corporation, or any part of any thereof."
"TENTH: Subject to the approval of the Small Business Administration, if
such approval is required by applicable regulations, the by-laws of the
corporation may be adopted, amended or repealed by the affirmative vote of a
majority of the Board of Directors; provided, however, that any by-law adopted
by the Board of Directors may be amended or repealed by the shareholders of the
corporation entitled to vote thereon."
FIFTH: The foregoing amendments of the certificate of incorporation of the
corporation were authorized by the unanimous written consent of the holders of
all of the outstanding shares of the corporation entitled to vote on the said
amendments of the certificate of incorporation and, pursuant to the provisions
of Article SIXTH of the certificate of incorporation, by the Small Business
Administration.
IN WITNESS WHEREOF, we have subscribed this document on March 19, 1982 and
do hereby affirm, under the penalties of
-4-
<PAGE>
perjury, that the statements contained therein have been examined by us and are
true and correct.
/s/ Gary C. Granoff
--------------------------
Gary C. Granoff, President
/s/ Margaret Chance
--------------------------
Margaret Chance, Secretary
-5-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ELK ASSOCIATES FUNDING CORPORATION
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the corporation is ELK ASSOCIATES FUNDING CORPORATION.
SECOND: The certificate of incorporation of the corporation was filed by
the Department of State on July 9, 1979.
THIRD: The amendments of the certificate of incorporation of the
corporation effected by this certificate of amendment are to increase the
aggregate number of shares which the corporation shall have authority to issue
by authorizing 1,000 additional shares, of no par value, of the same class as
its presently authorized Common Stock and to authorize 60,000 additional shares,
of the par value of $10.00 each, of the same class as its presently authorized
Preferred Stock.
FOURTH: To accomplish the foregoing amendments, Article FOURTH of the
certificate of incorporation of the corporation, relating to the number of
authorized shares of the capital stock of
<PAGE>
the corporation, is hereby amended to read in its entirety as follows:
"FOURTH: The total number of authorized shares of capital stock of
this corporation shall consist of 182,000 shares of which 180,000 shares
shall be preferred stock having a par value of $10.00 each and 2,000 shares
shall be common stock having no par value. The designation of each class,
the number of shares of each class and the par value, if any, of the shares
of each class, are as follows:
NUMBER OF PAR VALUE PER
SHARES CLASS SHARE
------ ----- -----
180,000 Preferred $10.00
2,000 Common No Par Value
FIFTH: The foregoing amendments of the certificate of incorporation of the
corporation were authorized by the unanimous written consent of the holders of
all of the outstanding shares of the corporation entitled to vote on the said
amendments of the certificate of incorporation and, pursuant to the provisions
of Article SIXTH of the certificate of incorporation, by the Small Business
Administration.
IN WITNESS WHEREOF, we have subscribed this document on August 20, 1982 and
do hereby affirm, under the penalties of
-2-
<PAGE>
perjury, that the statements contained therein have been examined by us and are
true and correct.
/s/ Gary C. Granoff
---------------------------
Gary C. Granoff, President
/s/ Margaret Chance
---------------------------
Margaret Chance, Secretary
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ELK ASSOCIATES FUNDING CORPORATION
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the corporation is ELK ASSOCIATES FUNDING CORPORATION.
SECOND: The certificate of incorporation of the corporation was filed by
the Department of State on July 9, 1979.
THIRD: The amendments of the certificate of incorporation of the
corporation effected by this certificate of amendment are (i) to change 1,422
authorized Common shares without par value of the corporation, all of which are
issued, into 492,012 issued Common shares of a par value of $.01 each, the terms
of the change being at the rate of 1 issued Common share without par value for
346 issued Common shares of a par value of $.01 each, and, in that connection,
to reduce the stated capital of the corporation in respect of each issued Common
share to $.01 so that the aggregate stated capital of the corporation is changed
to $4,920.12, and to
<PAGE>
change 578 authorized Common shares without par value of the corporation, none
of which is issued, into 199,988 unissued Common shares of a par value of $.01
each; (ii) to increase the aggregate number of shares which the corporation
shall have authority to issue by authorizing 208,000 additional shares, of $.01
par value, of the same class as its authorized Common Stock (as such authorized
Common Stock shall have been changed pursuant hereto) and by authorizing 345,000
additional shares, of the par value of $10.00 each, of the same class as its
presently authorized Preferred Stock; (iii) to change the address to which the
Secretary of State shall mail a copy of any process against the corporation
served upon him; and (iv) to change the address of the corporation.
FOURTH: To accomplish the foregoing amendments, Articles FOURTH, SEVENTH
and EIGHTH of the certificate of incorporation of the corporation, relating to
the number of authorized shares of the capital stock of the corporation, to the
address for the mailing of process, to the office of the corporation, and the
address of the corporation, respectively, are amended to read in their entirety
as follows:
(a) "FOURTH: The total number of authorized shares of capital stock of
this corporation shall consist of 1,425,000 shares of which 525,000 shares
shall be preferred stock having a par value of $10.00 each and 900,000
shares shall be common stock having a par value of $.01 each."
-2-
<PAGE>
(b) "SEVENTH: The office of the corporation is to be located in the
City, County and State of New York."
(d) "EIGHTH: The Secretary of State is designated as agent of the
corporation whom process against it may be served. The post office address
to which the Secretary of State shall mail a copy of any process against
the corporation served upon him is:
Gary C. Granoff, Esq.
277 Park Avenue
Suite 4300
New York, New York 10172
FIFTH: The issued and outstanding shares of common stock of the corporation
which number 1,422 shares, and the shares of the Corporation that are not issued
and outstanding which number 578 shares each of no par value, shall be changed
into new shares of common stock, each of a par value of one cent ($.01) per
share, at the rate of 346 of the new shares of common stock for each one (1)
share of the former shares of common stock.
SIXTH: The above and foregoing amendments to the Certificate of
Incorporation were authorized by the unanimous written consent of the holders of
all of the outstanding shares entitled to vote pursuant to a written consent of
stockholders dated the 15th day of December, 1983.
IN WITNESS WHEREOF, this Certificate of Amendment has been subscribed to
this 9th day of January, 1984 by the undersigned
-3-
<PAGE>
who affirms that the statements made herein are true under the penalties of
perjury.
/s/ Gary C. Granoff
-----------------------------
Gary C. Granoff, President
/s/ Margaret Chance
-----------------------------
Margaret Chance, Secretary
-4-
<PAGE>
CERTIFICATE OF CHANGE
OF THE
CERTIFICATE OF INCORPORATION
OF
ELK ASSOCIATES FUNDING CORPORATION
Under Section 805 of the Business Corporation Law
IT IS HEREBY CERTIFIED THAT:
FIRST: The name of the corporation is ELK ASSOCIATES FUNDING CORPORATION.
SECOND: The Certificate of Incorporation of the corporation was filed by
the Department of State on July 9, 1979.
THIRD: The purpose of this Certificate of Change is to change the address
to which the Secretary of State shall mail a copy of any process against the
corporation served upon him or her.
FOURTH: To accomplish the foregoing change, Article EIGHTH of the
Certificate of Incorporation of the corporation, relating to the address for the
mailing of process is hereby changed so that it shall read in its entirety as
follows:
(a) "EIGHTH: The Secretary of State is designated as agent of the
corporation against whom process against it may be served. The post office
address to which the Secretary of State shall mail a copy of any process
against the corporation served upon him or her is:
GRANOFF & WALKER
600 THIRD AVENUE
SUITE 3810
NEW YORK, NEW YORK 10016-2094
FIFTH: The above and foregoing change to the Certificate of Incorporation
was authorized by a meeting of the Board of Directors held on September 24,
1985.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Change has been subscribed to this
3rd day of January, 1986 by the undersigned who affirms that the statements made
herein are true under the penalties of perjury.
/s/ Gary C. Granoff
-----------------------------------
GARY C. GRANOFF, President
/s/ Margaret Chance
-----------------------------------
MARGARET CHANCE, Secretary
-2-
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
ELK ASSOCIATES FUNDING CORPORATION
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the corporation is ELK ASSOCIATES FUNDING CORPORATION.
SECOND: The certificate of incorporation of the corporation was filed by
the Department of State on July 9, 1979.
THIRD: The amendments to the certificate of incorporation of the
corporation effected by this certificate of amendment are to increase the
aggregate number of shares of common stock which the corporation shall have
authority to issue from the existing 900,000 authorized shares, $.01 par value,
to 1,500,000 authorized shares, $.01 par value, by authorizing 600,000
additional shares of the par value of $.01 each, of the same class as its
presently authorized Common Stock and to increase from 525,000 authorized
shares, $10. par value, to 750,000 authorized shares, $10. par value by
authorizing 225,000 additional shares, of
<PAGE>
the par value of $10. each, of the same class of its presently authorized
Preferred Stock.
FOURTH: To accomplish the foregoing amendments, Article FOURTH of the
certificate of incorporation of the corporation, relating to the number of
authorized shares of the capital stock of the corporation, is hereby amended to
increase the number of authorized shares of common stock from 900,000 shares,
$.01 par value, to 1,500,000 shares, $.01 par value, and to increase the number
of authorized shares of Preferred Stock from 525,000 shares, $10. par value, to
750,000 shares, $10. par value, and shall read in its entirety as follows:
"FOURTH: The total number of authorized shares of capital stock of
this corporation shall consist of 2,250,000 shares of which 750,000
shares shall be preferred stock having a par value of $10. each and
1,500,000 shares shall be common stock having a par value of $.01
each."
FIFTH: The foregoing amendment to the certificate of incorporation of the
corporation was authorized by the unanimous written consent of the corporation's
board of directors, subsequently approved by the affirmative vote of the holders
of a majority of the outstanding shares of the corporation entitled to vote on
said amendment to the certificate of incorporation and, pursuant to the
provisions of Article SIXTH of the certificate of incorporation, by the United
States Small Business Administration.
IN WITNESS WHEREOF, we have subscribed this document on June 24, 1987 and
do affirm, under penalties of perjury, that the
-2-
<PAGE>
statements contained therein have been examined by us and are true and correct.
/s/ Gary C. Granoff
--------------------------------
GARY C. GRANOFF, President
/s/ Margaret Chance
--------------------------------
MARGARET CHANCE, Secretary
<PAGE>
-3-
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ELK ASSOCIATES FUNDING CORPORATION
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the corporation is ELK ASSOCIATES FUNDING CORPORATION.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on July 9, 1979, under the name of Elk Associates
Funding Corporation.
THIRD: The Certificate of Incorporation of Elk Associates Funding
Corporation is hereby amended, to change and increase the capitalization from
2,250,000 shares to 2,800,000 shares of which 1,500,000 are common stock at one
($.01) cent par value and 750,000 shares are preferred at $10.00 par value, and
of which 547,271 shares of preferred are presently issued and outstanding, and
of which 202,729 are presently unissued, to 2,800,000 shares of which 1,500,000
are common shares at $.01 cent par value, and 547,271 shall be Class A-3%
preferred with a par value of $10.00, and 752,729 shall be Class B-4% preferred
with a
<PAGE>
par value of $10.00. The 547,271 preferred shares that are currently issued and
outstanding shall be changed into the newly authorized Class A 3% Preferred
Shares at the rate of one for one. The currently authorized and unissued 202,729
preferred shares shall be changed into the newly authorized Class B-4% preferred
shares at the rate of one for one and the Class B-4% preferred shares shall be
increased by 550,000 Class B-4% preferred shares with a par value of $10.00. The
Certificate of Incorporation is further amended to add provisions concerning the
fact that any preferred shares issued by the Corporation from and after this
date shall be Class B preferred shares and shall have an annual dividend of four
(4%) percent of the par value of said preferred shares, and that any of said
Class B-4% preferred shares issued shall be deemed to have a mandatory
redemption requirement, so that any such Class B-4% preferred shares issued
shall be redeemed by the Corporation within fifteen (15) years from date of
issuance, and that in the event of any liquidation of the Corporation, the Class
A and the Class B Preferred Stock, after payment of all accrued but unpaid
dividends, shall have equal standing with neither Class having priority over the
other with respect to any liquidation dividends.
FOURTH: To accomplish the foregoing amendments, Article FOURTH of the
Certificate of Incorporation of the Corporation is
hereby amended in its entirety to read as follows:
-2-
<PAGE>
(a) The first paragraph of Article FOURTH of the Certificate of
Incorporation shall be deemed amended in its entirety as follows:
"FOURTH: The total number of authorized shares of capital stock of this
corporation shall consist of 2,800,000 shares of which 1,300,000 shares shall be
preferred stock having a par value of $10.00 each and 1,500,000 shares shall be
common shares having a par value of $.01 (one cent) per share. The Preferred
stock shall further be divided into 547,271 shares of Class A-3% Preferred Stock
having a par value of $10.00 per share, and 752,729 shares of Class B-4%
Preferred Stock having a par value of $10.00 per share. The designation of each
class, the number of shares of each class and par value of the shares of each
class are as follows:
Par Value
---------
Number of Shares Type Per Share
- ---------------- ---- ---------
547,271 Class A Preferred Stock $ 10.00
752,729 Class B Preferred Stock $ 10.00
1,500,000 Common Stock $ 0.01
The Class A Preferred Shares and the Class B Preferred Shares authorized are
restricted solely for issuance to the United States Government Small Business
Administration."
(b) Article FOURTH of the Certificate of Incorporation shall be deemed
further amended by the following additional paragraph:
"All references in this Certificate of Incorporation to the Preferred Stock
to be issued to the United States Government Small Business Administration
which carries an
-3-
<PAGE>
annual dividend of three (3%) percent of the par value of its Preferred
Stock shall apply solely to the 547,271 shares of Preferred Stock
previously issued by this Corporation to the United States Government Small
Business Administration and such 547,271 shares of Preferred Stock that are
presently issued are herein designated for future reference as Class A
Preferred Stock. Any Preferred Stock to be issued from and after the date
of the filing of this Certificate of Amendment to the Certificate of
Incorporation of the Corporation shall be deemed to be Class B Preferred
Stock which shall have an annual dividend of four (4%) percent of the par
value of said Preferred Stock, payable from the date of issuance and which
shares shall be deemed to have a mandatory redemption requirement so that
any Class B Preferred Stock that is issued by the Corporation shall be
redeemed by the Corporation within fifteen (15) years from the date of any
issuance of such shares. All other terms and conditions that are presently
set forth in the Certificate of Incorporation, as amended, that otherwise
apply to the Class A Preferred Stock shall also be deemed to apply to the
Class B Preferred Stock. In the event of any liquidation of the
Corporation, the Class A Preferred Stock and Class B Preferred Stock, after
payment of all accrued by unpaid dividends, shall have equal standing
-4-
<PAGE>
with neither Class having priority over the other with respect to any
liquidation distributions."
FIFTH: The foregoing amendments of the Certificate of Incorporation of the
Corporation were authorized by the vote of a majority of the holders of all of
the outstanding shares of the corporation entitled to vote on the said
amendments of the Certificate of Incorporation subsequent to the affirmative
vote of the Board of Directors and, pursuant to the provisions of Article SIXTH
of the Certificate of Incorporation, by the United States Government Small
Business Administration.
IN WITNESS WHEREOF, this Certificate of Amendment has been subscribed to
this 30th day of April, 1992 by the undersigned who affirms that the statements
made herein are true under the penalties of perjury.
/s/ Gary C. Granoff
--------------------------
GARY C. GRANOFF, PRESIDENT
/s/ Margaret Chance
--------------------------
MARGARET CHANCE, SECRETARY
-5-
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ELK ASSOCIATES FUNDING CORPORATION
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the Corporation is ELK ASSOCIATES FUNDING CORPORATION.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on July 9, 1979, under the name of Elk Associates
Funding Corporation.
THIRD: The Certificate of Incorporation of Elk Associates Funding
Corporation is hereby amended. The amendments to the Certificate of
Incorporation of the Corporation effected by this Certificate of Amendment are
to: (i) increase the number of authorized shares of Common Stock from 1,500,000
to 2,000,000, (ii) rename the Class A Preferred Stock and Class B Preferred
Stock as Series A Preferred Stock and Series B Preferred Stock, respectively,
(iii) grant the United States Small Business Administration a liquidating
interest in a restricted capital surplus account, contingent upon the Company's
repurchase of its Series A Preferred Stock from the United States Small Business
Administration, (iv) incorporate the provisions of 13 CFR ss. 107.261(f) and 13
CFR ss. 107.262 into the Company's certificate of incorporation and consent to
the exercise by the United States
<PAGE>
Small Business Administration of all rights of the United States Small Business
Administration under 13 CFR ss. 107.261(f) and 13 CFR ss. 107.262, and agree to
take all actions which the United States Small Business Administration may
require in accordance with such provisions and (v) change the address to which
the Secretary of State shall mail a copy of any process against the Corporation
served upon him or her.
FOURTH: To accomplish the foregoing amendments, Articles FOURTH, FIFTH and
EIGHTH of the Certificate of Incorporation of the Corporation are hereby
amended:
(a) Article FOURTH of the Certificate of Incorporation shall be deemed
amended and restated as follows:
"FOURTH: (a) The total number of authorized shares of capital stock of
this Corporation shall consist of 3,300,000 shares of which 1,300,000
shares shall be preferred stock having a par value of $10.00 each and
2,000,000 shares shall be Common Stock having a par value of $.01 (one
cent) per share. The preferred stock shall further be divided into 547,271
shares of Series A Preferred Stock having a par value of $10.00 per share
and a 3% dividend rate, and 752,729 shares of Series B Preferred Stock
having a par value of $10.00 per share and a 4% dividend rate. The
designation of each class or series, the number of shares of each class or
series and par value of the shares of each class or series are as follows:
2
<PAGE>
Number of Par Value
--------- ---------
Shares Type Per Share
------ ---- ---------
547,271 Series A Preferred Stock $10.00
752,729 Series B Preferred Stock $10.00
2,000,000 Common Stock $ 0.01
The Series A Preferred Stock and the Series B Preferred Stock authorized
are restricted solely for issuance to the United States Small Business
Administration.
(b) All reference in this Certificate of Incorporation to the
preferred stock which carries an annual dividend of three (3%) percent of
its par value shall apply solely to the 547,271 shares of preferred stock
previously issued by this Corporation to the United States Small Business
Administration which is designated for future reference as Series A
Preferred Stock. Any preferred stock to be issued from and after the date
of the filing of this Certificate of Amendment to the Certificate of
Incorporation of the Corporation shall be deemed to be Series B Preferred
Stock which shall have an annual dividend of four (4%) percent of its par
value payable from the date of issuance and which shares shall be deemed to
have a mandatory redemption requirement so that any Series B Preferred
Stock that is issued by the Corporation shall be redeemed by the
Corporation within fifteen (15) years from the date of any issuance of such
shares. All other terms and conditions that are presently set forth in the
Certificate of Incorporation, as amended, that otherwise apply to the
Series A Preferred Stock shall also be deemed to apply to the Series B
Preferred Stock. In the event of any liquidation of the
3
<PAGE>
Corporation, the Series A Preferred Stock and Series B Preferred Stock,
after payment of all accrued but unpaid dividends, shall have equal
standing with neither series having priority over the other with respect to
any liquidation distributions."
(b) Article FIFTH of the Certificate of Incorporation shall be deemed
amended by adding the following additional paragraphs:
"(c) Grant of Liquidating Interest to the United States Small Business
Administration and Creation of Restricted Contributed Capital Surplus
Account.
(i) Definitions: For the purposes of this Article FIFTH (c) the following
terms shall have the meaning hereinafter set forth:
"Liquidating Interest" shall mean a preferential limited ownership
interest in a new capital surplus account to be created by the
Corporation and to be known as the "Restricted Contributed Capital
Surplus Account". The Liquidating Interest may only be granted to the
United States Small Business Administration and only in conjunction
with a redemption at a discount of the Corporation's outstanding
Series A Preferred Stock, with a 3% dividend rate, held by the United
States Small
4
<PAGE>
Business Administration, as contemplated and authorized by Public Law
101-162, dated November 21, 1989.
"Restricted Contributed Capital Surplus" shall mean the new capital
account which will be used solely for the purpose of recording on the
accounts of the Corporation, a credit representing the difference
between the purchase price to be paid for the redemption of the Series
A Preferred Stock, and the aggregate par value of the Series A
Preferred Stock.
The "Shares" shall mean the aggregate number of shares of Series A
Preferred Stock being repurchased.
"Purchase Price" shall mean the aggregate value of the consideration
to be paid to the United States Small Business Administration by the
Corporation for the Shares, including the right to any unpaid
dividends accrued thereon.
"Discount" shall mean the amount by which the aggregate par value of
the Series A Preferred Stock being repurchased exceeds the Purchase
Price.
(ii) Liquidating Interest
Upon the execution of a preferred stock repurchase
5
<PAGE>
agreement between the United States Small Business Administration and
the Corporation (the "Agreement"), the Corporation shall carry on its
balance sheet a capital account designated Restricted Contributed
Capital Surplus and the Corporation shall grant to the United States
Small Business Administration a Liquidating Interest in the Restricted
Contributed Capital Surplus Account, pursuant to the terms of such
Agreement.
The initial value of the Liquidating Interest shall be equal to
$3,557,261.50 and shall decline on a straight-line basis at the end of
each month by an amount equal to 1/60th (1.6667%) of its original
amount beginning one month after the date of the Agreement. Upon the
occurrence of any Event of Default (as defined in the Agreement) the
value of the Liquidating Interest shall become fixed at the level
immediately preceding the Event of Default and shall not decline
further until such time as the default is cured or waived.
The Liquidating Interest shall expire on the later of (i) the date
sixty (60) months from the date of the Agreement, or (ii) if an Event
of Default has occurred and such default has been cured or waived,
such later date on which the Liquidating Interest is fully amortized.
6
<PAGE>
If, prior to the expiration of the Liquidating Interest as set forth
above, the Corporation's Board of Directors or its shareholders
authorize the liquidation of the Corporation, or a judicial order is
issued directing the voluntary or involuntary liquidation of the
Corporation, or the United States Small Business Administration
initiates receivership or liquidation proceedings, pursuant to the
Small Business Investment Act of 1958, as amended, and the regulations
adopted thereunder, any assets which are available, after the payment
or the provision for the payment of all debts of the Corporation,
shall be distributed first to the United States Small Business
Administration until the fair market value of such assets is equal to
the amount of the Liquidating Interest or all remaining assets have
been distributed to the United States Small Business Administration.
(d) The provisions of 13 CFR ss. 107.261(f) and 13 CFR ss. 107.262 are
hereby incorporated by reference into this Certificate of Incorporation as
if fully set forth herein. This Corporation hereby consents to the exercise
by the United States Small Business Administration of all of the rights of
the United States Small Business Administration under 13 CFR ss. 107.261(f)
and 13 CFR ss. 107.262, and agrees to take all actions which the United
States Small Business Administration may require in accordance with such
provisions."
7
<PAGE>
(c) Article EIGHTH of the Certificate of Incorporation shall be deemed
amended and restated as follows:
"EIGHTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served. The post
office address within the State of New York to which the Secretary of State
shall mail a copy of any process against the Corporation served upon him or her
is:
Granoff & Walker, P.C.
747 Third Avenue- 4th Floor
New York, New York 10017
FIFTH: The amendments to Articles FOURTH and FIFTH of the Certificate of
Incorporation of the Corporation were authorized by the vote of a majority of
the holders of all of the outstanding shares of the corporation entitled to vote
on the said amendments of the Certificate of Incorporation subsequent to the
affirmative vote of the Board of Directors and, pursuant to the provisions of
Article SIXTH of the Certificate of Incorporation, by the United States Small
Business Administration. The amendment to Article EIGHTH of the Certificate of
Incorporation of the Corporation was authorized by the Board of Directors of the
Corporation and, pursuant to the provisions of Article SIXTH of the Certificate
of Incorporation, by the United States Small Business Administration.
8
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment to the Certificate of
Incorporation has been subscribed to this 9th day of August, 1994 by the
undersigned who affirm that the statements made herein are true under the
penalties of perjury.
/s/ Gary C. Granoff
--------------------------
GARY C. GRANOFF, PRESIDENT
/s/ Margaret Chance
--------------------------
MARGARET CHANCE, SECRETARY
9
EXHIBIT 4.2
-----------
<PAGE>
BY-LAWS
OF
ELK ASSOCIATES FUNDING CORPORATION
ARTICLE I. SHAREHOLDERS' MEETING
Section 1. - Annual Meeting.
The annual meeting of the shareholders shall be held on the 15th day of
April of each year, at 10:00 o'clock in the forenoon, at the principal office of
the corporation, or such place as the Board of Directors shall authorize. The
meeting shall be for the purpose of electing directors and for the transaction
of such business as may be brought before it. If such date should be a legal
holiday, the meeting shall be held on the next business day following, at the
same hour. Notice of such meeting shall be given by the Secretary as required by
law; by serving personally or mailing not less than ten days and not more than
fifty days previous to such meeting, postage prepaid, a copy of such notice,
addressed to each shareholder entitled to vote at such meeting. Any and all
notices of such meeting may be waived by any shareholder by written waiver or by
attendance thereat, whether in person or by proxy.
Section 2. - Special Meetings.
Special meetings of shareholders may be called by the Board of Directors or
by the President, and must be called by the President at the request in writing
by shareholders owning a majority of the shares issued and outstanding. Notice
of such special meetings shall be given by the President or the
<PAGE>
Secretary, and shall be served personally or by mail addressed to each
shareholder of record at his last known address no less than ten days prior to
the date of such meeting.
The notice of such meeting shall contain a statement of the business to be
transacted thereat. No business other than that specified in the notice of the
meeting shall be transacted at any such special meeting. Notice of special
meeting may be waived by any shareholder by written waiver or by attendance
thereat, in person or by proxy.
Section 3. - Voting.
Shareholders entitled to vote at meetings may do so in person or by proxy
appointed by an instrument in writing subscribed by the shareholder or by his
duly authorized attorney. Each shareholder shall be entitled to one vote for
each share registered in his name on the books of the Corporation, unless
otherwise provided in the Certificate of Incorporation.
Section 4. - Quorum.
At any meeting of the shareholders, except as otherwise provided by
statute, or by the Certificate of Incorporation, or by these By-Laws, the
holders of a majority of the shares entitled to vote thereat shall constitute a
quorum. However, a lesser number when not constituting a quorum may adjourn the
meeting from time to time until a quorum shall be present or represented.
<PAGE>
Section 5. - Voting at Shareholders' Meetings.
At any meeting of the shareholders, except as otherwise provided by
statute, or by the Certificate of Incorporation, or by these By-Laws, the vote
of the holders of a majority of the shares present in person or by proxy shall
decide any question brought before such meeting.
ARTICLE II. DIRECTORS
Section 1. - Number.
The affairs and the business of the Corporation, except as otherwise
provided in the Certificate of Incorporation, shall be managed by a Board of
three (3) Directors.
Section 2. - How Elected.
At the annual meeting of shareholders, the persons duly elected by the
votes cast at the election held thereat shall become the directors for the
ensuing year.
Section 3. - Term of Office.
The term of office of each of the directors shall be until the next annual
meeting of shareholders and thereafter until a successor has been elected and
qualified.
<PAGE>
Section 4. - Duties of Directors.
The Board of Directors shall have the control and general management of the
affairs and business of the Corporation unless otherwise provided in the
certificate of Incorporation. Such directors shall in all cases act as a Board
regularly convened by a majority, and they may adopt such rules and regulations
for the conduct of their meetings, and the management and business of the
Corporation as they may deem proper, not inconsistent with these By-Laws and the
Laws of the State of New York.
Section 5. - Directors' Meetings.
Regular meetings of the Board of Directors shall be held immediately
following the annual meetings of the shareholders, and at such other times as
the Board of Directors may determine. Special meetings of the Board of Directors
may be called by the President at any time and must be called by the President
or the Secretary upon the written request of two Directors.
Section 6. - Notice of Special Meetings.
Notice of special meetings of the Board of Directors shall be served
personally or by mail addressed to each Director at his last known address no
less than five days prior to the date of such meeting. The notice of such
meeting shall contain a statement of the business to be transacted thereat. No
business other than that specified in the call for the meeting shall be
transacted at any such special meeting. Notice of special
<PAGE>
meeting may be waived by any Director by written waiver or by personal
attendance thereat without protest of lack of notice to him.
Section 7. - Quorum.
At any meeting of the Board of Directors except as otherwise provided by
the Certificate of Incorporation, or by these By-Laws, a majority of the Board
of Directors shall constitute a quorum. However, a lesser number when not
constituting a quorum may adjourn the meeting from time to time until a quorum
shall be present or represented.
Section 8. - Voting.
Except as otherwise provided by statute, or by the Certificate of
Incorporation, or by these By-Laws, the affirmative vote of a majority of the
Directors present at any meeting of the Board of Directors at which a quorum is
present shall be necessary for the transaction of any item of business thereat.
Section 9. - Vacancies.
Unless otherwise provided in the Certificate of Incorporation, vacancies in
the Board of Directors occurring between annual meetings of the shareholders
shall be filled for the unexpired portion of the term by a majority vote of the
remaining Directors, even though less than a quorum exists.
<PAGE>
Section 10. - Removal of Directors.
Any or all of the directors may be removed, either with or without cause at
any time by a vote of the shareholders at any meeting called for such purpose.
ARTICLE III. OFFICERS
Section 1. - Number of Officers.
The officers of the Corporation shall be a President, a Vice President, a
Treasurer and Secretary, and any officer may hold more than one office, except
the same person may not hold the offices of President and Secretary. The Board
of Directors may appoint such other officers, agents and employees as in their
sole discretion they shall deem advisable, who shall be subject to recall at all
times by a majority vote of the Board of Directors.
Section 2. - Election of Officers.
Officers of the Corporation shall be elected at the first meeting of the
Board of Directors. Thereafter, and unless otherwise provided in the Certificate
of Incorporation, the officers of the Corporation shall be elected annually by
the Board of Directors at its meeting held immediately after the annual meeting
of shareholders and shall hold office for one year and until their successors
have been duly elected and qualified.
<PAGE>
Section 3. - Removal of Officers.
Any officer elected by the Board of Directors may be removed, with or
without cause, and a successor elected, by vote of the Board of Directors,
regularly convened at a regular or special meeting. Any officer elected by the
shareholders may be removed, with or without cause, and a successor elected, by
vote of the shareholders, regularly convened at an annual or special meeting.
Section 4. - President.
The President shall be the chief executive officer of the
Corporation and shall have general charge of the business, affairs and property
thereof, subject to direction of the Board of Directors, and shall have general
supervision over its officers and agents. He shall, if present, preside at all
meetings of the Board of Directors in the absence of a Chairman of the Board and
at all meetings of shareholders. He may do and perform all acts incident to the
office of President.
Section 5. - Vice-President.
In the absence of or inability of the President to act, the
Vice-President shall perform the duties and exercise the powers of the President
and shall perform such other functions as the Board of Directors may from time
to time prescribe.
<PAGE>
Section 6. - Secretary.
The Secretary shall:
a) Keep the minutes of the meetings of the Board of Directors and of the
shareholders in appropriate books.
b) Give and serve all notice of all meetings of the Corporation.
c) Be custodian of the records and of the seal of the Corporation and affix
the latter to such instruments or documents as may be authorized by the Board of
Directors.
d) Keep the shareholder records in such a manner as to show at any time the
amount of shares, the manner and the time the same was paid for, the names of
the owners thereof alphabetically arranged and their respective places of
residence, or their Post Office addresses, the number of shares owned by each of
them and the time at which each person became owner, and keep such shareholder
records available daily during the usual business hours at the office of the
Corporation subject to the inspection of any person duly authorized, as
prescribed by law.
e) Do and perform all other duties incident to the of- fice of Secretary.
Section 7. - Treasurer.
The Treasurer shall:
a) Have the care and custody of and be responsible for all of the funds and
securities of the Corporation and deposit of
<PAGE>
such funds in the name and to the credit of the Corporation in such a bank and
safe deposit vaults as the Directors may designate.
b) Exhibit at all reasonable times his books and accounts to any Director
or shareholder of the Corporation upon application at the office of the
Corporation during business hours.
c) Render a statement of the condition of the finances of the Corporation
at each stated meeting of the Board of Directors if called upon to do so, and a
full financial report at the annual meeting of shareholders. He shall keep at
the office of the Corporation correct books of account of all of its business
and transactions and such books of account as the Board of Directors may
require. He shall do and perform all other duties incident to the office of
Treasurer.
Section 8. - Duties of Officers May Be Delegated.
In the case of the absence of any officer of the Corporation, or for any
reason the Board may deem sufficient, the Board may, except as otherwise
provided in these By-Laws, delegate the powers or duties of such officers to any
other officer or any Director for the time being, provided a majority of the
entire Board concur therein.
Section 9. Vacancies - How Filled.
Should any vacancy in any office occur by death, resignation or otherwise,
the same shall be filled, without undue
<PAGE>
delay, by the Board of Directors at its next regular meeting or at a special
meeting called for that purpose, except as otherwise provided in the Certificate
of Incorporation.
Section 10. - Compensation of Officers.
The officers shall receive such salary or compensation as may be fixed and
determined by the Board of Directors, except as otherwise provided in the
certificate of Incorporation.
ARTICLE IV. CERTIFICATES REPRESENTING SHARES
Section 1. - Issue of Certificates Representing Shares.
The President shall cause to be issued to each shareholder one or more
certificates, under the seal of the Corporation, signed by the President (or
Vice-President) or Chairman or Vice-Chairman of the Board and the Treasurer (or
Secretary) certifying the number of shares owned by him in the Corporation.
Section 2. - Transfer of Shares.
The shares of the Corporation shall be transferable only upon its books by
the registered holders thereof in person or by their duly authorized attorneys
or legal representatives. The former certificates must be surrendered to the
Secretary, or to such other person as the Directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be
<PAGE>
issued. No transfer of shares shall be made within ten days next preceding the
annual meeting of shareholders.
Section 3. - Lost Certificates.
If the holder of any shares shall lose the certificate thereof, he shall
immediately notify the Corporation of such fact and the Board of Directors may
then cause a new certificate to be issued to him subject to the deposit of a
bond or other indemnity in such form and with such sureties if any as the Board
may require.
ARTICLE V. SEAL
The seal of the Corporation shall be as follows:
ARTICLE VI. DIVIDENDS OR OTHER DISTRIBUTIONS
The Corporation, by vote of the Board of Directors, may declare and pay
dividends or make other distributions in cash or its bonds or its property on
its outstanding shares to the extent as provided and permitted by law, unless
contrary to any restriction contained in the Certificate of Incorporation.
<PAGE>
ARTICLE VII. NEGOTIABLE INSTRUMENTS
All checks, notes or other negotiable instruments shall be signed on behalf
of this Corporation by such of the officers, agents and employees as the Board
of Directors may from time to time designate, except as otherwise provided in
the certificate of Incorporation.
ARTICLE VIII. FISCAL YEAR
The fiscal year of the Corporation shall be determined by resolution of the
Board of Directors.
ARTICLE IX. OFFICES
The principal office of the Corporation shall be located in the City of
Great Neck, County Of Nassau, State of New York. The Board of Directors may from
time to time designate such other offices within or without the State of New
York as the business of the Corporation may require.
ARTICLE X. AMENDMENTS
By-laws may be amended, repealed or adopted by vote of the holders of the
shares at the time entitled to vote in the election of any Directors, and may be
amended, repealed or adopted as otherwise provided by law.
EXHIBIT 5
---------
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION
NUMBER SHARES
U 1223 SPECIMEN
COMMON STOCK
CUSIP 287166 10 2
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS
CERTIFIES
THAT
SPECIMEN
is the
owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK PAR VALUE $.01 EACH OF
ELK ASSOCIATES FUNDING CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are subject to all of the terms, conditions
and limitations of the Certificate of Incorporation and all amendments thereto
and the By-laws of the Corporation, to all of which the holder of this
certificate assents by acceptance hereof. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated SPECIMEN
/s/ Gary C. Granoff Countersigned and Registered:
PRESIDENT CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.) Transfer Agent
and Registrar
By:
/s/ Margaret Chance
SECRETARY Authorized Officer
EXHIBIT 6
---------
<PAGE>
ELK ASSOCIATES
FUNDING CORPORATION AND SUBSIDIARY
Consolidated Financial Statements for the
Six Months Ended December 31, 1995 and for the
Year Ended June 30, 1995, and
Independent Accountants' Report
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
Page
INDEPENDENT ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND FOR THE YEAR ENDED JUNE 30, 1995:
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Consolidated Schedule of Loans 6
Notes to Consolidated Financial Statements 7-12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Elk Associates Funding Corporation and Subsidiary
(A Specialized Small Business Investment Company Licensed by the SBA)
We have reviewed the accompanying consolidated balance sheet, including the
schedule of loans, of Elk Associates Funding Corporation and Subsidiary as
of December 31, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the six months then ended. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
As explained in Note 1, the financial statements include loans valued at
$23,353,812 as of December 31, 1995, 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 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.
As explained in Note 1, on December 19, 1994 the shareholders of Elk
Associates Funding Corporation approved a quasi-reorganization of the
company. The quasi-reorganization resulted in the elimination of the
retained earnings deficit effective July 1, 1994.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Elk Associates Funding Corporation as of
June 30, 1995, and the related statements of income, shareholders' equity,
and cash flows for the year then ended; and in our report dated August 1,
1995, we expressed an unqualified opinion on those financial statements and
included an explanatory paragraph regarding the possible effect on the
financial statements of the valuation of loans determined by the Board of
Directors.
February 12, 1996
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1995 1995
(Unaudited)
<S> <C> <C>
Loans (Notes 1, 3 and 5) $23,642,812 $23,039,462
Less allowance for loan losses (289,000) (277,000)
23,353,812 22,762,462
Cash 1,065,755 1,139,501
Accrued interest receivable (Notes 1 and 3) 313,402 240,221
Assets acquired in satisfaction of loans (Notes 1 and 2) 536,972 865,216
Receivables from debtors on sales of assets acquired in
satisfaction of loans (Notes 1 and 2) 638,358 389,374
Equity securities 24,045 -
Furniture, fixtures and leasehold improvements - At cost,
less accumulated depreciation of $158,460 and $145,860, 109,373 111,231
respectively (Note 1)
Prepaid expenses and other assets 194,910 194,595
TOTAL ASSETS $26,236,627 $25,702,600
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Debentures payable to SBA (Note 4) $8,831,000 $ 8,804,000
Notes payable to banks (Note 5) 6,425,000 4,950,000
Accrued expenses and other liabilities 199,827 147,718
Accrued interest payable 195,473 183,934
Total liabilities 15,651,300 14,085,652
SHAREHOLDERS' EQUITY (Notes 1, 6 and 7):
Series A, 3 percent cumulative preferred stock, $10 par value -
547,271 shares authorized, issued and outstanding at June 30, 1995 - 5,472,710
Series B, 4 percent cumulative preferred stock, $10 par value,
752,729 shares authorized, none outstanding - -
Common stock, $.01 par value - 1,500,000 shares
authorized; 1,283,600 issued and outstanding at December 31, 1995;
1,033,683 outstanding at June 30, 1995 12,836 10,337
Additional paid-in capital 7,804,054 5,480,948
Restricted capital 2,766,759 -
Retained earnings since July 1, 1994 1,678 652,953
Total shareholders' equity 10,585,327 11,616,948
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $26,236,627 $25,702,600
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 2 -
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Six Months Year
Ended Ended
December 31, June 30,
1995 1995
(Unaudited)
<S> <C> <C>
INVESTMENT INCOME (Note 3):
Interest on loans $1,346,804 $2,398,616
Fees and other income 177,826 231,285
Total investment income 1,524,630 2,629,901
EXPENSES:
Interest 558,366 1,002,959
Management fees (Note 8) 210,000 384,000
Legal fees (Note 8) 110,587 223,651
Miscellaneous administrative expenses 220,300 343,823
Credit for loan losses - net (Note 3) - (24,351)
Losses on assets acquired in satisfaction of loans (Note 2) 1,829 37,866
Directors' fees 10,500 9,000
Total expenses 1,111,582 1,976,948
NET INCOME $413,048 $ 652,953
WEIGHTED AVERAGE SHARES OUTSTANDING 1,211,235 988,953
NET INCOME PER COMMON SHARE (Note 1) $.34 $.66
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 3 -
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NOTES 1, 6 AND 7)
SIX MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) AND YEAR ENDED JUNE 30, 1995
Series A Series B
Shares of Preferred Preferred Shares of Common
Preferred Stock - 3% Stock - 4% Common Stock Additional Retained
Stock Cumulative Cumulative Stock $.01 Par Paid-in Restricted Earnings
Outstanding $10 Par $10 Par Outstanding Value Capital Capital (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994 547,271 $5,472,710 $ - 943,683 $ 9,437 $5,480,948 $ - $(372,655) $10,590,440
Proceeds from issuance of
common stock (Note 7) - - 90,000 900 372,655 - - 373,555
Quasi-reorganization effective
July 1, 1994 (Note 1) - - - - - (372,655) - 372,655 -
BALANCE, EFFECTIVE JULY 1, 1994,
after quasi-reorganization 547,271 5,472,710 - 1,033,683 10,337 5,480,948 - - 10,963,995
Net income - - - - - - - 652,953 652,953
BALANCE, JUNE 30, 1995 547,271 5,472,710 - 1,033,683 10,337 5,480,948 - 652,953 11,616,948
Proceeds from issuance of common
stock (Note 7) - - - 249,917 2,499 1,225,604 - - 1,228,103
Redemption of preferred stock
(Note 6) (547,271) (5,472,710) - - - - 3,557,261 - (1,915,449)
Capitalization of retained
earnings (Note 7) - - - - - 307,000 - (307,000) -
Transfer of restricted capital
(Note 6) - - - - - 790,502 (790,502) - -
Dividends paid - - - - - - - (757,324) (757,324)
Net income - - - - - - - 413,049 413,049
BALANCE, DECEMBER 31, 1995 - $ - $ - 1,283,600 $12,836 $7,804,054 $2,766,759 $ 1,678 $10,585,327
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 4 -
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Year
Ended Ended
December 31, June 30,
1995 1995
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 413,048 $ 652,953
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 12,600 24,015
Losses and expenses of assets acquired in
satisfaction of loans - 37,866
Credit for loan losses - (24,351)
(Increase) decrease in accrued interest receivable (73,181) 65,430
Increase in prepaid expenses and other assets (315) (1,743)
Increase (decrease) in accrued expenses and other liabilities 52,109 (36,282)
Increase in accrued interest payable 11,539 9,850
Net cash provided by operating activities 415,800 727,738
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in loans, assets acquired in
satisfaction of loans, and receivables from debtors
on sales of assets acquired in satisfaction of loans (512,090) (889,825)
Purchases of equity securities (24,045) -
Acquisition of fixed assets (10,742) (30,656)
Net cash used in investing activities (546,877) (920,481)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 12,575,000 1,400,000
Repayments of bank borrowings (11,100,000) (2,145,000)
Proceeds from SBA debentures 1,020,000 2,690,000
Repayments of SBA debentures (993,000) (2,610,430)
Proceeds from sale of common stock 1,228,104 373,555
Repurchase of Preferred Stock (1,915,449) -
Dividends paid (757,324) -
Net cash provided by (used in) financing activities 57,331 (291,875)
NET DECREASE IN CASH (73,746) (484,618)
CASH, BEGINNING OF PERIOD 1,139,501 1,624,119
CASH, END OF PERIOD $ 1,065,755 $1,139,501
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 546,827 1,009,593
Noncash conversion of loans to assets acquired
in satisfaction of loans and assets acquired in
satisfaction of loans to receivables from debtors $ 270,000 $ 103,000
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 5 -
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF LOANS
DECEMBER 31, 1995 (Unaudited)
Number Interest Maturity Balance
Type of Loan of Loans Rates Dates Outstanding
(In Months)
New York City:
Taxi medallion 124 8-12% 1-119 $17,532,245
Radio car service 70 6-15% 1-59 560,788
Chicago:
Taxi medallion 103 13-14% 39-48 2,722,099
Boston:
Taxi medallion 13 12.75-13.5% 51-78 834,962
Other loans:
Restaurant 1 12% 1 148,669
Gas station/auto repair 4 11-14.5% 1-51 221,084
Management taxi fleet/car
service 1 13% 1 34,401
Hairdresser 2 12% 28 179,089
Car wash 2 15.25% 27 211,998
Ambulance service 1 10.5% 36 23,725
Liquor store 1 16.25% 21 58,647
Antique store 2 12% 12-65 368,420
Dry cleaner 3 10-13.5% 47-117 493,420
Laundromat 1 15% 21 49,887
Grocery/deli 3 12.5-16.625% 41-57 103,378
Financial services 1 14% 1 100,000
TOTAL PORTFOLIO 332 6-16.625% 1-119 $23,642,812
See independent accountants' report and notes to
consolidated financial statements.
- 6 -
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED)
AND YEAR ENDED JUNE 30, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Elk Associates Funding Corporation (the "Company"), a New York
corporation, is licensed by the Small Business Administration ("SBA") to
operate as a Specialized Small Business Investment Company ("SSBIC") under
the Small Business Investment Act of 1958, as amended. The Company has also
registered as an investment company under the Investment Company Act of 1940.
The Company makes loans to persons who qualify under SBA regulations as
socially or economically disadvantaged and loans to entities which are at
least 50 percent owned by such persons.
On December 19, 1994, the Company's shareholders approved a quasi-
reorganization of the Company effective July 1, 1994. On December 30, 1994,
the Company completed the sale of 90,000 shares of common stock to its
shareholders, which was a precondition of the quasi-reorganization. The
quasi-reorganization resulted in the elimination of a deficit of $372,655 in
retained earnings effective July 1, 1994. The quasi-reorganization was also
approved by the SBA.
Loans and the Allowance for Loans Losses - Loans are stated at cost, net of
participations 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' judgment, 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. Approximately 90
percent of all loans are collateralized by New York City, Boston and Chicago
taxicab medallions and group franchises in car services located in New York
City.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114") on July 1,
1995. Pursuant to this statement, 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. SFAS 114 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
recognizes 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.
The adoption of SFAS 114 had no effect on the Company's financial condition
or results of operations. See Note 3 for further discussion.
- 7 -
<PAGE>
Loans are placed on nonaccrual status once they become 180 days past due as
to principal or interest. In addition, impaired loans that are not fully
collateralized and in the process of collection are placed on nonaccrual
status when, in the judgment of management, the ultimate collectibility of
interest and principal is doubtful.
Income Taxes - The Company has elected to be taxed as a Regulated Investment
Company under the Internal Revenue Code. A Regulated Investment Company will
generally not be taxed at the corporate level to the extent its income is
distributed to its shareholders. In order to be taxed as a Regulated
Investment Company, the Company must pay at least 90 percent of its net
investment company taxable income to its shareholders as well as meet other
requirements under the Code. The Company intends to continue to qualify as a
regulated investment company.
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 - Net income per share is determined by dividing net
income by the weighted average number of shares outstanding during the
period. All net income per share amounts have been restated to give effect
to the extinguishment of all cumulative preferred stock dividends in arrears
as a result of the preferred stock repurchase discussed in Note 6.
Assets Acquired in Satisfaction of Loans - Assets acquired in satisfaction of
loans are carried at estimated fair value less selling costs. Losses
incurred at the time of foreclosure are charged to the allowance for loan
losses. Subsequent reductions in estimated net realizable value are recorded
as losses on assets acquired in satisfaction of loans.
Interest Rate Cap - At December 31, 1995 and June 30, 1995, the Company was a
party to one $5 million notional interest rate cap. This cap 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 5.75
percent. The premium paid for the purchase of this cap was amortized over
its life as an adjustment of interest expense. Payments received under this
cap were credited to interest expense.
Consolidation - The consolidated financial statements include the accounts of
EAF Holding Corporation ("EAF"), a wholly-owned subsidiary of the Company.
All intercompany transactions have been eliminated. EAF was formed in June
1992 and began operations in December 1993. The purpose of EAF is to own and
operate certain real estate assets acquired in satisfaction of loans. As of
June 30, 1995, EAF owned one real estate asset with a carrying value of
approximately $200,000. This real estate asset was sold during the period
ended December 31, 1995.
Other - Certain amounts for the fiscal year ended June 30, 1995 have been
reclassified to conform its presentation with the financial statements for
the six months ended December 31, 1995.
2. ASSETS ACQUIRED IN SATISFACTION OF LOANS
During the six-month period from July 1, 1995 to December 31, 1995 and the
year ended June 30, 1995, the carrying value of Assets Acquired in
Satisfaction of Loans increased by additions of approximately $0 and
$103,000, and decreased by sales and cash payments of approximately $300,000
and $367,000 and write-offs of approximately $28,000 and $29,000,
respectively.
- 8 -
<PAGE>
Sales of assets acquired in satisfaction of loans for the six months ended
December 31, 1995 and the year ended June 30, 1995 included approximately
$300,000 and $360,400 of real estate and $0 and $6,600 of radio car rights,
respectively.
Receivables from Debtors on Sales of Assets Acquired in Satisfaction of Loans
represent loans to borrowers arising out of the sale of defaulted assets.
Pursuant to an SBA regulation, these loans are presented separately in the
accompanying consolidated balance sheet.
3. LOANS RECEIVABLE
Loans on nonaccrual status or accruing at reduced rates as of December 31,
1995 and June 30, 1995 were approximately $264,000. If interest on such
nonaccrual or reduced rates loans had been accrued at the contractual amount,
interest income would have been increased by approximately $17,000 for the
six months ended December 31, 1995.
All impaired loans are placed on nonaccrual status. 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
following table sets forth certain information concerning impaired loans as
of December 31, 1995:
Impaired loans with an allowance $264,345
Impaired loans without an allowance -
Total impaired loans $264,345
Allowance for impaired loans $159,000
Average balance of impaired loans during the six months
ended December 31, 1995 $274,977
Interest income recognized on impaired loans during the
six months ended December 31, 1995 $2,323
Transactions in the allowance for loan losses are summarized as follows:
Balance, June 30, 1994 $355,000
Charge-offs (53,649)
Credit - net (24,351)
Balance, June 30, 1995 277,000
Recoveries - net 12,000
Balance, December 31, 1995 $289,000
At December 31, 1995, the Company had commitments to make loans totaling
$1,733,910 at interest rates ranging from 9.5 percent to 14 percent.
- 9 -
<PAGE>
4. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
At December 31, 1995, debentures payable to the Small Business Administration
consisted of subordinated debentures with interest payable semiannually, as
follows:
Current
Effective
Interest Principal
Issue Date Due Date Rate Amount
April 1986 April 1996 8.0% $993,000
March 1987 March 1997 7.125 408,000
September 1993 September 2003 3.12(1) 1,500,000
September 1993 September 2003 6.12 2,220,000
September 1994 September 2004 8.2 2,690,000
December 1995 December 2005 6.54 1,020,000
$8,831,000
(1) Interest rate increases to 6.12% on September 30, 1998
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 shareholders other than dividends out of retained earnings (as computed
in accordance with SBA regulations) without the prior written approval of the
SBA.
5. NOTES PAYABLE TO BANKS
The Company has loan agreements with four banks for lines of credit
aggregating $14,000,000. At December 31, 1995, the Company had $6,425,000
outstanding under these lines. The loans, which mature through October 31,
1996, bear interest based on the banks' prime rates and include certain fees
which make the effective rates range from prime to prime minus one-half
percent. 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
is required to maintain compensating balances. At December 31, 1995,
compensating balances of $642,500 were maintained by the Company in
accordance with these agreements.
6. PREFERRED STOCK
At June 30, 1995, the Company had 547,271 shares of 3 percent preferred stock
issued to the SBA. Cumulative dividends not declared or paid as of June 30,
1995 were approximately $533,000. During August 1995, the Company completed
the repurchase of all such shares of preferred stock from the SBA pursuant to
a preferred stock repurchase agreement dated November 10, 1994. Pursuant to
this agreement, the Company repurchased all 547,271 shares of its 3 percent
cumulative preferred stock from the SBA for $3.50 per share, or an aggregate
of $1,915,449. The repurchase price was at a substantial discount to the
original issuance price of $10 per share. In connection with the repurchase,
all dividends in arrears on the preferred shares were extinguished.
As a condition precedent to the repurchase, the Company granted the SBA a
liquidating interest in a newly established restricted capital surplus
account. The surplus account is equal to the amount of the
- 10 -
<PAGE>
net repurchase discount. The initial value of the liquidating interest was
$3,557,261 which is being amortized over a 60-month period on a straight-line
basis. Should the Company be in default under the repurchase agreement at
any time, the liquidating interest will become fixed at the level immediately
preceding the event of default and will not decline further until such time
as the default is cured or waived. The liquidating interest shall expire on
(i) sixty months from the date of the repurchase agreement, or (ii) if any
event of default has occurred and such default has been cured or waived, such
later date on which the liquidating interest is fully amortized. Should the
Company voluntarily or involuntarily liquidate prior to the amortization of
the liquidating interest, any assets which are available, after the payment
of all debts of the Company, shall be distributed first to the SBA until the
fair market value of such assets is equal to the amount of the liquidating
interest. Such payment, if any, would be prior in right to any payments made
to the Company's shareholders. The amount restricted under this agreement at
December 31, 1995 was approximately $2,767,000.
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.
7. COMMON STOCK
On August 9, 1994, the Company amended its certificate of incorporation to
increase the number of authorized shares of common stock from 1,500,000 to
2,000,000 with the par value per share remaining unchanged at $.01.
On December 30, 1994, the Company completed the sale of 90,000 shares of its
common stock to existing shareholders. The completion of this sale was a
precondition for SBA approval of the quasi-reorganization discussed in Note
1. During September 1995, the Company completed the sale of 249,917
additional shares of common stock and restricted $307,000 of its 1995
earnings in order to qualify for participation in the SBA's 3 percent
Preferred Stock Repurchase Program. Total capital raised was $1,249,585 less
private placement costs of $21,482. These proceeds were used to repurchase
the Company's preferred stock held by the SBA (See Note 6).
8. RELATED PARTY TRANSACTIONS
The Company entered into a management agreement with GCG Associates, Inc.
("GCG"), a company that is wholly-owned by the president of the Company, to
engage GCG as its investment advisor. The agreement which was approved by
the SBA, requires that GCG, as advisor, maintain sufficient personnel and pay
certain expenses necessary to operate the Company's business, maintain an
office on behalf of the Company, collect all loans receivable due from
recipients of loans and comply with all official orders of government
agencies, including the SBA.
Subject to the overall control and supervision of the Board of Directors of
the Company, the advisor is also responsible for reviewing all loan
applications, implementing the lending policies decided upon by the Board of
Directors of the Company and investing excess liquid assets of the Company.
The monthly compensation to the advisor is one-twelfth of 2 percent of the
total assets of the Company as of the last day of the month immediately
preceding such computation, provided that the amount computed thereby shall
not in any event exceed one-twelfth of the Company's private invested capital
and capitalized retained earnings multiplied by 8 percent (as those terms are
defined by SBA regulations) plus one-twelfth of 1 percent of any third-party
bank financing outstanding on such date, not to exceed the maximum management
fees previously approved by the SBA.
- 11 -
<PAGE>
For the six months ended December 31, 1995 and the year ended June 30, 1995,
$210,000 and $384,000 in management fees, respectively, were paid in
accordance with this agreement.
In addition, the Company pays an annual legal retainer fee of $108,000 for
the purpose of providing loan closing services to a firm certain of whose
officers are officers and directors of the Company. During the six months
ended December 31, 1995 and the year ended June 30, 1995, the Company paid
additional legal fees of $26,414 and $41,705, respectively, to the same law
firm. The Company generally charges its borrowers loan origination fees to
generate income to offset the expenses incurred by the Company for the legal
fee retainer.
During the year ended June 30, 1994, the Company moved to new facilities
which were leased by the firm referred to above. In connection with this
move, the Company was allocated approximately $98,000 for the purchase of
various equipment and leasehold improvements.
9. REGULATORY MATTERS
In accordance with a Stipulation of Compliance dated January 25, 1993 between
the Company and the SBA, the Company has appointed an Audit and Compliance
Committee, consisting of officers and directors of the Company, which is
responsible for monitoring and coordinating the Company's adherence with SBA
regulations.
On September 9, 1993, the Company entered into an agreement with the SBA,
subject to certain regulatory limitations, to permit the Company to carry on
its books, the retained earnings deficit. The SBA removed the requirement
that the Company maintain in its portfolio a certain amount of non-taxi cab
secured loans; the SBA agreed to rollover for ten years and subordinate the
Company's existing demand debentures; the SBA accepted for consideration the
Company's application for sale to the SBA of additional debentures; and the
SBA agreed to permit the Company to apply for participation in the three
percent Preferred Stock Repurchase Program, when such program was instituted
by the SBA. As part of the agreement, the Company agreed to limit the
aggregate amount of its senior indebtedness, consisting of bank debt and the
SBA debentures, to certain specific levels based upon performing assets; the
Company agreed to grant the SBA a subordinate lien on the Company's assets
and to have the Company's notes maintained by a separate custodian; the
Company agreed to provide periodic financial reports to the SBA on a
quarterly basis and the Company agreed (a) not to pay or declare any
dividends in the future and (b) not to incur senior debt including the
aggregate amount of its credit lines in excess of $9 million, until such time
as the Company has achieved positive retained earnings or has received a
capital contribution in an amount equal to its then negative retained
earnings as determined in accordance with GAAP. As discussed in Note 1,
effective July 1, 1994, the Company has eliminated its retained earnings
deficit as a result of a quasi-reorganization approved by the SBA.
Accordingly, since the Company has received the capital contribution and
restored its negative retained earnings, the Company is permitted to pay
dividends subject to applicable SBA regulations, and the $9 million
restriction as to the aggregate amount of its credit lines has been lifted.
The Company's maximum borrowing limits from its banks and the SBA are now
governed by a borrowing base formula based on its performing assets.
******
- 12 -
EXHIBIT 7
---------
<PAGE>
ELK ASSOCIATES
FUNDING CORPORATION AND SUBSIDIARY
Consolidated Financial Statements for the
Six Months Ended December 31, 1995 and for the
Year Ended June 30, 1995, and
Independent Accountants' Report
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
Page
INDEPENDENT ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND FOR THE YEAR ENDED JUNE 30, 1995:
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Consolidated Schedule of Loans 6
Notes to Consolidated Financial Statements 7-12
INDEPENDENT ACCOUNTANTS' REPORT
<PAGE>
To the Board of Directors and Shareholders of
Elk Associates Funding Corporation and Subsidiary
(A Specialized Small Business Investment Company Licensed by the SBA)
We have reviewed the accompanying consolidated balance sheet, including the
schedule of loans, of Elk Associates Funding Corporation and Subsidiary as
of December 31, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the six months then ended. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
As explained in Note 1, the financial statements include loans valued at
$23,353,812 as of December 31, 1995, 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 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.
As explained in Note 1, on December 19, 1994 the shareholders of Elk
Associates Funding Corporation approved a quasi-reorganization of the
company. The quasi-reorganization resulted in the elimination of the
retained earnings deficit effective July 1, 1994.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Elk Associates Funding Corporation as of
June 30, 1995, and the related statements of income, shareholders' equity,
and cash flows for the year then ended; and in our report dated August 1,
1995, we expressed an unqualified opinion on those financial statements and
included an explanatory paragraph regarding the possible effect on the
<PAGE>
financial statements of the valuation of loans determined by the Board of
Directors.
February 12, 1996
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
<S> <C> <C> <C> <C> <C> <C>
December 31, June 30,
ASSETS 1995 1995
(Unaudited)
Loans (Notes 1, 3 and 5) $23,642,812 $23,039,462
Less allowance for loan losses (289,000) (277,000)
23,353,812 22,762,462
Cash 1,065,755 1,139,501
Accrued interest receivable (Notes 1 and 3) 313,402 240,221
Assets acquired in satisfaction of loans (Notes 1 and 2) 536,972 865,216
Receivables from debtors on sales of assets acquired in
satisfaction of loans (Notes 1 and 2) 638,358 389,374
Equity securities 24,045 -
Furniture, fixtures and leasehold improvements - At cost,
less accumulated depreciation of $158,460 and $145,860, 109,373 111,231
respectively (Note 1)
Prepaid expenses and other assets 194,910 194,595
TOTAL ASSETS $26,236,627 $25,702,600
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Debentures payable to SBA (Note 4) $8,831,000 $ 8,804,000
Notes payable to banks (Note 5) 6,425,000 4,950,000
Accrued expenses and other liabilities 199,827 147,718
Accrued interest payable 195,473 183,934
Total liabilities 15,651,300 14,085,652
SHAREHOLDERS' EQUITY (Notes 1, 6 and 7):
<PAGE>
Series A, 3 percent cumulative preferred stock, $10 par value -
547,271 shares authorized, issued and outstanding at June 30, 1995 - 5,472,710
Series B, 4 percent cumulative preferred stock, $10 par value,
752,729 shares authorized, none outstanding - -
Common stock, $.01 par value - 1,500,000 shares
authorized; 1,283,600 issued and outstanding at December 31, 1995;
1,033,683 outstanding at June 30, 1995 12,836 10,337
Additional paid-in capital 7,804,054 5,480,948
Restricted capital 2,766,759 -
Retained earnings since July 1, 1994 1,678 652,953
Total shareholders' equity 10,585,327 11,616,948
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $26,236,627
$25,702,600
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 2 -
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
<S> <C> <C>
Six Months Year
Ended Ended
December 31, June 30,
1995 1995
(Unaudited)
INVESTMENT INCOME (Note 3):
Interest on loans $1,346,804 $2,398,616
Fees and other income 177,826 231,285
Total investment income 1,524,630 2,629,901
EXPENSES:
Interest 558,366 1,002,959
Management fees (Note 8) 210,000 384,000
Legal fees (Note 8) 110,587 223,651
<PAGE>
Miscellaneous administrative expenses 220,300 343,823
Credit for loan losses - net (Note 3) - (24,351)
Losses on assets acquired in satisfaction of loans (Note 2) 1,829 37,866
Directors' fees 10,500 9,000
Total expenses 1,111,582 1,976,948
NET INCOME $413,048 $ 652,953
WEIGHTED AVERAGE SHARES OUTSTANDING 1,211,235
988,953
NET INCOME PER COMMON SHARE (Note 1) $.34
$.66
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 3 -
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NOTES 1, 6 AND 7)
SIX MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) AND YEAR ENDED JUNE 30, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Series A Series B
Shares of Preferred Preferred Shares of Common
Preferred Stock - 3% Stock - 4% Common Stock Additional
Retained
Stock Cumulative Cumulative Stock $.01 Par Paid-in Restricted
Earnings
Outstanding $10 Par $10 Par Outstanding Value Capital Capital (Deficit)
Total
BALANCE, JUNE 30, 1994 547,271 $5,472,710 $ - 943,683 $ 9,437 $5,480,948 $
- $(372,655) $10,590,440
Proceeds from issuance of
common stock (Note 7) - - 90,000 900 372,655 - -
<PAGE>
373,555
Quasi-reorganization effective
July 1, 1994 (Note 1) - - - - - (372,655) - 372,655
-
BALANCE, EFFECTIVE JULY 1, 1994,
after quasi-reorganization 547,271 5,472,710 - 1,033,683 10,337 5,480,948 -
- 10,963,995
Net income - - - - - - - 652,953
652,953
BALANCE, JUNE 30, 1995 547,271 5,472,710 - 1,033,683 10,337 5,480,948
- - 652,953 11,616,948
Proceeds from issuance of common
stock (Note 7) - - - 249,917 2,499 1,225,604 - -
1,228,103
Redemption of preferred stock
(Note 6) (547,271) (5,472,710) - - - - 3,557,261 -
(1,915,449)
Capitalization of retained
earnings (Note 7) - - - - - 307,000 - (307,000)
-
Transfer of restricted capital
(Note 6) - - - - - 790,502 (790,502) -
-
Dividends paid - - - - - - - (757,324)
(757,324)
Net income - - - - - - - 413,049
413,049
BALANCE, DECEMBER 31, 1995 - $ - $ - 1,283,600 $12,836 $7,804,054
$2,766,759 $ 1,678 $10,585,327
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 4 -
<PAGE>
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C>
Six Months Year
Ended Ended
December 31, June 30,
1995 1995
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 413,048 $ 652,953
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 12,600 24,015
Losses and expenses of assets acquired in
satisfaction of loans - 37,866
Credit for loan losses - (24,351)
(Increase) decrease in accrued interest receivable (73,181) 65,430
Increase in prepaid expenses and other assets (315) (1,743)
Increase (decrease) in accrued expenses and other liabilities 52,109 (36,282)
Increase in accrued interest payable 11,539 9,850
Net cash provided by operating activities 415,800 727,738
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in loans, assets acquired in
satisfaction of loans, and receivables from debtors
on sales of assets acquired in satisfaction of loans (512,090) (889,825)
Purchases of equity securities (24,045) -
Acquisition of fixed assets (10,742) (30,656)
Net cash used in investing activities (546,877) (920,481)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 12,575,000 1,400,000
Repayments of bank borrowings (11,100,000) (2,145,000)
Proceeds from SBA debentures 1,020,000 2,690,000
Repayments of SBA debentures (993,000) (2,610,430)
Proceeds from sale of common stock 1,228,104 373,555
Repurchase of Preferred Stock (1,915,449) -
Dividends paid (757,324) -
<PAGE>
Net cash provided by (used in) financing activities 57,331 (291,875)
NET DECREASE IN CASH (73,746) (484,618)
CASH, BEGINNING OF PERIOD 1,139,501 1,624,119
CASH, END OF PERIOD $ 1,065,755 $1,139,501
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 546,827 1,009,593
Noncash conversion of loans to assets acquired
in satisfaction of loans and assets acquired in
satisfaction of loans to receivables from debtors $ 270,000 $ 103,000
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 5 -
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED SCHEDULE OF LOANS
DECEMBER 31, 1995 (Unaudited)
<S> <C> <C> <C> <C>
Number Interest Maturity Balance
Type of Loan of Loans Rates Dates Outstanding
(In Months)
New York City:
Taxi medallion 124 8-12% 1-119 $17,532,245
Radio car service 70 6-15% 1-59 560,788
Chicago:
Taxi medallion 103 13-14% 39-48 2,722,099
Boston:
Taxi medallion 13 12.75-13.5% 51-78 834,962
<PAGE>
Other loans:
Restaurant 1 12% 1 148,669
Gas station/auto repair 4 11-14.5% 1-51 221,084
Management taxi fleet/car
service 1 13% 1 34,401
Hairdresser 2 12% 28 179,089
Car wash 2 15.25% 27 211,998
Ambulance service 1 10.5% 36 23,725
Liquor store 1 16.25% 21 58,647
Antique store 2 12% 12-65 368,420
Dry cleaner 3 10-13.5% 47-117 493,420
Laundromat 1 15% 21 49,887
Grocery/deli 3 12.5-16.625% 41-57 103,378
Financial services 1 14% 1 100,000
TOTAL PORTFOLIO 332 6-16.625% 1-119 $23,642,812
See independent accountants' report and notes to
consolidated financial statements.
</TABLE>
- 6 -
ELK ASSOCIATES FUNDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED)
AND YEAR ENDED JUNE 30, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Elk Associates Funding Corporation (the "Company"), a New York
corporation, is licensed by the Small Business Administration ("SBA") to
operate as a Specialized Small Business Investment Company ("SSBIC") under
the Small Business Investment Act of 1958, as amended. The Company has also
registered as an investment company under the Investment Company Act of 1940.
The Company makes loans to persons who qualify under SBA regulations as
socially or economically disadvantaged and loans to entities which are at
least 50 percent owned by such persons.
On December 19, 1994, the Company's shareholders approved a quasi-
reorganization of the Company effective July 1, 1994. On December 30, 1994,
the Company completed the sale of 90,000 shares of common stock to its
shareholders, which was a precondition of the quasi-reorganization. The
<PAGE>
quasi-reorganization resulted in the elimination of a deficit of $372,655 in
retained earnings effective July 1, 1994. The quasi-reorganization was also
approved by the SBA.
Loans and the Allowance for Loans Losses - Loans are stated at cost, net of
participations 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' judgment, 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. Approximately 90
percent of all loans are collateralized by New York City, Boston and Chicago
taxicab medallions and group franchises in car services located in New York
City.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114") on July 1,
1995. Pursuant to this statement, 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. SFAS 114 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
recognizes 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.
The adoption of SFAS 114 had no effect on the Company's financial condition
or results of operations. See Note 3 for further discussion.
- 7 -
Loans are placed on nonaccrual status once they become 180 days past due as
to principal or interest. In addition, impaired loans that are not fully
<PAGE>
collateralized and in the process of collection are placed on nonaccrual
status when, in the judgment of management, the ultimate collectibility of
interest and principal is doubtful.
Income Taxes - The Company has elected to be taxed as a Regulated Investment
Company under the Internal Revenue Code. A Regulated Investment Company will
generally not be taxed at the corporate level to the extent its income is
distributed to its shareholders. In order to be taxed as a Regulated
Investment Company, the Company must pay at least 90 percent of its net
investment company taxable income to its shareholders as well as meet other
requirements under the Code. The Company intends to continue to qualify as a
regulated investment company.
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 - Net income per share is determined by dividing net
income by the weighted average number of shares outstanding during the
period. All net income per share amounts have been restated to give effect
to the extinguishment of all cumulative preferred stock dividends in arrears
as a result of the preferred stock repurchase discussed in Note 6.
Assets Acquired in Satisfaction of Loans - Assets acquired in satisfaction of
loans are carried at estimated fair value less selling costs. Losses
incurred at the time of foreclosure are charged to the allowance for loan
losses. Subsequent reductions in estimated net realizable value are recorded
as losses on assets acquired in satisfaction of loans.
Interest Rate Cap - At December 31, 1995 and June 30, 1995, the Company was a
party to one $5 million notional interest rate cap. This cap 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 5.75
percent. The premium paid for the purchase of this cap was amortized over
its life as an adjustment of interest expense. Payments received under this
cap were credited to interest expense.
Consolidation - The consolidated financial statements include the accounts of
EAF Holding Corporation ("EAF"), a wholly-owned subsidiary of the Company.
All intercompany transactions have been eliminated. EAF was formed in June
1992 and began operations in December 1993. The purpose of EAF is to own and
operate certain real estate assets acquired in satisfaction of loans. As of
June 30, 1995, EAF owned one real estate asset with a carrying value of
approximately $200,000. This real estate asset was sold during the period
<PAGE>
ended December 31, 1995.
Other - Certain amounts for the fiscal year ended June 30, 1995 have been
reclassified to conform its presentation with the financial statements for
the six months ended December 31, 1995.
2. ASSETS ACQUIRED IN SATISFACTION OF LOANS
During the six-month period from July 1, 1995 to December 31, 1995 and the
year ended June 30, 1995, the carrying value of Assets Acquired in
Satisfaction of Loans increased by additions of approximately $0 and
$103,000, and decreased by sales and cash payments of approximately $300,000
and $367,000 and write-offs of approximately $28,000 and $29,000,
respectively.
- 8 -
Sales of assets acquired in satisfaction of loans for the six months ended
December 31, 1995 and the year ended June 30, 1995 included approximately
$300,000 and $360,400 of real estate and $0 and $6,600 of radio car rights,
respectively.
Receivables from Debtors on Sales of Assets Acquired in Satisfaction of Loans
represent loans to borrowers arising out of the sale of defaulted assets.
Pursuant to an SBA regulation, these loans are presented separately in the
accompanying consolidated balance sheet.
<TABLE>
<CAPTION>
3. LOANS RECEIVABLE
<S> <C>
Loans on nonaccrual status or accruing at reduced rates as of December 31,
1995 and June 30, 1995 were approximately $264,000. If interest on such
nonaccrual or reduced rates loans had been accrued at the contractual amount,
interest income would have been increased by approximately $17,000 for the
six months ended December 31, 1995.
All impaired loans are placed on nonaccrual status. 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
following table sets forth certain information concerning impaired loans as
of December 31, 1995:
<PAGE>
Impaired loans with an allowance $264,345
Impaired loans without an allowance -
Total impaired loans $264,345
Allowance for impaired loans $159,000
Average balance of impaired loans during the six months
ended December 31, 1995 $274,977
Interest income recognized on impaired loans during the
six months ended December 31, 1995 $2,323
Transactions in the allowance for loan losses are summarized as follows:
Balance, June 30, 1994 $355,000
Charge-offs (53,649)
Credit - net (24,351)
Balance, June 30, 1995 277,000
Recoveries - net 12,000
Balance, December 31, 1995 $289,000
At December 31, 1995, the Company had commitments to make loans totaling
$1,733,910 at interest rates ranging from 9.5 percent to 14 percent.
</TABLE>
- 9 -
<TABLE>
<CAPTION>
4. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
<S> <C> <C> <C> <C> <C>
At December 31, 1995, debentures payable to the Small Business Administration
consisted of subordinated debentures with interest payable semiannually, as
follows:
Current
Effective
<PAGE>
Interest Principal
Issue Date Due Date Rate Amount
April 1986 April 1996 8.0% $993,000
March 1987 March 1997 7.125 408,000
September 1993 September 2003 3.12(1) 1,500,000
September 1993 September 2003 6.12 2,220,000
September 1994 September 2004 8.2 2,690,000
December 1995 December 2005 6.54 1,020,000
$8,831,000
(1) Interest rate increases to 6.12% on September 30, 1998
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 shareholders other than dividends out of retained earnings (as computed
in accordance with SBA regulations) without the prior written approval of the
SBA.
</TABLE>
5. NOTES PAYABLE TO BANKS
The Company has loan agreements with four banks for lines of credit
aggregating $14,000,000. At December 31, 1995, the Company had $6,425,000
outstanding under these lines. The loans, which mature through October 31,
1996, bear interest based on the banks' prime rates and include certain fees
which make the effective rates range from prime to prime minus one-half
percent. 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
is required to maintain compensating balances. At December 31, 1995,
compensating balances of $642,500 were maintained by the Company in
accordance with these agreements.
6. PREFERRED STOCK
At June 30, 1995, the Company had 547,271 shares of 3 percent preferred stock
issued to the SBA. Cumulative dividends not declared or paid as of June 30,
1995 were approximately $533,000. During August 1995, the Company completed
the repurchase of all such shares of preferred stock from the SBA pursuant to
a preferred stock repurchase agreement dated November 10, 1994. Pursuant to
this agreement, the Company repurchased all 547,271 shares of its 3 percent
<PAGE>
cumulative preferred stock from the SBA for $3.50 per share, or an aggregate
of $1,915,449. The repurchase price was at a substantial discount to the
original issuance price of $10 per share. In connection with the repurchase,
all dividends in arrears on the preferred shares were extinguished.
As a condition precedent to the repurchase, the Company granted the SBA a
liquidating interest in a newly established restricted capital surplus
account. The surplus account is equal to the amount of the
- 10 -
net repurchase discount. The initial value of the liquidating interest was
$3,557,261 which is being amortized over a 60-month period on a straight-line
basis. Should the Company be in default under the repurchase agreement at
any time, the liquidating interest will become fixed at the level immediately
preceding the event of default and will not decline further until such time
as the default is cured or waived. The liquidating interest shall expire on
(i) sixty months from the date of the repurchase agreement, or (ii) if any
event of default has occurred and such default has been cured or waived, such
later date on which the liquidating interest is fully amortized. Should the
Company voluntarily or involuntarily liquidate prior to the amortization of
the liquidating interest, any assets which are available, after the payment
of all debts of the Company, shall be distributed first to the SBA until the
fair market value of such assets is equal to the amount of the liquidating
interest. Such payment, if any, would be prior in right to any payments made
to the Company's shareholders. The amount restricted under this agreement at
December 31, 1995 was approximately $2,767,000.
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.
7. COMMON STOCK
On August 9, 1994, the Company amended its certificate of incorporation to
increase the number of authorized shares of common stock from 1,500,000 to
2,000,000 with the par value per share remaining unchanged at $.01.
On December 30, 1994, the Company completed the sale of 90,000 shares of its
common stock to existing shareholders. The completion of this sale was a
precondition for SBA approval of the quasi-reorganization discussed in Note
1. During September 1995, the Company completed the sale of 249,917
additional shares of common stock and restricted $307,000 of its 1995
earnings in order to qualify for participation in the SBA's 3 percent
<PAGE>
Preferred Stock Repurchase Program. Total capital raised was $1,249,585 less
private placement costs of $21,482. These proceeds were used to repurchase
the Company's preferred stock held by the SBA (See Note 6).
8. RELATED PARTY TRANSACTIONS
The Company entered into a management agreement with GCG Associates, Inc.
("GCG"), a company that is wholly-owned by the president of the Company, to
engage GCG as its investment advisor. The agreement which was approved by
the SBA, requires that GCG, as advisor, maintain sufficient personnel and pay
certain expenses necessary to operate the Company's business, maintain an
office on behalf of the Company, collect all loans receivable due from
recipients of loans and comply with all official orders of government
agencies, including the SBA.
Subject to the overall control and supervision of the Board of Directors of
the Company, the advisor is also responsible for reviewing all loan
applications, implementing the lending policies decided upon by the Board of
Directors of the Company and investing excess liquid assets of the Company.
The monthly compensation to the advisor is one-twelfth of 2 percent of the
total assets of the Company as of the last day of the month immediately
preceding such computation, provided that the amount computed thereby shall
not in any event exceed one-twelfth of the Company's private invested capital
and capitalized retained earnings multiplied by 8 percent (as those terms are
defined by SBA regulations) plus one-twelfth of 1 percent of any third-party
bank financing outstanding on such date, not to exceed the maximum management
fees previously approved by the SBA.
- 11 -
For the six months ended December 31, 1995 and the year ended June 30, 1995,
$210,000 and $384,000 in management fees, respectively, were paid in
accordance with this agreement.
In addition, the Company pays an annual legal retainer fee of $108,000 for
the purpose of providing loan closing services to a firm certain of whose
officers are officers and directors of the Company. During the six months
ended December 31, 1995 and the year ended June 30, 1995, the Company paid
additional legal fees of $26,414 and $41,705, respectively, to the same law
firm. The Company generally charges its borrowers loan origination fees to
generate income to offset the expenses incurred by the Company for the legal
fee retainer.
During the year ended June 30, 1994, the Company moved to new facilities
which were leased by the firm referred to above. In connection with this
<PAGE>
move, the Company was allocated approximately $98,000 for the purchase of
various equipment and leasehold improvements.
9. REGULATORY MATTERS
In accordance with a Stipulation of Compliance dated January 25, 1993 between
the Company and the SBA, the Company has appointed an Audit and Compliance
Committee, consisting of officers and directors of the Company, which is
responsible for monitoring and coordinating the Company's adherence with SBA
regulations.
On September 9, 1993, the Company entered into an agreement with the SBA,
subject to certain regulatory limitations, to permit the Company to carry on
its books, the retained earnings deficit. The SBA removed the requirement
that the Company maintain in its portfolio a certain amount of non-taxi cab
secured loans; the SBA agreed to rollover for ten years and subordinate the
Company's existing demand debentures; the SBA accepted for consideration the
Company's application for sale to the SBA of additional debentures; and the
SBA agreed to permit the Company to apply for participation in the three
percent Preferred Stock Repurchase Program, when such program was instituted
by the SBA. As part of the agreement, the Company agreed to limit the
aggregate amount of its senior indebtedness, consisting of bank debt and the
SBA debentures, to certain specific levels based upon performing assets; the
Company agreed to grant the SBA a subordinate lien on the Company's assets
and to have the Company's notes maintained by a separate custodian; the
Company agreed to provide periodic financial reports to the SBA on a
quarterly basis and the Company agreed (a) not to pay or declare any
dividends in the future and (b) not to incur senior debt including the
aggregate amount of its credit lines in excess of $9 million, until such time
as the Company has achieved positive retained earnings or has received a
capital contribution in an amount equal to its then negative retained
earnings as determined in accordance with GAAP. As discussed in Note 1,
effective July 1, 1994, the Company has eliminated its retained earnings
deficit as a result of a quasi-reorganization approved by the SBA.
Accordingly, since the Company has received the capital contribution and
restored its negative retained earnings, the Company is permitted to pay
dividends subject to applicable SBA regulations, and the $9 million
restriction as to the aggregate amount of its credit lines has been lifted.
The Company's maximum borrowing limits from its banks and the SBA are now
governed by a borrowing base formula based on its performing assets.
******
- 12 -
<PAGE>
February 26, 1996
Dear Stockholders:
We are pleased to enclose with this letter a copy of our
latest financial statements prepared for the six month period
ended December 31, 1995. A review of the financial statements
will indicate that we have continued to make substantial progress
toward our goals of obtaining an excellent, balanced and
performing loan portfolio, increased common stockholder equity,
and increasing earnings and dividend payments.
As you know, during August, 1995 the Company was able to
complete the repurchase of our outstanding 3% Preferred Stock at
a price of 35% of its par value. The 65% discount from par value
of $3,557,261 was originally booked as "Restricted Capital".
This account will amortize over a period of 60 months and build
additional equity in favor of the common stockholders at the rate
of $59,287 per month. For financial statement reporting purposes
under Generally Accepted Accounting Principles (GAAP) the
amortization of the Restricted Capital account works to shift
each month's amortization of the discount into the Additional
Paid-in-Capital account, and the Restricted Capital account is
reduced by a corresponding amount. At December 31, 1995, due to
the terms of the Company's Repurchase Agreement with SBA, the
amortization period commenced as of November 10, 1994, and
accordingly, the enclosed financial statements reflect the earned
discount of $790,502 for the period November 10, 1994 through
December 31, 1995.
In addition, to the common stockholder equity buildup that
has occurred, and that will continue to build from the
amortization of the Repurchase discount, we have continued to
build up the Company's loan portfolio, investment income, and net
income. For the six months ended December 31, 1995, Net Income
was $413,048 (which included recoveries of approximately
$60,000). Net Income for the six months ended December 31, 1994
was $299,595. The loan portfolio was $23,353,812 at December 31,
1995 which was a healthy increase over the $19,917,137 at
December 31, 1994. In addition during September, 1995 the
Company was able to sell (for full carrying value) approximately
$2,000,000 of lower yielding taxi loans which had been made
several years ago when the prime rate was at 6%. These loans were
<PAGE>
not producing a profit to the Company at the time of the sale.
Simultaneously with this sale, the Company reduced its bank debt
thereby reopening its credit lines to do more profitable business
in the future.
As a result of the completion of the preferred stock
repurchase, the Company was relieved of having to pay cumulative
but unpaid 3% preferred stock dividends of over $533,000. At the
completion of the preferred stock repurchase with the SBA, the
Company was again in the position to pay cash dividends to our
common stockholders from retained earnings. Retained earnings of
$307,000 that were outstanding at June 30, 1995 were utilized
toward the repurchase of the preferred stock. The remaining
available balance of retained earnings of $345,953 at June 30,
1995 together with the earnings from the period July 1, 1995
through December 31, 1995 in the amount of $413,049 allowed the
Company to declare and pay a total of $757,324 of dividends to
common stockholders during the six month period ended December
31, 1995.
During the last several months, we have continued to conduct
negotiations with our banks to obtain lower interest rates and
lower line fees. We are pleased to report that the Company will
be able to borrow at rates of 1/2% below the prime rate, and on
short term match funding rates based upon LIBOR plus a mark up
that may be less than 1/2% below the prime rate in effect at the
time of the advance. This will enable the Company to achieve a
better competitive position. In addition, during December 1995
the Company sold a debenture to SBA in the amount of $1,020,000
to replace a maturing debenture of $993,000 which had been at a
rate of 10%. The new debenture has a ten year term, and a fixed
interest rate of 6.54%.
We are pleased to be able to provide our stockholders with
these results. We also want to assure you that our Officers, and
Board of Directors intend to formulate additional policies and
actions that will further enhance shareholder value through the
expansion of our loan portfolio, expansion of our earnings base,
and through other actions that we feel will assist in the long
term growth of the Company.
Sincerely yours,
Gary C. Granoff, President
--------------------------
Gary C. Granoff, President
