ELK ASSOCIATES FUNDING CORPORATION
747 THIRD AVENUE, 4TH FLOOR
NEW YORK, NY 10017
Notice of Annual Meeting of Shareholders
To Be Held on September 28, 1998
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 September 28, 1998 at 10:30 a.m. to
consider and act upon the following matters:
1. To elect eight directors to serve until the next Annual Meeting and until
their successors are chosen and qualified.
2. To approve an amendment to the certificate of incorporation of the Company
to (i) increase from 2,000,000 to 3,000,000 the authorized number of shares
of the common stock of the Company, and (ii) delete the 1,300,000
authorized shares of preferred stock subject to the approval of the United
States Small Business Administration.
3. To ratify and approve the selection by the Board of Directors of Marcum &
Kliegman, LLP as the Company's independent public accountants for the
fiscal year ended June 30, 1998.
4. To ratify and approve the election to become a Business Development Company
under Section 54 of the Investment Company Act of 1940.
5. To adopt an incentive stock option plan for employees of the Company.
6. To adopt a stock option plan for non-employee directors of the Company,
subject to the approval of the Securities and Exchange Commission.
7. 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 August 26, 1998
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
September 3, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
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
September 28, 1998
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 September
28, 1998 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 September 3, 1998.
The Board of Directors has fixed August 26, 1998 as the record date for the
determination of shareholders entitled to vote at the Annual Meeting. At the
close of business on August 26, 1998, there were outstanding and entitled to
vote 1,745,600 outstanding shares of common stock, par value $.01 (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 August 26, 1998, by each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock.
Common Stock Percent of
Name and Address Beneficially Owned Common Stock Outstanding
- ---------------- ------------------ ------------------------
Gary C. Granoff 320,708(1) 18.4%
c/o Elk Associates
Funding Corporation
747 Third Avenue, 4th Floor
New York, New York
Dan M. Granoff, M.D 145,979(2) 8.4%
1085 Creston Road
Berkeley, California
Paul D. Granoff, M.D 143,179(3) 8.2%
132 North Buckingham Drive
Aurora, Illinois
- ---------------------------
1 See Footnote 1 on page 5.
2 See Footnote 7 on page 5.
3 See Footnote 9 on page 5.
<PAGE>
Common Stock Percent of
Name and Address Beneficially Owned Common Stock Outstanding
- ---------------- ------------------ ------------------------
Steven Etra 115,516(4) 6.6%
Heather Hill
Brookville, New York
Alexander Nash, M.D 97,600(5) 5.6%
12 Ridgeway
Kings Point, New York
Except as otherwise indicated above, the persons listed in the above table
have sole 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
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 Investment
Company Act of 1940, as amended (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 eight 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 eight directors.
All of the eight nominees are presently directors of the Company.
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.
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 and the names of other publicly-held companies in which
he or she serves as a director:
Officer and Director Biographies
Gary C. Granoff, age 50, has been President and a director of the Company
since its formation in July 1979 and Chairman of the Board of Directors since
December 1995. Mr. Granoff has been a practicing attorney for the past
twenty-five years and is presently an officer and shareholder in the law firm of
Granoff, Walker & Forlenza, P.C. Mr. Granoff is a member of the bar of the State
of New York and the State of Florida and is admitted to the United States
District Court of the Southern District of New York. Mr. Granoff is also
President and the sole stockholder of GCG Associates, Inc. ("GCG"), the
Company's former investment adviser. He has served as President and the sole
stockholder of Seacrest Associates,
- ----------------------------
4 See Footnote 6 on page 5.
5 See Footnote 8 on page 5.
- 2 -
<PAGE>
Inc., a hotel operator, since August 1994. Mr. Granoff has also been President
and a director since June 1996 of Gemini Capital Corporation ("Gemini"), a
company primarily engaged in the business of making consumer loans. In February
1998, Mr. Granoff was elected to and is presently serving as a trustee on the
Board of Trustees of The George Washington University. Mr. Granoff holds a
Bachelor of Business Administration degree in Accounting, and a Juris Doctor
degree (with honors), both of which degrees were obtained at The George
Washington University.
Ellen M. Walker, age 42, has been a Vice President and General Counsel of
the Company since July 1983 and a director of the Company from July 1983 to
August 1994. She again became a director of the Company in 1995. Ms. Walker has
been a practicing attorney for more than seventeen years and she is presently an
officer and shareholder in the law firm of Granoff, Walker & Forlenza, P.C. Ms.
Walker is a member of the Bar of the State of New York and she is admitted to
the United States District Court of the Southern District of New York. Since
August 1983 Ms. Walker has been Vice President of GCG. Ms. Walker has been a
director, Vice President and General Counsel of Gemini since June 1996. Ms.
Walker received a Bachelor of Arts degree from Queens College and obtained her
Juris Doctor degree with honors from Brooklyn Law School.
Lee A. Forlenza, age 40, has been a Vice President of the Company since
March 1992. Mr. Forlenza has been a practicing attorney since February 1983 and
is presently an officer and shareholder in the law firm of Granoff, Walker &
Forlenza, P.C. Since March 1992 Mr. Forlenza has been an investment analyst for
GCG. Mr. Forlenza has also been Vice President, Secretary and a director of
Gemini since June 1996. Mr. Forlenza was Vice President of True Type Printing,
Inc. from 1976-1995 and President since May 1995. From 1983 through 1986 Mr.
Forlenza was an attorney with the SBA. Mr. Forlenza graduated Phi Beta Kappa
from New York University and obtained his Juris Doctor degree from Fordham
University School of Law.
Marvin Sabesan, age 69, has been a director of the Company since July 1982.
Mr. Sabesan has been employed by Pearl River Textiles, Inc. as an executive
since 1990. He was an Executive Vice President of N.O.L. Inc., a lingerie
company, from 1988 to 1990. Mr. Sabesan was an Executive Vice President of A.J.
Schneierson & Son, a clothing manufacturer from 1971 to 1987.
Steven Etra, age 49, has been Sales Manager since 1975 of Manufacturers
Corrugated Box Company, a company owned by Mr. Etra's family for more than
seventy-five years. Mr. Etra has also been a director of Gemini since June 1996.
Mr. Etra has extensive business experience in investing in emerging companies.
Paul Creditor, age 61, has been a practicing attorney since 1961, engaging
in the general practice of law and specializing in corporate law. From 1974
through 1979 he served as an elected Judge in Suffolk County, New York. He also
served as counsel to the New York State Constitutional Convention and various
State Agencies and Commissions.
Allen Kaplan, age 47, is Vice President and Chief Operating Officer of Team
Systems, Inc., a company which manages and operates more than 200 New York City
Medallion taxicabs. Mr. Kaplan is currently Vice President of the Metropolitan
Taxicab Board of Trade, a trade association consisting of 22 member fleets
representing 1,200 New York City medallions.
John L. Acierno, age 39, has served as president of Executive Charge Inc.
and its affiliated companies for the last ten years. During that time, Executive
Charge Inc. has become the largest executive sedan operation in the United
States with over 1,100 vehicles servicing the greater New York Metropolitan
area. His background includes practicing law as a labor attorney for Proskauer
Rose and serving as counsel for R.H. Macy & Co. Mr. Acierno was founder and
immediate past president for the last six years of the Black Car Assistance
Corporation, the organization which serves as the New York
- 3 -
<PAGE>
black car industry association. He was named International Taxicab and Limousine
Association Premium Service Operator of the Year for 1996. Mr. Acierno graduated
Phi Beta Kappa from Tufts University, and Cum Laude from Cornell Law School.
The following is information regarding additional officers of the Company:
Margaret Chance, age 42, has been Secretary of the Company and involved in
loan administration since November 1980. Ms. Chance is the office manager of
Granoff, Walker & Forlenza, P.C. and has served as the Secretary of GCG
Associates Inc., since January 1982. Ms. Chance holds a paralegal certificate.
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 in
1996. Prior to joining the Company, she was the Legal Coordinator for Castle Oil
Corporation from September 1991 through June 1993 and from June 1993 through
January 1994, a legal assistant specializing in foreclosures in the law firm of
Greenberg & Posner. Ms. DiGirolamo received a B.A. from Fordham University and
an M.B.A. from The Leonard Stern School of Business Administration of New York
University.
Security Ownership of Principal Stockholders and Management
The following table sets forth certain information as to those persons who,
to the knowledge of Elk, owned 5% or more of the outstanding Common Stock of Elk
as of August 26, 1998, and as to the officers and directors of Elk as a group:
<TABLE>
<CAPTION>
Number of Shares of Percentage of outstanding
Name Common Stock Owned Elk Common Stock owned
- ---- ------------------ ----------------------
<S> <C> <C>
*Gary C. Granoff 320,708(1) 18.4%
*Ellen M. Walker 37,374(2) 2.1%
*Lee A. Forlenza 30,435 1.7%
*Margaret Chance 3,400(3) .2%(5)
*Silvia DiGirolamo None --
Marvin Sabesan 78,861(4) 4.5%
Steven Etra 115,516(6) 6.6%
Paul Creditor 2,000 .1%(5)
Allen Kaplan 5,000 .3%(5)
Dan M. Granoff 145,979(7) 8.4%
Alexander Nash 97,600(8) 5.6%
John L. Acierno None --
Paul D. Granoff 143,179(9) 8.2%
------- ----
Officers, Directors and 5% 980,052 56.1%
Stockholders as a group (13
persons)
</TABLE>
- ------------------------------------
<PAGE>
* Mr. Gary C. Granoff, Ms. Ellen Walker, Mr. Lee A. Forlenza, Ms. Margaret
Chance and Ms. Silvia DiGirolamo are each "interested persons" with respect
to Elk, as such term is defined in the 1940 Act.
(1) Excludes 24,933 shares owned directly or indirectly by Mr. Granoff's wife
as to which he disclaims beneficial ownership. Also excludes 10,500 shares
owned by one of Mr. Granoff's sons as to which shares he does not exercise
any control and disclaims beneficial ownership. Includes 10,900 shares
owned by The Granoff Family Foundation, a charitable foundation for which
Mr. Granoff and his father, mother and brother are trustees. Also includes
35,321 shares held by Mr. Granoff as trustee for his children and other
family members. Also includes 261 shares held by GCG Associates, Inc., a
corporation owned by Mr. Granoff. Also includes 76,084 shares owned by
DAPARY Management Corp., a corporation controlled by Mr. Granoff.
(2) Includes 200 shares held by Ms. Walker as custodian for her son. Includes
22,800 shares held by various trusts of which Ms. Walker is a trustee and
as to which she disclaims beneficial ownership. Mr. Granoff retains a
reversionary interest in 21,000 of such shares.
(3) Includes 200 shares held by Ms. Chance as custodian for her daughter.
(4) Includes 21,387 shares held by Mr. Sabesan and his wife as joint tenants
and 28,551 shares held by his wife. Mr. Sabesan disclaims beneficial
ownership as to the 28,551 shares held by his wife.
(5) Less than one (1%) percent.
(6) Includes 29,022 shares held with his wife as joint tenants and 27,000
shares held by his wife and 1,500 shares held by Mr. Etra's son. Also
includes 10,000 shares held by SRK Associates LLC, a limited liability
company controlled by Mr. Etra. Also includes 10,000 shares held by Lance's
Property Development Corp. Pension Plan, of which pension plan Mr. Etra is
a trustee.
(7) Excludes 10,900 shares owned by a charitable foundation, of which N. Henry
Granoff, his wife, Jeannette Granoff, Gary C. Granoff and Dan M. Granoff
are the trustees. Includes 2,800 shares held in an IRA rollover account for
the benefit of Dr. Granoff.
(8) Includes 6,500 shares held by Dr. Nash as custodian for his daughter. Also
includes 53,900 shares held by his wife, as to which shares Dr. Nash
disclaims beneficial ownership.
(9) Includes 40,049 shares held by Dr. Paul Granoff directly, 77,630 held by
Granoff Family Partners Ltd. of which Dr. Granoff is a general partner, and
25,500 shares held by the Granoff Pediatric Associates Profit Sharing Plan.
Excludes 14,127 shares held by Dr. Granoff's wife as to which shares he
disclaims beneficial ownership.
Except as otherwise indicated above, the persons listed in the above table
have sole voting and investment power with respect to their respective shares.
All of the persons listed above, for as long as they continue to hold 5%
percent or more of the Company's outstanding Common Stock, will be deemed
"affiliated persons" of the Company, as such term is defined in the 1940 Act.
Compliance with Section 16(a) of The 1934 Act
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's officers and directors, and persons who own more than ten
percent of the Company's Common Stock, to file initial reports of beneficial
ownership and changes in beneficial ownership with the Commission and to furnish
the Company with copies of all reports filed.
Based solely on a review of the forms furnished to the Company, or written
representations from certain reporting persons, the Company believes that all
persons who were subject to Section 16(a) in 1998 complied with the filing
requirements.
- 5 -
<PAGE>
Management
Directors and Executive Officers
The following table sets forth certain information concerning the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Address Position
- ---- ------- --------
<S> <C> <C>
Gary C. Granoff(1)(2) c/o Elk Associates President and Chairman of
Funding Corporation Board of Directors
747 Third Avenue
New York, New York
Ellen M. Walker(1)(2) c/o Elk Associates Vice President, General
Funding Corporation Counsel and Director
747 Third Avenue
New York, New York
Lee A. Forlenza(1)(2) c/o Elk Associates Vice President and
Funding Corporation Director
747 Third Avenue
New York, New York
Margaret Chance(2) c/o Elk Associates Secretary
Funding Corporation
747 Third Avenue
New York, New York
Silvia DiGirolamo(2) c/o Elk Associates Vice President
Funding Corporation
747 Third Avenue
New York, New York
Marvin Sabesan c/o Pearl River Textiles, Inc. Director
990 Sixth Avenue
New York, New York
Steven Etra 55-25 58th Street Director
Maspeth, New York
Paul Creditor 747 Third Avenue, Ste. 4C Director
New York, New York
Allen Kaplan c/o Team Systems Director
30-17 40th Avenue
Long Island City, New York
John L. Acierno c/o Executive Charge, Inc. Director
1440 39th Street
Brooklyn, New York
</TABLE>
- -----------------
(1) Ellen M. Walker, Gary C. Granoff and Lee A. Forlenza are officers and
shareholders in the law firm of Granoff, Walker & Forlenza, P.C.
(2) Mr. Gary C. Granoff, Ms. Ellen M. 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 1940 Act.
- 6 -
<PAGE>
Committees of the Board and Meeting Attendance
During the fiscal year ended June 30, 1998, the Company's Board of
Directors held 5 meetings. The Company has a standing Audit Committee, and a
standing Holding Company Committee, but does not have a standing Nominating
Committee.
The Audit Committee is comprised of Paul Creditor, John Acierno and Gary
Granoff. The Audit Committee, established in March, 1998, had no meetings during
the fiscal year ended June 30, 1998. The function of the Audit Committee is to
review the internal accounting control procedures of the Company, review the
consolidated financial statements of the Company and review with the independent
public accountants the results of their audit.
The Holding Company Committee consists of Steven Etra and Lee Forlenza. The
Holding Company Committee held numerous meetings during the fiscal year ended
June 30, 1998. The purpose of the Holding Company Committee is to oversee the
formation and capitalization of a newly formed holding company as discussed
below.
Each director attended at least 75% of the aggregate number of meetings of
the Board of Directors and the meetings of all committees of the Board of
Directors on which he served during the last fiscal year.
Executive Compensation
The following table sets forth all remuneration for services rendered to
the Company during the periods indicated to (i) each of the executive officers
and (ii) all executive officers as a group.
The following individuals were paid the cash compensation set forth
opposite their names for the period July 1, 1997 through June 30, 1998:
Gary C. Granoff $215,712 plus $24,000 of SEP and
$20,000 of reimbursable expenses.
Ellen M. Walker $103,917 plus $15,588 of SEP.
Lee A. Forlenza $45,673 plus $6,851 of SEP.
Silvia DiGirolamo $59,063 plus $8,859 of SEP.
Margaret Chance $53,160 plus $7,974 of SEP.
All executive officers as a group $540,797
(5 persons)
The Company is currently paying the foregoing individuals compensation at
the same rate as was paid during the fiscal year ended June 30, 1998. The Board
of Directors may increase such compensation and/or award bonuses for the 1998
fiscal year during the current fiscal year, but has not done so to date.
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 paid
each non-affiliated director a minimum fee of $2,000 per year in addition to the
fees paid for each meeting attended. The members of the Holding Company
Committee were paid an aggregate of $8,000 for work performed in connection with
- 7 -
<PAGE>
the formation and planning of the transactions with the new holding company. For
the year ended June 30, 1998, fees and expenses paid to non-affiliated directors
were approximately $52,000 in the aggregate.
Certain Transactions
Prior to January 1, 1996, the Company paid an annual legal retainer fee for
the purposes of providing loan closing services to a firm, certain of whose
officers are officers and directors of the Company. Effective January 1, 1996,
the legal fee retainer being paid to such law firm was terminated, and legal
services related to New York taxi and radio car loan closings are being provided
by the officers and employees of the Company. Closing fees related to all other
loans are paid by the Company based on a fixed or hourly fee. The Company paid
$43,231 to the law firm for legal services during the year ended June 30, 1998.
The Company generally charges its borrowers loan origination fees to generate
income to offset expenses incurred by the Company for legal fees paid by the
Company for loan closing services.
The Company also rents office space from the above-mentioned law firm and
shares certain office expenses with that firm. For the fiscal year ended June
30, 1998, the Company paid $39,600 in rent and $59,400 in shared overhead
expense and $21,908 of other reimbursable shared overhead expense. For the year
ending June 30, 1999, the Company has agreed to pay $39,600 in rent and a
minimum of $59,400 in expenses, which amount is subject to adjustment if actual
expenses vary.
During the fiscal year ended June 30, 1998, Granoff, Walker & Forlenza,
P.C. exercised an option in its lease, at the request of the Company, and rented
an additional 1,800 square feet of office space contiguous with the offices of
the Company at a below market rent (the "Additional Space"). The law firm
intends to sublet the Additional Space to outside tenants. In the event all or a
portion of the Additional Space is vacant, the Company's Board of Directors has
agreed to reimburse the law firm for the additional rent due. The estimated
maximum amount of rent for which the Company would be responsible is $58,000 per
year, less any sublet rental income received from the outside tenants. At
present, the Additional Space is fully occupied thus requiring no reimbursement
payment from the Company, although some liability under the reimbursement
obligation may occur in the future. In the event the Company's operations
expand, the Company could occupy the contiguous space for its own use without
the inconvenience and expense of the Company having to relocate to larger office
space.
Proposed New Holding Company
The Company plans to enter into an Agreement and Plan of Share Exchange
(the "Share Exchange Plan") with Ameritrans Capital Corporation, a newly-formed
Delaware corporation ("Ameritrans"), pursuant to which each outstanding share of
the Company's common stock would vest in Ameritrans, whereby the Company would
become a wholly-owned subsidiary of Ameritrans, and the holders of all the
outstanding shares of common stock of the Company would become the shareholders
of Ameritrans and receive one share of Ameritrans for each share of the Company
owned.
The Share Exchange Plan will require approval by the Company's shareholders
at a special meeting of shareholders which would be held subsequent to this
Annual Meeting of Shareholders. In addition, the Share Exchange Plan and certain
related transactions must be approved by the Securities and Exchange Commission
(the "Commission"). In connection with the proposed Share Exchange Plan, the
Company plans to file with the Commission an application for an exemptive order
approving the Share Exchange Plan and certain related transactions (the
"Application"). The Company also intends to file a proxy/registration statement
with the Commission which would be sent to shareholders at such time as the
Commission has approved the Share Exchange Plan.
The reason for the proposed Share Exchange Plan is to enable the Company to
expand its present business and to engage in broader and more diversified
investment and lending activities. At the present time, the Company, as a Small
Business Investment Company ("SBIC") licensed by the Small Business
Administration ("SBA") under the Small Business Investment Company Act of 1958
(the "1958 Act"), may only lend to and/or invest in small businesses as
permitted under the 1958 Act. If the Share Exchange Plan is approved by the
Commission, then Ameritrans, which plans to elect to be treated for tax purposes
as a regulated investment company, will engage in the lending/investment
activities not subject to the restrictions of the 1958 Act. The Company would
continue to operate as an SBIC, making loans to or investments in small business
concerns as permitted by the 1958 Act. The Company may also expand and diversify
its operations through the acquisition of companies that are consistent with the
Company's business. In this regard, the Company's Board of Directors is in the
process of considering the acquisition by the Company of Gemini Capital
Corporation ("Gemini"), a company engaged primarily
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<PAGE>
in the business of making consumer loans. Because Gemini would be deemed to be
an "affiliated" person of the Company, any acquisition of Gemini would be
subject to prior Commission approval.
The Company's management believes that the Share Exchange Plan, if
approved, would be in the best interests of the Company's shareholders because
it would allow the Company, through Ameritrans, to take advantage of business
opportunities not otherwise permitted to an SBIC. It is anticipated that the
initial funds necessary to finance the capitalization of Ameritrans will be
provided from the proceeds of a private placement of the Company's shares of
common stock completed in January, 1998. In that financing, the Company raised
total proceeds before offering expenses of $3,003,000 and disclosed to its
investors that a portion of the proceeds would be utilized to capitalize a new
holding company upon the approval of the transaction. The Company plans to
utilize up to $963,000 from such proceeds, which were temporarily used to pay
down the Company's borrowings to capitalize Ameritrans. In addition to
Commission and shareholder approval of the proposed Share Exchange Plan, the
Company must obtain SBA approval of the capitalization of Ameritrans by the
Company.
It is presently expected that the officers and directors of the Company
will be the same individuals who will serve as officers and directors of
Ameritrans. It is further anticipated that following the consummation of the
Share Exchange Plan, such officers and directors would initially receive the
same compensation, but such compensation would be allocated between the Company
and Ameritrans, based upon factors determined by the Company's Board of
Directors. Such officers and directors may also receive increases in
compensation from time to time as determined by the Board of Directors.
Ameritrans and/or the Company may also hire additional personnel as such
personnel are needed in connection with the expansion and diversification of the
Company's lending and/or investment activities.
Although the Company's management believes the proposed Share Exchange Plan
to be in the best interests of the Company, no assurances can be given that the
approvals will be obtained and the proposed transactions consummated.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO CHARTER
Pursuant to the Company's certificate of incorporation, the Company is presently
authorized to issue an aggregate of 3,300,000 shares, of which 1,300,000 shares
are preferred stock, $10.00 par value, ("Preferred Stock"), and 2,000,000 shares
of common stock, $.01 par value ("Common Stock"). On June 30, 1998, 1,745,600
shares of Common Stock and no shares of Preferred Stock were issued and
outstanding.
One of the purposes of this Annual Meeting of Shareholders is to consider and
vote upon approval of an amendment to the Company's certificate of incorporation
that would (i) increase the number of shares of Common Stock the Company is
authorized to issue from 2,000,000 to 3,000,000 shares and (ii) delete the
1,300,000 authorized shares of Preferred Stock. A copy of the form of proposed
amendment reflecting the increase in the authorized shares of Common Stock is
included as Exhibit 1 hereto. Holders of the Common Stock do not have any
preemptive or similar rights to purchase any securities of the Company and
accordingly do not have any rights to purchase any additional authorized shares
of Common Stock. The Board of Directors would not seek from shareholders any
authorization or approval for the issuance of the additional authorized shares
of Common Stock unless required to do so by law in the particular instance. If
and when issued, the newly authorized shares of Common Stock would have the same
rights as the presently issued and outstanding shares of Common Stock.
The purpose of the increase in the authorized number of shares of Common Stock
is twofold: (i) to enable the Company to grant options for up to an aggregate of
200,000 shares of Common Stock to be issued
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<PAGE>
in connection with the adoption of two stock options plans (the "Stock Option
Plans") and (ii) to enable the Company to sell additional shares in the future
should the Board of Directors determine such sale to be in the best interest of
the Company. The stock option plans are described in Proposal Nos. 5 and 6. The
1,300,000 authorized shares of Preferred Stock are being deleted from the
Company's certificate of incorporation because the Company may no longer issue
Preferred Stock to the SBA due to a change in applicable law and the Company's
conversion from a Specialized Small Business Investment Company to an SBIC.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for the approval of the proposed amendment to the
certificate of incorporation.
Proposal No. 2 also requires approval by the SBA.
The Board of Directors of the Company recommends a vote FOR Proposal No. 2.
PROPOSAL NO. 3
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL 1998
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 ending June 30, 1998, to sign or certify such
financial statements, or any portions thereof, as may be filed by the Company
with the Commission or any other authorities at any time. The employment of such
independent public accountants for such purpose is subject to approval 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 affirmative vote of a majority of the Common Stock present or
represented at the meeting is required to ratify and approve the selection of
Marcum & Kliegman, LLP as independent public accountants for the Company for
fiscal 1998.
A representative of Marcum & Kliegman, LLP will be present at the Annual
Meeting of Shareholders for the purpose of answering shareholder questions and
making any other appropriate statement.
The Board of Directors of the Company recommends a vote FOR Proposal No. 3.
PROPOSAL NO. 4
APPROVAL AND RATIFICATION OF THE ELECTION
TO BECOME A BUSINESS DEVELOPMENT COMPANY
Since July 1, 1983, the Company has been registered under the 1940 Act as,
and has operated as, a closed-end, non-diversified management investment
company. After evaluating strategic alternatives for the Company, the Board of
Directors determined that it would be in the best interests of shareholders to
elect to become a business development company ("BDC") under the 1940 Act.
A BDC is a specialized type of investment company. The Board believes the
greater flexibility in operations and the ability to offer expanded management
incentives and other benefits of a BDC, makes this the correct choice and
recommends that you vote "FOR" the proposal. The Company may not withdraw its
election without
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<PAGE>
first obtaining the approval of a majority of its outstanding voting securities.
The following is a brief summary of the 1940 Act as applied to BDCs. This
summary is not complete and is qualified in its entirety by reference to the
full text of the 1940 Act, as amended to date, and the rules adopted thereunder.
Generally, to be eligible to elect BDC status, a company must be primarily
engaged in the business of furnishing capital and managerial expertise to
companies that do not have ready access to capital through conventional
financial channels. Such portfolio companies are termed "eligible portfolio
companies." More specifically, in order to qualify as a BDC, a company must (i)
be a domestic company; (ii) have registered a class of its equity securities or
have filed a registration statement with the Commission pursuant to Section 12
of the Securities Exchange Act of 1934, as amended; (iii) operate for the
purpose of investing in the securities of certain types of portfolio companies,
namely immature or emerging companies and businesses suffering or just
recovering from financial distress (see following paragraph); (iv) extend
significant managerial assistance to such portfolio companies; (v) have a
majority of "disinterested" directors (as defined in the 1940 Act); and (vi)
file (or, under certain circumstances, intend to file) a proper notice of
election with the Commission.
An eligible portfolio company generally is a U.S. company that is not an
investment company and that (i) does not have a class of securities registered
on an exchange or included in the Federal Reserve Board's over-the-counter
margin list; or (ii) is actively controlled by a BDC and has an affiliate of a
BDC on its board of directors; or (iii) meets such other criteria as may be
established by the Commission. Control under the 1940 Act is presumed to exist
where a BDC owns 25% of the outstanding equity securities of the investee.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from
investing in certain types of companies, such as brokerage firms, insurance
companies, investment banking firms and investment companies. Moreover, the 1940
Act limits the type of assets that BDCs may acquire to "qualifying assets" and
certain assets necessary for its operations (such as office furniture, equipment
and facilities) if, at the time of acquisition, less than 70% of the value of
the company's assets consist of qualifying assets. The staff of the Commission
is of the view that a BDC must meet this test within two years and must have at
least 50% of its assets in securities of portfolio companies within two years.
The Company expects to be able to meet these criteria. Qualifying assets
include: (i) securities of companies that were eligible portfolio companies at
the time such company acquired their securities; (ii) securities of bankrupt or
insolvent companies that were eligible at the time of such company's initial
acquisition of their securities but are no longer eligible, provided that such
company has maintained a substantial portion of its initial investment in those
companies; (iii) securities received in exchange for or distributed in or with
respect to any of the foregoing; and (iv) cash items, government securities and
high-quality short-term debt. The 1940 Act also places restrictions on the
nature of the transactions in which, and the persons from whom, securities can
be purchased in order for the securities to be considered qualifying assets.
Such restrictions includes limiting purchases to transactions not involving a
public offering and acquiring securities from either the portfolio company or
their officers, directors or affiliates.
Investing in a BDC may entail special risks because of the nature of their
investments in small companies. Because of the absence of any trading market for
unlisted investments, the Company may require more time to liquidate its
investments than would be the case for listed securities. Companies whose
securities are unlisted tend to be smaller than established companies and
generally have smaller capitalizations and fewer resources and, therefore, are
often more vulnerable to financial failure. In addition, the management of such
companies tend to be less experienced and knowledgeable than those of
established companies that are in a "start-up" stage of development, have little
or no operating history, operate at a loss or with substantial variations in
operating results from period to period, have limited products, markets or
financial resources or have the need for substantial additional "follow-up"
capital to support expansion or to achieve or maintain a competitive position.
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<PAGE>
As a BDC, the Company may invest in the securities of public companies and
other investments that are not qualifying assets, but such investments shall not
exceed 30% of the Company's total asset value at the time of any such
investment.
The Company is permitted by the 1940 Act, under specified conditions, to
issue multiple classes of senior debt and a single class of preferred stock if
its asset coverage, as defined in the 1940 Act, is at least 200% after issuance
of the debt or the preferred stock (i.e., such senior securities may not be in
excess of 50% of its net assets). If the value of the Company's assets, as
defined, were to increase through the issuance of additional capital stock or
otherwise, the Company would be permitted under the 1940 Act to issue senior
securities. In addition, the 1940 Act provides for certain exemptions from the
asset coverage limitations for certain borrowings by SBICs.
The Company expects that the business focus will not change significantly
as management provides direct assistance and advice to portfolio companies and
expects to continue to do so. It does so through conferences, meetings and
assistance with business planning and development as well as providing access to
knowledgeable third parties.
The Company may issue in limited amounts, warrants, options and rights to
purchase its securities to its officers, directors and employees in connection
with an executive compensation plan if certain conditions are met. These
conditions include the authorization of such issuance by a majority of the
holders of the Company's Common Stock, the approval of a majority of the
independent members of the Board of Directors and a majority of the directors
who have no financial interest in the transaction. The issuance of options,
warrants or rights to directors who are not also officers or employees requires
the prior approval of the Commission. Proposal Nos. 5 and 6 would implement
these provisions.
The Board of Directors recommend a vote FOR Proposal No. 4.
PROPOSAL NO. 5
APPROVAL OF AN INCENTIVE STOCK OPTION PLAN
The Company's Board of Directors, including a majority of the
non-interested directors, has adopted, subject to shareholder approval, an
employees stock option plan (the "1998 Employee Plan") in order to link the
personal interests of key employees to the long-term financial success of the
Company and the growth of shareholder value. The 1998 Employee Plan authorizes
the grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code for the purchase of an aggregate of 125,000 shares
(subject to adjustment for stock splits and similar capital changes) of Common
Stock to employees of the Company. By adopting the 1998 Employee Plan, the Board
believes that the Company will be better able to attract, motivate and retain as
employees people upon whose judgment and special skills the success of the
Company in large measure depends. As of August 26, 1998, no options to purchase
shares of Common Stock have been granted under the 1998 Employee Plan.
Accordingly, as of such date, 125,000 shares of Common Stock were available for
future awards under the 1998 Employee Plan.
The 1998 Employee Plan will be administered by the 1998 Employee Plan
Committee of the Board of Directors, which will be comprised solely of
non-employee directors (who are "outside directors" within the meaning of
Section 152(m) of the Internal Revenue Code of 1986, as amended (the "Code") and
"disinterested persons" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "1934 Act") (the "Committee")). The Committee can make
such rules and regulations and establish such procedures for the administration
of the 1998 Employee Plan as it deems appropriate.
The exercise price of an incentive stock option must be at the fair market
value of the Company's Common Stock on the date of grant (110% of the fair
market value for shareholders who, at the time the option is granted, own more
than 10% of the total combined classes of stock of the Company or any
subsidiary). No employees may exercise more than $100,000 in options held by
them in any year.
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<PAGE>
No option may have a term of more than ten years (five years for 10% or
greater shareholders). Options generally may be exercised only if the option
holder remains continuously associated with the Company or a subsidiary from the
date of grant to the date of exercise. However, options may be exercised upon
termination of employment or upon death or disability of any employee within
certain specified periods.
The following is a general summary of the federal income tax consequences
under current tax law of incentive stock options ("ISOs"). It does not purport
to cover all of the special rules, including special rules relating to persons
subject to the reporting requirements of Section 16 under the 1934 Act who do
not hold the shares acquired upon the exercise of an option for at least six
months after the date of grant of the option and special rules relating to the
exercise of an option with previously-acquired shares, or the state or local
income or other tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of an ISO.
Upon the exercise of an ISO, the optionee will not recognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to him or her, the optionee will recognize
long-term capital gain or loss and the Company will not be entitled to a
deduction. However, if the optionee disposes of such shares within the required
holding period, all or a portion of the gain will be treated as ordinary income
and the Company will generally be entitled to deduct such amount.
In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax.
The description of the 1998 Employee Plan set forth herein is qualified in
its entirety by reference to the text of the 1998 Plan, a copy of which is
attached as Exhibit 2 to this Proxy Statement.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for the approval of the 1998 Employee Plan. The
Board of Directors of the Company recommends a vote FOR Proposal No. 5.
PROPOSAL NO. 6
APPROVAL OF A NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Company's Board of Directors has adopted subject to shareholder
approval, a stock option plan for non-employee directors (the "Director Plan")
in order to link the personal interests of such non-employee directors to the
long-term financial success of the Company and the growth of shareholder value.
The Director Plan provides for the automatic grant of options to directors of
the Company who are not employees, officers or interested persons of the Company
(an "Eligible Director"). By adopting the Director Plan, the Board believes that
the company will be better able to attract, motivate and retain as directors
people upon whose judgment and special skills the success of the Company in
large measure depends. In accordance with the provisions of the 1940 Act, the
automatic grant of options under the Director Plan will not occur until after
the date of the approval (the "Approval Date") of the Director Plan by the
Commission. There can be no assurance that the Commission will approve the
Director Plan.
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<PAGE>
The total number of shares for which options may be granted from time to
time under the Director Plan is 75,000 shares. The Director Plan will be
administered by the entire Board of Directors.
The Director Plan provides that an Eligible Director serving on the
Company's Board of Directors who has served as a director for at least one year
prior to the Approval Date will automatically receive on the Approval Date the
grant of an option to purchase the number of shares of Common Stock determined
by dividing $50,000 by the fair market value of the Common Stock on the Approval
Date. With respect to any Eligible Director who is elected or reelected as a
director of the Company after the Approval Date such elected director will
automatically receive on the date such director has served as a director of the
Company for one year of such election or reelection an option to purchase the
number of shares of Common Stock determined by dividing $50,000 by the fair
market value of the Common Stock on the date of the first anniversary such
director became a director of the Company.
The Director Plan will be administered by a committee of directors who are
not eligible to participate in the Directors Plan (the "Committee"). Options
become exercisable with respect to such shares granted on the date on which the
option was granted, so long as the optionee remains an Eligible Director. No
option may be exercised more than five years after the date on which it is
granted. The number of shares available for options, the number of shares
subject to outstanding options and their exercise prices will be adjusted for
changes in outstanding shares such as stock splits and combinations of shares.
Shares purchased upon exercise of options, in whole or in part, must be paid for
in cash or by means of unrestricted shares of Common Stock or any combination
thereof.
The following is a general summary of the federal income tax consequences
under current tax law of non-qualified stock options ("NQSOs"). It does not
purport to cover all of the special rules, including special rules relating to
persons subject to the reporting requirements of Section 16 under the 1934 Act
who do not hold the shares acquired upon the exercise of an option for at least
six months after the date of grant of the option and special rules relating to
the exercise of an option with previously-acquired shares, or the state or local
income or other tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.
Upon the exercise of a NQSO, the optionee will recognize ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares
acquired on the date of exercise over the exercise price thereof, and the
Company will generally be entitled to a deduction for such amount at that time.
If the optionee later sells shares acquired pursuant to the exercise of a NQSO,
he or she will recognize long-term or short-term capital gain or loss, depending
on the period for which the shares were held. Long-term capital gain is
generally subject to more favorable tax treatment than ordinary income or
short-term capital gains.
If the option does not have a readily ascertainable fair market value, an
optionee will not recognize taxable income for federal income tax purposes upon
the grant of an NQSO.
Options granted under the Director Plan will not be transferable other than
by the laws of descent and during the optionee's life may be exercised only by
the optionee. All rights to exercise options will terminate after the optionee
ceases to be an Eligible Director. If the optionee dies before expiration of the
option, his legal successors may have the right to exercise the option in whole
or in part within one year of death.
The Director Plan may be terminated at any time by the Board of Directors,
and will terminate ten years after the effective date of the Director Plan. The
Board of Directors may not materially
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<PAGE>
increase the number of shares authorized under the plan or materially increase
the benefits accruing to participants under the plan without the approval of the
shareholders of the Company.
The exercise or conversion price of the options issued pursuant to the
Director Plan shall be not less than current market value at the date of
issuance, or if no such market value exists, the current net asset value of such
voting securities.
The description of the Director Plan set forth herein is qualified in its
entirety by reference to the text of the Director Plan, a copy of which is
attached as Exhibit 3 to this Proxy Statement.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for the approval of the Director Plan. The Board of
Directors of the Company recommends a vote FOR Proposal No. 6.
PROPOSAL NO. 7
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.
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 1999 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices not later than May 30, 1999 for inclusion in the proxy
statement for that meeting. Mere submission of a proposal does not guarantee its
inclusion in the Proxy Statement or its presentation at the meeting since
certain federal rules must also be met.
Requests for Financial Statements
The Company will furnish, without charge a copy of its financial statements
for the fiscal year ended June 30, 1998 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
September 3, 1998
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<PAGE>
PROXY FOR HOLDERS OF COMMON STOCK
Elk Associates Funding Corporation
The undersigned holder of shares of common stock, $.01 par value ("Common
Stock"), 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 September 28, 1998
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, Steven Etra, Paul Creditor, Allen Kaplan, and John L.
Acierno.
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 certificate of incorporation of
the Company to (i) increase from 2,000,000 to 3,000,000 the
authorized number of shares of the common stock of the Company
and (ii) delete the 1,300,000 authorized shares of preferred
stock, subject to the approval of the United States Small
Business Administration.
____FOR ____AGAINST ____ABSTAIN
PROPOSAL 3. To ratify and approve the appointment of Marcum & Kliegman,
LLP as the Company's independent public accountants for the
fiscal year ended June 30, 1998.
____FOR ____AGAINST ____ABSTAIN
PROPOSAL 4. To ratify and approve the election to become a Business
Development Company under Section 54 of the Investment Company
Act of 1940.
____FOR ____AGAINST ____ABSTAIN
PROPOSAL 5. To adopt a qualified stock option plan for employees of the
Company.
<PAGE>
____FOR ____AGAINST ____ABSTAIN
PROPOSAL 6. To adopt a stock option plan for non-employee directors of the
Company, subject to the approval of the Securities and Exchange
Commission.
____FOR ____AGAINST ____ABSTAIN
PROPOSAL 7. Such other matters as may properly come before the meeting.
____FOR ____AGAINST ____ABSTAIN
(continued and to be signed on reverse side)
<PAGE>
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 holders of Common
Stock and in favor of Proposals 2, 3, 4, 5 and 6. The persons named as proxies
have discretionary authority, which they intend to exercise in favor of the
proposals referred to and according to their best judgment as to other matters
which properly come before the meeting.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE AS
SOON AS POSSIBLE.
No. of Shares: ________________________________ Dated: ______________________
_______________________________________________ _____________________________
(Print Name) (Signature of Shareholder)
_______________________________________________ _____________________________
(Print Name) (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 tenancies, co-executors or
co-trustees, both should sign. Person(s) signing as Attorney, Executor,
Administrator, Trustee or Guardian should provide full title.
<PAGE>
Exhibit 1
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 amendment to the Certificate of
Incorporation of the Corporation effected by this Certificate of Amendment
is to (i) increase the number of authorized shares of Common Stock from
2,000,000 to 3,000,000 and (ii) delete the 1,300,000 shares of authorized
Preferred Stock.
FOURTH: To accomplish the foregoing amendment, Article FOURTH of the
Certificate of Incorporation of the Corporation is hereby deleted in its
entirety substituting the following new paragraph FOURTH in its place:
"FOURTH: The total number of authorized shares of capital stock of
this Corporation shall consist of 3,000,000 shares of Common Stock having a
par value of $.01 (one cent) per share."
<PAGE>
FIFTH: The amendment to Article Fourth of the Certificate of
Incorporation of the Corporation was 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 amendment 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.
IN WITNESS WHEREOF, this Certificate of Amendment to the
Certificate of Incorporation has been subscribed to this __th day of ,
__ 1998 by the undersigned who affirm that the statements made herein
are true under the penalties of perjury.
__________________________
GARY C. GRANOFF, PRESIDENT
__________________________
MARGARET CHANCE, SECRETARY
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<PAGE>
Exhibit 2
ELK ASSOCIATES FUNDING CORPORATION
1998 INCENTIVE STOCK OPTION PLAN
The purpose of the 1998 Incentive Stock Option Plan (the "Plan") is to
attract and retain key employees of Elk Associates Funding Corporation (the
"Company") and its affiliates, to provide an incentive for them to achieve
long-range performance goals, and to enable them to participate in the long-term
growth of the Company by the granting of Incentive Stock Options (individually
referred to herein as an "Option" and collectively as "Options") to purchase the
Company's common stock, par value $0.01 par value (the "Common Stock").
1. Administration of the Plan.
The administration of the Plan shall be under the general supervision of
the 1998 Employee Plan Committee of the Board of Directors of the Company (the
"1998 Employee Plan Committee"). Within the limits of the Plan, the 1998
Employee Plan Committee shall determine the individuals to whom, and the times
at which, Options shall be granted, the type of Option to be granted, the
duration of each Option, the price and method of payment for each Options, and
the time or times within which (during its term) all or portions of each Option
may be exercised. The 1998 Employee Plan Committee may establish such rules as
it deems necessary for the proper administration of the Plan, make such
determinations and interpretations with respect to the Plan and Options granted
under it as may be necessary or desirable and include such further provisions or
conditions in Options granted under the Plan as it deems advisable. To the
extent permitted by law, the 1998 Employee Plan Committee may delegate its
authority under the Plan to a sub-committee of the 1998 Employee Plan Committee.
2. Shares Subject to the Plan.
(a) Number of Shares. The aggregate number of shares of Common Stock of the
Company which may be optioned under the Plan is 125,000 shares. In the event
that the 1998 Employee Plan Committee in its discretion determines that any
stock dividend, split-up, combination or reclassification of shares,
recapitalization or other similar capital change affects the Common Stock such
that adjustment is required in order to preserve the benefits or potential
benefits of the Plan or any Option granted under the Plan, the maximum aggregate
number and kind of shares or securities of the Company as to which Options may
be granted under the Plan and as to which Options then outstanding shall be
exercisable, and the option price of such Options, shall be appropriately
adjusted by the 1998 Employee Plan Committee (whose determination shall be
conclusive) so that the proportionate number of shares or other securities as to
which Options may be granted and the proportionate interest of holders of
outstanding Options shall be maintained as before the occurrence of such event.
(b) Effect of Certain Transactions. In order to preserve a Participant's
(as defined below) rights under an Option in the event of a change in control of
the Company, the 1998 Employee Plan Committee in its discretion may, at the time
an Option is made or at any time thereafter, take one or more of the following
actions: (i) provide for the acceleration of any time period relating to the
exercise or payment of the Option, (ii) provide for payment to the Participant
of cash or other property with a fair market value equal to the amount that
would have been received upon the exercise or payment of the Option had the
Option been exercised or paid upon the change in control, (iii) adjust the terms
of the Option in a manner determined by the 1998 Employee Plan Committee to
reflect the change in control, (iv) cause the Option to be assumed, or new
rights substituted therefor, by another entity, or (v) make such other provision
as the 1998 Employee Plan Committee may consider equitable to the Participant
and in the best interests of the Company, provided such action shall comply with
Section 424 of the Code
<PAGE>
and will not render any Incentive Stock Option granted hereunder to be other
than an incentive stock option for purposes of Section 422 of the Code.
(c) Restoration of Shares. If any Option expires or is terminated
unexercised or is forfeited for any reason, the shares subject to such Option,
to the extent of such expiration, termination or forfeiture, shall again be
available for granting pursuant to Options under the Plan, subject, however, in
the case of Incentive Stock Options, to any requirements under the Code (as
defined below).
(d) Reservation of Shares. The Company shall at all times while the Plan is
in force reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
3. Grant of Options; Eligible Persons.
(a) Types of Options. Options shall be granted under the Plan either as
incentive stock options ("Incentive Stock Options"), as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or as Options
that do not meet the requirements of Section 422 ("Nonstatutory Stock Options").
Options may be granted from time to time by the 1998 Employee Plan Committee,
within the limits set forth in Sections 1 and 3 of the Plan, to all employees of
the Company or of any parent corporation or subsidiary corporation of the
Company (as defined in Sections 424(e) and (f), respectively, of the Code) (such
individuals collectively referred to herein as "Participants").
(b) Date of Grant. The date of grant for each Option shall be the date on
which it is approved by the 1998 Employee Plan Committee or such later date as
the 1998 Employee Plan Committee may specify. No Incentive Stock Options shall
be granted hereunder after ten years from the date on which the Plan was
approved by the Board of Directors.
4. Form of Options.
Options granted hereunder shall be evidenced by a writing delivered to the
optionee specifying the terms and conditions thereof and containing such other
terms and conditions not inconsistent with the provisions of the Plan as the
1998 Employee Plan Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles. The form of such Options may vary among optionees.
5. Option Price.
The price at which shares may from time to time be optioned shall be
determined by the 1998 Employee Plan Committee, provided that such price shall
not be less than the current market value of the Common Stock on the date of
grant, and provided further that no Incentive Stock Option shall be granted to
any individual who is ineligible to be granted an Incentive Stock Option because
his ownership of stock of the Company or its parent or subsidiary corporations
exceeds the limitations set forth in Section 422(b)(6) of the Code unless such
option price is at least 110% of the current market value of the Common Stock on
the date of grant.
To the extent permitted by law, the 1998 Employee Plan Committee may in its
discretion permit the option price to be paid in whole or in part by a note or
in installments or with shares of Common Stock of the Company or such other
lawful consideration as the 1998 Employee Plan Committee may determine.
- 2 -
<PAGE>
6. Term of Option and Dates of Exercise.
(a) Exercisability. The 1998 Employee Plan Committee shall determine the
term of all Options, the time or times that Options are exercisable and whether
they are exercisable in installments, provided that the term of each Option
granted under the Plan shall not exceed a period of ten years from the date of
its grant, and provided further that no Incentive Stock Option shall be granted
to any individual who is ineligible to be granted such Option because his
ownership of stock of the Company or its parent or subsidiary corporations
exceeds the limitations set forth in Section 422(b)(6) of the Code unless the
term of his Incentive Stock Option does not exceed a period of five years from
the date of its grant. In the absence of such determination, the Option shall be
exercisable at any time or from time to time, in whole or in part, during a
period of ten years from the date of its grant or, in the case of an Incentive
Stock Option, the maximum term of such Option.
(b) Effect of Disability, Death or Termination of Employment. The 1998
Employee Plan Committee shall determine the effect on an Option of the
disability, death, retirement or other termination of employment of an optionee
and the extent to which, and during the period which, the optionee's estate,
legal representative, guardian, or beneficiary on death may exercise rights
thereunder. Any beneficiary on death shall be designated by the optionee, in the
manner determined by the 1998 Employee Plan Committee, to exercise rights of the
optionee in the case of the optionee's death.
(c) Other Conditions. The 1998 Employee Plan Committee may impose such
conditions with respect to the exercise of Options, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable.
(d) Withholding. The optionee shall pay to the Company, or make provisions
satisfactory to the 1998 Employee Plan Committee for payment of, any taxes
required by law to be withheld in respect of any Options under the Plan no later
than the date of the event creating the tax liability. The Company and any
parent corporation or subsidiary corporation of the Company (as defined in
Sections 424(e) and (f), respectively, of the Code) may, to the extent permitted
by law, deduct any such tax obligations from any payment of any kind otherwise
due to the optionee.
(e) Amendment of Options. The 1998 Employee Plan Committee may amend,
modify or terminate any outstanding Option, including substituting therefor
another Option of the same or different type, changing the date of exercise or
realization and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the optionee's consent to such action shall be required
unless the 1998 Employee Plan Committee determines that the action, taking into
account any related action, would not materially and adversely affect the
optionee.
7. Non-transferability.
Options granted under the Plan shall not be transferable by the holder
thereof otherwise than by will or the laws of descent and distribution or, in
the case of a Nonstatutory Stock Option, to the extent consistent with
qualifying for the exemption provided by Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act"), pursuant to a qualified domestic
relations order, and shall be exercisable, during the holder's lifetime, only by
him or her or such permitted transferee.
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<PAGE>
8. No Right to Employment.
No persons shall have any claim or right to be granted an Option, and the
grant of an Option shall not be construed as giving an optionee the right to
continued employment. The Company expressly reserves the right at any time to
dismiss an optionee free from any liability or claim under the Plan, except as
specifically provided in the applicable Option.
9. No Rights as a Shareholder.
Subject to the provisions of the applicable Option, no optionee or any
person claiming through an optionee shall have any rights as a shareholder with
respect to any shares of Common Stock to be distributed under the plan until he
or she becomes the holder thereof.
10. Amendment or Termination.
The Board of Directors of the Company may amend, suspend or terminate the
Plan or any portion thereof at any time, subject to any shareholder approval
that the Board of Directors determines to be necessary or advisable, provided
that the Participant's consent will be required for any amendment, suspension or
termination that would adversely affect the rights of the Participant under any
outstanding Options.
11. Adjustment of Shares; Merger or Consolidation, Etc. of the Company.
(a) Recapitalization, Etc. In the event there is any change in the
outstanding Common Stock of the Company by reason of any reorganization,
recapitalization, stock split, stock dividend, combination of shares, or
otherwise, there shall be substituted for or added to each share of Common Stock
theretofore appropriated or thereafter subject, or which may become subject, to
any Option, the number and kind of shares of stock or other securities into
which each outstanding share of Common Stock shall be so changed or for which
each such share shall be exchanged, or to which each such share shall be
exchanged, or to which each such share shall be entitled, as the case may be,
and the per share price thereof also shall be appropriately adjusted.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Stock Option shall comply with the rules of Section 424(a) of the Code
and (ii) in no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder to be other than an incentive stock
option for purposes of Section 422 of the Code.
(b) Merger, Consolidation, or Change in Control of Company. Upon (i) the
merger or consolidation of the Company with or into another corporation
(pursuant to which the stockholders of the Company immediately prior to such
merger or consolidation will not, as of the date of such merger or
consolidation, own a beneficial interest in shares of voting securities of the
corporation surviving such merger or consolidation having at least a majority of
the combined voting power of such corporation's then outstanding securities), if
the agreement of merger or consolidation does not provide for (1) the
continuance of the Options granted hereunder or (2) the substitution of new
options for Options granted hereunder, or for the assumption of such Options by
the surviving corporation, (ii) the dissolution, liquidation, or sale of all or
substantially all the assets of the Company to a person unrelated to the Company
or to a direct or indirect owner of a majority of the voting power of the
Company's then outstanding voting securities (such sale of assets being referred
to as an "Asset Sale") or (iii) the Change in Control of the Company, then the
holder of any such Option theretofore granted and still outstanding (and not
otherwise expired) shall have the right immediately prior to the effective date
of such merger, consolidation, dissolution, liquidation, Asset Sale, or Change
in Control of the Company to exercise such Options(s) in whole or in part
without regard to any installment provision that may have been made part of the
terms and conditions of such Options(s); provided that all conditions precedent
to the exercise of such Option(s), other than the passage of time, have
occurred. The Company, to the extent practicable,
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<PAGE>
shall give advance notice to affected Optionees of such merger, consolidation,
dissolution, liquidation, Asset Sale, or Change in Control of the Company.
Unless otherwise provided in the subject award agreement or merger,
consolidation, or Asset Sale agreement, all such Options which are not so
exercised shall be forfeited as of the effective time of such merger,
consolidation, dissolution, liquidation, or Asset Sale (but not in the case of a
Change in Control of the Company). In the event the Company becomes a subsidiary
of another corporation (the "Parent Company") with respect to which the
stockholders of the Company (as determined immediately before such transaction)
own, immediately after such transaction, a beneficial interest in shares of
voting securities of the Parent Company having at least a majority of the
combined voting power of such Parent Company's then outstanding securities,
there shall be substituted for Options granted hereunder, options to purchase
common stock of the Parent Company. The substitution described in the
immediately preceding sentence shall be effected in a manner such that any
option granted by the Parent Company to replace an incentive stock option
granted hereunder shall satisfy the requirements of Section 422 of the Code.
Notwithstanding the foregoing, the holder of any such Option shall not have the
right to exercise such Option if such exercise would render any Incentive Stock
Options granted hereunder to be other than an incentive stock option for
purposes of Section 422 of the Code.
(c) Definition of Change in Control of the Company. As used herein, a
"Change in Control of the Company" shall be deemed to have occurred if any
person (including any individual, firm, partnership or other entity), together
with all Affiliates and Associates (as defined under Rule 12b-2 of the General
Rules and Regulations promulgated under the Exchange Act) of such person (but
excluding (i) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any subsidiary of the Company, (ii) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of the Company, (iii) the
Company or any subsidiary of the Company, or (iv) only as provided in the
immediately following sentence, a Participant together with all Affiliates and
Associates of the Participant) who is not a stockholder or an Affiliate or
Associate of a stockholder of the Company on the date of stockholder approval of
the Plan is or becomes the beneficial Owner (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing 40% or more of the combined voting power of the
Company's then outstanding securities. The provisions of clause (iv) of the
immediately preceding sentence shall apply only with respect to the Option(s)
held by the Participant who, together with his Affiliates or Associates, if any,
is or becomes the direct or indirect Beneficial Owner of the percentage of
securities set forth in such clause.
12. Stockholder Approval.
The Plan is subject to approval by the stockholders of the Company by the
affirmative vote of the holders of a majority of the shares of capital stock of
the Company entitled to vote thereon and present or represented at a meeting
duly held in accordance with the laws of the State of New York, or by any other
action that would be given the same effect under the laws of such jurisdiction,
which action in either case shall be taken within twelve (12) months from the
date the Plan was adopted by the Board of Directors. In the event such approval
is not obtained, all Options granted under the Plan shall be void and without
effect.
13. Governing Law.
The provisions of the plan shall be governed by and interpreted in
accordance with the laws of the State of New York.
This Plan was approved by the Board of Directors on August __, 1998. This
Plan was approved by the Shareholders on September __, 1998.
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<PAGE>
Exhibit 3
ELK ASSOCIATES FUNDING CORPORATION
Non-Employee Director Stock Option Plan
This Non-Employee Director Stock Option Plan dated _________ ___, 1998 (the
"Plan") governs options to purchase Common Stock, $0.01 par value (the "Common
Stock"), of Elk Associates Funding Corporation (the "Company") granted on or
after the date hereof by the Company to members of the Board of Directors (the
"Board") of the Company who are not also employees, officers or interested
persons (as defined in Section 2 below) of the Company. The purpose of the Plan
is to attract and retain qualified persons to serve as Directors of the Company
and to encourage ownership of stock of the Company by such Directors so as to
provide additional incentives to promote the success of the Company.
1. Administration of the Plan.
Grants of stock options (individually referred to herein as an "Option" and
collectively as "Options") under the Plan shall be automatic as provided in
Section 6 hereof. However, all questions of interpretation with respect to the
Plan and Options granted under it shall be determined by a committee (the
"Committee") consisting of the Directors of the Company who are not eligible to
participate in the Plan, and such determination shall be final and binding upon
all persons having an interest in the Plan.
2. Persons Eligible to Participate in the Plan.
Members of the Board who are not also officers or employees of the Company
shall be eligible to participate in the Plan ("Eligible Directors").
3. Shares Subject to the Plan.
(a) Number of Shares. The aggregate number of shares of Common Stock of the
Company which may be optioned under this Plan is 75,000 shares. In the event of
a stock dividend, split-up, combination or reclassification of shares,
recapitalization or similar capital change relating to the Common Stock, the
maximum aggregate number and kind of shares or securities of the Company as to
which Options may be granted under this Plan and as to which Options then
outstanding shall be exercisable, and the exercise price of such Options, shall
be appropriately adjusted by the Committee (whose determination shall be
conclusive) so as to preserve the value of the Option.
(b) Effect of Certain Transactions. In order to preserve an Eligible
Director's rights under an Option in the event of a change in control of the
Company, the Committee in its discretion may, on the Date of Grant (as defined
in Section 6(b) below) or at any time thereafter, take one or more of the
following actions: (i) provide for the acceleration of any time period relating
to the exercise or payment of the Option, (ii) provide for payment to the
Eligible Director of cash or other property with a fair market value equal to
the amount that would have been received upon the exercise or payment of the
Option had the Option been exercised or paid upon the change in control, (iii)
adjust the terms of the Option in a manner determined by the Committee to
reflect the change in control, (iv) cause the Option
<PAGE>
to be assumed, or new rights substituted therefor, by another entity, or (v)
make such other provision as the Committee may consider equitable to the
Eligible Director and in the best interest of the Company.
(c) Restoration of Shares. If any Option expires or is terminated
unexercised or is forfeited for any reason, the shares subject to such Option,
to the extent of such expiration, termination or forfeiture, shall again be
available for granting pursuant to Options under the Plan.
(d) Reservation of Shares. The Company shall at all times while the Plan is
in force reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
4. Types of Options.
All Options granted under this Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended.
5. Form of Options.
Options granted hereunder shall be evidenced by a writing delivered to the
optionee specifying the terms and conditions thereof and containing such other
terms and conditions not inconsistent with the provisions of the Plan as the
Committee considers necessary or advisable to achieve the purposes of the Plan
or comply with applicable tax and regulatory laws and accounting principles.
6. Grant of Options and Option Terms.
(a) Initial Grant of Options. On the later of (i) date of the approval of
the Plan (the "Approval Date") by the Securities and Exchange Commission in
accordance with the 1940 Act, or (ii) the first anniversary of the election or
appointment of such Director to the Board (the "First Anniversary Date"),
providing such Director is then serving, each of the following Directors shall
automatically be granted Options to purchase the number of shares of Common
Stock determined by dividing $50,000 by the Current Market Value (as defined in
Section 6(c) below) on the date indicated opposite each Director's name (the
"Initial Grants") provided each such Director is serving on the Company's Board
as an Eligible Director on the Approval Date or the First Anniversary Date, as
the case may be:
Name of Director Automatic Grant Date
---------------- --------------------
Paul Creditor Approval Date
John Acierno Approval Date
Alan Kaplan Approval Date
Marvin Sabesan Approval Date
(b) Automatic Grant of Options. At each annual meeting of the stockholders
of the Company after the Approval Date, each new Eligible Director elected at
such meeting shall automatically be granted on such new Eligible Director's
First Anniversary Date of such election an Option to purchase the number of
shares of Common Stock determined by dividing $50,000 by the Current Market
Value of the Common Stock on such First Anniversary Date of such election. In
addition, upon the election of an Eligible Director other than at an annual
meeting of stockholders (whether by the Board or the stockholders and whether to
fill a vacancy or otherwise), each such Eligible Director shall automatically be
granted an Option on the First Anniversary Date of the election of an Eligible
Director other than at an annual meeting of stockholders to purchase that number
of shares that is determined by dividing $50,000 by the Current Market Value of
the Common Stock on the First Anniversary Date of such election.
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<PAGE>
After the Initial Grants have been made, all subsequent grants of Options to
Eligible Directors upon the First Anniversary Date of their election to the
Board shall be referred to as "Automatic Grants." The "Date of Grant" for the
Initial Grants shall be the Approval Date and the Date of Grant for the
Automatic Grants shall be the First Anniversary Date of the election as a new
Eligible Director, whether at an annual meeting or otherwise, as the case may
be. No Options shall be granted hereunder after ten years from the date on which
this Plan was initially approved and adopted by the Board.
(c) Exercise Price. The price at which shares may from time to time be
optioned shall be determined by the Committee, provided that such price shall
not be less than the current market value (the "Current Market Value") of the
Common Stock on the date of grant, or if no such market value exists, then the
current net asset value of the Common Stock of the Company or such other lawful
consideration as the Committee may determine.
(d) Term of Option. The term of each Option granted under this Plan shall
be five years from the Date of Grant.
(e) Period of Exercise. Options granted under this Plan shall become
exercisable commencing 12 months after the Date of Grant. Directors holding
exercisable Options under this Plan who cease to be Eligible Directors for any
reason, other than death, may exercise the rights they had under such Options at
the time they ceased to be an Eligible Director; provided, however, no
additional Options held by such Directors shall be exercisable thereafter. Upon
the death of a Director, those entitled to do so under the Director's will or
the laws of descent and distribution shall have the right, at any time within
twelve months after the date of death, to exercise in whole or in part any
rights that were available to the Director at the time of his or her death.
Options granted under the Plan shall terminate, and no rights thereunder may be
exercised, after the expiration of five years from their Date of Grant.
(f) Method of Exercise and Payment. Options may be exercised only by
written notice of the Company at its executive offices accompanied by payment of
the full exercise price for the shares of Common Stock as to which they are
exercised. The exercise price shall be paid in cash or by check or by the
surrender of unrestricted shares of Common Stock or by any combination of the
foregoing. Upon receipt of such notice and payment,the Company shall promptly
issue and deliver to the optionee (or other person entitled to exercise the
Option) a certificate or certificates for the number of shares as to which the
exercise is made.
(g) Non-transferability. Options granted under this Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution, and shall be exercisable, during the holder's lifetime, only
by him or her.
(h) Witholding. The optionee shall pay to the Company, or make provisions
satisfactory to the Company for payment of, any taxes required by law to be
withheld in respect of any Options under the Plan no later than the date of the
event creating the tax liability. The Company and any parent corporation or
subsidiary corporation of the Company (as defined in Sections 424(e) and (f),
respectively, of the Code) may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the optionee.
7. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan nor the granting
of an Option or any other action taken pursuant to the Plan, shall constitute an
agreement or understanding, express or implied that the Company will retain an
optionee as a Director for any period of time or at any particular rate of
compensation.
(b) No Stockholders' Rights for Options. No Director shall have any rights
as a stockholders with respect to the shares covered by his or her Option until
the date he or she exercises such Option and pays the Option price to the
Company, and no adjustment will be made for dividends or other rights for which
the record date is prior to the date such Option is exercised and paid for.
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<PAGE>
8. Amendment or Termination.
The Board may amend, suspend or terminate the Plan or any portion thereof
at any time, subject to any shareholder approval that the Board determines to be
necessary or advisable, provided that the Participant's consent will be required
for any amendment, suspension or termination that would adversely affect the
rights of the Participant under any outstanding Options.
9. No Fractional Shares. All grants of Options shall be rounded to the
nearest whole share and no Options representing fractional shares shall be
issued.
10. Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of New York.
This Plan was approved by the Board of Directors on __________ ___, 1998. This
Plan was approved by the Shareholders on ____________, 1998. This Plan was
approved by the Securities and Exchange Commission on ______ ___, 199__.
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