<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
TRI-MAGNA CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Chapter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(i), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
TRI-MAGNA CORPORATION
Suite 2000
205 East 42nd Street
New York, New York 10017
May 1, 1996
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Tri-Magna Corporation ("Tri-Magna") to be held at 10:00 a.m. on May 22, 1996 at
the offices of Tri-Magna at the address set forth above.
At this meeting, you will be asked to adopt the Agreement of Merger, dated
as of December 21, 1995 (as amended by Amendments Number 1 and 2 thereto, the
"Merger Agreement"), which provides for the merger of Tri-Magna with and into
Medallion Financial Corp. ("Medallion"), a corporation organized by Alvin
Murstein, Tri-Magna's President, and Andrew Murstein. In connection with the
merger, the stockholders of Tri-Magna will be entitled to receive $20 in cash
for each Tri-Magna share held by them, together with certain dividends payable
by Tri-Magna. Information about Medallion and Tri-Magna and details about the
proposed merger are included in the attached Proxy Statement.
A special committee of independent directors of Tri-Magna carefully
reviewed and considered the terms and conditions of the merger and, believing
the merger to be in the best interests of Tri-Magna and its stockholders,
unanimously recommended to the Tri-Magna Board of Directors that the Merger
Agreement be approved. In arriving at its decision, the special committee
considered a number of factors, including an opinion from its financial advisor,
Gruntal & Co., Incorporated, that the consideration to be received in the merger
by Tri-Magna stockholders is fair from a financial point of view. See "The
Merger - Fairness Opinion" in the attached Proxy Statement.
IN LIGHT OF THE RECOMMENDATION OF THE SPECIAL COMMITTEE, THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE BOARD RECOMMENDS
THAT YOU VOTE FOR ITS ADOPTION. IN CONSIDERING THIS RECOMMENDATION, YOU SHOULD
REVIEW CAREFULLY ALL THE INFORMATION CONTAINED IN THE ATTACHED PROXY STATEMENT.
YOUR VOTE IS EXTREMELY IMPORTANT.
We appreciate the loyalty and support our stockholders have demonstrated
over the years. We hope that you will continue this support by voting FOR the
proposal now. It is important that your shares be represented and voted at the
special meeting regardless of the size of your holdings. ACCORDINGLY, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE IN ORDER TO MAKE
CERTAIN THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING.
Sincerely,
\s\Marie Russo
Marie Russo
Vice President
<PAGE>
TRI-MAGNA CORPORATION
Suite 2000
205 East 42nd Street
New York, New York 10017
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1996
A special meeting of stockholders of Tri-Magna Corporation ("Tri-Magna"), a
Delaware corporation, will be held on May 22, 1996, at 10:00 a.m., at the
offices of Tri-Magna, 205 East 42nd Street, Suite 2000, New York, New York
10017, for the following purposes:
(1) To consider and vote upon a proposal to adopt the Agreement of Merger,
dated as of December 21, 1995, between Tri-Magna and Medallion Financial
Corp., as amended by Amendments Number 1 and 2 thereto; and
(2) To transact such other business as may properly come before the special
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 16, 1996 as
the record date for determining the stockholders entitled to notice of and to
vote at the special meeting and any adjournment thereof; only stockholders of
record at the close of business on that date will be entitled to attend the
special meeting and vote.
UNDER DELAWARE LAW, STOCKHOLDERS OF TRI-MAGNA HAVE CERTAIN RIGHTS OF
APPRAISAL IN CONNECTION WITH THE MERGER AS DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE YOUR
PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING AND WISH TO VOTE
IN PERSON, YOUR PROXY WILL NOT BE USED.
BY ORDER OF THE BOARD OF DIRECTORS
\s\Marie Russo
Marie Russo
Vice President
May 1, 1996
<PAGE>
TRI-MAGNA CORPORATION
SUITE 2000, 205 EAST 42ND STREET
NEW YORK, NEW YORK 10017
PROXY STATEMENT
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1996
This Proxy Statement (the "Proxy Statement") relates to the proposed merger
(the "Merger") of Tri-Magna Corporation ("Tri-Magna"), a Delaware corporation,
with and into Medallion Financial Corp. ("Medallion"), a Delaware corporation,
pursuant to the terms of an Agreement of Merger dated as of December 21, 1995
(as amended by Amendments Number 1 and 2 thereto, the "Merger Agreement"). It
is being furnished to stockholders of Tri-Magna (the "Stockholders") in
connection with the solicitation of proxies by the Board of Directors of Tri-
Magna for the special meeting of Stockholders to be held on May 22, 1996 at
10:00 a.m. at the offices of Tri-Magna, and at any adjournments or postponements
thereof (the "Special Meeting"). Only Stockholders of record at the close of
business on April 16, 1996 (the "Record Date") are entitled to vote at the
Special Meeting. This Proxy Statement and the enclosed form of proxy are first
being mailed or delivered to Stockholders on or about May 1, 1996.
At the Special Meeting, Tri-Magna will present a proposal to adopt the
Merger Agreement. If the Merger Agreement is adopted and the other conditions
set forth in the Merger Agreement are satisfied, Tri-Magna will be merged with
and into Medallion, with the result that the separate corporate existence of
Tri-Magna will cease and its two wholly-owned subsidiaries, Medallion Funding
Corp. and Medallion Taxi Media, Inc., will become wholly-owned subsidiaries of
Medallion. Each outstanding share of the common stock, $0.01 par value, of Tri-
Magna (the "Common Stock"), other than shares as to which appraisal rights have
been perfected under Section 262 of the Delaware General Corporation Law (the
"DGCL"), will be converted into the right to receive $20 in cash (the "Merger
Consideration"). In addition, as permitted by the Merger Agreement, the holders
of shares of Common Stock immediately prior to the Merger will be entitled to
receive certain dividends payable by Tri-Magna.
On the Record Date, Tri-Magna had outstanding 668,900 shares of Common
Stock, which is its only outstanding class of capital stock. Each share of
Common Stock is entitled to one vote for each matter submitted to a vote at the
Special Meeting. A majority of the shares of Common Stock outstanding as of the
Record Date, represented at the Special Meeting in person or by proxy, will
constitute a quorum for the transaction of business. The affirmative vote of a
majority of the shares of Common Stock outstanding as of the Record Date is
required to adopt the Merger Agreement. Abstentions and broker non-votes will
be counted for purposes of determining a quorum but will have the effect,
together with any other shares not voted at the Special Meeting, of votes
against adoption of the Merger Agreement.
The authority granted by an executed proxy may be revoked at any time
before its exercise by filing with Marie Russo, a Vice President of Tri-Magna, a
written revocation or a duly executed proxy bearing a later date or by voting in
person at the Special Meeting. Shares represented by valid proxies will be
voted in accordance with the specifications in the proxies. If no
specifications are made, the proxies will be voted to approve the Merger
Agreement.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROXY STATEMENT SUMMARY................................................. 1
The Parties........................................................ 1
Tri-Magna Corporation......................................... 1
Medallion Financial Corp...................................... 1
The Special Meeting................................................ 2
Record Date; Vote Required.................................... 2
Effective Time................................................ 2
The Merger......................................................... 3
Tri-Magna's Reasons for the Merger............................ 3
Fairness Opinion.............................................. 3
Covenants..................................................... 4
Conditions of Merger.......................................... 4
Accounting Treatment.......................................... 4
Appraisal Rights.............................................. 4
Interests of Certain Parties.................................. 5
Certain Federal Income Tax Consequences....................... 5
Regulatory Approvals.......................................... 5
Recommendation of the Board of Directors of Tri-Magna......... 5
INTRODUCTION............................................................ 6
THE SPECIAL MEETING..................................................... 6
Record Date; Outstanding Securities................................ 6
Purpose of the Meeting............................................. 6
Required Vote...................................................... 6
Voting of Proxies.................................................. 6
Appraisal Rights................................................... 7
THE MERGER.............................................................. 7
General............................................................ 7
Exchange of Common Stock........................................... 8
Background of the Merger........................................... 8
Tri-Magna's Reasons for the Merger................................. 16
Fairness Opinion................................................... 17
Analysis of Recent Operating Results and Financial Condition.. 19
Comparable Company Analysis................................... 19
Discounted Cash Flow Analysis................................. 19
Merger and Effective Time.......................................... 20
Representations, Warranties and Covenants.......................... 21
Conditions of Merger............................................... 22
Termination........................................................ 22
Waiver and Amendment............................................... 23
Regulatory Matters................................................. 23
Expenses........................................................... 23
Accounting Treatment............................................... 25
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
APPRAISAL RIGHTS........................................................ 25
INTERESTS OF CERTAIN PARTIES............................................ 28
TRI-MAGNA'S PRINCIPAL STOCKHOLDERS...................................... 30
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................. 31
Tax Consequences to Tri-Magna's Stockholders....................... 31
Tax Treatment of Tri-Magna......................................... 32
REGULATORY APPROVALS.................................................... 32
DESCRIPTION OF TRI-MAGNA................................................ 33
General............................................................ 33
Specialty Finance.................................................. 33
Taxicab Advertising................................................ 37
Certain Financial Data............................................. 38
Employees.......................................................... 38
Legal Matters...................................................... 38
FINANCING............................................................... 39
EXPERTS................................................................. 39
FINANCIAL ADVISORS...................................................... 39
SOLICITATION COMPENSATION............................................... 39
ADDITIONAL MATERIALS.................................................... 39
OTHER MATTERS........................................................... 40
STOCKHOLDER PROPOSALS................................................... 40
INDEX TO FINANCIAL STATEMENTS........................................... F-1
</TABLE>
Exhibit A Agreement of Merger, as amended by Amendments Number 1 and 2 thereto
Exhibit B Opinion of Gruntal & Co., Incorporated
Exhibit C Section 262 of the Delaware General Corporation Law
(ii)
<PAGE>
PROXY STATEMENT SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this Proxy Statement Summary is
qualified in its entirety by, the more detailed information contained in this
Proxy Statement and the exhibits attached hereto. Unless otherwise defined
herein, capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Proxy Statement. You are urged to read this
Proxy Statement and the other documents attached hereto or delivered herewith in
their entirety.
THE PARTIES
TRI-MAGNA CORPORATION
Tri-Magna is a closed-end investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), and is the sole
stockholder of Medallion Funding Corp. ("MFC") and Medallion Taxi Media, Inc.
("Media"). MFC is a New York corporation licensed as a Specialized Small
Business Investment Company (a "SSBIC") by the Small Business Administration
(the "SBA") and has been registered as a closed-end, non-diversified investment
company under the 1940 Act since 1981. MFC is a finance company focused on
making loans in New York City secured by taxicab medallions. MFC was
incorporated in 1979. Media, which was incorporated in New York in August 1994,
operates a taxicab rooftop advertising display business. Tri-Magna's principal
executive offices are located at 205 East 42nd Street, Suite 2000, New York, New
York 10017, and its telephone number is (212) 682-3300. Tri-Magna, MFC and
Media are referred to herein collectively as the "Company."
MEDALLION FINANCIAL CORP.
Medallion is a closed-end investment company which has elected to be
treated as a business development company under the 1940 Act. Medallion was
organized as a Delaware corporation in 1995 by Alvin Murstein, Tri-Magna's
President, and Andrew Murstein, its Director of New Business Development
(collectively, the "Mursteins"), for the purpose of acquiring certain companies,
including Tri-Magna (the "Acquired Companies"), and, following such
acquisitions, holding all the outstanding voting capital stock of such Acquired
Companies. These acquisitions, including the acquisition of Tri-Magna, are
subject to certain conditions, including the successful completion of an initial
public offering of Medallion common stock (the "IPO"), which offering will be
made only by means of a prospectus filed with the Securities and Exchange
Commission (the "Commission"). Upon completion of these transactions, Medallion
will engage directly and/or through its subsidiaries primarily in the specialty
finance business. In particular, Medallion will make loans secured by taxicab
medallions and other secured loans primarily to small businesses. To a lesser
degree, Medallion will engage in the business of taxicab rooftop advertising.
Medallion's principal executive offices are located at 205 East 42nd Street,
Suite 2000, New York, New York 10017, and its telephone number is
(212) 682-3300.
<PAGE>
THE SPECIAL MEETING
This Proxy Statement and enclosed proxy are being furnished in connection
with the solicitation by the Board of Directors of Tri-Magna of proxies for use
at the Special Meeting The purpose of the Special Meeting is to consider and
vote upon a proposal to adopt the Merger Agreement described herein. Adoption
of such proposal is a condition to consummation of the Merger.
RECORD DATE; VOTE REQUIRED
Only holders of record of shares of Common Stock at the close of business
on April 16, 1996 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. At the Record Date, there were 668,900 shares of Common
Stock outstanding and entitled to vote.
As of the Record Date, directors and executive officers of Tri-Magna and
their affiliates owned beneficially an aggregate of 203,800 shares of Common
Stock or approximately 30.5% of the shares outstanding and entitled to vote on
such date. Of these shares, 172,550 or approximately 25.8% of the outstanding
shares are owned by the directors and executive officers of Tri-Magna who are
affiliated with Medallion or who will own the investment adviser to Medallion.
The holders of these 172,550 shares have agreed to vote them in favor of the
Merger Agreement.
The presence in person or by properly executed proxy of holders of a
majority of the shares of Common Stock outstanding as of the Record Date will
constitute a quorum at the Special Meeting. Under the DGCL, the affirmative
vote of a majority of the shares of Common Stock outstanding as of the Record
Date is required to approve the Merger Agreement. Although abstentions and
broker non-votes will be counted toward a quorum, they will not be voted for or
against the approval and adoption of the Merger Agreement and, therefore, will
have the effect of negative votes.
EFFECTIVE TIME
The Merger will become effective as soon as practicable after satisfaction
or waiver of all conditions to the Merger and at the time and on the date that
appropriate Merger documents are duly filed with the Secretary of State of
Delaware or at such later time and date as is specified as the effective time of
the Merger therein (the "Effective Time"). See "The Merger - Merger and
Effective Time." Assuming all conditions to the Merger are met, or waived where
permissible, it is expected that the Effective Time will occur on May 23, 1996,
or as soon thereafter as practicable.
2
<PAGE>
THE MERGER
The Merger Agreement provides for the merger of Tri-Magna with and into
Medallion, with Medallion being the surviving corporation. The Merger Agreement
also provides that, in the Merger, each share of Common Stock, other than shares
as to which appraisal rights have been perfected, will be converted into the
right to receive $20 in cash. In addition, as permitted by the Merger
Agreement, immediately prior to the Merger Tri-Magna will declare a special
dividend of $0.50 per share on each outstanding share of Common Stock and a
dividend in an aggregate amount equal to the accumulated net earnings, if any,
of Media at the time of the Merger (collectively, the "Special Distribution").
This is in addition to any dividends out of current earnings (less certain non-
deductible expenses of the transaction payable by Tri-Magna) that Tri-Magna is
permitted to pay in accordance with customary practice under the Merger
Agreement.
Shares with respect to which appraisal rights shall have been perfected
will have the right to receive the amount to which the holder thereof is
entitled upon appraisal in accordance with Section 262 of the DGCL. See
"Appraisal Rights." The exercise of appraisal rights will not affect a holder's
right to receive any dividend or distribution, including the Special
Distribution, declared by Tri-Magna prior to the Effective Time of the
Merger.
TRI-MAGNA'S REASONS FOR THE MERGER
The proposed Merger follows more than three years of sustained efforts on
the part of Tri-Magna's management to reverse a trend of declining earnings.
After determining that operational results might be improved by expanding Tri-
Magna's capital base, management fully explored the possibility of raising
additional equity capital in the public market or from existing stockholders.
When these efforts appeared futile and a search for potential third party
acquirors proved unsuccessful, the Mursteins proposed this acquisition of Tri-
Magna by Medallion. A special committee of independent directors of Tri-Magna
established to evaluate the offer (the "Special Committee") determined that the
Merger is in the best interests of the Stockholders and Tri-Magna. The Merger
Consideration equals the highest price at which the Common Stock had traded in
Tri-Magna's history. In making its recommendation, the Special Committee has
relied on the opinion of its independent financial advisor, Gruntal & Co.,
Incorporated ("Gruntal"). See "The Merger--Background of the Merger," and "--
Fairness Opinion."
FAIRNESS OPINION
Gruntal, a nationally recognized investment banking firm, has acted as
financial adviser to the Special Committee in connection with the Merger and has
delivered to the Special Committee its written opinion that, subject to the
assumptions and qualifications stated by Gruntal therein, the terms of the
proposed Merger are fair, from a financial point of view, to Tri-Magna and the
Stockholders. Such fairness opinion is based on financial forecasts provided by
the management of Tri-Magna as well as current market, economic, financial and
other conditions.
3
<PAGE>
The opinion of Gruntal is attached to this Proxy Statement as Exhibit B and
Stockholders are urged to read the opinion carefully and in its entirety.
Gruntal received a fee for its services. See "The Merger--Fairness Opinion."
COVENANTS
Tri-Magna and Medallion have made certain covenants and agreements with
each other in the Merger Agreement relating to, among other things, (i) the
conduct of Tri-Magna's business prior to the Merger, (ii) cooperation with
respect to the preparation of this Proxy Statement, (iii) allocation of
expenses, (iv) confidentiality and publicity and (v) restrictions on engaging in
acquisition discussions with any other party. See "The Merger--Representations,
Warranties and Covenants."
CONDITIONS OF MERGER
In addition to the adoption of the Merger Agreement by the Stockholders,
the respective obligations of Medallion and Tri-Magna to consummate the Merger
are subject to certain conditions, including that (i) all representations and
warranties contained in the Merger Agreement are accurate as of the Effective
Time; (ii) all covenants and agreements contained in the Merger Agreement are
performed or waived prior to the Effective Time; (iii) the parties receive the
legal opinions and other documents described in the Merger Agreement; (iv) there
is no material adverse change in the business of Tri-Magna; (v) the parties
receive all required governmental approvals; (vi) Medallion successfully
completes its financing; (vii) Medallion acquires the other Acquired Companies;
and (viii) not more than ten percent (10%) of the shares of Common Stock remain
eligible to exercise appraisal rights as of the Effective Time. See "The Merger
- - Conditions of Merger."
ACCOUNTING TREATMENT
Medallion will account for the Merger using the purchase method of
accounting.
APPRAISAL RIGHTS
Under the DGCL, any holder of record of Common Stock who votes against or
abstains from voting in favor of the Merger and delivers a demand for appraisal
prior to the vote of the Stockholders on the Merger has the right to obtain cash
payment for the "fair value" of the holder's Common Stock (excluding any element
of value arising from the accomplishment or expectation of the Merger). In
order to exercise such rights, a Stockholder must strictly comply with all the
procedural requirements of Section 262 of the DGCL, a description of which is
provided in "Appraisal Rights" and the full text of which is attached as Exhibit
C to this Proxy Statement. Section 262 should be read in its entirety. Such
"fair value" would be determined in judicial proceedings, the result of which
cannot be predicted. Failure to comply strictly with all of the requirements of
Section 262 may result in a loss of appraisal rights. See "Appraisal Rights."
4
<PAGE>
INTERESTS OF CERTAIN PARTIES
Stockholders holding in aggregate approximately 32% of the Common Stock are
either stockholders of Medallion or stand to receive payments from Medallion
upon consummation of the Merger. Accordingly, they have interests in the
transaction different from those of other Stockholders. In particular, the
Mursteins, who are affiliates of Tri-Magna and who, through private trusts, are
stockholders of Medallion, stand to benefit significantly from the acquisition
of Tri-Magna and the other Acquired Companies; the magnitude of any such benefit
will depend on, among other factors, the size and per share offering price of
the Medallion IPO. See "Interests of Certain Parties."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of Common Stock for payment of $20 in cash will be a taxable
event for most Stockholders. See "Certain Federal Income Tax Consequences."
REGULATORY APPROVALS
The Merger is conditioned upon receipt of an exemptive order from the
Commission, an application for which has been filed by the parties. The
acquisitions of the Acquired Companies, including Tri-Magna, are conditioned
upon, and consequently the Merger is conditioned upon, approval of the SBA. No
assurance can be given that such exemptive order or SBA approval will be
received. See "Regulatory Approvals."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF TRI-MAGNA
THE BOARD OF DIRECTORS OF TRI-MAGNA UNANIMOUSLY RECOMMENDS THAT TRI-MAGNA
STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT.
5
<PAGE>
INTRODUCTION
This Proxy Statement is being furnished to the Stockholders of Tri-Magna in
connection with the solicitation of proxies by the Tri-Magna Board of Directors
to be voted at the Special Meeting.
THE SPECIAL MEETING
RECORD DATE; OUTSTANDING SECURITIES. This Proxy Statement and enclosed proxy
are being furnished in connection with the solicitation by the Tri-Magna Board
of Directors of proxies in the enclosed form for use at the Special Meeting to
be held on May 22, 1996, at 10:00 a.m. at the offices of Tri-Magna, Suite 2000,
205 East 42nd Street, New York, New York. The Board of Directors has fixed the
close of business on April 16, 1996, as the Record Date. Only the holders of
shares of Common Stock of record at the close of business on the Record Date are
entitled to receive notice of and to vote at the Special Meeting. At the Record
Date, there were 668,900 shares of Common Stock outstanding, which were held of
record by approximately 276 holders.
PURPOSE OF THE MEETING. At the Special Meeting, the Stockholders of Tri-Magna
will consider and vote upon a proposal to adopt the Merger Agreement pursuant to
which (i) the Merger and the other transactions contemplated by the Merger
Agreement are to be consummated and (ii) holders of Common Stock are to receive
$20 in cash in exchange for each share of Common Stock held by each of them as
of the Effective Time of the Merger.
REQUIRED VOTE. A majority of the shares of Common Stock outstanding as of the
Record Date, represented in person or by proxy at the Special Meeting, will
constitute a quorum. Each share of Common Stock is entitled to one vote. The
Merger Agreement must be adopted by the affirmative vote of a majority of the
shares of Common Stock outstanding as of the Record Date. Shares represented by
proxies which are marked "abstain" and proxies relating to "street name" shares
for which the authority to vote is withheld will be counted for purposes of
determining a quorum but will not be treated as votes cast and, therefore, will
have the effect of negative votes. Directors and executive officers of Tri-
Magna who own 172,550 shares of Common Stock, or approximately 25.8% of the
outstanding shares, have agreed to vote their shares in favor of the Merger
Agreement.
THE BOARD OF DIRECTORS OF TRI-MAGNA BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF TRI-MAGNA AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE TO
ADOPT THE MERGER AGREEMENT.
VOTING OF PROXIES. All proxies that are properly executed and returned will be
voted at the Special Meeting in accordance with the instructions thereon, unless
previously revoked. With regard to any other business not specified above that
may properly come before the Special Meeting, shares of Common Stock represented
by properly executed proxies will be voted at the discretion of the persons
named in the relevant proxy. The execution of a proxy will not affect a
Stockholder's right to attend the Special Meeting and vote in person.
6
<PAGE>
ANY STOCKHOLDER GIVING A PROXY HAS THE POWER TO REVOKE THE PROXY PRIOR TO ITS
EXERCISE. A PROXY MAY BE REVOKED BY (A) FILING WITH MARIE RUSSO, A VICE
PRESIDENT OF TRI-MAGNA, AT OR BEFORE THE TAKING OF THE VOTE AT THE SPECIAL
MEETING, (1) A WRITTEN NOTICE OF REVOCATION SPECIFYING THE NUMBER OF SHARES AND
CLEARLY IDENTIFYING THE PROXY TO BE REVOKED OR (2) A DULY EXECUTED NEW PROXY
BEARING A LATER DATE, OR (B) ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON
(ALTHOUGH ATTENDANCE AT THE MEETING WILL NOT IN AND OF ITSELF CONSTITUTE A
REVOCATION OF A PROXY). ANY WRITTEN NOTICE OF REVOCATION OR SUBSEQUENT PROXY
SHOULD BE SENT AND DELIVERED TO TRI-MAGNA CORPORATION, SUITE 2000, 205 EAST 42ND
STREET, NEW YORK, NEW YORK 10017, ATTENTION: MARIE RUSSO, OR HAND DELIVERED TO
MARIE RUSSO BEFORE THE TAKING OF THE VOTE AT THE SPECIAL MEETING.
APPRAISAL RIGHTS. Under the DGCL, any holder of record of Common Stock who
votes against or abstains from voting in favor of the Merger and delivers a
demand for appraisal prior to the vote of Stockholders on the Merger Agreement
has the right to obtain cash payment for the "fair value" of such holder's
Common Stock (excluding any element of value arising from the accomplishment or
expectation of the Merger). In order to exercise such rights, a Stockholder
must strictly comply with all the procedural requirements of Section 262 of the
DGCL, a description of which is provided in "Appraisal Rights" and the full text
of which is attached as Exhibit C to this Proxy Statement. Section 262 should be
read in its entirety. Such "fair value" would be determined in judicial
proceedings, the result of which cannot be predicted. Failure to comply strictly
with all of the requirements of Section 262 may result in a loss of appraisal
rights.
If you have any questions about giving your proxy or require assistance, please
contact the following individual:
Marie Russo
Tri-Magna Corporation
Suite 2000
205 East 42nd Street
New York, NY 10017
(212) 682-3300
THE MERGER
The detailed terms of and conditions to the consummation of the Merger are
contained in the Merger Agreement, a conformed copy of which is attached hereto
as Exhibit A and incorporated herein by reference. The following discussion
sets forth a description of the material terms and conditions of the Merger
Agreement. The description in this Proxy Statement of the terms of and
conditions to the consummation of the Merger is qualified by the more complete
information set forth in the Merger Agreement.
GENERAL
The Merger Agreement provides for the merger of Tri-Magna with and into
Medallion. If the Merger Agreement is adopted by the Stockholders, certain
additional
<PAGE>
conditions are satisfied or waived and the Merger is consummated, the separate
existence of Tri-Magna will cease and Medallion, as the surviving corporation,
will own and control MFC and Media.
EXCHANGE OF COMMON STOCK
As a result of the Merger, at the Effective Time, all outstanding shares of
Common Stock (other than (i) shares held by Tri-Magna as treasury stock and
shares owned beneficially by either subsidiary of Tri-Magna and (ii) shares for
which appraisal rights have been perfected) will be converted into the right to
receive $20 in cash. In addition, each holder of record of shares of Common
Stock will be entitled to receive any dividends declared by Tri-Magna prior to
the Effective Time as permitted by the Merger Agreement which have not
theretofore been paid, including the Special Distribution.
Before the Effective Time, Medallion shall deposit or shall cause to be
deposited with an exchange agent cash in an amount equal to the aggregate Merger
Consideration. After the Effective Time, the exchange agent shall mail to each
Stockholder a form letter of transmittal containing instructions for exchanging
shares of Common Stock for cash. Upon surrender of certificates representing
such shares of Common Stock, a Stockholder shall receive a check representing
the Merger Consideration allocable to such shares.
BACKGROUND OF THE MERGER
The Company's business has traditionally focused on making loans through
MFC to finance the purchase, or refinance outstanding loans relating to the
purchase, of taxicab medallions, taxicabs and related assets by persons defined
by SBA regulations as socially or economically disadvantaged ("Disadvantaged
Borrowers") or to entities that are at least 50% owned by Disadvantaged
Borrowers. As the Company's business has matured, a number of operational
issues have developed that have forced management to consider alternatives to
the Company's existing capital structure and overall business plan.
Since 1992, several trends affecting the finance industry in general and
MFC, as a SSBIC financing taxi-related businesses, in particular have combined
to produce lower yields from MFC's loan portfolio and correspondingly smaller
returns for the Stockholders. At the finance industry level, the lower, long-
term interest rate environment has reduced the rates at which a finance company
such as MFC lends funds. At the same time, however, the fixed costs associated
with managing the portfolio have increased due to growth in the portfolio and
general inflationary pressure, thereby reducing yields. In addition, a number
of competitors, including large commercial banks, have entered the market to
finance the taxi industry and the resulting competition has driven down the
rates at which MFC makes loans.
As a SSBIC, MFC is eligible to raise capital from the SBA on relatively
favorable terms. Beginning in 1989, however, the SBA informed MFC that due to
the SBA's concerns regarding the concentration of Small Business Investment
Company ("SBIC") and SSBIC loans in the taxi industry and the availability of
private capital to finance taxi-related businesses, generally no additional SBA
financing would be made available to certain SBICs
8
<PAGE>
and SSBICs for financings in that industry. In addition, the SBA expressed
particular concern over the concentration of taxi-related loans in MFC's
portfolio.
In response to the SBA's concerns, MFC began to diversify its portfolio by
making loans outside of the taxi industry. Through December 31, 1995, MFC had
originated over 1,056 non-taxi loans totaling over $69 million, with such loans
at such time accounting for approximately 32% of MFC's outstanding portfolio.
Notwithstanding MFC's efforts to diversify its portfolio, the SBA continues to
believe that the SBIC/SSBIC program as a whole is over concentrated in the taxi
industry and, therefore, has declined to make any additional financing available
to MFC.
The unavailability of SBA financing has required that MFC rely increasingly
upon more expensive commercial lines of credit, increasing MFC's cost of
capital. Predictably, the higher cost of capital has produced a correspondingly
lower spread on MFC's portfolio (i.e., the difference between the yield on
---
interest-bearing assets and interest-bearing liabilities).
Since January 1992, the combination of lower long-term interest rates and
increased competition in the market has reduced the quarterly yield on the loan
portfolio by almost 25%. As a result of the reduced yields and increased cost of
capital resulting from the unavailability of SBA financing, between March 31,
1992 and March 31, 1995, the spread on the portfolio has declined by more than
50%. Correspondingly, during this same period, MFC's earnings have decreased by
over 25% despite an almost 50% increase in size of the portfolio.
SBA debentures are subordinated in order to facilitate SBIC and SSBIC
access to private debt capital. In order that the SBA may better protect its
position as a subordinated creditor, newly-implemented regulations authorize the
SBA to regulate the amount of non-SBA leverage that SBICs and SSBICs with
outstanding SBA debentures may incur. Under these regulations, SBICs and SSBICs
may not incur additional non-SBA debt without the prior approval of the SBA. In
addition, unless otherwise waived in writing by the SBA, SBICs and SSBICs with
existing lines of credit are required to obtain SBA approval before increasing
or refinancing amounts outstanding under such lines of credit.
Because Tri-Magna was concerned that the SBA could preclude MFC from
increasing or refinancing its existing lines of credit due to concerns over the
concentration of loans in the taxi industry, Tri-Magna's management determined
in 1995 that it would be prudent to redeem MFC's outstanding SBA debentures in
view of the adverse impact on earnings that such an action by the SBA could
cause. MFC was advised by its lenders, however, that such redemption could not
be financed through an increase in MFC's credit facility because the principal
amount of the debentures ($12,500,000) to be redeemed was too large. In
addition, $6,500,000 out of the $12,500,000 in SBA debt outstanding was due
September 30, 1995 (which represented an extension from March 31, 1995). With
no assurance that the SBA would continue to extend the due date or that the
terms of any such extension would be acceptable to MFC, Tri-Magna's management
negotiated in September 1995 a two-tiered loan facility with a syndicate of
banks for the purpose of redeeming all outstanding debentures and preferred
stock issued by MFC to the SBA. The first tier of the facility provided a
short-term, secured loan to Tri-Magna in the principal amount of
$3,231,900,
9
<PAGE>
subject to the terms herein described. The proceeds of this loan were paid to
MFC in the form of a contribution to capital. The second tier of the facility
then increased MFC's existing credit facility by an amount that, in combination
with the Tri-Magna capital contribution, was sufficient to enable MFC to redeem
all outstanding securities issued to the SBA. On September 29, 1995, Tri-Magna
and MFC became parties to the loan facility and MFC completed the redemption of
its outstanding SBA debentures and preferred stock. The terms of this loan
provide that the entire principal amount is payable upon the earlier of the
closing of the IPO or May 31, 1996. In the event the IPO does not occur by May
31, 1996, Tri-Magna will need to find alternative sources of funds in order to
pay the bank loan.
The repurchase of the preferred stock owned by the SBA was at a 65%
discount to the original issuance price and had an effective date of August 12,
1994, the date of the application to the SBA for such repurchase. The aggregate
amount of the discount, $6,002,100, was recorded as a restricted capital surplus
account. Under the terms of the repurchase agreement, the SBA retains a
liquidating interest in the amount of the discount, which is amortized on a
straight line basis over five years, commencing on August 12, 1994. As of
August 12, 1995, the SBA's liquidating interest in the restricted capital
surplus account had been reduced by $1,200,420. Upon the occurrence of any
event of default under the repurchase agreement, the SBA's liquidating interest
would become fixed at the level immediately preceding the event of default and
would not amortize further until the default is cured or waived. In the event
of liquidation, the unexpired portion of the liquidating interest becomes
immediately payable to the SBA.
Increasing Stockholder discontent over the illiquidity of the Common Stock
has also caused management to re-examine the Company's business plan. From
incorporation, the bylaws of Tri-Magna have contained transfer restrictions that
require a Stockholder to offer its shares first to Tri-Magna before selling to a
third party. These restrictions were designed specifically to limit turnover
among Tri-Magna's Stockholders, many of whom are related through family or
business contacts, and have met with little opposition from the Stockholders.
As a consequence of the transfer restrictions and the small number of
Stockholders (never more than 276), no public market in Tri-Magna Common Stock
has ever developed.
The lack of a public market for the Common Stock was not a source of
concern throughout Tri-Magna's history. In the face of declining returns,
however, a number of Stockholders have considered liquidating their investment
but have found few buyers. In turn, these Stockholders have exerted increasing
pressure upon management to provide Stockholders with a more liquid investment
or some other form of exit strategy.
Confronted with these operational issues, Tri-Magna's management in
consultation with the Tri-Magna Board of Directors pursued several alternatives
designed to raise additional capital, improve stockholder returns and/or provide
liquidity for Stockholders.
Management first considered raising additional capital through an equity
offering of Tri-Magna's Common Stock. This alterative offered several
advantages. First, it would have allowed Tri-Magna to expand the MFC portfolio
without increasing its cost of funds and, therefore, increase the spread on the
portfolio and, correspondingly, Tri-Magna's
10
<PAGE>
profitability. In addition, if structured as a public offering accompanied by a
listing on the Nasdaq Stock Market, this alternative would have created a
public market for the Common Stock and, therefore, provided liquidity for
existing Stockholders. Finally, the proceeds from such an offering could have
been used to retire MFC's then outstanding SBA indebtedness, thereby freeing MFC
from the risk that the SBA would limit MFC's third-party debt and thereby
constrain growth in its portfolio.
From mid-1992 through the end of 1993, Tri-Magna conducted informal
discussions with investment bankers regarding a potential public offering of
Tri-Magna Common Stock. These efforts intensified in the spring of 1994
following the implementation of the SBA regulations governing third-party debt.
During this period, one or more members of Tri-Magna's management met formally
with at least eight investment banking firms of varying sizes, including
Gruntal. After varying degrees of investigation, these firms uniformly
concluded that a public offering of Tri-Magna Common Stock could not be
successfully marketed for a number of reasons. First, the size of MFC's loan
portfolio and level of current and projected earnings would support only a very
small offering. As a consequence, the public float would not be sufficient to
support active trading in the after market and the Common Stock would remain
relatively illiquid. Second, the limited number of medallions that could be
financed and increased competition in the market appeared to cap the upside
potential for Tri-Magna's earnings. In addition, the limited geographic
distribution of the portfolio appeared to present a level of risk incommensurate
with Tri-Magna's current and projected earnings. The investment bankers were
also aware that a number of Tri-Magna's Stockholders had held their shares for
as many as 15 years and might be looking to liquidate their investment.
Accordingly, there was a substantial risk of a large sell-off following a public
offering that could cause a significant decline in the price of the Common Stock
in the after market.
As the meetings with investment bankers progressed through the spring of
1994, management reported to the Board of Directors that the proposed public
offering was receiving a uniformly negative response from the investment bankers
and explored with the Board of Directors the possibility of raising additional
equity from Tri-Magna's existing Stockholders. For largely the same reasons
articulated by the investment bankers, the Board of Directors concluded that
Tri-Magna could not raise a sufficient amount of capital from existing
Stockholders. In particular, the Board of Directors determined that
participation in any such offering would be limited in view of Tri-Magna's
declining earnings and the absence of an after market that could provide some
assurance of liquidity for investors. Having explored options to raise
additional equity, the Board of Directors directed management to pursue further
then-preliminary efforts to sell Tri-Magna.
Informal discussions regarding a potential sale of Tri-Magna began in the
fall of 1993 at the October meeting of the Board of Directors. The Board of
Directors discussed the recent surge in bank acquisitions of financial service
businesses and the causes underlying declining yields, despite solid growth, in
MFC's portfolio. The Board of Directors concluded that in view of MFC's
demonstrated capacity to expand its portfolio, MFC (or Tri-Magna) should make an
ideal acquisition candidate for an entity such a bank or large finance company
that could leverage consistently lower costs of funds to offer loans at
competitive rates without the vulnerability to swings in interest rates that had
resulted from
11
<PAGE>
MFC's dependence on short-term borrowings. Based on these conclusions, the
Board of Directors authorized management to solicit bids from investment bankers
to advise management and the Board of Directors in connection with a potential
sale of Tri-Magna.
Management thereafter compiled written materials containing detailed
financial information and a description of Tri-Magna's business. After
soliciting from the Board of Directors a list of potential investment bankers to
represent Tri-Magna, the materials were sent to eight investment banking firms.
Meetings were held with each of the firms and follow-up meetings were held with
four of them. The Executive Committee of the Board of Directors (comprised of
Messrs. Alvin Murstein, Myron Cohen, Robert Fanger and Michael Miller) then held
detailed discussions regarding the terms of an engagement to provide advice in
connection with a proposed sale of Tri-Magna with three firms and, in April
1994, selected Ryan, Beck & Co., Inc. ("Ryan, Beck") due to its expertise in
sales of banks and thrifts. An engagement letter was authorized at the April
1994 meeting of the Board of Directors and was executed on May 3, 1994.
Following extensive due diligence, Ryan, Beck and management assembled an
information brochure containing a full description of Tri-Magna's business,
including audited financial statements, current operating strategy, projected
earnings and a full portfolio analysis, including asset quality, geographical
distribution and loan concentration. In June 1994, Ryan, Beck mailed a short
"teaser" letter describing Tri-Magna to over 80 prospective buyers. From these
80 prospects, 20 entered into confidentiality agreements with Tri-Magna and were
mailed the information brochure. Of these 20, only one requested an interview
with Tri-Magna. On November 14, 1994, management met with representatives from
this potential acquiror for several hours to discuss Tri-Magna's business and a
possible combination. The prospective buyer ultimately declined to make an
offer.
Following the meeting with this prospective buyer, there were no other
expressions of interest in acquiring Tri-Magna. No offer to buy Tri-Magna was
ever made at any price. The reasons for the lack of interest cited by the
prospects contacted by Ryan, Beck focused primarily on MFC's portfolio and the
market: at under $100 million, the portfolio was simply too small and too
concentrated geographically, and the limited number of medallions appeared to
limit the potential expansion of the market. Ryan, Beck's marketing efforts
ceased in October 1994, and the engagement was allowed to expire in February
1995.
Following the unsuccessful efforts to raise capital in the public market
and to sell Tri-Magna to a third party, the Mursteins began to consider making
an offer to purchase Tri-Magna in January 1995. The participants in these
discussions and subsequent conversations with other potential acquisition
candidates, including the Acquired Companies, were the Mursteins, together with
Mr. Daniel Baker, Vice President--Finance, and Mr. Michael Fanger, Vice
President--Commercial Finance, who will become officers of Medallion after the
Merger. Management had become aware through industry contacts that other
finance companies operating in the SBIC and SSBIC programs were confronting the
same operational issues experienced by Tri-Magna. Several of these companies
openly expressed interest in receiving offers to purchase their respective
portfolios and, in the absence of such a sale, were prepared to wind down their
portfolios and cease operations.
12
<PAGE>
Tri-Magna management contacted several SBICs and SSBICs that had expressed
interest in a possible sale to explore the potential for consolidating Tri-Magna
with one or more of such other entities. In the view of management, such a
consolidation could create an asset base of sufficient size and earnings
potential to support a public offering large enough to create an active market
in the stock of the consolidated business. Management also believed that as a
larger enterprise, the consolidated business would be in a position to negotiate
more favorable credit terms, while achieving significant cost savings through
the elimination of duplicative overhead costs. In addition, by acquiring
companies with complementary portfolios, the consolidated business could
diversify the portfolio geographically and thereby lower risk and present more
favorable projected earnings. Assuming these advantages would be reflected in
the offering price of the stock, the consolidated business could attract the
companies to be acquired by offering to purchase their shares or assets at a
minimum of book value. Following preliminary discussions of a potential
consolidation, a number of potential sellers expressed interest in pursuing
further negotiations with Tri-Magna's management.
In March 1995, management related to Messrs. Myron Cohen, Robert Fanger and
Michael Miller, in their capacity as members of the Executive Committee of the
Board of Directors, that discussions regarding a potential consolidation had
been conducted with certain finance companies operating in the SBIC and SSBIC
programs and that the Mursteins were considering making an offer for Tri-Magna's
Common Stock in connection with the proposed transaction. As part of these
discussions, the Mursteins sought to determine whether an offer at Tri-Magna's
then current book value of $16.50 per share would be considered an acceptable
price by the Executive Committee. Individually and collectively, Messrs. Cohen,
Fanger and Miller expressed the view that while a majority of Tri-Magna's
Stockholders had purchased their shares at prices below the then current book
value, a number of investors had purchased the Common Stock at its peak of $20
per share in 1988 and that any price that resulted in a loss of principal by
these investors would likely be rejected by the Board of Directors.
At a regularly-scheduled meeting of the Tri-Magna Board of Directors held
on April 19, 1995, the Mursteins reported to the Board of Directors the
discussions that had been conducted with other SBICs and SSBICs regarding a
potential consolidation and that they were considering a proposal to form a new
corporation independent of Tri-Magna to effect the transaction. In view of Tri-
Magna's declining earnings, the need to repay the outstanding SBA debt, and
trends in the industry as a whole, it was considered unlikely that the existing
Stockholders of Tri-Magna would be willing to contribute additional equity
capital in an offering or to incur the full expense of financing the
acquisitions and accompanying public offering and to assume the risk that the
transaction would fail or that the benefits anticipated from a consolidation
would not materialize. Since Tri-Magna did not appear to be in a position to
proceed with the consolidations with Tri-Magna as the acquirer, the Mursteins
advised the Board of Directors that they were prepared to make an offer to
purchase Tri-Magna in connection with the consolidations and that a written
proposal would be submitted to the Board of Directors at its May meeting.
The Mursteins met with the Executive Committee on several occasions to
discuss a potential purchase price following the April Board meeting. The
Executive Committee
13
<PAGE>
reiterated its position that it would not support any price that resulted in a
loss of principal by investors who had paid more than then current book value.
After preliminary consultations with investment bankers, the Mursteins concluded
that if current market and interest rate trends remained favorable, the proceeds
of a public offering would be sufficient to finance the acquisition of Tri-Magna
at $20 per share and the acquisitions of the remaining Acquired Companies for
cash as well as to redeem MFC's SBA debt or any short term financing used to pay
down such debt. With a $20 price in mind, the Mursteins prepared a written
proposal for submission at the May meeting of the Board of Directors.
At the regularly-scheduled meeting of the Tri-Magna Board of Directors on
May 18, 1995, the Mursteins reviewed with the Board of Directors a written
proposal of Medallion to acquire the outstanding shares of Tri-Magna in a cash
merger at $20 per share (the "Proposal"). The directors were advised that
presentation of the Proposal was to provide the Board with an overview of the
terms and structure of the proposed transaction and that the Board was not being
asked to take any formal action approving or rejecting the Proposal at the
meeting. In support of the Proposal's $20 per share price, Mr. Andrew Murstein
advised the Board that $20 per share represented a 21% premium over Tri-Magna's
then current book value of $16.50 per share and the highest price at which the
Common Stock had traded in Tri-Magna's history. Mr. Murstein also noted that
since 1979, Tri-Magna (and MFC as its predecessor) had paid out in excess of $20
million in dividends on an aggregate $11.2 million equity investment and that,
on average, Stockholders had received annual dividend yields of approximately
20%. Mr. Murstein added that the aggregate amount of dividends paid to a
majority of the Stockholders had exceeded their original investment and that at
$20 per share, no investor would suffer a loss of principal as a result of his
or her investment in Tri-Magna and, on average, Stockholders would realize an
annualized return on investment of over 22%. Mr. Murstein advised the Board of
Directors that the acquisition of Tri-Magna would be financed from the proceeds
of an initial public offering of Medallion's common stock and that Medallion had
entered into preliminary negotiations with underwriters. Mr. Murstein then
reviewed the principal contingencies contained in the Proposal and advised the
Board of Directors that Medallion had identified certain other entities to be
acquired in conjunction with the acquisition of Tri-Magna.
Following a discussion of the Mursteins' presentation, the Board of
Directors authorized discussions with the Commission and the SBA regarding
approval of the proposed transaction, and approved further exploration of the
proposed acquisitions of other potential acquisition targets. The Board of
Directors also appointed a special committee, consisting of Messrs. Giesser,
Liberman, Kreitman, Morison and Ward (the "Special Committee"), to consider the
proposed sale of Tri-Magna, to review the Proposal and to conduct any further
negotiations with Medallion regarding the potential acquisition of Tri-Magna. No
member of the Special Committee has any interest in the Proposal (other than as
a Stockholder and director of Tri-Magna) or is affiliated with Medallion or the
Management Affiliates. Mr. Kreitman was elected by the Special Committee to
serve as its Chairman. Subsequent to the Special Committee recommending that
the Merger be approved, both Mr. Kreitman and Mr. Ward were asked to and did
become directors of Medallion.
On June 10, 1995, the first draft of a proposed letter of intent prepared
by Medallion was circulated to the Special Committee; this letter of intent
incorporated the substance of the
14
<PAGE>
Proposal. On July 7, 1995, the Special Committee met in Boston, with all members
present, to review the draft letter of intent and to engage Nutter, McClennen &
Fish as independent counsel to advise the Special Committee in connection with
the proposed sale of Tri-Magna. The Special Committee reviewed the background of
the Proposal and the reasons for considering the sale of Tri-Magna. Many factors
were discussed, including the economic and regulatory environment, the financial
condition of Tri-Magna, legal and regulatory restrictions applicable to Tri-
Magna, the requirement that, in order to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code (the "Code"), Tri-Magna
pay out 90% of its net income, the lack of liquidity of Tri-Magna Common Stock
and prior efforts to sell Tri-Magna or raise funds through an equity offering.
The Special Committee also discussed the hiring of an investment banking firm to
advise it in its deliberations and to render an opinion as to the fairness of
the Merger to the Stockholders from a financial point of view. After
considering the names of approximately a dozen investment banking firms, a
financial subcommittee of the Special Committee was directed to make initial
inquiries of three firms. While a full consideration of the proposed purchase
price of $20 cash per share was postponed until the investment banking firm was
engaged, it was noted that the proposed price represented a premium over Tri-
Magna's then current book value, and that no Stockholder had purchased stock of
Tri-Magna at a price in excess of $20 per share.
The Special Committee reviewed in detail the draft letter of intent.
Special attention was paid to the request that Tri-Magna participate in certain
expenses of Medallion. It was determined that such participation would be
appropriate under the circumstances if certain limits and clarifications were
put in place. The Special Committee asked counsel to negotiate several changes
in the draft letter of intent. During the week of July 10, 1995,
representatives of Palmer & Dodge, outside general counsel to Tri-Magna which
was representing Medallion in the proposed transaction, and Nutter, McClennen &
Fish negotiated a revised draft of the letter of intent which incorporated the
changes suggested by the Special Committee.
The Special Committee held its second meeting in New York City on July 18,
1995, with all members in attendance. The Special Committee approved the
selection of Gruntal to provide investment banking services. The Special
Committee discussed the revised draft of the letter of intent in detail and
proposed several additional changes. The Special Committee also considered the
risks and alternatives available in the event the transaction with Medallion was
not consummated.
The full Board of Directors of Tri-Magna convened in New York City on that
date to receive reports on the substance of a meeting with the Commission held
on June 28, 1995 and the status of negotiations with other Acquired Companies.
The Board was informed that a meeting with the SBA had been scheduled for August
15, 1995. The Board of Directors ratified the engagement of Nutter, McClennen &
Fish as counsel to the Special Committee and authorized the Special Committee to
retain an investment banker and to pay appropriate fees in connection with such
engagements. On August 21, 1995, the Special Committee executed an engagement
letter with Gruntal to evaluate the fairness of the proposed Merger and to
advise the Special Committee in its negotiations with Medallion.
15
<PAGE>
The Board of Directors voted unanimously to accept the recommendation of
the Special Committee and approved the letter of intent with Medallion as
revised by the Special Committee. The letter of intent incorporating the
changes approved by the Board of Directors was executed by Tri-Magna and
Medallion on August 1, 1995.
Based upon this letter of intent, the Merger Agreement was negotiated. The
Special Committee convened for a meeting at the offices of Gruntal on September
20, 1995; all members of the Special Committee were present in person, except
for Mr. Morison, who participated by conference telephone. At this meeting, the
Special Committee discussed the draft Merger Agreement and instructed their
counsel to raise certain issues with counsel for Medallion. At this meeting,
Gruntal summarized the analysis it undertook in evaluating the Merger and
indicated that it was prepared to issue an opinion that the Merger Consideration
was fair from a financial point of view to the Stockholders. The Special
Committee discussed certain matters with representatives of Gruntal and,
recognizing the potential positive impact on capital of a repurchase by MFC of
its preferred stock at a discount from the SBA, requested that, prior to issuing
a written opinion as to the fairness of the Merger, Gruntal give additional
consideration to the impact of such proposed repurchase.
At a meeting held by conference telephone on October 13, 1995, at which all
members of the Special Committee were present, the Special Committee reviewed
the written opinion of Gruntal, dated October 11, 1995, which had been mailed to
each member prior to the meeting, and reviewed a revised draft of the Merger
Agreement, which had been negotiated by counsel. Following the discussion, the
Special Committee determined to recommend that the Board of Directors approve
the Merger Agreement and that the Stockholders adopt the Merger Agreement.
At a meeting held on October 18, 1995, the Board of Directors approved the
Merger Agreement and unanimously voted to recommend that the Stockholders
approve the Merger. On December 21, 1995, the Merger Agreement was executed and
delivered by Tri-Magna and Medallion. On February 22, 1996, Amendment Number 1
to the Merger Agreement, which extended the term of the Merger Agreement, was
executed and delivered. At a meeting of the Board of Directors on April 16,
1996 and an adjourned session on April 18, 1996, in connection with a discussion
of the status of the transaction and the desirability of an extension of the
Merger Agreement, the Board of Directors requested an amendment of the Merger
Agreement to permit the payment by Tri-Magna immediately prior to the Merger of
the Special Distribution. Medallion agreed to this request and, on April 26,
1996, Amendment Number 2 to the Merger Agreement was executed and
delivered.
TRI-MAGNA'S REASONS FOR THE MERGER
The approval of the Tri-Magna Board of Directors was based upon the
unanimous approval of the Merger and the Merger Agreement by the Special
Committee. The Special Committee unanimously determined that the Merger and
Merger Agreement are fair to, and in the best interests of, the Stockholders and
recommended that the Tri-Magna Board of Directors approve the Merger Agreement
and the transactions contemplated by it.
16
<PAGE>
In determining to recommend approval of the Merger Agreement and the
transactions contemplated by it, the Special Committee considered a number of
factors, including but not limited to the following: (i) the opinion of and
certain other oral and written presentations made by Gruntal; (ii) that the
Merger Consideration represents a premium over Tri-Magna's book value (before
giving effect to the impact of the then proposed preferred stock repurchase at a
discount); (iii) that the Merger Consideration equals the highest price at which
the Common Stock had traded in Tri-Magna's history; (iv) that there is a limited
trading market in the Common Stock; (v) presentations concerning the legal and
financial due diligence conducted by the Special Committee's advisors on behalf
of the Special Committee; (vi) the Special Committee's knowledge of the
business, financial condition, results of operations and prospects of Tri-Magna;
(vii) the history and status of Tri-Magna's discussions concerning and attempts
to modify its capital structure; (viii) the fact that the several Stockholders
had expressed interest in liquidating their investment in Tri-Magna; and (ix)
the Special Committee's belief that the terms of the Merger Agreement, including
the parties' representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable.
In addition to the factors enumerated above, the Special Committee
recognized that certain members of Tri-Magna management and the Tri-Magna Board
have interests that are in addition to, or different from, the interests of the
Stockholders and that may present them with actual or potential conflicts of
interest in connection with the Merger. See "Interests of Certain Parties."
The Special Committee determined that such actual or potential conflicts of
interest neither supported nor detracted from the fairness of the Merger to the
Stockholders.
The Special Committee also considered a number of potentially negative
factors relative to the fairness of the transaction in its deliberations,
including but not limited to: (i) the fact that after the Merger Stockholders
would not participate in the potential upside of Tri-Magna's businesses or the
benefits of the consolidation of the Acquired Companies; (ii) the fact that
Medallion's obligation to consummate the Merger would be subject to several
conditions; and (iii) the fact that a repurchase of MFC's preferred stock from
the SBA at a discount would, and after its consummation did, raise Tri-Magna's
stockholders' equity.
In view of the number of factors considered by the Special Committee and
the disparate nature of these factors, the Special Committee did not assign
relative weights to the factors considered in reaching its conclusions.
FAIRNESS OPINION
Pursuant to a letter agreement dated August 21, 1995, the Special Committee
engaged Gruntal to act as its financial advisor in connection with the Merger.
Gruntal was selected by the Special Committee due to Gruntal's experience in the
area of mergers and acquisitions and its national reputation. Gruntal delivered
its written opinion to the Special Committee, dated October 11, 1995, to the
effect that, as of that date, the Merger Consideration is fair from a financial
point of view to the Stockholders. On April 29, 1996, Gruntal delivered to the
Special Committee an updated written opinion, confirming, as of the date
thereof, its earlier conclusions subject to the qualifications set forth in its
letter of October 11, 1995. The full text of the opinion of Gruntal, dated
October 11, 1995, which sets forth certain
17
<PAGE>
limitations on the review undertaken in connection with such opinion, is set
forth as Exhibit B to this Proxy Statement and should be read in its entirety.
No limitations were placed on Gruntal by the Special Committee with respect to
the investigation made or the procedures followed in preparing and rendering its
opinion. The summary of the opinion of Gruntal set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion. GRUNTAL'S OPINION WAS PREPARED FOR THE SPECIAL COMMITTEE AND DOES NOT
CONSTITUTE A RECOMMENDATION BY GRUNTAL TO ANY HOLDER OF COMMON STOCK AS TO HOW
SUCH HOLDER SHOULD VOTE ON THE MERGER.
In arriving at its opinion, Gruntal reviewed the terms of the letter of
intent dated August 1, 1995 and the Merger Agreement, publicly available
information with respect to the business operations of Tri-Magna and certain
internal financial and operating information provided by Tri-Magna. Gruntal also
held discussions with certain members of management of Tri-Magna concerning past
and current business, operations, assets, financial condition and business
prospects of Tri-Magna. In addition, Gruntal (i) reviewed certain business and
financial reports of Tri-Magna, including audited financial statements for the
years ending March 31, 1990 through 1995, and supporting loan portfolio
schedules; (ii) reviewed certain financial forecasts and other data provided to
it by senior management of Tri-Magna; (iii) reviewed loan documentation,
including both Tri-Magna's borrowing agreements with its senior lenders and a
sample of the SBA subordinated debentures held by the SBA; and (iv) compared the
historical and prospective financial results of Tri-Magna with those of other
publicly-traded companies Gruntal deemed comparable. In addition to the
foregoing, Gruntal conducted such other analysis and examinations and considered
such other financial, economic and market criteria as it deemed necessary in
arriving at its opinion.
In arriving at its opinion, Gruntal assumed, without independent
verification, the accuracy and completeness of the information reviewed by it.
With respect to any financial projections, Gruntal assumed that such projections
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of Tri-Magna as to the future financial
performance of Tri-Magna.
Gruntal's opinion is necessarily based on economic, market, financial and
other conditions as they existed, and on the information made available to it,
as of the date of the opinion. It should be understood that, although
subsequent developments may affect its opinion, Gruntal does not have any
obligation to update, review or reaffirm its opinion, except that, if requested
by the Special Committee, it will update and deliver a new opinion within five
days of the Closing Date.
The following paragraphs provide a brief summary of the various financial
analysis presented by Gruntal to the Special Committee on September 19, 1995 in
connection with Gruntal's written opinion delivered on October 11, 1995.
Analyses of stock prices were based on trading prices proximate to the date of
its opinion. References to financial information for the latest twelve-month
period are to the twelve months ended June 30, 1995. Gruntal did not perform
comparable transaction analysis as it did not view any recent transactions as
comparable.
18
<PAGE>
Analysis of Recent Operating Results and Financial Condition. Gruntal
performed an analysis of Tri-Magna's recent operating results and financial
condition. This analysis included, among other things, a review of Tri-Magna's
recent increases in total assets, shareholders' equity and total income and
decreases in net income, net income per share and dividends paid per common
share. Gruntal reviewed Tri-Magna's historical and projected financial
performance for significant income statement, balance sheet and cash flow items.
In addition, Gruntal compared certain of Tri-Magna's operating results,
operating margins and balance sheet ratios to other companies deemed to be
generally comparable to Tri-Magna. Through these comparisons and reviews,
Gruntal concluded that the transaction was fair from a financial point of view
to the Stockholders.
Comparable Company Analysis. Gruntal compared various multiples of income
statement and balance sheet parameters accorded publicly-traded companies deemed
to be generally similar or comparable to Tri-Magna. Multiples that resulted in
meaningful comparisons were market value of equity to last twelve months net
income, net income for fiscal 1996 and to book value. Companies used in the
comparable company analyses included Allied Capital Lending Corporation, Bando
McGlocklin Capital Corporation, PMC Capital Inc. and Sirrom Capital Corporation.
Based on comparable public company analyses, Tri-Magna's implied value per
common share ranged from $19.59 to $26.37 per share before applying appropriate
discounts. Gruntal arrived at the implied value per share of Tri-Magna by using
comparable company multiples based upon a number of different multiples of
market capitalization and aggregate value to certain line items from Tri-Magna's
latest twelve month income statement. Using an average of the range of values
derived from the comparable company multiple analysis, Gruntal arrived at a mean
valuation of $22.98. Applying discounts ranging from 15% to 30% to reflect (i)
the limited trading market for the Common Stock, (ii) the heavy concentration of
Tri-Magna's loans in the taxi medallion industry with applicable yields falling
because of increased lender competition, (iii) the relatively high default rate
in the non-medallion business, (iv) capital constraints imposed by the SBA and
(v) the lower yield spreads of Tri-Magna than comparable companies, and taking
into account dividend yield, cash flow factors and a control premium, Gruntal
arrived at valuations for Tri-Magna in each case of less than $20.00.
Discounted Cash Flow Analysis. Gruntal also performed a discounted cash
flow analysis of Tri-Magna that resulted in an implied equity value per share
ranging from $19.57 to $27.79. Gruntal's discounted cash flow analysis was made
without applying any discounts for items (i) to (v) in the preceding paragraph
which should result in a similar discounting of the implied equity value per
share. In performing the discounted cash flow analysis, Gruntal applied
discount rates of between 9% and 14%. The 9% to 14% range of discount rates for
Tri-Magna was based upon the range of rates required by the weighted average
cost of capital calculations, and Gruntal's knowledge of the rates of return
required by investors through its investment banking activities in these areas.
The summary above does not purport to be a complete description of the
analyses performed by Gruntal in connection with the rendering of its opinion.
The preparation of such opinion involves various subjective business
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstance
and, therefore, such an opinion is not readily susceptible to partial
19
<PAGE>
analysis or summary description. Accordingly, notwithstanding the separate
factors summarized above, Gruntal believes that its analyses must be considered
as a whole and that selecting portions of its analyses and considering
individual factors without considering all analyses and factors would create an
incomplete and misleading view of the evaluation process underlying its opinion.
Using comparable company and discounted cash flow analyses, Gruntal arrived at a
range of values per share for Tri-Magna of $19.57 to $27.79 prior to applying
the discounts for the items described above. Taken together with the other
analysis performed by Gruntal, this value per share range for Tri-Magna, and
assuming the $20.00 price for each share of Common Stock in the transaction,
contributed to Gruntal delivering an opinion that the proposed transaction was
fair from a financial point of view to the Stockholders.
The analyses are not appraisals and do not necessarily reflect the prices
for which businesses actually could be sold or actual values or future results
that might be achieved. Gruntal's analyses were prepared solely as part of
Gruntal's review of the fairness of the Merger Consideration from a financial
point of view and were provided to the Special Committee in connection with the
delivery of Gruntal's opinion.
Pursuant to the terms of the engagement by the Special Committee of Gruntal
as its financial advisor in connection with Merger, (i) Tri-Magna has agreed to
indemnify Gruntal and certain related persons against certain liabilities,
including liabilities under federal securities laws, relating to or arising out
of services performed by Gruntal as financial advisor to the Special Committee
and (ii) Gruntal received a fee of $70,000 for its services, including rendering
its opinion. In addition, Tri-Magna has agreed to reimburse Gruntal for its
reasonable out-of-pocket expenses, not to exceed $11,000 in the aggregate,
including fees and disbursements of counsel. Gruntal, as part of its investment
banking activities, is regularly engaged in the valuation and sale of businesses
and securities in connection with mergers and acquisitions, negotiated
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Except as described above, no material relationship existed during the past
two years or is mutually understood to be contemplated between Tri-Magna and its
affiliates and Gruntal and its affiliates.
MERGER AND EFFECTIVE TIME
It is expected that the closing contemplated by the Merger Agreement will
take place on May 22, 1996 (the "Closing Date").
The date and time of the filing of appropriate merger documents with the
Secretary of State of Delaware, or such later time as may be specified therein,
will be the Effective Time of the Merger. Tri-Magna and Medallion will cause
such merger documents to be filed and recorded as soon as practicable on or
after the satisfaction or waiver of all conditions to the Merger. It is
expected that the merger documents will be filed on the Closing Date, and will
specify an Effective Time of 12:01 a.m. the next business day, May 23,
1996.
20
<PAGE>
REPRESENTATIONS, WARRANTIES AND COVENANTS
Tri-Magna has made certain representations and warranties to Medallion
relating to, among other things, compliance with laws, preparation of financial
statements, legal actions and proceedings, the absence of undisclosed
liabilities and capitalization and share ownership.
Tri-Magna has agreed that, except with the prior written consent of
Medallion and with certain other exceptions set forth in the Merger Agreement,
prior to the consummation of the Merger it shall observe certain covenants
relating to the conduct of Tri-Magna's business, including conducting its
business in the usual course and using its best efforts to (i) preserve intact
the business organization of Tri-Magna and each subsidiary and keep available
the services of present employees, (ii) keep in effect certain insurance
policies in coverage amounts not less than those in effect at the date of the
Merger Agreement, (iii) preserve its business, advertise, promote and market its
services in accordance with its past practice, keep its properties intact and
preserve its goodwill and (iv) maintain existing relationships with suppliers,
customers, lenders and others, including the SBA.
Tri-Magna has also agreed that, except with the prior written consent of
Medallion and with certain other exceptions set forth in the Merger Agreement,
it will not (i) sell or transfer or mortgage, pledge or create or permit to be
created any security interest on, any of its assets or properties other than
sales or transfers in the ordinary course of business or the creation of
security interests under previously disclosed arrangements; (ii) incur any
obligation or liability other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or enter into any
other contracts or commitments involving payments to or by Tri-Magna or any
subsidiary of $50,000 or more; (iii) cancel any debts or claims other than in
the ordinary course of business; (iv) change the compensation or fringe benefits
of or make any bonus or similar payments to any officer, employee, agent or
consultant, except for ordinary merit compensation increases for employees
(other than officers) in accordance with past practice, or enter into or modify
any benefit plan or any employment, severance or other arrangement with any
officer, director, employee or consultant; (v) make any change in the number of
shares of its capital stock authorized, issued or outstanding or other right to
purchase, or convert any obligation into, shares of its capital stock or declare
or pay any dividend or other distribution with respect to any shares of capital
stock, or issue, sell, transfer, purchase or redeem any shares of its capital
stock, provided that the foregoing shall not restrict: (A) Tri-Magna from
declaring and paying dividends to its Stockholders from current earnings
(reduced by certain non-deductible amounts payable by Tri-Magna) in accordance
with Tri-Magna's customary practices and to the extent necessary to preserve its
tax status as a "regulated investment company" under Subchapter M of the Code
and from making the Special Distribution and (B) transactions between Tri-Magna
and either of its subsidiaries or such subsidiaries; (vi) take any action to
amend Tri-Magna's certificate of incorporation or bylaws or the charter or
bylaws of either subsidiary; (vii) make any material acquisition of property
other than in the ordinary course of business consistent with past practice; or
(viii) except as required by fiduciary obligations, engage in acquisition
discussions with any other party.
21
<PAGE>
Tri-Magna and Medallion have agreed to use their best efforts to obtain all
authorizations and consents of third parties necessary for the consummation of
the transactions contemplated by the Merger Agreement, to perform and fulfill
their obligations under the Merger Agreement, to obtain the other party's
approval prior to issuance of any press release or other information to the
press or any third party with respect to the Merger Agreement or the
transactions contemplated thereby.
Medallion has agreed that after the Effective Time, it will indemnify and
hold harmless each former officer and director of Tri-Magna with respect to
actions taken or omitted to be taken prior to the Effective Time, to the extent
such person is entitled to indemnification under the certificate of
incorporation or bylaws of Tri-Magna, to the fullest extent permitted by
Delaware law and will maintain in effect certain directors' and officers'
liability insurance.
CONDITIONS OF MERGER
In addition to the adoption of the Merger Agreement by the Stockholders of
Tri-Magna, the respective obligations of Medallion and Tri-Magna to consummate
the Merger are subject to the satisfaction or waiver of the following
conditions, among others: (i) the representations and warranties contained in
the Merger Agreement are true and correct in all material respects at the
Effective Time; (ii) all covenants and agreements required by the Merger
Agreement to be performed or complied with have been performed or complied with
in all material respects on or prior to the Effective Time; (iii) the parties
have received legal opinions and other documents described in the Merger
Agreement; (iv) there shall have been no material adverse change in the business
of Tri-Magna; (v) the parties have received all required governmental approvals;
(vi) not more than ten percent (10%) of the shares of Tri-Magna Common Stock
remain eligible to exercise appraisal rights as of the Effective Time; (vii)
Medallion successfully completes its financing; and (viii) Medallion acquires
the other Acquired Companies.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time (i) at the election of Tri-Magna upon written notice to Medallion, if
Medallion has materially breached any representation, warranty, covenant or
agreement contained in the Merger Agreement and has not, within twenty (20)
business days of receipt by Medallion of written notice from Tri-Magna of such
breach of representation, warranty, covenant or agreement, cured such breach;
(ii) at the election of Medallion upon written notice to Tri-Magna, if Tri-Magna
has materially breached any representation, warranty, covenant or agreement
contained in this Agreement and has not, within twenty (20) business days of
receipt by Tri-Magna of written notice from Medallion of breach of
representation, warranty, covenant or agreement, cured such breach; (iii) by
either party if any court of competent jurisdiction or governmental body shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree or ruling
shall have become final and nonappealable; (iv) by Tri-Magna's Board of
Directors or the Special Committee if it determines, upon the written advice of
independent legal counsel, that it is required by fiduciary obligations under
applicable law to terminate the Merger
22
<PAGE>
Agreement; (v) by Medallion if Tri-Magna's Board of Directors or Special
Committee (A) withdraws its recommendation that Stockholders vote in favor of
the Merger or (B) makes a favorable recommendation regarding an alternative
transaction; (vi) at any time on or prior to the Effective Time by written
agreement of Tri-Magna and Medallion; or (vii) by either party if, without fault
of such party, the Effective Time shall not have occurred by June 30, 1996,
which date may be extended by mutual agreement of the parties. The Merger
Agreement also permitted Tri-Magna to terminate the Merger Agreement if, by
February 29, 1996, Medallion had not filed a registration statement with the
Commission relating to the IPO or otherwise provided evidence reasonably
satisfactory to Tri-Magna of Medallion's financing; Medallion's registration
statement was filed before that date.
If terminated as provided in the Merger Agreement, the Merger Agreement
will become void and have no effect, without any liability on the part of either
party, its directors, officers or stockholders with the exception of the
provisions relating to confidentiality, publicity and expenses, which will
remain in effect. However, termination of the Merger Agreement pursuant to one
or more of the methods described therein does not relieve a party from liability
for any breach of the Merger Agreement occurring before such termination.
WAIVER AND AMENDMENT
At any time prior to the Effective Time, (i) the parties to the Merger
Agreement may, by written agreement, modify, amend or supplement any term or
provision of the Merger Agreement or extend the time for performance of any
obligation thereunder and (ii) any term or provision of the Merger Agreement may
be waived in writing by the party entitled to the benefits thereof; provided,
however, that after the Merger Agreement is adopted by the Stockholders, no such
amendment or modification may be made without further approval of the
Stockholders if such amendment or modification would change the amount or kind
of consideration to be received in exchange for the Common Stock or materially
adversely affect the rights of the Stockholders.
REGULATORY MATTERS
Besides the filing of appropriate merger documents with the Secretary of
State of Delaware, approvals from the Commission and the SBA are required to
effect the Merger. See "Regulatory Approvals."
EXPENSES
Subject to certain exceptions, the Merger Agreement provides that each
party will bear its respective expenses incurred in connection with the
negotiation, preparation, execution, review and delivery of the Merger Agreement
and the consummation of the transactions contemplated thereby.
Medallion is responsible for all expenses relating directly to (i) its
organization; (ii) legal fees relating to representation in connection with (A)
the letters of intent between Medallion and each of the Acquired Companies, (B)
the Merger Agreement and the
23
<PAGE>
definitive acquisition agreements between Medallion and each of the Acquired
Companies and (C) proceedings before the SBA relating to the acquisitions of the
Acquired Companies; and (iii) other expenses unrelated to the acquisitions of
the Acquired Companies or the IPO.
Tri-Magna is responsible for (i) all expenses relating directly to the
preparation, filing and clearance through the Commission of preliminary and
definitive proxy materials relating to the solicitation of Stockholder approval
of the Merger Agreement; (ii) fees relating to investment banking services
provided in connection with the review of the fairness of the Merger; (iii)
legal fees relating to representation of Tri-Magna in connection with (A) the
Letter of Intent and Merger Agreement and (B) proceedings before the SBA; and
(iv) accounting fees relating to the preparation of financial statements for
Tri-Magna in connection with (A) the Merger Agreement and (B) the registration
statement relating to the IPO.
Subject to certain conditions, Tri-Magna has agreed to pay or reimburse
Medallion up to a maximum amount equal to the lesser of (i) $200,000 or (ii) 33
1/3% of the aggregate amount of (A) expenses relating to preparation of the
registration statement and prospectus covering the IPO, including accounting and
legal fees, printing costs and fees for filings and applications made with the
Commission, the National Association of Securities Dealers, state Blue Sky
authorities and the Nasdaq National Market; (B) legal fees relating to the
resolution of joint issues raised by the overall structure of the acquisition of
the Acquired Companies and the IPO in connection with proceedings before the
SBA; (C) legal fees for representation in connection with preparation of the
application for an exemptive order under the 1940 Act; and (D) accounting fees
relating to the consolidation of the financial statements of the Acquired
Companies. Such payments or reimbursement are subject to the condition that
Medallion obtain the prior approval of the Special Committee before incurring or
entering into binding commitments with respect to such expenses and informs Tri-
Magna as such expenses are incurred.
If Tri-Magna's Board of Directors or the Special Committee terminates the
Merger Agreement because it receives an alternative acquisition offer and
determines, upon the written advice of independent legal counsel, that it is
required by fiduciary obligations to so terminate or Medallion terminates the
Merger Agreement because Tri-Magna's Board of Directors or the Special Committee
withdraws its recommendation that Stockholders vote in favor of the Merger or
makes a favorable recommendation regarding an alternative transaction and, in
either case, prior to such termination or within twelve (12) months thereafter,
(i) Tri-Magna enters into an alternative acquisition transaction or (ii) Tri-
Magna's Board of Directors or the Special Committee has approved an alternative
acquisition transaction or has recommended that Stockholders approve or accept
an alternative acquisition transaction, then Tri-Magna shall be responsible for
paying or reimbursing Medallion, within five (5) business days after demand
therefor, for certain expenses otherwise allocated to Medallion; provided that
the aggregate amount of expenses to be so paid or reimbursed for which Tri-Magna
is not otherwise responsible shall not exceed $650,000.
24
<PAGE>
ACCOUNTING TREATMENT
Medallion will account for the Merger using the purchase method of
accounting.
APPRAISAL RIGHTS
Holders of record of Common Stock who comply with the applicable statutory
procedures summarized herein will be entitled to appraisal rights under Section
262 of the DGCL ("Section 262"). A person having a beneficial interest in the
Common Stock held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect appraisal rights.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262 which is reprinted in its entirety as Exhibit C to this
Proxy Statement. All references in Section 262 and in this summary to a
"Stockholder" are to a record holder of Common Stock as to which appraisal
rights are asserted.
The failure of a Stockholder to vote against the Merger will not, in and of
itself, constitute a waiver of such Stockholder's appraisal rights under Section
262.
Under the DGCL, holders of shares who follow the procedures set forth in
Section 262 will be entitled to have their shares appraised by the Delaware
Chancery Court (the "Chancery Court") and to receive payment in cash equal to
the "fair value" of such shares at the Effective Time, exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by such court.
Stockholders who desire to exercise their appraisal rights must deliver to
Tri-Magna, before the taking of the vote on the Merger Agreement, a written
demand for appraisal of their shares of Common Stock. This written demand for
appraisal of shares of Common Stock must be in addition to and separate from any
proxy vote abstaining from or voting against the Merger Agreement. Voting
against, abstaining from voting or failing to vote on the Merger Agreement will
not constitute a demand for appraisal within the meaning of Section 262.
Stockholders electing to exercise their appraisal rights under Section 262
must not vote for approval of the Merger Agreement. If a Stockholder returns a
signed proxy but does not specify a vote against approval of the Merger
Agreement or a direction to abstain, the proxy will be voted for approval of the
Merger Agreement, which will have the effect of waiving that Stockholder's
appraisal rights.
A demand for appraisal must be executed by or for the Stockholder of
record, fully and correctly, as such Stockholder's name appears on the
applicable Common Stock certificate. If the shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, such demand
must be executed by or for the fiduciary. If the shares
25
<PAGE>
are owned of record by or for more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by or for all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a Stockholder of record; however, the agent must
identify the record owner(s) and expressly disclose the fact that, in exercising
the demand, he is acting as agent for the record owner(s).
A record owner, such as a broker, who holds shares of Common Stock as a
nominee for others may exercise his right of appraisal with respect to the
shares for all or less than all beneficial owners of shares as to which he is
the record owner. In such case, the written demand must set forth the number of
shares covered by such demand. Where the number of shares is not expressly
mentioned, the demand will be presumed to cover all shares outstanding in the
name of such record owner.
A Stockholder who elects to exercise appraisal rights should mail or
deliver his, her or its written demand to Myron Cohen, Secretary, Tri-Magna
Corporation, Suite 2000, 205 East 42nd Street, New York, New York 10017. The
written demand for appraisal should specify the Stockholder's name and mailing
address and that the Stockholder is thereby demanding appraisal of his, her or
its shares of Common Stock. Within ten days after the Effective Time, Medallion
must notify each Stockholder who has complied with Section 262 of the date upon
which the Effective Time occurred.
Within 120 days after the Effective Time, any Stockholder who has satisfied
the requirements of Section 262 may deliver to Marie Russo, Medallion Financial
Corp., Suite 2000, 205 East 42nd Street, New York, New York 10017, a written
demand for a statement listing the aggregate number of shares of Common Stock
not voted in favor of the Merger Agreement and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such statement must be mailed within 10 days after the written request therefor
has been received by Medallion or within 10 days after expiration of the time
for delivery of demands for appraisal under Section 262, whichever is later.
Within 120 days after the Effective Time, either Medallion or any
Stockholder who has complied with the required conditions of Section 262 may
file a petition in the Chancery Court demanding a determination of the value of
the shares of Common Stock of all Stockholders demanding appraisal rights.
Medallion has no present intention to file such a petition if demand for
appraisal is made.
Upon the filing of any such petition by a Stockholder, service of a copy
thereof shall be made upon Medallion which shall, within 20 days after such
service, file in the office of the Register in Chancery in which the petition
was filed, a duly verified list containing the names and addresses of all
Stockholders who have demanded payment for their shares and with whom agreements
as to the value of their shares have not been reached. The Register in
Chancery, if so ordered by the Chancery Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified mail to
Medallion and to the Stockholders shown on the list at the addresses therein
stated. Such notice shall also be given by one or more publications at least
one week before the day of the hearing in a newspaper of general circulation
published in the City of Wilmington, Delaware or such
26
<PAGE>
publication as the Chancery Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Chancery Court and the costs
thereof shall be borne by Medallion.
If a petition for an appraisal is filed in a timely fashion, after a
hearing on such petition, the Chancery Court shall determine the Stockholders
who have complied with Section 262 and who have become entitled to appraisal.
The Chancery Court may require the Stockholders who have demanded an appraisal
for their shares to submit share certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceeding. If any
Stockholder fails to comply with such a direction, the Chancery Court may
dismiss the proceeding as to such Stockholder.
After determining the Stockholders entitled to an appraisal, the Chancery
Court shall appraise the shares of Common Stock owned by such Stockholders,
determining their fair value, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In determining the fair rate of interest, the Chancery Court may consider all
relevant factors, including the rate of interest Medallion would have had to pay
to borrow money during the pendency of the proceeding. In determining fair
value of such shares, the court is to take into account all relevant factors.
In Weinberger v. UOP, Inc. et al., the Delaware Supreme Court stated that "proof
of value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered and that "fair price obviously requires consideration of all relevant
factors involving the value of the Company... ." The Delaware Supreme Court
stated that in making this determination of fair value, the court must consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of the
merger which throw any light on future prospects of the merged corporation.
Section 262 provides that fair value is to be "exclusive of any element of value
arising from the accomplishment or expectation of the merger." In Weinberger,
the Delaware Supreme Court held that the "elements of future value, including
the nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered."
The Chancery Court shall direct payment of the fair value of the shares of
Common Stock, together with interest, if any, by Medallion to the Stockholders
entitled thereto.
Stockholders considering seeking appraisal of their shares of Common Stock
should note that the fair value of their shares determined under Section 262
could be more, the same or less than the consideration they would receive
pursuant to the Merger Agreement if they did not seek appraisal of their shares.
The costs of the appraisal proceeding may be determined by the Chancery Court
and allocated among the parties as the Chancery Court deems equitable in the
circumstances. Upon application of a Stockholder, the Chancery Court may order
all or a portion of the expenses incurred by any Stockholder in connection with
the appraisal proceeding including, without limitation, reasonable attorney's
fees and the fees and expenses of experts, to be charged pro rata against the
value of all shares of Common Stock entitled to appraisal. In the absence of
such a determination or assessment, each Stockholder bears his, her or its own
expenses.
27
<PAGE>
From and after the Effective Time, no Stockholder who has demanded
appraisal rights as provided in Section 262 shall be entitled to vote such
shares of Common Stock for any purpose or to receive payment of dividends or
other distributions on such shares, except for dividends or distributions
payable to Stockholders of record at a date which is prior to the Effective
Time.
Notwithstanding the foregoing, at any time within 60 days after the
Effective Time, any Stockholder shall have the right to withdraw his, her or its
demand for appraisal and to accept the terms offered in the Merger Agreement.
After this period, the Stockholder may withdraw his, her or its demand for
appraisal and receive payment for his, her or its shares as provided in the
Merger Agreement only with the written approval of Medallion. If no petition
for appraisal is filed with the Chancery Court within 120 days after the
Effective Time, Stockholders' rights to appraisal will cease and Stockholders
will be entitled to receive the Merger Consideration as provided for in the
Merger Agreement. Inasmuch as Medallion has no obligation to file such a
petition, any Stockholder who desires such a petition to be filed is advised to
file it on a timely basis. No petition timely filed in the Chancery Court
demanding appraisal shall be dismissed as to any Stockholder without the
approval of the Chancery Court and such approval may be conditional upon such
terms as the Chancery Court deems just.
INTERESTS OF CERTAIN PARTIES
Alvin Murstein is President and a director of Tri-Magna and also is
Chairman of the Board of Directors and Chief Executive Officer of Medallion.
Andrew Murstein is Alvin Murstein's son and Tri-Magna's Director of New Business
Development. Andrew Murstein also is President and a director of Medallion.
Each of the Alvin Murstein Second Family Trust and the Andrew Murstein Family
Trust (the "Murstein Trusts") was issued 100 shares of common stock in
connection with the incorporation of Medallion at a price reflecting the fair
market value of Medallion at inception, which shares comprise all of Medallion's
outstanding shares of common stock as of the date hereof. Each of Alvin
Murstein and Andrew Murstein is a trustee and a beneficiary of the trust bearing
his name. It is anticipated that, immediately preceding the IPO, Medallion will
amend its charter to increase the number of authorized shares of common stock
and effect a stock split to increase the number of outstanding shares of common
stock. A percentage of the newly authorized but unissued shares of common stock
will be offered to the public in the IPO. The exact number of shares to be
offered in the IPO and the exact ratio of the stock split has not been
determined and will depend upon the valuation of Medallion by the underwriters,
the amount raised by Medallion in the IPO and the per share offering price of
the common stock in the IPO. It is anticipated, however, that Medallion's pro
forma capitalization will consist of the shares of Medallion common stock sold
in the IPO and a significant minority interest held by the Trusts comprised of
the 200 shares issued to the Murstein Trusts in connection with the organization
of Medallion, the additional shares issued to the Murstein Trusts in connection
with the stock split and shares to be issued to Alvin Murstein in exchange for a
capital contribution of $1,000,000 at a purchase price per share equal the
public offering price of Medallion shares sold in the IPO. The value of the
Medallion shares held by the Murstein Trusts at the time of the Merger will be
dependent upon the size and the per share offering price of the IPO and the
subsequent market reaction.
28
<PAGE>
In addition, it is contemplated that Messrs. Myron Cohen, Robert Fanger and
Michael Miller, who are stockholders, officers and directors of Tri-Magna, will,
through an investment adviser entity (the "Sub-Adviser") formed by them, enter
into a sub-advisory contract with Medallion to provide investment advisory
services to Medallion (the "Sub-Advisory Agreement"). Messrs. Cohen, Fanger and
Miller, collectively, hold 14.97% of Tri-Magna's outstanding Common Stock.
Pursuant to the Sub-Advisory Agreement, upon the request of the officers of
Medallion, the Sub-Adviser will consult with respect to strategic decisions
concerning originations, credit quality assurance, development of financial
products, leverage, funding, geographical and product diversification, the
repurchase of participations, acquisitions, regulatory compliance and marketing.
Under the Sub-Advisory Agreement, the Company will pay the Sub-Adviser an
advisory fee of $225,000 per year, payable monthly in arrears. The Sub-Advisory
Agreement initially will be approved by a majority of the non-interested
directors of Medallion, the Board of Directors of Medallion and by a majority of
Medallion's voting securities outstanding immediately prior to the closing of
the IPO and, unless earlier terminated as described below, will remain in effect
for a period of at least two years following execution and delivery by the
parties (which is expected to occur upon the closing of the IPO). The term will
continue from year to year thereafter if approved annually by (i) a majority of
Medallion's non-interested directors and (ii) the Board of Directors, or by a
majority of Medallion's outstanding voting securities, as defined in the 1940
Act. The Sub-Advisory Agreement will be terminable without penalty to Medallion
on 60 days' written notice by either party or by vote of a majority of
Medallion's outstanding voting securities and will terminate if assigned.
Pursuant to an escrow arrangement under which shares of Medallion common stock
are deposited, two private trusts affiliated with Alvin Murstein and Andrew
Murstein have agreed to assure the Sub-Adviser of the payment of at least
$900,000, representing four years of advisory fees, under the Sub-Advisory
Agreement.
Messrs. Kreitman and Ward, who served on the Special Committee, were asked
to and did become directors of Medallion, after the Special Committee
recommended that the Merger be approved.
Approximately $1,670,680, representing 12.5% of the aggregate Merger
Consideration will be paid to purchase the Common Stock beneficially owned by
certain Stockholders of Tri-Magna who are, will or, in the case of Messrs.
Kreitman and Ward, may become officers, directors or 5% stockholders of
Medallion as follows: Alvin Murstein--$1,449,020; Andrew Murstein--$105,000;
Michael Fanger--$92,660; Marie Russo--$24,000; Stanley Kreitman--$10,000; and
Benjamin Ward--$10,000. In addition, approximately $2,476,980, representing
18.52% of the aggregate Merger Consideration will be paid to purchase the Common
Stock beneficially owned by the following directors of Tri-Magna: Myron Cohen--
$652,000; Robert Fanger--$686,000; Michael Miller--$663,980; Richard Giesser--
$253,000; Barnet Liberman--$212,000; and T. Lincoln Morison--$10,000. The
foregoing persons will also be entitled to participate pro rata with all
Stockholders in any dividends, including the Special Distribution, that may be
declared by Tri-Magna prior to the Effective Time. Myron Cohen, Robert Fanger,
Michael Miller, Richard Giesser, Barnet Liberman, and T. Lincoln Morison will
not become officers, directors or 5% stockholders of Medallion, but Myron Cohen,
Robert Fanger and Michael Miller will own the Adviser.
29
<PAGE>
Messrs. Myron Cohen, Robert Fanger, Michael Miller and Alvin Murstein have
agreed to vote the 172,550 shares of Common Stock beneficially owned by them in
the aggregate, representing approximately 25.8% of the outstanding shares, in
favor of the Merger Agreement.
TRI-MAGNA'S PRINCIPAL STOCKHOLDERS
The table below sets forth the beneficial ownership of Tri-Magna's Common
Stock as of April 1, 1996 (i) by each person who is known by Tri-Magna to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) by
each director and (iii) by all directors and officers as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Beneficially Outstanding
Owned (1) Common Stock
---------------- -------------
<S> <C> <C>
Myron Cohen(2)................. 32,600(2) 4.9%
Robert D. Fanger(3)............ 34,300(3) 5.1%
Richard A. Giesser(4).......... 12,650(4) 1.9%
Barnet L. Liberman(5).......... 10,600(5) 1.6%
Michael A. Miller(6)........... 33,199(6) 5.0%
Alvin Murstein(7).............. 72,451(7) 10.8%
Stanley Kreitman............... 500 *
T. Lincoln Morison, Jr.(8)..... 500(8) *
Benjamin Ward.................. 500 *
All directors and officers as 203,800 30.5%
a group (12 persons)..........
- -----------------------------------
* Less than 1%
</TABLE>
(1) Each person has sole investment and voting power with respect to the shares
indicated, except as otherwise noted. The inclusion herein of any shares
deemed beneficially owned does to constitute an admission by such
Stockholder of beneficial ownership of such shares.
(2) Includes 5,000 shares held by Mr. Cohen's wife.
(3) Includes 13,300 shares held by Mr. Fanger jointly with his wife, 1,000
shares held by or for the benefit of his wife and 15,000 shares held by a
trust of which Mr. Fanger is a trustee and beneficiary. Mr. Fanger's
address is 205 East 42nd Street, Suite 2000, New York, New York 10017.
(4) Includes 6,200 shares held by or for the benefit of Mr. Giesser's wife.
(5) Includes 5,100 shares held by Mr. Liberman as custodian for his children.
(6) Includes 18,100 shares held by Mr. Miller jointly with his wife, and 8,482
shares held by or for the benefit of his wife.
(7) Includes 9,400 shares held by or for the benefit of Mr. Murstein's wife and
4,084 shares held by Mr. Murstein's daughter. Mr. Murstein's address is
205 East 42nd Street, Suite 2000, New York, New York 10017.
(8) These shares are held by Mr. Morison jointly with his wife.
30
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences of the Merger. The discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing Treasury
Regulations, current administrative rulings of the Internal Revenue Service
("IRS") and judicial decisions, all of which are subject to change,
retroactively or prospectively. Moreover, this discussion does not purport to
be a complete analysis of all potential tax effects relevant to a particular
Stockholder nor does it address the tax consequences that may be relevant to
particular categories of Stockholders subject to special treatment under certain
federal income tax laws. In addition, it does not describe any tax consequences
arising under the laws of any state, local or foreign jurisdiction.
Accordingly, each Stockholder is urged to consult such holder's own tax advisor
regarding the tax consequences of the Merger in such holder's own particular tax
situation and regarding state, local and foreign tax implications of the Merger
and any tax reporting requirements of the Merger.
TAX CONSEQUENCES TO TRI-MAGNA'S STOCKHOLDERS.
Assuming that a Stockholder holds the stock of Tri-Magna as an investment
and not primarily for sale to customers in the ordinary course of business, the
cash received as the Merger Consideration is subject to tax as a capital gain
pursuant to Section 331 of the Code. The gain is the amount in excess of the
Stockholder's basis in the Common Stock. For non-corporate Stockholders, there
is currently a special capital gains tax rate of 28%, so long as the Common
Stock has been held by the Stockholder for more than one year. For corporate
Stockholders, the tax rate for capital gains is the same as ordinary income, but
capital gains can be offset by any capital losses.
Dividend payments made by Tri-Magna to its shareholders prior to the
Effective Time of the Merger will be taxable in accordance with the rules
governing distributions of a regulated investment company ("RIC"), as defined in
Section 851 of the Code, to its shareholders, as set forth in Section 852(b) of
the Code. Unless otherwise designated by Tri-Magna, these distributions will be
taxed as ordinary income dividends to the extent of Tri-Magna's current or
accumulated earnings and profits and otherwise as return of capital
distributions which reduce the shareholder's basis in its shares of Tri-Magna
and, to the extent they exceed such basis, could result in a capital gain. A
reduction in basis from the distribution would increase the amount of gain to be
recognized upon receipt of the Merger Consideration. Ordinary income
distributions of a RIC may be eligible for the dividends received deduction
available to certain corporate recipients to the extent provided in Section 854
of the Code.
Proposals are pending in Congress to lower the tax rate for capital gains
of both corporate and non-corporate Stockholders. It is not clear that this
legislation will be enacted, and, if enacted, whether it will be effective at
the Effective Time of the Merger.
31
<PAGE>
TAX TREATMENT OF TRI-MAGNA.
The merger of Tri-Magna into Medallion will be treated for tax purposes as
a sale of the assets of Tri-Magna for cash, followed by a distribution of the
cash in full liquidation of the corporation. The transaction is taxable to the
extent the cash proceeds exceed Tri-
Magna's tax basis in its assets. Assuming at the Effective Time of the Merger
that Tri-Magna qualifies for special tax treatment as a regulated investment
company is accordance with Subchapter M of the Code, and Tri-Magna currently has
an election in effect providing for this treatment, the gain on the sale of the
assets should be eliminated by the special dividends paid deduction provided for
in Section 852(b)(2)(D) of the Code. Accordingly, Tri-Magna should avoid paying
any tax as a result of the Merger.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY
AND IS BASED UPON PRESENT LAW. EACH STOCKHOLDER SHOULD CONSULT SUCH HOLDER'S
OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
HOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER LAWS.
REGULATORY APPROVALS
Absent an exemption, the 1940 Act generally prohibits transactions between
a registered investment company and certain persons (for example, officers,
directors and 5% stockholders) defined as "affiliated persons" of such company
under the 1940 Act. For purposes of the 1940 Act, certain Management Affiliates
are affiliated persons of Tri-Magna by reason of their positions as officers,
directors, employees and/or 5% stockholders of Tri-Magna, and Tri-Magna is an
affiliated person of certain Management Affiliates. Certain Management
Affiliates also are affiliated persons of Medallion by reason of their positions
as officers, directors, employees and/or 5% stockholders of Medallion, and
Medallion is an affiliated person of certain Management Affiliates. In
addition, the Management Affiliates may be deemed to control both Tri-Magna and
Medallion for purposes of the 1940 Act and, accordingly, Medallion and Tri-Magna
may be deemed to be under common control and, therefore, each of Medallion and
Tri-Magna may be deemed to be an affiliated person of the other.
The proposed Merger of Tri-Magna and Medallion may be deemed to be a sale
of Tri-Magna's assets and, therefore, may constitute (i) a purchase of property
from a registered investment company (Tri-Magna) by an affiliated person of such
company and (ii) the sale of property to a registered investment company
(Medallion) by an affiliated person of such company. Accordingly, absent an
exemption, the 1940 Act may prohibit the Merger. In addition, the Merger and
the transactions contemplated thereby in which Tri-Magna, MFC, Medallion and
certain of the Management Affiliates are participating may be deemed to be a
joint enterprise or transaction in which they have a joint participation in the
profits and, accordingly, an order of the Commission permitting such transaction
may be required under the 1940 Act. The operations of Medallion following the
Merger will also require an exemptive order due to certain restrictions imposed
under the 1940 Act relating to the capital and ownership structure of Medallion
and its subsidiaries and to transactions among Medallion, its subsidiaries and
third parties.
32
<PAGE>
On September 5, 1995, Medallion, Tri-Magna, MFC and certain Management
Affiliates filed with the Commission an application for exemptions under the
relevant provisions of the 1940 Act to permit the Merger and the transactions
contemplated thereby and the proposed operation of Medallion and its
subsidiaries following the Merger. The Merger may not be consummated unless an
order granting the exemptions requested under the application is granted by the
Commission.
Regulations promulgated pursuant to the Small Business Investment Act of
1958 establish prior written approval of the SBA as a prerequisite to the
consummation of any proposed stock transfer which would result in a change of
control over an SSBIC or SBIC. Because MFC is an SSBIC and because the Merger
will transfer control of MFC from Tri-Magna to Medallion, prior approval from
the SBA is required. Furthermore, certain of the other Acquired Companies are
SSBICs or SBICs; consequently, SBA approval is also necessary for consummation
of those transactions. The applicable parties filed formal requests for
approval with the SBA during January 1996.
DESCRIPTION OF TRI-MAGNA
GENERAL
Tri-Magna is a specialty finance company which operates primarily in New
York City. Through MFC, Tri-Magna has established a leading position in the
origination and servicing of loans secured by medallions and other taxicab
related assets; Tri-Magna also originates and services commercial installment
loans to small businesses outside of the taxicab industry. In addition, Tri-
Magna operates a taxicab rooftop advertising display business through its
subsidiary Media.
Tri-Magna is a closed-end, management investment company registered under
the 1940 Act and is the sole stockholder of MFC and Media. MFC, one of the
largest SSBICs in the nation, was incorporated in 1979 and is a closed-end,
management investment company registered under the 1940 Act. Media, which was
incorporated in August 1994, operates a taxicab rooftop advertising display
business.
Tri-Magna has elected to be treated for tax purposes as a registered
investment company (a "RIC") under the Code. As a RIC, Tri-Magna is not subject
to U.S. federal income tax on any investment company taxable income (which
includes, among other things, dividends, interest and income from securities
lending, reduced by deductible expenses) that it distributes to Stockholders for
any taxable year if at least 90% of its investment company taxable income for
such taxable year is distributed.
SPECIALTY FINANCE
Tri-Magna's finance business is operated primarily through MFC and has two
primary areas of concentration. The principal area of lending activity is
originating and servicing loans secured by medallions and related taxicab assets
in the New York City metropolitan area. Tri-Magna has been engaged in medallion
lending since 1979 and has developed a
33
<PAGE>
leading position in the industry. In order to diversify, since 1987, Tri-Magna
has originated and serviced commercial installment loans, primarily to dry
cleaners and laundromats.
SBA Regulations require, subject to limited exceptions, MFC, as a SSBIC, to
lend only to Disadvantaged Borrowers.
At December 31, 1995, approximately 68% of Tri-Magna's loan portfolio was
collateralized by taxicab medallions and related assets and substantially all of
such loans were collateralized by first security interests in such assets. At
December 31, 1995, the average loan size of outstanding medallion loans was
$107,323. During the nine months ended December 31, 1995, Tri-Magna originated
186 medallion loans. These loans typically bear fixed rates of interest in
excess of prime. At December 31, 1995, Tri-Magna's outstanding medallion loans
had a weighted average rate of interest of 9.62%.
Tri-Magna initiated commercial installment loan operations in 1987 in an
attempt to obtain additional SBA funding following SBA indications that funding
would no longer be provided for medallion lending and in order to diversify its
loan portfolio which, prior to that time, consisted solely of medallion loans.
Tri-Magna has focused on recourse equipment financing in the laundry and dry
cleaning industries. These industries were targeted because they are low-
technology, basic service businesses in abundance in the New York City
area.
From the inception of this business in 1987 through December 31, 1995, Tri-
Magna has originated approximately 1,056 commercial installment loans in the
aggregate principal amount of approximately $69 million. Tri-Magna's aggregate
charge-offs of total commercial installment loans originated during that period
were approximately $276,000 or 0.47%. Of the 1,056 commercial installment loans
that were originated, 564, with an aggregate principal balance of $30,630,865,
were outstanding at December 31, 1995. Tri-Magna originated 154 commercial
installment loans during the nine months ended December 31, 1995, in the
aggregate principal amount of $9,633,862, compared to 173 commercial installment
loans in the aggregate principal amount of $9,205,493 originated in the nine
months ended December 31, 1994. Of the 564 outstanding loans as of December 31,
1995, approximately 264 were to dry cleaners and approximately 244 were to
laundromats. Generally, Tri-Magna's commercial loans finance either the
purchase or improvement of an existing business or the purchase of the equipment
and related assets necessary to open a new business. The average size of a loan
in Tri-Magna's commercial installment loan portfolio is $54,300.
MFC traditionally has relied on both SBA financing and bank credit
facilities to fund its operations. SBA debentures are subordinated in order to
facilitate SBIC and SSBIC access to private debt capital. In order that the SBA
may better protect its position as a subordinated creditor, newly-implemented
regulations authorize the SBA to regulate the amount of non-SBA leverage that
SBICs and SSBICs with outstanding SBA debentures may incur. Under these
regulations, SBICs and SSBICs may not incur additional non-SBA debt without the
prior approval of the SBA. In addition, unless otherwise waived in writing by
the SBA, SBICs and SSBICs with existing lines of credit are required to obtain
SBA approval before increasing or refinancing amounts outstanding under such
lines of credit.
34
<PAGE>
Because Tri-Magna was concerned that the SBA could preclude MFC from
increasing or refinancing its existing lines of credit due to concerns over the
concentration of loans in the taxi industry, Tri-Magna's management determined
in 1995 that it would be prudent to redeem MFC's outstanding SBA debentures in
view of the dramatic impact on earnings that such an action by the SBA could
cause. MFC was advised by its lenders, however, that such redemption could not
be financed through an increase in MFC's credit facility because the principal
amount of the debentures ($12,500,000) to be redeemed was too large. In
addition, $6,500,000 out of the $12,500,000 in SBA debt outstanding was due
September 30, 1995 (which represented an extension from March 31, 1995). With
no assurance that the SBA would continue to extend the due date or that the
terms of any such extension would be acceptable to MFC, Tri-Magna's management
negotiated in September 1995 a two-tiered loan facility with a syndicate of
banks for the purpose of redeeming all outstanding debentures and preferred
stock issued by MFC to the SBA. The first tier of the facility provided a
short-term, secured loan to Tri-Magna in the principal amount of $3,231,900,
subject to the terms herein described. The proceeds of this loan were paid to
MFC in the form of a contribution to capital. The second tier of the facility
then increased MFC's existing credit facility by an amount that, in combination
with the Tri-Magna capital contribution, was sufficient to enable MFC to redeem
all outstanding securities issued to the SBA. On September 29, 1995, Tri-Magna
and MFC entered into the loan facility and MFC completed the redemption of its
outstanding SBA debentures and preferred stock. The terms of this loan provide
that the entire principal amount is payable upon the earlier of the closing of
the IPO or May 31, 1996. In the event the IPO does not occur by May 31, 1996,
Tri-Magna will need to find alternative sources of funds in order to pay the
bank loan.
MFC also has a credit facility with a bank syndicate consisting of an $80
million revolving line of credit, a $2 million term loan and a $1,913,000 demand
loan. Amounts outstanding under the revolving line of credit and the demand
loan bear interest at the agent bank's prime rate or, at MFC's option, a rate
based on LIBOR, and are secured by all of MFC's assets. The weighted average
annual rate of interest paid on the term loan for the nine months ended December
31, 1995, was 6.89%. The revolving line of credit matures on December 31, 1996
and the term loan matures on July 31, 1997. As of December 31, 1995, there was
an outstanding balance of $73,150,000 million under the revolving line of
credit.
To terminate the SBA limit on the amount of bank debt MFC could incur, on
September 29, 1995, MFC also entered into a Preferred Stock Repurchase Agreement
dated August 12, 1994 with the SBA (the "SBA-MFC Repurchase Agreement").
Pursuant to the SBA-MFC Repurchase Agreement, MFC repurchased all of its 3%
preferred stock from the SBA for an aggregate price of $3,231,900, representing
a discount of 65% from the original issuance price of $9,234,000. The
repurchase price discount of $6,002,100 (the "MFC Preferred Stock Repurchase
Discount") reflects the below market 3% dividend rate and the fact that the
preferred stock was not subject to mandatory redemption at any time. In
connection with the SBA-MFC Repurchase Agreement, and as consideration for the
MFC Preferred Stock Repurchase Discount, MFC has granted the SBA a liquidating
interest in a newly created restricted capital surplus account (the "SBA-MFC
Restricted Surplus Account"). The initial value of the SBA's liquidating
interest in the SBA-MFC Restricted Surplus Account was $6,002,100, the amount of
the SBA-MFC Preferred Stock Repurchase Discount on the date of repurchase. The
SBA's liquidating interest in the SBA-MFC
35
<PAGE>
Restricted Surplus Account will be amortized over a 60 month period on a
straight-line basis, commencing August 12, 1994, the date of the application to
the SBA for such repurchase. If MFC is in default at any time under the SBA-MFC
Repurchase Agreement, the SBA's liquidating interest in the SBA-MFC Restricted
Surplus Account will become fixed at the level in effect immediately preceding
the event of default and will not amortize further until the default is cured or
waived. The SBA's liquidating interest is scheduled to expire on August 12,
1999. The SBA has a claim against the assets of MFC, in the amount of the
balance of its liquidating interest in the Restricted Surplus Account, superior
to claims of any stockholder of MFC. As of December 31, 1995, the unamortized
amount of the SBA's liquidating interest in the SBA-MFC Restricted Surplus
Account was $4,351,523.
The following table classifies Tri-Magna's loans outstanding as of
December 31, 1995:
<TABLE>
<CAPTION>
Weighted
Number Average Maturity Balance
of Loans Interest Rate Date Outstanding
Type of Loan -------- ------------- ---- -----------
<S> <C> <C> <C> <C>
Medallion Loans 618 9.62% 1/1/96-11/1/04 $66,325,551
Dry Cleaners and Laundromats 508 13.75% 1/1/96-9/1/05 $25,416,397
Other 56 12.17% 1/1/96-9/1/05 $ 5,214,468
----- ----- ------------- -----------
Total 1182 10.79% 1/1/96-9/1/05 $96,956,416
The following table sets forth Tri-Magna's loans originated, renewed and
repaid for the periods indicated:
Year Ended Nine Month
March 31, Ended December 31,
1995 1994 1995
----------- ---------------
(In Thousands)
Loans originated................................................ 33,400,366 24,580,319 21,837,827
Loan repayments (including renewals)............................ $(24,881,065) $(17,695,062) $ (16,928,031)
(Increase) decrease in unrelated depreciation................... $ 52,000 $ 72,000 $ (120,000)
Loans written off............................................... $ (31,761) $ (36,151) $ (56,804)
Increase in loans receivable.................................... $ 8,548,529 $ 6,921,106 $ 4,846,600
Loans receivable-net (beginning of period)...................... $ 82,651,287 $ 82,651,287 $ 91,199,816
Loans receivable-net (end of period)............................ $ 91,199,816 $ 89,572,393 $ 96,046,416
</TABLE>
Banks, credit unions, finance companies and other SSBICs and SBICs
compete with Tri-Magna in making medallion loans and commercial installment
loans. Finance subsidiaries of equipment manufacturers also compete with Tri-
Magna.
36
<PAGE>
TAXICAB ADVERTISING
Media provides taxicab rooftop advertising displays ("Displays") in
New York City, Atlanta, Boston, Los Angeles, Miami and Philadelphia.
Medallion's management believes there are significant opportunities in this
business for a firm that operates in several major metropolitan markets because
many large advertisers prefer to advertise nationally. Media is well positioned
to take advantage of this opportunity because it believes it is one of the
largest single providers of such advertising in the nation. Media believes that
there are growth opportunities within existing markets because only 25% of New
York City taxicabs have rooftop advertising and a much smaller percentage of the
taxicabs in major metropolitan areas nationwide have rooftop advertising. In
addition, Media believes that its growth will be facilitated by its reputation
and relationships within the taxicab industry and because the incremental income
to be derived by taxicab owners from rooftop displays provides an incentive to
such owners. Media owns approximately 1,669 installed Displays, and at December
31, 1995 Media's Display occupancy rate was 60%.
Generally, Media enters into agreements with taxicab associations,
fleets or individuals to lease taxicab rooftop space for five year terms.
Typically under these agreements, Media is only required to make lease payments
upon receipt of payment from the relevant advertiser; accordingly, unoccupied
Displays remain on taxicab rooftops rent free. Media markets the Display spaces
to companies promoting products, advertising agencies and outdoor advertising
buying agencies. Advertising contracts generally vary from 30 days to one year
and provide for monthly payments of rent by the advertiser.
The following table sets forth the categories of business from which
Media derived Display revenue for the nine months ended December 31, 1995, and
the respective percentages of revenue.
Tobacco products.................................. 93.4%
Entertainment..................................... 6.6%
-----
Total............................................. 100.0%
For the nine months ended December 31, 1995, $1,233,477 in revenues,
$1,138,565 in expenses and $94,912 in operating profit were attributable to
Media's activities. Management believes that significant opportunities for
profitable expansion exist in this business area.
37
<PAGE>
CERTAIN FINANCIAL DATA
The following table sets forth certain per share financial data of Tri-
Magna:
<TABLE>
<CAPTION>
Per Share
Financial Data
-------------------------
Year Ended Nine Months Ended
March 31, 1995 December 31, 1995
-------------- -----------------
<S> <C> <C>
Earnings (Loss) from
Continuing Operations... $ 2.23 $ 1.77
Book Value............... $16.25 $25.88*
Cash Dividends Declared.. $ 2.20 $ 1.10
</TABLE>
___________________
* Includes $6.50 per share representing the unamortized amount of the SBA's
liquidating interest in Tri-Magna's restricted capital surplus resulting from
MFC's repurchase of its 3% preferred stock owned by the SBA at a 65% discount
under a SBA preferred stock repurchase agreement. In the event of liquidation,
the unamortized portion of the liquidating interest becomes immediately payable
to the SBA. The repurchase was completed on September 29, 1995, with an
effective date of August 12, 1994. The per share data for March 31, 1995 has
not been restated to reflect the subsequent repurchase. The purchase price of
the preferred stock was $3,231,900. The amount of the discount, $6,002,100
($8.97 per share) was recorded as an increase in capital in a restricted capital
surplus account separate from other capital accounts. Under the repurchase
agreement, the SBA retains a liquidating interest in the amount of the discount,
which amortizes on a straight line basis over five years commencing August 12,
1994. Upon the occurrence of any event of default under the repurchase
agreement, the SBA's liquidating interest would become fixed at the level
immediately preceding the event of default and would not amortize further until
the default is cured or waived.
EMPLOYEES
As of December 31, 1995, Tri-Magna employed a total of 22 employees. No
employees are covered by a collective bargaining agreement. Tri-Magna believes
that its relations with all of its employees are good.
LEGAL MATTERS
Tri-Magna and its subsidiaries are parties to various legal proceedings
arising from the normal course of business, none of which, in Tri-Magna's
management's opinion, is expected to have a material adverse impact on Tri-
Magna's financial position or results of operations.
In 1993, MFC entered into a "Stipulation of Compliance Agreement" with the
SBA under which MFC agreed to implement procedures intended to prevent the
origination of loans not meeting SBA guidelines. The Agreement was entered into
in connection with
38
<PAGE>
allegations that MFC made two loans, totalling $650,000, to borrowers who did
not meet the guidelines. These loans are no longer on Tri-Magna's books.
FINANCING
In connection with the IPO, Medallion has filed a registration statement with
the Commission on Form N-2 covering shares of its common stock. Medallion plans
to use the proceeds of the offering of such common stock to purchase Tri-Magna
and the other Acquired Companies. The Merger, consequently, is conditioned on
the successful completion of the IPO.
EXPERTS
The balance sheets of Tri-Magna as of March 31, 1994 and 1995, and the
related statements of income, stockholders' equity and cash flows for each of
the three years in the period ended March 31, 1995, have been used herein in
reliance on the report of Arthur Anderson, L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
FINANCIAL ADVISORS
Gruntal acted as financial advisor to the Special Committee in connection
with the Merger. Pursuant to the terms of the letter agreement, Tri-Magna has
paid Gruntal $70,000 for rendering its opinion as to the fairness, from a
financial point of view, of the Merger to Stockholders who are not also
stockholders of Medallion. In addition, Tri-Magna has agreed to reimburse
Gruntal for its reasonable out-of-pocket expenses, not to exceed $11,000 in the
aggregate, including fees and disbursements of counsel, and to indemnify Gruntal
and certain related persons against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of its
engagement.
SOLICITATION COMPENSATION
Tri-Magna will bear the cost of solicitation of proxies, including the
charges and expenses of brokerage firms and others of forwarding solicitation
material to beneficial owners of Common Stock in connection with the Special
Meeting. In addition to the use of mails, proxies may be solicited by officers
and employees of Tri-Magna in person or by telephone. Tri-Magna may retain a
professional proxy solicitation firm to assist in the solicitation of proxies at
a cost that Tri-Magna estimates will not exceed $15,000.
ADDITIONAL MATERIALS
Tri-Magna will furnish, without charge, a copy of its most recent annual
report and semi-annual report succeeding the annual report to any Stockholder
upon request. Enclosed herewith is a pre-addressed (first class) postage paid
card for requesting such reports.
39
<PAGE>
OTHER MATTERS
Tri-Magna knows of no other business that will be presented for action by the
Stockholders at the Special Meeting. If other business is properly presented
for consideration at the Special Meeting, the enclosed proxy authorizes the
person named therein to vote the shares in their discretion.
STOCKHOLDER PROPOSALS
If the Merger is not effected prior to Tri-Magna's 1996 annual meeting, in
order for a stockholder proposal to be considered for inclusion in Tri-Magna's
proxy materials for the 1996 annual meeting, it must be received by Tri-Magna at
Tri-Magna Corporation, Suite 2000, 205 East 42nd Street, New York, New York
10017, Attention: Myron Cohen, Secretary, no later than June 30, 1996.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants............................................ F-2
Balance Sheets as of March 31, 1995 and 1994................................. F-3
Statements of Operations for the years ended March 31, 1995, 1994 and 1993... F-4
Statements of Cash Flow for the years ended March 31, 1995, 1994
and 1993.................................................................... F-5
Statements of Stockholders' Equity for the years ended
March 31, 1995, 1994 and 1993............................................... F-7
Notes to Financial Statements, March 31, 1995................................ F-8
Summary of Investments, March 31, 1995....................................... F-15
Balance Sheets as of December 31, 1995 and December 31, 1994................. F-17
Statements of Operations for the nine months ended
December 31, 1995 and 1994.................................................. F-18
Statements of Cash Flows for the nine months ended
December 31, 1995 and 1994.................................................. F-19
Statements of Stockholders' Equity for the nine months ended
December 31, 1995........................................................... F-20
Notes to Financial Statements, December 31, 1995............................. F-21
Summary of Investments as of December 31, 1995............................... F-30
</TABLE>
F-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Tri-Magna Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Tri-Magna
Corporation (a Delaware corporation) and subsidiaries (collectively referred to
as the Company) as of March 31, 1995 and 1994, including the summary of
investments as of March 31, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended March 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tri-Magna
Corporation and subsidiaries as of March 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
May 22, 1995
F-2
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, 1995 AND 1994
-----------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Investments (Note 2) $91,989,816 $83,493,287
Less unrealized depreciation on
investments (Note 7) 790,000 842,000
----------- -----------
$91,199,816 $82,651,287
Cash 1,848,889 1,574,232
Accrued interest receivable 797,900 678,451
Furniture and fixtures, net 527,281 139,923
Other assets 1,007,954 966,103
----------- -----------
Total assets $95,381,840 $86,009,996
=========== ===========
LIABILITIES:
Notes payable to banks and demand
notes (Note 3) $61,488,000 $52,200,000
Accounts payable and accrued expenses 424,102 533,881
Accrued interest payable 805,598 678,764
Dividends payable (Note 5) 69,255 69,255
Subordinated debentures payable
(Note 4) 12,500,000 12,500,000
----------- -----------
$75,286,955 $65,981,900
----------- -----------
OTHER LIABILITIES (Note 5) $ 9,234,000 $ 9,234,000
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock (1,000,000 shares of $.01
par value stock authorized, 668,900
and 665,900 shares outstanding at
March 31, 1995 and 1994,
respectively) (Note 6) $ 6,689 $ 6,659
Capital in excess of par value 11,276,811 11,227,341
Accumulated undistributed loss (422,615) (439,904)
----------- -----------
Total shareholders' equity $10,860,885 $10,794,096
----------- -----------
Total liabilities and $95,381,840 $86,009,996
shareholders' equity =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest on investments $9,045,896 $8,450,832 $8,060,477
Advertising revenue (Note 1) 536,292 - -
Other income 416,156 646,081 604,658
---------- ---------- ----------
Total income $9,998,344 $9,096,913 $8,665,135
---------- ---------- ----------
EXPENSES:
Interest on subordinated debentures $ 978,829 $1,015,279 $1,160,677
(Note 4)
Interest on bank debt (Note 3) 4,303,406 2,768,109 2,406,626
Dividends on preferred stock (Note 5) 277,020 277,020 277,020
Administration and advisory fees 30,700 31,805 17,562
Legal and accounting fees 310,970 468,384 320,169
Directors' fees (Note 9) 21,000 82,500 21,000
Officers' and employees' salaries 1,075,197 1,303,207 1,265,777
Employee benefit plans (Note 8) 107,008 213,000 215,000
Other operating expenses 1,427,687 1,063,109 1,001,870
Realized loss on investments (Note 7) 31,761 29,760 181,378
---------- ---------- ----------
Total expenses $8,563,578 $7,252,173 $6,867,079
---------- ---------- ----------
Distributable net income $1,434,766 $1,844,740 $1,798,056
Change in unrealized depreciation
(Note 7) 52,000 (67,000) 125,000
---------- ---------- ----------
Net income $1,486,766 $1,777,740 $1,923,056
========== ========== ==========
Weighted average common shares 667,400 665,900 665,900
outstanding ========== ========== ==========
Earnings per common share:
Distributable net income per common
share $2.15 $2.77 $2.70
===== ===== =====
Net income per common share $2.23 $2.67 $2.89
===== ===== =====
Dividends paid per common share $2.20 $2.80 $2.90
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,486,766 $ 1,777,740 $ 1,923,056
Adjustments to reconcile net income
to net cash
provided by operating activities:
Depreciation and amortization 117,000 64,860 66,560
(Decrease) increase in unrealized (52,000) 67,000 (125,000)
depreciation
Realized loss on investments 31,761 29,760 181,378
(Increase) decrease in accrued
interest receivable (119,449) 11,181 157,641
Increase in other assets (273,252) (249,750) (82,172)
(Decrease) increase in accounts
payable
and accrued expenses (109,779) 154,616 (1,294,465)
Increase in accrued interest payable 126,834 235,904 94,253
------------ ------------ ------------
Net cash provided by operating $ 1,207,881 $ 2,091,311 $ 921,251
activities ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments $(33,409,355) $(31,707,101) $(31,208,487)
Proceeds from investment maturities
and terminations 24,847,457 21,679,991 20,577,925
Proceeds from liquidation of other
assets 210,206 68,680 113,771
Capital expenditures (449,555) (18,500) (1,594)
------------ ------------ ------------
Net cash used for investing $ (8,801,247) $ (9,976,930) $(10,518,385)
activities ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt $ 9,288,000 $ 9,700,000 $ 14,300,000
Payments of debt - - (3,000,000)
Capitalized financing costs, net - - (205,936)
Sale of common stock 49,500 - -
Dividends paid on common stock (1,469,477) (1,864,520) (1,931,110)
------------ ------------ ------------
Net cash provided by financing $ 7,868,023 $ 7,835,480 $ 9,162,954
activities ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH $ 274,657 $ (50,139) $ (434,180)
CASH, beginning of period 1,574,232 1,624,371 2,058,551
------------ ------------ ------------
CASH, end of period $ 1,848,889 $ 1,574,232 $ 1,624,371
============ ============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for
interest
(including dividends paid on
preferred stock)(Note 5) $ 5,432,421 $ 3,824,504 $ 3,750,070
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<TABLE>
<CAPTION>
Shares of Common Capital
Common Stock in Excess Accumulated
Stock $.01 Par of Par Undistributed
Outstanding Value Value (Loss)
----------- -------- ----------- --------------
<S> <C> <C> <C> <C>
BALANCE AT
MARCH 31, 1992 665,900 $6,659 $11,227,341 $ (345,070)
Dividends paid, common - - - (1,931,110)
Distributable net income - - - 1,798,056
Change in unrealized
depreciation - - - 125,000
------- ----- ----------- -----------
BALANCE AT
MARCH 31, 1993 665,900 6,659 11,227,341 (353,124)
Dividends paid, common - - - (1,864,520)
Distributable net income - - - 1,844,740
Change in unrealized
depreciation - - - (67,000)
------- ----- ----------- -----------
BALANCE AT
MARCH 31, 1994 665,900 6,659 11,227,341 (439,904)
Dividends paid, common - - - (1,469,477)
Distributable net income - - - 1,434,766
Sale of common stock 3,000 30 49,470 -
Change in unrealized
depreciation - - - 52,000
------- ------ ----------- -----------
BALANCE AT
MARCH 31, 1995 668,900 $6,689 $11,276,811 $ (422,615)
======= ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995
--------------
(1) Organization
- -----------------
On February 3, 1989, Tri-Magna Corporation, a newly formed Delaware
corporation, (referred to as Tri-Magna or the Parent Company) and its
subsidiary, Medallion Funding Corp. (Medallion) entered into an Agreement and
Plan of Share Exchange (the Share Exchange). Tri-Magna and its wholly-owned
subsidiaries Medallion, F.A.P. Holding Corp. (FAP) and Medallion Taxi Media,
Inc. (Media) are collectively referred to as the Company. Under the Share
Exchange, 100 shares of common stock of the Parent Company were exchanged for
each of the outstanding shares of common stock of Medallion. On May 18, 1989,
the Shareholders of Medallion voted in favor of the Share Exchange Plan. This
transaction was accounted for as a pooling of interests.
The Parent Company was formed in January 1989 for the purpose of
acquiring all of the outstanding shares of Medallion common stock pursuant to
the Share Exchange. The Parent Company is a closed-end, diversified management
investment company registered under the Investment Company Act of 1940 (the 1940
Act), and has elected to be treated as a regulated investment company under the
Internal Revenue Code of 1986.
Medallion Funding Corp. was formed in 1979 for the purpose of
operating as a Minority Enterprise Small Business Investment Company (MESBIC),
licensed, regulated and financed in part by the U.S. Small Business
Administration (SBA). Medallion was granted a license to operate as a MESBIC by
the SBA on June 23, 1980. On February 2, 1982, Medallion registered as a closed-
end, nondiversified investment company under the Investment Company Act of 1940,
as amended (the 1940 Act).
On June 22, 1992, Medallion established a wholly-owned subsidiary,
FAP. This subsidiary was established for the purpose of acquiring and managing
property purchased in foreclosure from Medallion. All intercompany balances and
transactions have been eliminated in consolidation.
On August 23, 1994, Media, a New York corporation was formed. Media is
engaged in the outdoor media advertising business and is a wholly-owned
subsidiary of Tri-Magna.
The accompanying consolidated financial statements include the
accounts of Tri-Magna, Medallion, FAP and Media after elimination of all
intercompany amounts.
(2) Summary of Significant Accounting Policies
- -----------------------------------------------
The significant accounting policies of the Company, which conform with
generally accepted accounting policies and accounting principles and procedures
generally accepted in the investment company industry, include the following:
F-7
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
- -----------------------------------------------
(a) Investments
----------------
Medallion's investments consist primarily of long-term loans to
persons defined by SBA regulations as being socially or economically
disadvantaged, or to entities that are at least 50% owned by such persons.
Approximately 71% and 78% of Medallion's loan portfolio at March 31, 1995 and
1994, respectively, has arisen in connection with the financing of taxicab
medallions, taxicabs and related assets, substantially all in the metropolitan
New York area. These loans are secured by the medallions, taxicabs and related
assets, and are personally guaranteed by the borrowers, or in the case of
corporations, personally guaranteed by the owners. The remaining portion of
Medallion's portfolio represents loans to various commercial enterprises,
including dry cleaners, garages, gas stations and laundromats. These loans are
secured by various equipment and/or real estate and are generally guaranteed by
the owners, and in certain cases, by the equipment dealers. These loans are made
primarily in the metropolitan New York City area.
During 1995, Tri-Magna funded 32 medallion loans to nonminorities
totaling $2,580,000; of this amount, Tri-Magna participated a total
of $1,932,000.
Under the 1940 Act, the Company's long-term loans are considered
investments and are recorded at their fair value. Since no ready market exists
for these loans, fair value is determined by the Board of Directors in good
faith. In determining fair value, the directors take into consideration the
financial condition of the borrower, the adequacy of the collateral, and the
relationships between market rates and portfolio rates. Loans were valued at
cost, less unrealized depreciation of $790,000 and $842,000 at March 31, 1995
and 1994, respectively. The directors have determined that this valuation
approximates fair value.
The principal portion of loans serviced for others at March 31, 1995
and 1994 amounted to approximately $11,940,529 and $3,526,000, respectively.
Effective for fiscal years beginning after December 15, 1994, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 114 (SFAS No. 114), "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118. SFAS No. 114 addresses the
accounting by creditors for impairment of certain loans by requiring that the
carrying value of impaired loans, as defined, be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate or the fair value of the collateral if the loan is collateral dependent.
Management believes this statement will not have a material effect on the
financial condition or results of operations of the Company.
Loan origination fees are deferred and recognized over the life of the
loan as an adjustment to interest income. Loan origination fees and related
direct loan origination costs are offset against each other,
F-8
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
- -----------------------------------------------
(a) Investments (Continued)
----------------
and the net amount is deferred and amortized. At March 31, 1995, the net
deferred asset totaled $102,430, and the amortization expense was $33,608.
(b) Federal Income Taxes
-------------------------
It is the Company's policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies, which
require the Company to distribute at least 90% of its investment company taxable
income to its shareholders. Therefore, no provision for federal income tax has
been made.
FAP and Media have elected to be taxed as regular corporations and, at
March 31, 1995, had recorded a provision for income taxes totaling approximately
$24,000. These amounts have been reflected in other operating expenses on the
accompanying consolidated statement of operations.
(c) Income Recognition
-----------------------
When, in the judgment of management, collection of any portion of the
interest or principal amount of a receivable is in doubt, accrual of interest
income is discontinued, and interest is recorded when received. At March 31,
1995 and 1994, nonaccrual loans totaled approximately $1,291,750, and
$1,080,000, respectively, and the related foregone interest income amounted to
approximately $290,136 and $206,000, respectively. Additionally, at March 31,
1995 and 1994, restructured loans totaled approximately $1,226,144 and $816,000,
of which $192,323 and $395,000 were included in nonaccrual loans, respectively.
Other income on the accompanying consolidated statements of operations consists
of late fees, prepayment penalties and fee income.
(3) Notes Payable to Banks
- ---------------------------
At March 31, 1995 and 1994, the Company had outstanding bank
borrowings under the following agreements:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revolving Credit Agreement $58,525,000 $50,200,000
Term Loan Agreements 2,000,000 2,000,000
Demand Note 688,000 -
Taxi Media Loan 275,000 -
----------- -----------
$61,488,000 $52,200,000
=========== ===========
</TABLE>
Borrowings under these agreements are secured by all assets of the Company.
F-9
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995
(Continued)
(3) Notes Payable to Banks (Continued)
- ---------------------------
Revolving Credit Agreement
--------------------------
On March 27, 1992 (and as subsequently amended), the Company entered
into a committed revolving credit agreement (the Revolver) with a group of
banks. The Company extended the Revolver until September 30, 1995 at an
aggregate credit commitment amount of $63,000,000 pursuant to the Renewal and
Extension Agreement dated September 30, 1994. The Revolver may be extended
annually thereafter upon the option of the participating banks and acceptance by
the Company. Should any participating bank not extend its committed amount, the
Revolver agreement provides that each bank shall extend a term loan equal to its
share of the principal amount outstanding of the revolving credit note. Maturity
of the term note shall be the earlier of two years or any other date on which it
becomes payable in accordance with the Revolver agreement. Interest and
principal payments are to be made monthly. Interest is calculated monthly at
either the bank's prime rate or a rate based on the adjusted London Interbank
Offered (LIBO) rate at the option of the Company. Substantially all promissory
notes evidencing the Company's investments are held by a bank, as collateral
agent under the agreement. Outstanding borrowings under the Revolver were
$58,525,000 and $50,200,000 at March 31, 1995 and 1994 at an average interest
rate of 8.0% and 5.1%, respectively. During the years ended March 31, 1995 and
1994, the Company's weighted average borrowings were approximately $56,600,000
and $46,515,000, and the maximum outstanding borrowings were $63,000,000 and
$58,000,000, respectively. The weighted average interest rates on the weighted
average borrowings were 6.9% and 5.4% during 1995 and 1994, respectively.
The Company is required to pay an annual facility fee of 1/4%
effective prospectively on March 28, 1995 on the Revolving Credit Agreement
aggregate commitment. For the year ended March 31, 1994 and up through March 27,
1995, the Company was required to pay an annual facility fee of 3/8% on the
Revolving Credit Agreement aggregate commitment.
Term Loan Agreements
---------------------
At March 31, 1995 and 1994, the Company had borrowed a total of
$2,000,000 under a term loan agreement (Term Loan) with a bank. The $2,000,000
was outstanding at March 31, 1995 and 1994. During fiscal year 1994, the fixed
interest rate of 10.3% was reduced to 5.88%. Interest payments are due
quarterly. The weighted average interest rate paid on such borrowings was 5.88%
and 7.3% during 1995 and 1994, respectively. The total term borrowings
outstanding at March 31, 1995 under this agreement are due in July 1995.
Demand Note
-----------
On December 19, 1994, Tri-Magna entered into a demand promissory note
(Demand Note) with a certain bank. The Demand Note matures on December 19, 1995
and can be extended for another year at the option of the bank and acceptance of
Tri-Magna. Interest is calculated monthly at either the bank's prime
F-10
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995
(Continued)
(3) Notes Payable to Banks (Continued)
- ---------------------------
Demand Note (Continued)
-----------
rate or a rate based upon the adjusted LIBO rate at the option of the Company.
Substantially all promissory notes evidencing Tri-Magna's investments are
pledged to the bank as collateral. Outstanding borrowings under the Demand Note
were $688,000 at March 31, 1995, at an average interest rate of 9.0%. During
the year ended March 31, 1995, the Tri-Magna's weighted average borrowings were
approximately $688,000, and the maximum outstanding borrowings were $688,000.
The weighted average interest rate on such borrowings was 9.0% during 1995.
Taxi Media Loan
---------------
On March 8, 1995, Tri-Magna guaranteed a demand loan for Media. At
March 31, 1995, $275,000 was outstanding at an interest rate of 11.0%. The loan
matures on June 6, 1995 and can be extended at the option of the bank and
acceptance of both Tri-Magna and Media.
Interest Rate Cap Agreements
----------------------------
In October 1994, the FASB issued Statement of Financial Accounting
Standards No.119 (SFAS 119), "Disclosures about Derivative Financial Instruments
and Fair Value of Financial Instruments," which is effective for fiscal years
ending after December 15, 1995. SFAS No. 119 requires certain disclosures about
derivative financial instruments including futures, forward swaps, interest rate
cap agreements, and other financial instruments with similar characteristics.
On July 15, 1992, the Company entered into two interest rate cap
agreements to reduce the impact of changes in interest rates on its floating
long-term debt. These agreements limit the Company's maximum LIBO interest rate
exposure on $10,000,000 of its revolving credit facility to 6%. The premiums
paid in under these agreements was $69,000 and $69,750, respectively. The
premiums have been capitalized and are being amortized over the three-year term
of the agreements, with both agreements terminating on July 17, 1995.
Amortization related to these agreements is included in interest expense in the
accompanying consolidated statements of operations. As of March 31, 1995, the
fair market value of these instruments was $6,250.
The Company is exposed to credit loss in the event of nonperformance
by the counterparties on these interest rate cap agreements. The Company does
not anticipate nonperformance by any of these parties.
F-11
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995
(Continued)
(4) Indebtedness to the Small Business Administration
- ------------------------------------------------------
Indebtedness to the Small Business Administration is comprised of the
following long-term subordinated debentures at March 31, 1995 and 1994:
<TABLE>
<CAPTION>
Description 1995 1994
----------- ---- ----
<S> <C> <C>
9-3/8% interest only, payable
semiannually, principal due
January 9, 1996 $ 2,000,000 $ 2,000,000
7-3/8% interest only, payable
semiannually, principal due
May 15, 1996 2,000,000 2,000,000
9-1/8% interest only, payable
semiannually, principal due
October 17, 1998 2,000,000 2,000,000
Demand Note 1,000,000 1,000,000
Demand Note 1,500,000 1,500,000
Demand Note 4,000,000 4,000,000
----------- -----------
$12,500,000 $12,500,000
=========== ===========
</TABLE>
On January 23, 1991, a $1,000,000 subordinated debenture matured and
was converted to the $1,000,000 demand note. On September 27, 1992, a $1,500,000
subordinated debenture matured and was converted to the $1,500,000 demand note.
On September 19, 1993, a $4,000,000 subordinated debenture matured and was
converted to the $4,000,000 demand note. The interest rate on all three demand
notes was 7.75% and 6.35% at March 31, 1995 and 1994, respectively. All three
demand notes have been extended until September 30, 1995 at an interest rate of
8.25%. All other rights and obligations of the Company under the debentures
shall remain the same, in force and effect in all material respects.
Under the Code of Federal Regulations section 107.201(b) of the SBA,
debentures issued by the SBA after July 1, 1991 shall be subordinated only to
the extent that the aggregate amount of such indebtedness does not exceed 200%
of private capital or $10,000,000, whichever is less. Debentures issued prior to
July 1, 1991 are grandfathered with full subordination until the debentures
mature, then are subject to the new regulation.
(5) Other Liabilities
----------------------
The Company's other liabilities consist of 3% cumulative, preferred
nonvoting stock of Medallion, with a par value of $1,000 per share, which
Medallion has sold to the SBA The preferred stock dividend of Medallion is
reflected as a "dividend on preferred stock" in the accompanying consolidated
F-12
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995
(Continued)
(5) Other Liabilities (Continued)
- ----------------------
statements of operations. The Small Business Administration imposes certain
restrictions on transfers of stock and payments of dividends by its licensees.
(6) Common Stock
- -----------------
On July 20, 1994, the Board of Directors of the Company voted to rescind
the issuance of 3,000 shares of common stock approved on April 19, 1994, and
approved the sale of 3,000 shares of common stock at a price of $16.50 per
share. The sale of the stock was completed in November 1994.
(7) Realized Losses and Unrealized Depreciation on Investments
- ---------------------------------------------------------------
A summary of realized losses and unrealized depreciation on investments
as of and for the years ended March 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Unrealized Depreciation 1995 1994 1993
----------------------- ---- ---- ----
<S> <C> <C> <C>
Balance at Beginning of Year $ 842,000 $775,000 $ 900,000
(Decrease) Increase in Unrealized
Depreciation ( 52,000) 67,000 (125,000)
--------- -------- ---------
Balance at End of Year $ 790,000 $842,000 $ 775,000
========= ======== =========
</TABLE>
For the years ended March 31, 1995, 1994 and 1993, realized losses were
$31,761, $29,760 and $181,378, respectively.
(8) Employee Benefit Plans
- ---------------------------
The Company maintains two defined contribution employee benefit plans,
the Medallion Funding Corp. Pension Plan and the Medallion Funding Corp. Profit-
Sharing Retirement Plan, under which substantially all Tri-Magna and Medallion
employees and officers are covered. The Company's management acts as trustee of
both plans. At year end, the Company has no obligation for postretirement or
postemployment agreements.
Under the noncontributory pension plan, the Company contributes up to
10% of each participant's annual compensation. Under the profit-sharing plan,
voluntary employee contributions as well as Company contributions are allowed.
The Company's policy is to fund pension costs accrued.
Total employer contributions to both plans are limited to the lesser of
10% of each participant's compensation or $10,000 for the years ended March 31,
1995, 20% of each participant's compensation or
F-13
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995
(Continued)
(8) Employee Benefit Plans (Continued)
- ---------------------------
$20,000 for the year ended March 31, 1994, and 1993.
The expense for employee benefit plans was approximately $107,000
$213,000 and $215,000 for the years ended March 31, 1995, 1994 and 1993,
respectively.
(9) Transactions with Related Parties
- --------------------------------------
Certain officers and directors of Medallion are also shareholders of
Tri-Magna. Officers' salaries are set by the Board of Directors. Directors who
are not officers receive a fee of $1,000 per meeting. Directors who are members
of committees receive $500 for each meeting attended.
(10) Commitments and Contingencies
- -----------------------------------
At March 31, 1995, the Company had committed approximately $2,431,124
for 36 loans that bear interest at rates ranging from 10% to 16%.
In September 1987, the Company entered into a 10-year lease for its
executive and general offices. The lease calls for an annual rental of
approximately $140,000, subject to certain escalation clauses. During fiscal
year 1995, rental expenses totaled $190,000 and are included in other operating
expenses .
The Company is a party to various legal proceedings arising from the
normal course of business, none of which, in management's opinion, is expected
to have a material adverse impact on the Company's financial position or results
of operations.
(11) Subsequent Event
- ----------------------
On April 7, 1995, the Company entered into three interest rate cap
agreements to reduce the impact of changes in interest rates on its floating
rate long-term debt. These agreements limit the Company's maximum LIBO interest
rate exposure on $20,000,000 of its revolving credit facility to 7.5%. The
premiums paid under these agreements were $46,875, $31,000 and $46,687,
respectively. The premiums have been capitalized and are being amortized over
the two-year term of the agreements, which expires on April 7, 1997. The
Company is exposed to credit loss in the event of nonperformance by the
counterparties on these interest rate cap agreements. The Company does not
anticipate nonperformance by any of these parties.
On April 19, 1995, the Company declared a dividend on common stock of
$.40 per share, payable on April 26, 1995 to the shareholders of record as of
April 19, 1995. Medallion also declared a dividend of $78 per share on common
stock payable on April 19, 1995 to the Parent Company for purposes of funding
the Company's dividend.
F-14
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
SUMMARY OF INVESTMENTS
----------------------
MARCH 31, 1995
--------------
(Continued)
<TABLE>
<CAPTION>
Number of Balance Range of
Loans Outstanding Rate Maturity Dates
----- ----------- ---- --------------
<S> <C> <C> <C> <C>
7 $ 511,100 15.200 3/1/99-2/1/01
9 334,652 15.250 6/1/95-6/1/98
1 8,366 15.375 7/1/95
15 317,372 15.500 3/31/95-7/1/99
6 54,619 15.625 4/1/95-5/1/96
3 103,612 15.750 3/31/95-1/1/95
2 38,986 16.000 6/1/95-4/1/99
6 94,469 16.250 8/1/95-3/1/96
4 33,291 16.500 4/1/95-1/1/96
1 51,163 16.750 3/31/95
------
Total 1061 $91,887,386
Plus: Loan Origination Costs, 102,430
net -----------
Total investments at cost 91,989,816
Less - Unrealized depreciation
on investments (790,000)
-----------
Total investments at directors'
valuation $91,199,816
===========
</TABLE>
F-15
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
--------------------------------------
SUMMARY OF INVESTMENTS
----------------------
MARCH 31, 1995
--------------
<TABLE>
<CAPTION>
Number of Balance Range of
Loans Outstanding Rate Maturity Dates
----- ----------- ---- ---------------
<S> <C> <C> <C>
1 $ 89,608 5.000 3/1/00
1 30,298 7.000 7/1/98
5 936,209 7.500 4/1/95
22 5,132,491 8.000 5/1/95-1/1/09
3 317,769 8.250 1/1/98
21 3,414,711 8.500 5/1/96 - 5/1/00
5 602,727 8.750 7/1/97-7/1/99
62 9,630,711 9.000 9/1/95-7/1/04
69 7,390,005 9.250 8/1/95-2/1/10
116 12,661,202 9.500 3/31/95-9/1/04
2 130,701 9.625 8/1/96 - 8/1/04
18 1,537,467 9.750 3/31/95-11/1/01
3 625,021 9.850 5/1/98-6/1/98
156 13,195,246 10.000 3/1/96-12/1/04
17 1,430,744 10.250 1/1/97-2/1/00
1 134,524 10.375 2/1/00
34 5,222,632 10.500 4/1/96-1/1/03
11 905,259 10.750 2/1/99-3/1/02
1 74,667 10.900 11/1/99
40 3,132,493 11.000 3/1/00-1/1/02
4 302,310 11.250 6/1/96-12/1/99
5 337,508 11.500 10/1/95-2/1/99
2 188,585 11.750 4/1/96-9/1/99
55 4,312,389 12.000 3/31/95-6/1/05
7 484,226 12.500 12/1/95-7/1/00
1 22,516 12.580 3/31/95
3 256,266 12.750 11/1/95-1/1/97
1 84,343 12.950 1/1/99
86 5,045,579 13.000 3/31/95-2/1/04
4 789,652 13.250 8/1/95-2/1/00
18 764,857 13.500 3/31/95-7/1/00
2 58,280 13.750 2/1/98-1/1/99
1 25,706 13.870 9/1/96
75 4,157,443 14.000 6/1/96-11/1/01
1 44,900 14.050 11/1/01
1 9,687 14.250 12/1/98
1 18,950 14.300 3/1/99
11 751,322 14.500 3/31/95-4/1/02
141 6,090,752 15.000 3/31/95-12/1/01
</TABLE>
F-16
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Investments $96,956,416 $90,342,393
Less unrealized depreciation on
investments (910,000) (770,000)
----------- -----------
$96,046,416 $89,572,393
Investment in unconsolidated subsidiary (Note 1) 145,335 19,379
Cash 1,177,166 1,268,324
Accrued interest receivable 844,350 778,098
Furniture and fixtures, net 87,925 111,543
Other assets 1,486,974 839,950
----------- -----------
Total Assets $99,788,166 $92,589,687
=========== ===========
LIABILITIES
Notes payable to banks and
demand notes (Note 2) 80,294,900 $59,025,000
Accounts payable and accrued expenses 1,290,267 253,687
Accrued interest payable 889,147 631,817
Dividends payable - 69,255
Subordinated debentures payable (Note 3) - 12,500,000
----------- -----------
Total Liabilities $82,474,314 $72,479,759
----------- -----------
OTHER LIABILITIES (Note 5) - 9,234,000
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY
Common stock - 1,000,000 shares of $.01
par value stock authorized, 668,900
shares outstanding at December 31, 1995
and 1994, respectively $ 6,689 $ 6,689
Capital in excess of par value (Note 4) 11,276,811 11,276,811
Accumulated undistributed gain (loss) 28,252 (407,572)
----------- -----------
$11,311,752 $10,875,928
Restricted capital surplus (Note 5) 6,002,100 -
Total Shareholders' equity $17,313,852 $10,875,928
=========== ===========
Total Liabilities and Shareholders' equity $99,788,166 $92,589,687
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1995 1994
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
INVESTMENT INCOME
Interest on investments $7,440,065 $6,749,056
Income from unconsolidated subsidiary (Note 1) 94,912 19,379
Other income 348,668 299,599
---------- ----------
Total Income $7,883,645 $7,068,034
========== ==========
EXPENSES
Interest on subordinated debentures (Note 2) $ 531,675 $ 730,250
Interest on bank debt (Note 2) 4,002,795 3,039,040
Dividends on preferred stock (Note 4) 138,519 207,765
Administration and advisory fees 7,220 24,770
Legal and accounting fees 239,120 200,488
Directors' fees 41,000 16,000
Officers' and employees' salaries 785,259 692,747
Employee benefit plans 49,000 86,000
Other operating expenses 839,204 872,572
Realized loss (gain) on investments (56,804) 36,151
---------- ----------
Total Expenses $6,576,988 $5,905,782
---------- ----------
Distributable Net Income $1,306,657 $1,162,252
Change in unrealized depreciation (120,000) 90,000
---------- ----------
Net Income $1,186,657 $1,252,252
========== ==========
Weighted average common shares outstanding 668,900 668,900
======= =======
Earnings per common share:
Distributable net income per common share $1.95 $1.74
===== =====
Net Income per common share $1.77 $1.87
===== =====
Dividends paid per common share $1.10 $1.80
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1995 1994
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 1,186,657 $ 1,234,253
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 43,595 48,635
Change in unrealized depreciation (appreciation) 120,000 (72,000)
Realized loss (gain) on investments (56,804) 36,151
Increase in investment in unconsolidated subsidiary (94,912) (19,379)
Increase in accrued interest receivable (46,450) (99,647)
Decrease (increase) in other assets (775,139) (41,286)
Increase (decrease) in accounts payable and
accrued expenses 1,161,002 (280,194)
Increase (decrease) in dividends payable (69,255) -
Increase (decrease) in accrued interest payable 83,549 (46,947)
------------ ------------
Net cash provided by operating activities $ 1,552,239 $ 759,586
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments $(21,838,484) $(24,580,319)
Proceeds from investment maturities
and terminations 16,928,031 17,695,062
Proceeds from liquidation of other assets 144,100 148,799
Capital expenditures (22,916) (1,616)
------------ ------------
Net cash (used for) investing activities $ (4,789,269) $ (6,738,074)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ 19,081,900 $ 6,825,000
Payments of SBA debt (12,500,000) -
Buyback of preferred stock of subsidiary (3,231,900) -
Sale of common stock - 49,500
Dividends paid (735,787) (1,201,920)
------------ ------------
Net cash provided by financing activities $ 2,614,213 $ 5,672,580
------------ ------------
NET (DECREASE) IN CASH $ (622,817) $ (305,908)
CASH, beginning of period 1,799,983 1,574,232
------------ ------------
CASH, end of period $ 1,177,166 $ 1,286,324
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 4,579,690 $ 4,024,002
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Shares of Common Capital
Common Stock in Excess Accumulated Restricted
Stock $.01 Par of Par Undistributed Capital
Outstanding Value Value Gain (Loss) Surplus
----------- -------- ----------- -------------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE AT
MARCH 31, 1993 665,900 $6,659 $11,227,341 $ (353,124) -
Dividends paid, common - - - (1,864,520) -
Distributable net income - - - 1,844,740 -
Change in unrealized
depreciation - - - (67,000) -
----------- -------- ----------- -----------
BALANCE AT
MARCH 31, 1994 665,900 6,659 11,227,341 (439,904) -
Dividends paid, common - - - (1,469,477) -
Distributable net income - - - 1,434,766 -
Sale of common stock 3,000 30 49,470 - -
Change in unrealized
depreciation - - - 52,000 -
----------- -------- ----------- -----------
BALANCE AT
MARCH 31, 1995 668,900 6,689 11,276,811 (422,615) -
Dividends paid, common - - - (735,790) -
Distributable net income - - - 1,306,657 -
Gain on preferred stock - - - - 6,002,100
Change in unrealized
depreciation - - - (120,000)
----------- -------- ----------- -----------
BALANCE AT
DECEMBER 31, 1995 668,900 $6,689 $11,276,811 $ 28,252 $6,002,100
=========== ======== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. ORGANIZATION
On February 3, 1989, Tri-Magna Corporation, a newly formed Delaware corporation,
(referred to as Tri-Magna or the Parent Company) and its subsidiary, Medallion
Funding Corp. (Medallion) entered into an Agreement and Plan of Share Exchange
(the Share Exchange). Tri-Magna and its wholly-owned subsidiaries Medallion,
F.A.P. Holding Corp. (FAP) and Medallion Taxi Media, Inc. (Media) are
collectively referred to as the Company. Under the Share Exchange, 100 shares
of common stock of the Parent Company were exchanged for each of the outstanding
shares of common stock of Medallion. On May 18, 1989, the Shareholders of
Medallion voted in favor of the Share Exchange Plan. This transaction was
accounted for as a pooling of interests.
The Parent Company was formed in January 1989 for the purpose of acquiring all
of the outstanding shares of Medallion common stock pursuant to the Share
Exchange. The Parent Company is a closed-end, diversified management investment
company registered under the Investment Company Act of 1940 (the 1940 Act), and
has elected to be treated as a regulated investment company under the Internal
Revenue Code of 1986.
Medallion was formed in 1979 for the purpose of operating as a Specialized
Small Business Investment Company (SSBIC), licensed, regulated and financed in
part by the U.S. Small Business Administration (SBA). Medallion was granted a
license to operate as a SSBIC by the SBA on June 23, 1980. On February 2, 1982,
Medallion registered as a closed-end, nondiversified investment company under
the 1940 Act.
On June 22, 1992, Medallion established a wholly-owned subsidiary, FAP. This
subsidiary was established for the purpose of acquiring and managing property
purchased in foreclosure from Medallion.
On August 23, 1994, Media, a New York corporation was formed. Media is engaged
in the outdoor media advertising business and is a wholly-owned subsidiary of
Tri-Magna.
The accompanying consolidated financial statements include the accounts of Tri-
Magna and Medallion after elimination of all intercompany amounts. (See Note 2)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company, which conform with generally
accepted accounting policies and accounting principles and procedures generally
accepted in the investment company industry, include the following:
Investments
- -----------
Medallion's investments consist primarily of long-term loans to persons defined
by SBA regulations as being socially or economically disadvantaged, or to
entities that are at least 50% owned by such persons. Approximately 73% and 68%
of Medallion's loan portfolio at December 31, 1994, and 1995, respectively, has
arisen in connection with the financing of taxicab medallions, taxicabs and
related assets, substantially all in the metropolitan New York area. These
loans are secured by the medallions, taxicabs and related assets, and are
personally guaranteed by the borrowers, or in the case of corporations,
personally guaranteed by the owners. The remaining portion of Medallion's
portfolio represents loans to various commercial enterprises, including dry
cleaners, garages, gas stations and laundromats. These loans are secured by
various equipment and/or real estate and are generally guaranteed by the owners,
and in certain cases, by the equipment dealers. These loans are made primarily
in the metropolitan New York City area.
F-21
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments (continued)
- -----------
Tri-Magna began funding loans in March 1995. Since then Tri-Magna has funded 50
loans totaling $4,252,569; of this amount, Tri-Magna participated out a total of
$2,538,721.
Under the 1940 Act, the Company's long-term loans are considered investments and
are recorded at their fair value. Since no ready market exists for these loans,
fair value is determined by the Board of Directors in good faith. In
determining fair value, the directors take into consideration the financial
condition of the borrower, the adequacy of the collateral, and the relationships
between market rates and portfolio rates. Loans were valued at cost, less
unrealized depreciation of $770,000 and $910,000 at December 31, 1994 and 1995,
respectively. The directors have determined that this valuation approximates
fair value.
The principal portion of loans serviced for others by the Company at December
31, 1994 and 1995 amounted to approximately $3,967,690 and $15,799,777.
The Company offsets loan origination fees against related direct loan
origination costs. The net amount is deferred and amortized over the life of
the loan in accordance with the Statement of Financial Accounting Standards No.
91 (SFAS No. 91), "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases" which
addresses the accounting by creditors for initial fees and costs associated with
the origination of loans. At December 31, 1994 and 1995, the net deferred asset
totaled $83,541 and $293,400, respectively. Amortization expense was $22,117
and $28,807 for the nine months ended December 31, 1994 and 1995, respectively.
Investment in Unconsolidated Subsidiary
- ---------------------------------------
Tri-Magna owns 100% of the outstanding stock of Media. Tri-Magna' investment in
Media is accounted for under the equity method because as a non investment
company, Media, can not be consolidated with an investment company, Tri-Magna.
Financial information for Media is summarized as follows:
<TABLE>
<CAPTION>
Balance sheet December 31, Statement of operations Period ended December 31,
- ------------- ------------ -----------------------
1995 1995 1994 1995
-------- -------- ---- ----
<S> <C> <C> <C> <C> <C>
Cash $ 6,193 $ - Advertising revenue $227,756 $1233,477
Accounts Receivable 211,500 214,238 Cost of services 83,341 409,214
-------- ---------
Equipment, net 214,042 559,786 Gross Margin 144,415 824,263
Other 23,625 55,720 Other operating expenses 126,036 650,336
-------- -------- -------- ---------
Total Assets $455,360 $829,744 Income before taxes 18,379 173,927
======== ========
Income taxes - 79,015
-------- ---------
Notes Payable 275,000 275,000 Net income $ 18,379 $ 94,912
======== =========
Accrued expenses 160,981 409,409
-------- --------
Total Liabilities $435,981 $684,409
======== ========
Common Stock $ 1,000 $ 1,000
Retained earnings 18,379 144,335
-------- --------
Total equity $ 19,379 $145,335
======== ========
</TABLE>
On March 8, 1995, Tri-Magna guaranteed a demand loan for Media. At December 31,
1995, $275,000 was outstanding at an interest rate of 10.25%. The loan matures
on March 4, 1996, and can be extended at the option of the bank and acceptance
of both Tri-Magna and Media.
F-22
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Federal Income Taxes
- --------------------
It is the Company's policy to comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies, which require the Company to
distribute at least 90% of its investment company taxable income to its
shareholders. Therefore, no provision for federal income tax has been made.
FAP and Media have elected to be taxed as regular corporations and, at the nine
months ended December 31, 1995 recorded a provision for income taxes totaling
approximately $79,000. This amount has been reflected in equity in earnings of
unconsolidated subsidiary on the accompanying consolidated statement of
operations.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
3. NOTES PAYABLE TO BANKS
At December 31, 1995, the Company had outstanding bank borrowings under the
following agreements:
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
Description 1995
------------------------------------------------------------
<S> <C>
Revolving Credit Agreement $73,150,000
Term Loan Agreements 5,231,900
Short Term Note 1,913,000
-----------
Total $80,294,900
===========
</TABLE>
Borrowings under these agreements are secured by all assets of the Company.
Revolving Credit Agreement
- --------------------------
On March 27, 1992 (and as subsequently amended), the Company entered into a
committed revolving credit agreement (the Revolver) with a group of banks. The
Company extended the Revolver until September 30, 1996 at an aggregate credit
commitment amount of $78,000,000 pursuant to the Renewal and Extension Agreement
dated September 29, 1995. The Revolver may be extended annually thereafter upon
the option of the participating banks and acceptance by the Company. Should any
participating bank not extend its committed amount, the Revolver agreement
provides that each bank shall extend a term loan equal to its share of the
principal amount outstanding of the revolving credit note. Maturity of the term
note shall be the earlier of two years or any other date on which it becomes
payable in accordance with the Revolver agreement. Interest and principal
payments are to be made monthly. Interest is calculated monthly at either the
bank's prime rate or a rate based on the adjusted London Interbank Offered
(LIBO) rate at the option of the Company. Substantially all promissory notes
evidencing the Company's investments are held by a bank, as collateral agent
under the agreement. The Company is required to pay an annual facility fee of
1/4% effective prospectively as of March 28, 1995 on the Revolving Credit
Agreement aggregate commitment. For the nine
F-23
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(Continued)
3. NOTES PAYABLE TO BANKS (continued)
Revolving Credit Agreement (continued)
- --------------------------
months ended December 31, 1994 and up through March 27, 1995, the Company was
required to pay an annual facility fee of 3/8%. Additionally, effective
prospectively as of September 29, 1995, the Company is required to pay an
additional annual fee of $62,500.
Term Loan Agreements
- --------------------
At December 31, 1994 and 1995, the Company had borrowed a total of $2,000,000
under a term loan agreement (Term Loan) with a bank. The $2,000,000 was
outstanding at December 31, 1994 and 1995. During fiscal year 1995, the fixed
interest rate of 5.88% was increased to 7.5%. Interest payments are due
quarterly. The total term borrowings outstanding at December 31, 1995 under
this agreement are due in July 1997.
On September 29, 1995, Tri-Magna entered into a $3,231,900 term loan with a
certain bank maturing on March 31, 1996. Interest is paid monthly at the prime
rate. The loan is secured by all assets of Tri-Magna. The proceeds of this
loan were invested in Medallion as a capital contribution to facilitate the
repurchase of it's preferred stock from the SBA. (See Note 5)
Short-Term Note
- ---------------
On December 19, 1994, Tri-Magna entered into a demand promissory note (Demand
Note) with a certain bank. On September 1, 1995 the Demand Note was converted
into a $2,000,000 short-term secured note (Short-Term Note) which matures on
August 31, 1996. Interest is calculated monthly at either the bank's prime rate
or a rate based upon the adjusted LIBO rate at the option of the Company.
Substantially all promissory notes evidencing Tri-Magna's investments are
pledged to the bank as collateral. The Company is required to pay an annual
facility fee of 1/4% effective prospectively as of September 29, 1995 on the
aggregate amount of the note. Outstanding borrowings under the Short-Term Note
were $1,913,000 at December 31, 1995.
Interest Rate Cap Agreements
- ----------------------------
In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 119 (SFAS 119), "Disclosures about Derivative Financial Instruments and Fair
Value of Financial Instruments," which is effective for fiscal years ending
after December 15, 1995. SFAS No. 119 requires certain disclosures about
derivative financial instruments including futures, forward swaps, interest rate
cap agreements, and other financial instruments with similar characteristics.
On July 15, 1992, the Company entered into two interest rate cap agreements to
reduce the impact of changes in interest rates on its floating long-term debt.
These agreements limit the Company's maximum LIBO interest rate exposure on
$10,000,000 of its revolving credit facility to 6%. The premiums paid in under
these agreements was $69,000 and $69,750, respectively. The premiums were
capitalized and were amortized over the three-year term of the agreements, with
both agreements terminating on July 17, 1995. Amortization related to these
agreements was included in interest expense in the accompanying consolidated
statements of operations.
F-24
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(Continued)
3. NOTES PAYABLE TO BANKS (continued)
Interest Rate Cap Agreements (continued)
- ----------------------------
On April 7, 1995, the Company entered into three interest rate cap agreements to
reduce the impact of changes in interest rates on its floating rate long-term
debt. These agreements limit the Company's maximum LIBO interest rate exposure
on $20,000,000 of its revolving credit facility to 7.5%. The premiums paid
under these agreements were $46,875, $31,000 and $46,687, respectively. The
premiums have been capitalized and are being amortized over the two-year term of
the agreements, which expires on April 7, 1997. The Company is exposed to
credit loss in the event of nonperformance by the counterparties on these
interest rate cap agreements. The Company does not anticipate nonperformance by
any of these parties.
On November 16, 1995, the Company entered into three additional interest rate
cap agreements to reduce the impact of changes in interest rates on its floating
rate long-term debt. These agreements limit the Company's maximum LIBO interest
rate exposure on an additional $20,000,000 of its revolving credit facility to
7.5%. The premiums paid under these agreements were $13,000, $25,000 and
$12,500, respectively. The premiums have been capitalized and are being
amortized over the two-year term of the agreements, which expires on November
16, 1997. The Company is exposed to credit loss in the event of nonperformance
by the counterparties on these interest rate cap agreements. The Company does
not anticipate nonperformance by any of these parties.
4. INDEBTEDNESS TO THE SMALL BUSINESS ADMINISTRATION
Indebtedness to the Small Business Administration is comprised of the
following long-term subordinated debentures at December 31, 1994:
<TABLE>
<CAPTION>
December 31,
Description 1994
----------- --------------
<S> <C>
9-3/8% interest only, payable semiannually,
principal due January 9, 1996 $ 2,000,000
7-3/8% interest only, payable semiannually,
principal due May 15, 1996 2,000,000
9-1/8% interest only, payable semiannually,
principal due October 17, 1998 2,000,000
Demand Note 1,000,000
Demand Note 1,500,000
Demand Note 4,000,000
-----------
$12,500,000
===========
</TABLE>
On January 23, 1991, a $1,000,000 subordinated debenture matured and was
converted to the $1,000,000 demand note. On September 27, 1992, a $1,500,000
subordinated debenture matured and was converted to the $1,500,000 demand note.
On September 19, 1993, a $4,000,000 subordinated debenture matured and was
converted to the $4,000,000 demand note. The interest rate on all three demand
notes was 7.1% at December 31, 1994. All the outstanding debentures were paid
in full on September 29, 1995 and the SBA has removed all restrictions on third
party debt.
F-25
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(Continued)
5. OTHER LIABILITIES
At December 31, 1994 the Company's minority interest consisted of 3%
cumulative, preferred nonvoting stock of Medallion, with a par value of $1,000
per share, which Medallion had sold to the SBA. The preferred stock dividend
of Medallion is reflected as a dividend on preferred stock in the
accompanying consolidated statements of operations. The Small Business
Administration imposes certain restrictions on transfers of stock and payments
of dividends by its licensees.
On September 29, 1995, Medallion repurchased and retired all of its 3%
preferred stock owned by the SBA at a discount of 65%, under a SBA preferred
stock repurchase agreement. The effective date of the buyback was
August 12, 1994. The purchase price of the preferred stock was $3,231,900. The
amount of the discount, $6,002,100 was recorded as an increase in capital in an
account separate from other paid-in capital accounts, as restricted capital
surplus account. Under the repurchase agreement, the SBA retains a liquidating
interest in the amount of the discount or gain on the repurchase, which expires
on a straight line basis over five years or on a later date if an event of
default, as defined in the agreement, has occurred and such default has been
cured or waived. Upon the occurrence of any event of default, the SBA's
liquidating interest will become fixed at the level immediately preceding the
event of default and will not amortize further until the default is cured or
waived. In the event of Medallion's liquidation, the unexpired portion of the
liquidating interest becomes immediately payable to the SBA.
At December 31, 1995, the unaccredited amount of the SBA's liquidating interest
in the restricted capital surplus was $4,351,523.
6. COMMON STOCK
On July 20, 1994, the Board of Directors of the Company voted to rescind the
issuance of 3,000 shares of common stock approved on April 19, 1994, and
approved the sale of 3,000 shares of common stock at a price of $16.50 per
share. The sale of the stock was completed in November 1994.
On December 21, 1995, the Company entered into a merger agreement with
Medallion Financial Corp. Under the agreement, subject to the approval of the
shareholders, the shareholders will sell to, and Medallion Financial Corp. will
purchase, all of the outstanding shares of capital stock of the Company for a
purchase price of $20.00 per share.
Direct costs associated with the merger agreement with Medallion Financial
Corp. are deferred by the Company. For the year ended December 31, 1995,
direct costs totaled approximately $475,000 and are included in other assets.
These costs will be recognized in the period the merger occurs. As discussed
in Note 5, under the terms of the preferred stock repurchase agreement with the
SBA, a change in ownership of the Company would result in the unexpired portion
of the liquidating interest becoming payable to the SBA. The transaction with
Medallion Financial Corp. is subject to SBA approval. It is anticipated that
such approval will include a waiver of this provision.
In accordance with Statement of Position 93-2, Determination, Disclosure and
Financial Statement Presentation of Income Capital Gain, and Return of Capital
Distributions by Investment Companies, 819,473 has been reclassified in excess
of par value to accumulated undistributed income on the accompanying
consolidated balance sheets. This reclassification has no impact on the
Company's total shareholder's equity and is designed to present the Company's
capital accounts on a tax basis.
F-26
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(Continued)
7. REALIZED LOSSES (GAINS) AND UNREALIZED DEPRECIATION ON INVESTMENTS
A summary of realized losses and unrealized depreciation on investments as of
and for the twelve months ended December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Nine months ended December 31,
Unrealized Depreciation 1995 1994
----------------------- ---- ----
<S> <C> <C>
Balance at Beginning of $(790,000) $(842,000)
Period
Change in Unrealized (120,000) 72,000
Depreciation --------- ---------
Balance at End of Period $(910,000) $(770,000)
========= =========
</TABLE>
For the twelve months ended December 31, 1995 and 1994, realized losses(gains)
were $(56,804) and $36,151, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company maintains two defined contribution employee benefit plans, the
Medallion Funding Corp. Pension Plan and the Medallion Funding Corp. Profit-
Sharing Retirement Plan, under which substantially all Tri-Magna and Medallion
employees and officers are covered. The Company's management acts as trustee
of both plans. At year end, the Company has no obligation for post-retirement
or post-employment agreements.
Under the noncontributory pension plan, the Company contributes up to 10% of
each participant's annual compensation. Under the profit-sharing plan,
voluntary employee contributions as well as Company contributions are allowed.
The Company's policy is to fund pension costs accrued.
Total employer contributions to both plans are limited to the lesser of 10% of
each participant's compensation or $10,000 for the nine months ended December
31, 1995 and 1994.
The expense for employee benefit plans was approximately $49,000 and $86,000,
for the nine months ended December 31, 1995 and 1994, respectively.
9. TRANSACTIONS WITH RELATED PARTIES
Certain officers and directors of Medallion are also shareholders of Tri-Magna.
Officers' salaries are set by the Board of Directors. Directors who are not
officers receive a fee of $1,000 per meeting. Directors who are members of
committees receive $500 for each meeting attended. Directors who are members
of the independent committee receive $1,000 for each meeting attended. One
loan receivable has been guaranteed by a related party.
F-27
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(Continued)
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Company's unfunded commitments were approximately
$2,447,800 for 35 loans that will bear interest at rates ranging from 9% to
16%.
In September 1987, the Company entered into a 10-year lease for its executive
and general offices. The lease calls for an annual rental of approximately
$140,000, subject to certain escalation clauses. During the twelve months
ended December 31, 1995 and 1994, rental expenses totaled $146,000 and $142,000
respectively, and are included in other operating expenses.
The Company is a party to various legal proceedings arising from the normal
course of business, none of which, in management's opinion, is expected to have
a material adverse impact on the Company's financial position or results of
operations.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About
Fair Value of Financial Instruments, which is effective for the Company as of
fiscal ending December 31, 1995, requires disclosure of fair value information
about certain financial instruments, whether assets, liabilities or off-balance
sheet commitments, if practicable. The following methods and assumptions were
used to estimate the fair value of each class of financial instruments. Where
quoted market prices are not available, fair values are based on estimate using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows.
In addition, SFAS 107 excludes certain financial instruments and all non-
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented does not represent the underlying value
of the Company.
(a) Investments - As described in Note 2, the carrying amount of investments is
the estimated fair value of such investments.
(b) Notes payable to banks and demand notes - Due to the short-term nature of
these instruments, the carrying amount approximates fair value.
(c) Commitments to Extend Credit - The fair value of commitments to extend
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between the current
levels of interest rates and the committed rates. At December 31, 1995, the
estimated fair value of these off-balance sheet instruments was not material.
(d) Interest Rate Cap Agreements - The fair value is estimated based on market
prices or dealer quotes. At December 31, 1995, the estimated fair value of
these off-balance sheet instruments was not material.
F-28
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(Continued)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------
Carrying Amount Fair Value
--------------- -----------
<S> <C> <C>
Financial Assets:
Investments $96,046,416 $96,046,416
Cash 1,177,166 1,177,166
Financial Liabilities:
Notes payable to banks and demand notes 80,294,900 80,294,900
</TABLE>
12. SUBSEQUENT EVENT
On January 22, 1996, the Company declared a dividend on common stock of $.35
per share, payable on January 29, 1996 to the shareholders of record as of
January 22, 1996. Medallion also declared a dividend of $80 per share on
common stock payable on January 22, 1996 to the Parent Company for purposes of
funding the Company's dividend.
On March 15, 1996, the Board of Directors of Medallion Funding Corp. voted to
terminate the Medallion Funding Corp. Pension Plan to be effective as of March
31, 1996. No benefits will accrue and no contributions will be made by the
Company for service after that date.
F-29
<PAGE>
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER
OF BALANCE INTEREST RANGE OF
LOANS OUTSTANDING - $ RATE - % MATURITY DATES
------ --------------- ---------- --------------
<S> <C> <C> <C>
1 77,550 5.000 3/1/00
1 24,082 7.000 7/1/98
18 3,715,031 8.000 3/1/97 - 1/1/09
3 298,833 8.250 1/1/98
21 3,279,235 8.500 5/1/96 - 5/1/00
9 1,331,792 8.750 2/1/97 - 7/1/99
56 8,152,656 9.000 12/31/95 - 7/1/04
70 7,111,900 9.250 5/1/96 - 9/1/10
116 13,814,980 9.500 12/31/95 - 1/1/06
2 120,696 9.625 8/1/96 - 8/1/04
24 2,677,911 9.750 7/1/96 - 12/1/99
150 12,175,743 10.000 12/31/95 - 12/1/04
33 3,207,015 10.250 12/1/96 - 9/1/02
1 130,055 10.375 2/1/00
41 4,181,332 10.500 7/1/96 - 1/1/03
31 2,959,616 10.750 3/1/99 - 8/1/02
1 65,064 10.900 11/1/99
41 3,930,343 11.000 12/31/95 - 8/1/03
3 194,996 11.250 6/1/96 - 10/1/98
4 257,395 11.500 1/1/97 - 2/1/99
2 162,483 11.750 4/1/96 - 9/1/99
58 4,260,742 12.000 12/31/95 - 10/1/03
9 490,107 12.500 12/31/95 - 7/1/00
3 333,757 12.750 1/1/97-9/1/00
1 72,605 12.950 1/1/99
96 5,426,944 13.000 12/31/95 - 2/1/04
3 630,453 13.250 6/1/96 - 2/1/00
20 1,114,053 13.500 1/1/99 - 7/1/02
2 47,009 13.750 2/1/98 - 1/1/99
1 13,517 13.870 9/1/96
86 4,316,872 14.000 6/1/96 - 10/1/02
1 41,995 14.050 1/1/01
1 47,046 14.200 6/1/00
1 8,181 14.250 12/1/98
1 16,166 14.300 5/1/99
15 1,000,341 14.500 12/1/96 - 4/1/02
1 32,625 14.750 11/1/00
6 194,802 14.840 6/1/99 - 10/1/00
206 9,123,581 15.000 12/31/95 - 9/1/02
8 723,762 15.200 3/1/99 - 2/1/01
8 250,164 15.250 12/31/95-6/1/98
7 134,764 15.500 2/1/96-7/1/99
1 1,419 15.625 2/1/96
1 100,239 15.750 7/1/89
8 289,662 16.000 1/1/96-12/1/00
1 10,712 16.250 3/1/96
2 2,886 16.500 12/31/95-1/1/96
1 47,990 16.750 7/1/89
2 61,914 18.000 9/1/97-11/1/00
- ------
TOTAL: 1178 $96,663,016
Plus: Loan Origination Costs, Net 293,400
Total investments at Cost 96,956,416
-----------
Less-Unrealized depreciation
on investments (910,000)
-----------
Total investments at directors'
valuation $96,046,416
===========
</TABLE>
F-30
<PAGE>
EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER dated as of December 21, 1995 is between
Medallion Financial Corp. ("MFC"), a Delaware corporation, and Tri-Magna
Corporation ("TMC"), a Delaware corporation.
WITNESSETH
WHEREAS, TMC is a closed-end, management investment company,
registered under the Investment Company Act of 1940 (the "Act"), and owns all
the outstanding common stock of Medallion Funding Corp. ("Medallion Funding"), a
New York corporation licensed as a Specialized Small Business Investment Company
(an "SSBIC") and registered as a closed-end investment company under the Act,
and Medallion Taxi Media, Inc., a New York corporation providing taxicab rooftop
advertising (collectively, the "Subsidiaries").
WHEREAS, MFC is a private company organized by certain directors and
officers of TMC to be a diversified, closed-end, management investment company,
which desires to acquire TMC as part of a plan involving the acquisition by MFC
of other companies and a public offering of the common stock of MFC to fund each
such acquisition, and TMC desires to be so acquired;
WHEREAS, the acquisition will take the form of a merger of TMC with
and into MFC on the terms and subject to the conditions set forth in this
Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein, the parties hereto
agree as follows:
SECTION 1 - THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof,
----------
and in accordance with the Delaware General Corporation Law (the "DGCL"), TMC
shall be merged with and into MFC (the "Merger"). The Merger shall occur at the
Effective Time (as defined herein). Following the Merger, MFC shall continue as
the surviving corporation (the "Surviving Corporation"), and the separate
corporate existence of TMC shall cease.
1.2 Effective Time. As soon as practicable after satisfaction or
--------------
waiver of all conditions to the Merger, the parties shall cause a certificate of
merger (the "Certificate of Merger") to be filed and recorded in accordance with
Section 251 of the DGCL and shall take all such further actions as may be
required by law to make the Merger effective. The
A-1
<PAGE>
Merger shall be effective at such time as the Certificate of Merger is filed
with the Secretary of State of Delaware in accordance with the DGCL or at such
later time as is specified in the Certificate of Merger (the "Effective Time").
Immediately prior to the filing of the Certificate of Merger, a closing (the
"Closing") will be held at the offices of Palmer & Dodge, One Beacon Street,
Boston, Massachusetts (or such other place as the parties may agree) for the
purpose of confirming satisfaction or waiver of all conditions to the Merger.
The Closing shall take place within five business days after the satisfaction or
waiver of all conditions to the Merger (other than those to be performed at the
Closing).
1.3 Effects of the Merger. The Merger shall have the effects set
---------------------
forth in Sections 259, 260 and 261 of the DGCL.
1.4 Certificate of Incorporation and Bylaws. The Certificate of
---------------------------------------
Incorporation and By-laws of MFC, in each case as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation immediately after the Effective Time.
1.5 Directors and Officers. The directors and officers of MFC
----------------------
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation immediately after the Effective Time, each to hold
office in accordance with their respective terms.
1.6 Conversion of Stock.
-------------------
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of MFC or TMC.
(i) Each share of common stock, $.01 par value, of TMC ("TMC
Stock") outstanding immediately prior to the Effective Time, other than (A)
shares held by TMC as treasury stock or shares held by any subsidiary of TMC and
(B) Dissenting Shares (as defined in Section 1.8), shall be converted into and
become the right to receive $20.00 in cash (the "Merger Consideration").
(ii) Each share of common stock, $.01 par value, of MFC ("MFC
Stock") outstanding immediately prior to the Effective Time shall remain
outstanding as common stock of the Surviving Corporation.
1.7 Closing of TMC Transfer Books. At the Effective Time, the stock
-----------------------------
transfer books of TMC shall be closed and no transfer of TMC Stock shall
thereafter be made. If, after the Effective Time, certificates representing
shares of TMC Stock are presented to the Surviving Corporation, they shall be
cancelled and exchanged for the Merger Consideration.
1.8 Dissenting Shares.
-----------------
A-2
<PAGE>
(a) Shares of TMC Stock held by a stockholder who has properly
exercised dissenter's rights with respect thereto in accordance with Section 262
of the DGCL (collectively, the "Dissenting Shares") shall not be converted into
Merger Consideration. From and after the Effective Time, a stockholder who has
properly exercised such dissenter's rights shall no longer retain any rights of
a stockholder of TMC or the Surviving Corporation, except those provided under
the DGCL.
(b) TMC shall give MFC (i) prompt notice of any written demands under
Section 262 of the DGCL with respect to any shares of TMC Stock, any withdrawal
of any such demands and any other instruments served pursuant to the DGCL and
received by TMC and (ii) the right to participate in all negotiations and
proceedings with respect to any demands under Section 262 with respect to any
shares of TMC Stock. TMC shall cooperate with MFC concerning, and shall not,
except with the prior written consent of MFC, voluntarily make any payment with
respect to, or offer to settle or settle, any such demands.
1.9 Exchange of TMC Stock. To effect the exchange of TMC Stock
---------------------
for the Merger Consideration:
(a) MFC to Make Merger Consideration Available. At or prior to the
------------------------------------------
Closing, MFC shall deposit, or shall cause to be deposited, with a bank or trust
company selected by MFC (and reasonably acceptable to TMC) (the "Exchange
Agent"), for the benefit of the holders of certificates of TMC Stock (the
"Certificates"), for exchange in accordance with this Section 1.9, cash which
constitutes the Merger Consideration (such cash being hereinafter referred to as
the "Exchange Fund") to be paid pursuant to this Agreement in exchange for
outstanding shares of TMC Stock. The Exchange Fund may be invested for the
benefit of MFC only in short-term securities with maturities adequate to make
payments upon surrender of the Certificates in the form of "sweep" funds of the
Exchange Act, U.S. Government obligations or repurchase agreements secured by
U.S. Government obligations.
(b) Exchange Procedures.
-------------------
(i) As soon as practicable after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each holder of
record of a Certificate or Certificates at the Effective Time a form letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) containing instructions for use in effecting
the surrender of the Certificates. TMC shall have the right to approve the form
of the letter of transmittal, which approval shall not unreasonably be withheld.
(ii) Upon surrender of a Certificate for exchange and
cancellation to the Exchange Act, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor a check representing the
amount of cash which such holder has the right to receive in respect of the
Certificate surrendered pursuant to the provisions of this Agreement
A-3
<PAGE>
and the Certificate so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on the cash payable to holders of Certificates.
(iii) Any portion of the Exchange Fund that remains unclaimed by
the stockholders of TMC for 180 days after the Closing Date shall be paid to the
Surviving Corporation. Any stockholders of TMC who have not theretofore complied
with this Section 1.9 shall thereafter look only to the Surviving Corporation
for payment of their cash in respect of each share of TMC Stock such stockholder
holds as determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of MFC, TMC, the Surviving
Corporation, the Exchange Agent nor any other person shall be liable to any
former holder of shares of TMC Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(iv) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate, the cash deliverable
in respect thereof pursuant to this Agreement.
1.10 No Stockholder Liabilities. The transactions contemplated under
--------------------------
this Agreement will be without recourse to the stockholders of TMC, and upon
consummation of the Merger, the TMC's stockholders will have no obligation or
liabilities of any kind to MFC with respect to this Agreement or the Merger.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TMC
Except as set forth on the disclosure schedule delivered to MFC on the
date hereof (the "Disclosure Schedule"), the section numbers of which are
numbered to correspond to the section numbers of this Agreement to which they
refer, TMC represents and warrants to MFC as set forth below:
2.1 Organization and Qualification. Each of TMC and the Subsidiaries
------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation and has full corporate power and lawful
authority to own, lease and operate its assets, properties and business and to
carry on its business as now being and as heretofore conducted. Each of TMC and
the Subsidiaries is qualified or is otherwise authorized to transact business as
a foreign corporation in each jurisdiction (in the United States and outside of
the United States) in which such qualification or authorization is required by
law, all of which jurisdictions are identified on the Disclosure Schedule.
A-4
<PAGE>
2.2 Subsidiaries and Other Affiliates. Except for the Subsidiaries,
---------------------------------
TMC does not have any subsidiary or directly or indirectly own or have any
investment in any of the capital stock of, or any other interest in, and is not
a party to a partnership or joint venture with, any other person or entity.
Section 2.2 of the Disclosure Schedule correctly sets forth the authorized
capital stock of each Subsidiary, the number of shares outstanding and the
number of shares held by TMC and by the U.S. Small Business Administration (the
"SBA"). All the shares of capital stock or other ownership interest of a
Subsidiary that are owned by TMC are owned free and clear of any liens, claims,
charges, restrictions or other encumbrances ("Encumbrances"). There is no
agreement to which TMC or any Subsidiary is subject with respect to the
issuance, sale, or voting of issued or unissued shares of the capital stock of
such Subsidiary.
2.3 Capitalization. TMC's authorized capital stock consists of
--------------
1,000,000 shares of common stock, $.01 par value, of which 668,900 shares have
been issued and are outstanding as of the date hereof. All the issued and
outstanding shares of the TMC Stock and the capital stock of each Subsidiary
have been duly authorized and validly issued and are fully paid and non-
assessable, free of any preemptive right, and with no personal liability
attaching to the ownership thereof. There are no options, warrants, calls,
preemptive rights or commitments of any character relating to the authorized but
unissued capital stock or treasury stock or any other equity security of TMC or
any Subsidiary or any securities or obligations convertible into or exchangeable
for or giving any person any right to subscribe for or acquire from TMC or any
Subsidiary any shares of the capital stock of TMC or any Subsidiary, nor are
there any stock appreciation rights, limited rights or other similar rights or
obligations of TMC or any Subsidiary exercisable upon any circumstance,
including upon a change in control of TMC or any Subsidiary.
2.4 Authority to Execute and Perform Agreements. TMC has the full
-------------------------------------------
legal right and power and, subject to the approval of the Merger by the
stockholders of TMC and to the receipt of all Required Approvals (as defined in
Section 2.7) all authority and approvals required to enter into, execute and
deliver this Agreement and each agreement, document and instrument contemplated
by this Agreement, to consummate the transactions contemplated hereby and
thereby and to perform fully its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and each such other
agreement, document and instrument and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of TMC and by a special committee of such Board consisting of
directors unaffiliated with MFC (the "Special Committee") and, except for the
approval of the TMC stockholders, no other corporate proceedings are necessary
to consummate the Merger. The Special Committee has received the opinion, dated
within five business days prior to the date of the Board of Director's and
Special Committee's authorization, of Gruntal & Co., Incorporated to the effect
that the Merger is fair to the holders of TMC Stock from a financial point of
view, and such opinion (a copy of which has been delivered to MFC) has not been
withdrawn, revoked or modified. This Agreement and each agreement, document and
instrument executed and delivered
A-5
<PAGE>
pursuant to this Agreement constitutes, or when executed and delivered will
constitute, valid and binding obligations of TMC, enforceable in accordance with
their terms.
2.5 Financial Statements. TMC has previously delivered to MFC the
--------------------
audited consolidated financial statements of TMC at and for the fiscal year
ended March 31, 1995 (the "Audited Financial Statements") and the unaudited
consolidated balance sheet of TMC and related statements of operations and cash
flows at and for the six month period ended September 30, 1995 (the "Current
Financial Statements'). Prior to the Closing, pursuant to Section 4.1.1, TMC
will deliver to MFC the unaudited consolidated balance sheet of TMC and related
statements of operations and cash flow at and for the period ended on a date not
more than thirty days prior to the Closing Date (the "Updated Financial
Statements"). All of the foregoing are referred to collectively as the "TMC
Financial Statements". The TMC Financial Statements have been (or will be)
prepared in accordance with generally accepted accounting principles applied
consistently with past practices and present (or will present) fairly the
consolidated financial position and results of operation of TMC as of the date
and for the period indicated.
2.6 No Material Adverse Change. Since September 30, 1995, there has
--------------------------
not been any material adverse change in the assets, liabilities, condition
(financial or otherwise), results of operation, business or prospects of TMC or
any of the Subsidiaries or any occurrence or circumstance which reasonably could
be expected to result in such a material adverse change.
2.7 Consents; No Breach. The execution, delivery and performance
-------------------
of this Agreement and the consummation of the transactions contemplated hereby
will not (i) violate any provision of the Certificate of Incorporation or By-
laws of TMC or any Subsidiary; (ii) violate, conflict with or result in the
breach of any of the terms or conditions of, result in modification of the
effect of, or otherwise give any other contracting party the right to terminate,
or constitute (or with notice or lapse of time or both constitute) a default
under, any instrument, contract or other agreement to which TMC or any
Subsidiary is a party or to which TMC or any Subsidiary or any of its assets or
properties is bound or subject; (iii) violate any statute, law or regulation of
any jurisdiction or any order, judgment, injunction, award or decree of any
court, arbitrator or governmental or regulatory body applicable to or binding
upon TMC or any Subsidiary or its securities, properties, assets or business;
(iv) violate any license, permit or approval of any governmental or regulatory
body, including without limitation the SBA; (v) require any filing with, notice
to, or approval or consent of any foreign, federal, state, local or other
governmental or regulatory body or any other person or entity other than those
set forth on Section 2.7 of the Disclosure Schedule (the "Required Approvals");
(vi) result in the creation of any Encumbrance on the assets or properties of
TMC or any Subsidiary; or (vii) give rise to any obligation to make any payment
or give rise to any other obligation to the SBA under agreements or arrangements
pertaining to the shares of Medallion Funding's Preferred Stock held by the SBA.
A-6
<PAGE>
2.8 Actions and Proceedings. There are no outstanding orders,
-----------------------
judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving TMC or any
Subsidiary or any of its securities, assets, or properties and no actions, suits
or claims or legal, judicial, administrative or arbitral proceedings or, to the
best knowledge of TMC, investigations (whether or not the defense thereof or
liabilities in respect thereof are covered by insurance) pending or, to the best
knowledge of TMC, threatened, against or involving TMC or any Subsidiary
challenging the validity or propriety of any of the transactions contemplated by
this Agreement.
2.9 Certain Transactions. TMC acknowledges that it has been informed
--------------------
that (i) Alvin Murstein, an officer, director and stockholder of Tri-Magna, and
Andrew Murstein, an employee and stockholder of Tri-Magna, are affiliates of MFC
and (ii) upon the Closing, Myron Cohen, Robert Fanger and Michael Miller, who
are officers, directors and stockholders of TMC, may, directly or through an
entity owned by them, enter into an advisory agreement with MFC, pursuant to
which they or their entity may receive payments from MFC of $900,000, payable in
cash, or such other amounts as MFC and such persons, may agree.
2.10 Brokerage. No broker, finder, agent or similar intermediary has
---------
acted on behalf of TMC in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with, or any action taken by TMC or any
Subsidiary.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC
MFC represents and warrants to TMC as follows:
3.1 Organization. MFC is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its assets and to carry
on its business as now being and as heretofore conducted.
3.2 Authority to Execute and Perform Agreement. MFC has the
------------------------------------------
corporate power and authority required to enter into, execute and deliver this
Agreement and each agreement, document and instrument delivered by MFC pursuant
to this Agreement and to perform fully its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each such other agreement,
document and instrument and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of MFC. This Agreement and each agreement, document and instrument
executed and delivered pursuant to this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of MFC, enforceable
in accordance with their terms.
A-7
<PAGE>
3.3 Consents; No Breach. All consents, permits, authorizations and
-------------------
approvals from any person or entity that are required pursuant to applicable
law, or agreement or otherwise in connection with the execution, delivery and
performance of this Agreement by MFC have been, or will be prior to the Closing,
obtained. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) violate any
provision of the Certificate of Incorporation or By-laws of MFC; (ii) violate,
conflict with or result in the breach of any of the terms or conditions of,
result in modification of the effect of, or otherwise give any other contracting
party the right to terminate, or constitute (or with notice or lapse of time or
both constitute) a default under, any instrument, contract or other agreement to
which MFC is a party or to which MFC or any of its assets or properties is bound
or subject; or (iii) violate any statute, law or regulation of any jurisdiction
or any order, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body applicable to or binding upon MFC or its
securities, properties, assets or business.
3.4 Actions and Proceedings. There are no outstanding orders,
-----------------------
judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal, against or involving MFC and no
actions, suits or claims or legal, judicial, administrative or arbitral
proceedings or, to the best knowledge of MFC, investigations (whether or not the
defense thereof or liabilities in respect thereof are covered by insurance)
pending or, to the best knowledge of MFC, threatened, against or involving MFC
challenging the validity or propriety of any of the transactions contemplated by
this Agreement.
3.5 Brokerage. No broker, finder, agent or similar intermediary has
---------
acted on behalf of MFC in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with or any action taken by MFC.
SECTION 4 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
4.1 Conduct of Business. Except with the prior written consent of
-------------------
MFC or as otherwise contemplated herein, during the period from the date hereof
to the Closing Date, TMC shall observe the following covenants:
4.1.1 Affirmative Covenants Pending Closing.
-------------------------------------
TMC will and, to the extent applicable, will cause each Subsidiary to:
A-8
<PAGE>
(i) Preservation of Personnel. Use its best efforts to preserve
-------------------------
intact the business organization of TMC and each Subsidiary and keep
available the services of the present employees of TMC and each Subsidiary;
(ii) Insurance. Keep in effect casualty, public liability,
---------
worker's compensation and other insurance policies in amount and scope of
coverage comparable to those in effect at the date of this Agreement;
(iii) Preservation of the Business; Maintenance of Properties,
--------------------------------------------------------
Contracts. Use its best efforts to preserve its business, advertise,
---------
promote and market its services in accordance with past practices, keep its
properties intact, preserve its goodwill, maintain all physical properties
in good condition and working order and in such operating condition as will
permit the continued conduct of the business of TMC and each Subsidiary on
a basis consistent with past practice, and perform and comply in all
material respects with the terms of all contracts and agreements which are
material to the business of TMC or any Subsidiary or which, if not complied
with, would have a material adverse effect on the business, prospects or
financial condition of TMC or any Subsidiary;
(iv) Preservation of Business Relationships. Use best efforts
--------------------------------------
to maintain TMC's and each Subsidiary's existing relationships with
suppliers, customers, lenders, and others, including the SBA;
(v) Approvals and Authorizations. Use best efforts to obtain
----------------------------
all authorizations, consents, permits and approvals of all parties
(including the SBA and the Securities and Exchange Commission (the "SEC")
under the Act) necessary to permit the consummation of the transactions
contemplated by this Agreement;
(vi) Financial Reports. Deliver to MFC, prior to the Closing,
-----------------
the Updated Financial Statements described in Section 2.5, and provide MFC
with such other financial statements and other financial reports concerning
TMC and the Subsidiaries as may be required in connection with a public
offering of MFC Stock or as MFC may otherwise from time to time reasonably
request;
(vii) Compliance. Comply with all applicable laws, regulations
----------
and other governmental requirements and all contracts, commitments and
obligations.
(viii) Ordinary Course of Business. Operate its business
---------------------------
diligently and solely in the ordinary course and substantially in the same
manner as it has been operated in the past.
(ix) Public Offering. Make available appropriate financial and
---------------
other information concerning TMC and the Subsidiaries for incorporation in,
and otherwise cooperate with MFC in connection with the preparation of, a
registration statement
A-9
<PAGE>
for a public offering of MFC Stock, including any required audited
financial statements.
4.1.2 Negative Covenants Pending Closing. TMC will not and, to the
----------------------------------
extent applicable, will not permit any Subsidiary to:
(i) Disposition of Assets. Sell or transfer, or mortgage,
---------------------
pledge or create or permit to be created any Encumbrance on any of its
assets or properties other than sales or transfers in the ordinary course
of business;
(ii) Liabilities. Incur any obligation or liability other than
-----------
in the ordinary course of business consistent with past practice, incur any
indebtedness for borrowed money, enter into any contracts or commitments
involving payments to or by TMC or any Subsidiary of $50,000 or more, or
cancel any debts or claims other than in the ordinary course of business;
(iii) Compensation. Change the compensation or fringe benefits
------------
of or make any bonus or similar payments to any officer, employee, agent or
consultant, except for ordinary merit compensation increases for employees
(other than officers) in accordance with past practice, or enter into or
modify any benefit plan or any employment, severance or other agreement
with any officer, director, employee or consultant;
(iv) Capital Stock. Make any change in the number of shares of
-------------
its capital stock authorized, issued or outstanding or grant or accelerate
the exerciseability of any option, warrant or other right to purchase, or
to convert any obligation into, shares of its capital stock, or declare or
pay any dividend or other distribution with respect to any shares of its
capital stock, or issue, sell, transfer, purchase or redeem any shares of
its capital stock, provided that the foregoing shall not restrict:
(1) TMC from declaring and paying (i) dividends to the
holders of TMC Stock from current earnings (reduced by any non-
deductible amounts payable by TMC pursuant to Section 8.3(i) or
(iii)) in accordance with TMC's customary practices and to the
extent necessary to preserve its tax status as a "regulated
investment company" under Subchapter M of the Code (which may
include a special dividend of such earnings (as so reduced) paid
prior to the Closing), (ii) an additional special dividend to the
holders of TMC Stock of $0.50 per share, and (iii) an additional
special dividend in an amount equal to the accumulated net
earnings, if any, of Medallion Taxi Media, Inc. from its
inception to the date of Closing (and MFC agrees to cause the
Surviving Corporation to promptly pay following
A-10
<PAGE>
the Effective Time any dividend declared by TMC which is
permitted hereunder and which has not been paid prior to the
Effective Time);
(2) Transactions between TMC and any Subsidiary or between
Subsidiaries; and
(3) Medallion Funding from purchasing or redeeming its
Preferred Stock held by the SBA at a price which, without the
approval of MFC, shall not exceed 35% of the par value of such
stock.
(v) Charter and By-laws. Take any action to amend TMC's
-------------------
Certificate of Incorporation or By-laws or the charter or by-laws of any
Subsidiary;
(vi) Acquisitions. Make any material acquisition of property
------------
other than in the ordinary course of business consistent with past
practice.
4.2 Corporate Examinations and Investigations. Prior to the Closing, MFC
-----------------------------------------
shall be entitled, through its employees and representatives, to have such
access to the assets, properties, records, business and operations of TMC and
the Subsidiaries as is reasonably necessary or appropriate in connection with
MFC's investigation of TMC and the Subsidiaries with respect to the transactions
contemplated hereby. Any such investigation and examination shall be conducted
at reasonable times and under reasonable circumstances so as to minimize any
disruption to or impairment of TMC's or a Subsidiary's business and TMC shall
and shall cause each Subsidiary to cooperate fully therein. Except as set forth
in Section 8.5, no investigation by MFC shall diminish or obviate any of the
representations, warranties, covenants or agreements of TMC contained in this
Agreement. In order that MFC may have full opportunity to make such
investigation, TMC shall and shall cause each Subsidiary to furnish the
representatives of MFC during such period with all such information and copies
of such documents concerning the affairs of TMC and the Subsidiaries as such
representatives may reasonably request and cause its officers, employees,
consultants, agents, accountants and attorneys to cooperate fully with such
representatives in connection with such investigation.
4.3 Consummation of Agreement. Each party shall use its respective best
-------------------------
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement and to ensure that to the extent within
its control or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Closing, all to the end that the transactions contemplated by this
Agreement shall be fully carried out in a timely fashion.
4.4 Further Assurances. Each of the parties shall execute such documents,
------------------
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
A-11
<PAGE>
4.5 No Publicity/Confidentiality. No party shall issue any press release
----------------------------
or make any public statement, announcement or filing, or make any other
statement or disclosure to any third party not an affiliate of such party, with
respect to this Agreement and its contents (including the identities of the
parties hereto), without the approval of the other parties at any time, except
as is required by applicable law in the opinion of counsel for the party
required to make the release or statement, or is required in connection with
MFC's financing of the Merger and the Other Acquisitions (as defined in Section
4.9), including a public offering of shares of MFC Stock ("MFC's Financing"),
and in such event such party shall use all reasonable efforts to permit the
other parties an opportunity to review any such release or statement prior to
dissemination.
Confidential Information (as defined below) obtained by MFC during the
course of its due diligence examination of the books and records of TMC and the
Subsidiaries will be used solely in connection with the Merger and not in any
way directly or indirectly detrimental to TMC or any Subsidiary and such
information will be kept confidential by MFC, except for such disclosure as may
be required in connection with MFC's Financing, and then upon advice of counsel
in consultation with TMC.
The term "Confidential Information" shall be deemed to include all
information provided to MFC by TMC concerning TMC or any Subsidiary as well as
all notes, analyses, compilations, studies, interpretations or other documents
prepared by MFC which contain, reflect or are based upon, in whole or in part,
the information furnished to MFC pursuant hereto. The term "Confidential
Information" does not include any information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of its disclosure by MFC) or (ii) was available to MFC
on a nonconfidential basis from a source other than TMC or any of its affiliates
or their advisors, provided that source is not known by MFC to be bound by a
confidentiality agreement with TMC or a Subsidiary or otherwise subject to
another contractual, legal or fiduciary obligation of confidentiality to TMC or
a Subsidiary or any other party.
The parties agree that money damages would not be a sufficient remedy for
any breach of the agreements contained in this Section 4.5 and that the parties
each shall be entitled to specific performance and injunctive relief as remedies
of any such breach. Such remedies shall not be deemed to be the exclusive
remedies for a breach of this Section 4.5 but shall be in addition to all other
remedies available at law or equity.
4.6 Stockholder Approval. TMC shall, in accordance with applicable law
--------------------
and its Certificate of Incorporation and By-laws:
(i) duly hold a meeting of its stockholders on a timely basis;
(ii) on a timely basis (A) prepare a proxy statement in
compliance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Regulation 14A thereunder with respect to the
meeting of stockholders (the
A-12
<PAGE>
"Proxy Statement") and, after consultation with MFC, respond promptly
to any comments made by the SEC with respect to the Proxy Statement
and any preliminary version thereof, and (B) cause the Proxy Statement
to be mailed to its stockholders;
(iii) subject to their fiduciary duties under applicable law as
advised in writing by independent legal counsel, include in the Proxy
Statement the recommendation of its Board of Directors and the Special
Committee that stockholders of TMC vote in favor of the adoption of
this Agreement and the Merger; and
(iv) use reasonable efforts to obtain the necessary approvals by
its stockholders of this Agreement and the transactions contemplated
hereby.
The Proxy Statement at the time the Proxy Statement is mailed, at the time
of the meeting of TMC's stockholders to vote on this Agreement and at the
Effective Time will comply as to form in all material respects with the
applicable provisions of the Exchange Act, and the rules and regulations
thereunder, and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading (subject, if required, to a reasonable period of time to
amend or supplement the Proxy Statement).
TMC's obligations hereunder are subject to MFC promptly furnishing TMC with
the information relating to MFC that is required under applicable law for
inclusion in the Proxy Statement, which information MFC represents and warrants
to TMC shall not contain any statement which, at the time and in light of the
circumstances under which it is furnished, is false or misleading with respect
to any material fact or omits to state any material fact required to be stated
therein or necessary in order to make the information furnished therein not
false or misleading at the time the Proxy Statement is mailed to the
stockholders of TMC, at the time of the meeting of TMC stockholders and at the
Effective Time (subject, if required, to a reasonable period of time to amend or
supplement such information).
4.7 Exclusive Dealing. TMC will not, directly or indirectly, (i) solicit,
-----------------
initiate or encourage discussions with or submission of proposals or offers from
any person or entity other than MFC relating to a possible acquisition of all or
any material portion of the assets or capital stock of TMC or any merger or
other business combination with TMC (an "Acquisition Transaction"), or (ii)
except to the extent reasonably required by fiduciary obligations under
applicable law as advised in writing by independent legal counsel, participate
in any discussions or negotiations regarding, or furnish any information with
respect to, or facilitate or encourage, any effort or attempt by any other
person or entity to do or seek any Acquisition Transaction. TMC will promptly
notify MFC of any such proposal, offer, inquiry or other contact relating to any
proposed Acquisition Transaction.
A-13
<PAGE>
4.8 Filings Under HSR Act. If and to the extent required under the Hart-
---------------------
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
each of MFC and TMC shall file with the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division") a
premerger notification form and any supplemental information (other than
privileged information) which may be requested in connection therewith pursuant
to the HSR Act, which filings and supplemental information will comply in all
material respects with the requirements of the HSR Act. Each of TMC and MFC
shall cooperate fully with the other in connection with the preparation of such
filings and shall use best efforts to respond to any requests for supplemental
information from the FTC or the Antitrust Division and to the extent desirable,
to obtain early termination of any waiting period applicable to the Merger under
the HSR Act.
4.9 Other Acquisitions. Following the execution of this Agreement, MFC
------------------
shall proceed diligently and in good faith and use all reasonable efforts to
negotiate and complete the acquisition of Transportation Capital Corp., Edwards
Capital Company and Vango Media, Inc. (the "Other Acquisitions").
4.10 Indemnification and D&O Insurance. After the Effective Time, the
---------------------------------
Surviving Corporation shall indemnify and hold harmless each former director and
officer of TMC with respect to actions taken or omitted to be taken prior to the
Effective Time, to the extent such person is entitled to indemnification under
the Certificate of Incorporation and By-laws of TMC as in effect on the date
hereof, to the fullest extent permitted by Delaware law. TMC or the Surviving
Corporation shall exercise the right and pay the required premium under TMC's
directors' and officers' liability insurance policy in effect on the date of
this Agreement, or obtain comparable coverage under a policy of such other
responsible carrier as may be reasonably satisfactory to the parties, to
maintain for a period of one year after the Effective Time coverage for claims
which may be made with respect to causes of action that arise out of acts or
omissions occurring on or before the Effective Time.
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE
Each obligation of MFC to be performed at the Closing is subject to the
fulfillment, at or prior to the Closing Date, of the following conditions
(unless waived in writing by MFC):
5.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of TMC contained in this Agreement shall have been true and correct
in all material respects when made and shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date (with such exceptions as may be permitted
under or contemplated by this Agreement or the Disclosure Schedule and except to
the extent that TMC can demonstrate that MFC or its affiliates knew that a
representation or warranty was untrue when made). TMC shall have
A-14
<PAGE>
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing. TMC shall have delivered to MFC a certificate, dated
the Closing Date, to the foregoing effect.
5.2 Opinion of Counsel to TMC. MFC shall have received an opinion of
-------------------------
Nutter, McClennen & Fish, special counsel to TMC and the Special Committee,
dated the Closing Date, substantially in the form of Exhibit A hereto and
otherwise in form and substance reasonably acceptable to MFC and its counsel.
5.3 Consents, Permits, and Approvals. All consents, permits, licenses,
--------------------------------
authorizations and approvals, including all Regulatory Approvals, required to
permit the consummation by TMC of the transactions contemplated by this
Agreement and the continued operation of the business of TMC in the manner
conducted prior to the Closing, including without limitation those set forth on
Section 2.7 of the Disclosure Schedule, shall have been obtained, and
confirmation thereof shall have been provided to MFC.
5.4 Approval by TMC Stockholders. This Agreement and the Merger shall
----------------------------
have been approved by the requisite vote of TMC's stockholders in accordance
with the DGCL and TMC's Certificate of Incorporation and By-laws.
5.5 Other Acquisitions. MFC shall have consummated the Other Acquisitions
------------------
or be in a position to consummate the Other Acquisitions concurrently with or
reasonably concurrently with the Closing.
5.6 Financing. MFC shall have obtained and have available financing
---------
sufficient to consummate the Merger and the Other Acquisitions.
5.7 1940 Act; SBA. Medallion Funding shall be registered under the
-------------
Investment Company Act of 1940 as a Closed-End Investment Company and shall be
licensed as an SSBIC by the SBA.
5.8 Adverse Proceedings. No action, suit or proceeding shall have been
-------------------
instituted or threatened before any court or governmental or regulatory body by
any agency of any government or any other third party seeking to restrain,
modify or prevent the carrying out of the transactions contemplated hereby, or
which might affect consummation of the Merger and the right and ability of MFC
to operate the business of TMC and each of the Subsidiaries following the
Closing.
5.9 Certificates. TMC shall have furnished MFC with such certificates of
------------
public officials and other third parties as may be reasonably requested by MFC.
5.10 Dissenting Shares. Immediately prior to the Closing not more than ten
-----------------
percent (10%) of the shares of TMC Stock shall be Dissenting Shares or shall be
entitled to become Dissenting Shares.
A-15
<PAGE>
5.11 Approval of Documentation. All certificates, instruments, opinions
-------------------------
and other documents delivered or to be delivered to MFC hereunder shall be
reasonably satisfactory to MFC and its counsel in all respects.
SECTION 6 - CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF TMC
Each obligation of TMC to be performed at the Closing is subject to the
fulfillment at or prior to the Closing Date of the following conditions (unless
waived in writing by TMC):
6.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of MFC contained in this Agreement shall have been true and correct
in all material respects when made and shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date (with such exceptions as may be permitted
under or contemplated by this Agreement). MFC shall have performed and complied
in all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the Closing.
MFC shall have delivered to TMC a certificate, dated the Closing Date, to the
foregoing effect.
6.2 Opinion of Counsel to MFC. TMC shall have received an opinion of
-------------------------
Palmer & Dodge, counsel to MFC, dated the Closing Date, substantially in the
form of Exhibit B hereto and otherwise in form and substance reasonably
acceptable to TMC and its counsel.
6.3 Fairness Opinion. In the event the Special Committee elects to bring
----------------
down such opinion to the date of mailing of the Proxy Statement, TMC shall have
received an opinion from Gruntal & Co., Incorporated, dated within five business
days prior to the date on which the Proxy Statement is mailed, in form and
substance satisfactory to the Special Committee, stating that the terms of the
Merger are fair to the holders of TMC Stock from a financial point of view.
6.4 Approval by TMC Stockholders. This Agreement and the Merger shall
----------------------------
have been approved by the requisite vote of TMC's stockholders in accordance
with the DGCL and TMC's Certificate of Incorporation and By-laws.
6.5 Adverse Proceedings. No action, suit or proceeding shall have been
-------------------
instituted or threatened before any court or governmental or regulatory body by
any agency of any government or any other third party seeking to restrain,
modify or prevent the consummation of the Merger.
6.6 Certificates. MFC shall have furnished TMC with such certificates of
------------
public officials and other third parties, as may be reasonably requested by TMC.
A-16
<PAGE>
6.7 Approval of Documentation. All certificates, instruments, opinions
-------------------------
and other documents delivered or to be delivered to TMC hereunder shall be
reasonably satisfactory to TMC and its special counsel in all respects.
SECTION 7 - TERMINATION OF AGREEMENT
7.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time as follows:
(a) at the election of TMC upon written notice to MFC, if MFC has
materially breached any representation, warranty, covenant or agreement
contained in this Agreement and has not, within twenty (20) business days of
receipt by MFC of written notice from TMC of such breach of representation,
warranty, covenant or agreement, cured such breach;
(b) at the election of MFC upon written notice to TMC, if TMC has
materially breached any representation, warranty, covenant or agreement
contained in this Agreement (other than a representation or warranty which TMC
can demonstrate MFC or its affiliates knew was untrue when made) and has not,
within twenty (20) business days of receipt by TMC of written notice from MFC of
such breach of representation, warranty, covenant or agreement, cured such
breach;
(c) by either party if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree or ruling shall have become final and nonappealable;
(d) by TMC's Board of Directors or Special Committee if (i) by
February 29, 1996, MFC shall not have filed a registration statement with the
SEC relating to MFC's Financing or otherwise provided evidence reasonably
satisfactory to TMC of MFC's Financing or (ii), as a result of an offer of an
Acquisition Transaction obtained without violating Section 4.7, it determines,
upon the written advice of independent legal counsel, that it is required by
fiduciary obligations under applicable law to terminate this Agreement;
(e) by MFC if TMC's Board of Directors or Special Committee (i) fails
to include in the Proxy Statement its recommendation that TMC stockholders vote
in favor of the adoption of this Agreement, (ii) withdraws its recommendation
that stockholders vote in favor or (iii) makes a favorable recommendation
regarding an Acquisition Transaction;
(f) at any time on or prior to the Effective Time by written agreement
of the parties hereto; or
A-17
<PAGE>
(g) by either party if, without fault of such party, the Effective
Time shall not have occurred by June 30, 1996, which date may be extended by
mutual agreement of the parties.
7.2 Effect of Termination. If this Agreement is terminated and the
---------------------
transactions contemplated hereby are not consummated as provided above, this
Agreement shall become null and void and be of no further force or effect, other
than the provisions of this Section 7, Section 8.3 ("Expenses") and Section 4.5
("No Publicity/Confidentiality") which shall survive and continue in effect, and
each and every representation and warranty contained in this Agreement or any
Schedule hereto, or any certificate, document or other instrument delivered by
the parties in connection herewith, shall expire and none of the parties hereto
shall have any further liability with respect to any such representation or
warranty; provided that nothing contained in this Section 7.2 shall relieve
either party of any liability for any willful breach or default hereunder
occurring prior to such termination except as set forth in Section 8.5.
SECTION 8 - MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, two (2) days after the date of deposit in the United States mails, as
follows:
(i) if to MFC, to:
Medallion Financial Corp.
205 East 42nd Street
New York, NY 10017
Attention: Mr. Andrew Murstein
Fax: (212) 983-0351
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Attention: Steven N. Farber, Esquire
Fax: (617) 227-4420
(ii) if to TMC, to:
A-18
<PAGE>
Stanley Kreitman
Chairman, Special Committee
150 East 52nd Street
New York, NY 10022
Fax: (212) 755-0517
A-19
<PAGE>
with a copy to:
Nutter, McClennen & Fish
One International Place
Boston, MA 02110
Attention: Michael J. Bohnen, Esq.
Fax: (617) 973-9748
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
8.2 Entire Agreement. This Agreement contains the entire agreement among
----------------
the parties with respect to the transactions contemplated hereunder, and
supersedes all prior agreements, written or oral, with respect thereto.
8.3 Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, each of the parties hereto shall bear its own costs and expenses
(including fees and expenses of legal counsel) in connection with the
negotiation, preparation, execution, review and delivery of this Agreement and
the consummation of the transactions contemplated hereby. Notwithstanding the
foregoing:
(i) The expenses set forth on Schedule A shall be the sole and
exclusive responsibility of TMC.
(ii) The expenses set forth on Schedule B shall be the sole and
exclusive responsibility of MFC.
(iii) TMC shall be responsible for paying or reimbursing MFC for the
expenses set forth on Schedule C, up to a maximum amount equal to the
lesser of (i) $200,000 or (ii) one-third of the aggregate amount of such
expenses. MFC shall obtain the prior approval of the Special Committee
before incurring or entering into binding commitments with respect to such
expenses, and shall keep TMC reasonably informed as such expenses are
incurred.
(iv) If TMC's Board of Directors or Special Committee has terminated
this Agreement pursuant to Section 7.1(d)(ii) or MFC has terminated this
Agreement pursuant to Section 7.1(e) and, in each case, prior to such
termination or within twelve (12) months thereafter, (A) TMC shall have
entered into an agreement to engage in an Acquisition Transaction with any
person other than MFC or (B) the Board of Directors or Special Committee of
TMC shall have approved an Acquisition Transaction or recommended that
shareholders of TMC approve or accept any Acquisition Transaction with any
person other than MFC, then TMC shall be responsible for paying or
reimbursing MFC for all of the expenses set forth in Schedules B and C
within five (5) business days after demand therefor; provided that
A-20
<PAGE>
the aggregate amount of expenses to be so paid or reimbursed for which TMC
is not otherwise responsible shall not exceed $650,000.
8.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
-----------------------------------------------------------------
Remedies. This Agreement may be amended, superseded, canceled, renewed or
- --------
extended, and the terms hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance; provided, however, that after adoption of this Agreement by the
stockholders of TMC, without the further approval of the stockholders of TMC, no
amendment may be made that (a) alters or changes the amount or kind of
consideration to be received as provided in Section 1.6 or (b) alters or changes
any of the terms and conditions of this Agreement if such alteration or change
would materially adversely affect the stockholders of TMC. No delay on the part
of any party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such right,
power or privilege, preclude any further exercise thereof or the exercise of any
other such right, power or privilege. The rights and remedies herein provided
are cumulative and, subject to the limitations contained in Sections 7.2 and
8.5, are not exclusive of any rights or remedies that any party may otherwise
have at law or in equity. The rights and remedies of any party based upon,
arising out of or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is not inaccuracy or breach.
8.5 Investigation; No Survival. Without regard to any right of any party
--------------------------
to fully investigate the affairs of the other party and notwithstanding any
knowledge of facts determined or determinable by such party pursuant to such
investigation or right of investigation, each party has the right to rely fully
upon the representations, warranties, covenants and agreements of each other
party in this Agreement or in any certificate, financial statement or other
document delivered by any party pursuant hereto. Notwithstanding the foregoing,
neither TMC nor any of its stockholders, directors or officers shall have any
liability to MFC for any breach of a representation, warranty, covenant or
agreement other than, in the case of TMC, a willful breach or default which is
not known by or attributable to an affiliate of MFC. None of the
representations, warranties, covenants and agreements shall survive the Merger,
except the covenants of MFC and the Surviving Corporation contained in Section
1.9 ("Exchange of TMC Stock") and Section 4.10 ("Indemnification and D&O
Insurance").
8.6 Governing Law. This Agreement shall be governed by and construed,
-------------
interpreted and enforced in accordance with the laws of the State of Delaware.
A-21
<PAGE>
8.7 Binding Effect; No Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable except by operation of law
or by MFC to any of its affiliates. This Agreement does not create any rights
on the part of any person other than the parties and their respective successors
and permitted assigns.
8.8 Variations in Pronouns. All pronouns and any variations thereof refer
----------------------
to the masculine, feminine or neuter, singular or plural, as the context may
require.
8.9 Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.10 Exhibits and Disclosure Schedule. The Exhibits, Disclosure Schedule
--------------------------------
and other Schedules are a part of this Agreement as if fully set forth herein.
All references herein to Sections, subsections, clauses, Exhibits, the
Disclosure Schedule and other Schedules shall be deemed references to such parts
of this Agreement, unless the context shall otherwise require.
8.11 Headings. The headings in this Agreement are for reference only, and
--------
shall not affect the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first above written.
MEDALLION FINANCIAL CORP.
By:\s\ Alvin Murstein
TRI-MAGNA CORPORATION
By:\s\ Marie Russo
A-22
<PAGE>
Exhibit A
Form of Nutter, McClennen & Fish Opinion
, 1996
Medallion Financial Corp.
We have acted as special counsel to the Special Committee in connection
with the execution and delivery of the Agreement of Merger dated October ,
1995, (the "Merger Agreement") between Medallion Financial Corp. (the
"Purchaser") and Tri-Magna Corporation, a Delaware corporation (the "Company").
This opinion is furnished to you pursuant to Section 5.2 of the Merger
Agreement. Capitalized terms used but not defined in this opinion shall have
the meanings attributed to them in the Merger Agreement.
In connection with the opinion, we have examined:
(i) the Merger Agreement;
(ii) a copy of the Certificate of Incorporation of the Company on file in
the Office of the Secretary of State of the State of Delaware, as certified by
said Secretary;
(iii) a certificate of legal existence and good standing for the Company
issued on _________, 1996 by said Secretary;
(iv) a certificate of an officer of the Company pursuant to Section 5.1 of
the Merger Agreement; and
(v) a certificate of the Secretary of the Company, certifying as to (a)
resolutions of the Board of Directors and the stockholders of the Company
authorizing the execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby, (b) the incumbency and
signatures of certain officers of the Company and (c) the By-laws of the
Company, as now in effect;
(vi) [other documents].
Based solely upon the foregoing, and subject to the further qualifications
set forth at the end of this opinion, having regard for legal considerations we
deem relevant, we are of the opinion that:
A-23
<PAGE>
Based solely upon the foregoing, and subject to the further qualifications
set forth at the end of this opinion, having regard for legal considerations we
deem relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware.
2. The Company has the corporate power and authority necessary to enter
into the Merger Agreement and to carry out the terms thereof.
3. The execution and delivery by the Company of the Merger Agreement and
the executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, and is enforceable against the Company in accordance
with its terms.
4. The execution and delivery by the Company of the Merger Agreement and
the performance by it of its obligations thereunder, will not violate or
contravene any provision of the Company's Certificate of Incorporation or By-
Laws.
5. Upon the filing of the Certificate of Merger in accordance with the
Delaware General Corporation Law ("DGCL"), and assuming that all necessary
corporate action has been taken by the Purchaser, the merger provided for in the
Merger Agreement shall become legally effective in accordance with the terms of
the Merger Agreement and the DGCL.
Our opinions set forth above are subject to the following qualifications:
(A) As to questions of fact material to the opinions rendered herein,
we have relied upon certificates of public officials, certificates of officers
of the Company, the representations and warranties of the Company contained in
the Merger Agreement, or other evidence satisfactory to use, and, except as
expressly set forth herein, we have not made any independent review or
investigation. We have assumed that, with respect to certain dated certificates
and/or certified copies described herein, no act or event has occurred between
the dates thereof and the date hereof that would in any way affect any of the
matters opined upon or that would in any manner alter such certificate or
certified copies.
(B) For the purpose of this opinion, we have assumed that the
Purchaser has all requisite power and authority and has taken all necessary
corporate and other action to enter into the Merger Agreement and to effect the
transactions contemplated thereby. We have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to the originals of all documents submitted to us as copies, the
authenticity of the originals of such copies, and the accuracy and completeness
of all records and documents made available to us.
(C) The opinions expressed herein are qualified to the extent that
the validity and enforceability of the provisions of the Merger Agreement may be
subject to or limited by
A-24
<PAGE>
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws of general application relating to or affecting the
rights and/or remedies of creditors and by the exercise of judicial discretion
in accordance with general equitable principles (whether such enforceability is
considered in an action in equity or at law). Furthermore, no opinion is
expressed as to whether any provision of the Merger Agreement are specifically
enforceable in equity.
(D) We have made such examination of Delaware corporate law as we
have deemed relevant for the purpose of this opinion, but we have not made an
independent review or investigation of the laws of any other state or
jurisdiction and express no opinion as to the laws of any such state or
jurisdiction. We express no opinion with respect to any state or federal
antitrust law or the anti-fraud provisions of state or federal securities laws.
This opinion is being furnished only to you and is solely for your benefit.
This opinion may not be used, circulated or quoted for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
Nutter, McClennen & Fish
A-25
<PAGE>
Form of Palmer & Dodge Opinion
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
_________ , 1996
Tri-Magna Corporation
205 East 42nd Street
New York, NY 10017
Ladies and Gentlemen:
We have acted as counsel for Medallion Financial Corp. (the "Purchaser"), a
Delaware corporation, in connection with the Agreement of Merger dated as of
December 21, 1995 (the "Merger Agreement") between the Purchaser and Tri-Magna
Corporation (the "Seller"), a Delaware corporation, providing for the merger of
the Seller into the Purchaser (the "Merger"). This opinion is furnished to you
pursuant to Section 6.2 of the Merger Agreement. Terms used in this opinion
that are defined in the Merger Agreement are used herein as so defined.
This opinion is limited to the laws of the Commonwealth of Massachusetts,
the Federal laws of the United States and the Delaware General Corporation Law
(the "DGCL"). In addition, we render this opinion as if the Merger Agreement
were governed by the laws of the Commonwealth of Massachusetts, notwithstanding
its recitation that it is governed by the laws of the State of Delaware.
We have examined such documents, records and matters of law and made such
other investigation as we have deemed necessary for purposes of this opinion,
including inquiry of such lawyers in our firm and review of such documents in
our possession which relate to the transactions contemplated by the Merger
Agreement as we have considered appropriate, but we have not made inquiry of all
lawyers in our firm or undertaken a complete review of materials in our files.
As to questions of fact material to our opinion, we have relied upon the
representations made in or pursuant to the Merger Agreement and upon
certificates of officers of the Purchaser.
A-26
<PAGE>
Based on the foregoing, but subject to the assumptions and qualifications
set forth herein, we are of the opinion that:
8.11.1 The Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
8.11.2 The Purchaser has the corporate power and authority to execute and
deliver the Merger Agreement and to carry out the terms thereof.
8.11.3 The execution and delivery by the Purchaser of the Merger Agreement
and the performance by the Purchaser of its obligations thereunder have been
duly authorized by all necessary corporate action on the part of the Purchaser.
The Merger Agreement has been duly executed and delivered by the Purchaser and
constitutes (assuming due authorization, execution and delivery thereof by the
Seller) the valid and binding obligation of the Purchaser, enforceable against
the Purchaser in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws of general application affecting the rights and remedies of
creditors, or general principles of equity.
8.11.4 The execution and delivery by the Purchaser of the Merger Agreement
and the performance by it of its obligations thereunder will not violate or
contravene any provision of the certificate of incorporation or by-laws of the
Purchaser.
8.11.5 Except for the filing of the certificate of merger in accordance
with the DGCL, no approval or consent of, or registration or filing with, any
governmental or regulatory body is required to be obtained or made by the
Purchaser in connection with the execution, delivery and performance by the
Purchaser of the Merger Agreement other than those which have been obtained or
made.
6. Upon the filing of the certificate of merger in accordance with the
DGCL (and assuming that all necessary corporate action has been taken by the
Seller), the Merger shall become legally effective in accordance with the terms
of the Merger Agreement and the DGCL.
This opinion is furnished to you solely for your use in connection with the
closing under the Merger Agreement on the date hereof, and may not be relied
upon by any other person without our prior written consent.
Very truly yours,
Palmer & Dodge
A-27
<PAGE>
SCHEDULE A
All expenses relating directly to Tri-Magna, including but not limited to:
1. The solicitation of Tri-Magna stockholder approval for the Acquisition,
including the preparation, filing and clearance through the Securities and
Exchange Commission of preliminary and definitive proxy materials.
2. Investment banking fees relating to the fairness opinion to be delivered to
the stockholder of Tri-Magna in connection with the Acquisition.
3. Legal fees relating to the representation of Tri-Magna in connection with:
(a) The letter of intent between Tri-Magna and MFC.
(b) The definitive acquisition agreement between Tri-Magna and MFC.
(c) Proceedings before the Small Business Administration.
4. Accounting fees relating to the preparation of financial statements for
Tri-Magna in connection with:
(a) The definitive acquisition agreement between Tri-Magna and MFC.
(b) The registration statement relating to the initial public offering of
MFC common stock.
A-28
<PAGE>
SCHEDULE B
All expenses relating directly to MFC, including but not limited to:
1. The organization of MFC.
2. Legal fees relating to the representation of MFC in connection with:
(a) The letters of intent between MFC and each of the acquisition targets
(the "Targets").
(b) The definitive acquisition agreements between MFC and each Target.
(c) Proceedings before the Small Business Administration relating to the
acquisition of the targets.
3. Other expenses of MFC unrelated to the acquisition of the Targets or the
initial public offering of MFC common stock.
A-29
<PAGE>
SCHEDULE C
All expenses relating to the following:
1. Preparation of the registration statement and prospectus covering the
initial public offering of MFC common stock, including accounting and legal
fees, printing costs and fees for filings and applications made with the
Securities and Exchange Commission, the National Association of Securities
Dealers, state Blue Sky authorities and Nasdaq National Market System.
2. Legal fees relating to the resolution of joint issues raised by the overall
structure of the acquisition of the Targets and the initial public offering
of MFC common stock in connection with the proceedings before the Small
Business Administration.
3. Legal fees in connection with proceedings before the Securities and
Exchange Commission relating to issues raised under the Investment Company
Act of 1940 by the acquisition of the Targets, including Tri-Magna, and the
operations of MFC following the closing of the acquisitions.
4. Accounting fees relating to the consolidation of the financial statements
of the Targets.
A-30
<PAGE>
EXHIBIT B
OPINION OF GRUNTAL & CO., INCORPORATED
October 11, 1995
The Committee of Independent Directors
Tri-Magna Corporation
c/o Stanley Kreitman
150 East 52nd Street
New York, NY 10022
Dear Sirs:
Gruntal & Co., Incorporated ("Gruntal") understands that Tri-Magna
Corporation ("TMC") and Medallion Financial Corp. ("MFC") have proposed entering
into an Agreement of Merger, pursuant to which the current common shareholders
of TMC would receive $20.00 per share for each share of Common Stock of TMC and
MFC would be the surviving corporation in the merger (the "Proposed
Transaction"). You have requested the opinion of Gruntal, as investment
bankers, as to the fairness from a financial point of view of the terms of the
Proposed Transaction. Gruntal's opinion is based upon its understanding that,
pursuant to the Proposed Transaction, MFC will acquire all the common shares
outstanding of TMC. Gruntal has not been requested to solicit or entertain any
other offers for the purchase of the stock or assets of TMC or any other
transaction involving TMC. Gruntal has not been requested to opine as to, and
its opinion does not in any manner address, TMC's underlying business decision
to proceed with the Proposed Transaction. This opinion is not addressed to the
fairness of the Proposed Transaction to, nor may it be relied upon by, any
stockholder who will also be a Stockholder of MFC.
At arriving at its opinion, Gruntal has: (i) reviewed the letter of
intent dated August 1, 1995 and the draft merger agreement dated September 15,
1995; (ii) met with certain senior officers of TMC to discuss the business,
operations, assets, financial conditions and prospects of TMC; (iii) reviewed
certain business and financial reports including audited financial statements
for the years ending March 31,1990 through 1995, and supporting loan portfolio
schedules; (iv) reviewed certain financial forecasts and other data provided to
it by senior management; (v) reviewed loan documentation including both TMC's
borrowing agreements with its senior leaders and a sample of a subordinated
debenture held by the Small Business Administration; and (iv) compared the
historical and prospective financial results of TMC with those of other
companies Gruntal deemed comparable. In addition to the foregoing, Gruntal has
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as Gruntal deemed necessary in arriving
at its opinion.
B-1
<PAGE>
In arriving at its opinion, Gruntal has assumed and relied upon the
accuracy and completeness of all financial and other information publicly
available or furnished to it by TMC and its agents or otherwise discussed with
it; accordingly, Gruntal did not independently verify such information nor
undertake an appraisal of any of the individual assets of TMC. With respect to
financial forecasts and other information provided to or otherwise discussed
with Gruntal prepared by senior management with respect to the expected future
financial condition and performance of TMC, Gruntal assumed that such forecasts
and other information were reasonably prepared on bases reflecting the best
currently available estimates and judgments of senior management. Gruntal notes
that members of senior management are the principals of MFC. Gruntal's opinion
herein is necessary based upon financial, stock market and other conditions and
circumstances existing and disclosed as of the date hereof.
Gruntal is acting as financial advisor to The Committee of Independent
Directors of TMC in connection with this transaction and has received a fee for
such services. In addition, TMC has agreed to indemnify Gruntal for certain
liabilities arising out of the rendering of this opinion.
The parties understand that this opinion letter is provided to The
Committee of Independent Directors of TMC and that without Gruntal's prior
written consent, is not to be quoted or referred to, in whole or in part, in
connection with the Proposed Transaction or any other matter. Gruntal
understands and agrees that this opinion may be reproduced in full in connection
with the proxy statement to be issued in connection with the Proposed
Transaction; however, any other description of this opinion or excerpts thereof
may not be used without the prior review and approval of Gruntal.
Based upon the foregoing and other factors it deemed relevant, Gruntal
is of the opinion that, as of the date hereof, the terms of the proposed merger
are fair from a financial point of view to TMC and its common stockholders.
Respectfully submitted,
GRUNTAL & CO., INCORPORATED
B-2
<PAGE>
EXHIBIT C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to (S)228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
rods "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to (S)(S)251, 252,254,
258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
C-1
<PAGE>
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a, b, and c, of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote on a
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection
C-2
<PAGE>
and has not voted in favor of or consented to the merger or consolidation of the
date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of
C-3
<PAGE>
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may,in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation,
C-4
<PAGE>
reasonable attorney's fees and the fees and expenses of experts, to be charged
pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the rights of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
262, L. '94, eff. 7-1-94.)
C-5
<PAGE>
TRI-MAGNA CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 22, 1996
The undersigned stockholder, revoking all prior proxies, hereby appoints
Marie Russo and Daniel Baker and either or both of them (the "Proxies") the
attorney and proxy of the undersigned, with the power of substitution, to
represent and vote the shares of Common Stock that the undersigned would be
entitled to vote at the special meeting of stockholders of Tri-Magna Corporation
(the "Company") to be held on May 22, 1996.
Shares represented by this proxy will be voted as directed by the
undersigned stockholder. If no such directions are indicated, the Proxies will
vote FOR the Merger Proposal. In their discretion, the Proxies are authorized
to vote upon such other matters as may properly come before the meeting.
[X] Please mark your vote as in this example.
1. Proposal to adopt the Agreement of Merger, dated as of December 21,
1995, between the Company and Medallion Financial Corp., as amended by
Amendments Number 1 and 2 thereto.
[_] FOR [_] AGAINST [_] ABSTAIN
PLEASE DATE, SIGN AND RETURN
Dated:
--------------------------
--------------------------------
Print Name:
Please sign exactly as your name
appears on your stock certificate.
If signing for an estate, trust or
corporation, title or capacity --------------------------------
should be stated. If shares are held Print Name:
jointly, each holder should sign.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 MAR-31-1995
<PERIOD-START> APR-01-1995 APR-01-1994
<PERIOD-END> DEC-31-1995 MAR-31-1995
<INVESTMENTS-AT-COST> 96,956,416 91,989,816
<INVESTMENTS-AT-VALUE> 96,046,416 91,199,816
<RECEIVABLES> 844,350 797,900
<ASSETS-OTHER> 2,897,400 3,384,124
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 99,788,166 95,381,840
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 82,474,314 84,520,955
<TOTAL-LIABILITIES> 82,474,314 84,520,955
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 17,285,600 11,283,500
<SHARES-COMMON-STOCK> 668,900 668,900
<SHARES-COMMON-PRIOR> 668,900 665,900
<ACCUMULATED-NII-CURRENT> 28,252 (422,615)
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 17,313,852 10,860,885
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 7,440,065 9,045,896
<OTHER-INCOME> 443,580 952,448
<EXPENSES-NET> 6,633,792 8,531,817
<NET-INVESTMENT-INCOME> 1,249,853 1,466,527
<REALIZED-GAINS-CURRENT> 56,804 (31,761)
<APPREC-INCREASE-CURRENT> (120,000) 52,000
<NET-CHANGE-FROM-OPS> 1,186,657 1,486,766
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 735,790 1,469,477
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 3,000
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 6,437,924 66,789
<ACCUMULATED-NII-PRIOR> (422,615) (439,904)
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 7,200 30,700
<INTEREST-EXPENSE> 4,534,470 5,282,235
<GROSS-EXPENSE> 6,633,792 8,531,817
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
