AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1996
SECURITIES ACT FILE NO. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_] PRE-EFFECTIVE AMENDMENT NO.
[_] POST-EFFECTIVE AMENDMENT NO.
----------------
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MEDALLION FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
205 EAST 42ND STREET, SUITE 2020, NEW YORK, NEW YORK 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 682-3300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
ALVIN MURSTEIN
CHIEF EXECUTIVE OFFICER
MEDALLION FINANCIAL CORP.
205 EAST 42ND STREET, SUITE 2020
NEW YORK, NEW YORK 10017
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
STEVEN N. FARBER, ESQ. MARIO M. CUOMO, ESQ.
STANLEY KELLER, ESQ. CHRISTOPHER E. MANNO, ESQ.
PALMER & DODGE WILLKIE FARR & GALLAGHER
ONE BEACON STREET 153 EAST 53RD STREET
BOSTON, MASSACHUSETTS 02108 NEW YORK, NEW YORK 10022
(617) 573-0100 (212) 821-8000
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
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the effective date of this Registration Statement.
If any of the securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box [_]
It is proposed that this filing will become effective (check appropriate box):
[_] when declared effective pursuant to Section 8(c) of the Securities Act of 1933.
[_] This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933 and the Securities Act registration statement number of the earlier effective registration statement for the same offering is 333- .
[_] This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933 and the Securities Act registration statement number of the earlier effective registration statement for the same offering is 333- .
If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act of 1933, please check the following box: [_]
PROPOSED
PROPOSED MAXIMUM
TITLE OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES BEING BEING OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ------------------------------------------------------------------------------
Common Stock, $.01 par
value................. 5,750,000 $12.00 $69,000,000 $23,793.10
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
MEDALLION FINANCIAL CORP.
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
ITEM NO. ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
-------- ---------------------------------- ----------------------
1. Outside Front Cover........... Front Cover Page
2. Inside Front and Outside Back Front Cover Page and Outside Back
Cover Page.................... Cover Page
3. Fee Table and Synopsis........ Prospectus Summary; Fees and Expenses
4. Financial Highlights.......... Prospectus Summary; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations
5. Plan of Distribution.......... Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders.......... Not Applicable
7. Use of Proceeds............... Prospectus Summary; Use of Proceeds;
Business
8. General Description of the Cover Page; Prospectus Summary; Risk
Registrant.................... Factors; The Company; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Investment Objectives,
Policies and Restrictions;
Determination of Net Asset Value;
Financial Statements
9. Management.................... Management; Custodian, Transfer Agent,
Dividend Disbursing Agent and
Registrar; Investment Objectives,
Policies and Restrictions
10. Capital Stock, Long Term Debt,
and Other Securities......... Business; Dividend Reinvestment Plan;
Federal Income Tax Considerations;
Description of Capital Stock
11. Defaults and Arrears on Senior Not Applicable
Securities....................
12. Legal Proceedings............. Not Applicable
13. Table of Contents of the
Statement of Additional
Information.................. Not Applicable
14. Cover Page.................... Not Applicable
15. Table of Contents............. Not Applicable
16. General Information and Business
History.......................
17. Investment Objective and Business; Investment Objectives,
Policies...................... Policies and Restrictions
18. Management.................... Management; Principal Stockholders
19. Control Persons and Principal
Holders of Securities........ Principal Stockholders
20. Investment Advisory and Other Management; Custodian, Transfer Agent,
Services...................... Dividend Disbursing Agent and
Registrar; Experts; Investment
Objectives, Policies and Restrictions
21. Brokerage Allocation and Other Not Applicable
Practices.....................
22. Tax Status.................... Federal Income Tax Considerations
23. Financial Statements.......... Index to Financial Statements;
Financial Statements
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + |
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1996
5,000,000 SHARES
[LOGO]
MEDALLION FINANCIAL CORP.
COMMON STOCK
The Company is a specialty finance company with a leading position in the origination and servicing of loans financing the purchase of taxicab medallions and related assets. The Company also originates and services commercial installment loans financing small businesses in other targeted industries. In addition, the Company operates a taxicab rooftop advertising business. See "Business." The Company was organized to expand the specialty finance and taxicab rooftop advertising businesses conducted by several companies which will be acquired simultaneously with the closing of the Offering. See "The Company."
Prior to the Offering there has been no public market for the Common Stock. The Common Stock has been approved, subject to official notice of issuance, for quotation on the Nasdaq National Market under the symbol "TAXI." It is currently anticipated that the initial public offering price will be between $10.00 and $12.00 per share. For a discussion of the factors considered in determining the initial public offering price, see "Underwriting." The Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended.
This Prospectus sets forth the information about the Company that a prospective investor should know before purchasing Common Stock. Prospective investors are advised to read this Prospectus and retain it for future reference.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR INFORMATION THAT PROSPECTIVE INVESTORS SHOULD CONSIDER IN CONNECTION WITH THEIR INVESTMENT DECISION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROCEEDS TO
PRICE TO PUBLIC SALES LOAD(1) COMPANY(2)
- -------------------------------------------------------------------------------------
Per Share................................. $ $ $
- -------------------------------------------------------------------------------------
Total(3).................................. $ $ $
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The shares are being offered by the several Underwriters when, as and if delivered to and accepted by the Underwriters, and subject to various prior conditions, including the right to reject orders in whole or in part. It is expected that delivery of share certificates will be made against payment therefor at the offices of Furman Selz LLC in New York, New York on or about , 1996.
FURMAN SELZ
J.C. BRADFORD & CO.
EVEREN SECURITIES, INC.
The date of this Prospectus is , 1996
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
Medallion Financial Corp. ("Medallion Financial") was recently organized to acquire and expand the specialty finance businesses conducted by Tri-Magna Corporation ("Tri-Magna"), Edwards Capital Company ("Edwards") and Transportation Capital Corp. ("TCC" and, collectively with Tri-Magna and Edwards, the "Founding Companies") as well as the taxicab rooftop advertising business conducted by Tri-Magna. Tri-Magna has conducted its specialty finance and taxicab rooftop advertising businesses through its wholly owned subsidiaries, Medallion Funding Corp. ("MFC") and Medallion Media, Inc. ("Media"), respectively, and references herein to Tri-Magna include such subsidiaries unless the context indicates otherwise. Simultaneously with, and as a condition to, the closing of the Offering, Medallion Financial will acquire each of the Founding Companies (the "Acquisitions"). See "Business -- Formation Transactions." In connection with the Acquisitions, Medallion Financial has filed an application for an exemptive order under the Investment Company Act of 1940, as amended (the "1940 Act"), with the Securities and Exchange Commission (the "Commission"). See "Additional Information." The Acquisitions and the Offering are contingent upon the receipt of such exemptive order. Unless the context indicates otherwise, all references herein to the "Company" include Medallion Financial Corp. and the Founding Companies collectively as if their operations had been conducted on a combined basis prior to the Offering, and references herein to "Medallion Financial" shall mean Medallion Financial Corp. alone.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION AND DATA IN THIS PROSPECTUS (I) HAVE BEEN ADJUSTED TO GIVE EFFECT TO THE ACQUISITIONS, (II) ASSUME A 12,500 FOR ONE STOCK SPLIT AND AN AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION OF MEDALLION FINANCIAL (THE "CERTIFICATE") WHICH ARE EXPECTED TO BE EFFECTED PRIOR TO THE DATE OF THIS PROSPECTUS AND (III) ASSUME THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
The Company is a specialty finance company with a leading position in the origination and servicing of loans financing the purchase of taxicab medallions and related assets ("Medallion Loans"). The Company also originates and services commercial installment loans financing small businesses in other targeted industries ("Commercial Installment Loans"). In addition, the Company operates a taxicab rooftop advertising business. See "Business."
Management of the Company has successfully operated Tri-Magna since it began its medallion lending operations in 1979. Tri-Magna is the largest of the three Founding Companies being acquired by Medallion Financial in connection with the Offering. Alvin Murstein, a founder and the Chairman and Chief Executive Officer of the Company and of Tri-Magna, has over 40 years of experience in the ownership, management and financing of taxicab fleets, taxicab medallions and corporate car services. Tri-Magna, an investment company registered under the 1940 Act, has never experienced a loss of principal on any of the $287 million in aggregate principal amount of Medallion Loans it has originated. See "Management" and "Business --Medallion Lending."
Medallion Loans comprised approximately 80% of the Company's loan portfolio at September 30, 1995. Since 1979 the Company has originated, on a combined basis, approximately $500 million in Medallion Loans. Substantially all of the Company's Medallion Loans are originated at fixed rates of interest in excess of the prime rate of interest charged by major commercial banks (the "Prime Rate") and are collateralized by first security interests in New York City taxicab medallions and related assets. At September 30, 1995 the Company estimates that the average loan-to-value ratio of all of the Company's Medallion Loans was 56%. In addition, the Company has recourse against the direct and indirect owners of the medallion through personal guarantees. The New York City Taxi and Limousine Commission (the "TLC") estimates that the total value of all 11,787 New York City
medallions and related assets exceeds $2.3 billion and the Company estimates that the total value of all taxicab medallions and related assets in the United States exceeds $5 billion. The Company believes that it will continue to develop growth opportunities by further penetrating the highly fragmented medallion financing markets and by acquiring additional medallion financing businesses and portfolios. See "Business -- Medallion Lending."
Commercial Installment Loans comprised approximately 20% of the Company's loan portfolio at September 30, 1995. From the inception of this business in 1987 through September 30, 1995, Tri-Magna originated approximately 1,001 Commercial Installment Loans in an aggregate principal amount of approximately $66 million. Tri-Magna's Commercial Installment Loan activity has increased in recent years, with the number and principal amount of Commercial Installment Loans originated by Tri-Magna in 1994 being 83% and 40% greater, respectively, than in 1993. The Company's Commercial Installment Loans generally are secured by equipment and made at fixed rates of interest ranging from 100 to 700 basis points over the Prime Rate. Approximately 76% of the Company's Commercial Installment Loan portfolio at September 30, 1995 was comprised of loans secured by either retail dry cleaning equipment or coin operated laundromat equipment. In addition, the Company requires the principals of borrowers to personally guarantee loans. The Company has focused its lending efforts on the retail dry cleaning and coin operated laundromat industries because they have offered the Company high rates of interest and a strong collateral position. The Company's aggregate realized loss of principal on loans secured by retail dry cleaning and coin operated laundromat equipment originated to date is $52,000 or 0.1% of the approximately $46 million in principal amount of such loans. The Company plans to expand its Commercial Installment Loan activities to include a more diverse borrower base, a larger geographic area and other targeted industries. See "Business --Commercial Installment Loans."
The Company also provides taxicab rooftop advertising and owned approximately 1,500 installed taxicab rooftop advertising displays ("Displays") at September 30, 1995. Display occupancy averaged approximately 90% for the nine months then ended. The Company's taxicab rooftop advertising business began operations in November 1994. The Company believes that there is a significant opportunity for a provider of taxicab rooftop advertising that operates in several major metropolitan markets because many large advertisers prefer to advertise nationally. The Company is well positioned to take advantage of this opportunity because it believes it is one of the largest providers of such advertising in the nation. The Company currently provides such advertising in New York City, Philadelphia, Miami and Boston. The Company also intends to expand to other major metropolitan areas and has recently entered the Atlanta and Los Angeles markets. The Company believes that there are growth opportunities within its existing markets because only approximately 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, the Company believes that its growth will be facilitated by its reputation and relationships within the taxicab industry and because the Company's arrangement with the taxicab owners provides them with incremental income. See "Business -- Taxicab Rooftop Advertising."
The Company funds its operations through credit facilities with bank syndicates and, to a lesser degree, through the issuance of fixed-rate, long- term subordinated debentures that are issued to, or guaranteed by, the U.S. Small Business Administration (the "SBA"). SBA financing offers attractive interest rates, for example currently as low as 4.00% for Specialized Small Business Investment Companies ("SSBICs"), but the availability of such financing is limited. Accordingly, as the Company grows, it intends to continue to reduce its reliance on SBA funding, while still maintaining the flexibility to borrow under SBA programs to finance a portion of its loan portfolio when it is advantageous to do so. At September 30, 1995, 73% of the Company's $119.4 million of debt consisted of bank debt which was at a weighted average effective rate of interest of 7.81% which was 94 basis points below the Prime Rate and 186 basis points above 90 day LIBOR as of such date. The balance of the Company's debt, 27%, consisted of subordinated SBA debentures, with fixed rates of interest with a weighted average rate of 7.44%. After the Offering, the Company intends to negotiate an increase in the size of its bank credit facilities from its current $96 million aggregate level. See "Business -- Sources of Funds."
The Company is a closed-end, non-diversified management investment company under the 1940 Act. The investment objectives of the Company are to provide a high level of distributable income, consistent with preservation of capital, as well as long-term growth of net asset value. The Company is managed by its executive officers under the supervision of its Board of Directors and has retained FMC Advisers, Inc. ("FMC") as an investment adviser. See "Investment Objectives, Policies and Restrictions -- The Investment Adviser" and "Certain Transactions." The Company has elected to be treated as a business development company under the 1940 Act. See "Regulation." In addition, it plans to elect to be treated for tax purposes as a regulated investment company (a "RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). As a RIC, the Company will not be subject to U.S. federal income tax on any investment company taxable income (which includes, among other things, dividends and interest reduced by deductible expenses) that it distributes to its stockholders if at least 90% of its investment company taxable income for that taxable year is distributed. The Company intends to pay quarterly cash dividends to comply with this requirement. The Company's specialty finance subsidiaries, MFC, TCC and Edwards (collectively the "RIC Subsidiaries") also plan to elect to be treated as RICs and will distribute at least 90% of their respective investment company taxable income to the Company. For the nine months ended September 30, 1995, 96% of the Company's net increase in net assets resulting from operations ("net income"), on a pro forma combined basis, was investment company taxable income. See "Federal Income Tax Considerations."
THE OFFERING
Common Stock offered by the 5,000,000 shares
Company(1)..................
Common Stock to be
outstanding after the 7,500,000 shares
Offering(1).................
Nasdaq National Market TAXI
Symbol......................
Use of proceeds.............. To pay the purchase price for the Founding
Companies, to repay indebtedness and to pay
investment advisory fees.
Distributions................ The Company intends to pay quarterly dividends
and to distribute to its stockholders at least
90% of its investment company taxable income
annually. For the nine months ended September
30, 1995, 96% of the Company's net income, on a
pro forma combined basis, was investment company
taxable income.
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RISK FACTORS
Investment in shares of the Common Stock involves certain risks relating to the structure, operations and regulation of the Company that should be considered by prospective purchasers of the Common Stock. The following summary of Risk Factors is qualified in its entirety by the more detailed information appearing under the heading "Risk Factors" in this Prospectus. Principal risk factors include:
Industry and Geographic Concentration. A substantial portion of the Company's revenue is derived from operations in New York City and these operations are substantially focused in the area of financing New York City taxicab medallions and related assets. There can be no assurance that an economic downturn in New York City in general, or in the New York City taxicab industry in particular, would not have an adverse impact on the Company. See "Risk Factors -- Industry and Geographic Concentration" and "-- Taxicab Industry Regulation."
Interest Rate Spread. The Company's net interest income is largely dependent upon achieving a positive interest rate spread and other factors. See "Risk Factors -- Interest Rate Spread; Prepayment Risk."
Leverage. The Company's use of leverage poses certain risks for holders of the Common Stock, including the possibility of higher volatility of both the net asset value of the Company and the market price of the Common Stock and, therefore, an increase in the speculative character of the Common Stock. See "Risk Factors-- Leverage."
Absence of Combined Operating History. The Founding Companies have been operating as separate independent entities with separate management teams. Medallion Financial was recently organized and there can be no assurance that it will be able to successfully integrate these businesses and effectively implement the Company's strategy to expand operations. See "Risk Factors -- Absence of Combined Operating History."
No Prior Market for Common Stock. There has been no prior public market for the Common Stock and no assurance can be given that an active trading market will develop after the Offering. See "Risk Factors -- No Prior Public Market for the Common Stock; Determination of the Public Offering Price."
SUMMARY FINANCIAL DATA
PRO FORMA
(UNAUDITED)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------ ----------------
1994 1994 1995
-------- ------- -------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA
Investment income.............................. $15,156 $11,396 $11,662
Interest expense............................... 7,221 5,322 6,052
------- ------- -------
Net interest income............................ 7,935 6,074 5,610
Equity in earnings of unconsolidated
subsidiary(1)................................. 18 -- 133
Other income................................... 1,139 997 626
Accretion of negative goodwill................. 900 675 675
Total non-interest expense..................... 4,113 3,333 2,946
Amortization of goodwill....................... 420 315 315
------- ------- -------
Net investment income.......................... 5,459 4,098 3,783
Realized (loss) on investments, net............ (166) (79) (23)
Change in unrealized depreciation of
investments(2)................................ 872 641 179
------- ------- -------
Net increase in net assets resulting from
operations before extraordinary items......... 6,165 4,660 3,939
Extraordinary items(3)......................... (526) (526) --
------- ------- -------
Net increase in net assets resulting from
operations(4)................................. $ 5,639 $ 4,134 $ 3,939
======= ======= =======
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SEPTEMBER 30,
1995
-------------
(DOLLARS IN
SELECTED FINANCIAL RATIOS AND OTHER DATA THOUSANDS)
Medallion Loans as a percentage of investments.................... 80%
Commercial Installment Loans as a percentage of investments....... 20
Investments to assets............................................. 92
Equity to assets.................................................. 31
Debt to equity.................................................... 209
SBA debt to total debt............................................ 30
Portfolio yield................................................... 10.69
Average cost of funds............................................. 7.67
Spread............................................................ 3.02
BALANCE SHEET DATA
Investments
Medallion Loans................................................. $115,611
Commercial Installment Loans.................................... 29,748
Unrealized depreciation of investments(5)......................... --
--------
Investments, net of unrealized depreciation of investments........ 145,359
Total assets...................................................... 157,762
Notes payable and demand notes.................................... 71,513
Subordinated SBA debentures....................................... 31,344
Total liabilities................................................. 108,460
Total shareholders' equity........................................ 49,302
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TRI-MAGNA
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------
1991(1) 1992(1) 1993 1994 1994(1) 1995
------- ------- ------- ------- ------------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 8,806 $ 7,953 $ 8,333 $ 8,820 $ 6,571 $ 7,192
Net interest income..... 4,667 4,444 4,672 4,064 3,168 2,761
Net investment income... 2,534 2,045 1,839 1,624 1,197 981
Net increase in net
assets resulting from
operations............. 2,129 1,947 1,671 1,660 1,339 875
SELECTED FINANCIAL RATIOS AND
OTHER DATA(1)(2)
Return on average
assets(3).............. 3.31% 2.81% 2.12% 1.88% 2.02% 1.23%
Return on average
equity(4).............. 19.34 17.67 15.29 15.29 16.45 10.67
Spread(5)............... 5.50 4.73 4.95 3.25 3.52 2.32
Weighted average
assets................. $64,320 $69,401 $78,921 $88,414 $ 88,356 $ 94,608
Weighted average
investments(6)......... 62,552 65,338 75,461 86,166 85,157 90,668
Weighted average
equity................. 11,011 11,019 10,931 10,855 10,854 10,929
Weighted average debt... 48,230 47,160 60,160 68,010 67,063 71,530
DECEMBER 31,(1) SEPTEMBER 30,(1)
---------------------------------- ------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------------------
Medallion Loans as a
percentage of
investments............ 73% 81% 81% 72% 74% 69%
Commercial Installment
Loans as a percentage
of investments......... 27 19 19 28 26 31
Debt to equity(7)....... 401 476 583 658 654 461
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MEDIA(8)
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -----------------
STATEMENT OF OPERATIONS DATA
Advertising revenue.............................. $227,756 $1,091,724
Cost of services................................. 83,341 325,276
-------- ----------
Gross margin..................................... 144,415 766,448
Other operating expenses......................... 126,036 574,786
-------- ----------
Income before taxes.............................. 18,379 191,662
Income taxes..................................... -- 59,030
-------- ----------
Net income....................................... $ 18,379 $ 132,632
======== ==========
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EDWARDS
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------
1991 1992 1993 1994 1994(1) 1995
------- ------- ------- ------- ------------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 5,535 $ 5,444 $ 4,955 $ 4,334 $ 3,262 $ 3,269
Net interest income..... 2,277 2,571 2,214 1,569 1,174 1,196
Net investment income... 1,604 1,398 1,617 1,060 895 832
Net increase in net
assets resulting from
operations before
extraordinary items.... 965 1,385 1,617 1,060 895 832
Net increase in net
assets resulting from
operations............. 965 1,385 1,617 534 369 832
SELECTED FINANCIAL RATIOS AND
OTHER DATA(1)(2)
Return on average as-
sets(3)................ 2.27% 3.19% 3.60% 2.35% 2.68% 2.50%
Return on average part-
ners' capital(9)....... 12.22 16.47 17.51 11.69 13.29 12.66
Spread(5)............... 4.54 5.12 3.54 2.09 2.08 1.99
Weighted average as-
sets................... $42,501 $43,465 $44,953 $45,025 $44,577 $44,383
Weighted average invest-
ments(6)............... 40,260 41,567 43,047 43,074 42,975 43,532
Weighted average part-
ners' capital.......... 7,900 8,409 9,235 9,064 8,981 8,765
Weighted average debt... 35,370 36,015 34,385 34,690 34,625 34,469
DECEMBER 31,(1) SEPTEMBER 30,(1)
---------------------------------- ------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------------------
Medallion Loans as a
percentage of
investments............ 98% 98% 98% 98% 98% 99%
Commercial Installment
Loans as a percentage
of investments......... 2 2 2 2 2 1
Debt to partners' capi-
tal(7)................. 427 382 365 408 410 384
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TCC
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ------------------
1991(1) 1992(1) 1993 1994 1994(1) 1995
------- ------- ------- ------- ------------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 4,197 $ 3,944 $ 3,110 $ 2,217 $ 1,708 $ 1,400
Net interest income..... 1,694 2,406 2,046 1,508 1,124 1,041
Net investment income,
adjusted for tax-
es(10)................. 488 1,294 1,760 144 90 151
Net increase (decrease)
in net assets resulting
from operations........ (2,519) 648 1,923 790 510 412
SELECTED FINANCIAL
RATIOS AND OTHER
DATA(1)(2)
Return on average
assets(3).............. (7.76)% 2.46% 8.36% 3.90% 3.29% 3.03%
Return on average common
equity(4).............. (61.83) 14.73 33.84 11.22 9.85 6.17
Spread(5)............... 3.21 7.31 7.67 6.26 5.69 7.03
Weighted average
assets................. $32,479 $26,338 $23,011 $20,260 $20,670 $18,154
Weighted average
investments(6)......... 31,907 24,295 19,000 14,446 15,311 10,538
Weighted average common
equity................. 4,074 4,398 5,683 7,042 6,902 8,900
Weighted average debt... 25,198 17,967 13,133 9,330 9,830 7,330
DECEMBER 31,(1) SEPTEMBER 30,(1)
----------------------------------- ------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------------------
Medallion Loans as a
percentage of
investments............ 84% 82% 85% 80% 84% 84%
Commercial Installment
Loans as a percentage
of investments......... 16 18 15 20 16 16
Debt to equity(7)....... 274 192 107 73 85 65
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FEES AND EXPENSES
The purpose of the following table is to assist prospective investors in understanding the various costs and expenses that an investor in the Company will bear directly or indirectly.
FEE TABLE (1)
STOCKHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)............... 7.00%(2)
Dividend Reinvestment Plan Fees.............................. None (3)
ANNUAL EXPENSES (as a percentage of net assets attributable to
Common Stock)(4)
Management Fees.............................................. 0.46 (5)
Operating Expenses........................................... 5.88 (6)
Interest Payments on Borrowed Funds.......................... 16.37 (7)
Other Expenses............................................... 2.48
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Total Annual Expenses.......................................... 25.19%
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EXAMPLE
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in the Company. These amounts assume no increase or decrease in leverage and are based upon payment by an investor of a 7% sales load (the underwriting discount paid by the Company in connection with the Offering) and payment by the Company of operating expenses at the levels set forth in the table above.
An investor would pay the following expenses on a $1,000 investment, assuming
(i) a 5% annual return and (ii) reinvestment of all dividends and distributions
at net asset value:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $281 $583 $775 $1,004 |
This example as well as the information set forth in the table above should not be considered a representation of the future expenses of the Company. Actual expenses may be greater or less than those shown. Moreover, while the example assumes (as required by the Commission) a 5% annual return, the Company's performance will vary and may result in a return greater or less than 5%. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, participants in the Dividend Reinvestment Plan will receive shares purchased by the Dividend Reinvestment Plan Agent at the market price in effect at the time, which may be at, above or below net asset value. See "Distributions" and "Dividend Reinvestment Plan."
RISK FACTORS
In addition to the other information contained in this Prospectus, prospective investors should carefully consider the following risk factors in evaluating an investment in the shares of Common Stock offered hereby.
INTEREST RATE SPREAD; PREPAYMENT RISK
While the Medallion Loans and Commercial Installment Loans originated by the Company in most cases bear interest at fixed rates, the Company finances a substantial portion of such loans by incurring indebtedness with floating interest rates. As a result, the Company's interest costs have increased in the past and could increase in the future during periods of rising interest rates, which may decrease net interest margins and thereby adversely affect the Company's profitability. Accordingly, the Company, like most financial services companies, faces the risk of interest rate fluctuations. Although the Company intends to manage its interest rate risk through asset and liability management, including the use of interest rate caps and swaps, general rises in interest rates will tend to reduce the Company's net interest margin in the short term. In addition, the Company relies on its counterparties to perform their obligations under such interest rate caps and swaps. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Furthermore, loans made by the Company typically may be prepaid by the borrower upon payment of certain prepayment charges. A borrower is likely to exercise prepayment rights at a time when the interest rate payable on the borrower's loan is high relative to prevailing interest rates. In such a lower interest rate environment, the Company will have difficulty re-lending such prepaid funds at comparable rates and, therefore, to the extent that the Company's cost of funds is not correspondingly reduced, such a decrease in market interest rates could adversely affect the Company. See "Business -- Medallion Lending" and "-- Commercial Installment Loans."
LEVERAGE
The Company is leveraged as a result of its bank borrowings and subordinated SBA debentures. Leverage poses certain risks for holders of Common Stock, including possible higher volatility of both the net asset value of the Company and the market price of the Common Stock. Since interest is paid to the Company's creditors before any income is distributed to the Company's stockholders, fluctuations in the interest payable to such creditors will affect the yield to holders of the Common Stock. In addition, income earned by the Company from operations and lending the proceeds of borrowings must exceed the interest payable with respect to such borrowings in order for there to be income available for distribution to stockholders. Furthermore, the high rate of distribution of investment company taxable income required to maintain the Company's tax status as a RIC limits the funds that can be retained in the business to cover periods of loss, provide for future growth and pay for extraordinary items. In addition, in the event of a liquidation of the Company, the Company's creditors would have claims on the Company's assets superior to the claims of the holders of the Common Stock. Furthermore, certain amounts could become payable to the SBA in connection with the Company's repurchase, at a discount, of preferred stock from the SBA previously issued by MFC and TCC, which resulted in a realized gain in retained earnings in the amount of the repurchase discount. Such discounts will be accreted to paid-in capital on a straight-line basis over 60 months; however, if MFC or TCC is liquidated or loses its SBA license during the accretion period, the SBA would have a claim for the remaining unaccreted amount attributable to the subsidiary liquidating or losing its license. See "Business -- Sources of Funds -- Preferred Stock Repurchase Agreements."
At September 30, 1995, the Company had $88.0 million outstanding on bank commitments of $95.5 million under credit facilities with bank syndicates consisting of (i) revolving lines of credit totalling $90.0 million, (ii) a $3.2 million term loan and a $2.0 million term loan and (iii) a $275,000 demand loan. Amounts outstanding under the revolving lines of credit and demand loan are together secured by all of the Company's assets and bear interest at the relevant agent bank's prime rate or, at the Company's option, a rate based on LIBOR. At September 30, 1995, the rates of interest on amounts outstanding under the revolving lines of credit and the demand loan ranged from 7.25% to 8.75%. The $3.2 million term loan bears interest at the annual rate of 8.75%
and the $2.0 million term loan bears interest at the annual rate of 7.5%. The revolving lines of credit mature between July 31, 1996 and September 30, 1996, the $2.0 million term loan matures on July 31, 1997 and the $3.2 million term loan must be repaid from the proceeds of the Offering. See "Use of Proceeds" and "Business-- Sources of Funds."
At September 30, 1995, the Company had borrowed $31.7 million under subordinated SBA debentures that have fixed rates of interest and a ten-year term. These debentures have maturities ranging from May 7, 1996 to September 1, 2004 and rates of interest varying from 5.0% to 9.8% per annum.
At September 30, 1995, the weighted average annual rate of interest on all of the Company's borrowings was 7.71%. Based upon that rate, the Company must achieve annual returns on investments of at least 5.01% to cover annual interest payments on the bank and subordinated SBA debentures described above. The following table illustrates the effect of leverage to a stockholder assuming the Company's cost of funds at September 30, 1995 as described above and various annual rates of return, net of expenses. The calculations set forth in the table are hypothetical and actual returns may be greater or less than those appearing below:
Assumed return on investments (net of expenses)(1)................................. -10% -5% 0% 5% 10% Corresponding net income to common stockholders(1).............................. -48.2% -32.2% -16.1% 0.0% 16.1% |
AVAILABILITY OF FUNDS
The Company has a continuing need for capital to finance its lending activities. The Company funds its operations through credit facilities with bank syndicates and, to a lesser degree, through subordinated SBA debentures. Reductions in the availability of funds from banks and under SBA programs on terms favorable to the Company could have a material adverse effect on the Company. Because the Company intends to distribute to its shareholders at least 90% of its investment company taxable income, such earnings will not be available to fund loan originations.
At September 30, 1995, approximately 27% of the Company's $119.4 million of outstanding indebtedness consisted of subordinated SBA debentures and the Company intends to continue to seek to finance a portion of its business through SBA funding programs. Although the Company is not aware of any pending legislation to eliminate the SBA or to restrict or terminate the specific SBA programs in which the Company participates, some members of Congress have called for reform or elimination of various federally funded programs, including those of the SBA. Discontinuation, elimination or a significant reduction of or restriction on financing available to the Company from the SBA would reduce the Company's funding alternatives.
Even if the SBA continues to receive funding and its programs are maintained in their current form, the financing that the SBA makes available to Small Business Investment Companies ("SBICs") and SSBICs will remain limited and many SBICs and SSBICs will continue to compete with the Company for the limited funds that are available. Although the Company has obtained substantial financing under SBA programs in the past, there can be no assurance that the Company will be able to obtain its desired level of SBA financing in the future. See "Business -- Sources of Funds."
In addition to limits on the aggregate amount of SBA financing available, such financing is restricted in its application. The SBA has informed the Company that due to the SBA's concerns regarding the concentration of SSBIC and SBIC loans in the taxicab industry and the availability of private capital to finance taxicab related businesses, no additional SBA financing will be made available to SBICs and SSBICs for such loans. As a result, the Company does not expect to obtain SBA financing to originate additional Medallion Loans. See "Business --Sources of Funds."
The SBA also restricts the amount of bank debt that SBICs and SSBICs with outstanding subordinated SBA debentures may incur. As a result, the SBA could preclude TCC and Edwards from increasing or refinancing their credit facilities. Combined with limitations on SBA funding, these restrictions on bank debt could restrict further growth of TCC's and Edwards' loan portfolios.
INDUSTRY AND GEOGRAPHIC CONCENTRATION
Medallion Loans collateralized by New York City taxicab medallions and related assets comprised a substantial portion of the Company's Medallion Loan portfolio at September 30, 1995. According to TLC data, over the past 20 years New York City medallions have appreciated in value an average of 10.5% each year; however, for sustained periods during that time, medallions declined in value. Most of the Company's Commercial Installment Loans have been made to retail dry cleaning and coin operated laundromat businesses in New York City and a major portion of the Company's taxicab advertising revenue is derived from New York City taxicabs. There can be no assurance that the Company will be able to geographically diversify its operations or that an economic downturn in New York City in general, or in the New York City taxicab, retail dry cleaning or coin operated laundromat industries in particular, would not have an adverse impact on the Company. In addition to expanding geographically, the Company intends to expand its financing operations to include other industries and financial products and there can be no assurance that management's experience with its current lending activities will lead to success with such other industries and products. See "Business."
ABSENCE OF COMBINED OPERATING HISTORY
Medallion Financial was founded recently and has conducted no operations to date. Medallion Financial has entered into agreements to acquire the Founding Companies simultaneously with the closing of the Offering. Each of the Founding Companies has been operating independently of each other with separate management teams and there can be no assurance that Medallion Financial will be able to successfully integrate these businesses and effectively implement the Company's strategy to expand operations. In addition, there can be no assurance that the expected benefits of consolidation, such as reduced risk through diversification of the portfolio and elimination of duplicate facilities and expenses, will materialize. See "The Company," "Business" and "Management."
COMPETITION
Banks, credit unions and other finance companies, some of which are SSBICs and SBICs, compete with the Company in the origination of Medallion Loans and Commercial Installment Loans. Finance subsidiaries of equipment manufacturers also compete with the Company. Many of these competitors have greater resources than the Company and certain competitors are subject to less restrictive regulations than the Company. As a result, there can be no assurance that the Company will be able to identify and complete financing transactions that will permit it to compete successfully. The Company's taxicab rooftop advertising business competes with other taxicab rooftop advertisers as well as all segments of the out-of-home advertising industry and other types of advertising media, including cable and network television, radio, newspapers, magazines and direct mail marketing. Many of these competitors have greater financial resources than the Company and offer several forms of advertising as well as production facilities. There can be no assurance that the Company will compete with these businesses successfully. See "Business."
CREDIT QUALITY
The Company's loans are not guaranteed by the SBA. The Company's borrower base consists primarily of small business owners that have limited resources. There is generally no publicly available information about such small business owners, and the Company must rely on the diligence of its employees and agents to obtain information in connection with the Company's credit decisions. In addition, these small businesses do not have audited financial statements. Typically, the success of small businesses and their ability to repay the Company's loans are dependant upon the management talents and efforts of one person or a small group of persons, and the
death, disability or resignation of one or more of these persons could have an adverse impact on their business. Moreover, small businesses may be more vulnerable to economic downturns and often need substantial additional capital to expand or compete. Such companies may also experience substantial variations in operating results. Lending to small businesses therefore involves a high degree of business and financial risk, which can result in substantial losses and accordingly should be considered speculative. In addition, expansion of the portfolio and increases in the proportion of the portfolio consisting of Commercial Installment Loans could have an adverse impact on the credit quality of the portfolio. See "Business -- Medallion Lending" and "-- Commercial Installment Loans."
PORTFOLIO VALUATION
Under the 1940 Act, the Company's loan portfolio must be recorded at fair market value. Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses, but adjusts quarterly the valuation of its portfolio to reflect the Company's estimate of the current realizable value of the loan portfolio. Since no ready market exists for this portfolio, fair market value is subject to the good faith determination of the Company's management and the approval of the Company's Board of Directors. In determining such value, the directors take into consideration various factors such as the financial condition of the borrower, the adequacy of the collateral, and the relationships between current and projected market rates of interest and portfolio rates of interest and maturities. For example, in a period of sustained increases in market rates of interest, the Board of Directors could decrease its valuation of the portfolio because the portfolio consists primarily of fixed-rate loans. These fair valuation procedures are designed to approximate the value that would have been established by market forces and are therefore subject to uncertainties and variations from reported results. Based on the foregoing criteria, the Company determines net unrealized depreciation of investments or the amount by which the Company's estimate of the current realizable value of its portfolio is below its cost basis. At September 30, 1995, the Company's net unrealized depreciation of investments was $1.6 million. Based upon current market conditions and current loan to value ratios, the Company's Board of Directors believes that its net unrealized depreciation of investments is adequate to reflect the fair market value of the portfolio. Because of the subjectivity of these estimates, there can be no assurance that in the event of a foreclosure or in the sale of portfolio loans, the Company would be able to recover the amounts reflected on its balance sheet. Further, costs associated with foreclosure proceedings, such as a 5% New York City transfer tax assessed in connection with every medallion transfer, may reduce the Company's expected net proceeds. See "Business -- Medallion Lending -- Loan Portfolio"; "-- Commercial Installment Loans -- Loan Portfolio"; "-- Delinquency and Collections"; and "-- Loan Loss Experience."
TAXICAB INDUSTRY REGULATION
Every city in which the Company originates Medallion Loans, and most other major cities in the United States, limit the supply of taxicab medallions. In many markets, regulation results in supply restrictions which, in turn, support the value of medallions; consequently, actions which loosen such restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market and, therefore, the collateral securing the Company's then outstanding Medallion Loans, if any, in that market. The Company is unable to forecast with any degree of certainty whether any potential increases in the supply of medallions will occur. However, in January 1996, the New York City Council passed a law authorizing the city to sell up to 400 additional taxicab medallions, which represents a 3.4% increase in the 11,787 taxicab medallions presently outstanding. The first 100 medallions are expected to be sold in April 1996. See "Business -- Medallion Lending --Industry Overview."
In New York City, and in other markets where the Company originates Medallion Loans, taxicab fares are generally set by government agencies, whereas expenses associated with operating taxicabs are largely unregulated. As a consequence, in the short term, the ability of taxicab operators to recoup increases in expenses is limited. Escalating expenses, therefore, can render taxicab operation less profitable and make it more difficult for borrowers to service loans from the Company and potentially adversely affect the value of the Company's collateral. In January 1996, the TLC approved an approximately 20% increase in taxicab fares and imposed a mandatory retirement age for taxicabs. The Company is unable to predict whether ridership or taxicab operator profitability will be affected by these measures.
GOVERNMENT REGULATION OF TOBACCO ADVERTISING
Currently, substantially all of the Company's taxicab rooftop advertising revenue is derived from cigarette advertising. President Clinton recently authorized the Food and Drug Administration (the "FDA") to assert regulatory jurisdiction over cigarettes and smokeless tobacco products ("tobacco products") for the purpose of curbing use of these products by individuals under the age of 18. The FDA has proposed new rules which, among other things, regulate advertising of tobacco products. The Company believes that certain of the proposed rules which include provisions prohibiting the placement of tobacco products advertising within 1,000 feet of playgrounds and primary and secondary schools only apply to stationary advertising such as billboards and, thus, would not restrict taxicab rooftop advertising. However, other restrictions in the proposed rules limiting tobacco products advertising to a format consisting of black text on a white background may apply to taxicab rooftop advertising. The Company cannot predict whether or in what form the proposed rules will be adopted, or whether the proposed rules will be modified or nullified by legislative or judicial action. In any event, if rules restricting the advertising of tobacco products are adopted and are ultimately interpreted to restrict taxicab rooftop advertising, such rules could have an adverse effect upon the taxicab rooftop advertising business of the Company.
From time to time there have been legislative initiatives requiring advertisers which carry tobacco products to also display anti-smoking messages. In 1994, the U.S. Court of Appeals for the Second Circuit upheld a district court ruling which prevented the application of a New York City ordinance requiring, in certain circumstances, that Displays carry anti- smoking messages. There can be no assurance that there will not be further such initiatives or that they will be nullified by judicial action.
PASS-THROUGH TAX TREATMENT
Risks Associated with Distribution Requirements and Leverage
The Company, together with the RIC Subsidiaries, intends to qualify and elect to be treated as a RIC under Subchapter M of the Code. In any year in which these companies so qualify under Subchapter M, they generally will not be subject to federal income tax on investment company taxable income (which includes, among other things, dividends and interest reduced by deductible expenses) distributed to their stockholders. To so qualify, these companies must meet certain income, distribution and diversification requirements. See "Federal Income Tax Considerations." However, because these companies use leverage, they are subject to certain asset coverage ratio requirements set forth in the 1940 Act. These asset coverage requirements could, under certain circumstances, prohibit these companies from making distributions that are necessary to maintain Subchapter M status. In addition, the asset coverage and distribution requirements impose significant cash flow management restrictions on the Company and limit the Company's ability to retain earnings to cover periods of negative income, provide for future growth and pay for extraordinary items, such as the repayment of principal of debt incurred by the Company. See "Federal Income Tax Considerations." Qualification as a RIC under Subchapter M is made on an annual basis and, although it is the Company's policy to qualify as a RIC, no assurance can be given that Medallion Financial or the RIC Subsidiaries will continue to qualify for such treatment. If these companies were to elect not to be treated as RICs under Subchapter M, or were to fail to qualify because the 1940 Act asset coverage requirements or the payment of extraordinary items precluded distributions necessary to maintain Subchapter M status or for any other reason, their respective incomes would become fully taxable and a substantial reduction in the amount of income available for distribution to Medallion Financial and its stockholders would result. See "Federal Income Tax Considerations" and "Regulation."
Risks Associated with Diversification Requirements
The Company intends to pursue an expansion strategy in its taxicab rooftop advertising business and believes that there are growth opportunities in this market. However, the asset diversification requirements under the Code could restrict such expansion. These requirements provide, in part, that not more than 25% of the value of a RIC's total assets may be invested in the securities (other than U.S. Government securities or securities of other RICs) of any one issuer or two or more issuers controlled by such RIC which are engaged in similar or related trades or
businesses. Unlike Medallion Financial's investments in the RIC Subsidiaries, which will not be subject to this diversification test so long as these subsidiaries are RICs, Medallion Financial's investment in Media will be subject to this test. The test is initially calculated at the time the assets are acquired. At the time of the Acquisitions, Media will represent less than 25% of Medallion Financial's assets and the diversification test will be satisfied. Subsequent growth of Media, if internally generated, will not retrigger the test even if Media represents in excess of 25% of Medallion Financial's assets. However, under the Code, the test must be reapplied in the event that Medallion Financial makes a subsequent investment in Media, lends to it or acquires another taxicab rooftop advertising business. If such aggregate asset value represents more than 25% of Medallion Financial's total assets at that time, Medallion Financial would fail the diversification test. If that were to occur Medallion Financial would lose RIC status with the consequences described above. Accordingly, the Company's maintenance of RIC status could limit the Company's ability to expand its taxicab rooftop advertising business. It will be the Company's policy to expand its advertising business through internally generated growth and to only consider acquisitions if, giving effect to the acquisition, the Code's diversification requirements would be met.
NO PRIOR PUBLIC MARKET FOR THE COMMON STOCK; DETERMINATION OF THE PUBLIC OFFERING PRICE
There has been no prior public market for the Common Stock. Consequently, the initial public offering price was determined through negotiations among the Company and the representatives of the Underwriters. See "Underwriting" for factors considered in determining the initial public offering price. The negotiated initial public offering price may not be indicative of net asset value or the market price for the Common Stock following the Offering. The Common Stock has been approved, subject to official notice of issuance, for quotation on the Nasdaq National Market under the symbol "TAXI." However, there can be no assurance that an active trading market will develop subsequent to the Offering or, if developed, that it will be sustained. See "Underwriting."
DEPENDENCE ON CASH FLOW FROM SUBSIDIARIES
Medallion Financial is a holding company and will derive most of its operating income and cash flow from its subsidiaries. As a result, Medallion Financial will rely entirely upon distributions from its subsidiaries to generate the funds necessary to make dividend payments and other distributions to its stockholders. Funds are expected to be provided to Medallion Financial by its subsidiaries through dividends and payments on intercompany indebtedness, but there can be no assurance that such subsidiaries will be in a position to make such dividend or debt payments. See "The Company" and "Business."
IMMEDIATE AND SUBSTANTIAL DILUTION
Immediately upon the closing of the Offering, the purchasers of the Common Stock will experience dilution in the net tangible book value of their shares of $4.79 per share. See "Dilution."
RELIANCE ON MANAGEMENT
The success of the Company will be largely dependent upon the efforts of senior management. The death, incapacity or loss of the services of any of such individuals could have an adverse effect on the Company and there can be no assurance that other qualified officers could be hired. See "Management."
CERTAIN ANTI-TAKEOVER PROVISIONS
Prior to the completion of the Offering, the Company will adopt the Certificate and Restated By-Laws (the "By-Laws"). Certain provisions of the Certificate and the By-Laws may have the effect of discouraging a third party from making an acquisition proposal for the Company and thereby inhibit a change in control of the Company in circumstances that could give the holders of the Common Stock the opportunity to realize a premium over the then prevailing market price of the Common Stock. Such provisions may also adversely affect the market price for the Common Stock. In addition, the classification of the Company's Board of Directors into three classes may have the effect of delaying a change in control of the Company. See "Description of Capital Stock -- Delaware Law and Certain Provisions of the Certificate of Incorporation and the By-Laws."
CONTROL BY EXISTING STOCKHOLDERS
After the Offering, officers and directors of the Company, together with entities affiliated with them, will beneficially own approximately 35% of the Common Stock outstanding (approximately 31% of the Common
Stock outstanding assuming exercise of the Underwriters' over-allotment option in full). Because of their Common Stock ownership, these stockholders, if they were to act together, could control the election of all members of the Company's Board of Directors and determine most corporate actions after the Offering. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock in the public market, or the perception that such sales could occur, could adversely affect market prices prevailing from time to time. In addition, several of the Company's principal stockholders and entities affiliated with them hold a significant portion of the Company's outstanding Common Stock and a decision by one or more of these stockholders to sell their shares could adversely affect the market price of the Common Stock. Upon completion of the Offering, the Company will have outstanding 7,500,000 shares of Common Stock (8,250,000 if the Underwriters' over-allotment option is exercised in full). Of these shares, the 5,000,000 shares offered hereby (5,750,000 if the Underwriters' over-allotment option is exercised in full) will be freely tradeable without restriction or registration under the Securities Act of 1933, as amended (the "Securities Act") except to the extent purchased by affiliates of the Company.
The remaining 2,500,000 shares (the "Restricted Shares") were issued and sold by the Company in private transactions in reliance upon exemptions from registration under the Securities Act and are restricted securities under Rule 144 of the Securities Act and may not be sold without registration except in compliance with Rule 144 or an exemption from registration under the Securities Act. All of the Restricted Shares are subject to lock-up agreements as described below (the "Lock-up Agreements"). In addition, all of the Restricted Shares will not be eligible for sale pursuant to Rule 144 until the expiration of the two-year holding period from the date such Restricted Shares were acquired. Accordingly, 2,500,000 Restricted Shares will become eligible for sale subject to Rule 144 resale restrictions, including volume limitations, on October 24, 1997. The Commission has proposed amendments to Rule 144 that would, if adopted, retroactively reduce the two-year holding period to one year.
Pursuant to Lock-up Agreements with the Company's directors and officers and certain other stockholders, all of the Restricted Shares are subject to certain resale restrictions. Each party to a Lock-up Agreement has agreed that he or she will not, directly or indirectly, offer for sale, sell, contract to sell, grant an option to purchase or otherwise dispose of any shares of the Common Stock, except for shares deposited in escrow and gifts to family members or charitable institutions, for a period of two years from the date of this Prospectus, without the prior written consent of Furman Selz LLC. See "Underwriting."
In addition, it is anticipated that prior to the closing of the Offering, an executive officer of the Company will be granted stock options exercisable for the number of shares of Common Stock determined by dividing $500,000 by the public offering price per share set forth on the cover page of this Prospectus. The exercise price for such shares will be equal to the public offering price set forth on the cover page of this Prospectus. These options will begin to become exercisable one year after the date of this Prospectus. Including shares reserved for issuance in connection with such options, the Company will reserve a total of 750,000 additional shares of Common Stock for issuance with respect to the grant of options under the Medallion Financial 1996 Stock Option Plan (the "1996 Plan").
In addition, a total of 100,000 additional shares of Common Stock will be reserved for issuance with respect to the grant of options under the Medallion Financial Corp. 1996 Non-Employee Directors Stock Option Plan (the "Director Plan"). It is anticipated that upon Commission approval of the Director Plan, the Company's four disinterested directors will each receive an option to purchase the number of shares of Common Stock determined by dividing $100,000 by the fair market value of the Common Stock on the date the plan is approved by the Commission.
Following the completion of this offering, the Company currently expects to file a registration statement under the Securities Act to register shares for issuance under the 1996 Plan and the Director Plan. Shares issued upon exercise of outstanding stock options after the effective date of such registration statement generally will be tradeable without restriction under the Securities Act. See "Shares Eligible for Future Sale."
THE COMPANY
The Company is a specialty finance company with a leading position in the origination and servicing of Medallion Loans. The Company also originates and services Commercial Installment Loans. In addition, the Company operates a taxicab rooftop advertising business. The investment objectives of the Company are to provide a high level of current income, consistent with preservation of capital, as well as long-term growth of net asset value. The Company intends to pay quarterly cash dividends.
The Company is a closed-end, non-diversified management investment company and has elected to be treated as a business development company under the 1940 Act. See "Regulation." In addition, it plans to elect to be treated for tax purposes as a RIC under the Code. As a RIC, the Company will not be subject to U.S. federal income tax on any investment company taxable income (which includes, among other things, dividends and interest reduced by deductible expenses) that it distributes to its stockholders for its taxable year if at least 90% of its investment company taxable income for that taxable year is distributed. For the nine months ended September 30, 1995, 96.1% of the Company's net income, on a pro-forma combined basis, was investment company taxable income. See "Federal Income Tax Considerations."
The Company was incorporated in Delaware in 1995 to acquire and expand the specialty finance and taxicab rooftop advertising businesses of the Founding Companies. The closing of the Offering is contingent upon the completion of the acquisition of each of the Founding Companies. For a description of the transactions pursuant to which these businesses will be acquired, see "Business -- Formation Transactions" and "Certain Transactions." The Pro Forma Selected Financial Data of the Company included in this Prospectus for the nine months ended September 30, 1994 and 1995 and for the year ended December 31, 1994 are derived from the financial position and results of operations of each of the Founding Companies, collectively, and are presented as if the Acquisitions and the Offering had been effected as of January 1, 1994 or September 30, 1995, as applicable. In addition, Pro Forma Combined Financial Statements for the Company for the nine months ended September 30, 1994 and 1995 and the year ended December 30, 1994, and Financial Statements and Notes thereto for each of the Founding Companies for the nine months ended September 30, 1995 and the years ended December 31, 1993 and 1994, as well as Historical Financial Data for each of the Founding Companies for the nine months ended September 30, 1994 and 1995 and for the years ended December 31, 1991, 1992, 1993 and 1994 are included in this Prospectus.
The aggregate consideration being paid by the Company to acquire the Founding Companies consists of (i) $38.7 million in cash, (ii) the assumption of approximately $87.7 million in bank debt and (iii) the assumption of approximately $31.7 million in subordinated SBA debentures. The aggregate consideration to be paid for each Founding Company, including assumption of debt, based on September 30, 1995 amounts, is estimated to be as follows: (a) Tri-Magna -- $91.7 million; (b) Edwards -- $49.5 million; and (c) TCC -- $17.0 million. The consideration being paid for each Founding Company was determined by arm's-length negotiations between the Company and such Founding Company. See "Business -- Formation Transactions," "Use of Proceeds" and "Certain Transactions."
The following chart illustrates the organization of the Company following the Acquisitions:
[CHART APPEARS HERE]
Tri-Magna Corporation. Tri-Magna is a closed-end, management investment company registered under the 1940 Act and is the sole stockholder of MFC and Media. Management of the Company has operated Tri-Magna and its subsidiaries since they were organized. Operating primarily in New York City, MFC is a well-established medallion lender and has diversified its operations by developing a division that originates Commercial Installment Loans financing small businesses outside of the taxicab industry. MFC, the largest SSBIC 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 1994, provides taxicab rooftop advertising and has initiated a plan to become a national provider of such advertising. Media currently provides such advertising in New York City, Philadelphia, Miami and Boston and has recently entered the Atlanta and Los Angeles markets. Upon consummation of the Acquisitions, Tri-Magna will be merged into Medallion Financial and MFC and Media will become wholly owned subsidiaries of Medallion Financial. At that time, Tri-Magna will constitute approximately 61% of the Company's assets.
Edwards Capital Company. Operating exclusively in New York City, Edwards is a well-established medallion lender. Unlike MFC and TCC, which are SSBICs, Edwards is an SBIC and, therefore, is permitted to lend to any small business concern rather than being restricted to financing small business concerns that are owned and managed by persons deemed to be socially or economically disadvantaged. Accordingly, Edwards has a larger borrower base than the SSBICs and performs its credit analyses based solely on economic criteria. The Company anticipates that after the Offering, Edwards will increase its volume of originations of Commercial Installment Loans. Edwards was organized in 1979 and operated as a privately held limited partnership until the acquisition of substantially all of its assets by Medallion Financial through a newly formed subsidiary which has registered as a closed-end, management investment company under the 1940 Act. Upon consummation
of the Acquisitions, Edwards will be registered as a closed-end, management investment company under the 1940 Act and will constitute approximately 28% of the Company's assets.
Transportation Capital Corp. TCC is a well-established and geographically diverse medallion lender with operations in Boston, Cambridge, Chicago and New York City. The Company anticipates that after the Offering, TCC will increase its volume of originations of Commercial Installment Loans. TCC was a wholly owned indirect subsidiary of Leucadia National Corporation ("Leucadia") until its acquisition by Medallion Financial. TCC was incorporated in 1979 and is licensed as an SSBIC. Upon consummation of the Acquisitions, TCC will be a closed-end, management investment company registered under the 1940 Act, will be a wholly owned subsidiary of Medallion Financial and will constitute approximately 11% of the Company's assets.
The Company's executive offices are located at 205 East 42nd Street, Suite 2020, New York, New York 10017, and its telephone number is (212) 682-3300.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
N-2 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement, including the exhibits and schedules thereto. Statements contained
in this Prospectus as to the contents of any contract or any other document
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. MFC, TCC and Edwards have each filed or intend to file with the
Commission a Notification of Registration on Form N-8A and intend to file a
Registration Statement on Form N-5 under the 1940 Act prior to April 1996. For
further information with respect to MFC, TCC and Edwards, reference is hereby
made to their respective Registration Statements on Form N-5, including the
exhibits and schedules thereto. The Registration Statement and the
Registration Statements on Form N-5 when filed, including exhibits and
schedules thereto, may be inspected without charge at the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies can also be obtained from the Commission at
prescribed rates.
In connection with the Acquisitions, the Company has filed with the Commission an application for an exemptive order under the 1940 Act (the "Application"). The Application seeks an exemption from certain provisions of the 1940 Act and rules thereunder that would otherwise prohibit the Acquisitions and operation of the Company on a combined basis. The Acquisitions and the Offering are contingent upon receipt of such exemptive order. The Application may be inspected without charge at the Commission's Public Reference Section and copies can be obtained from the Commission at prescribed rates. See "Business -- Formation Transactions."
DISTRIBUTIONS
The Company's policy is to make quarterly distributions of its investment company taxable income and to distribute at least 90% of such income annually. Initial distributions to stockholders are expected to be declared approximately 90 days, and paid approximately 120 days, after the completion of the Offering. Investment company taxable income of the Company includes, among other things, dividends and interest reduced by deductible expenses. See "Federal Income Tax Considerations." For the nine months ended September 30, 1995, 96.1% of the Company's net income, on a pro forma combined basis, was investment company taxable income. The Company does not expect to have capital gains, however, to the extent that it does, it will distribute them annually. The Company's ability to make dividend payments is restricted by certain asset coverage requirements under the 1940 Act and is dependent upon maintenance of its status as a RIC under the Code. See "Regulation" and "Federal Income Tax Considerations." The Company's ability to make dividend payments is further restricted by certain financial covenants contained in the Company's credit agreements, by SBA Regulations and under the terms of the subordinated SBA debentures. The Company has adopted a dividend reinvestment plan pursuant to which stockholders can have distributions reinvested in additional shares of Common Stock. See "Dividend Reinvestment Plan."
Substantially all of the Company's investment company taxable income is expected to be comprised of cash dividends paid to it by the RIC Subsidiaries. The RIC Subsidiaries intend to elect to be treated for tax purposes as RICs under the Code and, therefore, must comply with the same income distribution requirements that apply to the Company. As RICs, they are not subject to U.S. federal income tax on any investment company taxable income that they distribute to their stockholder, the Company, if at least 90% of their respective investment company taxable income is distributed to the Company. See "Federal Income Tax Considerations." The policy of each of the RIC Subsidiaries is to make quarterly distributions to the Company of at least 90% of their respective investment company taxable income. Substantially all of the RIC Subsidiaries' net income is investment company taxable income and is derived from interest paid on Medallion Loans and Commercial Installment Loans.
Media is not expected to pay dividends to the Company for the foreseeable future. Media, unlike the RIC Subsidiaries, does not qualify as a RIC under the Code and, therefore, is not subject to RIC distribution requirements. Media is subject to U.S. federal income tax as a corporation under the Code and will pay taxes on corporate income under the standard corporate tax rules. Media expects to retain all of its earnings for funding the operation and expansion of its business.
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting the sales load and other offering expenses payable by the Company (estimated to be approximately $5.7 million), are estimated to be approximately $49.3 million, assuming an offering price of $11.00 per share (approximately $57.0 million if the Underwriters' over-allotment option is exercised in full). Of this amount, $38.7 million will be used to pay the cash purchase price for the acquisition of the Founding Companies. See "Business -- Formation Transactions" and "Certain Transactions."
The following table sets forth the aggregate consideration estimated to be payable for each Founding Company based on September 30, 1995 amounts:
BANK DEBT SBA DEBT
CASH ASSUMED ASSUMED TOTAL
------- --------- -------- --------
(IN THOUSANDS)
Tri-Magna................................ $13,378 $78,320 $ -- $ 91,698
Edwards.................................. 15,096 9,425 24,950 49,471
TCC...................................... 10,223 -- 6,730 16,953
------- ------- ------- --------
Total.................................. $38,697 $87,745 $31,680 $158,122
======= ======= ======= ========
|
All cash payments reflected in the preceding table are payable solely out of the net proceeds of the Offering. Of the $119.4 million in indebtedness assumed in connection with the Acquisitions, $9.7 million and $6.5 million will initially be repaid from the proceeds from the Offering and the cash acquired in the Acquisitions, respectively, within 30 days of the completion of the Offering. Of the $9.7 million, $3.2 million will be used to repay indebtedness incurred in connection with the Company's repurchase of subordinated SBA debentures and preferred stock. The indebtedness to be repaid from the proceeds of the Offering bears interest at rates ranging from 7.83% to 8.75%, with a weighted average rate of interest of 8.01%. Such indebtedness would otherwise mature at various dates through September 30, 1996. In addition, the Company will pay $900,000 in investment advisory fees. See "Business -- Sources of Funds -- Preferred Stock Repurchase Agreements" and "Investment Objectives, Policies and Restrictions--The Investment Adviser."
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company at September 30, 1995 assuming (i) 2,500,000 shares of Common Stock of the Company issued prior to the Offering (the "Pre-Offering Issuance") had been outstanding on that date, (ii) the sale of 5,000,000 shares of Common Stock offered hereby with estimated net proceeds of $49.3 million and (iii) the application of the estimated net proceeds in connection with the Acquisitions, application of the cash acquired in connection therewith and for other uses as described herein. See "Use of Proceeds" and "Business -- Sources of Funds." This table should be read in conjunction with the Selected Financial Data included in this Prospectus.
SEPTEMBER 30, 1995
---------------------------------------
PRO FORMA
AS ADJUSTED
MEDALLION FOR APPLICATION
FINANCIAL AS ADJUSTED OF OFFERING
HISTORICAL FOR OFFERING PROCEEDS
---------- ------------ ---------------
(DOLLARS IN THOUSANDS)
Debt:
Subordinated SBA debentures of
subsidiaries........................ $-- $-- $ 31,344
Notes payable to bank................ -- -- 71,513
---- ------- --------
Total long-term debt............... -- -- 102,857
Stockholders' equity:(1)
Preferred Stock, $.01 par value;
1,000,000 shares authorized; no
shares issued and outstanding....... -- -- --
Common Stock, $.01 par value;
15,000,000 shares authorized;
2,500,000 shares issued and
outstanding historical, 7,500,000
shares as adjusted for offering,
7,500,000 shares pro forma as
adjusted for application of Offering
proceeds............................ -- 75 75
Additional paid-in capital........... 2 49,225 49,227
---- ------- --------
Total stockholders' equity......... 2 49,300 49,302
---- ------- --------
Total capitalization................... $ 2 $49,300 $152,159
==== ======= ========
|
DILUTION
The pro forma net tangible book value of the Company at September 30, 1995
was negative $2.8 million, or negative $1.10 per share after giving effect to
(i) the Acquisitions and (ii) the Pre-Offering Issuance. "Pro forma net
tangible book value per share" is the pro forma tangible net worth (total pro
forma tangible assets less total pro forma liabilities) of the Company divided
by the number of shares of Common Stock outstanding after giving effect to (i)
the Acquisitions and (ii) the Pre-Offering Issuance. After giving effect to
the sale of the Common Stock offered hereby (after deducting the sales load
and estimated offering expenses), the pro forma net tangible book value of the
Company at September 30, 1995 would have been $46.5 million, or $6.21 per
share, representing an immediate increase in net tangible book value of $7.31
per share to existing stockholders and an immediate dilution of $4.79 per
share to the investors purchasing the shares of Common Stock in the Offering
("New Investors").
The following table illustrates this dilution to New Investors:
Assumed initial public offering price per share........................ $11.00
Pro forma net tangible book value per share before the
Offering..................................................... ($1.10)
Increase per share attributable to the sale of shares to New
Investors.................................................... 7.31
------
Pro forma net tangible book value per share after the
Offering..................................................... 6.21
------
Dilution to New Investors.............................................. $ 4.79
======
|
The following table sets forth at the date of this Prospectus the number of shares of Common Stock acquired from the Company, the total consideration paid to the Company and the average price per share paid by existing stockholders (after giving effect to the Acquisitions and the SBA Repurchase) and by the New Investors.
SHARES ACQUIRED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
Existing stockholders....... 2,500,000 33.3% $ 2,000 -- % $ --
New Investors............... 5,000,000 66.7 55,000,000 100.0 11.00
--------- ----- ----------- -----
Total....................... 7,500,000 100.0% $55,002,000 100.0%
========= ===== =========== =====
|
SELECTED FINANCIAL DATA
Medallion Financial Corp. was recently organized to acquire and expand the specialty finance businesses conducted by Tri-Magna, Edwards and TCC as well as the taxicab rooftop advertising business conducted by Tri-Magna. Medallion Financial has only recently been organized and, accordingly, has no results of operations. Simultaneously with, and as a condition to the closing of the Offering, Medallion Financial will acquire each of the Founding Companies. Prior to the Acquisitions, each of the Founding Companies had been operating independently of each other. Accordingly, the following Selected Financial Data is comprised of two major sections.
The first section, Pro Forma Data, presents selected unaudited financial data of the Company as if the Founding Companies had been acquired and the Offering effected, and gives effect to the application of the proceeds of the Offering and the cash acquired in the Acquisitions as described in "Use of Proceeds." In addition, the pro forma information is based on available information and certain assumptions and adjustments set forth in Notes 1 and 2 to the "Pro Forma Combined Financial Statements." The pro forma selected balance sheet data were prepared as if the Offering and the Acquisitions had occurred on September 30, 1995. The pro forma selected statement of operations data were prepared as if the Offering and the Acquisitions had occurred on January 1, 1994. The pro forma data are not necessarily indicative of the future financial position or results of operations of the Company.
The second section of the following discussion presents the Historical Selected Financial Data of each of the Founding Companies. The Historical Selected Financial Data for the nine months ended September 30, 1995 and the fiscal years ended December 31, 1994 and 1993 have been derived from audited financial statements appearing in this Prospectus. The Historical Selected Financial Data for Edwards and TCC have been reclassified to permit a presentation that is consistent with the investment company status they will acquire upon completion of the Acquisitions and the Offering. The Historical Selected Financial Data for the nine months ended September 30, 1994 have been derived from unaudited financial statements that appear in this Prospectus. The Selected Financial Data for the fiscal years ended December 31, 1991 and 1992 for Tri-Magna and TCC have been derived from their respective unaudited financial statements not included in this Prospectus. These unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations of the Founding Companies for the period presented.
The Selected Financial Data provided herein should be read in conjunction with the financial statements of Tri-Magna, Edwards and TCC, including the Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Prospectus.
PRO FORMA SELECTED FINANCIAL DATA
(UNAUDITED)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------ ----------------
1994 1994 1995
------------ ------- -------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA
Investment income.............................. $15,156 $11,396 $11,662
Interest expense............................... 7,221 5,322 6,052
------- ------- -------
Net interest income............................ 7,935 6,074 5,610
Equity in earnings of unconsolidated
subsidiary(1)................................. 18 -- 133
Other income................................... 1,139 997 626
Accretion of negative goodwill................. 900 675 675
Total non-interest expense..................... 4,113 3,333 2,946
Amortization of goodwill....................... 420 315 315
------- ------- -------
Net investment income.......................... 5,459 4,098 3,783
Realized (loss) on investments, net............ (166) (79) (23)
Change in unrealized depreciation of
investments(2)................................ 872 641 179
------- ------- -------
Net increase in net assets resulting from
operations before extraordinary items......... 6,165 4,660 3,939
Extraordinary items(3)......................... (526) (526) --
------- ------- -------
Net increase in net assets resulting from
operations(4)................................. $ 5,639 $ 4,134 $ 3,939
======= ======= =======
|
SEPTEMBER 30,
1995
--------------
SELECTED FINANCIAL RATIOS AND OTHER DATA
Medallion Loans as a percentage of investments................... 79.6%
Commercial Installment Loans as a percentage of investments...... 20.4
Investments to assets............................................ 91.7
Equity to assets................................................. 31.3
Debt to equity................................................... 209
SBA debt to total debt........................................... 30.5
Weighted average yield........................................... 10.69
Weighted average cost of funds................................... 7.67
Spread........................................................... 3.02
SEPTEMBER 30,
1995
--------------
BALANCE SHEET DATA (IN THOUSANDS)
Investments
Medallion Loans................................................ $115,611
Commercial Installment Loans................................... 29,748
Unrealized depreciation of investments(5)........................ --
--------
Investments, net of unrealized depreciation of investments....... 145,359
Total assets..................................................... 157,762
Notes payable and demand notes................................... 71,513
Subordinated SBA debentures...................................... 31,344
Total liabilities................................................ 108,460
Total shareholders' equity....................................... 49,302
|
HISTORICAL SELECTED FINANCIAL DATA
TRI-MAGNA
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA
Investment income........ $ 8,806 $ 7,953 $ 8,333 $ 8,820 $ 6,571 $ 7,192
Interest expense......... 4,139 3,509 3,661 4,756 3,403 4,431
------- ------- ------- ------- ------- -------
Net interest income...... 4,667 4,444 4,672 4,064 3,168 2,761
Equity in earnings of
unconsolidated
subsidiary(1)........... -- -- -- 18 -- 133
Other income............. 393 632 541 519 443 315
Total non-interest ex-
pense................... 2,249 2,754 3,097 2,700 2,206 2,020
Dividends paid on minor-
ity interest............ 277 277 277 277 208 208
------- ------- ------- ------- ------- -------
Net investment income.... 2,534 2,045 1,839 1,624 1,197 981
Realized gain (loss) on
investments, net........ (205) (223) (115) (22) (9) 4
Change in unrealized
depreciation of
investments(2).......... (200) 125 (53) 58 151 (110)
------- ------- ------- ------- ------- -------
Net increase in net
assets resulting from
operations.............. $ 2,129 $ 1,947 $ 1,671 $ 1,660 $ 1,339 $ 875
======= ======= ======= ======= ======= =======
SELECTED FINANCIAL RATIOS
AND OTHER DATA(3)(4)
Return on average as-
sets(5)................. 3.31% 2.81% 2.12% 1.88% 2.02% 1.23%
Return on average equi-
ty(6)................... 19.34 17.67 15.29 15.29 16.45 10.67
Interest rate spread
Average yield(7)........ 14.08 12.17 11.04 10.24 10.29 10.58
Average cost of
funds(8)............... 8.58 7.44 6.09 6.99 6.77 8.26
Spread(9)............... 5.50 4.73 4.95 3.25 3.52 2.32
Other income to average
assets.................. 0.61 0.91 0.69 0.59 0.67 0.44
Non-interest expense to
average assets.......... 3.50 3.97 3.92 3.05 3.33 2.85
Weighted average assets.. $64,320 $69,401 $78,921 $88,414 $88,356 $94,608
Weighted average invest-
ments(10)............... 62,552 65,338 75,461 86,166 85,157 90,668
Weighted average equity.. 11,011 11,019 10,931 10,855 10,854 10,929
Weighted average debt.... 48,230 47,160 60,160 68,010 67,063 71,530
DECEMBER 31,(4) SEPTEMBER 30,(4)
----------------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
Medallion Loans as a
percentage of
investments............. 73.0% 81.0% 81.0% 72.4% 74.4% 69.1%
Commercial Installment
Loans as a percentage of
investments............. 27.0 19.0 19.0 27.6 25.6 30.9
Investments to assets.... 94.6 93.8 96.4 96.7 94.5 96.3
Equity to assets......... 16.9 15.0 12.9 11.8 11.8 11.6
Debt to equity(11)....... 218 259 315 356 354 461
SBA debt to total debt... 28.3 23.8 19.8 17.5 17.6 --
DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA
Investments
Medallion Loans......... $45,642 $56,460 $66,437 $65,424 $65,533 $64,890
Commercial Installment
Loans.................. 16,922 13,325 15,577 24,918 22,557 29,032
Unrealized depreciation
of investments(12)...... (900) (775) (828) (770) (677) (880)
------- ------- ------- ------- ------- -------
Investments, net of
unrealized depreciation
of investments.......... 61,664 69,010 81,186 89,572 87,413 93,042
Total assets............. 65,199 73,603 84,239 92,590 92,473 96,627
Notes payable............ 31,700 40,000 50,700 59,025 58,625 78,320
Subordinated SBA
debentures.............. 12,500 12,500 12,500 12,500 12,500 --
Total liabilities........ 44,954 53,341 64,171 72,480 72,366 79,643
Minority interest........ 9,234 9,234 9,234 9,234 9,234 --
Total shareholders'
equity.................. 11,011 11,027 10,834 10,876 10,873 16,984
|
MEDIA(1)
NINE MONTHS
PERIOD ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
STATEMENT OF OPERATIONS DATA
Advertising revenue.................................. $227,756 $1,091,724
Cost of services..................................... 83,341 325,276
-------- ----------
Gross margin......................................... 144,415 766,448
Other operating expenses............................. 126,036 574,786
-------- ----------
Income before taxes.................................. 18,379 191,662
Income taxes......................................... -- 59,030
-------- ----------
Net income........................................... $ 18,379 $ 132,632
======== ==========
|
EDWARDS
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 5,535 $ 5,444 $ 4,955 $ 4,334 $ 3,262 $ 3,269
Interest expense........ 3,258 2,873 2,741 2,765 2,088 2,073
------- ------- ------- ------- ------- -------
Net interest income..... 2,277 2,571 2,214 1,569 1,174 1,196
Other income............ 322 412 476 620 554 311
Total non-interest ex-
pense.................. 965 1,512 1,022 1,108 821 642
Income tax expense...... 30 73 51 21 12 33
------- ------- ------- ------- ------- -------
Net investment income... 1,604 1,398 1,617 1,060 895 832
Realized gain (loss) on
investments, net....... (639) (13) -- -- -- --
------- ------- ------- ------- ------- -------
Net increase in net
assets resulting from
operations before
extraordinary items.... 965 1,385 1,617 1,060 895 832
Extraordinary items(1).. -- -- -- (526) (526) --
------- ------- ------- ------- ------- -------
Net increase in net
assets resulting from
operations............. $ 965 $ 1,385 $ 1,617 $ 534 $ 369 $ 832
======= ======= ======= ======= ======= =======
SELECTED FINANCIAL RATIOS AND
OTHER DATA(2)(3)
Return on average as-
sets(4)................ 2.27% 3.19% 3.60% 2.35% 2.68% 2.50%
Return on average part-
ners' capital(5)....... 12.22 16.47 17.51 11.69 13.29 12.66
Interest rate spread
Average yield(6)....... 13.75 13.10 11.51 10.06 10.12 10.01
Average cost of
funds(7).............. 9.21 7.98 7.97 7.97 8.04 8.02
Spread(8).............. 4.54 5.12 3.54 2.09 2.08 1.99
Other income to average
assets................. 0.76 0.95 1.06 1.38 1.66 0.93
Non-interest expense to
average assets......... 2.27 3.48 2.27 2.46 2.46 1.93
Weighted average as-
sets................... $42,501 $43,465 $44,953 $45,025 $44,577 $44,383
Weighted average invest-
ments(9)............... 40,260 41,567 43,047 43,074 42,975 43,532
Weighted average part-
ners' capital.......... 7,900 8,409 9,235 9,064 8,981 8,765
Weighted average debt... 35,370 36,015 34,385 34,690 34,625 34,469
DECEMBER 31,(3) SEPTEMBER 30,(3)
---------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
Medallion Loans as a
percentage of
Investments............ 98.0% 98.3% 98.3% 98.3% 98.1% 98.5%
Commercial Installment
Loans as a percentage
of Investments......... 2.0 1.7 1.7 1.7 1.9 1.5
Investments to assets... 95.0 96.7 97.0 97.5 97.2 97.7
Partners' capital to as-
sets................... 18.6 20.1 21.0 19.2 19.3 20.3
Debt to partners' capi-
tal(10)................ 427 382 365 408 410 384
SBA debt to total debt.. 63.6 73.2 71.6 71.4 72.3 72.6
|
EDWARDS
DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA
Investments
Medallion Loans........ $39,564 $42,301 $43,383 $42,740 $41,705 $42,571
Commercial Installment
Loans................. 867 719 758 747 796 637
Unrealized depreciation
of investments(11)..... (50) (50) (43) (20) (43) (20)
------- ------- ------- ------- ------- -------
Investments, net of
unrealized depreciation
of investments......... 40,381 42,970 44,098 43,467 42,458 43,188
Total assets............ 42,501 44,430 45,476 44,574 43,679 44,192
Notes payable and demand
notes.................. 12,250 9,125 9,900 10,000 9,550 9,425
Subordinated SBA deben-
tures.................. 21,450 24,950 24,950 24,950 24,950 24,950
Total liabilities....... 34,601 35,511 35,926 35,998 35,268 35,239
Total partners' capi-
tal.................... 7,900 8,919 9,551 8,576 8,411 8,953
|
TCC
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA
Investment income....... $ 4,197 $ 3,944 $ 3,110 $ 2,217 $ 1,708 $ 1,400
Interest expense........ 2,503 1,538 1,064 709 584 359
------- ------- ------- ------- ------- -------
Net interest income..... 1,694 2,406 2,046 1,508 1,124 1,041
Total non-interest ex-
pense.................. 1,206 1,038 1,269 711 637 586
Income tax expense (ben-
efit)(1)............... -- 74 (983) 653 397 304
------- ------- ------- ------- ------- -------
Net investment income,
adjusted for taxes(2).. 488 1,294 1,760 144 90 151
Realized gain (loss) on
investments............ (1,302) (646) (69) (144) (70) (28)
Change in unrealized
depreciation of
investments(3)......... (1,705) -- 232 790 279 289
------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets resulting
from operations........ $(2,519) $ 648 $ 1,923 $ 790 $ 510 $ 412
======= ======= ======= ======= ======= =======
SELECTED FINANCIAL
RATIOS AND OTHER
DATA(4)(5)
Return on average
assets(6).............. (7.76)% 2.46% 8.36% 3.90% 3.29% 3.03%
Return on average common
equity(7).............. (61.83) 14.73 33.84 11.22 9.85 6.17
Interest rate spread
Average yield(8)....... 13.14 15.87 15.77 13.86 13.61 13.56
Average cost of
funds(9).............. 9.93 8.56 8.10 7.60 7.92 6.53
Spread(10)............. 3.21 7.31 7.67 6.26 5.69 7.03
Non-interest expense to
average assets......... 3.71 3.94 5.51 3.51 4.11 4.30
Weighted average
assets................. $32,479 $26,338 $23,011 $20,260 $20,670 $18,154
Weighted average
investments(11)........ 31,907 24,295 19,000 14,446 15,311 10,538
Weighted average common
equity................. 4,074 4,398 5,683 7,042 6,902 8,900
Weighted average debt... 25,198 17,967 13,133 9,330 9,830 7,330
DECEMBER 31, (5) SEPTEMBER 30, (5)
----------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
Medallion Loans as a
percentage of
investments............ 83.8% 81.6% 85.4% 80.1% 83.5% 83.8%
Commercial Installment
Loans as a percentage
of investments......... 16.2 18.4 14.6 19.9 16.5 16.2
Loans to assets......... 91.7 74.4 75.6 52.8 57.0 52.6
Equity to assets........ 26.4 33.2 46.5 57.1 53.3 59.7
Debt to equity(12)...... 274 192 107 73 85 65
SBA debt to total debt.. 30.7 73.4 100.0 100.0 100.0 100.0
DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------
1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
Investments
Medallion Loans........ $23,368 $16,471 $15,433 $ 8,796 $10,474 $ 8,223
Commercial Installment
Loans................. 4,513 3,721 2,641 2,185 2,071 1,596
Unrealized depreciation
of investments(13)..... (2,000) (2,000) (1,768) (978) (1,278) (689)
------- ------- ------- ------- ------- -------
Investments, net of
unrealized depreciation
of investments......... 25,881 18,192 16,306 10,003 11,267 9,130
Cash and cash
equivalents............ 1,847 5,790 3,911 8,199 7,479 7,730
Total assets............ 28,223 24,453 21,569 18,951 19,772 17,357
Notes payable and demand
notes.................. 14,132 4,132 -- -- -- --
SBA debentures.......... 6,265 11,405 10,730 7,930 8,930 6,730
Total liabilities....... 20,766 16,348 11,541 8,129 9,230 6,997
Total shareholders'
equity................. 7,457 8,105 10,028 10,822 10,542 10,361
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
This discussion is intended to assist investors in their analysis of the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Selected Financial Data and the Financial Statements and Notes thereto appearing in this Prospectus.
The Company's principal activity is the origination and servicing of Medallion Loans and Commercial Installment Loans. The earnings of the Company depend primarily on its level of net interest income, which is the difference between interest earned on interest-earning assets consisting primarily of Medallion Loans and Commercial Installment Loans, and the interest paid on interest-bearing liabilities consisting primarily of credit facilities with bank syndicates and subordinated debentures issued to or guaranteed by the SBA. Net interest income is a function of the net interest rate spread which is the difference between the average yield earned on interest-earning assets and the average interest rate paid on interest-bearing liabilities, as well as the average balance of interest-earning assets as compared to interest-bearing liabilities. Net interest income is affected by economic, regulatory and competitive factors that influence interest rates, loan demand and the availability of funding to finance the Company's lending activities. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-earning assets reprice on a different basis than its interest-bearing liabilities.
The Company's investment income is driven by the yield on Medallion Loans and Commercial Installment Loans. The extent to which the yield of the Company's Medallion Loan originations exceeds the Prime Rate has been in a long-term decline. However, since December 1994 the average yield of both the Medallion Loan and Commercial Installment Loan portfolios has slightly increased. On a pro forma basis, weighted average portfolio yield at September 30, 1995 was 10.69%. The increase in average yield is partially the result of stabilization in market interest rates for Medallion Loans, which began in July 1994. Since December 1994, the average portfolio yield has increased as older, lower interest rate loans in the portfolio have matured or been prepaid and newer, higher interest rate loans have constituted a greater proportion of the portfolio. From inception of its business through September 30, 1995, the period between the origination and final payment of all Medallion Loans originated by Tri-Magna has been estimated by the Company to be 29 months, on a weighted average basis. The Company believes that this weighted average time period varies to some extent as a function of changes in interest rates because borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rate payable on the borrower's loan is high relative to prevailing interest rates and are less likely to prepay in a rising interest rate environment.
The Company has also increased the average yield of the portfolio by shifting the portfolio mix toward a higher percentage of Commercial Installment Loans which historically have had a yield of approximately 350 basis points higher than the Company's Medallion Loans. Commercial Installment Loans represented 20.4% of the total portfolio at September 30, 1995. The Company intends to continue to increase the percentage of Commercial Installment Loans in the total portfolio.
The Company's interest expense is driven by the interest rate payable on the Company's LIBOR-based short-term credit facilities with bank syndicates and, to a lesser degree, fixed-rate, long-term subordinated debentures issued to or guaranteed by the SBA. Recently, the Company has reduced its reliance on SBA financing and increased the relative proportion of bank debt to total liabilities. SBA financing offers very attractive rates, but such financing is restricted in its application and its availability is uncertain. In addition, SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. Accordingly, the Company plans to continue to limit its use of SBA funding and will seek such funding only when advantageous, such as when SBA financing rates are particularly attractive, and to fund loans that qualify under SBA Regulations through subsidiaries already subject to SBA restrictions. The Company believes that its transition to financing its operations primarily with short-term LIBOR-based bank debt has generally decreased its interest
expense thus far, but has also increased the Company's exposure to the risk of increases in market interest rates. The Company also expects that net interest income should increase because bank debt is more available than SBA financing and will thus permit an increased level of loan originations. On a pro forma basis, at September 30, 1995, short-term LIBOR-based debt constituted 69.5% of total debt.
The Company's cost of funds is primarily driven by (i) the average maturity of debt issued by the Company, (ii) the premium to LIBOR paid by the Company on its LIBOR-based debt, and (iii) the ratio of LIBOR-based debt to SBA financing. The Company incurs LIBOR-based debt for terms generally ranging from 30 to 180 days. The Company's subordinated debentures issued to or guaranteed by the SBA typically have terms of ten years. The Company's cost of funds reflects fluctuations in LIBOR to a greater degree than in the past because LIBOR-based debt has come to represent a greater proportion of the Company's debt. The Company measures its cost of funds as its aggregate interest expense for all of its interest-bearing liabilities divided by the face amount of such liabilities. The Company analyzes its cost of funds in relation to the average of the monthly 90- and 180-day LIBOR (the "LIBOR Benchmark"). On a pro forma basis, at September 30, 1995, the Company's weighted average cost of funds was 7.67%, or 147 basis points over the LIBOR Benchmark of 6.20%.
In connection with its Medallion Loan finance business, the Company also conducts a taxicab rooftop advertising business which began operations in November 1994. Media's revenue is affected by the number of Displays that it owns and the occupancy rate of those Displays. At September 30, 1995, Media owned 1,523 Displays and its Display occupancy rate averaged 90% for the nine months then ended. The Company expects that Media will continue to expand its operations. Although Media is a wholly-owned subsidiary of the Company, its results of operations are not consolidated with the Company because Commission regulations prohibit the consolidation of non-investment companies, such as Media, with investment companies, such as Medallion Financial.
Factors which affect the Company's net assets include net realized gain/loss on investments and change in net unrealized depreciation of investments. Net realized gain/loss on investments is the difference between the proceeds derived upon foreclosure of a loan and the cost basis of such loan. Change in net unrealized depreciation of investments is the amount, if any, by which the Company's estimate of the fair market value of its loan portfolio is below the cost basis of the loan portfolio. Under the 1940 Act and the Small Business Investment Act of 1958 (the "SBIA") and regulations thereunder ("SBA Regulations"), the Company's loan portfolio must be recorded at fair market value or "marked to market." Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses, but adjusts quarterly the valuation of its loan portfolio to reflect the Company's estimate of the current realizable value of the loan portfolio. Since no ready market exists for the Company's loans, fair market value is subject to the good faith determination of the Company. In determining such value, the Company takes into consideration factors such as the financial condition of its borrowers, the adequacy of its collateral and the relationships between current and projected market rates of interest and portfolio rates of interest and maturities. Any change in the fair value of portfolio loans as determined by the Company is reflected in net unrealized depreciation of investments and affects net increase in net assets resulting from operations, but has no impact on net investment income or distributable income. Upon completion of the Acquisitions, the Company's loan portfolio will be recorded on the balance sheet at fair market value as estimated by the Company in accordance with the 1940 Act and the purchase method of accounting.
The Company has only recently been organized and, accordingly, has no results of operations. Simultaneously with, and as a condition to the closing of the Offering, the Company will acquire each of the Founding Companies. Prior to the Acquisitions, each of the Founding Companies had been operating independently of each other, with management of the Company successfully operating Tri-Magna since it began its medallion lending operations in 1979. Tri-Magna is the largest of the three Founding Companies being acquired by Medallion Financial in connection with the Offering and is an investment company registered under the 1940 Act.
The following discussion, under the caption "Pro Forma Data," presents the financial position and results of operations of the Company had the Founding Companies been acquired and the Offering effected on
January 1, 1994 or September 30, 1995, as applicable. The Pro Forma Data are not comparable to or indicative of future performance. The historical financial condition and results of operations of each of Tri-Magna, Edwards and TCC are then discussed. Discussions of asset/liability management and liquidity and capital resources of the Company on a combined basis then follow.
PRO FORMA DATA
Comparison of the Pro Forma Nine Months Ended September 30, 1994 and September 30, 1995
Performance Summary. Net increase in net assets resulting from operations decreased $195,000 or 4.8% from $4.1 million for the nine months ended September 30, 1994 to $3.9 million for the nine months ended September 30, 1995. The decrease was the result of a decrease in net interest income caused by an increase in cost of funds which exceeded an increase in portfolio yield. Other income was also lower because of a decline in the receipt of prepayment fees due to an increase in market rates for Medallion Loans resulting in decreased refinancing activity. In addition, a prepayment premium of $526,000, which is recorded as an extraordinary item, was incurred in 1994 in connection with Edwards' refinancing of $9.7 million in subordinated SBA debentures. Substantially offsetting the foregoing were increases in advertising revenue generated by Media which began active operations in November 1994 and decreases in non-interest expense and net unrealized depreciation of investments. Non-interest expense decreased because of a reduction in professional fees, a reduction in operating expenses relating to a reduction in rent and salaries associated with contraction of TCC's loan portfolio and a reduction in profit sharing payments. Net unrealized depreciation of investments decreased because of the decreased potential loan loss exposure corresponding to the contraction of TCC's loan portfolio.
Net Interest Income. Net interest income decreased $464,000 or 7.6% from $6.1 million for the nine months ended September 30, 1994 to $5.6 million for the nine months ended September 30, 1995. The interest rate spread was 3.02% at September 30, 1995. The Company's investment income increased $266,000 or 2.3% from $11.4 million for the nine months ended September 30, 1994 to $11.7 million for the nine months ended September 30, 1995. The increase in investment income was partially the result of portfolio growth. On a pro forma basis, portfolio yield at September 30, 1995 was 10.69%. The increase in average yield was caused by both (i) a shift in the portfolio mix toward a higher percentage of Commercial Installment Loans which historically have had a yield of approximately 350 basis points higher than Medallion Loans and (ii) a slight increase in the average interest rate on Medallion Loans. Commercial Installment Loans represented approximately 20.4% of the loan portfolio at September 30, 1995.
The Company's interest expense increased $730,000 or 13.8% from $5.3 million for the nine months ended September 30, 1994 to $6.1 million for the nine months ended September 30, 1995. The Company's weighted average cost of funds was 7.67% at September 30, 1995. Interest expense increased as the result of an increase in the average cost of funds during the period due primarily to a 170 basis point increase in the LIBOR Benchmark. This increase in cost of funds was partially offset by (i) the refinancing and reduction of relatively higher interest rate subordinated debentures and (ii) a 38 basis point decrease in the spread over LIBOR charged by the Company's banks. The increase in interest expense was also in part the result of increased net borrowings to $102.9 million at September 30, 1995. The increased borrowings were incurred to fund portfolio growth.
Equity in Earnings of Unconsolidated Subsidiary. For the nine months ended September 30, 1995, Media generated advertising revenue of $1.1 million and incurred Display rental costs of $325,000, resulting in a gross margin of $766,000 or 69.6% of advertising revenue. For the nine months ended September 30, 1995, Media generated $133,000 in net income which is recorded as equity in earnings of unconsolidated subsidiary on the Company's consolidated statement of operations and represented 3.5% of the Company's net investment income. Media began active operations in November 1994; accordingly, there was no corresponding operating data for the nine months ended September 30, 1994. At September 30, 1995, Media owned 1,523 Displays and its Display occupancy rate averaged 90% for the nine months then ended.
Other Income. The Company's other income decreased $371,000 or 37.2% from $997,000 for the nine months ended September 30, 1994 to $626,000 for the nine months ended September 30, 1995. Other income
decreased because of a reduction in the receipt of prepayment fees due to an increase in market rates for Medallion Loans resulting in decreased refinancing activity. In addition, other income declined because of a reduction in the receipt of income from servicing Medallion Loan participations.
Accretion of Negative Goodwill. Negative goodwill is the excess of fair value of net assets of an acquired business over the cost basis of such business. Negative goodwill of $3.4 million and $100,000 was generated in the acquisition of Tri-Magna and TCC, respectively.
Non-interest Expense. The Company's non-interest expense decreased $387,000 or 11.7% from $3.3 million for the nine months ended September 30, 1994 to $2.9 million for the nine months ended September 30, 1995. The decrease was primarily due to reductions in professional fees which were higher in 1994 because of costs associated with refinancing subordinated SBA debentures. The Company will seek to reduce non-interest expense as a percentage of assets by consolidating the operations of the Founding Companies, maximizing efficiencies of scale and eliminating redundant services and functions.
Amortization of Goodwill. Goodwill is the excess of cost of an acquired business over the fair value of net assets acquired. Goodwill of $6.3 million was generated in the acquisition of Edwards.
Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. For the nine months ended September 30, 1994 and 1995, the Company had realized losses on investments of $79,000 and $23,000, respectively. The Company's change in net unrealized depreciation of investments decreased $462,000 or 72.1% from $641,000 for the nine months ended September 30, 1994 to $179,000 for the nine months ended September 30, 1995, due to the decreased potential loan loss exposure associated with the contraction of the TCC loan portfolio. Upon completion of the Acquisitions, the Company's loan portfolio will be recorded on the balance sheet at fair market value as estimated by the Company in accordance with the 1940 Act and the purchase method of accounting.
Extraordinary Item. The Company incurred a prepayment premium of $526,000 in connection with Edwards' refinancing of $4.6 million and $5.1 million of subordinated SBA debentures on June 29, 1994 and September 28, 1994, respectively.
TRI-MAGNA HISTORICAL RESULTS OF OPERATIONS
Comparison of the Historical Nine Months Ended September 30, 1994 and September 30, 1995
Net Interest Income. Net interest income decreased $407,000 or 12.7% from $3.2 million for the nine months ended September 30, 1994 to $2.8 million for the nine months ended September 30, 1995. The interest rate spread of 3.52% for the nine months ended September 30, 1994 decreased 120 basis points to 2.32% for the nine months ended September 30, 1995. This decrease reflected a 149 basis point increase in the average cost of funds offset by a 29 basis point increase in the average yield of the portfolio during the period. Tri- Magna's investment income increased $621,000 or 9.4% from $6.6 million for the nine months ended September 30, 1994 to $7.2 million for the nine months ended September 30, 1995. The increase in investment income was the result of portfolio growth of $5.5 million or 6.5% from an average of $85.2 million for the nine months ended September 30, 1994 to an average of $90.7 million for the nine months ended September 30, 1995. The increase in investment income was also the result of an increase in the average yield of the portfolio which increased 29 basis points from 10.29% for the nine months ended September 30, 1994 to 10.58% for the nine months ended September 30, 1995. Commercial Installment Loans represented approximately 25.6% of the loan portfolio at September 30, 1994 and 30.9% at September 30, 1995.
The increase in average yield was caused by both (i) a shift in the portfolio mix toward a higher percentage of Commercial Installment Loans which historically have had a yield of approximately 350 basis points higher than Medallion Loans and (ii) an increase in the average interest rate on Medallion Loans.
Tri-Magna's interest expense increased $1.0 million or 29.4% from $3.4 million for the nine months ended September 30, 1994 to $4.4 million for the nine months ended September 30, 1995. The increase was in part the result of increased average net borrowings of $4.4 million or 6.6% from $67.1 million for the nine months ended September 30, 1994 to $71.5 million for the nine months ended at September 30, 1995. The increased borrowings were incurred to fund portfolio growth. Interest expense also increased as the result of a 149 basis point increase in the average cost of funds during the period from an average of 6.77% for the nine months ended September 30, 1994 to 8.26% for the nine months ended September 30, 1995. Tri-Magna's 149 basis point increase in average cost of funds was driven by a 170 basis point increase in the LIBOR Benchmark offset by a 21 basis point decrease in the difference between cost of funds and the LIBOR Benchmark. The decrease in the difference between cost of funds and the LIBOR Benchmark was primarily the result of a 25 basis point decrease in the premium to LIBOR paid by Tri-Magna on its LIBOR-based debt and Tri-Magna's transition from financing its operations with both subordinated SBA debentures and LIBOR-based debt to solely relying on LIBOR-based debt. At September 30, 1994 and 1995, short-term LIBOR-based debt constituted 82.7% and 100%, respectively, of total liabilities. Tri-Magna negotiated an increase in the amount available under its credit facilities from $65.0 million to $85.0 million to repay $12.5 million in subordinated SBA debentures, repurchase preferred stock from the SBA and fund portfolio growth.
Equity in Earnings of Unconsolidated Subsidiary. For the nine months ended September 30, 1995, Media generated advertising revenue of $1.1 million and incurred Display rental costs of $325,000, resulting in a gross margin of $766,000 or 69.6% of advertising revenue. For the nine months ended September 30, 1995, Media generated $133,000 in net income which is recorded as equity in earnings of unconsolidated subsidiary on Tri-Magna's statement of operations and represented 13.6% of Tri-Magna's net investment income. Media began active operations in November 1994; accordingly, there were no corresponding operating data for the nine months ended September 30, 1994. At September 30, 1995, Media owned 1,523 Displays and its Display occupancy rate averaged 90% for the nine months then ended.
Other Income. Tri-Magna's other income decreased $128,000 or 28.9% from $443,000 for the nine months ended September 30, 1994 to $315,000 for the nine months ended September 30, 1995. This decrease was primarily caused by the receipt of fewer prepayment fees due to an increase in market rates for Medallion Loans resulting in decreased refinancing activity.
Non-interest Expense. Tri-Magna's non-interest expense decreased $186,000 or 8.5% from $2.2 million for the nine months ended September 30, 1994 to $2.0 million for the nine months ended September 30, 1995. The decrease was primarily due to reduction in profit sharing payments.
Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. For the nine months ended September 30, 1995, Tri-Magna had a realized gain on investments of $4,000 as compared to a $9,000 loss on investments for the nine months ended September 30, 1994. Tri-Magna's change in net unrealized depreciation of investments increased $261,000 or 172.8% from $151,000 at September 30, 1994 to negative $110,000 at September 30, 1995 due to the potential loan loss exposure associated with the increased proportion of Commercial Installment Loans in the loan portfolio and overall portfolio growth.
Comparison of the Historical Years Ended December 31, 1993 and December 31, 1994
Net Interest Income. Net interest income decreased $608,000 or 12.9% from $4.7 million for the year ended December 31, 1993 to $4.1 million for the year ended December 31, 1994. The interest rate spread of 4.95% for the year ended December 31, 1993 decreased 170 basis points to 3.25% for the year ended December 31, 1994. This decrease reflected an 80 basis point decrease in the average yield of the loan portfolio and a 90 basis point increase in the average cost of funds over the year. Tri-Magna's investment income increased $487,000 or 5.9% from $8.3 million for the year ended December 31, 1993 to $8.8 million for the year ended December 31, 1994. The increase in investment income was the result of portfolio growth of $10.7 million or 14.2% from an average of $75.5 million for the year ended December 31, 1993 to an average of $86.2 million for the year ended December 31, 1994. Loan portfolio growth was offset by a decrease in the average yield of
the portfolio of 80 basis points from 11.04% for the year ended December 31, 1993 to 10.24% for the year ended December 31, 1994. The decrease in average yield of the portfolio represented the continuation of a long-term trend which has been primarily caused by competition in the Medallion Loan origination market.
Tri-Magna's interest expense increased $1.1 million or 29.7% from $3.7 million for the year ended December 31, 1993 to $4.8 million for the year ended December 31, 1994. The increase was the result of increased average net borrowings of $7.9 million or 13.1% from $60.2 million for the year ended December 31, 1993 to $68.0 million for the year ended December 31, 1994. The increased borrowings were incurred to fund loan portfolio growth. Interest expense also increased as the result of a 90 basis point increase in the average cost of funds during the period from an average of 6.09% for the year ended December 31, 1993 to 6.99% for the year ended December 31, 1994. Tri- Magna's 90 basis point increase in average cost of funds was driven by a 148 basis point increase in the LIBOR Benchmark offset by a 58 basis point decrease in the difference between cost of funds and the LIBOR Benchmark. The decrease in the difference between cost of funds and the LIBOR Benchmark was primarily the result of a decrease in the average maturity of Tri-Magna's LIBOR debt and an increase in the ratio of LIBOR-based debt to SBA financing. LIBOR-based borrowings represented approximately 81.4% of Tri-Magna's total liabilities at December 31, 1994 and 79.0% at December 31, 1993.
Equity in Earnings of Unconsolidated Subsidiary. For the year ended December 31, 1994, Media generated advertising revenue of $228,000 and incurred Display rental costs of $83,000, resulting in a gross margin of $144,000 or 63.2% of advertising revenue. For the year ended December 31, 1994, Media generated $18,000 in net income which is recorded as equity in earnings of unconsolidated subsidiary on Tri-Magna's statement of operations and represented 1.1% of Tri-Magna's net investment income. Media began active operations in November 1994; accordingly, there were no corresponding operating data for the year ended December 31, 1993. At December 31, 1994, Media owned approximately 600 Displays and its Display occupancy rate averaged 100% from inception of the business in November 1994 through that date.
Other Income. Tri-Magna's other income decreased $22,000 or 4.1% from $541,000 for the year ended December 31, 1993 to $519,000 for the year ended December 31, 1994.
Non-interest Expense. Tri-Magna's non-interest expense decreased $397,000 or 12.8% from $3.1 million for the year ended December 31, 1993 to $2.7 million for the year ended December 31, 1994. The decrease was due to a decrease in salaries and benefits related to a reduction of senior executive bonuses and profit sharing plan contributions.
Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. For the year ended December 31, 1994, Tri-Magna had a net realized loss on investments of $22,000 compared to a net realized loss on investments of $115,000 for the year ended December 31, 1993. The 1993 net loss on investments reflected the write-off of the last radio car loans in Tri-Magna's portfolio. Tri-Magna no longer originates radio car loans. Tri- Magna's change in net unrealized depreciation of investments increased $111,000 or 209.4% from negative $53,000 at December 31, 1993 to $58,000 at December 31, 1994, due to the potential loan loss exposure associated with the increased proportion of Commercial Installment Loans in the loan portfolio and overall portfolio growth.
EDWARDS HISTORICAL RESULTS OF OPERATIONS
Comparison of the Historical Nine Months Ended September 30, 1994 and September 30, 1995
Net Interest Income. Net interest income increased $22,000 or 1.8% to $1.2 million for the nine months ended September 30, 1995. The interest rate spread of 2.08% for the nine months ended September 30, 1994
decreased 9 basis points to 1.99% for the nine months ended September 30, 1995. The decrease reflected an 11 basis point decrease in the average yield of the loan portfolio and a 2 basis point decrease in the average cost of funds during the period. Edwards' investment income increased $7,000 or 0.2% to $3.3 million for the nine months ended September 30, 1995. The increase in investment income was the result of portfolio growth of $557,000 or 1.3% from an average of $43.0 million for the nine months ended September 30, 1994 to an average of $43.5 million for the nine months ended September 30, 1995. The increase in investment income was offset by a decrease in the average yield of the portfolio which decreased 11 basis points from 10.12% for the nine months ended September 30, 1994 to 10.01% for the nine months ended September 30, 1995.
Edwards' interest expense decreased $15,000 or 0.7% to $2.1 million for the nine months ended September 30, 1995. The decrease in interest expense reflected a 2 basis point decrease in the average cost of funds during the period from an average of 8.04% for the nine months ended September 30, 1994 to 8.02% for the nine months ended September 30, 1995. The decrease was a result of the refinancings in June 1994 of $4.6 million and September 1994 of $5.1 million of subordinated SBA debentures at a lower interest rate and a decrease in average net borrowing of $156,000 or 0.5% from $34.6 million for the nine months ended September 30, 1994 to $34.5 million for the nine months ended September 30, 1995. The foregoing were offset by an increase in interest rates on bank debt. Edwards' 2 basis point decrease in average cost of funds was driven by a 170 basis point increase in the LIBOR Benchmark and a 172 basis point decrease in the difference between cost of funds and the LIBOR Benchmark. The decrease in the difference between cost of funds and the LIBOR Benchmark was primarily the result of a reduction in the weighted average interest rate paid on subordinated SBA debentures caused by the refinancing of $9.7 million of such debentures. Subordinated SBA debentures represented 70.8% of total liabilities at September 30, 1994 and remained unchanged at September 30, 1995. The balance of total liabilities is represented primarily by LIBOR- based credit facilities with banks.
Other Income. Edwards' other income decreased $243,000 or 43.9% from $554,000 for the nine months ended September 30, 1994 to $311,000 for the nine months ended September 30, 1995. This decrease was primarily the result of decreased income from servicing Medallion Loan participations. Gross loans serviced by Edwards for third parties declined by $7.4 million from $45.4 million at September 30, 1994 to $38.0 million at September 30, 1995. Edwards typically receives servicing fees which averaged 51 basis points of the principal amount of each loan participation that it services. Other income also decreased because of a reduction in the receipt of prepayment fees and late charges.
Non-interest Expense. Edwards' non-interest expense decreased $179,000 or 21.8% from $821,000 for the nine months ended September 30, 1994 to $642,000 for the nine months ended September 30, 1995. The reduction was primarily related to decreased professional fees which were higher in 1994 primarily because of costs associated with refinancing subordinated debentures.
Net Realized Gain/Loss on Investments. During the nine months ended September 30, 1994 and 1995 Edwards did not incur any realized gains or losses on investments because Edwards' portfolio consists almost entirely of Medallion Loans.
Extraordinary Item. Edwards incurred a prepayment premium of $526,000 in connection with its refinancing of $4.6 million and $5.1 million of subordinated SBA debentures on June 29, 1994 and September 28, 1994, respectively.
Comparison of the Historical Years Ended December 31, 1993 and December 31, 1994
Net Interest Income. Net interest income decreased $645,000, or 29.3% from $2.2 million for the year ended December 31, 1993 to $1.6 million for the year ended December 31, 1994. The interest rate spread of 3.54% for the year ended December 31, 1993 decreased 145 basis points to 2.09% for the year ended
December 31, 1994, due entirely to a decrease in average yield of the portfolio. The decrease reflected a 145 basis point decrease in the average yield of the portfolio and no change in the average cost of funds during the period. Edwards' investment income decreased $621,000 or 12.4% from $5.0 million for the year ended December 31, 1993 to $4.3 million for the year ended December 31, 1994. The decrease in investment income was the result of a decrease in the average yield of the portfolio which decreased 145 basis points from 11.51% for the year ended December 31, 1993 to 10.06% for the year ended December 31, 1994. The decrease in average yield of the portfolio represented the continuation of a long-term trend which was primarily caused by general decreases in interest rates and competition in the Medallion Loan origination market.
Edwards' interest expense increased $24,000 or 0.9% from $2.7 million for the year ended December 31, 1993 to $2.8 million for the year ended December 31, 1994. The increase was the result of an increase in interest rates on bank debt offset by the refinancing of $5.1 million of subordinated debentures in September 1994 and $4.6 million of subordinated SBA debentures in June 1994 at lower interest rates. In addition, Edwards incurred increased average net borrowings of $305,000 or 0.9% from $34.4 million for the year ended December 31, 1993 to $34.7 million for the year ended December 31, 1994. The average cost of funds during 1993 and 1994 remained unchanged at 7.97%. Stability in Edwards' average cost of funds was the result of a 148 basis point increase in the LIBOR Benchmark and a 148 basis point decrease in the difference between cost of funds and the LIBOR Benchmark. The decrease in the difference between cost of funds and the LIBOR Benchmark was primarily the result of a reduction in the weighted average interest rate paid on subordinated SBA debentures caused by the partial year effect of the refinancing of $9.7 million of such debentures. Subordinated SBA debentures represented 69.4% of total liabilities at December 31, 1993 and remained almost unchanged at December 31, 1994. The balance of total liabilities is primarily represented by LIBOR-based credit facilities with banks.
Other Income. Edwards' other income increased $144,000 or 30.3% from $476,000 for the year ended December 31, 1993 to $620,000 for the year ended December 31, 1994. This increase was the result of increased income from servicing Medallion Loan participations. Gross loans serviced by Edwards for third parties increased $9.3 million from $35.0 million at December 31, 1993 to $44.3 million at December 31, 1994. Edwards typically receives servicing fees which averaged 51 basis points of the principal amount of each loan participation that it services. Other income also increased because of an increase in the receipt of prepayment fees and late charges.
Non-interest Expense. Edwards non-interest expense increased $86,000 or 8.6% from $1.0 million for the year ended December 31, 1993 to $1.1 million for the year ended December 31, 1994. The increase is primarily related to increased professional fees which were higher in 1994 because of costs associated with the refinancing of subordinated debentures.
Net Realized Gain/Loss on Investments. During the year ended December 31, 1994, Edwards did not incur any realized gains or losses on investments because Edwards' portfolio consists almost entirely of Medallion Loans.
Extraordinary Item. Edwards incurred a prepayment premium of $526,000 in connection with its refinancing of $4.6 million and $5.1 million of subordinated SBA debentures on June 29, 1994 and September 28, 1994, respectively.
TCC HISTORICAL RESULTS OF OPERATIONS
Comparison of the Historical Nine Months Ended September 30, 1994 and September 30, 1995
Net Interest Income. Net interest income decreased $83,000 or 7.5% from $1.1 million for the nine months ended September 30, 1994 to $1.0 million for the nine months ended September 30, 1995. The decrease was
primarily due to loan portfolio contraction in the amount of $2.7 million undertaken in connection with a change in investment policy instituted by Leucadia in 1993. Under this change in policy TCC substantially reduced Medallion Loan originations in New York City where competition had decreased yields, and emphasized originations in Boston, Cambridge, Chicago and Newark where yields were higher. The interest rate spread of 5.69% for the nine months ended September 30, 1994 increased 134 basis points to 7.03% for the nine months ended September 30, 1995. This spread increase reflected primarily a reduction in higher interest rate subordinated SBA debentures, resulting in a 139 basis point decrease in the average cost of funds for the period offset by a 5 basis point decrease in the average yield of the portfolio. TCC finances its portfolio with fixed-rate subordinated SBA debentures rather than LIBOR-based bank debt. TCC's investment income decreased $308,000 or 18.1% from $1.7 million for the nine months ended September 30, 1994 to $1.4 million for the nine months ended September 30, 1995. The decrease in investment income was the result of a $490,000 or 31.4% decrease in interest earned on the loan portfolio which contracted $4.8 million or 31.2% from an average of $15.3 million for the nine months ended September 30, 1994 to an average of $10.5 million for the nine months ended September 30, 1995. In addition, the average yield of the portfolio decreased 5 basis points from 13.61% for the nine months ended September 30, 1994 to 13.56% for the nine months ended September 30, 1995. The decrease in interest earned on the loan portfolio was offset by a $182,000 or 124.7% increase in interest income earned on treasury bills from $146,000 at September 30, 1994 to $328,000 at September 30, 1995 attributable to an increase in the weighted average interest rate on treasury bills which increased 102 basis points from 4.26% at September 30, 1994 to 5.28% at September 30, 1995.
TCC's interest expense decreased $225,000 or 38.5% from $584,000 for the nine months ended September 30, 1994 to $359,000 for the nine months ended September 30, 1995. The decrease was in part the result of a decrease in average net borrowing of $2.5 million or 25.5% from $9.8 million for the nine months ended September 30, 1994 to $7.3 million for the nine months ended September 30, 1995. This decrease was caused by the repayment of subordinated SBA debentures in the amount of $2.2 million. TCC repaid subordinated SBA debentures with higher average interest rates than the debentures remaining outstanding; accordingly, interest expense also decreased as the result of a 139 basis point decrease in the average cost of subordinated SBA debentures outstanding from an average of 7.92% at September 30, 1994 to 6.53% at September 30, 1995.
Non-interest Expense. TCC's non-interest expense decreased $51,000 or 8.0% from $637,000 for the nine months ended September 30, 1994 to $586,000 for the nine months ended September 30, 1995. The decrease was primarily due to a $32,000 reduction in operating expenses relating to a reduction in rent and salaries associated with contraction of the loan portfolio.
Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. TCC realized a loss on investments of $28,000 for the nine months ended September 30, 1995, and a $70,000 loss on investments for the nine months ended September 30, 1994. TCC's change in unrealized depreciation of investments decreased $201,000 or 41.0% from $490,000 at September 30, 1994 to $289,000 at September 30, 1995 due to the reduction of potential loan loss exposure corresponding to the contraction of the loan portfolio.
Comparison of the Historical Years Ended December 31, 1993 and December 31, 1994
Net Interest Income. Net interest income decreased $538,000 or 26.9% from $2.0 million for the year ended December 31, 1993 to $1.5 million for the year ended December 31, 1994. These effects were in large part a result of Leucadia's change in investment policy. The interest rate spread of 7.67% for the year ended December 31, 1993 decreased 141 basis points to 6.26% for the year ended December 31, 1994. This decrease reflected a 191 basis point decrease in the average yield of the portfolio offset by a 50 basis point decrease in the average cost of funds for the year. TCC finances its portfolio with fixed-rate subordinated SBA debentures rather than LIBOR-based bank debt. TCC's investment income contracted $893,000 or 28.8% from $3.1 million for the year ended December 31, 1993 to $2.2 million for the year ended December 31, 1994. The decrease in investment income was the result of a $994,000 or 33.2% decrease in interest earned on the loan portfolio which contracted $4.6 million or 24.2% from an average of $19.0 million for the year ended December 31, 1993 to an
average of $14.4 million for the year ended December 31, 1994. In addition, the average yield of the portfolio decreased 191 basis points from 15.77% for the year ended December 31, 1993 to 13.86% for the year ended December 31, 1994 reflecting the repayment of higher rate loans and the resulting increased proportion of lower rate loans in the portfolio. The decrease in interest earned on the loan portfolio was offset by a $101,000 or 88.6% increase in interest income on treasury bills from $114,000 at December 31, 1993 to $215,000 at December 31, 1994 attributable to an increase in the weighted average interest rate earned on treasury bills which increased 212 basis points from 3.00% at December 31, 1993 to 5.12% at December 31, 1994.
TCC's interest expense decreased $355,000 or 32.3% from $1.1 million for the year ended December 31, 1993 to $709,000 for the year ended December 31, 1994. The decrease was in part the result of a decrease in average net borrowing of $3.8 million or 29.0% from $13.1 million for the year ended December 31, 1993 to $9.3 million for the year ended December 31, 1994. This decrease was caused by the repayment of subordinated SBA debentures in the amount of $2.8 million. TCC repaid subordinated SBA debentures with higher average interest rates than the debentures remaining outstanding; accordingly, interest expense also decreased as the result of a 50 basis point decrease in the average cost of subordinated SBA debentures outstanding from an average of 8.10% at December 31, 1993 to 7.60% at December 31, 1994.
Non-interest Expense. TCC's non-interest expense decreased $558,000 or 42.9% from $1.3 million for the year ended December 31, 1993 to $711,000 for the year ended December 31, 1994. The decrease was primarily due to a $363,000 reduction in legal and accounting fees which were higher in 1993 principally due to costs related to non-recurring litigation and filings with the Commission, a $113,000 reduction in pension expense related to the merger of TCC's defined benefit plan into Leucadia's defined benefit plan and a $57,000 reduction in rent expense.
Income Tax Expense. A $1.6 million increase in provision for income taxes for the year ended December 31, 1994 was primarily due to the effect of the change in tax status of TCC beginning in July 1, 1993 from a non-taxable regulated investment company to a taxable corporation.
Net Realized Gain/Loss on Investments and Change in Net Unrealized Depreciation of Investments. TCC realized a loss on investments of $69,000 for the year ended December 31, 1993, and a $144,000 loss on investments for the year ended December 31, 1994. TCC's change in unrealized depreciation of investments increased $558,000 or 240.5% from $232,000 at December 31, 1993 to $790,000 at December 31, 1994 due to the reduction of potential loan loss exposure corresponding to the contraction of the loan portfolio.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity. Financial institutions such as the Company are subject to interest rate risk to the extent their interest-earning assets (consisting of Medallion Loans and Commercial Installment Loans) reprice on a different basis over time in comparison to their interest-bearing liabilities (consisting primarily of credit facilities with bank syndicates and subordinated SBA debentures).
A relative measure of interest rate risk can be derived from the Company's interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities and negative when the inverse situation exists. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.
The following gap table sets forth at September 30, 1995 the amount of interest-earning assets and interest-bearing liabilities maturing or repricing within the time periods indicated. Medallion Loans and Commercial Installment Loans are assigned to the time frames in which they are contractually scheduled to mature. The
Company has not reflected an assumed annual prepayment rate for Medallion Loans or Commercial Installment Loans in this table.
The Company's interest rate sensitive assets were $156.0 million and interest rate sensitive liabilities were $119.7 million at September 30, 1995. The one year cumulative net interest rate sensitivity gap was negative $60.0 million, or 38.5% of interest rate sensitive assets.
GROSS CONTRACTUAL MATURITIES AS OF SEPTEMBER 30, 1995
MORE THAN 1 MORE THAN 2 MORE THAN 3 MORE THAN 5
LESS THAN AND LESS THAN AND LESS THAN AND LESS THAN AND LESS THAN
1 YEAR 2 YEARS 3 YEARS 5 YEARS 10 YEARS TOTAL
--------- ------------- ------------- ------------- ------------- --------
(IN THOUSANDS)
Earning Assets
Medallion Loans and
Commercial Installment
Loans................. $ 19,209 $22,677 $24,398 $36,156 $44,508 $146,948
Cash and cash equiva-
lents 9,095 -- -- -- -- 9,095
-------- ------- ------- ------- ------- --------
Total.................. 28,304 22,677 24,398 36,156 44,508 156,043
Liabilities
Revolving line of cred-
it.................... 82,788 -- -- -- -- 82,788
Term loan.............. 3,232 2,000 -- -- -- 5,232
Subordinated SBA deben-
tures................. 2,290 1,500 3,000 24,890 31,680
-------- ------- ------- ------- ------- --------
Total.................. 88,310 3,500 3,000 -- 24,890 $119,700
-------- ------- ------- ------- -------
Interest Gap............ $(60,006) $19,177 $21,398 $36,156 $19,618
======== ======= ======= ======= =======
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Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates, although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Conversely, having interest- earning assets that mature or reprice more frequently on average than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during periods of falling interest rates. The mismatch between maturities and interest rate sensitivities of the Company's interest-earning assets and interest-bearing liabilities results in interest rate risk. Abrupt increases in market rates of interest may have an adverse impact on the Company's earnings.
The effect of changes in market rates of interest is mitigated by regular turnover of the portfolio. From inception of its business through September 30, 1995, the period between the origination and final payment of all Medallion Loans originated by Tri-Magna is estimated by the Company to have been 29 months on a weighted average basis. Accordingly, the Company anticipates that approximately 40% of the portfolio will mature or be prepaid each year. The Company believes that the average life of its loan portfolio varies to some extent as a function of changes in interest rates because borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rate payable on the borrower's loan is high relative to prevailing interest rates and are less likely to prepay in a rising interest rate environment.
The Company seeks to manage the exposure of the balance of the portfolio to increases in market interest rates by entering into interest rate cap agreements to hedge a portion of its variable-rate debt against increases in interest rates and by incurring fixed-rate debt. The Company has entered into interest rate cap agreements to limit the Company's interest rate exposure to 7.5% on $20.0 million of its LIBOR-based debt through April 7, 1997 and to 7.0% on an additional $20.0 million of its LIBOR-based debt through November 16, 1997. The preceding interest sensitivity gap table does not account for the effect of the Company's interest rate cap agreements. The Company will seek to manage interest rate risk by evaluating and purchasing, if appropriate, additional derivatives, originating adjustable-rate loans and revising, if appropriate, its overall level of asset and liability matching. Nevertheless, the Company accepts varying degrees of interest rate risk depending on market conditions and believes that the resulting asset/liability interest rate mismatch results in opportunities for higher net interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity are credit facilities with bank syndicates, fixed rate, long-term subordinated SBA debentures that are issued to or guaranteed by the SBA and loan amortization and prepayments. As a RIC, the Company distributes at least 90% of its investment company taxable income; consequently, the Company primarily relies upon external sources of funds to finance growth. At September 30, 1995, 73.0% of the Company's $119.4 million of debt consisted of bank debt, substantially all of which was at variable effective rates of interest averaging below the Prime Rate and 26.5% consisted of subordinated SBA debentures with fixed rates of interest with a weighted average rate of 7.4%. The Company is eligible to seek SBA funding but plans to continue to limit its use of SBA funding and will seek such funding only when advantageous, such as when SBA financing rates are particularly attractive, or to fund loans that qualify under SBA regulations through Edwards and TCC which are already subject to SBA restrictions. In the event that the Company seeks SBA funding, no assurance can be given that such funding will be obtained. See "Risk Factors -- Availability of Funds." In addition to SBA funding, an additional $7.5 million of debt was available at September 30, 1995 at variable effective rates of interest averaging below the Prime Rate under the Company's $95.5 million bank credit facilities. After the Offering the Company intends to negotiate an increase in the amount available under such facilities.
The following table illustrates each of the Founding Companies' sources of available funds and amounts outstanding under credit facilities at September 30, 1995. The Company has only set forth funding sources which are expected to be available to the indicated companies after the Offering and the Acquisitions. In addition to the following amounts, $9.7 million is expected to be available to the Company from the proceeds of the Offering. See "Use of Proceeds."
TRI-MAGNA MFC EDWARDS TCC TOTAL
--------- ------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
Cash and cash equiva-
lents.................. $1,363 $ -- $ -- $7,730 $ 9,093
Revolving line of cred-
it..................... 2,000 78,000 10,000 90,000
Amounts available..... 1,162 5,750 575 7,487
Amounts outstanding... 838 72,250 9,425 82,513
Average interest
rate................ 7.43% 7.83% 7.46%
Maturity............. 8/96 9/96 10/95-9/96
Term loan............... 3,232 2,000 5,232
Interest rate......... 8.75% 7.50%
Maturity.............. 4/96 7/97
SBA debentures.......... 24,950 6,730 31,680
Average interest
rate................. 8.00% 5.38%
Maturity.............. 9/96-9/04 5/96-6/02
Total cash and remaining
amounts available under
credit facilities...... 2,525 5,750 575 7,730 16,580
Total debt outstanding.. $4,070 $74,250 $34,375 $6,730 $119,425
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Loan amortization and prepayments also provide a source of funding for the Company. Prepayments on loans are influenced significantly by general interest rates, economic conditions and competition. Medallion Loan prepayments accelerated throughout virtually all of 1993 and the first three months of 1994 because of the generally lower level of interest rates which prompted significant Medallion Loan refinancing activity. However, these prepayments have slowed since early 1994 because of increases in the level of interest rates which have caused a decrease in Medallion Loan refinancing activity.
MFC and TCC have repurchased all of their previously issued preferred stock from the SBA for an aggregate price of $4.4 million, representing a discount of 65.0% from the original aggregate issuance price of $12.6 million. MFC's repurchase of preferred stock as well as its repayment of all of its outstanding subordinated
debentures has resulted in the termination of SBA limits on the amount of bank debt MFC can incur and a realized gain in retained earnings in the amount of the repurchase discount which will be accreted to paid-in capital on a straight-line basis over 60 months. After the termination of such limit, MFC negotiated a $15.0 million increase in its revolving line of credit.
The Company has limited its use of SBA funding and will seek such funding only when advantageous. Over the past two years the Company has expanded its loan portfolio, reduced its level of SBA financing and increased its level of bank funding. At September 30, 1995 SBA financing represented 26.5% of total debt as compared to 40.5% at September 30, 1994. The Company's bank financing increased to $95.5 million at September 30, 1995 from $77.5 million at September 30, 1994. While bank funding often carries higher interest rates than SBA funding, the Company believes that such higher rates will be offset by the increased volume of funding and loan originations which should result in increased net interest margin.
Media was initially capitalized with equity investments and now funds its operations primarily through internal cash flow. Media is not a RIC and, therefore, is able to retain earnings to finance growth.
The Company believes that the net proceeds of this Offering remaining after application of such proceeds to the purchase of the Founding Companies, application of the cash acquired in connection with the Acquisitions, anticipated borrowings from the SBA and under its bank credit facilities and cash flow from operations (after distributions to stockholders) will be adequate to fund the continuing growth of the Company's loan portfolio and advertising business through at least 1996. In addition, in order to provide the funds necessary for the Company's expansion strategy, the Company expects to incur, from time to time, additional short- and long-term bank and (to the extent permitted) SBA leverage, and to issue, in public or private transactions, its equity and debt securities. The availability and terms of any such securities will depend upon market, regulatory and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to the Company.
BUSINESS
GENERAL
The Company operates a specialty finance business and its principal focus is the origination and servicing of Medallion Loans. As an adjunct to its finance business, the Company also operates a taxicab rooftop advertising business. The Company has been engaged in taxicab medallion lending since 1979 and has developed a leading position in the industry. The Company also originates and services Commercial Installment Loans secured by retail dry cleaning and coin operated laundromat equipment. It entered into this business in 1987 in order to diversify its lending activity. The Company originates and services Commercial Installment Loans to other targeted industries and intends to use the expertise it has developed in its areas of concentration to further expand the range of financial products it offers as well as the industries and geographic areas it services.
The Company believes its taxicab rooftop advertising business is one of the largest providers in the nation of this segment of the out-of-home advertising industry. At September 30, 1995, the Company owned approximately 1,500 installed taxicab rooftop advertising displays. The Company sells advertising space to advertising agencies and companies promoting products. Currently, the Company provides such advertising in New York City, Philadelphia, Miami and Boston. The Company also intends to expand to other major metropolitan areas and has recently entered the Atlanta and Los Angeles markets.
BUSINESS STRATEGY
Prior to the Offering, each of the Founding Companies that was engaged in specialty financing operated under regulatory and capital constraints imposed under the SBIA and SBA Regulations. Certain SBA Regulations precluded these companies from offering flexible terms often requested by customers and, in the case of MFC and TCC, restricted their lending activities as SSBICs to borrowers that are socially or economically disadvantaged ("Disadvantaged Borrowers") and small business concerns that are at least 50% owned and managed by Disadvantaged Borrowers. In addition, the size of Tri-Magna's loan portfolio was significantly limited because the SBA restricted the amount of bank debt that Tri-Magna could incur. See "Regulation."
As a result of the Offering and the Acquisitions, the Company will have greater flexibility and resources to operate its specialty finance business and its lending activities will be subject to fewer restrictions than was the case for each of the Founding Companies operating separately. The Company will, however, continue to focus loan originations on specific industries and perform credit reviews and analyses as it has historically. Specifically, the Offering and the Acquisitions will permit the Company to:
(i) significantly increase its debt to equity ratio to a level that is more consistent with industry standards for finance companies;
(ii) originate loans to borrowers that are not Disadvantaged Borrowers and, as a result, broaden its base of borrowers and lend solely on the basis of economic criteria;
(iii) originate loans to borrowers whose intended use of proceeds is not restricted to investment in their businesses (e.g., refinancing a Medallion Loan where the proceeds are used to purchase a home or finance an unrelated business);
(iv) originate loans with terms of less than four years; and
(v) explore the potential to securitize its loan portfolio and sell the loans into the secondary market.
The Founding Companies have regularly received requests for products both with some of these characteristics and from non-Disadvantaged Borrowers, but in many cases have had to reject such requests due to restrictions imposed under SBA Regulations.
In addition to engaging in operations which are not subject to SBA restrictions, the Company intends to initiate other strategies to expand its lending activities as follows:
(i) develop larger Medallion Loan and Commercial Installment Loan origination operations in cities in which it now has a presence, such as Boston, Cambridge, Chicago and Newark, as well as continue to expand its operations in New York City, the largest taxi medallion lending market in the U.S.;
(ii) originate larger loans, decrease the amount of loan participations that the Company sells to third parties, and consider the repurchase of participations that the Company previously sold to third parties;
(iii) take advantage of opportunities to acquire other medallion lenders and portfolios of Medallion Loans as they may arise; and
(iv) continue to expand its portfolio of loans secured by retail dry cleaning and coin operated laundromat equipment and consider lending to other targeted industries.
The Company also intends to expand its taxicab rooftop advertising business, which has grown rapidly over the past year. The Company believes that a significant market opportunity exists because (i) providing taxicab rooftop advertising is a largely unpenetrated segment of the out-of-home advertising market and (ii) many customers that advertise nationally prefer a single provider that can deliver the effectiveness of taxicab rooftop advertising simultaneously in several major metropolitan markets. In addition, the Company believes that only approximately 25% of New York City taxicabs have rooftop advertising and a much smaller percentage of the taxicabs operating in other major metropolitan areas nationwide have rooftop advertising.
The Company's strategy to expand its taxicab rooftop advertising business is to penetrate each of its targeted geographic markets further by securing additional exclusive, long-term contracts with individual and taxicab fleet owners, expanding Display servicing and maintenance operations, adding to its national advertising accounts, exploring opportunities to provide taxicab interior audio and visual advertising and acquiring other taxicab rooftop advertising businesses. In addition, the Company will seek to maximize utilization rates by increasing the proportion of long-term advertising contracts in its inventory. The Company currently provides advertising in New York City, Philadelphia, Miami and Boston. The Company also intends to expand to other major metropolitan areas and has recently entered the Atlanta and Los Angeles markets.
GROSS LOAN PORTFOLIO SUMMARY DATA
The following table classifies, on a combined basis, the Company's loans outstanding as of September 30, 1995:
WEIGHTED
NUMBER AVERAGE MATURITY BALANCE
TYPE OF LOAN OF LOANS INTEREST RATE DATE OUTSTANDING
------------ -------- ------------- --------- ------------
New York City Medallion Loans.... 1,049 9.67% 9/95-9/02 $108,325,637
Other Medallion Loans............ 231 13.58 9/95-9/02 7,358,291
----- ------------
All Medallion Loans............ 1,280 9.92 9/95-9/02 115,683,928
Dry cleaners and laundromats..... 464 13.67 9/95-9/99 23,803,145
Other............................ 109 13.20 9/95-9/99 7,461,253
----- ------------
Total........................ 1,853 10.69% 9/95-9/02 $146,948,326
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MEDALLION LENDING
Industry Overview
The New York City Market. A New York City taxicab medallion represents the only license to operate a taxicab and accept street hails in New York City. As reported by the TLC, individual (owner-driver) medallions currently sell for approximately $170,000 and corporate medallions currently sell for approximately $221,000. According to TLC data, over the past 20 years, medallions have appreciated in value an average of 10.5% each year. The TLC estimates that in 1993 New York City taxicabs transported approximately 226 million people and collected in excess of $1 billion in gross revenue. Taxicabs play a prominent role in intra-Manhattan travel. According to the TLC, taxicabs transported 154% more passengers than Manhattan buses in 1993. In addition,
taxicabs provided 34% of all intra-Manhattan passenger trips taken in 1993 by subway, bus, livery car or taxicab. Between 1977 and 1993, taxicab ridership for intra-Manhattan travel increased by 42%, while citywide bus ridership declined by 40%. The Company believes that much of the popularity of taxicabs can be attributed to the difficulty and expense Manhattan residents encounter in maintaining a private automobile in Manhattan.
The number of taxicab medallions is limited by law and no new medallions have been issued since 1937. It is anticipated, however, that 400 additional medallions will be issued over the next four years with the first 100 medallions offered for sale in April 1996. See "Risk Factors -- Taxicab Industry Regulation." As a result of the limited supply of medallions, an active market for medallions has developed. TLC estimates indicate that the total value of the 11,787 medallions exceeds $2.3 billion. The law limiting the number of medallions also stipulates that the ownership for the 11,787 medallions shall remain divided into 4,969 owner-driver or individual medallions and 6,818 fleet or corporate medallions. Corporate medallions are more valuable because they can be aggregated by businesses and leased to drivers.
Based upon TLC statistics, the Company estimates that from 1989 through 1993 the number of taxicab medallions sold each year ranged from approximately 500 to 850, divided roughly equally between corporate and individual medallions. The purchase of a taxicab medallion is frequently financed with a loan and, in addition, there is an active refinancing market for such loans. Assuming that approximately 75% of the purchase price of corporate medallions and approximately 75% of the purchase price of individual medallions are typically financed, the dollar volume of New York City financing of medallion sales would range from $72 million to $124 million a year. The Company believes that the dollar volume of the refinancing market exceeds the dollar volume of financing of medallion sales.
A prospective medallion owner must qualify under the medallion ownership standards set and enforced by the TLC. These standards prohibit individuals with criminal records from owning medallions, require that the funds used to purchase medallions be derived from legitimate sources and mandate that taxicab vehicles and meters meet TLC specifications. In addition, before the TLC will approve a medallion transfer, the TLC requires a waiver from the seller's insurer stating that there are no outstanding claims for personal injuries in excess of insurance coverage. After the sale is approved, the owner's taxicab is subject to quarterly TLC inspections.
The Boston and Cambridge Markets. The Company estimates that Boston medallions currently sell for approximately $93,000. The number of Boston medallions had been limited by law since 1930 to 1,525 medallions. In 1993, however, the Massachusetts legislature authorized the Boston Hackney Carriage Bureau, which regulates the issuance of new medallions, to issue 300 additional medallions, but the Bureau has only issued 40 additional medallions which are restricted to "wheelchair accessible" taxicabs. The Company estimates that the total value of all Boston medallions and related assets is approximately $157 million. In addition, the Company estimates Cambridge medallions currently sell for approximately $80,000. The number of Cambridge medallions has been limited to 248 since 1945 by a Cambridge city ordinance; accordingly, the Company estimates that the total value of all Cambridge medallions and related assets is approximately $25 million.
The Chicago Market. Based on the Company's experience, Chicago medallions currently sell for approximately $35,000. Pursuant to a 1988 municipal ordinance, the number of outstanding medallions, which currently is capped at 5,500, has increased steadily from 4,600 in 1988 and will be increased to 5,700 in 1997. The ordinance has also required two major taxicab companies to forfeit 1,300 medallions from 1988 through 1997. The newly issued and forfeited medallions have been reissued for nominal consideration to new owners by the city through a lottery. The Company estimates that the total value of all Chicago medallions and related assets is approximately $250 million.
Market Position
The Company has originated and serviced Medallion Loans since 1979 and has established a leading position in this industry. The Company's management has a long history of owning, managing and financing taxicab fleets, taxicab medallions and corporate car services. Medallion Loans collateralized by New York City
taxicab medallions and related assets comprised 94% of the value of the Company's Medallion Loan portfolio at September 30, 1995. The balance consisted of Medallion Loans collateralized by Boston, Cambridge, Chicago and Newark taxicab medallions. The Company believes that there are significant growth opportunities in these and other metropolitan markets nationwide.
Most New York City medallion transfers are handled through approximately 35 medallion brokers who are licensed by the TLC. In addition to brokering medallions, these brokers also arrange TLC documentation, insurance, vehicles and meters as well as financing. The Company has excellent relations with many of the most active of these brokers and regularly receives referrals from them. However, the Company receives most of its referrals from a small number of brokers. The Company does not pay referral fees.
Loan Portfolio
Medallion Loans comprised approximately 80% of the Company's loan portfolio at September 30, 1995. On that date, the Company had 1,280 Medallion Loans outstanding ranging from $1,200 to $720,000 in principal amount outstanding with an average principal amount outstanding of $105,000. Substantially all of the Company's Medallion Loans are made at fixed rates of interest in excess of the Prime Rate. These loans generally require equal monthly payments covering accrued interest and amortization of principal over a ten-year schedule subject to a balloon payment of all outstanding principal after four years. Borrowers may prepay Medallion Loans upon payment of a fee of 90 days' interest. The Company generally retains the Medallion Loans it originates. From inception of its business through September 30, 1995, the period between the origination and final payment of all Medallion Loans originated by Tri- Magna has been estimated by the Company to be 29 months on a weighted average basis. The Company believes that this weighted average time period varies to some extent as a function of changes in interest rates because borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rate payable on the borrower's loan is high relative to prevailing interest rates and are less likely to repay in a rising interest rate environment. At September 30, 1995, substantially all of the Company's Medallion Loans were secured by first security interests in taxicab medallions and related assets. The Company originates Medallion Loans at an approximate average loan-to-value ratio of 70% and on September 30, 1995 the Company estimates that the average loan to value ratio of all of the Company's Medallion Loans was 56%. The Company has recourse against the direct and indirect owners of the medallion through personal guarantees.
The Company believes that its Medallion Loan portfolio is of high credit quality because medallions have generally increased in value and are easy to repossess and resell in an active market. Tri-Magna has never experienced a loss of principal on any of the $287 million in aggregate principal amount of Medallion Loans it has originated since 1979. The Company has lost little principal or interest on Medallion Loans in their entirety. In the event of defaults by borrowers, the medallions collateralizing such loans have been seized and, when such loans have not been brought current, readily sold in the active market for medallions at prices at or in excess of the amounts due.
COMMERCIAL INSTALLMENT LOANS
Overview
Tri-Magna began Commercial Installment Loan operations in 1987 to diversify its loan portfolio which, prior to that time, consisted almost entirely of Medallion Loans. Tri-Magna has chosen to concentrate these operations on originating loans secured by retail dry cleaning and coin operated laundromat equipment because of certain characteristics similar to medallion lending that make these industries attractive candidates for profitable lending including the following (i) relatively high fixed rates of interest ranging from 5% to 7% over the Prime Rate, (ii) low historical repossession rates, (iii) vendor recourse, (iv) significant equity investments by borrowers, (v) an active market for repossessed equipment, (vi) a small average loan size of $53,000 and (vii) collateral service life that is frequently twice as long as the term of the loans. The Company estimates that there are approximately 4,000 retail dry cleaners and approximately 3,000 laundromats in the New York City metropolitan area. Specialization in these industries has permitted relatively low administrative costs because
documentation and terms of credit are standardized. Moreover, the consistency among the loans has facilitated simplified credit review and portfolio analysis. In addition, the Company believes that other niche industries with similar characteristics will provide additional loan portfolio growth opportunities.
Loan Portfolio
Commercial Installment Loans comprised 20% of the Company's loan portfolio at September 30, 1995. These loans finance either the purchase of the equipment and related assets necessary to open a new business or the purchase or improvement of an existing business. The Company has originated Commercial Installment Loans in principal amounts ranging from $5,000 to $500,000. These loans are generally retained by the Company and at September 30, 1995 had maturities ranging from one to seven years. At September 30, 1995, there were 573 Commercial Installment Loans outstanding with an aggregate principal balance of $31.3 million. Loans to dry cleaners and laundromats represented 76% of the aggregate principal amount of Commercial Installment Loans outstanding at September 30, 1995. The remaining Commercial Installment Loans are spread among other industries including food service, private pay phone and radio broadcast.
The number of the Company's originations of Commercial Installment Loans has grown during the nine months ended September 30, 1995. The Company originated 348 Commercial Installment Loans in 1994 in the aggregate principal amount of $24.1 million, compared to 190 Commercial Installment Loans in the aggregate principal amount of $17.2 million originated in 1993.
From 1987 through September 30, 1995, Tri-Magna originated 1,001 Commercial Installment Loans in the aggregate principal amount of $65.7 million, of which $16.6 million were to retail dry cleaners and $29.9 million were to coin operated laundromats. The balance of Tri-Magna's Commercial Installment Loans were secured by real estate, food service equipment, radio broadcast licenses and other equipment. Tri-Magna's aggregate losses to date of total Commercial Installment Loans originated during that period were $280,000, or 0.4% and aggregate losses to date of Commercial Installment Loans secured by retail dry cleaning and coin operated laundromat equipment originated during that period were $52,000 or 0.1%.
Commercial Installment Loans made by the Company typically require equal monthly payments covering accrued interest and amortization of principal over a four to five year term and generally can be prepaid with a fee of 90 days' interest. At September 30, 1995, the Company's Commercial Installment Loans had a weighted average interest rate of 13.64%. The term of, and interest rate charged on, the Company's loans outstanding at the time of the Offering are subject to SBA Regulations. See "Regulation." Under SBA Regulations, the maximum rate of interest permitted on loans originated by the Company during September 1995 was 15%. Unlike Medallion Loans, for which competition precludes the Company from charging the maximum rate of interest permitted under SBA Regulations, the Company is able to charge the maximum rate on certain Commercial Installment Loans and anticipates that after the Offering it will be able to charge in excess of the maximum rate. The weighted average rate of interest on Commercial Installment Loans exceeded the weighted average rate of interest on Medallion Loans by 372 basis points at September 30, 1995. The Company believes that the increased yield on Commercial Installment Loans compensate for their higher risk relative to Medallion Loans and further illustrate the benefits of diversification.
The Company generally originates Commercial Installment Loans at an approximate average loan to value ratio of 80% and estimates that the average loan to value ratio of all of the Company's Commercial Installment Loans at September 30, 1995 was approximately 60%. Substantially all of the Company's Commercial Installment Loans are collateralized by first security interests in the assets being financed by the borrower. At September 30, 1995, 76% of the aggregate principal outstanding in the Company's Commercial Installment Loan portfolio was secured by first security interests in retail dry cleaning and coin operated laundromat equipment and the balance, 24%, was secured by real estate, food service equipment, radio broadcast licenses and other equipment. In addition, the Company requires the principals of borrowers to personally guarantee loans. Additional security is provided by equipment vendors, and at September 30, 1995, approximately 40% of the aggregate principal amount of Commercial Installment Loans outstanding was secured by full recourse
guarantees from equipment vendors and approximately 5% was secured by partial recourse guarantees from equipment vendors. Since 1987, of approximately $29.9 million in originations of loans secured by coin operated laundromat equipment, Tri-Magna has experienced losses of $52,000 or 0.1% and of approximately $16.6 million in originations of loans secured by retail dry cleaning equipment, Tri-Magna has experienced no losses.
MARKETING, ORIGINATION AND LOAN APPROVAL PROCESS
The Company employs five loan officers that originate Medallion Loans and Commercial Installment Loans. The Company's loan officers regularly receive referrals from medallion brokers and make use of an extensive referral network in the retail dry cleaning and coin operated laundromat industry. Equipment vendors are the single most important source of Commercial Installment Loan referrals and the Company attributes its excellent relations with these vendors, in part to its success in financing the purchase of retail dry cleaning and coin operated laundromat equipment.
Each loan application is individually reviewed through analysis of a number of factors, including loan-to-value ratios, a review of the borrower's credit history, public records, personal interviews, trade references and personal inspection of the premises and TLC approval, if applicable. The Company also requires each applicant to provide personal and corporate tax returns and premises leases or property deeds. The Company's Credit Committee establishes loan origination criteria. Loans that conform to such criteria may be processed by a loan officer and non-conforming loans must be approved by three of the four members of the Company's Credit Committee.
GROSS LOANS RECEIVABLE
The following table sets forth the portfolio loans of the Company.
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ ----------------
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ----------------
(IN THOUSANDS)
Loan Receivable
Tri-Magna.............. $ 62,564 48% $ 69,785 53% $ 82,014 57% $ 90,343 62% $ 93,922 64%
Edwards................ 40,431 31 43,020 32 44,141 30 43,487 30 43,207 29
TCC.................... 27,881 21 20,192 15 18,074 13 10,981 8 9,819 7
-------- --- -------- --- -------- --- -------- --- --------- ----
Total.................. $130,876 100% $132,997 100% $144,229 100% $144,811 100% $ 146,948 100%
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During the nine months ended September 30, 1995, the Company originated 631 loans in the aggregate principal amount of $41.1 million. For that period, the Company's realized losses were less than 0.1% of its loan portfolio. During the nine months ended September 30, 1994, the Company originated loans in the aggregate principal amount of $40.0 million. For that period, the Company's realized losses were approximately 0.1% of its loan portfolio. During the year ended December 31, 1994, the Company originated loans in the aggregate principal amount of $80.0 million. For that year, the Company's realized losses were approximately 0.1% of its loan portfolio. See Pro Forma Selected Financial Data of the Company for additional information concerning the Company's loan portfolios.
LOAN ACTIVITY
The following table sets forth the Company's loans originated, renewed and repaid for the periods indicated:
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------ --------------------
1994 1994 1995
------------ --------- ---------
(IN THOUSANDS)
Loans originated........................... $ 61,357 $ 40,004 $ 41,079
Loan repayments (including renewals)....... (60,610) (41,020) (38,918)
Increase (decrease) in unrealized
depreciation.............................. 871 641 179
Loans (written off) recovered.............. (166) (79) (23)
-------- --------- ---------
Increase (decrease) in loans receivable--
net....................................... 1,452 (454) 2,317
Loans receivable-net (beginning of
period)................................... 141,590 141,590 143,042
-------- --------- ---------
Loans receivable-net (end of period)....... $143,042 $ 141,136 $ 145,359
======== ========= =========
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DELINQUENCY AND LOAN LOSS EXPERIENCE
While operating Tri-Magna, management of the Company developed the following collection practices which it intends to continue to follow in operating the Company. When a borrower fails to make a required monthly payment, the borrower is notified by mail after approximately 10 days, and a collection officer generally contacts the borrower if the payment remains unpaid after 10 additional days. The Company generally follows a practice of discontinuing the accrual of interest income on loans which are in arrears as to interest payments for a period in excess of 90 days. The Company delivers a default notice and begins foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action in the circumstances.
At September 30, 1995, the Company had 66 loans with an aggregate principal balance of $5.8 million, or 4.0% of the portfolio, for which accrued interest and principal payments of $705,000 were delinquent for 90 days or more, compared to 58 loans with an aggregate principal balance of $3.2 million, or 2.2% of the portfolio, for which accrued interest and principal payments of $681,000 were delinquent for 90 days or more at September 30, 1994. Although the aggregate principal balance of delinquent loans increased from 2.2% of the portfolio at September 30, 1994 to 4.0% at September 30, 1995, the amount of accrued interest and principal which was delinquent only increased $24,000 from $681,000 at September 30, 1994 to $705,000 at September 30, 1995. Of the 66 loans which were delinquent at September 30, 1995, 36, in the aggregate principal amount of $4.8 million, were Medallion Loans. The Company considers a loan to be delinquent if the borrower fails to make payments for 10 days or more; however, the Company may agree with a borrower that cannot make payments in accordance with the original loan agreement to modify the payment terms of the loan. The Company's current net unrealized depreciation of investments is $1.6 million. Based upon the Company's assessment of its collateral position, the Company anticipates that a substantial portion of the principal amount of its delinquent loans would be collected upon foreclosure of such loans, if necessary. There can be no assurance, however, that the collateral securing such loans will be adequate in the event of foreclosure.
The Company monitors delinquent loans for possible exposure to loss. In its analysis, the Company reviews various factors, including the value of the collateral securing the loan and the borrower's prior payment history. Based upon these factors and the Company's analysis of the yield and maturity of loans in the portfolio relative to current and projected market interest rates, the Company determines net unrealized depreciation of investments or the amount by which the Company's estimate of the current realizable value of its portfolio is below the cost basis thereof.
The following table sets forth the Company's loan loss experience:
YEAR ENDED NINE MONTHS ENDED,
DECEMBER 31, SEPTEMBER 30,
------------ ---------------------
1994 1994 1995
------------ -------------- ------
(IN THOUSANDS)
Balance, beginning of period.............. $2,639 $2,639 $1,768
Change in unrealized depreciation of in-
vestments................................ (438) (435) (151)
Realized loan losses...................... (177) (98) (37)
Recoveries................................ 33 29 9
Interest income received.................. (289) (137) --
------ ------ ------
Balance, end of period.................... $1,768 $1,998 $1,589
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TAXICAB ROOFTOP ADVERTISING
Media provides taxicab rooftop advertising which is a relatively undeveloped
segment of the out-of-home advertising industry. Out-of-home advertising
includes (i) traditional outdoor advertising, such as billboards and posters,
(ii) transit advertising, such as taxicabs, buses, bus shelters, subway,
commuter train and airport advertising and (iii) in-store point of sale
advertising. The Company entered this business in November 1994 with the
organization of Media as a subsidiary of Tri-Magna and since that time the
business has grown rapidly. The Company intends to continue to expand this
business through internally generated growth and to consider acquisitions of
taxicab rooftop advertising businesses.
The Company currently provides taxicab rooftop advertising in New York City, Philadelphia, Miami and Boston. The Company has only recently established operations in Atlanta and Los Angeles and intends to expand in the Atlanta market prior to the 1996 Summer Olympic Games. The Company's goal is to become the leading national provider of taxicab rooftop advertising by establishing a presence in several major U.S. metropolitan markets. In furtherance of this goal, the Company has recently hired a National Sales Director with 27 years of management experience in the outdoor advertising industry. The Company believes that no provider currently operates nationwide. On September 30, 1995, the Company owned approximately 1,500 Displays, approximately 90% of which were in use in New York City. Display occupancy averaged approximately 90% for the nine months ended September 30, 1995. For the nine months ended September 30, 1995, Media accounted for 3.5% of the Company's net investment income.
The following line graph indicates the number of Displays installed at the end of each fiscal quarter indicated.
[BAR GRAPH APPEARS HERE]
Each Display is attached to the rooftop of a taxicab by the Company and the Company also performs all ongoing Display maintenance and repair. The Display remains the property of the Company. The Display serves as a platform or frame for advertising copy which is preprinted on vinyl sheets with adhesive backing and provided by the advertiser. The advertising copy adheres to the Display and is illuminated whenever the taxicab is in operation. The vinyl sheet is durable and is generally left on the Display for up to 90 days. The advertising copy is replaced at the advertiser's discretion and cost when advertising campaigns change. The standard size of the vinyl advertising copy, 14 inches high and 48 inches long, was designed to be proportionally similar to "bulletins" or "billboards" to permit advertisers to conveniently translate billboard copy to Display copy.
Generally, the Company enters into agreements with taxicab associations, fleets or individuals to lease taxicab rooftop space for five-year terms. Typically, under these agreements, the Company is only required to make lease payments upon receipt of payment from the relevant advertiser; accordingly, unoccupied Displays remain on taxicab rooftops rent-free. The Company markets the Displays 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 Company's advertising accounts have included HBO; R. J. Reynolds Tobacco Company; CBS, Inc.; NEC; NYNEX Corporation; Metro-Goldwyn-Mayer Inc. and Brown & Williamson Tobacco Corporation.
The Company believes the inherent in-motion nature of taxicabs and their concentration and distribution throughout densely populated metropolitan areas enhance their effectiveness as an advertising medium. Displays can be placed throughout an area, effectively covering the population and providing continuous exposure. Moreover, taxicab rooftop advertising is not zoned out of any of the areas in New York City, such as Park Avenue and Central Park, where stationary advertising is generally prohibited. Unlike other forms of transit advertising in New York City such as buses, bus shelters and subway and commuter train stations, which are prohibited from advertising tobacco products, taxicabs are not restricted by New York City from advertising
tobacco products. In addition, the Company believes that taxicab rooftop advertising compares favorably with other forms of outdoor advertising, which in general have among the lowest cost-per-thousand impressions or "CPM", a standard measurement of effectiveness among media, of all advertising media.
Currently, substantially all of the Company's taxicab rooftop advertising revenue is derived from tobacco products advertising. The FDA has proposed new rules, which, among other things, regulate advertising of tobacco products. The Company cannot predict whether the proposed rules restricting tobacco products advertising will be adopted, or whether the proposed rules will, if adopted, restrict taxicab rooftop advertising. The Company believes, however, it could replace revenue lost due to government regulations if rules restricting the advertising of tobacco products are adopted and restrict taxicab rooftop advertising. See "Risk Factors -- Government Regulation of Tobacco Advertising".
SOURCES OF FUNDS
Overview
The Company funds its operations through credit facilities with bank syndicates and, to a lesser degree, through fixed rate, long-term subordinated debentures issued to or guaranteed by the SBA. The determination of funding sources is established by the Company's management, based upon analysis of the respective financial and other costs and burdens associated with funding sources. SBA financing offers very attractive rates, for example currently as low as 4.0%, but such financing is restricted in its application and its availability is uncertain. In addition, SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. Accordingly, the Company plans to limit its use of SBA funding and will seek such funding only when advantageous, such as to fund loans that qualify under SBA Regulations through subsidiaries already subject to SBA restrictions. At September 30, 1995, 73% of the Company's $119.4 million of debt consisted of bank debt, substantially all of which was at variable effective rates of interest averaging below the Prime Rate and 27% consisted of subordinated SBA debentures, with fixed rates of interest with a weighted average rate of 7.44%. An additional $7.5 million of debt was available at September 30, 1995 at variable effective rates of interest averaging below the Prime Rate under the Company's $96 million in bank credit facilities. After the Offering, the Company intends to negotiate an increase in the amount available under such facilities. A table appearing under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" illustrates each of the Founding Companies' sources of available funds at September 30, 1995.
The Company funds its fixed rate loans with variable rate bank debt and fixed rate subordinated SBA debentures. The mismatch between maturities and interest-rate sensitivities of these balance sheet items results in interest rate risk. See "Risk Factors -- Interest Rate Spread; Prepayment Risk." The Company seeks to manage its exposure to increases in market rates of interest to an acceptable level by (i) purchasing interest rate caps to hedge a portion of its variable rate debt against increases in interest rates, (ii) incurring fixed-rate debt and (iii) originating adjustable rate loans. Nevertheless, the Company accepts varying degrees of interest rate risk depending on market conditions and believes that the resulting asset/liability interest rate mismatch results in opportunities for higher net interest income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Asset/Liability Management."
Tri-Magna Funding
Tri-Magna has a $2.0 million revolving line of credit with a bank syndicate. At September 30, 1995, $838,000 was outstanding under this facility, bearing interest at 7.43%. Tri-Magna is also subject to a $3.2 million term loan which will be repaid with the proceeds from the Offering. The term loan bears interest at 8.75%. The Company expects that the revolving line of credit will be transferred to Medallion Financial after the Offering.
Edwards Funding
Edwards has a $12.5 million revolving line of credit with a bank syndicate. Under an agreement with the SBA, Edwards was restricted from borrowing more than $10.0 million in bank debt without the prior approval of the SBA. In January 1996, this amount was increased to $11.5 million.
As an SBIC, Edwards is eligible to obtain low cost financing from the SBA through the issuance of subordinated SBA debentures and has outstanding such debentures in the principal amount of $25.0 million. Following the Offering, Edwards intends to seek to issue additional subordinated SBA debentures. SBA Regulations limit the amount of subordinated SBA debentures or "leverage" SBICs may issue. Generally, under SBA Regulations, the maximum principal amount of subordinated SBA debentures Edwards is permitted to issue is equal to 300% of its private or non-SBA paid-in capital and paid-in surplus ("Leveragable Capital"). SBA Regulations generally also limit the aggregate amount of leverage SBICs and SSBICs under common control, such as Edwards, MFC and TCC, have outstanding to no more than $90 million. Accordingly, Edwards, MFC and TCC collectively may not issue subordinated SBA debentures and preferred stock in an aggregate amount that exceeds $90 million and at September 30, 1995, the aggregate amount outstanding was $31.6 million. The interest rates payable on outstanding subordinated SBA debentures at September 30, 1995 ranged from 7.15% to 9.8% with a weighted average of 8.0%.
At September 30, 1995, Edwards had Leveragable Capital of $8.4 million and had issued $25.0 million in principal amount of subordinated SBA debentures that carry fixed rates of interest and have ten-year terms. These debentures have maturities ranging from September 1, 1996 to September 1, 2004 and rates of interest varying from 7.15% to 9.8% per annum. Subject to the limitations discussed above, Edwards was eligible on September 30, 1995, to issue $250,000 in aggregate principal amount of additional subordinated SBA debentures.
MFC Funding
MFC intends to rely on its bank credit facilities rather than on SBA financing to fund its operations. MFC has a credit facility with a bank syndicate consisting of a $78.0 million revolving line of credit and a $2.0 million term loan. Amounts outstanding under the revolving line of credit bear interest at the agent bank's prime rate or, at MFC's option, a rate based on LIBOR. At September 30, 1995, the applicable interest rate was 7.82% which was 93 basis points below the Prime Rate and 187 basis points above 90-day LIBOR as of such date. The revolving line of credit is secured by all of MFC's assets and matures on September 30, 1996. As of September 30, 1995, there was an outstanding balance of $72.3 million under the revolving line of credit. The term loan bears interest at the rate of 7.5% and matures on July 31, 1997.
SBA financing is limited and so long as an SBIC or SSBIC has SBA financing outstanding, the SBA restricts the amount of bank debt such SBIC or SSBIC may have outstanding. As a result of these SBA limitations, debt financing from all sources is effectively limited. To eliminate this funding cap, MFC has repurchased all of its outstanding subordinated SBA debentures and preferred stock and thereby terminated SBA limitations on the amount of bank debt MFC can incur. The Company believes that MFC will be able to obtain more funding from banks than it was able to obtain from the SBA and banks under SBA limitations, and that this will permit MFC to more effectively expand its operations. See "Business -- Sources of Funds -- Preferred Stock Repurchase Agreements."
Media Funding
Media has a $275,000 demand loan from a bank. The loan is secured and bears interest at the rate of 10.75%.
TCC Funding
As an SSBIC, TCC is eligible to obtain low cost financing from the SBA through the issuance of subordinated SBA debentures and the issuance of non- voting cumulative preferred stock to the SBA. TCC has $6.7 million of subordinated SBA debentures outstanding and presently has no preferred stock outstanding.
Following the Offering, TCC intends to seek to issue preferred stock and additional subordinated SBA debentures. SBA Regulations limit the amount of subordinated SBA debentures and preferred stock or "leverage" SSBICs may issue. Generally, under SBA Regulations, the maximum principal amount of subordinated SBA debentures and preferred stock TCC is permitted to issue is the lesser of (i) an amount equal to 300% of its Leveragable Capital, or (ii) $35.0 million. All 300% of this leverage is permitted to consist of subordinated SBA debentures, while no more than 100% is permitted to consist of preferred stock. The $90 million limit on the aggregate amount of leverage permitted for SBICs and SSBICs under common control referred to above also applies. The cumulative dividend currently payable on shares of preferred stock issued by SSBICs to the SBA is 4.0% and at September 30, 1995 the weighted average interest rate payable on subordinated SBA debentures was 5.38%. As a result of an SBA subsidy program available to SSBICs, the effective interest rate on such debentures is 3.00% below the stated interest rate for the first five years such debentures are outstanding.
At September 30, 1995, TCC had Leveragable Capital of $7.7 million and had issued $6.7 million in principal amount of subordinated SBA debentures that carry fixed rates of interest, ten-year terms and may be prepaid after five years without penalty. These debentures have maturities ranging from May 7, 1996 to June 1, 2002 and rates of interest varying from 5.00% to 7.38% per annum. Future issuances of subordinated SBA debentures by TCC are also limited by the SBA to the aggregate amount of TCC's outstanding non-Medallion Loans and the aggregate amount of non-Medallion Loans originated in connection with such financing. At September 30, 1995, TCC had $1.6 million in principal amount of non-Medallion Loans outstanding. Subject to the foregoing limitations, TCC was eligible on September 30, 1995, to issue $16.4 million in aggregate amount of additional subordinated SBA debentures and preferred stock.
Preferred Stock Repurchase Agreements
MFC and TCC have repurchased all of their previously issued preferred stock from the SBA for an aggregate price of $4.4 million, representing a discount of 65% from the original aggregate issuance price of $12.6 million. The repurchase price discount of $8.2 million reflects the below market 3% dividend rate and the fact that the preferred stock was not subject to mandatory redemption at any time. The repurchase has resulted in the termination of SBA limits on the amount of bank debt MFC can incur and a realized gain in retained earnings in the amount of the repurchase discount which will be accreted to paid-in capital on a straight-line basis over 60 months, commencing August 12, 1995. However, if MFC or TCC is liquidated or loses its SBA license during the accretion period, the SBA will receive the remaining unaccreted amount of the realized gain attributable to the subsidiary liquidating or losing its license.
COMPETITION
Banks, credit unions and finance companies, some of which are SSBICs and SBICs, compete with the Company in originating Medallion Loans and Commercial Installment Loans. Finance subsidiaries of equipment manufacturers also compete with the Company. Many of these competitors have greater resources than the Company and certain competitors are subject to less restrictive regulations than the Company. As a result, there can be no assurance that the Company will be able to identify and complete the financing transactions that will permit it to compete successfully. The Company's taxicab rooftop advertising business competes with other taxicab rooftop advertisers as well as all segments of the out-of-home advertising industry and other types of advertising media, including cable and network television, radio, newspapers, magazines and direct mail marketing. Many of these competitors have greater financial resources than the Company and offer several forms of advertising as well as production facilities.
FORMATION TRANSACTIONS
Simultaneously with the closing of the Offering, Medallion Financial will acquire the Founding Companies, and the Offering is contingent upon the successful acquisition of each of the Founding Companies. In connection with the Acquisitions, the Company has filed an application for an exemptive order under the 1940 Act with the
Commission. The Acquisitions and the Offering are contingent upon receipt of such exemptive order. See "Additional Information." The aggregate consideration to be paid by Medallion Financial in these transactions consists of (i) approximately $38.7 million in cash; (ii) the assumption of approximately $87.7 million in bank debt; and (iii) the assumption of approximately $31.7 million in subordinated SBA debentures. See "Certain Transactions" and "Use of Proceeds." The consideration to be paid for the Founding Companies was determined through arm's-length negotiations between Medallion Financial and representatives of each Founding Company. The factors considered by the parties in determining the consideration to be paid included, among others, the history of and prospects for the business in which the particular Founding Company operates, the Founding Company's past and present operations, loan portfolio quality, past and present revenue and earnings and the trends of such revenue and earnings, expert opinion, revenue and earnings prospects and stock prices of comparable finance companies and out-of-home advertising companies. Each Founding Company was represented by independent counsel in the negotiation of the terms and conditions of the Acquisitions.
The consummation of each Acquisition is subject to customary closing conditions. These conditions include the continuing accuracy on the closing date of the Acquisitions of the representations and warranties of the Founding Companies and Medallion Financial, the performance of all covenants included in the agreements relating to the Acquisitions, the nonexistence of any material adverse change in the results of operations, financial condition or business of the Founding Companies and stockholder approval in the case of Tri-Magna and TCC and general and limited partner approval in the case of Edwards. The acquisitions of Tri-Magna, TCC and Edwards are also contingent upon SBA approval.
The agreements relating to the Acquisitions may be terminated, under certain circumstances, prior to the consummation of the Acquisitions. Specifically, each agreement may be terminated: (i) by mutual consent of the parties; (ii) if the Acquisitions of Tri-Magna, TCC and Edwards are not consummated by April 30, 1996; (iii) if a material breach or default under the agreements occurs and is not cured within 20 days of notice of such breach; or (iv) if the special committee of the Tri-Magna Board of Directors terminates the Tri-Magna merger agreement or fails to recommend the acquisition of Tri-Magna to its stockholders.
There can be no assurance that the conditions to the closing of the Acquisitions will be satisfied, or, if not satisfied, waived or that the Acquisition agreements will not be terminated. If any of the Acquisitions is terminated for any reason, Medallion Financial will not consummate the Offering.
Tri-Magna. Under an agreement with Tri-Magna, Tri-Magna will be merged with and into Medallion Financial and Tri-Magna's wholly owned subsidiaries, MFC and Media, will become wholly owned subsidiaries of Medallion Financial. The aggregate consideration to be paid by Medallion Financial for Tri-Magna is approximately (i) $13.4 million in cash and (ii) the assumption of $78.3 million in bank debt. See "Certain Transactions" and "Use of Proceeds."
Edwards. Under an agreement with Edwards, a newly organized, wholly owned subsidiary of Medallion Financial will acquire all of the assets of Edwards. The aggregate consideration to be paid by Medallion Financial for Edwards is approximately (i) $15 million in cash, (ii) the assumption of approximately $25 million in subordinated SBA debentures and (iii) the assumption of approximately $9.4 million in bank debt. In connection with this transaction, Edwards, its general partner and certain affiliates will enter into non- competition agreements with Medallion Financial pursuant to which they will agree not to compete with the Company for three years after the consummation of this transaction.
TCC. Under an agreement with TCC and certain of its affiliates, Medallion Financial or a wholly owned subsidiary of Medallion Financial will acquire all of the issued and outstanding common stock of TCC. Upon consummation of this transaction, TCC will become a wholly owned subsidiary of Medallion Financial. The
aggregate consideration to be paid by Medallion Financial for TCC is approximately (i) $10.2 million in cash and (ii) the assumption of $6.7 million in subordinated SBA debentures. In connection with this transaction, Leucadia will enter into a non-competition agreement with Medallion Financial pursuant to which it will agree that it and all of its affiliates will not compete with the Company for three years after the consummation of this transaction.
EMPLOYEES
As of September 30, 1995, the Company employed a total of 32 employees. The Company believes that its relations with all of its employees are good, but that its future success will depend, in part, on its ability to continue to recruit, retain and motivate qualified personnel at all levels.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Company's investment objectives will be to provide a high level of current income for its stockholders through quarterly distributions, consistent with preservation of capital, as well as long term growth of net asset value. The Company will seek to achieve its investment objectives by maximizing net interest income and fee income from operations and expanding operations. There can be no assurance that the Company will achieve its investment objectives.
The Company's only fundamental policies, that is, policies that cannot be changed without the approval of the holders of a majority of the Company's outstanding voting securities, as defined under the 1940 Act, are the restrictions described in the following seven paragraphs. A "majority of the Company's outstanding voting securities" as defined under the 1940 Act means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares. The other policies and investment restrictions referred to in this Prospectus, including the Company's investment objectives, are not fundamental policies of the Company and may be changed by the Company's Board of Directors without stockholder approval. Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of the Company's assets that may be invested in any security or other asset, or sets forth a policy regarding quality standards, such standard or percentage limitation will be determined immediately after and as a result of the Company's acquisition of such security or other asset. Accordingly, any subsequent change in values, assets, or other circumstances will not be considered when determining whether the investment complies with the Company's investment policies and limitations. The Company's fundamental policies are as follows:
1. The Company will at all times conduct its business so as to retain its status as a business development company under the 1940 Act. In order to retain that status, the Company may not acquire any assets (other than non- investment assets necessary and appropriate to its operations as a business development company) if, after giving effect to such acquisition, the value of its "Qualifying Assets," as such term is described under the caption "Regulation," amount to less than 70% of the value of its total assets. The Company believes that the securities it has acquired and it proposes to acquire in connection with the acquisition of the Founding Companies, as well as temporary investments it makes with its funds, will generally be Qualifying Assets.
2. MFC, TCC, Edwards, and any subsidiaries of the Company organized in the future that are SBA licensees, may issue the maximum principal amount of subordinated SBA debentures and preferred stock permitted under the SBIA and SBA Regulations. As SSBICs under common control, the maximum principal amount of subordinated debentures and preferred stock MFC and TCC are permitted to issue is the lesser of (i) an amount equal to 300% of their Leveragable Capital (generally non-SBA paid-in capital and paid-in surplus), or (ii) $35 million. All 300% of this leverage is permitted to consist of subordinated debentures, while no more than 100% is permitted to consist of preferred stock. As an SBIC, the maximum principal amount of subordinated debentures Edwards is permitted to issue is equal to 300% of its Leveragable Capital. In addition, SBA Regulations also limit the aggregate principal amount of subordinated SBA debentures and preferred stock or "leverage" SSBICs and SBICs under common control, such as the RIC Subsidiaries, may have outstanding to no more than $90 million. At September 30, 1995, TCC and Edwards had, in aggregate, $31.7 million in principal amount of subordinated debentures and no preferred stock outstanding. At that date, TCC and Edwards had, in aggregate, $16.1 million in Leveragable Capital and accordingly the maximum aggregate principal amount of additional SBA leverage TCC and Edwards could issue on that date was $16.6 million. MFC has Leveragable Capital of $14.5 million but has no subordinated SBA debentures outstanding. At September 30, 1995, MFC had no subordinated SBA debentures outstanding and has no intention of issuing any; however, MFC reserves the right to issue subordinated debentures to the maximum extent permitted under the SBIA or SBA Regulations.
3. The Company may borrow funds and issue "senior securities" to the maximum extent permitted under the 1940 Act. As a business development company, the Company may issue senior securities if, immediately after such issuance, the senior securities will have an asset coverage of at least 200%. Under
the 1940 Act, subordinated debentures issued to or guaranteed by the SBA and preferred stock issued to the SBA by the RIC Subsidiaries may be considered senior securities issued by the Company requiring asset coverage of 200%; however, pursuant to an exemptive order of the Commission requested under the Application, such debentures and preferred stock are exempt from the asset coverage requirements of the 1940 Act.
4. The Company will not (i) underwrite securities issued by others
(except to the extent that it may be considered an "underwriter" within the
meaning of the Securities Act in the disposition of restricted securities),
(ii) purchase or sell real estate or real estate mortgage loans unless
acquired as a result of ownership of securities or other instruments
(except that the Company may purchase and sell real estate or interests in
real estate in connection with the orderly liquidation of investments or
the foreclosure of mortgages held by the Company), (iii) engage in short
sales of securities, (iv) purchase securities on margin (except to the
extent that it may purchase securities with borrowed money), (v) write or
buy put or call options or (vi) engage in the purchase or sale of
commodities or commodity contracts, including futures contracts (except
where necessary in working out distressed loan or investment situations).
The Company and the RIC Subsidiaries may purchase interest rate caps and
swaps covering up to 100% of their variable rate debt.
5. The Company and the RIC Subsidiaries may originate loans and loans with equity features. The Company may also make loans as permitted (i) under the 1996 Plan, (ii) under plans providing for options for disinterested directors that might be adopted by the Company in the future and (iii) to officers and directors for the purchase of Common Stock. The Company will hold all of the outstanding common stock of the Founding Companies and may organize additional subsidiaries in the future. The Company may acquire restricted securities of small businesses.
6. Each RIC Subsidiary shall not originate loans to, or invest in the securities of, any entity if, immediately after such loan or investment, more than 5% of the total assets of the RIC Subsidiary originating such loan or making such investment (taken at current value) would be loaned to, or invested in the securities of such entity, or acquire more than 10% of the outstanding voting securities of any issuer, provided that this limitation does not apply to obligations issued or guaranteed as to interest and principal by the U.S. Government or its agencies or instrumentalities or to repurchase agreements secured by such obligations, and that up to 25% of each RIC Subsidiary's total assets (at current value) may be invested without regard to this limitation.
7. The Company and each RIC Subsidiary shall not lend or invest more than 25% of their respective total assets (taken at current value) to or in entities primarily engaged in any one industry except the taxicab, retail dry cleaning and coin operated laundromat industries, provided that this limitation does not apply to obligations issued or guaranteed as to interest and principal by the U.S. Government or its agencies or instrumentalities or to repurchase agreements secured by such obligations or to bank money-market instruments.
PORTFOLIO TURNOVER
During the year ended December 31, 1994, the Company originated loans totalling $61.4 million in aggregate principal amount and experienced prepayments totalling $60.6 million in aggregate principal amount. During the nine months ended September 30, 1995, the Company originated loans totalling $41.0 million in aggregate principal amount and experienced prepayments totalling $38.9 million in aggregate principal amount. All borrowers have the right to prepay loans made by the Company at any time. Although the Company experiences more prepayments when interest rates are falling and fewer prepayments when interest rates are rising, the Company is unable to predict the level of prepayments it will experience during any period of time.
THE INVESTMENT ADVISER
The Company is managed by its executive officers under the supervision of its Board of Directors. In addition, under the terms of an advisory agreement (the "Advisory Agreement") between the Company and FMC, the Company has retained FMC to consult with management upon reasonable request in the review and refinement of the Company's strategies.
Myron Cohen, Robert Fanger and Michael Miller control FMC and will provide the advisory services to the Company on behalf of FMC. They have served as directors and executive officers of Tri-Magna and MFC since inception and, along with Alvin Murstein, comprised Tri-Magna's Executive Committee. Messrs. Cohen, Fanger and Miller will resign their offices with Tri-Magna and MFC effective upon the closing of the Acquisitions. Upon the request of the officers of the Company, FMC will consult with respect to strategic decisions concerning originations, credit quality assurance, development of financial products, leverage, funding, geographic and product diversification, the repurchase of participations, acquisitions, regulatory compliance and marketing.
Under the Advisory Agreement, the Company will pay FMC monthly, as compensation for the services to be rendered by it, a fee of $18,750. For the first 48 months of service, fees shall be paid in advance in one payment in the amount of $900,000 from the proceeds of the Offering. Unless earlier terminated as described below, the Advisory Agreement will remain in effect until February 1998 and from year to year thereafter only if approved annually by (i) a majority of the non-interested directors of the Company and (ii) the Board of Directors, or by a majority of the outstanding voting securities of the Company, as defined in the 1940 Act. The Advisory Agreement may be terminated without penalty on 60 days' written notice by either party or by vote of a majority of the outstanding voting securities of the Company, as defined in the 1940 Act, and will terminate if assigned. In the event of termination, prepaid fees for services not yet performed, if any, must be repaid to the Company. Under the Advisory Agreement, FMC will not be liable for any loss suffered by the Company, except a loss resulting from FMC's willful malfeasance, bad faith or gross negligence.
The Alvin Murstein Second Family Trust and the Andrew Murstein Family Trust (collectively the "Murstein Trusts") will enter into an escrow agreement with FMC at the closing of the Offering. Under the escrow agreement, the Murstein Trusts will deposit into escrow Common Stock valued at $1.8 million, at the price per share set forth on the cover page of this Prospectus. Subject to certain limitations, the Murstein Trusts have agreed to maintain in escrow Common Stock worth 200% of the advisory fees subject to repayment by FMC to the Company in the event of termination or non-renewal of the Advisory Agreement during the first 48 months of service. In the event that the Company or its stockholders terminate or do not renew the Advisory Agreement during this period for any reason other than (i) breach of the Advisory Agreement by FMC or (ii) FMC's willful malfeasance, bad faith or gross negligence, and as a result of such termination or failure to renew FMC is required to repay fees for services not yet performed, the escrow agent shall assign to FMC Common Stock in escrow equal in value to the amount of the refunded fees.
MANAGEMENT
The business and affairs of the Company are managed under the direction of its Board of Directors. The Board of Directors is divided into three classes, each with a term of three years. Only one class of directors stands for election in any year. Messrs. Kreitman and Rudnick are in the first class and stand for election in 1997; Messrs Cuomo and Andrew Murstein are in the second class and stand for election in 1998 and Messrs. Alvin Murstein and Ward are in the third class and stand for election in 1999. The Board of Directors has two committees, a Compensation Committee comprised of Messrs. Kreitman, Alvin Murstein and Ward and an Audit Committee comprised of Messrs. Kreitman, Rudnick and Ward. The directors will each be paid $10,000 a year for each year they serve and shall each receive $2,000 for each Board meeting attended and $1,000 for each committee meeting attended and are reimbursed for expenses relating thereto. The Board of Directors elects the Company's officers who serve at the pleasure of the Board of Directors.
The Company's directors and officers are as set forth below.
NAME AND ADDRESS AGE POSITION(S) HELD WITH THE COMPANY
---------------- ----- ---------------------------------
Alvin Murstein*............ 61 Chairman, Chief Executive Officer and Director
Andrew Murstein*........... 31 President and Director
Marie Russo*............... 71 Senior Vice President and Secretary
Daniel F. Baker*........... 32 Treasurer and Chief Financial Officer
Michael Fanger*............ 38 Executive Vice President
Michael J. Kowalsky*....... 50 Executive Vice President
Budd S. Goldman*........... 48 Senior Vice President
Michael Leible*............ 58 Vice President
Mario M. Cuomo............. 63 Director
Stanley Kreitman........... 62 Director
David L. Rudnick........... 55 Director
Benjamin Ward.............. 69 Director
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Alvin Murstein has been Chairman of the Board of Directors, Chief Executive Officer and President of Tri-Magna since its founding in 1989 and of MFC since its founding in 1979. Mr. Murstein has also been Chairman of the Board of Directors and Chief Executive Officer of Media since its founding in 1994. Upon completion of the Offering and the Acquisitions, Mr. Murstein will be Chairman of the Board of Directors and Chief Executive Officer of MFC, Edwards, TCC and Media. Mr. Murstein received a B.A. and an M.B.A. from New York University and has been an executive in the taxicab industry for over 40 years. Mr. Murstein has served on the Board of Directors of the Strober Organization, Inc., a building supply company, since 1988. Alvin Murstein is the father of Andrew Murstein.
Andrew Murstein has been Tri-Magna's Director of New Business Development since 1991. Mr. Murstein has also been a Director of Media since 1994 and was President of Media from inception through January 1996. Mr. Murstein is Tri- Magna's liaison with the TLC and the New York City Mayor's office. Upon completion of the Offering and the Acquisitions, Mr. Murstein will be a Director of Media and a Director of MFC, Edwards and TCC. Mr. Murstein received a B.A. in economics, cum laude, from Tufts University and an M.B.A. in finance from New York University. Mr. Murstein serves on the New York City Small Business Task Force. Andrew Murstein is the son of Alvin Murstein and the son-in-law of Mr. Rudnick, and is the third generation of his family to be active in the taxicab industry.
Marie Russo has been the Vice President of Operations of Tri-Magna since its founding in 1989 and of MFC since 1986. From 1983 to 1986 she was Controller of MFC. Upon completion of the Offering and the Acquisitions, Ms. Russo will be Senior Vice President of MFC, Edwards and TCC. Ms. Russo received a B.S. in accounting from Hunter College.
Daniel F. Baker has been Tri-Magna's Vice President of Finance since 1992. From 1989 through 1991, Mr. Baker was Controller of Tri-Magna and from 1988 through 1991 he was Controller of MFC. Prior to joining MFC, Mr. Baker was employed by Arthur Andersen & Co. Upon completion of the Offering and the Acquisitions, Mr. Baker will be Treasurer and Chief Financial Officer of MFC, Edwards, TCC and Media. Mr. Baker received a B.S. in accounting from Husson College.
Michael Fanger has been Tri-Magna's Vice President of Commercial Lending since its founding in 1989 and of MFC since 1987. Upon completion of the Offering and the Acquisitions, Mr. Fanger will be President of TCC, Executive Vice President of MFC and Senior Vice President of Edwards. Prior to joining MFC, Mr. Fanger was a Vice President, Commercial Lending at Shawmut Bank, NA. Mr. Fanger received a B.A. from Colby College.
Michael J. Kowalsky has been Edwards' Chief Operating Officer since 1992. Prior to joining Edwards in 1990, Mr. Kowalsky was a Senior Vice President at General Cigar Co. Inc., a cigar manufacturing company. Upon completion of the Offering and the Acquisitions, Mr. Kowalsky will be President of MFC and of Edwards. Mr. Kowalsky received a B.A. and M.A. in economics from the University of Kentucky and an M.B.A. from the New York University Graduate School of Business.
Budd S. Goldman has been President of Media since January 1996. Prior to joining Media, Mr. Goldman was Chairman and Chief Executive Officer of Millennium Telecommunications, Inc. from 1994 through October 1995 and Chairman and Chief Executive Officer of Banning Enterprises, Ltd., a consumer products company, from 1979 until 1993. Mr. Goldman is a certified public accountant. Mr. Goldman received a B.B.A. in accounting from the City College of New York.
Michael Leible has been Vice President and National Sales Director of Media since 1994. Prior to joining Media, Mr. Leible was Executive Vice President and National Sales Manager at Metropolitan Outdoor Advertising, Inc. where he worked from April 1990 until March 1995. From 1979 through 1989 he was Vice President--National Sales at Transportation Displays, Inc. ("TDI"). Prior to joining TDI, Mr. Leible was Vice President--National Sales at Metromedia, Inc., where he worked from 1967 through 1979.
Mario M. Cuomo served as Governor of the State of New York from January 1983 through 1994. Governor Cuomo has been a partner in the law firm of Willkie Farr & Gallagher since February 1995. Willkie Farr & Gallagher serves as counsel to the Underwriters in connection with this Offering. Mr. Cuomo received a B.A., summa cum laude, from St. John's University and a J.D., magna cum laude, from St. John's University School of Law.
Stanley Kreitman serves as Vice Chairman of Manhattan Associates, an investment banking company. Mr. Kreitman served as a Director of Tri-Magna from 1991 until the completion of the Offering and the Acquisitions. Mr. Kreitman served as President of the United States Banknote Corporation, a securities printing company, from 1975 until his retirement in 1994. Mr. Kreitman is Chairman of the Board of Trustees of the New York Institute of Technology. Mr. Kreitman received an A.B. from New York University and an M.B.A. from New York University Graduate School of Business.
David L. Rudnick serves as President of Century Properties, Inc., a national commercial real estate concern. Mr. Rudnick joined Century Properties, Inc. in 1966. Mr. Rudnick was a director of West Side Federal Savings & Loan Association. Mr. Rudnick received an A.B. in economics from Harvard University and an M.B.A. from Columbia University Graduate School of Business. Mr. Rudnick is Andrew Murstein's father-in-law.
Benjamin Ward served as a Director of Tri-Magna from 1992 until the completion of the Offering and the Acquisitions. Mr. Ward served as Police Commissioner of New York City from 1984 until 1989. Mr. Ward received a B.A. in sociology, magna cum laude, from Brooklyn College and a J.D. from Brooklyn Law School.
COMPENSATION
The following table sets forth for the fiscal year ending December 31, 1996, the estimated compensation to be paid to the three most highly compensated officers of the Company. The Company does not anticipate paying any director aggregate compensation in excess of $30,000 during fiscal 1996 from Medallion Financial and the Founding Companies for such individual's service as a director.
COMPENSATION TABLE
AGGREGATE
COMPENSATION FROM
NAME OF PERSON, POSITION THE COMPANY(1)
------------------------ -----------------
1. Alvin Murstein, $250,000
Chairman and Chief Executive Officer
2. Andrew Murstein, $155,000
President and Director
3. Michael Kowalsky $150,000
Executive Vice-President
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EMPLOYMENT AGREEMENTS
Alvin Murstein and Andrew Murstein have entered into employment agreements with the Company. The agreements automatically renew annually for a five-year term unless either party terminates the agreement. The agreements contain non- competition covenants in favor of the Company.
1996 STOCK OPTION PLAN
The 1996 Plan was adopted by the Board of Directors, including a majority of the non-interested directors, in 1996. The 1996 Plan authorizes the grant of incentive stock options within the meaning of Section 422 of the Code and non- qualified stock options for the purchase of an aggregate of 750,000 shares (subject to adjustment for stock splits and similar capital changes) of Common Stock to employees of the Company. As of January 31, 1996, no non-qualified options to purchase shares of Common Stock and no incentive stock options had been granted under the 1996 Plan. Accordingly, as of January 31, 1996, 750,000 shares of Common Stock were available for future awards under the 1996 Plan.
It is anticipated that prior to the closing of the Offering, Michael Kowalsky, an Executive Vice President of the Company, will be granted stock options exercisable for the number of shares of Common Stock determined by dividing $500,000 by the public offering price per share set forth on the cover page of this Prospectus and currently estimated to be 45,000 shares of Common Stock. These options will begin to become exercisable one year after the date of this Prospectus and the exercise price per share for such shares will be equal to the public offering price.
The Board of Directors has appointed the Compensation Committee of the Board of Directors to administer the 1996 Plan. Awards of options under the 1996 Plan are granted at the discretion of the Compensation Committee, which determines the eligible persons to whom, and the times at which, awards shall be granted, the type of award to be granted, and all other related terms, conditions and provisions of each award granted. In addition, all questions of interpretation of the 1996 Plan are determined by the Compensation Committee.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In order to attract and retain highly qualified directors, and to ensure close identification of interests between non-employee directors and the Company's stockholders, the Board of Directors of the Company adopted and the stockholders approved the Director Plan, which provides for the automatic grant of options to directors of the Company who are not employees, officers or interested persons of the Company (an "Eligible Director"). In accordance with the provisions of the 1940 Act, the automatic grant of options under the Director Plan will not occur until after the date of the approval of the plan by the Commission (the "Approval Date").
The Director Plan provides that Eligible Directors serving on the Company's Board of Directors prior to the Approval Date will each automatically receive on the Approval Date the grant of an option to purchase the number of shares of Common Stock determined by dividing $100,000 by the fair market value of the Common Stock on the Approval Date. With respect to any Eligible Director who is elected as a director of the Company after the Approval Date such director will automatically receive on the date of such election an option to purchase the number of shares of Common Stock determined by dividing $100,000 by the fair market value of the Common Stock on the date of such election.
The total number of shares which may be granted from time to time under the Director Plan is 100,000 shares. The Director Plan will be administered by a committee of the Board of Directors comprised of directors that are not eligible for grants or awards of options under the Director Plan. Options granted under the Director Plan will be exercisable at a price equal to the fair market value of the shares at the time the option is granted. Options become exercisable with respect to one third of such shares granted on the date of each annual stockholders meeting following the date on which the option was granted, so long as the optionee remains an Eligible Director. No option may be exercised more than five years after the date on which it is granted. The number of shares available for options, the number of shares subject to outstanding options and their exercise prices will be adjusted for changes in outstanding shares such as stock splits and combinations of shares. Shares purchased upon exercise of options, in whole or in part, must be paid for in cash or by means of unrestricted shares of Common Stock or any combination thereof.
Options granted under the Director Plan will not be transferable other than by the laws of descent and during the optionee's life may be exercised only by the optionee. All rights to exercise options will terminate after the optionee ceases to be an Eligible Director for any reason, other than death, three months following the date such director ceases to be an Eligible Director. If the optionee dies before expiration of the option, his legal successors may have the right to exercise the option in whole or in part within one year of death.
The Director Plan may be terminated at any time by the Board of Directors, and will terminate ten years after the effective date of the Director Plan. The Board of Directors may not materially increase the number of shares authorized under the plan or materially increase the benefits accruing to participants under the plan without the approval of the stockholders of the Company.
401(K) PLAN
In 1996, the Company adopted the Medallion Financial Corp. 401(k) Investment Plan (the "401(k) Plan") which covers all full and part-time employees of the Company who have attained the age of 21 and have a minimum of one-half year of service. Under the 401(k) Plan, an employee may elect to defer not less than 1% and no more than 15% of the total annual compensation that would otherwise be paid to the employee, provided, however, that employees' contributions may not exceed certain maximum amounts determined under Section 402(g) of the Code. Employee contributions are invested in various mutual funds, according to the directions of the employee.
PRINCIPAL STOCKHOLDERS
At February 14, 1996, of the 15,000,000 shares of Common Stock authorized, there were 2,500,000 shares of Common Stock outstanding and two holders of record. The following table sets forth certain ownership information with respect to the Common Stock for (i) those persons who directly or indirectly beneficially own 5% or more of the outstanding Common Stock and (ii) all officers and directors as a group.
AMOUNT OF BENEFICIAL OWNERSHIP
PERCENTAGE OWNED
---------------------------------------
TYPE OF OWNERSHIP BEFORE AFTER
NAME AND ADDRESS (RECORD/BENEFICIAL/BOTH) SHARES OFFERING OFFERING
- ---------------- ------------------------ ----------- ---------- ----------
Alvin Murstein Second Both(1) 1,250,000(2) 50% 16.67%(2)
Family Trust...........
205 East 42nd Street,
Suite 2020
New York, NY 10017
Andrew Murstein Family Both(3) 1,250,000 50% 16.67%
Trust..................
205 East 42nd Street,
Suite 2020
New York, NY 10017
All officers and
directors as a group
(12 persons)........... 2,500,000(2) 100% 33.33%(2)
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CERTAIN TRANSACTIONS
Approximately $13.4 million of the net proceeds from the Offering will be
used by the Company to purchase all of the issued and outstanding shares of
Common Stock of Tri-Magna. Of this amount, approximately $1.7 million,
representing 12.7% of the Tri-Magna purchase price, will be paid to purchase
the Tri-Magna common stock of certain stockholders of Tri-Magna who are or
will become officers, directors or 5% stockholders of the Company as follows:
Alvin Murstein -- $1.4 million; Andrew Murstein -- $105,000; Marie Russo --
$24,000; Michael Fanger -- $93,000; Stanley Kreitman -- $10,000 and Benjamin
Ward -- $10,000. Alvin Murstein will use all of the net proceeds from his sale
of Tri-Magna common stock to the Company to purchase shares of Common Stock of
the Company at a price per share equal to the public offering price set forth
on the cover page of this Prospectus. In addition, approximately $2.5 million,
representing 18.7% of the Tri-Magna purchase price will be paid to certain
stockholders of Tri-Magna who are also directors and officers of Tri-Magna as
follows: Myron Cohen -- $652,000; Robert Fanger -- $686,000; Richard
Giesser -- $253,000; Barnet Lieberman -- $212,000; Michael Miller -- $663,980
and T. Lincoln Morison, Jr. -- $10,000. Messrs. Cohen, Fanger, Giesser,
Lieberman, Miller and Morison will not become officers, directors or 5%
stockholders of the Company.
The Company and FMC will enter into the Advisory Agreement upon the closing of the Offering. Under the Advisory Agreement, the Company will pay FMC monthly, as compensation for the services to be rendered by FMC, a fee of $18,750. Myron Cohen, Robert Fanger and Michael Miller control FMC. For the first 48 months of service, fees shall be paid in advance in one payment in the amount of $900,000 from the proceeds of the Offering. Subject to certain limitations, the Murstein Trusts have agreed to maintain in escrow Common Stock worth 200% of the advisory fees subject to repayment by FMC to the Company in the event of termination or non-renewal of the Advisory Agreement. See "Investment Objectives, Policies and Restrictions -- The Investment Adviser."
Since December 1994, EVEREN Securities, Inc., one of the Company's principal underwriters, has provided financial advisory services to the Company with respect to the Acquisitions, the structure of the Company, the capital markets and the Offering. For these services, the Company will pay EVEREN Securities, Inc. a financial advisory fee of $225,000. See "Underwriting."
DETERMINATION OF NET ASSET VALUE
The net asset value per share of Common Stock will be determined quarterly, as soon as practicable after and as of the end of each calendar quarter, by dividing the value of total assets minus liabilities by the total number of shares of Common Stock outstanding on a fully diluted basis at that date.
A substantial portion of the Company's assets will consist of the loans held in the portfolios of the RIC Subsidiaries. The RIC Subsidiaries' respective Boards of Directors will value their respective loans in connection with their respective determinations of net asset value. The net asset value per share of each subsidiary's common stock will be determined quarterly, as soon as practicable after and as of the end of each calendar quarter, by dividing the value of total assets minus liabilities by the total number of shares outstanding on a fully diluted basis at that date.
In making its valuation determination, each of the Boards of Directors of the RIC Subsidiaries will adhere to a valuation policy approved by the SBA and adopted by such Board of Directors. In calculating the value of the relevant subsidiary's total assets, loans will be valued at fair value as determined in good faith by that subsidiary's Board of Directors. In making such determinations, the Board of Directors will value loans and nonconvertible debt securities for which there exists no public trading market at cost plus amortized original issue discount, if any, unless adverse factors lead to a determination of a lesser value, at which time net unrealized depreciation of investments would be recognized. Convertible debt securities and warrants are valued to reflect the worth of the underlying equity security less the conversion or exercise price. In valuing equity securities for which there exists no public trading market, investment cost is presumed to represent fair value except in cases where the valuation policy provides that the Board of Directors may determine fair value on the basis of (i) financings by unaffiliated investors, (ii) a history of positive cash flow from operations for two years using conservative financial measures such as earnings ratios or cash flow multiples, (iii) the market value of comparable companies which are publicly traded (discounted for illiquidity) and (iv) other pertinent factors.
A substantial portion of each of the RIC Subsidiaries' assets will consist of loans carried at fair values determined by such subsidiary's Board of Directors. Independent public accountants will review and express an opinion as to the reasonableness of the basis used by such Boards of Directors in determining the valuation of loans and investments, the adequacy of the procedures applied by the directors in valuing such loans and investments and the appropriateness of the underlying documentation. However, determination of fair values involves subjective judgment not susceptible to substantiation by auditing procedures. Accordingly, under current standards, the accountants' opinion on the Financial Statements included in this Prospectus refers to the uncertainty with respect to the possible effect on such Financial Statements of such valuations.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Company's Dividend Reinvestment Plan (the "Reinvestment Plan"), a stockholder whose shares are registered in his own name can have all distributions reinvested in additional shares of Common Stock by The First National Bank of Boston (the "Plan Agent") if the stockholder enrolls in the Reinvestment Plan by delivering an Authorization Form to the Plan Agent prior to the corresponding dividend declaration date. The Plan Agent will effect purchases of Common Stock under the Reinvestment Plan in the open market. Holders of Common Stock who do not elect to participate in the Reinvestment Plan will receive all distributions in cash paid by check mailed directly to the stockholder of record (or if the Common Stock is held in street or other nominee name, then to the nominee) as of the relevant record date, by the Plan Agent, as dividend disbursing agent. Stockholders whose shares are held in the name of a broker or nominee or stockholders transferring such an account to a new broker or nominee should contact the broker or nominee to determine whether and how they may participate in the Reinvestment Plan.
The Plan Agent serves as agent for the holders of Common Stock in administering the Reinvestment Plan. After the Company declares a dividend, the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Common Stock on the NASDAQ National Market or elsewhere for the participants' accounts. The price of the shares will be the average market price at which such shares were purchased by the Plan Agent.
Participants in the Reinvestment Plan may withdraw from the Reinvestment Plan upon written notice to the Plan Agent. Such withdrawal will be effective immediately if received not less than ten days prior to a dividend record date; otherwise, it will be effective the day after the related dividend distribution date. When a participant withdraws from the Reinvestment Plan or upon termination of the Reinvestment Plan as provided below, certificates for whole shares of Common Stock credited to his or her account under the Reinvestment Plan will be issued and a cash payment will be made for any fractional share of Common Stock credited to such account.
The Plan Agent will maintain each participant's account in the Reinvestment Plan and will furnish monthly written confirmations of all transactions in such account, including information needed by the stockholder for personal and tax records. Common Stock in the account of each Reinvestment Plan participant will be held by the Plan Agent in non-certificated form in the name of such participant. Proxy materials relating to stockholders' meetings of the Company will include those shares purchased as well as shares held pursuant to the Reinvestment Plan.
In the case of participants whose beneficially owned shares are held in the name of banks, brokers or other nominees, the Plan Agent will administer the Reinvestment Plan on the basis of the number of shares of Common Stock certified from time to time by the record holders as the amount held for the account of such beneficial owners. Shares of Common Stock may be purchased by the Plan Agent through any of the Underwriters, acting as broker or, after the completion of this offering, dealer.
The Plan Agent's fees for the handling or reinvestment of dividends and other distributions will be paid by the Company. Each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of distributions. There are no other charges to participants for reinvesting distributions.
Distributions are taxable whether paid in cash or reinvested in additional shares, and the reinvestment of distributions pursuant to the Reinvestment Plan will not relieve participants of any U.S. federal income tax or state income tax that may be payable or required to be withheld on such distributions. See "Federal Income Tax Considerations."
Experience under the Reinvestment Plan may indicate that changes are desirable. Accordingly, the Company reserves the right to amend or terminate the Reinvestment Plan as applied to any distribution paid subsequent to written notice of the change sent to all stockholders of the Company at least 90 days before the record date for such distribution.
The Reinvestment Plan also may be amended or terminated by the Plan Agent by at least 90 days' written notice to all stockholders of the Company. All correspondence concerning the Plan should be directed to, and additional information can be obtained from, the Plan Agent at 160 Royal Street, Canton, Massachusetts 02021 (telephone 617-575-2000).
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of material federal income tax considerations is based on current law and does not purport to deal with all aspects of taxation that may be relevant to particular stockholders in light of their personal investment or tax circumstances, or to certain types of stockholders (including insurance companies, financial institutions, non-profit institutions, ERISA plans and broker-dealers) subject to special treatment under the federal income tax laws. Each prospective purchaser is advised to consult his own tax adviser regarding the specific tax consequences to him of the purchase, ownership and sale of the shares.
The Company plans to make an election to be taxed as a RIC under Sections 851 through 855 of the Code, commencing with its taxable year ending December 31, 1995. The Company intends, during this and subsequent taxable years, to operate in a manner that permits it to satisfy the requirements for taxation as a RIC under the applicable provisions of the Code, but no assurance can be given that it will operate in a manner so as to qualify or remain qualified. The sections of the Code relating to qualification and operation as a RIC are highly technical and complex. The following sets forth the material aspects of the Code sections that govern the federal income tax treatment of a RIC and its stockholders. This summary is qualified in its entirety by the applicable Code provisions, rules and regulations thereunder, and administrative and judicial interpretations thereof.
In brief, if certain detailed conditions of the Code are met, business development companies, such as the Company, that otherwise would be treated for federal income tax purposes as corporations are generally not taxed at the corporate level on their "investment company taxable income" that is currently distributed to stockholders. This treatment substantially eliminates the "double taxation" (i.e., taxation at both the corporate and stockholder levels) that generally results from the use of corporate investment vehicles. A RIC is, however, generally subject to federal income tax at regular corporate rates on undistributed investment company taxable income.
Furthermore, in order to avoid a 4% nondeductible federal excise tax on undistributed income and capital gains, the Company must distribute (or be deemed to have distributed) by December 31 of each year at least 98% of its ordinary income for such year, at least 98% of its capital gain net income (which is the excess of its capital gain over its capital loss and is generally computed on the basis of the one-year period ending on October 31 of such year) and any amounts that were not distributed in the previous calendar year and on which no income tax has been paid.
If the Company fails to qualify as a RIC in any year, it will be subject to federal income tax as if it were a domestic corporation, and its stockholders will be taxed in the same manner as stockholders of ordinary corporations. In this event, the Company could be subject to potentially significant tax liabilities and the amount of cash available for distribution to its stockholders could be reduced.
REQUIREMENTS FOR QUALIFICATION
The Code defines the term "RIC" to include a domestic corporation that has elected to be treated as a business development company under the 1940 Act and meets certain requirements. These requirements include that (a) the company derive at least 90% of its gross income for each taxable year from dividends, interest, interest payments with respect to securities loans and gains from the sale or other disposition of stocks or securities or foreign currencies, or other income derived from its business of investing in such stocks, securities or currencies; (b) the company derives less than 30% of its gross income for each taxable year from the sale or other disposition of any of the following that are held for less than three months: (i) stock or securities and (ii) certain other financial interests (the "short-short test"); and (c) the company diversifies its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the value of its total assets is represented by (A) cash, and cash items (including receivables), U.S. Government securities and securities of other RICs, and (B) other securities limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of the company and to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of total assets is invested in the securities (other than U.S. Government securities or securities of other RICs) of any one issuer or two or of more issuers controlled by the company and engaged in the same, similar or related trades or businesses. The foregoing diversification requirements under the Code could restrict the Company's expansion of its taxicab rooftop advertising business. See "Risk Factors -- Possible Loss of Pass-Through Tax Treatment."
Furthermore, in order to qualify as a RIC under the Code, each taxable year, a company also must distribute to its stockholders at least 90% of (a) its investment company taxable income and (b) the excess of its tax-exempt interest income over certain disallowed deductions.
TAXATION OF THE COMPANY
Provided that the Company satisfies the above requirements, neither the investment company taxable income it distributes to stockholders nor any net capital gain that is distributed to stockholders should subject the Company to federal income tax. Investment company taxable income and/or net capital gains that are retained by the Company should be subject to federal income tax at regular corporate income tax rates; provided, however, that to the extent that the Company retains any net long-term capital gains, it may designate them as "deemed distributions" and pay a tax thereon for the benefit of its stockholders. The Company currently intends to distribute to its stockholders for each of its taxable years substantially all of its investment company taxable income and may or may not distribute any capital gains.
If the Company acquires debt obligations that were originally issued at a discount, or that bear interest rates that do not call for payments at fixed rates (or certain "qualified variable rates") at regular intervals over the life of the obligation, it will be required to include as interest income each year a portion of the "original issue discount" that accrues over the life of the obligation regardless of whether it receives the income, and it will be obligated to make distributions accordingly. In this event, the Company may borrow funds or sell assets to meet the distribution requirements. However, under the 1940 Act, the Company will not be permitted to make distributions to stockholders while senior securities are outstanding unless it meets certain asset coverage requirements. If the Company is unable to make the required distributions, it may fail to qualify as a RIC and may be subject to the nondeductible 4% excise tax. Furthermore, the SBA restricts the distributions that may be made to an amount equal to undistributed net realized earnings less the allowance for unrealized loan losses (which in the case of the Company is included in unrealized depreciation).
TAXATION OF STOCKHOLDERS
As long as the Company qualifies as a RIC, distributions made to its taxable domestic stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be taken into account by them as ordinary income. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed the Company's actual net long-term capital gain for the taxable year) without regard to the period for which the stockholder has held its stock. Corporate stockholders however, are subject to tax on capital gain dividends at the same rate as ordinary income. To the extent that the Company makes distributions in excess of current and accumulated earnings and profits, these distributions are treated first as a tax-free return of capital to the stockholder, reducing the tax basis of a stockholder's Common Stock by the amount of such distribution (but not below zero), with distributions in excess of the stockholders's tax basis taxable as capital gains (if the Common Stock is held as a capital asset). In addition, any dividends declared by the Company in October, November or December of any year and payable to a stockholder of record on a specific date in any such month shall be treated as both paid by the Company and received by the stockholder on December 31 of such year, provided that the dividend is actually paid by the Company during January of the following calendar year. Stockholders may not include in their individual income tax returns any net operating losses or capital losses of the Company.
If the Company chooses to retain and pay tax on any net capital gain rather than distribute such gain to its stockholders, the Company will designate such deemed distribution in a written notice to stockholders prior to
the expiration of 60 days after the close of the taxable year. Each stockholder would then be treated for federal income tax purposes as if the Company had distributed to such stockholder on the last day of its taxable year the stockholder's pro rata share of the net long-term capital gain retained by the Company and the stockholder had paid its pro rata share of the taxes paid by the Company and reinvested the remainder in the Company.
In general, any loss upon a sale or exchange of Common Stock by a stockholder who has held such stock for six months or less (after applying certain holding period rules) will be treated as long-term capital loss, to the extent of distributions from the Company required to be treated by such stockholder as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and to the Internal Revenue Service the amount of dividends paid during each calendar year and the amount of tax withheld, if any, with respect thereto. Under backup withholding rules, a stockholder may be subject to backup withholding at the rate of 31% with respect to dividends paid unless such stockholder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. A stockholder that does not provide the Company with its correct taxpayer identification number may also be subject to penalties imposed by the Internal Revenue Service. Any amount paid as backup withholding will be creditable against the stockholder's federal income tax liability.
OTHER TAX CONSIDERATIONS
Reinvestment Plan
Stockholders participating in the Reinvestment Plan will be deemed to have received the gross amount of any cash distributions which would have been paid by the Company to such stockholders had they not elected to participate. These deemed distributions will be treated as actual distributions from the Company to the participating stockholders and will retain the character and tax effect applicable to distributions from the Company generally. Participants in the Reinvestment Plan are subject to federal income tax on the amount of the deemed distributions to the extent that such distributions represent dividends or gains, even though they receive no cash. Shares of Common Stock received under the Reinvestment Plan will have a holding period beginning with the day after purchase, and a tax basis equal to their cost (which is the gross amount of the deemed distribution). See "Dividend Reinvestment Plan."
State, Local and Foreign Taxes
The Company and its stockholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which it or they transact business or reside. The state, local and foreign tax treatment of the Company and its stockholders may not conform to the federal income tax consequences discussed above. Consequently, prospective stockholders should consult their own tax advisers regarding the effect of state, local and foreign tax laws on an investment in the Common Stock of the Company.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 1,000,000 shares of Preferred Stock, par value $.01 per share and 15,000,000 shares of Common Stock, par value $.01 per share. Upon completion of the Offering, the Company will have outstanding 7,500,000 shares of Common Stock (8,250,000 shares of Common Stock if the Underwriters' over-allotment option is exercised in full) and no shares of Preferred Stock. As of February 14, 1996, there were no shares of Preferred Stock outstanding and 2,500,000 shares of Common Stock outstanding and two record holders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock, the holders of the Common Stock are entitled to such dividends as may be declared in the discretion of the Board of Directors out of funds legally available therefor. See "Distributions." Holders of Common Stock are entitled to share ratably in the net assets of the Company upon liquidation after payment or provision for all liabilities and any preferential liquidation rights of any Preferred Stock then outstanding. The holders of Common Stock have no preemptive rights to purchase shares of stock of the Company. Shares of Common Stock are not subject to any redemption provisions and are not convertible into any other securities of the Company. All outstanding shares of Common Stock are, and the shares of Common Stock to be issued pursuant to the Offering will be upon payment therefor, fully paid and non-assessable.
PREFERRED STOCK
Subject to the asset coverage requirements of the 1940 Act, Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more classes or series. Subject to the provisions of the Company's Certificate and limitations prescribed by law, the Board of Directors is expressly authorized to adopt resolutions to issue the shares, to fix the number of shares and to change the number of shares constituting any series, and to provide for or change the voting powers, designations, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, including dividend rights (including whether dividends are cumulative), dividend rates, terms of redemption (including sinking fund provisions), redemption prices, conversion rights and liquidation preferences of the shares constituting any class or series of the Preferred Stock, in each case without any further action or vote by the stockholders. The Company has no current plans to issue any shares of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the Board of Directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of the Company's management. The issuance of shares of the Preferred Stock pursuant to the Board of Directors' authority described above may adversely affect the rights of the holders of Common Stock. For example, Preferred Stock issued by the Company may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. Accordingly, the issuance of shares of Preferred Stock may discourage bids for the Common Stock or may otherwise adversely affect the market price of the Common Stock.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate and under Delaware law, directors of the Company are not liable to the Company or its stockholders for monetary damages for breach of fiduciary duty, except for liability in
connection with a breach of duty of loyalty, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, for dividend payments or stock repurchases illegal under Delaware law or any transaction in which a director has derived an improper personal benefit.
AUTHORIZED AND OUTSTANDING COMMON STOCK
The following table illustrates authorized and outstanding securities of the Company on February 14, 1996.
AUTHORIZED AND OUTSTANDING SECURITIES
(1) (2) (3) (4)
AMOUNT
OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF
THE COMPANY OR AMOUNT SHOWN
TITLE OF CLASS AMOUNT AUTHORIZED FOR ITS ACCOUNT UNDER COLUMN (3)
-------------- ----------------- --------------- ----------------
Common Stock................. 15,000,000 -- 2,500,000
Preferred Stock.............. 1,000,000 -- --
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DELAWARE LAW AND CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND THE BY-LAWS
The Company's Certificate and By-Laws include provisions that could make more difficult the acquisition of the Company by means of a merger, tender offer, a proxy contest or otherwise. These provisions, as described below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of the Company first to negotiate with the Company. These provisions may also, however, inhibit a change in control of the Company in circumstances that could give the holders of the Common Stock the opportunity to realize a premium over the then prevailing market price of the Common Stock. In addition, such provisions could adversely affect the market price for the Common Stock. The Company believes that the benefits of increased protection of its potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of discouraging such proposals because, among other things, negotiations with respect to such proposals could result in an improvement of their terms.
The Certificate and the By-Laws provide that the Board of Directors (the "Board") will be divided into three classes of directors, with the term of each class expiring in a different year. See "Management." The By-Laws provide that the number of directors will be fixed from time to time exclusively by the Board, but shall consist of not more than 15 nor less than three directors. A majority of the Board then in office has the sole authority to fill any vacancies on the Board. The Certificate provides that directors may be removed only by the affirmative vote of holders of at least 75% of the voting power of all of the then outstanding shares of stock entitled to vote generally in the election of directors ("Voting Stock"), voting together as a single class.
The Certificate provides that stockholder action can be taken only at an annual or special meeting of stockholders and prohibits stockholder action by written consent in lieu of a meeting. The Certificate and By-Laws provide that special meetings of stockholders can be called by the Chairman of the Board of the Company, pursuant to a resolution approved by a majority of the total number of directors which the Company would have if there were no vacancies on the Board, or by the stockholders owning at least 20% of the stock entitled to vote at the meeting. The business permitted to be conducted at any special meeting of stockholders is limited to the business brought before the meeting by the Chairman of the Board, or at the request of a majority of the members of the Board, or as specified in the stockholders' notice of a meeting.
The By-Laws set forth an advance notice procedure with regard to the nomination, other than by or at the direction of the Board, of candidates for election as directors and with regard to business brought before an annual meeting of stockholders of the Company.
The Certificate and By-Laws contain provisions requiring the affirmative vote of the holders of at least 75% of the Voting Stock, voting together as a single class, to amend certain provisions of the Certificate relating primarily to anti-takeover provisions and to the limitations on director liability.
The Certificate empowers the Board, when considering a tender offer or
merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. Such factors may include
(i) comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the capital stock, the estimated
current value of the Company in a freely negotiated transaction, and the
estimated future value of the Company as an independent entity; (ii) the
impact of such a transaction on the customers and employees of the Company,
and its effect on the communities in which the Company operates; and (iii) the
ability of the Company to fulfill its objectives under applicable statutes and
regulations.
The Certificate prohibits the Company from purchasing any shares of the Company's stock from any person, entity or group that beneficially owns 5% or more of the Company's Voting Stock at a price exceeding the average closing price for the 20 trading days prior to the purchase date, unless a majority of the Company's disinterested stockholders approve the transaction. This restriction on purchases by the Company does not apply to any offer to purchase shares of a class of the Company's stock which is made on the same terms and conditions to all holders of that class of stock, to any purchase of stock owned by such a 5% stockholder occurring more than two years after such stockholder's last acquisition of the Company's stock, to any purchase of the Company's stock in accordance with the terms of any stock option or employee benefit plan, or to any purchase at prevailing market prices pursuant to a stock purchase program.
Section 203 of the Delaware General Corporation Law ("DGCL") is applicable to corporations organized under the laws of the State of Delaware. Subject to certain exceptions set forth therein, Section 203 of the DGCL provides that a corporation shall not engage in any business combination with any "interested stockholder" for a three-year period following the date that such stockholder becomes an interested stockholder unless (a) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (b) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares) or (c) on or subsequent to such date, the business combination is approved by the Board of Directors of the corporation and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Except as specified therein, an interested stockholder is defined to mean any person that (i) is the owner of 15% or more of the outstanding voting stock of the corporation, or (ii) is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date, and the affiliates and associates of such person referred to in clause (i) or (ii) of this sentence. Under certain circumstances, Section 203 of the DGCL makes it more difficult for an interested stockholder to effect various business combinations with a corporation for a three-year period, although the stockholders may, by adopting an amendment to the corporation's certificate of incorporation or by-laws, elect not to be governed by this section, effective twelve months after adoption. The Company's Certificate and By-Laws do not exclude the Company from the restrictions imposed under Section 203 of the DGCL. It is anticipated that the provisions of Section 203 of the DGCL may encourage companies interested in acquiring the Company to negotiate in advance with the Board.
REGULATION
The Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company and, as such, is subject to regulation under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between investment companies and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. In addition, the 1940 Act provides that the Company may not change the nature of its business so as to cease to be, or to withdraw its election as, a business development company unless so authorized by the vote of a "majority of the Company's outstanding voting securities," as defined under the 1940 Act.
The Company is permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock (collectively, "senior securities," as defined under the 1940 Act) senior to the shares of Common Stock offered hereby if the Company's asset coverage of such indebtedness and all senior securities is at least 200% immediately after each such issuance. Subordinated debentures and preferred stock guaranteed by or issued to the SBA by the RIC Subsidiaries, are not subject to this asset coverage test. In addition, while senior securities are outstanding, provision must be made to prohibit the declaration of any dividend or other distribution to stockholders (except stock dividends) or the repurchase of such securities or shares unless the Company meets the applicable asset coverage ratios at the time of the declaration of the dividend or distribution or repurchase.
Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act ("Qualifying Assets") unless, at the time the acquisition is made, certain Qualifying Assets represent at least 70% of the value of the company's total assets. The principal categories of Qualifying Assets relevant to the proposed business of the Company are the following:
(1) Securities purchased in transactions not involving a public offering from the issuer of such securities, which issuer is an eligible portfolio company. An "eligible portfolio company" is defined in the 1940 Act as any issuer which:
(a) is organized under the laws of, and has its principal place of business in, the United States;
(b) is not an investment company other than an SBIC or SSBIC wholly- owned by the business development company; and
(c) does not have any class of securities with respect to which a broker or dealer may extend margin credit.
(2) Securities of any eligible portfolio company which is controlled by the business development company.
(3) Securities received in exchange for or distributed on or with respect to securities described in (1) or (2) above, or pursuant to the exercise of options, warrants or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt securities maturing in one year or less from the time of investment.
In addition, a business development company must have been organized (and have its principal place of business) in the United States for the purpose of making investments in the types of securities described in (1) or (2) above. In order to count securities as Qualifying Assets for the purpose of the 70% test, the business development company must either control the issuer of the securities or must make available to the issuer of the securities significant managerial assistance; except that, where the business development company purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available the required managerial assistance. The Company believes that the common stock of the Founding Companies held by Medallion Financial will be Qualifying Assets.
Edwards is a small business investment company or "SBIC" and MFC and TCC are specialized small business investment companies or "SSBICs." The SBIA authorizes the organization of SBICs as vehicles for
providing equity capital, long term financing and management assistance to small business concerns. A small business concern, as defined in the SBIA and the SBA Regulations, is a business that is independently owned and operated and which is not dominant in its field of operation. The SBIA further authorizes the organization of SSBICs as vehicles for providing the same forms of assistance to small business concerns which are at least 50% owned and managed by persons whose participation in the free enterprise system is hampered because of social or economic disadvantages. These persons include African Americans, Asian Sub-Continent Americans, Eskimos, Hispanic Americans, Native Americans, Vietnam War era veterans and other groups identified by the SBA. A small business concern must either (i) have a tangible net worth, together with any affiliates, of $18.0 million or less and an average annual net income after U.S. federal income taxes for the preceding two years of $6.0 million or less (average annual net income is computed without the benefit of any carryover loss) or (ii) satisfy alternative criteria under the SBA Regulations that focus on the industry in which the business is engaged and the number of persons employed by the business or its gross revenues. In addition, at the end of each fiscal year, at least 20% of the total amount of loans made since April 8, 1994 by each SBIC and SSBIC must be made to a subclass of small business concerns that (i) have a net worth, together with any affiliates, of $6.0 million or less and average annual net income after U.S. federal income taxes for the preceding two years of $2.0 million or less (average annual net income is computed without the benefit of any carryover loss), or (ii) satisfy alternative criteria under SBA Regulations that focus on the industry in which the business is engaged and the number of persons employed by the business or its gross revenues. SBA Regulations also prohibit an SBIC from providing funds to a small business concern for certain purposes, such as re-lending and investment outside the United States.
Under current SBA Regulations and subject to local usury laws, the maximum
rate of interest that MFC, TCC or Edwards may charge may not exceed the sum of
(i) the higher of (a) that company's weighted average cost of qualified
borrowings, as determined under SBA Regulations, or (b) the current
subordinated SBA debenture rate, plus (ii) 11%, rounded off to the next lower
eighth of one percent. SBA Regulations further provide that if the current
subordinated SBA debenture rate is 8% per annum or lower, then the maximum
rate of interest that the RIC Subsidiaries may charge is 15%. The maximum rate
of interest permitted on loans originated by the RIC Subsidiaries during
September 1995 was 15% per annum. Effective January 31, 1996, the maximum
permitted rate was increased to 19%. At September 30, 1995, the Company's
outstanding Medallion Loans had a weighted average rate of interest of 9.92%
and outstanding Commercial Installment Loans had a weighted average rate of
interest of 13.56%. See "Business." SBA Regulations also require that each
loan originated by SBICs and SSBICs have a term of between four years and 20
years and that 50% of such loans have terms of at least five years.
The SBA restricts the ability of SBICs and SSBICs to repurchase their capital stock, to retire their subordinated SBA debentures and to lend money to their officers, directors and employees or invest in affiliates thereof. The SBA also prohibits, without prior SBA approval, a "change of control" or transfers which would result in any person (or group of persons acting in concert) owning 10% or more of any class of capital stock of an SBIC or SSBIC. A "change of control" is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of an SBIC or SSBIC, whether through ownership, contractual arrangements or otherwise.
Under SBA Regulations, loans to any single small business concern may not exceed 20% of the SBICs or SSBICs Leveragable Capital without prior SBA approval.
SSBICs and SBICs must invest funds that are not being used to make loans in investments permitted under SBA Regulations. These permitted investments include direct obligations of, or obligations guaranteed as to principal and interest by, the government of the United States with a term of 15 months or less and deposits maturing in one year or less issued by an institution insured by the FDIC. The percentage of an SSBICs or SBICs assets so invested will depend on, among other things, loan demand, timing of equity infusions and SBA funding and availability of funds under credit facilities.
SSBICs and SBICs may purchase voting securities of small business concerns in accordance with SBA Regulations. SBA Regulations permit SSBICs and SBICs to purchase (i) up to 50% of the voting securities of a small business concern if the small business concern has less than 50 stockholders or (ii) up to 20% (and in certain situations up to 25%) of the voting securities of a small business concern if the small business concern has 50 or more stockholders. In addition, SBA Regulations prohibit SSBICs and SBICs from controlling a small business concern except where necessary to protect an investment.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock in the public market, or the perception that such sales could occur, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after the Offering because of certain contractual and legal restrictions on resale. Sales of substantial amounts of Common Stock in the public market after these restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future.
Upon completion of the Offering, the Company will have outstanding 7,500,000
shares of Common Stock (8,250,000 if the Underwriter's over-allotment option
is exercised in full). Of these shares, the 5,000,000 shares offered hereby
(5,750,000 if the Underwriters' over-allotment option is exercised in full)
will be freely tradeable without restriction or registration under the
Securities Act (except to the extent purchased by affiliates of the Company).
SALES OF RESTRICTED SHARES
The remaining 2,500,000 shares (the "Restricted Shares") were issued and sold by the Company in private transactions in reliance upon exemptions from registration under the Securities Act and are restricted securities under Rule 144 of the Securities Act. All of the Restricted Shares are subject to Lock-up Agreements for a period of two years from the date of this Prospectus as described below. The Restricted Shares will not be eligible for sale pursuant to Rule 144 until the expiration of the two-year holding period from the date such Restricted Shares were acquired. Accordingly they will become eligible for sale subject to the Rule 144 resale limitations, including the volume restrictions discussed in the following paragraph, on October 24, 1997. The Commission has proposed amendments to Rule 144 that would, if adopted, retroactively reduce the two-year holding period to one year.
Restricted Shares may not be sold unless they are registered under the Securities Act or are sold pursuant to an applicable exemption from registration, including pursuant to Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the Offering, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least two years, including affiliates of the Company, would be entitled to sell in brokers' transactions or to market makers within any three-month period a number of Restricted Shares that does not exceed the greater of one percent (1.0%) of the then outstanding shares of the Company's Common Stock (approximately 75,000 shares, based on the number of shares outstanding after the Offering assuming no exercise of the Underwriters' over- allotment option) or the average weekly trading volume of the Common Stock on NASDAQ National Market during the four calendar weeks preceding the date on which notice of the sale is filed with the Commission. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. No stockholder of the Company will have held his or her shares for two years until October 24, 1997.
Restricted Shares held by affiliates of the Company eligible for sale in the public market under Rule 144 are subject to the foregoing volume limitations and other restrictions. Affiliates may sell shares not constituting Restricted Shares only in accordance with the foregoing volume limitations and other Rule 144 restrictions, but without regard to the two-year holding period.
A person who is not an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned Restricted Shares for at least three years, would be entitled to sell such Restricted Shares under Rule 144(k) without regard to the availability of current public information, volume limitations, manner of sale provisions or notice requirements. No stockholder of the Company will have held Common Stock for three years until October 24, 1998.
Rule 144A provides a non-exclusive safe harbor exemption from the registration requirements of the Securities Act for specified resales of restricted securities to certain institutional investors. Rule 144A allows unregistered resales of restricted securities to a qualified institutional buyer, which generally includes an entity,
acting for its own account or the account of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $100.0 million in securities of unaffiliated issuers. Rule 144A does not extend an exemption to the offer or sale of securities that, when issued, were of the same class as securities listed on a national securities exchange or quoted in an automated interdealer quotation system. Because the Restricted Shares, when they were issued, were not of the same class as any listed or quoted securities, all of such securities are eligible for resale under Rule 144A.
LOCK-UP AGREEMENTS
Pursuant to Lock-up Agreements with the Company's directors and officers and certain other stockholders, all of the 2,500,000 Restricted Shares are subject to certain resale restrictions. Each party to the Lock-up Agreements has agreed that he or she will not, directly or indirectly, offer for sale, sell, contract to sell, grant an option to purchase or otherwise dispose of any shares of the Company's Common Stock, except (i) shares escrowed by the Murstein Trusts, or (ii) gifts to family members or charitable institutions, provided that such family member or charitable institution agrees to be bound by such Lock-up Agreement, for a period of two years from the date of this Prospectus, without the prior written consent of Furman Selz LLC. In addition, the Company has agreed that for a period of 180 days following the date of this Prospectus, the Company will not, without the prior written consent of Furman Selz LLC, directly or indirectly, offer for sale, sell, contract to sell, or grant any option to purchase or otherwise dispose of or transfer any shares of the Company's Common Stock other than options granted under the 1996 Plan, the Director Plan or shares issued pursuant to the exercise of outstanding options. See "Underwriting."
OPTIONS
It is anticipated that prior to the closing of the Offering, Michael Kowalsky, an Executive Vice President of the Company, will be granted stock options exercisable for the number of shares of Common Stock determined by dividing $500,000 by the public offering price per share set forth on the cover page of this Prospectus and currently estimated to be 45,000 shares of Common Stock. The exercise price per share for such shares will be equal to the public offering price. These options will begin to become exercisable one year after the date of this Prospectus. Including the shares reserved for issuance in connection with that option, the Company will reserve a total of 750,000 additional shares of Common Stock for issuance with respect to the future grant of options under the 1996 Plan.
In addition, a total of 100,000 additional shares of Common Stock will be reserved for issuance with respect to the grant of options under the Director Plan. It is anticipated that upon Commission approval of the Director Plan, the Company's four disinterested directors will be granted stock options to purchase the number of shares of Common Stock determined by dividing $100,000 by the fair market value of the Common Stock on the date the plan is approved by the Commission. Additional disinterested directors elected in the future will receive a similar grant upon election.
Following the completion of the Offering, the Company currently expects to file a registration statement under the Securities Act to register shares reserved for issuance under the 1996 Plan and the Director Plan. Shares issued upon exercise of outstanding stock options after the effective date of such registration statement generally will be tradeable without restriction under the Securities Act.
UNDERWRITING
Furman Selz LLC, J.C. Bradford & Co. and EVEREN Securities, Inc. are acting as representatives (the "Representatives") of each of the underwriters named below (the "Underwriters"). Subject to the terms and conditions set forth in the underwriting agreement dated as of the date hereof (the "Underwriting Agreement"), the Underwriters named below have severally agreed to purchase, and the Company has agreed to sell to them, the aggregate number of shares of Common Stock set forth opposite their respective names:
NUMBER OF
NAME SHARES
---- ---------
Furman Selz LLC................................................
J.C. Bradford & Co. ...........................................
EVEREN Securities, Inc. .......................................
---------
Total........................................................ 5,000,000
=========
|
The Underwriting Agreement provides that the obligations of the several Underwriters are subject to the approval of certain legal matters by counsel and various other conditions. The nature of the Underwriters' obligations is such that they are committed to purchase all of the above shares if any are purchased. The Underwriters propose to offer the shares of Common Stock directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. After the Offering, the offering price and other selling terms may be changed by the Representatives.
Prior to the consummation of the Offering, there has been no public market for the Common Stock. Accordingly, the initial public offering price has been determined by negotiation between the Company and the Representatives. Among the factors considered in determining the initial public offering price were the history of and prospects for the businesses in which the Company operates, the Company's past and present operations, the Founding Companies' loan portfolio quality, past and present revenue and earnings and the trends of such revenue and earnings, previous valuations of the Company, expert opinion, the prospects for the Company's revenue and earnings, an assessments of the Company's management, stock prices of comparable finance companies and out-of- home advertising companies and the general condition of the securities markets at the time of the Offering. There can be no assurance that any active trading market will develop for the Common Stock or as to the price at which the Common Stock may trade in the public market from time to time subsequent to the Offering made hereby.
The Company has granted to the Underwriters an option, expiring 30 days from the date of this Prospectus, to purchase up to 750,000 additional shares of Common Stock on the same terms as set forth on the cover page of this Prospectus, solely to cover over-allotments, if any, incurred in the sale of the shares of Common Stock offered hereby. If the Underwriters exercise the option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase such number of additional shares of Common Stock as is proportionate to such Underwriter's initial commitment to purchase shares from the Company.
Since December 1994, EVEREN Securities, Inc. has provided financial advisory services to the Company with respect to the Acquisitions, the structure of the Company, the capital markets and the Offering. For these services, the Company will pay EVEREN Securities, Inc. a financial advisory fee of $225,000. See "Certain Transactions."
Pursuant to Lock-up Agreements with the Company's directors and officers and certain other stockholders, 2,500,000 of the Restricted Shares are subject to certain resale restrictions. Each party to the Lock-up Agreements has agreed that he or she will not, directly or indirectly, offer for sale, sell, contract to sell, grant an option to purchase or otherwise dispose of any shares of the Company's Common Stock, except (i) those offered hereby, or (ii) gifts to family members or charitable institutions, provided that such family member or charitable
institution agrees to be bound by such Lock-up Agreement, for a period of two years from the date of this Prospectus, without the prior written consent of Furman Selz LLC. In addition, the Company has agreed that during the two-year period, the Company will not, without the prior written consent of Furman Selz LLC, directly or indirectly, offer for sale, sell, contract to sell, or grant any option to purchase or otherwise dispose of or transfer any shares of Common Stock other than options granted under the 1996 Plan or shares issued pursuant to the exercise of outstanding options.
The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that the Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority.
The Common Stock has been approved, subject to official notice of issuance, on the Nasdaq National Market under the symbol "TAXI."
The principal address of Furman Selz LLC is 230 Park Avenue, New York, New York 10169, the principal address of J.C. Bradford & Co. is 330 Commerce Street, Nashville, Tennessee 37201 and the principal address of EVEREN Securities, Inc. is 77 West Wacker Drive, Chicago, Illinois 60601.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING
AGENT AND REGISTRAR
All cash and securities are held by The First National Bank of Boston, 160 Royal Street, Canton, Massachusetts 02021 as custodian. The First National Bank of Boston also serves as the transfer agent, dividend disbursing agent and registrar for the Company's Common Stock.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports containing audited financial statements and quarterly reports containing unaudited consolidated financial information for the first three quarters of each fiscal year.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Palmer & Dodge, Boston, Massachusetts, and for the Underwriters by Willkie Farr & Gallagher, New York, New York. Mario M. Cuomo, a partner in the firm of Willkie Farr & Gallagher, is a director of the Company.
EXPERTS
The balance sheet of Medallion Financial as of December 31, 1995; the financial statements of Tri-Magna as of September 30, 1995 and December 31, 1994 and for the nine months ended September 30, 1995, and for the years ended December 31, 1994 and 1993; the financial statements of Edwards as of September 30, 1995 and for the nine months ended September 30, 1995, and the financial statements of TCC as of September 30, 1995, and for the nine months ended September 30, 1995, included in this Prospectus have been so included in reliance on the report of Arthur Andersen LLP, Boston, Massachusetts independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statement of Edwards as of December 31, 1994 and for the years ended December 31, 1994 and 1993 included in this Prospectus have been so included in reliance on the report of Friedman, Alpren & Green LLP, New York, New York. The balance sheet of TCC, including the financial statement schedules, as of December 31, 1994 and the related statements of operations, shareholders' equity, and cash flows for each of the two years in the period then ended, included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand LLP, New York, New York, independent accountants, given on the authority of that firm as experts in accounting and auditing.
MEDALLION FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
MEDALLION FINANCIAL CORP.
Introduction to Pro Forma Combined Financial Statements.................. F-2
Pro Forma Combined Balance Sheet at September 30, 1995 (unaudited)....... F-3
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1995 (unaudited).......................................... F-4
Pro Forma Combined Statement of Operations for the year ended December
31, 1994 (unaudited).................................................... F-5
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1994 (unaudited).......................................... F-6
Notes to the Unaudited Pro Forma Combined Financial Statements........... F-7
MEDALLION FINANCIAL CORP.
Report of Arthur Andersen LLP, Independent Public Accountants............ F-10
Balance Sheet as of December 31, 1995.................................... F-11
Notes to Balance Sheet................................................... F-12
TRI-MAGNA CORPORATION AND SUBSIDIARIES
Report of Arthur Andersen LLP, Independent Public Accountants............ F-14
Consolidated Balance Sheets as of September 30, 1995 and December 31,
1994.................................................................... F-15
Consolidated Statements of Operations for the nine months ended September
30, 1995 and 1994 and for the years ended December 31, 1994 and 1993.... F-16
Consolidated Statements of Shareholders' Equity for the nine months ended
September 30, 1995 and for each year in the two year period ended
December 31, 1994 and 1993.............................................. F-17
Consolidated Statements of Cash Flows for the nine months ended September
30, 1995 and 1994 and for the years ended December 31, 1994 and 1993.... F-18
Notes to Consolidated Financial Statements............................... F-19
EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP)
Independent Auditors' Report of Friedman, Alpren & Green LLP............. F-27
Report of Arthur Andersen LLP, Independent Public Accountants............ F-28
Balance Sheets as of September 30, 1995 and December 31, 1994............ F-29
Statements of Operations for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-30
Statements of Changes in Partners' Capital for the nine months ended
September 30, 1995 and 1994 and for the years ended December 31, 1994
and 1993................................................................ F-31
Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-32
Notes to Financial Statements............................................ F-33
TRANSPORTATION CAPITAL CORP.
Report of Coopers & Lybrand LLP, Independent Public Accountants.......... F-40
Report of Arthur Andersen LLP, Independent Public Accountants............ F-41
Balance Sheets as of September 30, 1995 and December 31, 1994............ F-42
Statements of Operations for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-43
Statements of Changes in Shareholders' Equity for the nine months ended
September 30, 1995 and for each year in the two year period ended
December 31, 1994....................................................... F-44
Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-45
Notes to Financial Statements............................................ F-46
|
MEDALLION FINANCIAL CORP
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- UNAUDITED
The following unaudited pro forma combined balance sheet as of September 30, 1995 and unaudited pro forma combined statements of operations for the nine months ended September 30, 1995 and 1994 and for the year ended December 31, 1994 have been prepared to reflect the Offering, the application of the proceeds of the Offering (including the acquisitions of Tri-Magna, Edwards and TCC which will be acquired by the Company simultaneously with the closing of the Offering and the application of the cash acquired in connection with the acquisitions) and the adjustments described in the accompanying notes. The pro forma combined financial information is based on the historical financial statements of the Company, Tri-Magna, Edwards and TCC and should be read in conjunction with those financial statements and the notes thereto, as well as the estimates and assumptions set forth below and in the notes to the pro forma combined financial statements. The pro forma combined balance sheet was prepared as if the Offering and the application of the proceeds of the Offering occurred on September 30, 1995. The pro forma combined statements of operations were prepared as if the Offering and the application of the proceeds of the Offering occurred on January 1, 1994.
Pro forma adjustments are based upon preliminary estimates, available information and certain assumptions that management deems appropriate. Pro forma purchase price adjustment allocations are based on the preliminary results of the Company's due diligence, but are subject to change, since the preliminary estimates of the fair value of assets acquired as a result of the Acquisitions may change upon completion of the final analysis. The Company does not expect any such changes to result in a material variation from the information set forth in the pro forma combined balance sheet. The pro forma combined financial information is not necessarily indicative of the financial position or results of operations which actually would have occurred if such transactions had been consummated on January 1, 1994 or September 30, 1995, as applicable, nor does it purport to represent the Company's future financial position or results of operations. Neither expected benefits and cost reductions anticipated by the Company nor future corporate costs that are not under contract have been reflected in the accompanying pro forma financial statements.
MEDALLION FINANCIAL CORP.
PRO FORMA COMBINED
BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
ADJUSTMENTS
FOR ACQUISITIONS
ADJUSTMENTS --------------------------------------------
FOR TRI-MAGNA EDWARDS TCC
MEDALLION TRI-MAGNA EDWARDS TCC OFFERING ADJUSTMENTS(H) ADJUSTMENTS(J) ADJUSTMENTS(I)
--------- ----------- ----------- ----------- ----------- -------------- -------------- --------------
ASSETS
Investments
Medallion
loans.......... $ -- $64,890,307 $42,570,994 $ 8,222,627 $ -- $ -- $ -- $ (72,789)
Commercial
installment
loans.......... -- 29,031,609 636,651 1,596,138 -- (880,000) (20,000) (616,487)
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Gross
investments..... -- 93,921,916 43,207,645 9,818,765 -- (880,000) (20,000) (689,276)
Unrealized
depreciation on
investments.... -- (880,000) (20,000) (689,276) -- 880,000 20,000 689,276
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Net investments.. -- 93,041,916 43,187,645 9,129,489 -- -- -- --
Investment in
subsidiaries.... -- -- -- -- 38,697,352 (d) (13,378,000) (15,095,780) (10,223,572)
Investment in
unconsolidated
subsidiary...... -- 152,011 -- -- -- (152,011) -- --
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
investments..... -- 93,193,927 43,187,645 9,129,489 38,697,352 (13,530,011) (15,095,780) (10,223,572)
49,300,000 (a)
(49,300,000)(b)
Cash and cash
equivalents..... 2,000 1,363,200 21,462 7,730,158 (6,529,252)(c) -- (21,462) --
Accrued interest
receivable...... -- 833,027 370,000 134,708 -- -- -- --
Deferred
financing
costs........... -- -- 367,052 -- -- -- (367,052) --
Fixed assets,
net............. -- 92,260 71,167 17,373 -- (92,260) (71,167) (17,373)
Goodwill......... -- -- -- -- -- -- 6,300,000 --
Other assets..... 338,466 1,144,143 175,048 69,243 (338,466)(g) -- (89,566) --
900,000 (e)
Deferred income
taxes........... -- -- -- 276,400 -- -- -- (276,400)
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total assets..... $340,466 $96,626,557 $44,192,374 $17,357,371 $32,729,634 $(13,622,271) $(9,345,027) $(10,517,345)
======== =========== =========== =========== =========== ============ =========== ============
LIABILITIES
Accounts payable
and accrued
expenses........ $338,466 $ 625,309 $ 864,172 $ 141,134 $ (338,466)(g) $ -- $ (391,825) $ --
Accrued interest
payable......... -- 697,586 -- 125,640 -- -- -- --
Notes payable to
bank and demand
notes .......... -- 78,319,900 9,425,000 -- (16,231,900)(f) -- -- --
SBA debentures
payable......... -- -- 24,950,000 6,730,000 -- -- -- (336,500)
Negative
goodwill........ -- -- -- -- -- 3,361,491 -- 179,752
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
liabilities.... 338,466 79,642,795 35,239,172 6,996,774 (16,570,366) 3,361,491 (391,825) $ (156,748)
Stockholders'
equity
Common stock..... 2,000 6,689 -- 13 49,300,000 (a) (6,689) -- (13)
Partners'
capital......... -- -- 8,953,202 -- -- -- (8,953,202) --
Additional paid-
in capital...... -- 11,276,811 -- 7,749,456 -- (11,276,811) -- (7,749,456)
Capital.......... -- 6,002,100 -- 2,199,166 -- (6,002,100) -- (2,199,166)
Accumulated
undistributed
gain (loss)..... -- (301,838) -- 411,962 -- 301,838 -- (411,962)
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
stockholders'
equity......... 2,000 16,983,762 8,953,202 10,360,597 49,300,000 (16,983,762) (8,953,202) (10,360,597)
-------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
liabilities and
stockholders'
equity......... $340,466 $96,626,557 $44,192,374 $17,357,371 $32,729,634 $(13,622,271) $(9,345,027) $(10,517,345)
======== =========== =========== =========== =========== ============ =========== ============
PRO FORMA
------------
ASSETS
Investments
Medallion
loans.......... $115,611,139
Commercial
installment
loans.......... 29,747,911
------------
Gross
investments..... 145,359,050
Unrealized
depreciation on
investments.... --
------------
Net investments.. 145,359,050
Investment in
subsidiaries.... --
Investment in
unconsolidated
subsidiary...... --
------------
Total
investments..... 145,359,050
Cash and cash
equivalents..... 2,566,106
Accrued interest
receivable...... 1,337,735
Deferred
financing
costs........... --
Fixed assets,
net............. --
Goodwill......... 6,300,000
Other assets..... 2,198,868
Deferred income
taxes........... --
------------
Total assets..... $157,761,759
============
LIABILITIES
Accounts payable
and accrued
expenses........ $ 1,238,790
Accrued interest
payable......... 823,226
Notes payable to
bank and demand
notes .......... 71,513,000
SBA debentures
payable......... 31,343,500
Negative
goodwill........ 3,541,243
------------
Total
liabilities.... 108,459,759
Stockholders'
equity
Common stock..... 49,302,000
Partners'
capital......... --
Additional paid-
in capital...... --
Capital.......... --
Accumulated
undistributed
gain (loss)..... --
------------
Total
stockholders'
equity......... 49,302,000
------------
Total
liabilities and
stockholders'
equity......... $157,761,759
============
|
See accompanying notes to unaudited pro forma combined balance sheet.
MEDALLION FINANCIAL CORP.
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
(UNAUDITED)
ADJUSTMENTS
FOR OFFERING AND
MEDALLION TRI-MAGNA EDWARDS TCC TOTAL USE OF PROCEEDS PRO FORMA
--------- ---------- ---------- ---------- ----------- ---------------- -----------
Investment Income
Interest Income on
Investments........... $-- $7,191,918 $3,269,495 $1,072,144 $11,533,557 $ -- $11,533,557
Interest Income on
Treasury Bills........ -- -- -- 328,141 328,141 (199,425)(m) 128,716
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Investment
Income................ -- 7,191,918 3,269,495 1,400,285 11,861,698 (199,425) 11,662,273
---- ---------- ---------- ---------- ----------- ---------- -----------
Interest Expense
Notes Payable to Bank.. -- 3,650,197 578,490 -- 4,228,687 (30,675)(l) 4,198,012
SBA Debentures......... -- 780,254 1,494,806 358,729 2,633,789 (780,254)(l) 1,853,535
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Interest
Expense............... -- 4,430,451 2,073,296 358,729 6,862,476 (810,929) 6,051,547
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Interest Income..... -- 2,761,467 1,196,199 1,041,556 4,999,222 611,504 5,610,726
---- ---------- ---------- ---------- ----------- ---------- -----------
Non-Interest Income
Equity in earnings of
unconsolidated
subsidiary............ -- 132,632 -- -- 132,632 -- 132,632
Accretion of Negative
Goodwill.............. -- -- -- -- -- 675,218 (k) 675,218
Other Income............ -- 314,717 311,122 -- 625,839 -- 625,839
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Non-Interest
Income................ -- 447,349 311,122 -- 758,471 675,218 1,433,689
---- ---------- ---------- ---------- ----------- ---------- -----------
Expenses
Professional Fees...... -- 344,311 126,355 269,417 740,083 (136,759)(p) 603,324
Salaries and Benefits.. -- 832,710 287,153 201,445 1,321,308 (247,500)(o) 1,242,558
168,750 (p) --
Other Operating Ex-
penses................ -- 843,441 228,858 115,089 1,187,388 (54,042)(q) 1,100,172
(33,174)(r) --
Amortization of Good-
will.................. -- -- -- -- -- 315,000 (k) 315,000
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Expenses......... -- 2,020,462 642,366 585,951 3,248,779 12,275 3,261,054
---------- ---------- ---------- ----------- ---------- -----------
Dividends on Minority
Interest............... -- 207,774 -- -- 207,774 (207,774)(n) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
before income taxes.... -- 980,580 864,955 455,605 2,301,140 1,482,221 3,783,361
Income Taxes............ -- -- 33,111 304,624 337,735 (337,735)(s) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
after income taxes..... -- 980,580 831,844 150,981 1,963,405 1,819,956 3,783,361
Change in unrealized
depreciation........... -- (110,000) -- 288,574 178,574 -- 178,574
Net realized gain (loss)
on investments......... -- 4,390 -- (27,592) (23,202) -- (23,202)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
Assets resulting from
Operations............. $-- $ 874,970 $ 831,844 $ 411,963 $ 2,118,777 $1,819,956 $ 3,938,733
==== ========== ========== ========== =========== ========== ===========
Pro forma net increase
in net assets resulting
from operations per
share.................. $ 0.53
===========
Pro forma weighted
average shares
outstanding............ 7,500,000
===========
|
See accompanying notes to unaudited pro forma combined statement of operations.
MEDALLION FINANCIAL CORP.
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1994
(UNAUDITED)
ADJUSTMENTS
FOR OFFERING AND
MEDALLION TRI-MAGNA EDWARDS TCC TOTAL USE OF PROCEEDS PRO FORMA
--------- ---------- ---------- ---------- ----------- ---------------- -----------
Investment Income
Interest Income on
Investments............ $-- $8,820,273 $4,334,100 $2,001,527 $15,155,900 $ -- $15,155,900
Interest Income on
Treasury Bills......... -- -- -- 215,353 215,353 (215,353)(m) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Investment
Income................ -- 8,820,273 4,334,100 2,216,880 15,371,253 (215,353) 15,155,900
---- ---------- ---------- ---------- ----------- ---------- -----------
Interest Expense
Notes Payable to Bank... -- 3,781,910 2,136,807 -- 5,918,717 (34,595)(l) 5,884,122
SBA Debentures.......... -- 974,105 627,700 708,695 2,310,500 (974,105)(l) 1,336,395
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Interest
Expense............... -- 4,756,015 2,764,507 708,695 8,229,217 (1,008,700) 7,220,517
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Interest Income..... -- 4,064,258 1,569,593 1,508,185 7,142,036 793,347 7,935,383
---- ---------- ---------- ---------- ----------- ---------- -----------
Non-Interest Income
Equity in earnings of
unconsolidated
subsidiary............. -- 18,379 -- -- 18,379 -- 18,379
Accretion of Negative
Goodwill............... -- -- -- -- -- 900,157 (k) 900,157
Other Income............ -- 519,030 619,716 -- 1,138,746 -- 1,138,746
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Non-Interest
Income................. -- 537,409 619,716 -- 1,157,125 900,157 2,057,282
---- ---------- ---------- ---------- ----------- ---------- -----------
Expenses
Professional Fees....... -- 367,484 393,513 356,162 1,117,159 (180,000)(p) 937,159
Salaries and Benefits... -- 1,164,627 386,995 157,384 1,709,006 (330,000)(o) 1,604,006
225,000 (p)
Other Operating
Expenses............... -- 1,168,202 351,019 198,069 1,717,290 (101,704)(q) 1,571,897
(43,689)(r)
Amortization of
Goodwill............... -- -- -- -- -- 420,000 (k) 420,000
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Expenses......... -- 2,700,313 1,131,527 711,615 4,543,455 (10,393) 4,533,062
---- ---------- ---------- ---------- ----------- ---------- -----------
Dividends on Minority
Interest............... -- 277,020 -- -- 277,020 (277,020)(n) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
before income taxes.... -- 1,624,334 1,057,782 796,570 3,478,686 1,980,917 5,459,603
Income Taxes............ -- -- 21,289 652,900 674,189 (674,189)(s) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
after income taxes..... -- 1,624,334 1,036,493 143,670 2,804,497 2,655,106 5,459,603
Change in unrealized
depreciation........... -- 58,000 23,415 790,283 871,698 -- 871,698
Net realized gain (loss)
on investments......... -- (21,938) -- (144,058) (165,996) -- (165,996)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
Assets resulting from
Operations before
Extraordinary Item..... -- 1,660,396 1,059,908 789,895 3,510,199 2,655,106 6,165,305
Extraordinary Item...... -- -- (526,287) -- (526,287) -- (526,287)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
assets resulting from
Operations............. $-- $1,660,396 $ 533,621 $ 789,895 $ 2,983,912 $2,655,106 $ 5,639,018
==== ========== ========== ========== =========== ========== ===========
Pro forma net increase
in Net Assets resulting
from operations per
share.................. $ 0.75
===========
Pro forma weighted
average shares
outstanding............ 7,500,000
===========
|
See accompanying notes to unaudited pro forma combined statement of operations.
MEDALLION FINANCIAL CORP.
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
(UNAUDITED)
ADJUSTMENTS
FOR OFFERING AND
MEDALLION TRI-MAGNA EDWARDS TCC TOTAL USE OF PROCEEDS PRO FORMA
--------- ---------- ---------- ---------- ----------- ---------------- -----------
Investment Income
Interest Income on
Investments............ $-- $6,570,595 $3,262,382 $1,562,571 $11,395,548 $ -- $11,395,548
Interest Income on
Treasury Bills......... -- -- -- 145,867 145,867 (145,867)(m) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Investment
Income................. -- 6,570,595 3,262,382 1,708,438 11,541,415 (145,867) 11,395,548
---- ---------- ---------- ---------- ----------- ---------- -----------
Interest Expense
Notes Payable to Bank... -- 2,674,945 450,786 -- 3,125,731 (25,125)(l) 3,100,606
SBA Debentures.......... -- 728,078 1,636,941 584,039 2,949,058 (728,078)(l) 2,220,980
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Interest Expense.. -- 3,403,023 2,087,727 584,039 6,074,789 (753,203) 5,321,586
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Interest Income..... -- 3,167,572 1,174,655 1,124,399 5,466,626 607,336 6,073,962
Non-Interest Income
Equity in earnings of
unconsolidated
subsidiary............. -- -- -- -- -- -- --
Accretion of Negative
Goodwill............... -- -- -- -- -- 675,218(k) 675,218
Other Income............ -- 442,894 554,446 -- 997,340 -- 997,340
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Non-Interest
Income................. -- 442,894 554,446 -- 997,340 675,218 1,672,558
---- ---------- ---------- ---------- ----------- ---------- -----------
Expenses
Professional Fees....... -- 297,488 288,111 277,659 863,258 (136,759)(p) 726,499
Salaries and Benefits... -- 964,471 293,330 188,481 1,446,282 (247,500)(o) 1,367,532
168,750 (p)
Other Operating
Expenses............... -- 943,846 240,277 171,151 1,355,274 (83,371)(q) 1,239,136
(32,767)(r)
Amortization of
Goodwill............... -- -- -- -- -- 315,000 (k) 315,000
---- ---------- ---------- ---------- ----------- ---------- -----------
Total Expenses.......... -- 2,205,805 821,718 637,291 3,664,814 (16,647) 3,648,167
---- ---------- ---------- ---------- ----------- ---------- -----------
Dividends on Minority
Interest............... -- 207,765 -- -- 207,765 (207,765)(n) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
before income taxes.... -- 1,196,896 907,383 487,108 2,591,837 1,506,966 4,098,353
Income Taxes............ -- -- 12,289 397,000 409,289 (409,289)(s) --
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Investment Income
after income taxes..... -- 1,196,896 895,094 90,108 2,182,098 1,916,255 4,098,353
Change in unrealized
depreciation........... -- 151,000 -- 490,007 641,007 -- 641,007
Net realized gain (loss)
on investments......... -- (8,938) -- (70,339) (79,277) -- (79,277)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
Assets resulting from
Operations before
Extraordinary Item..... -- 1,338,958 895,094 509,776 2,743,828 1,916,255 4,660,083
Extraordinary Item...... -- -- (526,287) -- (526,287) -- (526,287)
---- ---------- ---------- ---------- ----------- ---------- -----------
Net Increase in Net
Assets resulting from
Operations............. $-- $1,338,958 $ 368,807 $ 509,776 $ 2,217,541 $1,916,255 $ 4,133,796
==== ========== ========== ========== =========== ========== ===========
Pro forma net increase
in net assets resulting
from operations per
share.................. $ 0.55
===========
Pro forma weighted
average shares
outstanding............ 7,500,000
===========
|
See accompanying notes to unaudited pro forma combined statement of operations.
MEDALLION FINANCIAL CORP.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. Unaudited pro forma combined balance sheet adjustments (all dollars in thousands)
(a) Adjustment to reflect the expected proceeds raised from the Offering based on the initial public offering price of $11.00 per share, an underwriter's discount of 7% ($3,850) and estimated expenses of $1,850 and the issuance of 5,000,000 shares of common stock for a total of 7,500,000 shares of common stock outstanding.
(b) Adjustment to reflect the use of a portion of the net proceeds of the Offering to pay the purchase price of the Acquisitions (estimated to be $13,378 for Tri-Magna; $10,223 for TCC; $15,096 for Edwards) and an obligation to repay a Tri-Magna loan ($3,232) due upon consummation of the Offering, to prepay an advisory fee to an investment adviser ($900) and to repay a portion of existing debt ($6,471).
(c) Adjustment to reflect the use of a portion of the surplus cash resulting from the Acquisitions ($6,529) to reduce debt.
(d) Adjustment to reflect the elimination of investments in Tri-Magna, Edwards and TCC.
(e) Adjustment to reflect deferred advisory fees ($900) related to the advisory fee agreement with an investment advisor.
(f) Adjustment to reflect the use of a portion of the net proceeds of the Offering ($9,703), plus surplus cash resulting from the Acquisitions ($6,529), to reduce debt.
(g) Adjustment to reflect the elimination of the accrual of the Company's deferred offering costs incurred prior to September 30, 1995 in conjunction with the Offering, net of costs which will be reimbursed in connection with the Acquisition agreements, as all of the Offering costs have been paid with a portion of the proceeds from the Offering.
(h) Adjustment to reflect purchase price adjustments associated with the acquisition of Tri-Magna. This acquisition is to be accounted for under the purchase method of accounting. As Tri-Magna was an investment company under the 1940 Act, its historic balance sheet is reflected at fair market value. Accordingly, no fair market value adjustments are required. Because the acquisition of Tri-Magna results in the net fair value assigned to the assets exceeding the acquisition cost, the excess is allocated to proportionately reduce the values assigned to noncurrent assets with any remaining value constituting negative goodwill. As a result of this allocation, Tri-Magna's investment in unconsolidated subsidiary was written down by $152 and fixed assets were written down by $92. The resulting negative goodwill will be accreted to earnings over 4 years.
(i) Adjustment to reflect purchase price adjustments associated with the acquisition of TCC. This acquisition is to be accounted for under the purchase method of accounting. Because the acquisition of TCC results in the net fair value assigned to the assets exceeding the acquisition cost, the excess is allocated proportionately to reduce the values assigned to noncurrent assets with any remaining value constituting negative goodwill. As a result of this allocation, TCC's fixed assets were written down by $17. The resulting negative goodwill will be accreted to earnings over 3 years. Additional adjustments to record the fair value of assets including the write-off of the deferred tax asset which will not be realized.
(j) Adjustment to reflect purchase price adjustments associated with the acquisition of certain assets and the assumption of certain of the liabilities of Edwards. This acquisition is to be accounted for under the purchase method of accounting. As Edwards was an investment company under the 1940 Act, its historic balance sheet is reflected at fair market value. Accordingly, no fair market value adjustments are required. Goodwill will be amortized over 15 years.
MEDALLION FINANCIAL CORP.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
2. Unaudited pro forma combined statement of operations adjustments (all dollars in thousands)
(k) Adjustments to record the amortization of the goodwill (excess of cost over the fair value of net assets of business acquired) and accretion of negative goodwill (excess of fair value of net assets over cost of business acquired), respectively, recorded in purchase accounting related to the goodwill resulting from the Edwards acquisition and the negative goodwill arising in the acquisitions of Tri-Magna and TCC. The goodwill related to Edwards is being amortized on a straight line basis over 15 years and the negative goodwill related to Tri-Magna and TCC is being accreted on a straight line basis over 4 years and 3 years, respectively.
(l) Adjustment to reflect the reduction in SBA debenture interest expense (September 1994: $728; December 1994: $974; September 1995: $780) resulting from the replacement of all Tri-Magna's SBA debenture ($12,500) with bank debt bearing interest (September 1994: $628; December 1994: $874; September 1995: $766) at a weighted average rate of 6.7%, 7.0% and 8.2% per annum, respectively. An adjustment is then made to reflect the reduction in bank debt interest expense (September 1994: $653; December 1994: $909; September 1995: $797) resulting from the elimination of bank debt ($13,000) from the net proceeds of the Offering, bearing interest at a weighted average rate of 6.7%, 7.0% and 8.2% per annum, respectively.
(m) Adjustment to reflect the reduction in interest income (September 1994: $146; December 1994: $215; September 1995: $199) related to the payment of approximately $6,529 of excess cash in conjunction with the paydown of bank debt, bearing interest at an assumed rate of 3.0%, 3.3% and 4.1% per annum, respectively.
(n) Adjustment to record the elimination of preferred stock dividend (September 1994: $208; December 1994: $277; September 1995: $208) resulting from the buyback of Tri-Magna's preferred stock from the Offering proceeds. This transaction occurred on September 29, 1995, and the buyback was considered by the Company in its determination of negative goodwill. Although this buyback was funded by additional debt, no interest expense savings were considered by the Company as the additional debt was outstanding for only one day.
TCC also participated in the preferred stock buyback program on August 14, 1995. There are no dividends to eliminate as TCC did not elect to pay them. Further, no interest income adjustment was reflected related to the funding of this buyback as the amount was considered nominal.
(o) Adjustment to reflect the reduction in executive compensation and pension expense, as a result of the elimination of three senior vice president executive positions at Tri-Magna (September 1994: $248; December 1994: $330; September 1995: $248).
(p) Adjustment to reflect the increase in expense is due to the amortization of the investment advisory fees (September 1994: $169; December 1994: $225; September 1995: $169) to be paid in advance to FMC Advisers, Inc. This investment advisory arrangement ($900) is being amortized on a straight line basis over the term of the arrangement. This increase in expense is partially offset by the reduction in expense due to the elimination of the management agreement previously in place with the parent company of TCC (September 1994: $137; December 1994: $180; September 1995: $137).
(q) Adjustment to eliminate certain operating expenses of Edwards. These expenses will not recur as the related assets and liabilities were not acquired by the Company as part of the acquisition of Edwards. These expenses include the elimination of depreciation (September 1994: $18; December 1994: $23;
MEDALLION FINANCIAL CORP.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
September 1995: $14); and the elimination of amortization of deferred
financing costs (September 1994: $65; December 1994: $79; September 1995:
$40).
(r) Adjustment to eliminate certain operating expenses of Tri-Magna and
TCC in connection with the accounting for the Company's negative goodwill.
These expenses will not recur as the related assets were written off by the
Company as part of the acquisition, including (i) the elimination of Tri-
Magna's depreciation (September 1994: $30; December 1994: $40; September
1995: $30); and (ii) the elimination of TCC's depreciation (September 1994:
$3; December 1994: $4; September 1995: $3).
(s) Adjustment to eliminate income and other corporate tax expenses for TCC (September 1994: $397; December 1994: $653; September 1995: $305) and Edwards (September 1994: $12; December 1994: $21; September 1995: $33). Both companies intend to be treated as regulated investment companies and therefore no taxes will be assessed to them.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Medallion Financial Corp.:
We have audited the accompanying balance sheet of Medallion Financial Corp. (a Delaware Corporation) as of December 31, 1995. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Medallion Financial Corp. as of December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 21, 1996
MEDALLION FINANCIAL CORP.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Cash.................................................................. $ 2,000
Deferred Offering Costs............................................... 716,217
--------
Total assets........................................................ $718,217
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable and Accrued Liabilities (Note 2)..................... $716,217
--------
Commitments and Contingencies (Note 4)
Shareholders' Equity:
Common stock (3,000 shares of $.01 par value stock authorized -- 200
shares outstanding at December 31, 1995) (Note 3).................. 2
Capital in excess of par value (Note 2)............................. 1,998
--------
Total shareholders' equity........................................ 2,000
--------
Total liabilities and shareholders' equity........................ $718,217
========
|
The accompanying notes are an integral part of this balance sheet.
MEDALLION FINANCIAL CORP.
NOTES TO BALANCE SHEET
DECEMBER 31, 1995
(1) FORMATION OF MEDALLION FINANCIAL CORP.
Medallion Financial Corp. (Medallion) is a closed-end management investment company organized as a Delaware corporation in 1995. In 1996, Medallion intends to complete an initial public offering (IPO) of its common stock and intends to file an election under Section 54 of the Investment Company Act of 1940, as amended (the 1940 Act) to be regulated as a business development company. In parallel with the IPO, Medallion will merge with Tri-Magna Corporation and subsidiaries (TMC); acquire substantially all of the assets of Edwards Capital Company, L.P. (ECC); and acquire all of the outstanding voting stock of Transportation Capital Corp. (TCC) (collectively, the Acquisitions). In connection with the Acquisitions, Medallion has filed an application for an exemptive order under the 1940 Act with the Securities and Exchange Commission. The Acquisitions and the IPO are contingent upon the receipt of such exemptive order, as well as approval of the Small Business Administration (SBA). Medallion will engage directly and/or through its principal subsidiaries primarily in the business of making loans to small businesses and, to a lesser degree, in the business of taxicab rooftop advertising.
TMC is a closed-end management investment company registered under the 1940 Act and is the sole shareholder of Medallion Funding Corp. (MFC) and Medallion Taxi Media, Inc. (Media). MFC is a closed-end management investment company registered under the 1940 Act and is licensed as a specialized small business investment company (SSBIC) by the SBA. As an adjunct to MFC's taxicab medallion finance business, Media operates a taxicab rooftop advertising business. In accordance with the merger agreement between Medallion and TMC signed on December 21, 1995 (the Merger Agreement), TMC will be acquired by being merged into Medallion, and as a result, MFC and Media will become wholly owned subsidiaries of Medallion.
ECC is licensed as a small business investment company (SBIC) by the SBA. ECC is an unrelated, privately held limited partnership. Upon consummation of the acquisition of substantially all of ECC's assets through a newly formed subsidiary of Medallion, the newly formed, wholly owned subsidiary will be registered as a closed-end management investment company under the 1940 Act.
TCC is licensed as an SSBIC by the SBA. TCC has operated as a wholly owned, indirect subsidiary of a public company. Medallion will acquire all of the outstanding voting common stock of TCC. Upon consummation of the acquisitions, TCC will be a closed-end management investment company registered under the 1940 Act and will be a wholly owned subsidiary of Medallion.
(2) ACCOUNTING TREATMENT
Medallion's acquisitions will be accounted for under the purchase method of accounting. Under this accounting method, Medallion will record as its cost the fair value of the acquired assets and liabilities assumed. The difference between the cost of acquired companies and the sum of the fair values of tangible and identifiable intangible assets less liabilities assumed will be recorded as goodwill or negative goodwill.
Deferred offering costs incurred by Medallion in connection with the sale of shares will be recorded as a reduction of capital upon completion of the offering. These costs are recorded, net of $200,000 payable by TMC in accordance with the Merger Agreement.
(3) AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of Medallion consists of 3,000 shares of common stock at $.01 par value. All of the outstanding 200 shares of common stock were issued in connection with the incorporation of Medallion at a price reflecting the fair market value of Medallion at inception. It is anticipated that immediately preceding
MEDALLION FINANCIAL CORP.
NOTES TO BALANCE SHEET -- (CONTINUED)
DECEMBER 31, 1995
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 the outstanding shares of common stock. 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 on the valuation of Medallion by the underwriters and the per share offering price of the common stock in the IPO.
(4) COMMITMENTS AND CONTINGENCIES
Medallion plans on entering into an advisory contract (the Advisory Agreement) with FMC Advisors, Inc. (FMC) in which FMC will provide investment advisory services to Medallion.
FMC will regularly consult with management of Medallion 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.
Unless terminated earlier as described below, the Advisory Agreement will remain in effect for a period of two years following execution and delivery by the parties. The term will continue from year to year thereafter, if approved annually by (i) a majority of Medallion's noninterested directors and (ii) the Board of Directors, or by a majority of Medallion's outstanding voting securities. The 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 by FMC. In the event of termination, prepaid fees for services not yet performed, if any, must be repaid to Medallion.
Two officers, directors and shareholders of Medallion have agreed to personally assure FMC of payment for the first 48 months of service under the Advisory Agreement pursuant to an escrow arrangement under which they will maintain in escrow common stock of Medallion worth 200% of the advisory fees subject to repayment by FMC to Medallion in the event of termination or non- renewal of the Advisory Agreement.
It is anticipated that in connection with the IPO of the Company's stock (as discussed in Note 1), the Company will implement a Stock Option Plan and enter into employment contracts with certain individuals who are employees, directors and/or shareholders of the Company (see Management section of the Prospectus).
(5) RELATED PARTY TRANSACTIONS
A director, officer and shareholder of TMC is also a director, officer and shareholder of Medallion. An employee and shareholder of TMC is also a director, officer and shareholder of Medallion.
The officers, directors and shareholders of FMC also serve as officers, directors and shareholders of TMC. In connection with the merger of TMC with and into Medallion, the officers, directors and shareholders of FMC will resign as officers and directors of TMC and will sell their shares of TMC to Medallion.
(6) SUBSEQUENT EVENTS
On February 12, 1996, Medallion entered into a stock purchase agreement with Transportation Capital Corp. (TCC). Under the agreement, Leucadia (the parent of TCC) will sell, and Medallion will purchase, all of the outstanding shares of capital stock of the Company for a purchase price based upon net book value, as defined in the agreement (approximately $10,000,000).
On February 21, 1996, Medallion entered into an asset purchase agreement with Edwards Capital Company, a limited partnership (the Partnership). Under the agreement, the Partnership will sell certain assets to Medallion for a purchase price of approximately $15,000,000 plus certain liabilities, which will be assumed by Medallion.
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 September 30, 1995 and December 31, 1994, including the consolidated summary of investments as of September 30, 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the nine month period ended September 30, 1995 and for each of the two years in the period ended December 31, 1994. 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. Our procedures included confirmation of loans receivable as of September 30, 1995 by correspondence with the borrowers. 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 September 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for the nine month period ended September 30, 1995 and for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 2, the consolidated financial statements include loans receivable valued at $93,041,916 (96% of total assets) and at $89,572,393 (96% of total assets) as of September 30, 1995 and December 31, 1994, respectively, whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. We have reviewed the procedures used by the Board of Directors in arriving at its estimates of value of such loans and have inspected underlying documentation, and in the circumstances, we believe that the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the loans existed, and the differences could be material.
Arthur Andersen LLP
Boston, Massachusetts
November 6, 1995 (except with
respect to the matter discussed in
Note 11, as to which the date is
December 21, 1995)
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
ASSETS
Investments (Note 2)............................. $90,342,393 $93,921,916
Less unrealized depreciation on investments
(Note 7)...................................... (770,000) (880,000)
----------- -----------
89,572,393 93,041,916
Investment in unconsolidated subsidiary
(Note 2)........................................ 19,379 152,011
Cash............................................. 1,268,324 1,363,200
Accrued interest receivable...................... 778,098 833,027
Furniture and fixtures, net...................... 111,543 92,260
Other assets..................................... 839,950 1,144,143
----------- -----------
Total Assets..................................... $92,589,687 $96,626,557
=========== ===========
LIABILITIES
Notes payable to banks and demand notes
(Note 3)........................................ $59,025,000 $78,319,900
Accounts payable and accrued expenses............ 253,687 625,310
Accrued interest payable......................... 631,817 697,586
Dividends payable (Note 5)....................... 69,255 --
Subordinated debentures payable (Note 4)......... 12,500,000 --
----------- -----------
Total Liabilities................................ 72,479,759 79,642,796
MINORITY INTEREST (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, 1994 and September 30, 1995)
(Note 6)........................................ 6,689 6,689
Capital in excess of par value................... 11,276,811 11,276,811
Accumulated undistributed loss................... (407,572) (301,839)
----------- -----------
10,875,928 10,981,661
Restricted capital surplus (Note 5).............. -- 6,002,100
----------- -----------
Total Shareholders' equity....................... 10,875,928 16,983,761
----------- -----------
Total Liabilities and Shareholders' equity....... $92,589,687 $96,626,557
=========== ===========
|
The accompanying notes are an integral part of these consolidated financial statements.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1993 1994 1994 1995
---------- ---------- ----------- ----------
(UNAUDITED)
INVESTMENT INCOME
Interest on investments...... $8,333,400 $8,820,273 $6,570,595 $7,191,918
---------- ---------- ---------- ----------
Total Investment Income.... 8,333,400 8,820,273 6,570,595 7,191,918
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on SBA debentures
(Note 4).................... 1,046,417 974,105 728,078 780,254
Interest on bank debt
(Note 3).................... 2,614,859 3,781,910 2,674,945 3,650,197
---------- ---------- ---------- ----------
Total Interest Expense..... 3,661,276 4,756,015 3,403,023 4,430,451
---------- ---------- ---------- ----------
Net Interest Income.......... 4,672,124 4,064,258 3,167,572 2,761,467
---------- ---------- ---------- ----------
NON-INTEREST INCOME
Equity in earnings of
unconsolidated subsidiary
(Note 2).................... -- 18,379 -- 132,632
Other income................. 540,778 519,030 442,894 314,717
---------- ---------- ---------- ----------
Total Non-Interest Income.. 540,778 537,409 442,894 447,349
---------- ---------- ---------- ----------
EXPENSES
Administration and advisory
fees........................ 27,520 33,905 25,702 11,637
Legal and accounting fees.... 391,279 367,484 297,488 344,311
Directors' fee (Note 9)...... 22,000 76,500 71,500 31,000
Officers' and employees'
salaries.................... 1,347,666 1,028,627 851,471 769,702
Employee benefit plans
(Note 8).................... 227,000 136,000 113,000 63,008
Other operating expenses..... 1,081,519 1,057,797 846,644 800,804
---------- ---------- ---------- ----------
Total Expenses............. 3,096,984 2,700,313 2,205,805 2,020,462
---------- ---------- ---------- ----------
Dividends paid on minority
interest (Note 5)........... 277,020 277,020 207,765 207,774
---------- ---------- ---------- ----------
Net Investment Income........ 1,838,898 1,624,334 1,196,896 980,580
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain (loss) on
investments (Note 7)........ (114,507) (21,938) (8,938) 4,390
Change in unrealized
depreciation (Note 7)....... (53,000) 58,000 151,000 (110,000)
---------- ---------- ---------- ----------
Net Realized and Unrealized
Gain (Loss) on Investments.. (167,507) 36,062 142,062 (105,610)
---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $1,671,391 $1,660,396 $1,338,958 $ 874,970
========== ========== ========== ==========
|
The accompanying notes are an integral part of these consolidated financial statements.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SHARES OF CAPITAL ACCUMULATED RESTRICTED
COMMON STOCK COMMON STOCK IN EXCESS UNDISTRIBUTED CAPITAL
OUTSTANDING $.01 PAR VALUE OF PAR VALUE LOSS SURPLUS
------------ -------------- ------------ ------------- ----------
BALANCE AT DECEMBER 31,
1992................... 665,900 $6,659 $11,227,341 $ (206,789) $ --
------- ------ ----------- ----------- ----------
Dividends paid, common.. -- -- -- (1,864,520) --
Distributable net
income................. -- -- -- 1,724,391 --
Change in unrealized
depreciation........... -- -- -- (53,000) --
BALANCE AT DECEMBER 31,
1993................... 665,900 6,659 11,227,341 (399,918) --
------- ------ ----------- ----------- ----------
Dividends paid, common.. -- -- -- (1,668,050) --
Distributable net
income................. -- -- -- 1,602,396 --
Sale of common stock.... 3,000 30 49,470 -- --
Change in unrealized
depreciation........... -- -- -- 58,000 --
BALANCE AT DECEMBER 31,
1994................... 668,900 6,689 11,276,811 (407,572) --
------- ------ ----------- ----------- ----------
Dividends paid, common.. -- -- -- (769,237) --
Distributable net
income................. -- -- -- 984,970 --
Gain on minority
interest buyback
(Note 5)............... -- -- 6,002,100
Change in unrealized
depreciation........... -- -- -- (110,000) --
------- ------ ----------- ----------- ----------
BALANCE AT SEPTEMBER 30,
1995................... 668,900 $6,689 $11,276,811 $ (301,839) $6,002,100
======= ====== =========== =========== ==========
|
The accompanying notes are an integral part of these consolidated financial statements.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1993 1994 1994 1995
----------- ----------- ----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................. $ 1,671,391 $ 1,660,396 $ 1,338,958 $ 874,970
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization............. 63,237 64,848 48,636 35,469
Change in unrealized
depreciation............. 53,000 (58,000) (151,000) 110,000
Realized loss (gain) on
investments.............. 114,507 21,938 8,938 (4,390)
Increase in investment in
unconsolidated
subsidiary............... -- (19,379) -- (132,632)
Decrease (increase) in
accrued interest
receivable............... (12,719) (64,697) (39,117) (54,929)
Decrease (increase) in
other assets............. 100,199 (99,434) (11,506) (440,504)
Increase (decrease) in
accounts payable and
accrued expenses......... 77,972 (90,565) (51,988) 371,623
Increase (decrease) in
dividends payable
minority interest........ 138,510 (69,255) (69,255) (69,255)
Increase (decrease) in
accrued interest
payable.................. (86,969) 143,725 391,527 65,769
----------- ----------- ----------- -----------
Net cash provided by op-
erating activities...... 2,119,128 1,489,577 1,465,193 756,123
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments... (30,678,530) (33,103,213) (26,295,679) (22,757,218)
Proceeds from investment
maturities and
terminations............. 18,335,808 24,753,080 20,211,494 19,182,087
Proceeds from liquidation
of other assets.......... -- 414,884 388,829 130,835
Capital expenditures...... (13,126) (6,991) (5,375) (10,714)
----------- ----------- ----------- -----------
Net cash used for invest-
ing activities.......... (12,355,848) (7,942,240) (5,700,731) (3,455,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term
debt..................... 10,700,000 8,325,000 7,925,000 19,294,900
Payments of SBA
debentures............... -- -- -- (12,500,000)
Buyback of minority
interest................. -- -- -- (3,231,900)
Sale of common stock...... -- 49,500 -- --
Dividends paid on common
stock.................... (1,864,520) (1,668,050) (1,300,155) (769,237)
----------- ----------- ----------- -----------
Net cash provided by fi-
nancing activities...... 8,835,480 6,706,450 6,624,845 2,793,763
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH...................... (1,401,240) 253,787 2,390,307 94,876
CASH, beginning of period.. 2,415,777 1,014,537 1,014,537 1,268,324
----------- ----------- ----------- -----------
CASH, end of period........ $ 1,014,537 $ 1,268,324 $ 3,404,844 $ 1,363,200
=========== =========== =========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the
period for interest
(Includes dividends paid
on minority interest)
(Note 5)................. $ 3,886,755 $ 4,958,565 $ 3,288,516 $ 4,651,461
|
The accompanying notes are an integral part of these consolidated financial statements.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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, as amended.
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)
Unaudited consolidated statements of operations and cash flows for the nine months ended September 30, 1994 are included for comparative purposes. Information included in these Notes to Consolidated Financial Statements as of and for the period ended September 30, 1994 is unaudited.
(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 69% of Medallion's loan portfolio at December 31, 1994, and September 30, 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.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Tri-Magna began funding loans in March 1995. Since then Tri-Magna has funded 37 loans totaling $3,326,216; of this amount, Tri-Magna participated out a total of $2,273,140.
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 $880,000 at December 31, 1994 and September 30, 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 September 30, 1995 amounted to approximately $3,967,690 and $15,278,372, respectively.
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 September 30, 1995, the net deferred asset totaled $83,591 and $178,507, respectively. Amortization expense was $22,117, $27,916 and $10,877 for the year ended December 31, 1994, and the nine months ended September 30, 1995 and 1994, respectively. There was no amortization expense in 1993.
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, cannot be consolidated with an investment company, Tri-Magna. Financial information for Media is summarized as follows:
DECEMBER 31, SEPTEMBER 30,
BALANCE SHEET 1994 1995
------------- ------------ -------------
Cash............ $ 6,193 $ --
Accounts
receivable..... 211,500 242,736
Equipment, net.. 214,042 469,557
Other........... 23,625 3,850
-------- --------
Total Assets.... $455,360 $716,143
======== ========
Notes payable... $275,000 $275,000
Accrued
expenses....... 160,981 289,132
-------- --------
Total
Liabilities.... 435,981 564,132
-------- --------
Common stock.... 1,000 1,000
Retained
earnings....... 18,379 151,011
-------- --------
Total equity.... 19,379 152,011
-------- --------
Total
Liabilities and
Shareholders
equity......... $455,360 $716,143
======== ========
|
PERIOD ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
STAEMENT OF OPERATIONST 1994 1995
- ----------------------- ------------ -----------------
Advertising
revenue........ $227,756 $1,091,724
Cost of
services....... 83,341 325,276
-------- ----------
Gross margin.... 144,415 766,448
Other operating
expenses....... 126,036 574,786
-------- ----------
Income before
taxes.......... 18,379 191,662
Income taxes.... -- 59,030
-------- ----------
Net income...... $ 18,379 $ 132,632
======== ==========
|
On March 8, 1995, Tri-Magna guaranteed a demand loan for Media. At September 30, 1995, $275,000 was outstanding at an interest rate of 10.75%. The loan matures on December 4, 1995, and can be extended at the option of the bank and acceptance of both Tri-Magna and Media.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
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, for the nine months ended September 30, 1995 recorded a provision for income taxes totaling approximately $59,000. This amount has been reflected in equity in earnings of unconsolidated subsidiary on the accompanying consolidated statement of operations.
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 December 31, 1994 and September 30, 1995, nonaccrual loans totaled approximately $1,063,901 and $1,137,093, respectively, and the related foregone interest income amounted to approximately $250,439 and $229,174, respectively. Additionally, at December 31, 1994 and September 30, 1995, restructured loans totaled approximately $477,469 and $800,617, of which $90,000 and $192,323 were included in nonaccrual loans, respectively. Other income on the accompanying consolidated statements of operations consists of late fees, prepayment penalties and fee income.
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, 1994 and September 30, 1995, the Company had outstanding bank borrowings under the following agreements:
DECEMBER 31, SEPTEMBER 30,
DESCRIPTION 1994 1995
----------- ------------ -------------
Revolving Credit Agreement........................ $57,025,000 $72,250,000
Term Loan Agreements.............................. 2,000,000 5,231,900
Short Term Note................................... -- 838,000
----------- -----------
Total............................................. $59,025,000 $78,319,900
=========== ===========
|
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
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
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. 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 Rate of interest (LIBOR) 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 $57,025,000 and $72,250,000, at December 31, 1994 and September 30, 1995, at an average interest rate of 7.81% and 7.83%, respectively. During the years ended December 31, 1994, and the nine months ended September 30, 1995, the Company's weighted average borrowings were approximately $54,485,000 and $59,030,000 and the maximum outstanding borrowings were $63,000,000 and $72,250,000, respectively. The weighted average interest rates on the weighted average borrowings were 6.73% and 8.18% during the year ended December 31, 1994 and the nine months ended September 30, 1995, respectively.
The Company is required to pay an annual facility fee of 1/4% effective prospectively as of March 28, 1995 on the Revolver aggregate commitment. For the year 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 September 30, 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 September 30, 1995. During fiscal year 1995, the fixed interest rate of 5.88% was increased to 7.5%. Interest payments are due quarterly. The weighted average interest rate paid on such borrowings was 5.88%, and 6.33%, respectively during the year ended December 31, 1994, and the nine months ended September 30, 1995, respectively. The total term borrowings outstanding at September 30, 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 April 1, 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 its 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. As of December 31, 1994, there were no outstanding borrowings under the Demand Note. 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 adjusted LIBOR 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 $838,000 at September 30, 1995, at an average interest rate of 7.43%. During the nine months ended September 30, 1995, Tri-Magna's weighted average borrowings were approximately $773,714 and the maximum outstanding borrowings were $838,000. The weighted average interest rate on such borrowings was 8.2% during the nine months ended September 30, 1995.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Interest Rate Cap Agreements
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 LIBOR exposure on $10,000,000 of its revolving credit facility to 6%. The premiums paid in under these agreements were $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.
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 LIBOR 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.
(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:
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
===========
|
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 7.5% 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.
(5) MINORITY INTEREST
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
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
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 an 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 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 preceeding the event of default and will not accrete 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 September 30, 1995, the unaccreted amount of the SBA's liquidating interest in the restricted capital surplus was $4,651,628.
(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 (GAINS) AND UNREALIZED DEPRECIATION ON INVESTMENTS
A summary of realized losses and unrealized depreciation on investments for the years ended December 31, 1994 and 1993, and the nine months ended September 30, 1995 and 1994 is as follows:
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------- --------------------
UNREALIZED DEPRECIATION 1994 1993 1995 1994
----------------------- --------- --------- --------- ---------
Balance at Beginning of Period... $(828,000) $(775,000) $(770,000) $(828,000)
Change in Unrealized Deprecia-
tion............................ 58,000 (53,000) (110,000) 151,000
--------- --------- --------- ---------
Balance at End of Period......... $(770,000) $(828,000) $(880,000) $(677,000)
========= ========= ========= =========
|
For the years ended December 31, 1994 and 1993 and the nine months ended September 30, 1995 and 1994, realized losses (gains) were $21,938, $114,507, $(4,390) and $8,938, 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.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
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 September 30, 1995 and 1994, and the year ended December 31, 1994, and the lesser of 20% of each participant's compensation or $20,000 for the year ended December 31, 1993.
The expense for employee benefit plans was approximately $136,000, $227,000, $63,008 and $113,000, for the years ended December 31, 1994, and 1993 and the nine months ended September 30, 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.
(10) COMMITMENTS AND CONTINGENCIES
At September 30, 1995, the Company's unfunded commitments were approximately $1,661,444 for 19 loans that will bear interest at rates ranging from 9.0% to 15.2%.
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 years ended December 31, 1994 and 1993, and the nine months ended September 30, 1995 and 1994, rental expenses totaled $195,777, $187,679, $168,477, and $142,824 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) SUBSEQUENT EVENT
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 LIBOR exposure on an additional $20,000,000 of its revolving credit facility to 7.0%. 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.
On October 18, 1995, the Company declared a dividend on common stock of $.35 per share, payable on October 26, 1995 to shareholders of record as of October 18, 1995. Medallion also declared a dividend of $275,000 on common stock payable on October 18, 1995 to the Parent Company for purposes of funding the Company's dividend.
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.
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.
TRI-MAGNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS
SEPTEMBER 30, 1995
NUMBER BALANCE INTEREST RANGE OF
OF LOANS OUTSTANDING RATE MATURITY DATES
-------- ----------- -------- ---------------
1 $ 81,619 5.000% 3/1/00
1 26,190 7.000 7/1/98
17 3,809,812 8.000 3/1/97-1/1/09
3 305,275 8.250 1/1/98
22 3,467,300 8.500 5/1/96-5/1/00
10 1,538,912 8.750 2/1/97-7/1/99
60 9,348,889 9.000 9/30/95-7/1/04
77 7,904,523 9.250 5/1/96-9/1/10
106 11,584,236 9.500 9/30/95-9/1/04
2 124,111 9.625 8/1/96-8/1/04
18 1,333,031 9.750 9/30/95-8/1/02
139 11,544,474 10.000 9/30/95-12/1/04
25 2,344,780 10.250 7/1/97-9/1/02
1 131,584 10.375 2/1/00
41 4,733,273 10.500 7/1/96-1/1/03
32 2,975,798 10.750 3/1/99-8/1/02
1 68,352 10.900 11/1/99
46 4,081,906 11.000 9/30/95-8/1/03
3 199,864 11.250 6/1/96-10/1/98
4 270,218 11.500 1/1/97-2/1/99
2 172,504 11.750 4/1/96-9/1/99
60 4,567,004 12.000 9/30/95-6/1/05
9 517,934 12.500 12/1/95-8/1/00
1 7,742 12.580 9/30/95
2 286,183 12.750 1/1/97-9/1/00
1 76,645 12.950 1/1/99
95 5,388,290 13.000 9/30/95-2/1/04
4 758,594 13.250 9/30/95-2/1/00
21 1,125,080 13.500 9/30/95-7/1/02
2 50,895 13.750 2/1/98-1/1/99
1 17,721 13.870 9/1/96
80 4,365,904 14.000 6/1/96-10/1/02
1 43,269 14.050 1/1/01
1 48,839 14.200 6/1/00
1 8,701 14.250 12/1/98
1 17,127 14.300 5/1/99
14 946,473 14.500 9/30/95-4/1/02
6 175,318 14.840 6/1/99-10/1/00
179 7,777,713 15.000 9/30/95-9/1/02
10 812,517 15.200 3/1/99-2/1/01
9 280,110 15.250 9/30/95-6/1/98
8 155,608 15.500 9/30/95-7/1/99
1 3,480 15.625 2/1/96
1 100,239 15.750 9/30/95
2 51,688 16.000 4/1/99-5/1/00
5 25,313 16.250 9/30/95-3/1/96
3 12,804 16.500 11/1/95-1/1/96
1 47,990 16.750 9/30/95
1 27,577 18.000 10/1/97
---- -----------
Total: 1,131 $93,743,409
Plus: Loan origination
costs, net................. 178,507
-----------
Total investments at cost... 93,921,916
Less -- Unrealized deprecia-
tion on investments........ (880,000)
-----------
Total investments at direc-
tors' valuation............ $93,041,916
===========
|
INDEPENDENT AUDITORS' REPORT
To the Partners of
Edwards Capital Company:
We have audited the accompanying balance sheet of Edwards Capital Company (a limited partnership) as of December 31, 1994, and the related statements of operations, changes in partners' capital and cash flows for each of the two years in the period ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Edwards Capital Company as of December 31, 1994, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
Friedman, Alpren & Green LLP
New York, New York
January 28, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Edwards Capital Company:
We have audited the accompanying balance sheet of Edwards Capital Company (a New York limited partnership), including the schedule of loans as of September 30, 1995, and the related statements of operations, changes in partners' capital and cash flows for the nine months ended September 30, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Edwards Capital Company as of September 30, 1995, and the results of its operations and its cash flows for the nine months ended September 30, 1995, in conformity with generally accepted accounting principles.
As explained in Note 1, the financial statements include finance receivables valued at $43,187,645 (98% of total assets) as of September 30, 1995, the values of which have been estimated by the General Partner in the absence of readily ascertainable market values. We have reviewed the procedures used by the General Partner in arriving at its estimates of value of such loans and have inspected underlying documentation, and in the circumstances, we believe that the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the loans existed, and the differences could be material.
Arthur Andersen LLP
Boston, Massachusetts
December 14, 1995 (except with
respect to the matter discussed in
Note 8, as to which the date is
February 21, 1996)
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
Cash................................................ $ 170,725 $ 21,462
Finance Receivables:
Medallions........................................ 42,739,897 42,570,994
Radios, less allowance for doubtful accounts of
$20,000 in 1994 and 1995......................... 29,451 2,830
Other............................................. 697,494 613,821
Accrued Interest Receivable......................... 329,000 370,000
Deferred Financing Costs, net of accumulated
amortization of $123,507 in 1994 and $163,598 in
1995............................................... 407,143 367,052
Property and Equipment, at cost, net of accumulated
depreciation and amortization of $115,645 in 1994
and $129,596 in 1995............................... 75,349 71,167
Prepaid Expenses and Other Assets................... 125,468 175,048
----------- -----------
Total Assets.................................... $44,574,527 $44,192,374
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Bank Loans Payable.................................. $10,000,000 $ 9,425,000
Subordinated Debentures Payable..................... 24,950,000 24,950,000
Accounts Payable and Accrued Expenses............... 1,048,459 864,172
----------- -----------
35,998,459 35,239,172
Partners' Capital................................... 8,576,068 8,953,202
----------- -----------
Total Liabilities and Partners' Capital......... $44,574,527 $44,192,374
=========== ===========
|
The accompanying notes are an integral part of these financial statements.
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ----------------------
1993 1994 1994 1995
---------- ---------- ----------- ----------
(UNAUDITED)
Revenues:
Interest from finance
receivables................... $4,954,502 $4,334,100 $3,262,382 $3,269,495
Other income................... 476,192 619,716 554,446 311,122
---------- ---------- ---------- ----------
Total revenues................ 5,430,694 4,953,816 3,816,828 3,580,617
---------- ---------- ---------- ----------
Operating Expenses:
Interest on subordinated
debentures.................... 2,230,415 2,136,807 1,636,941 1,494,806
Interest on bank loans......... 511,008 627,700 450,786 578,490
Salaries....................... 385,676 351,715 244,672 262,972
Employee benefits.............. 38,383 35,280 23,553 24,181
Payroll and other taxes........ 29,119 28,576 25,105 25,856
Professional fees.............. 306,732 393,513 288,111 126,355
Rent........................... 39,996 39,996 29,997 29,997
Office expense................. 39,298 45,082 32,406 31,213
Computer expense............... 8,760 48,859 27,776 35,472
Telephone...................... 8,860 9,963 8,156 8,168
Entertainment.................. 23,005 17,378 7,838 8,771
Amortization of deferred
financing costs............... 42,701 79,118 65,752 40,091
Processing and collection
services...................... 69,276 57,950 46,206 31,811
Depreciation and amortization.. 27,471 22,586 17,619 13,951
New York City unincorporated
business tax.................. 50,972 21,289 12,289 33,111
Reduction in allowance for
doubtful radio loans.......... -- (23,415) -- --
Sundry......................... 2,010 1,511 4,527 3,528
---------- ---------- ---------- ----------
Total operating expenses...... 3,813,682 3,893,908 2,921,734 2,748,773
---------- ---------- ---------- ----------
Income before extraordinary
charge....................... 1,617,012 1,059,908 895,094 831,844
Extraordinary Charge -- Premium
on Prepayment of Subordinated
Debentures..................... -- 526,287 526,287 --
---------- ---------- ---------- ----------
Net income.................... $1,617,012 $ 533,621 $ 368,807 $ 831,844
========== ========== ========== ==========
|
The accompanying notes are an integral part of these financial statements.
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1993 1994 1994 1995
---------- ----------- ----------- ----------
(UNAUDITED)
Cumulative Capital
Contributions.............. $7,200,000 $ 7,200,000 $ 7,200,000 $7,200,000
========== =========== =========== ==========
SBA Permanent Capital....... $8,400,000 $ 8,400,000 $ 8,400,000 $8,400,000
========== =========== =========== ==========
Balance, Beginning of
Period..................... $8,918,704 $ 9,550,947 $ 9,550,947 $8,576,068
Net income................ 1,617,012 533,621 368,807 831,844
Distributions --
General Partner......... -- (16,000) (16,000) --
Limited Partners........ (984,769) (1,492,500) (1,492,500) (454,710)
---------- ----------- ----------- ----------
Balance, end of period...... $9,550,947 $ 8,576,068 $ 8,411,254 $8,953,202
========== =========== =========== ==========
|
The accompanying notes are an integral part of these financial statements.
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------------
1993 1994 1994 1995
------------ ------------ ------------ -----------
(UNAUDITED)
Cash flows from operat-
ing activities:
Net income............. $ 1,617,012 $ 533,621 $ 368,807 $ 831,844
Adjustments to
reconcile net income
to net cash provided
by operating
activities --
Extraordinary charge... -- 526,287 526,287 --
Amortization of de-
ferred financing
costs................. 42,701 79,118 65,752 40,091
Depreciation and amor-
tization.............. 27,471 22,586 17,619 13,951
Reduction in allowance
for doubtful radio
loans................. -- (23,415) -- --
Changes in assets and
liabilities --
Accrued interest re-
ceivable............. 10,515 (339) 9,865 (41,000)
Deferred financing
costs................ -- (254,625) (254,625) --
Prepaid expenses and
other assets......... (70,902) 91,806 41,716 (49,580)
Accounts payable and
accrued expenses..... (331,582) (21,710) (304,600) (184,287)
Deferred income....... (29,370) (5,332) (3,040) --
------------ ------------ ------------ -----------
Net cash provided by
operating activi-
ties................ 1,265,845 947,997 467,781 611,019
Cash flows from invest-
ing activities:
Origination of new fi-
nance receivables..... (14,473,522) (15,573,645) (4,661,605) (8,412,801)
Repayments of finance
receivables........... 13,344,455 16,228,136 6,301,827 8,691,998
Collection of notes re-
ceivable.............. 126,633 272,546 89,942 --
Purchase of property
and equipment......... (20,202) (5,041) (10,295) (9,769)
Collection of receiv-
ables from radio
groups................ 67,858 -- -- --
------------ ------------ ------------ -----------
Net cash (used in)
provided by invest-
ing activities...... (954,778) 921,996 1,719,869 269,428
Cash flows from financ-
ing activities:
Premium on prepayment
of subordinated deben-
tures................. -- (526,287) (526,287) --
Proceeds from bank
loans................. 12,800,000 22,425,000 18,350,000 8,775,000
Principal payments of
bank loans............ (12,025,000) (22,325,000) (18,700,000) (9,350,000)
Distributions to part-
ners --
General partner........ -- (16,000) (16,000) --
Limited partners....... (984,769) (1,492,500) (1,492,500) (454,710)
------------ ------------ ------------ -----------
Net cash used in fi-
nancing activities.. (209,769) (1,934,787) (2,384,787) (1,029,710)
------------ ------------ ------------ -----------
Net increase (decrease)
in cash................ 101,298 (64,794) (197,137) (149,263)
Cash, beginning of peri-
od..................... 134,221 235,519 235,519 170,725
------------ ------------ ------------ -----------
Cash, end of period..... $ 235,519 $ 170,725 $ 38,382 $ 21,462
============ ============ ============ ===========
Supplemental disclosure
of cash flow informa-
tion:
Interest paid.......... $ 2,679,856 $ 2,885,512 $ 2,355,471 $ 2,142,405
============ ============ ============ ===========
New York City unincor-
porated business tax.. $ 70,038 $ 27,939 $ 27,939 $ 14,058
============ ============ ============ ===========
|
The accompanying notes are an integral part of these financial statements.
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Edwards Capital Company (the Partnership) is organized under the laws of the State of New York as a Small Business Investment Company, subject to the rules and regulations of the Federal Small Business Administration (the SBA). The Partnership's principal activity is the financing of loans collateralized by New York City taxicab medallions.
The Partnership has one General Partner and six classes of limited partners. Allocations of income or loss and cash distributions are based on formulas, as set forth in the Partnership Agreement. The formulas utilize the average prime rate for the year, net cash receipts, as defined, and the weighted average capital for each class of partner.
Unaudited statements of operations and cash flows for the nine months ended September 30, 1994 are included for comparative purposes.
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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Finance Receivables and the Allowance for Doubtful Accounts
Finance receivables, net of participation sold to others and an allowance for doubtful accounts, are stated at fair value. The fair value of such loans is determined in good faith by the General Partner. The allowance for doubtful accounts is maintained at a level that, in the General Partner's judgment, is adequate to absorb losses inherent to the portfolio.
Finance receivables collateralized by New York City taxicab medallions are considered fully collectible, as the value of the collateral is deemed sufficient to assure full collection in the event of foreclosure. At September 30, 1995, there is an allowance for doubtful accounts on receivables collateralized by radio rights, as the value of the collateral on certain loans is deemed insufficient.
The allowance is reviewed and adjusted periodically by the General Partner on the basis of available information, including the fair value of the underlying collateral; individual credit risks; past loss experience; the volume, composition and growth of the portfolio; and current and projected financial and economic conditions.
Interest is continued to be recognized as income on all finance receivables that are past due, as to principal and interest, when the value of the underlying collateral is deemed sufficient to assure full collection of the principal and associated interest in the event of foreclosure. At September 30, 1995, the value of the underlying collateral on finance receivables was deemed adequate.
The principal amount of loans serviced for others at December 31, 1994 and September 30, 1995 amounted to approximately $34,918,209 and $30,251,230, respectively.
Deferred Financing Costs
Costs incurred in connection with obtaining subordinated debenture financing have been deferred and are being amortized on the effective interest rate method over the terms of the loans.
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on an accelerated method over the estimated useful lives of the assets. Leasehold improvements are amortized over the estimated useful life of the asset or, if less, the life of the lease.
Origination Fees
Origination fees (included in other income) for loans are deferred and amortized on a straight-line basis over the terms of the loans. At September 30, 1995, loan origination fees were fully amortized.
Income Taxes
The Partnership is not a taxpaying entity for income tax purposes and, accordingly, no provision has been made for income taxes. The partners' allocable shares of the Partnership's taxable income or loss are reportable on their income tax returns. A provision is made for New York City unincorporated business tax.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the current year's presentation.
(2) FINANCE RECEIVABLES
Finance receivables are interest-bearing loans that are secured by mortgages collateralized by New York City taxicab medallion rights, taxicabs or radio group rights, and the personal guarantees of individuals or stockholders of corporate borrowers.
Maximum original terms of finance receivables at December 31, 1994 and September 30, 1995 are as follows:
(ROUNDED TO 000'S)
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
60 months...................................... $41,118,000 $41,064,000
84 months...................................... 1,657,000 1,630,000
120 months..................................... 692,000 494,000
----------- -----------
$43,467,000 $43,188,000
=========== ===========
|
Contractual maturities of finance receivables at December 31, 1994 and September 30, 1995 are approximately as follows:
(ROUNDED TO 000'S)
DECEMBER 31, 1995 SEPTEMBER 30, 1995
----------------- ------------------
1995.................... $ 2,520,000 1995.................... $ 3,709,000
1996.................... 5,924,000 1996.................... 3,610,000
1997.................... 5,502,000 1997.................... 6,940,000
1998.................... 8,519,000 1998.................... 14,827,000
1999.................... 20,174,000 1999.................... 13,221,000
Thereafter.............. 828,000 Thereafter.............. 881,000
----------- -----------
$43,467,000 $43,188,000
=========== ===========
|
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Actual maturities may differ, as loans are often paid in advance of their maturities, and loans with participation sold to others contain subordinate prepayment provisions. During the year ended December 31, 1994 and the nine months ended September 30, 1995, collections of loans, including prepayments, were approximately $16,228,000 and $8,692,000, respectively.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and September 30, 1995:
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
Furniture and Equipment...................... $152,931 $162,700
Leasehold Improvements....................... 38,063 38,063
-------- --------
190,994 200,763
Less -- Accumulated Depreciation and Amorti-
zation...................................... 115,645 129,596
-------- --------
$ 75,349 $ 71,167
======== ========
|
(4) BANK LOANS PAYABLE
The Partnership has lines of credit with four banks totaling $12,500,000, of which $10,000,000 and $9,425,000 was drawn upon at December 31, 1994 and September 30, 1995, respectively. Interest is charged at the borrower's option, at either the lender's prime rate or at a rate based on the adjusted London Interbank Offered Rate (LIBOR). Under an agreement with the SBA, Edwards was restricted from borrowing more than $10.0 million in bank debt without the prior approval of the SBA. In January 1996, this amount was increased to $11.5 million.
The average amount of borrowings for the year ended December 31, 1994 and for the nine months ended September 30, 1995 was $9,740,000 and $9,518,750, respectively.
The loans are secured by all of the Partnership's assets. Under an intercreditor agreement, all banks share in the collateral. In addition, all bank indebtedness is senior to SBA-guaranteed indebtedness pursuant to SBA rules and regulations.
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(5) SUBORDINATED DEBENTURES PAYABLE
Outstanding subordinated debentures, which are guaranteed by the SBA, are as follows at December 31, 1994 and September 30, 1995:
INTEREST
DUE DATE RATE AMOUNT
-------- -------- -----------
September 1, 1996................................... 8.75% $ 600,000
September 1, 1996................................... 8.75 600,000
April 1, 1997....................................... 8.95 1,500,000
June 1, 1998........................................ 9.80 3,000,000
September 1, 2002................................... 7.15 3,500,000
September 1, 2002................................... 7.15 6,050,000
June 1, 2004........................................ 7.80 4,600,000
September 1, 2004................................... 8.20 5,100,000
-----------
$24,950,000
===========
|
On June 29, 1994 and September 28, 1994, the Partnership refinanced $4,600,000 and $5,100,000, respectively, of subordinated debentures, bearing interest rates of 9.615% to 11.505% and 10.35%, respectively, and with maturity dates of February 1, 1995 to December 1, 1995 and September 1, 1997, respectively. The newly incurred debt of $4,600,000 and $5,100,000, included above, bears interest at 7.80% and 8.20%, respectively, and matures on June 1, 2004 and September 1, 2004, respectively. The prepayment premium of $526,287, paid in connection with these refinancings, is presented as an extraordinary item in the accompanying statements of operations.
(6) RELATED PARTY TRANSACTIONS
The law firm of Herrick, Feinstein LLP provides legal services to the Partnership and subleases office space to it under a lease commencing on June 1, 1992 and expiring on April 30, 1997. The lease requires minimum annual rental payments of $40,000 and additional rentals based on increases in real estate taxes and operating expenses over base period amounts. It is cancelable by the firm upon giving 60 days' notice. Certain principals of the firm are limited partners of the Partnership and are shareholders of the corporate General Partner of the Partnership.
Rent expense and legal fees paid and accrued to Herrick, Feinstein LLP for the years ended December 31, 1993 and 1994 and the nine months ended September 30, 1995 are as follows:
YEARS ENDED
DECEMBER 31, NINE MONTHS ENDED
----------------- SEPTEMBER 30,
1993 1994 1995
-------- -------- -----------------
Rent expense.......................... $ 39,996 $ 39,996 $ 29,997
Legal fees............................ 183,295 288,985 78,564
-------- -------- --------
$223,291 $328,981 $108,561
======== ======== ========
|
Legal fees of $80,000 were incurred and accrued to Herrick, Feinstein in connection with the proposed sale of assets by the Partnership to Medallion Financial Corp. (see Note 8). These costs have been deferred and are included in prepaid expenses and other assets in the accompanying balance sheet at September 30, 1995.
(7) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, there are outstanding commitments and contingent liabilities that are not reflected in the financial statements.
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
At December 31, 1994 and September 30, 1995, the Partnership had an operating lease for office space which expires in April 30, 1997 (see Note 6).
There are lawsuits pending against the Partnership in the normal course of business. Based on its review of current litigation and discussions with legal counsel, management does not expect that the resolution of such matters will have a material adverse effect on the Partnership's financial condition or results of operations.
(8) SUBSEQUENT EVENTS
On February 21, 1996, the Partnership entered into an asset purchase agreement with Medallion Financial Corp. Under the agreement, the Partnership will sell certain assets to Medallion Financial Corp. for a purchase price of approximately $15,000,000 plus certain liabilities, which will be assumed by Medallion Financial Corp.
EDWARDS CAPITAL COMPANY
(A LIMITED PARTNERSHIP)
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
SEPTEMBER 30, 1995
The distribution of loans at September 30, 1995 by rate of interest is as follows:
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ----------- --------
5 $ 141,513 7.82%
7 265,000 8.05
1 56,000 8.12
12 736,000 8.25
6 239,000 8.30
8 392,000 8.38
3 514,438 8.44
6 456,500 8.49
14 475,750 8.50
2 368,000 8.75
1 108,000 8.78
9 507,500 8.88
34 2,171,339 9.00
22 1,251,879 9.13
15 1,994,836 9.25
2 288,228 9.39
63 7,242,883 9.50
5 330,000 9.60
58 7,902,862 9.75
2 169,984 9.80
16 1,915,667 9.90
48 5,851,247 10.00
41 5,369,184 10.25
5 607,712 10.38
11 918,952 10.50
2 122,421 10.75
13 863,425 11.00
5 276,711 11.25
2 298,004 11.50
4 261,697 11.75
4 710,172 12.00
1 5,295 12.50
2 88,669 13.00
2 134,256 13.25
1 36,910 13.50
1 58,195 13.55
1 15,942 14.00
2 13,092 14.50
2 48,382 15.00
--- -----------
438 43,207,645 9.75%
===
Less Allowance for Doubtful
Accounts on Radio Loans.... (20,000)
-----------
$43,187,645
===========
|
The accompanying notes are an integral part of these financial statements.
Neither TCC nor the entities that were its direct or indirect parents prior to the closing of the Acquisitions, or any officer or director thereof has commented upon, has reviewed, has knowledge with respect to, or takes any responsibility for, any financial statements or other financial or business information concerning any third party or parties.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Transportation Capital Corp.:
We have audited the accompanying balance sheet of Transportation Capital Corp. (a New York corporation), including the financial statement schedules as of December 31, 1994, and the related statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1994. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of loans receivable as of December 31, 1994 by correspondence with the borrowers. 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 financial statements referred to above present fairly, in all material respects, the financial position of Transportation Capital Corp. as of December 31, 1994, and the results of its operations and cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
As explained in Note 1, the financial statements include loans receivable valued at $10,003,050 (53% of total assets) as of December 31, 1994, whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. We have reviewed the procedures used by the Board of Directors in arriving at their estimates of value of such loans and have inspected underlying documentation and, in the circumstances, we believe that the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the loans existed, and the differences could be material.
Coopers & Lybrand LLP
New York, New York
October 24, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Transportation Capital Corp.:
We have audited the accompanying balance sheet of Transportation Capital Corp. (a New York corporation) as of September 30, 1995, including the schedule of investments other than investments in affiliates and schedule of loans as of September 30, 1995, the related statements of operations, shareholders' equity and cash flows for the nine months ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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. Our procedures included the confirmation of loans receivable as of September 30, 1995 by correspondence with the borrowers. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Transportation Capital Corp. as of September 30, 1995, and the results of its operations and cash flows for the nine months ended September 30, 1995, in conformity with generally accepted accounting principles.
As explained in Note 1, the financial statements include loans receivable valued at $9,129,489 (53% of total assets) as of September 30, 1995, whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. We have reviewed the procedures used by the Board of Directors in arriving at their estimates of value of such loans and have inspected underlying documentation and, in the circumstances, we believe that the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the loans existed, and the differences could be material.
Arthur Andersen LLP
Boston, Massachusetts
November 8, 1995 (except with
respect to the matter discussed in
Note 12, as to which the date is
February 12, 1996)
TRANSPORTATION CAPITAL CORP.
BALANCE SHEETS
ASSETS
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
Loans Receivable.................................... $10,980,900 $ 9,818,765
Allowance for Loan Losses........................... (977,850) (689,276)
----------- -----------
Loans receivable, at fair value................... 10,003,050 9,129,489
Cash and Cash Equivalents........................... 8,199,210 7,730,158
Accrued Interest Receivable......................... 147,938 134,708
Furniture, Fixtures and Leasehold Improvements, at
cost, less accumulated depreciation of $7,960 and
$11,137............................................ 16,210 17,373
Other Assets........................................ 188,274 69,243
Deferred Income Taxes............................... 396,200 276,400
----------- -----------
Total assets.................................... $18,950,882 $17,357,371
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to Small Business Administra-
tion............................................. $ 7,930,000 $ 6,730,000
Accrued interest payable.......................... 73,388 125,640
Accrued expenses.................................. 125,511 141,134
----------- -----------
Total liabilities............................... 8,128,899 6,996,774
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
3% Cumulative preferred stock, $1,000 par value--
Authorized--9,000 shares
Issued and outstanding--3,383 1/3 shares in 1994
and none in 1995............................... 3,383,333 --
Common stock, $.125 par value--
Authorized--5,000,000 shares
Issued and outstanding--100 shares.............. 13 13
Additional paid-in capital........................ 6,565,289 7,749,456
Restricted contributed capital surplus............ -- 2,199,166
Accumulated undistributed net investment income... 5,577,636 4,958,291
Accumulated undistributed net realized loan loss-
es............................................... (4,116,938) (4,132,353)
Net unrealized depreciation on loans.............. (587,350) (413,976)
----------- -----------
Total shareholders' equity...................... 10,821,983 10,360,597
----------- -----------
Total liabilities and shareholders' equity...... $18,950,882 $17,357,371
=========== ===========
|
The accompanying notes are an integral part of these financial statements.
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1993 1994 1994 1995
---------- ---------- ----------- ----------
(UNAUDITED)
INVESTMENT INCOME:
Interest from small business
concerns (net of interest to
participants)................ $2,995,747 $2,001,527 $1,562,571 $1,072,144
Interest from treasury bills.. 114,302 215,353 145,867 328,141
---------- ---------- ---------- ----------
3,110,049 2,216,880 1,708,438 1,400,285
---------- ---------- ---------- ----------
EXPENSES:
Interest...................... 1,063,563 708,695 584,039 358,729
Salaries...................... 256,833 246,874 188,481 172,011
Legal and other professional
fees......................... 719,248 356,162 277,659 269,417
Rent expense.................. 115,072 58,046 52,469 20,953
General and administrative.... 178,746 50,533 118,682 123,570
---------- ---------- ---------- ----------
2,333,462 1,420,310 1,221,330 944,680
---------- ---------- ---------- ----------
INVESTMENT INCOME BEFORE INCOME
TAXES......................... 776,587 796,570 487,108 455,605
INCOME TAX (PROVISION) BENE-
FIT........................... 204,930 (342,948) (215,650) (201,601)
---------- ---------- ---------- ----------
Net investment income........ 981,517 453,622 271,458 254,004
---------- ---------- ---------- ----------
REALIZED LOAN LOSSES BEFORE
INCOME TAXES.................. (68,933) (144,058) (70,339) (27,592)
INCOME TAX BENEFIT............. 18,138 59,748 29,250 12,177
---------- ---------- ---------- ----------
Net realized loan losses..... (50,795) (84,310) (41,089) (15,415)
---------- ---------- ---------- ----------
CHANGE IN UNREALIZED
DEPRECIATION ON LOANS BEFORE
INCOME TAXES.................. 231,867 790,283 490,007 288,574
DEFERRED INCOME TAX (PROVISION)
BENEFIT....................... 760,200 (369,700) (210,600) (115,200)
---------- ---------- ---------- ----------
NET CHANGE IN UNREALIZED
DEPRECIATION ON LOANS......... 992,067 420,583 279,407 173,374
---------- ---------- ---------- ----------
Increase in net assets from
operations................... $1,922,789 $ 789,895 $ 509,776 $ 411,963
========== ========== ========== ==========
|
The accompanying notes are an integral part of these financial statements.
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ACCUMULATED ACCUMULATED
PREFERRED STOCK COMMON STOCK RESTRICTED UNDISTRIBUTED UNDISTRIBUTED
------------------------ ---------------------- ADDITIONAL CONTRIBUTED NET NET
SHARES SHARES PAID-IN CAPITAL INVESTMENT REALIZED
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL SURPLUS INCOME LOAN LOSSES
----------- ----------- ----------- --------- ---------- ----------- ------------- -------------
BALANCE, JANUARY
1, 1993........ 3,383 1/3 $ 3,383,333 2,364,723 $ 295,590 $6,265,790 $ -- $4,142,497 $(3,981,833)
Net investment
income......... -- -- -- -- -- -- 981,517 --
Net realized
loan losses.... -- -- -- -- -- -- -- (50,795)
Net change in
unrealized
depreciation on
loans.......... -- -- -- -- -- -- -- --
Issuance of
common stock,
$4.50 per
share.......... -- -- 122,081 15,261 534,107 -- -- --
Distributions on
3% cumulative
preferred
stock.......... -- -- -- -- (64,600) -- -- --
Distributions on
common stock,
$.205 per
share.......... -- -- -- -- (484,768) -- -- --
---------- ----------- ---------- --------- ---------- ---------- ---------- -----------
BALANCE,
DECEMBER 31,
1993........... 3,383 1/3 3,383,333 2,486,804 310,851 6,250,529 -- 5,124,014 (4,032,628)
Merger of TCC
Purchase Co.... -- -- (2,486,704) (310,838) 314,760 -- -- --
Net investment
income......... -- -- -- -- -- -- 453,622 --
Net realized
loan losses.... -- -- -- -- -- -- -- (84,310)
Net change in
unrealized
depreciation on
loans.......... -- -- -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- ---------- ---------- -----------
BALANCE,
DECEMBER 31,
1994........... 3,383 1/3 3,383,333 100 13 6,565,289 -- 5,577,636 (4,116,938)
Net investment
income......... -- -- -- -- -- -- 254,004 --
Net realized
loan losses.... -- -- -- -- -- -- -- (15,415)
Net change in
unrealized
depreciation on
loans.......... -- -- -- -- -- -- -- --
Capital
contribution... -- -- -- -- 310,818 -- -- --
Capitalization
of accumulated
undistributed
net investment
income......... -- -- -- -- 873,349 -- (873,349) --
Repurchase of 3%
preferred
stock.......... (3,383 1/3) (3,383,333) -- -- -- 2,199,166 -- --
---------- ----------- ---------- --------- ---------- ---------- ---------- -----------
BALANCE,
SEPTEMBER 30,
1995........... -- $ -- 100 $ 13 $7,749,456 $2,199,166 $4,958,291 $(4,132,353)
========== =========== ========== ========= ========== ========== ========== ===========
NET
UNREALIZED TOTAL
DEPRECIATION SHAREHOLDERS'
ON LOANS EQUITY
------------- -------------
BALANCE, JANUARY
1, 1993........ $(2,000,000) $ 8,105,377
Net investment
income......... -- 981,517
Net realized
loan losses.... -- (50,795)
Net change in
unrealized
depreciation on
loans.......... 992,067 992,067
Issuance of
common stock,
$4.50 per
share.......... -- 549,368
Distributions on
3% cumulative
preferred
stock.......... -- (64,600)
Distributions on
common stock,
$.205 per
share.......... -- (484,768)
------------- -------------
BALANCE,
DECEMBER 31,
1993........... (1,007,933) 10,028,166
Merger of TCC
Purchase Co.... -- 3,922
Net investment
income......... -- 453,622
Net realized
loan losses.... -- (84,310)
Net change in
unrealized
depreciation on
loans.......... 420,583 420,583
------------- -------------
BALANCE,
DECEMBER 31,
1994........... (587,350) 10,821,983
Net investment
income......... -- 254,004
Net realized
loan losses.... -- (15,415)
Net change in
unrealized
depreciation on
loans.......... 173,374 173,374
Capital
contribution... -- 310,818
Capitalization
of accumulated
undistributed
net investment
income......... -- --
Repurchase of 3%
preferred
stock.......... -- (1,184,167)
------------- -------------
BALANCE,
SEPTEMBER 30,
1995........... $ (413,976) $10,360,597
============= =============
|
The accompanying notes are an integral part of these financial statements.
TRANSPORTATION CAPITAL CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------------
1993 1994 1994 1995
------------ ------------ ----------- -----------
(UNAUDITED)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Increase in net assets
from operations....... $ 1,922,789 $ 789,895 $ 509,776 $ 411,963
Adjustments to
reconcile increase in
net assets from
operations to net cash
provided by (used for)
operating
activities --
Change in unrealized
depreciation on
loans................. (231,867) (790,283) (490,007) (288,574)
Effect of change in tax
status................ (1,057,000) -- -- --
Provision for deferred
taxes................. 111,000 549,800 385,000 119,800
Depreciation and
amortization.......... 13,500 14,199 10,708 10,882
Realized loan losses... 68,933 144,058 70,339 27,592
Net change in --
Accrued interest
receivable........... (20,752) 141,191 88,262 13,230
Other assets.......... (196,428) (102,185) (59,871) 111,325
Accrued interest
payable.............. (36,290) (148,943) (28,563) 52,252
Accrued expenses...... 35,695 (462,757) (580,270) 15,623
------------ ------------ ----------- -----------
Net cash provided by
(used for) operating
activities.......... 609,580 134,975 (94,626) 474,093
------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Principal collected on
loans................. 15,501,264 19,628,701 14,501,399 11,043,336
Advances on loans...... (13,175,044) (12,682,418) (9,046,139) (9,908,793)
Furniture, fixtures and
office equipment...... (8,878) 3,500 3,500 (4,339)
------------ ------------ ----------- -----------
Net cash provided by
investing
activities.......... 2,317,342 6,949,783 5,458,760 1,130,204
------------ ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repurchase of preferred
stock from SBA........ -- -- -- (1,184,167)
Repayment of debentures
payable to SBA........ (675,000) (2,800,000) (1,800,000) (1,200,000)
Repayment of bank
debt.................. (4,131,500) -- -- --
Capital contribution... -- -- -- 310,818
Merger of TCC Purchase
Co.................... -- 3,922 3,922 --
Distributions on
preferred stock....... (64,600) -- -- --
Distributions on common
stock................. (484,768) -- -- --
Issuance of common
stock................. 549,368 -- -- --
------------ ------------ ----------- -----------
Net cash used for
financing
activities.......... (4,806,500) (2,796,078) (1,796,078) (2,073,349)
------------ ------------ ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (1,879,578) 4,288,680 3,568,056 (469,052)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 5,790,108 3,910,530 3,910,530 8,199,210
------------ ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 3,910,530 $ 8,199,210 $ 7,478,586 $ 7,730,158
============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for --
Interest............... $ 1,099,851 $ 857,638 $ 612,602 $ 306,477
============ ============ =========== ===========
Net income tax
payments.............. $ -- $ 132,852 $ 143,925 $ 149,110
============ ============ =========== ===========
|
The accompanying notes are an integral part of these financial statements.
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Transportation Capital Corp. (the Company), a New York corporation, is an indirect wholly owned subsidiary of Leucadia National Corporation (Leucadia) and is licensed by the Small Business Administration (SBA) to operate as a specialized small business investment company (SSBIC) under the Small Business Investment Act of 1958, as amended. The Company was also registered as an investment company under the Investment Company Act of 1940, as amended (the Investment Company Act). On January 4, 1994, pursuant to the Company's application, the Securities and Exchange Commission issued a conditional order under Section 8(f) of the Investment Company Act declaring that the Company had ceased to be a registered investment company. Termination of the Company's registration under the Investment Company Act has not affected the Company's regulation by the SBA, its status as a SSBIC, or its results of operation or financial position. On August 30, 1994, TCC Purchase Co., an indirect wholly owned subsidiary of Leucadia, merged with the Company and concurrently increased Leucadia's ownership of the Company's common shares from 99% to 100%.
In 1993, the Company changed its year-end from June 30 to December 31. The 1993 statements of operations, changes in shareholders' equity and cash flows present results for the 12 months ended December 31, 1993.
The 1993 financial statements present captions that are consistent with those used for 1994. In certain cases, they differ from captions presented in previously issued financial statements as of and for the year ended June 30, 1993 and as of and for the six months ended December 31, 1993. Such changes include presenting net realized loan losses and the change in unrealized depreciation on loans separately in the statement of operations. Additionally, accumulated undistributed net realized loan losses and net unrealized depreciation on loans are presented separately in the balance sheet and the statement of changes in shareholders' equity.
Unaudited statements of operations and cash flows for the nine months ended September 30, 1994 are included for comparative purposes. Information included in these Notes to Financial Statements as of and for the period ended September 30, 1994 is unaudited.
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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Loans and the Allowance for Loan Losses
Loans, net of participation sold to other lenders and an allowance for possible losses, are stated at fair value. The fair value of such loans is determined in good faith by the Board of Directors. The allowance for loan losses is maintained at a level that, in the Board of Director's judgment, is adequate to absorb losses inherent in the portfolio.
The allowance is reviewed and adjusted periodically by the Board of Directors on the basis of available information, including the fair value of the underlying collateral; individual credit risks; past loss experience; the volume, composition and growth of the portfolio; and current and projected economic conditions. Assets acquired in satisfaction of loans are carried at estimated net realizable value.
A fully collateralized loan is placed on nonearning status once it becomes 180 days past due as to principal and interest. Loans that are not fully collateralized are placed on nonearning status when they are 90 days past due as to principal or interest. Interest on nonearning loans is recognized as income when collected.
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Realized Loan Losses
Realized loan losses consist of write-offs of loans or assets acquired in satisfaction of loans, net of recoveries.
All unrealized changes in the value of loans, including the provision for losses, are included in the caption net change in unrealized depreciation on loans, which is net of income tax effect. Net unrealized depreciation on loans at December 31, 1994 and September 30, 1995 is net of deferred income taxes of $390,500 and $275,300, respectively.
Depreciation and Amortization
Depreciation and amortization of furniture, fixtures, office equipment, and leasehold improvements is computed using straight-line and accelerated methods at rates adequate to allocate the cost of applicable assets over their estimated useful lives or, if less, the term of the lease. Depreciation and amortization amounted to $3,925, $3,226, and $3,177 for the years ended December 31, 1994 and 1993, and for the nine months ended September 30, 1995, respectively.
Income Taxes
For the period January 1, 1993 through June 30, 1993, the Company qualified as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended. To avoid a federal income tax liability, a RIC is required to distribute to its shareholders as dividends at least 90% of its investment company taxable income for each fiscal year, as well as meet certain other requirements. The Company was not taxable during this period. Upon termination of the Company's registration under the Investment Company Act, its status as a nontaxable RIC was also terminated retroactive to July 1, 1993. Beginning July 1, 1993, the Company's results of operations are reported in the consolidated federal income tax return filed by its ultimate parent company, Leucadia.
The Company and Leucadia have entered into a tax sharing agreement pursuant to which the Company makes payments to (or receives payments from) Leucadia consisting of the tax liability that the Company would incur if it filed a separate federal income tax return.
The Company provides for income taxes using the liability method under Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under the liability method, deferred income taxes are provided at the statutory rates for differences between the tax and accounting bases of substantially all assets and liabilities and for carryforwards. A valuation allowance is provided if deferred tax assets are not considered more likely than not to be realized.
Cash and Cash Equivalents
Financial instruments which potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and loan receivables.
The Company considers short-term instruments with original maturities of three months or less, measured from their acquisition date, to be cash equivalents. Cash and cash equivalents consist of cash in banks and U.S. Treasury bills at market value.
Noncash Investing Activities
During the years ended 1994 and 1993 and the nine months ended September 30, 1995, the Company refinanced loans amounting to $1,041,933, $7,222,212 and $587,583, respectively.
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(2) LOANS RECEIVABLE
Nonearning and reduced rate loans outstanding were approximately $224,000 and $90,600 at December 31, 1994 and September 30, 1995, respectively. At December 31, 1994 and September 30, 1995, there were no commitments to loan additional funds to borrowers whose loans were classified as nonearning or reduced rate.
Transactions in the allowance for loan losses are summarized as follows:
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- -------------
SEPTEMBER 30,
1993 1994 1995
------------ ------------ -------------
Balance, beginning............... $ 2,000,000 $ 1,768,133 $ 977,850
Charge-offs...................... (232,360) (176,975) (37,063)
Recoveries....................... 163,427 32,917 9,471
Interest income deferred (re-
ceived)......................... 289,430 (289,430) --
Reduction in allowance........... (452,364) (356,795) (260,982)
------------ ------------ ---------
Balance, ending.................. $ 1,768,133 $ 977,850 $ 689,276
============ ============ =========
|
The 1993 provision for deferred interest income is against interest not previously recognized on 1992 nonearning loans. These loans were subsequently restructured in 1993 to include the interest in the loan principal, but management considered their recovery doubtful. The provision was reversed in 1994 upon collection of the restructured loans.
(3) DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
Debentures payable to the SBA at December 31, 1994 and September 30, 1995 consisted of subordinated debentures with the following maturities and interest rates (interest is payable semi-annually):
PRINCIPAL AMOUNT
-----------------------------
1994 1995 DUE DATE INTEREST RATE
---------- ---------- -------- ----------------
$1,200,000 $ -- 09/11/95 10.50% per annum
1,090,000 1,090,000 05/07/96 7.375% per annum
5,640,000 5,640,000 06/01/02 5.000% per annum
---------- ---------- through 5/31/97,
8% thereafter
$7,930,000 $6,730,000
========== ==========
|
Under the terms of the subordinated debentures, the Company may not repurchase or retire any of its capital stock, make any distributions to its shareholders other than dividends out of accumulated undistributed net investment income (as computed in accordance with SBA regulations) or increase salaries under certain conditions without the prior written approval of the SBA.
In 1993, the SBA permitted the Company to make the recorded distributions from additional paid-in capital on the condition that the Company paid all current and accrued preferred dividends and that the Company's shareholders contributed additional capital in the aggregate amount of all dividends paid. As a result, during the year ended December 31, 1993, the Company's then largest shareholder acquired from the Company 122,081 newly issued common shares for an aggregate purchase price of $549,368 ($4.50 per share).
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(4) SHAREHOLDERS' EQUITY
Effective February 19, 1986, the Company adopted an Employee Incentive Stock Option Plan (the Plan), which expires on February 18, 1996. Under the Plan, the Company may grant options to purchase 24,000 shares of common stock at not less than the fair market value of the shares on the date of grant. There are no outstanding options issued under the Plan, and the Company does not intend to issue any.
At December 31, 1994, the Company had 3,383 1/3 shares of preferred stock issued to the SBA which bear dividends of 3% per annum. Dividends are not required to be paid to the SBA on an annual or other periodic basis as long as cumulative dividends are paid to the SBA before any other payments are made to investors. Cumulative dividends not declared or paid as of December 31, 1994 were $143,400.
On August 14, 1995, the Company repurchased and retired all of its 3% preferred stock owned by the SBA at a discount of 65% under an SBA 3% preferred stock repurchase agreement dated March 22, 1995. The purchase price of the preferred stock was $1,184,167. The funds paid to the SBA were obtained from a $310,818 capital contribution from the Company's sole shareholder, LNC Investments, Inc., and a $873,349 capitalization of accumulated undistributed net investment income, in accordance with Appendix I to Part 107 of the SBA rules and regulations. As a result, the accumulated undistributed net investment income was reduced, and the additional paid-in capital was increased by $873,349; the net effect was the same as if the Company had made a distribution to its shareholders, who then reinvested the same amount in the Company.
The amount of the discount was recorded as an increase in capital in an account separate from additional paid-in capital, as restricted contributed capital surplus account. Under the repurchase agreement, the SBA retains a liquidating interest in the amount of the discount 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 repurchase 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.
While the liquidating interest expires over a five-year period, the balance in the restricted contributed capital surplus account remains unchanged in accordance with the SBA requirements. The SBA requires this treatment because the additional equity obtained as a result of the repurchase transaction is subject to certain restrictions which remain even after the liquidating interest has been eliminated.
In the event of the Company's liquidation, the unexpired portion of the liquidating interest becomes immediately payable to the SBA. In addition, the SBA retains a residual interest in the preferred dividends in arrears at March 22, 1995 in the amount of $152,250, which also expires on a straight-line basis over five years. In the event of a change in ownership or liquidation of the Company, unexpired dividends become immediately payable to the SBA.
At September 30, 1995, the unamortized amounts of the SBA's liquidating interest in the restricted contributed capital surplus was $1,979,250, and the residual interest in the cumulative dividends not declared or paid was $137,025.
There are 9,000 shares of redeemable preferred stock authorized, of which none has been issued. Such shares, which may be issued only to the SBA, would have a par value of $1,000 per share, bear cumulative annual dividends of 4% and would be required to be redeemed 15 years after issuance.
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(5) INCOME TAXES
The provisions (benefits) for income taxes are as follows:
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------
1993 1994 1994 1995
------------ ------------ ----------- --------
(UNAUDITED)
Net investment income --
Current --
Federal.................... $ (38,107) $110,233 $ 21,166 $128,040
State...................... 18,977 52,615 20,084 68,961
------------ ----------- -------- --------
(19,130) 162,848 41,250 197,001
------------ ----------- -------- --------
Deferred --
Federal.................... (146,900) 142,500 138,500 3,600
State...................... (38,900) 37,600 35,900 1,000
------------ ----------- -------- --------
(185,800) 180,100 174,400 4,600
------------ ----------- -------- --------
$(204,930) $342,948 $215,650 $201,601
============ =========== ======== ========
Net realized loan losses --
Current --
Federal.................... $ (17,155) $ (43,433) $(21,166) $ (7,940)
State...................... (983) (16,315) (8,084) (4,237)
------------ ----------- -------- --------
$ (18,138) $ (59,748) $(29,250) $(12,177)
============ =========== ======== ========
Net change in unrealized de-
preciation on loans --
Deferred --
Federal.................... $(601,100) $298,600 $166,500 $ 89,200
State...................... (159,100) 71,100 44,100 26,000
------------ ----------- -------- --------
$(760,200) $369,700 $210,600 $115,200
============ =========== ======== ========
|
The following is a reconciliation of income taxes at the expected statutory federal income tax to the actual income tax provision (benefit):
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------SEPTEMBER 30,
1993 1994 1995
------------ -------------------------
Net investment income --
Expected federal income tax........... $ 264,039 $ 270,834 $154,906
State income taxes, net of federal in-
come tax benefit..................... 968 59,542 46,174
Effect of change in tax status........ (156,500) -- --
Benefit from nontaxable RIC status.... (257,960) -- --
Other................................. (55,477) 12,572 521
------------ ----------- --------
$ (204,930) $ 342,948 $201,601
============ =========== ========
|
Included in other in 1993 is the reversal of $57,000, which was accrued as of December 31, 1992, in anticipation of a change to taxable status at that date. Ultimately, the Company retained its nontaxable status through June 30, 1993 and reversed the 1992 accrual in 1993.
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- SEPTEMBER 30,
1993 1994 1995
------------ ------------ -------------
Net realized loan losses --
Expected federal income tax.......... $ (23,437) $ (48,980) $ (9,381)
State income taxes, net of federal
income tax benefit.................. (86) (10,768) (2,796)
Other................................ 5,385 -- --
------------ ----------- --------
$ (18,138) $ (59,748) $(12,177)
============ =========== ========
Net change in unrealized depreciation
on loans --
Expected federal income tax.......... $ 78,835 $ 268,696 $ 98,115
State income taxes, net of federal
income tax benefit.................. 16,900 46,926 17,142
Effect of change in tax status....... (900,500) -- --
Other................................ 44,565 54,078 (57)
------------ ----------- --------
$ (760,200) $ 369,700 $115,200
============ =========== ========
|
The principal components of the deferred tax asset at December 31, 1994 and September 30, 1995 are as follows:
DECEMBER 31, 1994 SEPTEMBER 30, 1995
--------------------------- ---------------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
-------- ------- -------- -------- ------- --------
Allowance for loan loss-
es..................... $302,494 $88,006 $390,500 $213,300 $62,000 $275,300
Interest................ 5,672 1,604 7,276 2,041 594 2,635
Depreciation............ (1,266) (310) (1,576) (1,241) (294) (1,535)
-------- ------- -------- -------- ------- --------
$306,900 $89,300 $396,200 $214,100 $62,300 $276,400
======== ======= ======== ======== ======= ========
|
The Company believes it is more likely than not that the recorded deferred tax asset will be realized; such realization is expected to result principally from taxable income generated by profitable operations.
(6) TRANSACTIONS WITH AFFILIATES
In May 1994, the Company entered into a one-year management agreement with a subsidiary of Leucadia pursuant to which the subsidiary agreed to perform certain general, administrative and accounting functions for an annual fee of $180,000 with subsequent annual increases to be determined according to increases in the consumer price index. This agreement shall continue in full force and effect after the initial one-year term so long as it is approved on an annual basis by the Company's Board of Directors. This agreement may be terminated by either party at any time, without the payment of any penalty, on thirty days' written notice.
Prior to May 1994, the Company reimbursed Leucadia for providing the services of one of its officers who serves as the Chairman of the Board, President and Chief Executive Officer of the Company.
Amounts charged to results of operations under these arrangements were $180,000 during each of the years ended December 31, 1994 and 1993 and $136,760 during the nine months ended September 30, 1995.
(7) DIRECTORS' AND OFFICERS' COMPENSATION
Directors' Compensation amounted to $6,900, $25,000 and $2,400 and Officers' compensation amounted to $159,466, $123,945 and $134,709 during the years ended December 31, 1994 and 1993 and the nine months ended September 30, 1995, respectively.
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
(8) PENSION PLAN
The Company maintained a defined benefit pension plan to provide retirement benefits for those employees who were eligible to participate in the plan. Benefits accrued under the plan were frozen on July 14, 1990, and all participating employees became fully vested. On December 31, 1994, the Company's plan was merged into Leucadia's defined benefit pension plan. As of the merger date, the Company recorded a net asset of $113,814 and reduced pension expense. The net asset reflects the overfunding of the Company's plan as of the merger date, reduced by the projected benefit obligation liability associated with granting the Company's employees retroactive coverage under the Leucadia formula for service after July 14, 1990. During the nine months ended September 30, 1995, the Company made contributions to Leucadia's plan based on its allocable share of expenses in the amount of $12,000.
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and contingent liabilities that are not reflected in the financial statements. At September 30, 1995, the Company had outstanding loan commitments of $740,300, which bear interest at rates ranging from 12% to 14%. Management does not expect any material losses to result from these matters.
At December 31, 1994 and September 30, 1995, the Company had operating leases for office space expiring through July 1997. Future minimum annual rental commitments are as follows:
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
1995....................... $20,900 $ 5,500
1996....................... 19,800 19,800
1997....................... 8,800 8,800
------- -------
$49,500 $34,100
======= =======
|
In addition, the Company is subject to additional rent based upon increases in the Consumer Price Index.
There are various lawsuits pending against the Company. In the opinion of management, after consultation with counsel, it is remote that losses, if any, arising from such claims will be material to the financial position or results of operations of the Company.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about certain financial instruments, whether or not recognized on the balance sheet. Where quoted market prices are not available, fair values are based on estimates 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 No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Therefore, the aggregate fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of the Company.
The methods and assumptions used to estimate the fair value of each class of the financial instruments are described below:
Loans Receivable -- As described in Note 1, the carrying amount of loans receivable is the estimated fair value of such loans.
TRANSPORTATION CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995
Cash and Cash Equivalents -- For short-term investments, the carrying amount approximates fair value.
Debentures Payable to SBA -- The fair value of the debentures payable to SBA is estimated based upon current market interest rates for similar debt.
The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ---------- ----------
Financial assets --
Loans receivable................. $10,003,050 $10,003,050 $9,129,489 $9,129,489
Cash and cash equivalents........ 8,199,210 8,199,210 7,730,158 7,730,158
Financial liabilities --
Debentures payable to SBA........ 7,930,000 7,794,000 6,730,000 7,097,000
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(11) SHAREHOLDER LITIGATION
The Company has settled certain litigation related to past allegations of violations of SBA regulations and securities laws. Related settlements required that former officers of the Company pay $677,000 to the Company in the year ended December 31, 1992 and that the Company pay plaintiffs' legal fees amounting to $368,788 in the year ended December 31, 1994. Of the amount paid by the Company, $66,000 was reimbursed by former officers of the Company. As of December 31, 1993, the Company had accrued an estimated settlement of $356,000 related to the past allegations.
As a result of the allegations, the Division of Enforcement of the Securities and Exchange Commission (SEC) conducted an informal investigation into the Company's affairs. In the year ended December 31, 1994, a former officer of the Company settled federal charges with the SEC, concluding the SEC's investigation.
(12) SUBSEQUENT EVENT
On February 12, 1996, the Company entered into a stock purchase agreement with Medallion Financial Corp. Under the agreement, Leucadia will sell, and Medallion Financial Corp. will purchase, all of the outstanding shares of capital stock of the Company for a purchase price based upon net book value, as defined in the agreement (approximately $10,000,000).
As discussed in Note 4, 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 dividends 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.
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF INVESTMENTS OTHER THAN INVESTMENTS IN AFFILIATES
DECEMBER 31, 1994 SEPTEMBER 30, 1995
---------------------------------------------- -------------------------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
LOANS BY COLLATERAL TYPE OF LOANS BALANCE FAIR VALUE BOOK VALUE OF LOANS BALANCE FAIR VALUE BOOK VALUE
------------------------ -------- ----------- ----------- ----------- -------- ---------- ---------- ----------
MEDALLIONS:
New York............... 20 $ 1,271,544 $ 1,271,544 $ 1,271,544 18 $ 961,917 $ 960,397 $ 960,397
Boston................. 91 4,383,344 4,357,462 4,357,462 85 3,701,666 3,681,362 3,681,362
Cambridge.............. 37 1,375,401 1,374,401 1,374,401 41 1,689,965 1,658,745 1,658,745
Chicago................ 82 1,549,963 1,537,560 1,537,560 87 1,696,784 1,694,584 1,694,584
Newark................. 17 218,989 186,019 186,019 12 171,289 153,742 153,742
--- ----------- ----------- ----------- --- ---------- ---------- ----------
Total medallions....... 247 8,799,241 8,726,986 8,726,986 243 8,221,621 8,148,830 8,148,830
NEW YORK RADIO CARS..... 49 924,856 387,444 387,444 37 639,010 246,774 246,774
MINUTEMAN RECEIVABLES... 3 1,254,460 886,315 886,315 3 955,903 731,654 731,654
OTHERS.................. 2 6,108 6,070 6,070 1 1,225 1,225 1,225
--- ----------- ----------- ----------- --- ---------- ---------- ----------
Subtotal............... 301 10,984,665 10,006,815 10,006,815 284 9,817,759 9,128,483 9,128,483
RECEIVABLE FOR
FORECLOSURE EXPENSES... -- 21,707 21,707 21,707 -- 22,574 22,574 22,574
UNAPPLIED COLLECTIONS... -- (25,472) (25,472) (25,472) -- (21,568) (21,568) (21,568)
--- ----------- ----------- ----------- --- ---------- ---------- ----------
Total loans receivable,
net................... 301 $10,980,900 $10,003,050 $10,003,050 284 $9,818,765 $9,129,489 $9,129,489
=== =========== =========== =========== === ========== ========== ==========
|
The accompanying notes are an integral part of these financial statements.
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
DECEMBER 31, 1994
It is the Company's policy to make loans to persons who qualify under Small Business Administration regulations as socially or economically disadvantaged and to entities which are at least 50%-owned by such persons.
Substantially all of the Company's loans are for the purpose of financing the purchase of New York City, Boston, Cambridge, Chicago and Newark taxi medallions, taxi cabs, car radio rights, radio cars and related assets (the Collateral). It is the Company's policy that these loans are collateralized by a first priority perfected security interest in the collateral.
The distribution of loans at December 31, 1994 by rate of interest is as follows:
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ----------- --------
2 $ 135,205 9.50%
3 231,174 10.00
1 108,059 10.50
10 529,752 11.00
63 3,013,981 12.00
2 92,082 12.50
16 505,202 13.00
4 68,126 13.25
63 2,317,243 13.50
8 364,819 13.75
31 1,481,519 14.00
21 560,112 14.25
6 92,796 14.50
5 202,875 14.75
29 638,383 15.00
2 51,821 15.25
6 161,570 15.50
14 173,937 15.75
1 21,656 16.00
1 761 16.25
5 79,102 16.50
7 141,332 16.75
1 13,158 17.00
-----------
301 10,984,665 13.16
RECEIVABLES FOR
FORECLOSURE EXPENSES............................... 21,707
UNAPPLIED COLLECTIONS............................... (25,472)
-----------
$10,980,900
===========
|
The accompanying notes are an integral part of these financial statements.
TRANSPORTATION CAPITAL CORP.
SCHEDULE OF LOANS TO SMALL BUSINESS CONCERNS
SEPTEMBER 30, 1995
The distribution of loans at September 30, 1995 by rate of interest is as follows:
NUMBER BALANCE INTEREST
OF LOANS OUTSTANDING RATE
-------- ----------- --------
2 $ 120,714 9.50%
3 128,920 10.00
1 103,688 10.50
9 359,104 11.00
56 2,309,405 12.00
2 72,338 12.50
41 1,117,567 13.00
4 35,512 13.25
52 1,830,549 13.50
7 287,996 13.75
43 2,176,264 14.00
20 478,555 14.25
4 54,229 14.50
3 116,895 14.75
17 240,070 15.00
2 43,167 15.25
3 116,233 15.50
6 40,799 15.75
1 15,845 16.00
2 65,406 16.50
5 97,244 16.75
1 7,259 17.00
----------
284 9,817,759 13.18
RECEIVABLES FOR FORECLOSURE EXPENSES................... 22,574
UNAPPLIED COLLECTIONS.................................. (21,568)
----------
$9,818,765
==========
PERCENT
--------
COMPOSITION OF LOAN PORTFOLIO:
New York medallions................................... $ 961,917 9.80
New York radios and others............................ 640,235 6.52
New York minuteman receivables........................ 955,903 9.74
Newark medallions..................................... 171,289 1.75
Boston medallions..................................... 3,701,666 37.70
Cambridge medallions.................................. 1,689,965 17.21
Chicago medallions.................................... 1,696,784 17.28
---------- ------
Total composition of loan portfolio.................. $9,817,759 100.00%
========== ======
|
The accompanying notes are an integral part of these financial statements.
Total Medallion and Commercial Loan Portfolio and Gross Loan Serviced for Third Parties
[BAR GRAPH APPEARS HERE]
Total Medallion and Commercial Installment Loan Portfolio
[BAR GRAPH APPEARS HERE]
Total Commercial Installment Loan Portfolio
[BAR GRAPH APPEARS HERE]
Price of New York City Medallions
[GRAPH APPEARS HERE]
Gross Loans Serviced for Third Parties
[BAR GRAPH APPEARS HERE]
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MEDALLION FINANCIAL CORP. OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER AT ANY TIME IMPLIES THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
The Company.............................................................. 18
Additional Information................................................... 21
Distributions............................................................ 22
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Dilution................................................................. 25
Selected Financial Data.................................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 46
Investment Objectives, Policies and Restrictions......................... 60
Management............................................................... 63
Principal Stockholders................................................... 67
Certain Transactions..................................................... 67
Determination of Net Asset Value......................................... 68
Dividend Reinvestment Plan............................................... 69
Federal Income Tax Considerations ....................................... 71
Description of Capital Stock............................................. 74
Regulation............................................................... 77
Shares Eligible for Future Sale.......................................... 80
Underwriting............................................................. 82
Custodian, Transfer Agent, Dividend Disbursing Agent and Registrar....... 83
Reports to Stockholders.................................................. 83
Validity of Shares....................................................... 83
Experts.................................................................. 83
Index to Financial Statements............................................ F-1
|
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
5,000,000 SHARES
MEDALLION FINANCIAL CORP.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
PROSPECTUS
FURMAN SELZ
J.C. BRADFORD & CO.
EVEREN SECURITIES, INC.
, 1996
PART C
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements.
The following financial statements are included in the Prospectus on the identified pages.
PAGE
----
MEDALLION FINANCIAL CORP.
Introduction to Pro Forma Combined Financial Statements.................. F-2
Pro Forma Combined Balance Sheet at September 30, 1995 (unaudited)....... F-3
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1995 (unaudited).......................................... F-4
Pro Forma Combined Statement of Operations for the year ended December
31, 1994 (unaudited).................................................... F-5
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1994 (unaudited).......................................... F-6
Notes to the Unaudited Pro Forma Combined Financial Statements........... F-7
MEDALLION FINANCIAL CORP.
Report of Arthur Andersen LLP, Independent Public Accountants............ F-10
Balance Sheet as of December 31, 1995.................................... F-11
Notes to Balance Sheet................................................... F-12
TRI-MAGNA CORPORATION AND SUBSIDIARIES
Report of Arthur Andersen LLP, Independent Public Accountants............ F-14
Consolidated Balance Sheets as of September 30, 1995 and December 31,
1994.................................................................... F-15
Consolidated Statements of Operations for the nine months ended September
30, 1995 and 1994 and for the years ended December 31, 1994 and 1993.... F-16
Consolidated Statements of Shareholders' Equity for the nine months ended
September 30, 1995 and for each year in the two year period ended
December 31, 1994 and 1993.............................................. F-17
Consolidated Statements of Cash Flows for the nine months ended September
30, 1995 and 1994 and for the years ended December 31, 1994 and 1993.... F-18
Notes to Consolidated Financial Statements............................... F-19
EDWARDS CAPITAL COMPANY (A LIMITED PARTNERSHIP)
Independent Auditors' Report of Friedman, Alpren & Green LLP............. F-27
Report of Arthur Andersen LLP, Independent Public Accountants............ F-28
Balance Sheets as of September 30, 1995 and December 31, 1994............ F-29
Statements of Operations for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-30
Statements of Changes in Partners' Capital for the nine months ended
September 30, 1995 and 1994 and for the years ended December 31, 1994
and 1993................................................................ F-31
Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-32
Notes to Financial Statements............................................ F-33
TRANSPORTATION CAPITAL CORP.
Report of Coopers & Lybrand LLP, Independent Public Accountants.......... F-40
Report of Arthur Andersen LLP, Independent Public Accountants............ F-41
Balance Sheets as of September 30, 1995 and December 31, 1994............ F-42
Statements of Operations for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-43
Statements of Changes in Shareholders' Equity for the nine months ended
September 30, 1995 and for each year in the two year period ended
December 31, 1994....................................................... F-44
Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 and for the years ended December 31, 1994 and 1993................. F-45
Notes to Financial Statements............................................ F-46
|
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2. Exhibits.
a. --Medallion Financial Corp. Certificate of Incorporation*
b. --Medallion Financial Corp. By-Laws*
e. --Medallion Financial Corp. Dividend Reinvestment Plan+
f. --Subordinated debentures issued to the U.S. Small Business Administration+
g. --Investment Advisory Agreement between Medallion Financial Corp.
and FMC Advisers, Inc.*
h.1 --Form of Underwriting Agreement+
h.2 --Form of Agreement Among Underwriters+
i.1 --Medallion Financial Corp. 1996 Stock Option Plan*
i.2 --Medallion Financial Corp. 401(k) Investment Plan+
i.3 --Medallion Financial Corp. 1996 Non-Employee Directors Stock Option Plan+
j. --Custodial Services Agreement with The First National Bank of Boston, dated , 1996+
k.1 --Stock Purchase Agreement among Medallion Financial Corp., Transportation Capital Corp., LNC Investments, Inc., Leucadia, Inc. and Leucadia National Corporation, dated February 12, 1996*
k.2 --Asset Purchase Agreement between Medallion Financial Corp., and Edwards Capital Company, dated February 21, 1996*
k.3 --Agreement of Merger between Medallion Financial Corp. and Tri- Magna Corporation, dated December 21, 1995, as amended on February 22, 1996*
l. --Opinion and consent of Palmer & Dodge+
n.1 --Consent of Arthur Andersen LLP relating to its report dated February 21, 1996*
n.2 --Consent of Arthur Andersen LLP relating to its report dated November 8, 1995*
n.3 --Consent of Arthur Andersen LLP relating to its report dated December 14, 1995*
n.4 --Consent of Arthur Andersen LLP relating to its report dated November 6, 1995*
n.5 --Consent of Coopers & Lybrand LLP relating to its report dated October 24, 1995*
n.6 --Consent of Friedman, Alpren & Green LLP relating to its report dated January 28, 1995*
p.1 --Subscription Agreement between the Alvin Murstein Second Family Trust and Medallion Financial Corp.+
p.2 --Subscription Agreement between the Andrew Murstein Family Trust and Medallion Financial Corp.+
Ex27 --Medallion Financial Corp. Financial Data Schedule*
ITEM 25. MARKETING ARRANGEMENTS
See Section [7] of the Underwriting Agreement which is attached as Exhibit
h.1 hereto [and Section [ ] of the AAU which is attached as Exhibit h.2
hereto.]
In connection with the Offering, the Underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Common Stock at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.
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ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be incurred in connection with the Offering:
SEC registration fee............................................ $ 23,793.10
NASD fees....................................................... 7,400.00
Nasdaq initial listing fee......................................
Blue Sky fees and expenses......................................
Financial advisory fees......................................... 225,000.00
Accounting fees and expenses....................................
Legal fees and expenses.........................................
Printing and engraving fees.....................................
Registrar and transfer agent's fees.............................
Miscellaneous fees and expenses.................................
-----------
Total......................................................... $
===========
|
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Medallion Medallion Edwards Transportation
Funding Corp. Media, Inc. Capital Capital Corp.
Company
|
All of the subsidiaries are 100% owned by Medallion Financial and they are Delaware corporations. The financial statements for Edwards Capital Company and Transportation Capital Corp. are included in the Prospectus which forms a part of this Registration Statement. The financial statements of Medallion Funding Corp. are consolidated with the financial statements of Tri-Magna Corporation included in the Prospectus. Summary financial statements of Medallion Media, Inc. are included in the notes to the financial statements of Tri-Magna Corporation and have not been consolidated because Medallion Media, Inc. is not an investment company and its results of operations may not be consolidated with the results of operations of Tri-Magna Corporation which is an investment company.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of record holders of the Company's Common Stock as of February 14, 1996.
NAME OF CLASS NUMBER OF RECORD HOLDERS
------------- ------------------------
Common Stock, $.01 par value per share 2
|
ITEM 29. INDEMNIFICATION
Section 145 of the Delaware General Corporation Law grants the Company the power to indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, provided, however, no indemnification shall be made in connection with any proceeding brought by or in the right of the Company where the person involved is adjudged to be liable to the Company except to the extent approved by a
II-3
court. Article TENTH of the Company's Certificate of Incorporation as currently in effect provides that the Company shall, to the fullest extent permitted by the Delaware General Corporation Law, as amended from time to time, indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was, or has agreed to become, a director or officer of the Company, or is or was serving, or has agreed to serve, at the request of the Company, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise. The indemnification provided for in Article TENTH is expressly not exclusive of any other rights to which those seeking indemnification may be entitled under any law, agreement or vote of stockholders or disinterested directors or otherwise, and shall inure to the benefit of the heirs, executors and administrators of such persons. Article TENTH permits the Board of Directors to authorize the grant of indemnification rights to other employees and agents of the Company and such rights may be equivalent to, or greater or less than, those set forth in Article TENTH.
Article V, Section 2 of the Company's By-Laws provides that the Company shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against and incurred by such person in any such capacity.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law, Article NINTH of the Company's Certificate of Incorporation eliminates a director's personal liability for monetary damages to the Company and its stockholders for breaches of fiduciary duty as a director, except to the extent that the elimination or limitation of liability is not then permitted under the Delaware General Corporation Law.
The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Information as to the directors and officers of FMC Advisers, Inc. is included in its Form ADV filed with the Commission (File No. 801-50981), as amended as of the date hereof, and is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
The Company maintains at its principal office physical possession of each account, book or other document required to be maintained by Section 31(a) of the 1940 Act as applicable, pursuant to Section 64 of the 1940 Act.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(1) The Company hereby undertakes:
(a) to suspend the Offering until the Prospectus is amended if (1) subsequent to the effective date of this Registration Statement, its net asset value declines more than ten percent from its net asset value as of the effective date of this Registration Statement or (2) the net asset value increases to an amount greater than its net proceeds as stated in the Prospectus.
(b) that, for the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Company under Rule 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and
II-4
(c) that, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions of the Certificate of Incorporation and By-Laws, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication for such issue.
II-5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, AND STATE OF NEW YORK, ON THE 26TH DAY OF FEBRUARY 1996.
Medallion Financial Corp.
By: /s/ Alvin Murstein
---------------------------------
Alvin Murstein
Chairman and Chief Executive
Officer
|
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED; AND EACH OF THE UNDERSIGNED OFFICERS
AND DIRECTORS OF MEDALLION FINANCIAL CORP., HEREBY SEVERALLY CONSTITUTE AND
APPOINT ALVIN MURSTEIN AND ANDREW MURSTEIN, AND EACH OF THEM, TO SIGN FOR HIM,
AND IN HIS NAME IN THE CAPACITY INDICATED BELOW, ALL AMENDMENTS, INCLUDING
POST-EFFECTIVE AMENDMENTS, TO SUCH REGISTRATION STATEMENT AND ANY RELATED RULE
462(B) REGISTRATION STATEMENT OR AMENDMENT THERETO, HEREBY RATIFYING AND
CONFIRMING SUCH SIGNATURES AS THEY MAY BE SIGNED BY SUCH ATTORNEYS TO SUCH
REGISTRATION STATEMENTS AND ANY AND ALL AMENDMENTS THERETO.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSON IN THE CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
---- ----- ----
/s/ Alvin Murstein
____________________________________ Chairman and Chief Executive February 26, 1996
Alvin Murstein Officer (Principal Executive
Officer)
/s/ Andrew Murstein
____________________________________ President and Director February 26, 1996
Andrew Murstein
/s/ Daniel Baker
____________________________________ Treasurer and Chief February 26, 1996
Daniel Baker Financial Officer
/s/ Mario M. Cuomo
____________________________________ Director February 26, 1996
Mario M. Cuomo
/s/ Stanley Kreitman
____________________________________ Director February 26, 1996
Stanley Kreitman
/s/ David L. Rudnick
____________________________________ Director February 26, 1996
David L. Rudnick
/s/ Benjamin Ward
____________________________________ Director February 26, 1996
Benjamin Ward
|
II-6
EXHIBIT INDEX
PAGE
Exhibit Number and Description
a. --Medallion Financial Corp. Certificate of Incorporation*
b. --Medallion Financial Corp. By-Laws*
e. --Medallion Financial Corp. Dividend Reinvestment Plan+
f. --Subordinated debentures issued to the U.S. Small Business Administration+
g. --Investment Advisory Agreement between Medallion Financial Corp. and FMC Advisers, Inc.*
h.1 --Form of Underwriting Agreement+
h.2 --Form of Agreement Among Underwriters+
i.1 --Medallion Financial Corp. 1996 Stock Option Plan*
i.2 --Medallion Financial Corp. 401(k) Investment Plan+
i.3 --Medallion Financial Corp. 1996 Non-Employee Directors Stock Option Plan+
j. --Custodial Services Agreement with The First National Bank of Boston, dated , 1996+
k.1 --Stock Purchase Agreement among Medallion Financial Corp., Transportation Capital Corp., LNC Investments, Inc., Leucadia, Inc. and Leucadia National Corporation, dated February 12, 1996*
k.2 --Asset Purchase Agreement between Medallion Financial Corp., and Edwards Capital Company, dated February 21, 1996*
k.3 --Agreement of Merger between Medallion Financial Corp. and Tri-Magna Corporation, dated December 21, 1995, as amended on February 22, 1996*
l. --Opinion and consent of Palmer & Dodge+
n.1 --Consent of Arthur Andersen LLP relating to its report dated February 21, 1996*
n.2 --Consent of Arthur Andersen LLP relating to its report dated November 8, 1995*
n.3 --Consent of Arthur Andersen LLP relating to its report dated December 14, 1995*
n.4 --Consent of Arthur Andersen LLP relating to its report dated November 6, 1995*
n.5 --Consent of Coopers & Lybrand LLP relating to its report dated October 24, 1995*
n.6 --Consent of Friedman, Alpren & Green LLP relating to its report dated January 28, 1995*
p.1 --Subscription Agreement between the Alvin Murstein Second Family Trust and Medallion Financial Corp.+
p.2 --Subscription Agreement between the Andrew Murstein Family Trust and Medallion Financial Corp.+
+ To be filed by amendment.
State of Delaware Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "MEDALLION FINANCIAL CORP.", FILED IN THIS OFFICE ON THE TWENTIETH DAY OF OCTOBER, A.D. 1995, AT 9:05 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[SEAL] /S/ EDWARD J. FREEL
---------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7684678
DATE: 10-23-95
|
CERTIFICATE OF INCORPORATION
OF
MEDALLION FINANCIAL CORP.
The undersigned, for the purpose of forming a corporation under the laws of the State of Delaware, hereby certifies as follows:
FIRST. The name of the corporation is Medallion Financial Corp..
SECOND. The address of the corporation's registered office in the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent, State of Delaware 19904. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc..
THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of stock which the corporation shall have authority to issue is three thousand (3,000) shares of Common Stock with a par value of One Cent ($0.01) per share.
FIFTH. The name and mailing address of the incorporator are as follows:
Mark J. Enyedy, Esq.
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
SIXTH. The corporation is to have perpetual existence.
SEVENTH. Election of directors need not be by written ballot unless the by-laws of the corporation shall so provide.
EIGHTH. The Board of Directors of the corporation is authorized to adopt, amend or repeal the by-laws of the corporation.
NINTH. A director shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that the elimination or limitation of liability is not permitted under the General Corporation Law of the State of Delaware as in effect when such liability is determined. No amendment or repeal of this provision shall deprive a director of the benefits hereof with respect to any act or omission occurring prior to such amendment or repeal.
TENTH. The corporation shall, to the fullest extent permitted by the General Corporation Law of the State of Delaware, as amended from time to time, indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was, or has agreed to become, a director or officer of the corporation, or is or was serving, or has agreed to serve, at the request of the corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by the corporation of expenses in defending an action or proceeding in advance of the final disposition of such action or proceeding upon receipt of an undertaking by the person indemnified to repay such payment if it is ultimately determined that such person is not entitled to indemnification under this Article, which undertaking may be accepted without reference to the financial ability of such person to make such repayments.
The corporation shall not indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person unless the initiation thereof was approved by the Board of Directors of the corporation.
The indemnification rights provided in this Article (i) shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any law, agreement or vote of stockholders or disinterested directors or otherwise, and (ii) shall inure to the benefit of the heirs, executors and administrators of such persons. The corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the corporation or other persons serving the corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article.
Any person seeking indemnification under this Article shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established.
Any amendment or repeal of the provisions of this Article shall not adversely affect any right or protection of a director or officer of this corporation with respect to any act or omission of such director or officer occurring prior to such amendment or repeal.
ELEVENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
Signed this 20th day of October, 1995.
/s/ Mark J. Enyedy
-------------------------------
Mark J. Enyedy, Incorporator
|
BY-LAWS
OF
MEDALLION FINANCIAL CORP.
ARTICLE I
STOCKHOLDERS
stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders.
said proxy provides for a longer period. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held, and persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation the pledgee shall have been expressly empowered to vote thereon, in which case only the pledgee or the pledgee's proxy may represent said stock and vote thereon. Shares of the capital stock of the corporation belonging to the corporation or to another corporation, a majority of whose shares entitled to vote in the election of directors is owned by the corporation, shall neither be entitled to vote nor be counted for quorum purposes.
than unanimous written consent shall be given to those stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
A majority of all the members of any such committee may fix its rules of procedure, determine its action and fix the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise by resolution provide. The Board of Directors shall have the power to change the members of any such committee at any time, to fill vacancies therein and to discharge any such committee, either with or without cause, at any time.
Any such committee, unless otherwise provided in the resolution of the Board of Directors, or in these by-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority denied it by Section 141 of the General Corporation Law of the State of Delaware.
Each committee shall keep regular minutes of its meetings and make such reports as the Board of Directors may from time to time request.
Special meetings of the Board of Directors may be held at any place either within or without the State of Delaware at any time when called by the Chairman of the Board of Directors, the President, Treasurer, Secretary, or two or more directors. Reasonable notice of the time and place of a special meeting shall be given to each director unless such notice is waived by attendance or by written waiver in the manner provided in these by-laws for waiver of notice by stockholders. Notice may be given by, or by a person designated by, the Secretary, the person or persons calling the meeting, or the Board of Directors. No notice of any adjourned meeting of the Board of Directors shall be required. In any case it shall be deemed sufficient notice to a director to send notice by mail at least seventy-two hours, or by telegram at least forty-eight hours, before the meeting, addressed to such director at his or her usual or last known business or home address.
Directors or members of any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.
Board, a majority of the directors then in office (but not less than one-third of the total number of the directors) shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting from time to time. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, except where a different vote is required or permitted by law, by the certificate of incorporation, or by these by-laws.
ARTICLE III
OFFICERS
Board of Directors shall determine, including without limitation a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice-Presidents, Assistant Treasurers, or Assistant Secretaries.
duties as are incident to their office except to the extent that resolutions of the Board of Directors are inconsistent therewith.
In the absence of the President or in the event of his or her inability or refusal to act, the Vice-President if any (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice-President the title of Executive Vice-President, Senior Vice-President or any other title selected by the Board of Directors.
signatures. The Board of Directors may give general authority to any other officer to affix and attest the seal of the corporation.
The Assistant Secretary if any (or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors of if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary.
The Assistant Treasurer if any (or if there be more than one, the Assistant Treasurers in the order determined by the Board of Directors or if there be no such determination, then in the order of their election) shall, in the absence of the Treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Treasurer.
the duties of such officer and for the restoration to the corporation of all property in his or her possession or control belonging to the corporation.
ARTICLE IV
STOCK
Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the certificate of incorporation, the by-laws, applicable securities laws, or any agreement among any number of shareholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.
exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. Unless otherwise fixed by the Board of Directors, the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose.
ARTICLE V
INDEMNIFICATION AND INSURANCE
corporation would have the power to indemnify such person against such liability under the provisions of the General Corporation Law of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
(1) The material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE VII
AMENDMENTS
stockholders provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting.
W I T N E S S E T H :
WHEREAS, the Company is engaged in business as a non-diversified closed-end management investment company and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the
WHEREAS, the Company desires to retain the Adviser to furnish investment advisory services on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows:
This Agreement may be terminated without penalty on 60 days' written notice by either party or by vote of a majority of the outstanding voting securities of the Company and will terminate if assigned.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.
MEDALLION FINANCIAL CORP.
By___________________________
Name:
Title:
FMC ADVISERS, INC.
By____________________________
Name:
Title:
MEDALLION FINANCIAL CORP.
1996 STOCK OPTION PLAN
This 1996 Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Stock") of Medallion Financial Corp. (the "Company") by its officers, employees and consultants so as to provide additional incentives to promote the success of the Company through the grant of Incentive Stock Options and Nonstatutory Stock Options (collectively as defined below, "Options").
The administration of the Plan shall be under the general supervision of the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee"). Within the limits of the Plan, the Compensation Committee shall determine the individuals to whom, and the times at which, Options shall be granted, the type of Option to be granted, the duration of each Option, the price and method of payment for each Option, and the time or times within which (during its term) all or portions of each Option may be exercised. The Compensation Committee may establish such rules as it deems necessary for the proper administration of the Plan, make such determinations and interpretations with respect to the Plan and Options granted under it as may be necessary or desirable and include such further provisions or conditions in Options granted under the Plan as it deems advisable. To the extent permitted by law, the Compensation Committee may delegate its authority under the Plan to a sub-committee of the Compensation Committee. Whenever options are granted to any person subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), each member of the Committee shall be a "disinterested person" within the meaning of Rule 16b-3 under the Exchange Act.
of the assets of the Company, or a reorganization or liquidation of the Company, each holder of an outstanding Option shall be entitled to receive upon exercise and payment in accordance with the terms of the Option the same shares, securities or property as he would have been entitled to receive upon the occurrence of such event if he had been, immediately prior to such event, the holder of the number of shares of Stock purchasable under his Option; provided, however, that in lieu of the foregoing the Board of Directors of the Company (the "Board") may upon written notice to each holder of an outstanding Option provide that such Option shall terminate on a date not less than 20 days after the date of such notice unless theretofore exercised. In connection with such notice, the Board may in its discretion accelerate or waive any deferred exercise period. Options granted under this Plan may contain such provisions as the Compensation Committee shall approve permitting part or all of such options to become exercisable without regard to any deferred exercise period in the event of a change of control of the Company, as defined by the Committee.
Options granted hereunder shall be evidenced by a writing delivered to the optionee specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Compensation Committee considers necessary or advisable to achieve the purposes of the Plan or comply with applicable tax and regulatory laws and accounting principles. The form of such Options may vary among optionees.
The price at which shares may from time to time be optioned shall be determined by the Compensation Committee, provided that such price shall not be less than the fair market value of the Stock on the date of granting as determined in good faith by the Compensation Committee; and provided further that no Incentive Stock Option shall be granted to any individual who is ineligible to be granted an Incentive Stock Option because his ownership of stock of the Company or its parent or subsidiary corporations exceeds the limitations set forth in Section 422(b)(6) of the Code unless such option price is at least ll0% of the fair market value of the Stock on the date of grant.
To the extent permitted by law, the Compensation Committee may in its discretion permit the option price to be paid in whole or in part by a note or in installments or with shares of Stock of the Company or such other lawful consideration as the Compensation Committee may determine.
Options granted under the Plan shall not be transferable by the holder thereof otherwise than by will or the laws of descent and distribution or, in the case of a Nonstatutory Stock Option, to the extent consistent with qualifying for the exemption provided by Rule 16b-3 under the Exchange Act, pursuant to a qualified domestic relations order, and shall be exercisable, during the holder's lifetime, only by him or her or such permitted transferee.
No persons shall have any claim or right to be granted an Option, and the grant of an Option shall not be construed as giving an optionee the right to continued employment. The Company expressly reserves the right at any time to dismiss an optionee free from any liability or claim under the Plan, except as specifically provided in the applicable Option.
Subject to the provisions of the applicable Option, no optionee or any person claiming through an optionee shall have any rights as a shareholder with respect to any shares of Stock to be distributed under the Plan until he or she becomes the holder thereof.
The Board may amend or terminate the Plan at any time, provided that no amendment shall be made without stockholder approval if such approval is necessary to comply with any applicable tax or regulatory requirement, including any requirement for exemptive relief under Section 16(b) of the Exchange Act.
The Plan is subject to approval by the stockholders of the Company by the affirmative vote of the holders of a majority of the shares of capital stock of the Company entitled to vote thereon and present or represented at a meeting duly held in accordance with the laws of the State of Delaware, or by any other action that would be given the same effect under the laws of such jurisdiction, which action in either case shall be taken within twelve (12) months from the date the Plan was adopted by the Board. In the event such approval is not obtained, all Options granted under the Plan shall be void and without effect.
The provisions of the Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware.
Adopted by the Board of Directors on February __, 1996.
Adopted by the Shareholders on __________ __, 1996.
STOCK PURCHASE AGREEMENT
among
MEDALLION FINANCIAL CORP.,
TRANSPORTATION CAPITAL CORP.
LNC INVESTMENTS, INC.,
LEUCADIA, INC.
and
LEUCADIA NATIONAL CORPORATION
Table of Contents
SECTION 1 - SALE AND PURCHASE OF SHARES......................... 1
1.1 Sale of the Shares............................... 1
1.2 Further Assurances............................... 2
1.3 Purchase Price................................... 2
1.4 The Closing...................................... 4
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TCC AND THE
STOCKHOLDER........................................... 4
2.1 Ownership of the Shares.......................... 5
2.2 Organization and Qualification................... 5
2.3 Capitalization................................... 5
2.4 Authority to Execute and Perform Agreements...... 5
2.5 Subsidiaries and Other Affiliates................ 6
2.6 Charter and By-laws; Books and Records........... 6
2.7 Financial Statements............................. 6
2.8 Absence of Undisclosed Liabilities............... 7
2.9 No Material Adverse Change....................... 7
2.10 Tax Matters...................................... 8
2.11 Compliance with Laws............................. 9
2.12 Consents; No Breach.............................. 10
2.13 Actions and Proceedings.......................... 10
2.14 Contracts and Other Agreements................... 10
2.15 Real Property; Leases............................ 12
2.16 Tangible Property................................ 13
2.17 Intellectual Property............................ 13
2.18 Title to Assets; Liens........................... 13
2.19 Accounts and Notes Receivable.................... 13
2.20 Customers........................................ 14
2.21 Employee Benefit Plans........................... 14
2.22 Employee Relations............................... 14
2.23 Relationships with Affiliates.................... 15
2.24 Insurance........................................ 15
2.25 Banking Relationships............................ 15
2.26 Brokerage........................................ 15
2.27 Hazardous Materials.............................. 16
2.28 Full Disclosure.................................. 16
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC............... 17
3.1 Organization..................................... 17
3.2 Authority to Execute and Perform Agreement....... 17
3.3 Brokerage........................................ 17
3.4 Restrictive Documents............................ 17
3.5 Consents and Approvals of Governmental
Authorities...................................... 17
(i)
|
3.6 SBI Act Requirements............................. 17
3.7 Full Disclosure.................................. 18
3.8 Investment Intent................................ 18
3.9 Actions and Proceedings.......................... 18
SECTION 4 - COVENANTS AND AGREEMENTS............................ 19
4.1 Conduct of Business.............................. 19
4.2 Corporate Examinations and Investigations........ 22
4.3 Consummation of Agreement........................ 22
4.4 Further Assurances............................... 22
4.5 No Publicity/Confidentiality..................... 22
4.6 Stockholder Agreement to Vote in Favor........... 23
4.7 Exclusive Dealing................................ 23
4.8 Non-Competition Agreement........................ 24
4.9 Other Acquisitions............................... 24
4.10 Approvals and Authorizations..................... 24
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE.................................................... 24
5.1 Representations, Warranties and Covenants........ 24
5.2 Opinions of Counsel to TCC, the Stockholder,
Leucadia and Leucadia National................... 24
5.3 Consents, Permits, and Approvals................. 24
5.4 Non-Competition Agreement........................ 24
5.5 Escrow Agreement................................. 25
5.6 Other Acquisitions............................... 25
5.7 Financing........................................ 25
5.8 Investment Company Act; SBA...................... 25
5.9 Termination of Management Agreement.............. 25
5.10 Adverse Proceedings.............................. 25
5.11 Certificates..................................... 25
5.12 Approval of Documentation........................ 25
SECTION 6 - CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF TCC AND THE STOCKHOLDER................... 25
6.1 Representations, Warranties and Covenants........ 25
6.2 Opinion of Counsel to MFC........................ 26
6.3 Escrow Agreement................................. 26
6.4 Adverse Proceedings.............................. 26
6.5 Certificates..................................... 26
6.6 Governmental and Third-Party Approvals........... 26
6.7 Approval of Documentation........................ 26
SECTION 7 - INDEMNIFICATION..................................... 26
7.1 Survival......................................... 26
7.2 Obligation of the Leucadia Parties to Indemnify.. 27
7.3 Obligation of MFC to Indemnify................... 27
(ii)
|
7.4 Limitation on Indemnification.................... 27
7.5 Notice and Defense of Claims..................... 27
7.6 Payment.......................................... 28
7.7 Additional Indemnification by MFC................ 28
7.8 Additional Indemnification by the Leucadia
Parties.......................................... 29
SECTION 8 - TERMINATION OF AGREEMENT............................ 30
8.1 Termination...................................... 30
8.2 Effect of Termination............................ 31
SECTION 9 - MISCELLANEOUS....................................... 31
9.1 Notices.......................................... 31
9.2 Entire Agreement................................. 32
9.3 Expenses, Transfer Taxes......................... 32
9.4 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies......................... 32
9.5 Governing Law.................................... 33
9.6 Binding Effect; No Assignment.................... 33
9.7 Variations in Pronouns........................... 33
9.8 Counterparts..................................... 33
9.9 Exhibits and Disclosure Schedule................. 33
9.10 Headings......................................... 33
9.11 "Best Knowledge" or "Knowledge" Defined.......... 33
9.12 No Third Party Beneficiaries..................... 34
EXHIBITS
A - Escrow Agreement
B - Non-Competition Agreement
C-1 - Opinion of Counsel to TCC, the Stockholder, Leucadia and
Leucadia National
C-2 - Opinion of Counsel to TCC, the Stockholder, Leucadia and
Leucadia National
D - Opinion of Counsel to MFC
SCHEDULES
Disclosure Schedule
MFC Disclosure Schedule
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STOCK PURCHASE AGREEMENT
WITNESSETH
WHEREAS, the Stockholder is a wholly owned subsidiary of Leucadia, and Leucadia is a wholly owned subsidiary of Leucadia National;
WHEREAS, the Stockholder wishes to sell, and MFC wishes to purchase, the Shares upon the terms and conditions of this Agreement;
WHEREAS, MFC intends to continue to operate TCC as an SSBIC and plans to file with the SBA a complete License Application, SBA Form 415, together with the required fee, exhibits and an executed Transferee's Liability Contract, seeking the SBA's prior approval for transfer of control of TCC to MFC, and will formally adopt as part of its License Application the provisions required by the SBA of licensees with outstanding Debentures and Leverage, as those terms are defined in the SBI Act, and comply with all licensing requirements of the SBA;
NOW THEREFORE, in consideration of the foregoing and the mutual representations, warranties and covenants contained herein, the parties hereto agree as follows:
SECTION 1 - SALE AND PURCHASE OF SHARES
(i) To the Stockholder, the Purchase Price, payable in immediately available funds by wire transfer to an account designated by the Stockholder, less the amount delivered to the Escrow Agent pursuant to subsection (ii).
(iv) If the Net Book Value of TCC as of the Closing Date computed on the basis of the Final Closing Date Balance Sheet is greater than the Net Book Value of TCC computed at the Closing based on the Preliminary Closing Date Balance Sheet, the amount of such excess, together with interest on such excess from the Closing Date to the date of payment of such excess at the rate of 6% per annum, shall be paid within 3 business days by MFC to the Stockholder in immediately available funds by wire transfer to an account designated by the Stockholder. If the Net Book Value of TCC as of the Closing Date computed on the basis of the Final Closing Date Balance Sheet is less than the Net Book Value of TCC computed at the Closing based on the Preliminary Closing Date Balance Sheet, the amount of such deficiency, together with interest on such deficiency from the Closing Date to the date of payment of such deficiency, to the extent that interest is not paid out of the escrow established pursuant to the terms of the Escrow Agreement, at the rate of 6% per annum, shall be paid within 3 business days to MFC by the Escrow Agent to the extent provided in the Escrow Agreement, and otherwise by the Stockholder in immediately available funds by wire transfer to an account designated by MFC.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TCC AND THE STOCKHOLDER
to execute and deliver this Agreement and each agreement, document and instrument contemplated by this Agreement to which it is a party, to consummate the transactions contemplated hereby and thereby and to perform fully its respective obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and each such other agreement, document and instrument to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of TCC, the Stockholder, Leucadia and Leucadia National. This Agreement and each agreement, document and instrument to which it is a party executed and delivered pursuant to this Agreement constitutes, or when executed and delivered will constitute, valid and binding obligations of each of TCC, the Stockholder, Leucadia and Leucadia National, as the case may be, enforceable in accordance with their terms.
Statements and Updated Financial Statements, by TCC's chief financial officer, and present (or will present) fairly the financial position and results of operation of TCC as of the date and for the period indicated.
(i) any material adverse change in the assets, liabilities, condition (financial or otherwise), results of operation, business or prospects of TCC or any occurrence or circumstance which reasonably could be expected to result in such a material adverse change;
(ii) any material change in the method of operating the business of TCC, in the manner of keeping the books, accounts or records of TCC, or in any accounting method or practice of TCC;
(iii) any sale, lease, mortgage, pledge, encumber, abandonment or disposition of, or agreement to sell, lease, mortgage, pledge, encumber, abandon or dispose of, any material assets or properties of TCC, other than in the usual and ordinary course of business;
(iv) any material transaction, commitment, contract or agreement entered into by TCC, or any relinquishment or abandonment by TCC of any material contract or right, or any modification, waiver, amendment, release, recision, or termination of any material term, condition or provision of any contract pertaining to TCC (other than any satisfaction by performance in accordance with the terms thereof), other than in the usual and ordinary course of business;
(v) any adverse relationships or conditions with employees, suppliers, lenders, customers or governmental agencies that could reasonably be anticipated to have a material adverse effect on TCC or its business;
(vi) any new material obligation or liability of TCC for borrowed money;
(vii) any acquisition by TCC (other than property or interests therein acquired in the ordinary course of its lending business) of all or any part of the assets, properties, capital stock or business of any other person or entity;
(viii) any redemption or other acquisition by TCC of any of its capital stock or any declaration, setting aside or payment of any dividend or distribution of any kind with respect to shares of its capital stock;
(ix) any loan or advance by TCC to any shareholder, officers, director or consultant, or any other loan or advance other than in the ordinary course of business; or
(x) any new employment or consulting agreement, any increase in compensation, bonus or other benefits payable or to become payable by TCC to any director, officer or employee, other than regularly scheduled increases consistent with past practice in the ordinary course of business, or any new grant of severance or termination rights, or increase in rights or benefits payable under existing severance or termination policies or agreements, to any director, officer or employee of TCC.
2.10.2 TCC has in accordance with applicable law timely filed all material Tax reports or returns required to be filed by it through the date hereof and paid all taxes and other charges shown as due thereon. Each of the Tax reports and returns filed by TCC correctly and accurately reflects the amount of its Tax liability for such period and other required information. Since the Acquisition Date and to the best knowledge of the Stockholder for periods prior thereto, there has not been any audit or other examination of
any Tax return filed by TCC and no audit or other examination of any Tax return of TCC is in progress and TCC has not been notified in writing by any Tax authority that any such audit or other examination is contemplated or pending. Other than extensions to September 15 with respect to the filing of federal tax returns, no extension of time with respect to any date on which a Tax return was or is to be filed by TCC is in force, and no waiver or agreement by TCC is in force for the extension of time for the assessment or payment of any Tax. Since the Acquisition Date, and to the best knowledge of the Stockholder for periods prior thereto, no claim has been made by an authority in a jurisdiction where TCC does not file reports or returns that TCC is or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of the assets of TCC that arose in connection with any failure (or alleged failure) to pay any Taxes for periods prior to the Closing Date. TCC has no liability for the taxes of any other member of the Leucadia Group by contract, including any tax sharing agreement, or as a result of joint and several liability arising out of the consolidated tax filings.
2.11.1 TCC is not in violation in any material respect of any order, judgment, injunction, award or decree, or any federal, state, local or foreign law, ordinance or regulation or any other requirement of any governmental or regulatory body, court or arbitrator, including, without limitation, regulations and requirements of the SBA, and is in compliance in all material respects with all of the foregoing that are applicable to it, its business or its assets. Since the Acquisition Date, and to the best knowledge of the Stockholder prior thereto, TCC has not received notice of, and there has not been any citation, fine or penalty imposed or asserted against TCC for, any such violation or alleged violation that has not been favorably resolved.
2.11.3 Since the Acquisition Date, TCC has timely filed with the SBA all reports required to be filed including all reports on Form 468. TCC has previously delivered to MFC a correct and complete copy of the report on Form 468 most recently filed with the SBA and dated December 31, 1994. All information required to be included in said Form
468 is included therein and all such information is correct and complete in all material respects.
(i) contracts and other agreements with or for the benefit of any current or former officer, director, stockholder, employee, consultant, agent or other representative of TCC, the Stockholder, Leucadia or Leucadia National and contracts and other agreements for the payment of fees or other consideration to any entity in
which any of the foregoing, the Stockholder, Leucadia or Leucadia National has an interest;
(ii) contracts and other agreements with any labor union or association representing any employee of TCC or otherwise providing for any form of collective bargaining;
(iii) contracts and other agreements for the purchase or sale of materials, supplies, equipment, merchandise or services that contain an escalation, renegotiation or redetermination clause or that obligate TCC to purchase all or substantially all of its requirements of a particular product from a supplier, or for periodic minimum purchases of a particular product from a supplier;
(iv) contracts and other agreements for the sale of any of the assets or properties of TCC other than in the ordinary course of business or for the grant to any person of any options, rights of first refusal, or preferential or similar rights to purchase any of such assets or properties;
(v) partnership or joint venture agreements;
(vi) contracts or other agreements under which TCC agrees to act as surety or guarantor for or to indemnify any party or to share the tax liability of any party;
(vii) contracts, options, outstanding purchase orders and other agreements for the purchase of any material asset, tangible or intangible;
(viii) contracts and other agreements that cannot by their terms be canceled by TCC and any successor or assignee of TCC without liability, premium or penalty on no less than thirty (30) days notice;
(ix) contracts and other agreements with customers, suppliers or other parties for the sharing of fees, the rebating of charges or other similar arrangements;
(x) contracts, stipulations or agreements with the SBA;
(xi) contracts and other agreements containing obligations or liabilities of any kind to holders of the securities of TCC as such (including, without limitation, an obligation to register any of such securities under any federal or state securities laws);
(xii) contracts and other agreements containing covenants of TCC not to compete in any line of business or with any person or entity or covenants of any other person or entity not to compete with TCC in any line of business;
(xiii) contracts and other agreements relating to the acquisition by TCC of any operating business or the capital stock of any other person or entity;
(xiv) contracts and other agreements requiring the payment to any party of a brokerage or sales commission or a finder's or referral fee;
(xv) contracts, indentures, mortgages, promissory notes, debentures loan agreements, guaranties, security agreements, pledge agreements, and other agreements and instruments relating to the borrowing or lending of money or securing any such liability;
(xvi) any agreement or series of related agreements requiring aggregate payments by or to TCC of more than $10,000;
(xvii) contracts under which TCC will acquire or has acquired ownership of, or license to, intangible property, including software;
(xviii) any other material contract or other agreement whether or not made in the ordinary course of business that has or may have a material effect on TCC's business or prospects, condition, financial or otherwise, or any of the assets or properties of TCC.
to TCC. TCC has no accounts or notes receivable from any person, firm or corporation which is affiliated with TCC, the Stockholder, Leucadia or Leucadia National or from any director, officer or employee of any of them.
represented by any labor union. TCC is not delinquent in payments to any of its employees or consultants for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them to the date hereof or amounts required to be reimbursed to such employees or consultants. TCC has no obligations of any kind relating to employee severance and neither MFC nor TCC will by reason of the sale of the Shares to MFC or anything done prior to the Closing be liable to any TCC employees for severance pay or any other payments in the event any such employees are terminated. Correct and complete information as to all current directors, officers, employees or consultants of TCC including, in each case, name, current job title and annual rate of compensation has been provided by TCC to MFC.
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 TCC or the Stockholder.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC
represents and agrees that it will file with the SBA a complete License Application, SBA Form 415, together with the required fee, exhibits and an executed Transferee's Liability Contract seeking the SBA's prior written approval for the purchase of the Shares held by the Stockholder and the transfer of control of TCC to MFC, and will formally adopt as part of its License Application the provisions required by the SBA of licensees with outstanding Debentures and Leverage, as those terms are defined in the SBI Act, and will comply with all licensing requirements of the SBA and the SBI Act. MFC further acknowledges and understands that as a specific condition of the agreement pertaining to the repurchase from the SBA of shares of TCC's Preferred Stock, TCC is obligated to remain as an active SSBIC subject to the SBI Act for a period of at least 5 years from March 22, 1995. MFC also acknowledges the terms and conditions of the letter agreement dated June 1, 1995 relating to the repurchase of the SBA shares.
SECTION 4 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
(a) audited financial statements of TCC for the calendar years ended December 31, 1993 and 1994 to be audited by TCC's Auditors at the Stockholder's expense;
(b) unaudited financial statements of TCC for the calendar years ended December 31, 1991 and 1992 to be prepared at TCC's expense by TCC on a basis consistent with those referred to in subparagraph (a); and
(c) audited financial statements of TCC for the nine months ended September 30, 1995 to be audited at MFC's expense by Arthur Andersen L.L.P. on a basis consistent with those referred to in subparagraph (a).
The parties hereto agree that none of TCC, Stockholder, Leucadia or Leucadia National shall have any responsibility for pro forma adjustments that may be made to the Section 4.1 Financial Information (or other TCC Financial Statements or the Preliminary Closing Date Balance Sheet), all of which shall be the sole responsibility of MFC, and that, except pursuant to Section 7.2 hereof, the delivery of the Section 4.1 Financial Information to MFC and any subsequent use thereof by MFC shall not create or give rise to any liability or indemnification obligation to any party.
MFC hereby agrees that it shall not reproduce, summarize, use or refer to any financial statements of TCC, including the TCC Financial Statements, the Preliminary Closing Date Balance Sheet and the Section 4.1 Financial Information, in any document which refers to the financial condition, business or prospects of a third party or parties without an express written statement that neither TCC nor its direct or indirect parents or any officer or director thereof has commented upon, has reviewed, has knowledge with respect to, or takes any responsibility for, any financial statements or other financial or business information concerning such third party or parties. With respect to any such reproduction summarization, use or reference occurring after the Closing Date, such statement shall refer to the former direct or indirect parents of TCC or any officer or director thereof.
Confidential Information (as defined below) obtained by MFC during the course of its due diligence examination of the books and records of TCC will be used solely for the purpose of evaluating the purchase of the Shares and not in any way directly or indirectly detrimental to TCC or the Stockholder and such information will be kept confidential by MFC, except for such disclosure as may be required in connection with a public offering of shares of MFC common stock, and then upon advice of counsel in consultation with TCC and the Stockholder.
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.
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):
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TCC AND THE STOCKHOLDER
Each obligation of TCC and the Stockholder 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 TCC and the Stockholder):
or contemplated by this Agreement). MFC shall have performed and complied 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 the Stockholder a certificate, dated the Closing Date, to the foregoing effect.
SECTION 7 - INDEMNIFICATION
7.4.1 No indemnification shall be payable pursuant to Section 7.2 or
Section 7.3, as the case may be, unless and until the amount of all claims for
indemnification pursuant to the applicable Section exceeds for such Section
$100,000 in the aggregate, whereupon indemnification pursuant to Section 7.2 or
Section 7.3, as the case may be, shall be payable for all such claims without
any deduction. Notwithstanding the foregoing, all amounts payable pursuant to
Section 1.3.3 (iv) or Section 7.8 shall be payable without regard to their
amount and irrespective of whether such amounts payable are less than $100,000.
7.4.2 The maximum aggregate indemnification amount that shall be due under Section 7.2 or Section 7.3, shall not in any event exceed, in the aggregate, the Purchase Price or, if the Closing has not occurred, the Net Book Value of TCC as of September 30, 1995.
indemnifying party and the indemnified party shall make no payment on such claim, liability or expense as long as the indemnifying party is conducting a good faith and diligent defense. Notwithstanding the foregoing, the indemnified party shall at all times have the right to fully participate in such defense at its own expense directly or through counsel; provided, however, if the named parties to the action or proceeding include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct, the expense of one separate counsel for the indemnified party shall be paid by the indemnifying party. If no such notice of intent to dispute and defend is given by the indemnifying party, or if such diligent good faith defense is not being or ceases to be conducted, the indemnified party shall, at the expense of the indemnifying party, undertake the defense of such claim, liability or expense with counsel selected by the indemnified party, and shall have the right to compromise or settle the same exercising reasonable business judgment. The indemnified party shall make available all information and assistance that the indemnifying party may reasonably request and shall cooperate with the indemnifying party in such defense. Notwithstanding anything herein to the contrary, the indemnifying party shall have the right to settle all claims of third parties for which indemnification is payable hereunder without the consent of the indemnified party so long as such settlement releases the indemnified party from all liability for or in connection with such action and does not materially and adversely impair the ability of the indemnified party to carry on its business and does not contain any admission of wrong doing on the part of the indemnified party.
reliance upon and in conformity with written information furnished to MFC by any of the Leucadia Parties specifically for use therein (it being understood that the representations and warranties of TCC and Stockholder contained herein, the TCC Financial Statements, the Section 4.1 Financial Information and any schedules delivered pursuant hereto constitute such written information).
(ii) If the indemnification provided for in Section 7.7(i) is unavailable to a Leucadia Party (other than TCC) in respect of any Losses referred to therein, then MFC, in lieu of indemnifying such Leucadia Party, shall contribute to the amount paid or payable by such Leucadia Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of MFC or a third party on the one hand and of the Leucadia Party on the other in connection with the statements or omissions which result in such Losses as well as any other relevant equitable consideration. The relative fault of MFC or a third party on the one hand and of the Leucadia Party on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by MFC or a third party on the one hand or by the Leucadia Party on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
Subject to the restrictions set forth in this paragraph, MFC may settle any of the Scheduled Actions in its discretion. Any settlement of a Scheduled Action must satisfy the following criteria:
(w) any such settlement (A) shall release each of the Stockholder, Leucadia and Leucadia National from all liability for or in connection with such Scheduled Action (whether or not such Leucadia Party is named as a defendant in the Scheduled Action), (B) shall not materially and adversely impair the ability of the Stockholder, Leucadia and Leucadia National to carry on their businesses, and (C) shall not contain any admission of wrongdoing on the part of TCC (for any time after the Acquisition Date), the Stockholder, Leucadia or Leucadia National;
(y) if consent of the Leucadia Parties (other than TCC) is required under
(x) above, and such Leucadia Parties do not give such consent, then, subject to
(z) below, such Leucadia Parties shall assume the defense of such Scheduled
Action (a "Transferred Action") and shall indemnify MFC for any Losses resulting
from such Transferred Action, without regard to the three year indemnification
period established in this Section 7.8;
(z) as a condition to the Leucadia Parties' (other than TCC) assumption of the defense and indemnification of a Transferred Action under (y), MFC shall pay to Leucadia National the balance between $50,000 and the Net Losses (up to $50,000, it being understood that payment of such balance shall constitute Losses for the purpose of calculating Net Losses as defined in this Section 7.8) paid by or on behalf of TCC up to the time of such denial of consent, and from and after the time of such denial of consent, MFC shall pay or cause to be paid to Leucadia National any and all recoveries in respect of any Scheduled Action (including a Transferred Action) received by or credited to or for the benefit of TCC after such time, without regard to the three year period established under this Section 7.8.
Except as set forth in Section 7.8(y), the Leucadia Parties (other than TCC) shall have no indemnification or other responsibility with respect to the Scheduled Actions after the third anniversary of the Closing Date.
SECTION 8 - TERMINATION OF AGREEMENT
(a) at the election of TCC or the Stockholder upon written notice to MFC if MFC has 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 TCC or the Stockholder of such breach of representation, warranty, covenant or agreement, cured such breach;
(b) at the election of MFC upon written notice to TCC and the Stockholder from MFC if TCC or the Stockholder have breached any representation, warranty, covenant or agreement contained in this Agreement and have not, within twenty (20) business days of receipt by TCC and the Stockholder of written notice from MFC of such breach of representation, warranty, covenant or agreement, cured such breach;
(c) at any time on or prior to the Closing Date by written agreement of the parties hereto; or
(d) by any party if, without fault of such party, the Closing shall not have occurred by May 31, 1996, which date may be extended by mutual agreement of the parties.
SECTION 9 - MISCELLANEOUS
(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 TCC or the Stockholder:
Transportation Capital Corp.
315 Park Avenue South
New York, NY 10010
Attention: Mark Hornstein Fax: (212) 598-4869
and
Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Attention: Joseph S. Steinberg
Fax: (212) 598-4869
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Attention: Stephen E. Jacobs, Esquire
Fax: (212) 310-8007
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.
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 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.
Jonathan Hirsh are executive officers of TCC and Mark Hornstein is an executive officer of the Stockholder.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein --------------------------------- |
TRANSPORTATION CAPITAL CORP.
By: /s/ Mark Hornstein --------------------------------- |
LNC INVESTMENTS, INC.
By: /s/ Mark Hornstein --------------------------------- |
LEUCADIA, INC.
By: /s/ Mark Hornstein --------------------------------- |
LEUCADIA NATIONAL CORPORATION
By: /s/ Mark Hornstein --------------------------------- |
WHEREAS, the Purchase Agreement provides for the payment and delivery by MFC of money into the escrow hereby established, to be held and dealt with by the Escrow Agent as herein provided;
NOW THEREFORE, the parties agree as follows:
The Purchase Agreement is by this reference incorporated herein and made a part of this Agreement to the same extent as if its terms were fully set forth herein. Terms defined in the Purchase Agreement shall have their defined meanings when used herein unless the context otherwise requires.
(a) Not less than three nor more than five business days following the receipt by the Escrow Agent of Disbursing Instructions in the form attached hereto as Annex A executed by both MFC and Stockholder, Escrow Agent shall disburse to MFC the amount specified in such Disbursing Instructions.
(b) Upon a final determination of the Purchase Price in accordance with
Section 1.3.3 of the Purchase Agreement resulting in a Purchase Price
Adjustment, then if MFC and Stockholder have not completed and delivered to the
Escrow Agent Disbursing Instructions pursuant to paragraph (a) above, MFC shall
complete Disbursing Instructions in the form attached hereto as Annex B
directing Escrow Agent to release to MFC the amount stated in the Disbursing
Instructions and deliver such Disbursing Instructions to Stockholder. If
Stockholder shall fail to execute and deliver to the Escrow Agent (with a copy
to MFC) such Disbursing Instructions within two business days of receipt thereof
from MFC, MFC may deliver to the Escrow Agent completed Disbursing Instructions
in the form attached hereto as Annex B executed by MFC, together with written
confirmation from the accounting firm responsible for the Final Closing Date
Balance Sheet that the amount stated in the Disbursing Instruction is due to MFC
from Stockholder pursuant to Section 1.3.3 of the Purchase Agreement.
If MFC shall fail to complete and deliver Disbursing Instructions in accordance with this paragraph (b) in the event of a Purchase Price Adjustment, then Stockholder may complete such Disbursing Instruction and deliver it, together with such accounting firm's written confirmation, to the Escrow Agent (with a copy to MFC).
Not less than five nor more than seven business days following receipt of such Disbursing Instruction and written confirmation, Escrow Agent shall deliver to MFC the amount stated in such Disbursing Instruction.
(c) Within seven business days following entry of a "Final Order" of a court of competent jurisdiction directing Stockholder to pay a sum to MFC, MFC shall deliver to Stockholder and Escrow Agent a completed Disbursing Instruction in the form attached hereto as Annex C, together with a copy of such Final Order, directing Escrow Agent to disburse the Escrow Fund in accordance or consistent with the Final Order. Not less than five nor more than seven business days following receipt of such Disbursing Instruction, Escrow Agent shall deliver to MFC the amount set forth in such Disbursing Instructions.
(d) Notwithstanding anything contained herein to the contrary, in the event
the Escrow Agent receives notice from Stockholder or MFC that it disputes the
release of the Escrow Fund pursuant to a Disbursing Instruction received under
Section 4.2(b) hereof, Escrow Agent shall not release any portion of the Escrow
Fund in accordance with such disputed Disbursing Instruction unless and until
directed to do so pursuant to a Final Order of a court of competent jurisdiction
or upon receipt of a letter signed by both Stockholder and MFC.
(e) For purposes hereof, a "Final Order" shall mean a judgment or order as to which all appeals have been finally determined and no further appeal therefrom may be taken, or if no appeal therefrom shall have been taken, when the applicable time to appeal (or further appeal) therefrom shall have expired.
(f) The parties hereto undertake to deliver any instructions or notices to be delivered under Section 4 as promptly as practicable under the circumstances.
shall immediately provide a copy of such Disbursing Instruction to the party who did not execute the Disbursing Instruction in accordance with Section 10.1.
Any party may by notice given in accordance with this Section to the other parties designate another address or person for receipt of notice.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.
MEDALLION FINANCIAL CORP.
By:________________________________
LNC INVESTMENTS, INC.
By:________________________________
[ ], as
Escrow Agent
By:________________________________
Title:
Disbursing Instructions for Release of Escrow Property upon Mutual Consent
[Escrow Agent]
Gentlemen:
Reference is made to that certain Escrow Agreement, dated ______________________, 1996 among Medallion Financial Corp. ("MFC"), LNC Investments, Inc. ("Stockholder") and _______________________ as Escrow Agent (the "Escrow Agreement"). All capitalized terms used herein without definition shall have the meanings ascribed thereto in the Escrow Agreement.
Pursuant to and in accordance with the Escrow Agreement, you are hereby directed to release to MFC $___________________ of the Escrow Fund.
MEDALLION FINANCIAL CORP.
By:____________________________
Title:_________________________
LNC INVESTMENTS, INC.
By:____________________________
Title:_________________________
Disbursing Instructions Upon A Purchase Price Adjustment
[Escrow Agent]
Gentlemen:
Reference is made to that certain Escrow Agreement, dated ______________________, 1996 among Medallion Financial Corp. ("MFC"), LNC Investments, Inc. ("Stockholder") and _______________________ as Escrow Agent (the "Escrow Agreement"). All capitalized terms used herein without definition shall have the meanings ascribed thereto in the Escrow Agreement.
Pursuant to and in accordance with the Escrow Agreement, you are hereby directed to release to MFC $___________________ of the Escrow Fund.
If the signatures of both parties hereto do not appear at the bottom of this Instruction, this Instruction shall not become effective unless accompanied by written confirmation of the sum set forth in the preceding paragraph being due to MFC from Coopers & Lybrand L.L.P. or the other accounting firm responsible for the Final Closing Date Balance Sheet (who shall certify such firm's status as the "Firm" pursuant to the Purchase Agreement).
MEDALLION FINANCIAL CORP.
By:_____________________________
Title:__________________________
LNC INVESTMENTS, INC.
By:_____________________________
Title:__________________________
Disbursing Instructions Upon Resolution of an Indemnification Claim
[Escrow Agent]
Gentlemen:
Reference is made to that certain Escrow Agreement, dated ______________________, 1996 among Medallion Financial Corp. ("MFC"), LNC Investments, Inc. ("Stockholder") and _______________________ as Escrow Agent (the "Escrow Agreement"). All capitalized terms used herein without definition shall have the meanings ascribed thereto in the Escrow Agreement.
Pursuant to and in accordance with the Escrow Agreement, you are hereby directed to release to MFC $___________________ of the Escrow Fund.
Attached hereto is a copy of the Final Order directing payment to MFC of the sum set forth in the preceding paragraph.
MEDALLION FINANCIAL CORP.
By:__________________________
Title:_______________________
This Agreement dated _________ ___, 199___ is by and between Medallion Financial Corp., a Delaware corporation ("MFC") and Leucadia National Corporation, a New York corporation (the "Stockholder").
This Agreement is entered into pursuant to a Stock Purchase Agreement dated February 12, 1996 (the "Stock Purchase Agreement") among MFC, the Stockholder, Transportation Capital Corp. ("TCC"), a wholly owned subsidiary of the Stockholder, and others, pursuant to which MFC is purchasing from the Stockholder all of the issued and outstanding shares of capital stock of TCC.
WHEREAS, TCC is engaged in the business of financing taxis, taxi medallions, radio cars, livery vehicles and so called "black cars" (collectively, the "taxi finance business");
WHEREAS, the parties desire to assure to MFC the benefits of the stock purchased by MFC pursuant to the Stock Purchase Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties agree as follows:
(a) own, manage, operate, control, finance, promote, or engage in any
taxi finance business in any of the following geographic markets
(the "Geographic Markets"): New York City, New York; Boston and
Cambridge, Massachusetts; Newark, New Jersey and Chicago,
Illinois;
(b) solicit (other than as a result of a general advertised
solicitation) the employment of or hire or attempt to hire any
employee of TCC, or encourage or attempt to induce any employee
of TCC to terminate his or her employment with TCC for any
reason; provided that Stockholder shall inquire of any potential
employee whether he or she is then currently employed by TCC.
Stockholder may rely upon, without incurring any liability
hereunder, the information provided by such prospective employee
(unless Stockholder has actual knowledge to the contrary); or
(c) call upon or solicit any vendor or customer of TCC or its
affiliates with a view to engaging in the taxi finance business
in any of the Geographic Markets.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date first above written.
MEDALLION FINANCIAL CORP.
By:__________________________
LEUCADIA NATIONAL CORPORATION
By:__________________________
[WG&M Letterhead]
______________,199__
Medallion Financial Corp.
205 East 42nd Street
New York, New York 10017
Gentlemen:
We have acted as counsel to Transportation Capital Corp., a New York corporation ("TCC"), LNC Investments, Inc., a Delaware corporation ("Stockholder"), Leucadia, Inc., a New York corporation ("LI"), and Leucadia National Corporation, a New York corporation ("Leucadia") in connection with the preparation, authorization, execution and delivery of, and the consummation of the transactions contemplated by, the Stock Purchase Agreement by and among TCC, Stockholder, LI, Leucadia and Medallion Financial Corp., a Delaware corporation ("MFC") dated as of February 12, 1996 (the "Stock Purchase Agreement"). This opinion is rendered to you pursuant to Section 5.2 of the Stock Purchase Agreement. Capitalized terms defined in the Stock Purchase Agreement and used but not otherwise defined herein are used herein as so defined.
In so acting, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Stock Purchase Agreement and such corporate records, agreements, documents and other instruments, and such certificates or comparable documents of public officials and of officers and representatives of TCC, Stockholder, LI and Leucadia, and have made such inquiries of such officers and representatives, as we have deemed relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. As to all questions of fact material to this opinion which have not been independently established, we have relied upon certificates or other comparable documents of officers and representatives of TCC, Stockholder, LI and Leucadia and upon the representations and warranties of such parties contained in the Stock Purchase Agreement. As used herein "to our knowledge" means the
Medallion Financial Corp.
___________, 199_
conscious awareness of facts or other information by any lawyer in our firm actively involved in negotiating the transactions contemplated by the Stock Purchase Agreement.
Based on the foregoing and subject to the qualifications stated herein, we are of the opinion that:
1. TCC is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite corporate power and authority to carry on its business as now being conducted. TCC is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction listed in Section 2.2, of the Disclosure Schedule and such jurisdictions are the only jurisdiction where the character of its activities requires such qualification, except where the failure of TCC to be so qualified would not have a Material Adverse Effect.
2. The authorized and outstanding capital stock of TCC is as described in
Section 2.3.1 of the Stock Purchase Agreement. All of such outstanding shares
of TCC's capital stock are owned of record and, to our knowledge, beneficially
by Stockholder, free and clear, to our knowledge, of all liens, claims,
limitations on voting rights, options, security interests and other encumbrances
and are duly authorized, validly issued, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof except, where applicable,
as provided by Section 630 of the New York Business Corporation Law, and have
not been issued in violation of any preemptive rights. To our knowledge, there
are no outstanding securities of TCC convertible into or evidencing the right to
purchase or subscribe for any shares of capital stock of TCC, there are no
outstanding or authorized options, warrants, calls, subscriptions, rights,
commitments or any other agreements of any character obligating the Company to
issue any shares of its capital stock or any securities convertible into or
evidencing the right to purchase or subscribe for any shares of such stock,
there are no agreements or understandings with respect to the voting, sale or
transfer of any shares of capital stock of TCC to which TCC is a party (other
than with the United States Small Business Administration (the "SBA")). Upon
transfer, assignment and delivery of the shares of TCC stock and payment
therefor in accordance with the terms of the Stock Purchase Agreement, and,
assuming with your consent that the laws of the Commonwealth of Massachusetts
relevant thereto are the same as the laws of the State of New York, MFC will
acquire good and marketable title to such shares, free and clear of any and all
liens, pledges, encumbrances, charges, agreements or claims of any kind
whatsoever, assuming MFC acquires the shares without notice of any adverse claim
as such term is used in Section 8-302 of the Uniform Commercial Code in effect
in the State of New York.
3. Each of the Stockholder, LI and Leucadia is a corporation duly organized, validly existing and in good standing under the laws of its respective state of incorporation.
Medallion Financial Corp.
___________, 199_
4. Each of TCC, Stockholder, LI and Leucadia has all requisite corporate
power and authority to execute and deliver the Stock Purchase Agreement, and, in
the case of Stockholder, the Escrow Agreement, and, in the case of Leucadia, the
Non-Competition Agreement, and to perform their respective obligations
thereunder (such agreements collectively referred to as the "Agreements"). The
execution, delivery and performance of the Agreements by each of TCC,
Stockholder, LI and Leucadia, as the case may be, and the consummation by it of
the transactions contemplated thereby have been duly authorized by all necessary
corporate action. The Agreements have been duly and validly executed and
delivered by each of TCC, Stockholder, LI and Leucadia, as the case may be, and
(assuming the due authorization, execution and delivery thereof by MFC)
constitutes the legal, valid and binding obligations of each of TCC,
Stockholder, LI and Leucadia, as the case may be, enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except that (A) rights to indemnification
thereunder may be limited by federal or state securities laws or public policy
relating thereto and (B) our opinion as to the enforceability of the Non-
Competition Agreement assumes that the restrictions contained therein would be
deemed to be reasonable in time, scope and extent.
5. The execution and delivery of the Stock Purchase Agreement by TCC and Stockholder, the Escrow Agreement by Stockholder and the Non-Competition Agreement by Leucadia, the consummation of the transactions contemplated thereby and compliance with any of the provisions thereof will not conflict with, constitute a default under or violate (i) any of the terms, conditions or provisions of the certificate of incorporation or by-laws of TCC, Stockholder or Leucadia, (ii) any of the terms, conditions or provisions of any document, agreement or other instrument to which TCC, Stockholder or Leucadia is a party or by which either of them are bound of which we are aware, (iii) any New York, Delaware corporate or federal law or regulation (other than federal and state securities or blue sky laws, or the Small Business Investment Act of 1958, as amended, and the rules and regulations promulgated thereunder, as to which we express no opinion), (iv) any judgment, writ, injunction, decree, order or ruling of any court or governmental authority binding on TCC or Stockholder of which we are aware, or (v) to our knowledge result in the creation of any lien or other encumbrance on the assets or properties of TCC pursuant to any document, agreement or instrument referred to in clause (ii) above.
6. No consent, approval, waiver, license or authorization or other action by or filing with any New York, Delaware corporate or federal governmental authority is required in connection with the execution and delivery by TCC or Stockholder of the Stock Purchase Agreement or by Stockholder of the Escrow Agreement or the consummation of the
Medallion Financial Corp.
___________, 199_
transactions contemplated thereby, except for the approval of the SBA, as to which we express no opinion.
7. Except as set forth in Section 2.13 of the Disclosure Schedule, to our knowledge, there is no litigation, proceeding or governmental investigation pending or overtly threatened against TCC.
The opinions herein are limited to the laws of the State of New York, the corporate laws of the State of Delaware and the federal laws of the United States, and we express no opinion as to the effect on the matters covered by this opinion or the laws of any other jurisdiction and we express no opinion with respect to the registration by MFC of TCC under the Investment Company Act of 1940, as amended or the Securities Act of 1933, as amended. For purposes of this opinion, we assume that the laws of the State of Delaware other than the Corporate Laws of the State of Delaware are identical to the laws of the State of New York.
This opinion is rendered solely for your benefit in connection with the transactions described above. This opinion may not be used or relied upon by any other person and may not be disclosed, quoted, filed with a governmental agency or otherwise referred to without our prior written consent.
Very truly yours,
Exhibit C-2
[Law Offices of R. Michael Haynes letterhead]
December , 1995
Medallion Financial Corp.
205 East 42nd Street
New York, NY 10017
Gentlemen:
I have acted as counsel to Transportation Capital Corp., a New York
Corporation ("TCC"), LNC Investment, Inc., a Delaware Corporation
("Stockholder"), Leucadia, Inc., a New York Corporation ("Leucadia") and
Leucadia National Corporation, a New York Corporation ("Leucadia National") in
connection with issues relating to the operations of TCC as a specialized small
business investment company ("SSBIC") under the Small Business Investment Act of
1958, as amended, and the rules and regulations promulgated thereunder (such Act
and rules and regulations being collectively referred to herein as the "SBI
Act") by the U.S. Small Business Administration (the "SBA") in connection with
the preparation, authorization, execution and delivery of, and the consummation
of the transactions contemplated by, the Stock Purchase Agreement by and among
TCC, Stockholder, Leucadia, Leucadia National and Medallion Financial Corp., a
Delaware corporation ("MFC") dated as of ____________________, 1996. This
opinion is rendered to you pursuant to your request of Weil, Gotshal & Manges,
counsel to TCC, the Stockholder, Leucadia and Leucadia National, and pursuant to
Section 5.2 of the Stock Purchase Agreement. Capitalized terms defined in the
Stock Purchase Agreement and used but not otherwise defined herein are used
herein as so defined.
In so acting, I have examined originals or copies certified or otherwise identified to my satisfaction, of the Stock Purchase Agreement and such corporate records, agreements, documents and other instruments, and such certificates or comparable documents of public officials and of officers and representatives of TTC, Stockholder, Leucadia and Leucadia National, and have made such inquiries of such officers and representatives, as I have deemed relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, I have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified or photostatic copies and the authenticity of the originals of such latter
documents. As to all questions of fact material to this opinion which have not been independently established, I have relied upon certificates or other comparable documents of officers and representatives of TCC, Stockholder, Leucadia and Leucadia National and upon the representations and warranties of such parties contained in the Stock Purchase Agreement.
Based on the foregoing and subject to the qualifications stated herein, I am of the opinion that:
1. Subject to the prior written approval of the SBA of a complete License Application, SBA Form 415, together with the required fee, exhibits and an executed Transferee's Liability Contract, submitted by MPC to the SBA seeking prior written approval for transfer of control of TCC to MFC, and formal adoption by MFC as part of its License Application of the provisions required by the SBA of licensees with outstanding Debentures and Leverage, as those terms are defined in the SBI Act, and compliance by MFC with all licensing requirements of the SBA and the SBI Act, execution of the Stock Purchase Agreement by TCC and Stockholder and the Escrow Agreement by Stockholder, the consummation of the transactions contemplated thereby and compliance with any of the provisions thereof will not conflict with, constitute a default under or violate the SBI Act.
2. No consent, approval, waiver, license or authorization or other action by or filing with any federal governmental authority is required in connection with the execution and delivery by TCC or Stockholder of the Stock Purchase Agreement or by Stockholder of the Escrow Agreement or the consummation of the sale of the shares contemplated thereby, except for the prior written approval of the SBA.
The opinions herein are limited to the federal laws of the United States, and I express no opinion as to the effect on the matters covered by this opinion of the laws of any other jurisdiction.
This opinion is rendered solely for your benefit in connection with the transactions described above. This opinion may not be used or relied upon by any other person and may not be disclosed, quoted, filed with a governmental agency or otherwise referred to without my prior written consent.
Very truly yours,
Law Offices of R. Michael Haynes
By:_____________________________
R. Michael Haynes
[Letterhead of Palmer & Dodge]
______________, 199__
LNC Investments, Inc.,
Leucadia, Inc. and
Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Gentlemen:
We have acted as counsel to Medallion Financial Corp., a Delaware corporation ("MFC"), in connection with the preparation, authorization, execution and delivery of, and the consummation of the transactions contemplated by, the Stock Purchase Agreement by and among MFC, Transportation Capital Corp., a New York corporation ("TCC"), LNC Investments, Inc., a Delaware corporation ("Stockholder"), Leucadia, Inc., a New York corporation ("LI"), and Leucadia National Corporation, a New York corporation ("Leucadia"), dated as of February 12, 1996 (the "Stock Purchase Agreement'), the Escrow Agreement dated as of the date hereof by and among MFC and Stockholder (the "Escrow Agreement") (the Stock Purchase Agreement and the Escrow Agreement being collectively referred to as the "Agreements"). This opinion is rendered to you pursuant to Section 6.2 of the Stock Purchase Agreement. Capitalized terms defined in the Stock Purchase Agreement and used but not otherwise defined herein are used herein as so defined.
In so acting, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Agreements and such corporate records, agreements, documents and other instruments, and such certificates or comparable documents of public officials and of officers and representatives of MFC and have made such inquiries of such officers and representatives of MFC as we have deemed relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. As to all questions of fact material to this opinion which have not been independently established, we have relied upon certificates or other comparable documents of officers and representatives of MFC and upon the representations and warranties of MFC contained in the Stock Purchase Agreement. As used
herein "to our knowledge" means the conscious awareness of facts or other information by any lawyer in our firm actively involved in negotiating the transactions contemplated by the Stock Purchase Agreement.
The opinions herein are limited to the Laws of the Commonwealth of Massachusetts, the corporate laws of the State of Delaware, and the federal laws of the United States, and we express no opinion as to the laws of other jurisdictions. For purposes of this opinion, we assume that the laws of the State of Delaware other than the corporate laws of the State of Delaware are identical to the laws of the Commonwealth of Massachusetts.
Based on the foregoing and subject to the qualifications stated herein, we are of the opinion that:
1. MFC is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
2. MFC has all requisite corporate power and authority to execute and deliver the Agreements and to perform its obligations thereunder. The execution, delivery and performance of the Agreements by MFC and the consummation by MFC of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of MFC. The Agreements have been duly and validly executed and delivered by MFC and (assuming the due authorization, execution and delivery of the Agreements by TCC, Stockholder, LI and Leucadia) the Agreements constitute the legal, valid and binding obligations of MFC, enforceable against it in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification thereunder may be limited by federal or state securities laws or public policy relating thereto.
3. The execution and delivery of the Agreements, the consummation of the
transactions contemplated thereby and compliance by MFC with any of the
provisions thereof will not conflict with, constitute a default under or violate
(i) any of the terms, conditions or provisions of the certificate of
incorporation or by-laws of MFC, (ii) any of the terms, conditions or provisions
of any document, agreement or other instrument to which MFC is a party or by
which it is bound of which we are aware or (iii) any Delaware corporate or
federal law or regulation (other than federal and state securities or blue sky
laws, and except for any approvals required from the United States Small
Business Administration (the "SBA") for the transfer of control of TCC to MFC
pursuant to the Stock Purchase Agreement or (iv)
any judgment, writ injunction, decree, order or ruling of any court or governmental authority binding on MFC of which we are aware.
4. No consent, approval, waiver, license or authorization or other action by or filing with any Delaware corporate or federal governmental authority is required in connection with the execution and delivery by MFC of the Agreements or the consummation by MFC of the transactions contemplated thereby except for any approvals required from the SBA for the transfer of control of TCC to MFC pursuant to the Stock Purchase Agreement.
This opinion is rendered solely for your benefit in connection with the transactions described above. This opinion may not be used or relied upon by any other person and may not be disclosed, quoted, filed with a governmental agency or otherwise referred to without our prior written consent.
Very truly yours,
ASSET PURCHASE AGREEMENT
between
MEDALLION FINANCIAL CORP.,
and
EDWARDS CAPITAL COMPANY
Dated as of February 21, 1996
TABLE OF CONTENTS
SECTION 1 - SALE AND PURCHASE OF ASSETS............................................ 1
1.1 Sale of Assets.......................................................... 1
1.2 Assumption of Liabilities............................................... 1
1.3 Purchase Price and Payment.............................................. 2
1.4 Closing Adjustment...................................................... 2
1.5 Additional Payments at Closing.......................................... 4
1.6 Post Closing Adjustment................................................. 4
1.7 Transfer of Purchased Assets............................................ 5
1.8 Delivery of Records and Contracts....................................... 6
1.9 MFC Designees........................................................... 6
1.10 The Closing............................................................. 6
1.11 Allocation of Purchase Price............................................ 6
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF EDWARDS.............................. 7
2.1 Organization............................................................ 7
2.2 Authorization and Validity of the Agreement............................. 7
2.3 Subsidiaries and Other Affiliates....................................... 7
2.4 Certificate of Limited Partnership; General Partner; Books and Records.. 7
2.5 Financial Statements.................................................... 8
2.6 Absence of Undisclosed Liabilities...................................... 8
2.7 No Material Adverse Change.............................................. 8
2.8 Tax Matters............................................................. 10
2.9 Compliance with Laws.................................................... 10
2.10 Consents; No Breach..................................................... 11
2.11 Actions and Proceedings................................................. 11
2.12 Contracts and Other Agreements.......................................... 12
2.13 Real Property; Leases................................................... 14
2.14 Tangible Property....................................................... 14
2.15 Intellectual Property................................................... 14
2.16 Title to Assets; Liens; Sufficiency..................................... 15
2.17 Accounts and Notes Receivable........................................... 15
2.18 Customers............................................................... 15
2.19 Employee Benefit Plans.................................................. 15
2.20 Employee Relations...................................................... 16
2.21 Relationships with Affiliates........................................... 16
2.22 Insurance............................................................... 16
2.23 Banking Relationships................................................... 17
2.24 Brokerage............................................................... 17
2.25 Hazardous Materials..................................................... 17
2.26 Full Disclosure......................................................... 18
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SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC.................................. 18
3.1 Organization........................................................... 18
3.2 Authority to Execute and Perform Agreement............................. 18
3.3 Consents; No Breach.................................................... 19
3.4 Other Agreements....................................................... 19
3.5 Actions and Proceedings................................................ 19
3.6 Brokerage ............................................................. 19
SECTION 4 - COVENANTS AND AGREEMENTS............................................... 20
4.1 Conduct of Business.................................................... 20
4.2 Examinations and Investigations........................................ 22
4.3 Consummation of Agreement.............................................. 23
4.4 Further Assurances..................................................... 23
4.5 No Publicity/Confidentiality........................................... 23
4.6 Exclusive Dealing...................................................... 24
4.7 Escrow Agreement....................................................... 24
4.8 Non-Competition........................................................ 24
4.9 Other Acquisitions..................................................... 24
4.10 Change of Name......................................................... 24
4.11 Edwards Office Sublease................................................ 25
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MFC TO
CLOSE.......................................................................... 25
5.1 Representations, Warranties and Covenants.............................. 25
5.2 Opinion of Counsel to Edwards.......................................... 25
5.3 Consents, Permits, and Approvals....................................... 25
5.4 Non-Competition Agreement.............................................. 26
5.5 Escrow Agreement....................................................... 26
5.6 Instruments of Transfer................................................ 26
5.7 Other Acquisitions..................................................... 26
5.8 Financing.............................................................. 26
5.9 1940 Act; SBA.......................................................... 26
5.10 Change of Name......................................................... 26
5.11 Adverse Proceedings.................................................... 26
5.12 Certificates........................................................... 26
5.13 Approval of Documentation.............................................. 26
5.14 Minimum Net Book Value................................................. 26
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
EDWARDS TO CLOSE............................................................... 27
6.1 Representations, Warranties and Covenants.............................. 27
6.2 Consideration.......................................................... 27
6.3 Opinion of Counsel to MFC.............................................. 27
|
6.4 Consents, Permits, and Approvals....................................... 27
6.5 Novation of Bank Loans................................................. 27
6.6 Escrow Agreement....................................................... 27
6.7 Adverse Proceedings.................................................... 28
6.8 Certificates........................................................... 28
6.9 Approval of Documentation.............................................. 28
SECTION 7 - INDEMNIFICATION........................................................ 28
7.1 Survival............................................................... 28
7.2 Obligation of Edwards to Indemnify..................................... 28
7.3 Obligation of MFC to Indemnify......................................... 28
7.4 Notice and Defense of Claims........................................... 29
7.5 Payment................................................................ 29
7.6 Limitations on Indemnification......................................... 30
SECTION 8 - TERMINATION OF AGREEMENT............................................... 30
8.1 Termination............................................................ 30
8.2 Effect of Termination.................................................. 31
SECTION 9 - MISCELLANEOUS.......................................................... 31
9.1 Notices................................................................ 31
9.2 Entire Agreement....................................................... 32
9.3 Expenses............................................................... 32
9.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
Remedies............................................................... 32
9.5 Governing Law.......................................................... 33
9.6 Binding Effect; No Assignment.......................................... 33
9.7 Variations in Pronouns................................................. 33
9.8 Counterparts........................................................... 33
9.9 Exhibits and Schedules................................................. 33
9.10 Headings............................................................... 33
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EXHIBITS
A - Instrument of Assumption of Liabilities
B - Bill of Sale
C - Escrow Agreement
D - Non-Competition Agreements
E - Opinion of Counsel to Edwards
F - Opinion of Counsel to MFC
SCHEDULES
1.1.A Purchased Assets 1.1.B Excluded Assets 1.2 Assumed Liabilities 1.11 Allocation of Purchase Price -- Disclosure Schedule -- MFC Disclosure Schedule |
ASSET PURCHASE AGREEMENT
WITNESSETH
WHEREAS, MFC wishes to purchase, and Edwards wishes to sell, substantially all of the assets and business of Edwards, for the consideration set forth below and the assumption of certain of Edward's liabilities set forth below, subject to the terms and conditions of 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 - SALE AND PURCHASE OF ASSETS
1.3.1 To Edwards, the Purchase Price, less the amount delivered to the Escrow Agent pursuant to Section 1.3.2, payable in immediately available funds by wire transfer to an account designated by Edwards.
1.4.1 "Net Book Value" means the excess of the "Finance Receivables" over the total of "Bank Loans Payable" and "Subordinated Debentures Payable" as those terms are used in the Edwards financial statements excluding Accrued Interest Receivable on the
Finance Receivables and accrued interest payable on the Bank Loans Payable and on the Subordinated Debentures Payable, determined in accordance with generally accepted accounting principles as applied by Edwards in its financial statements for the six and nine month periods ended June 30 and September 30, 1995 (the
1.4.3 If the Net Book Value reflected on the Preliminary Closing Date
Valuation Certificate is less than $8,700,000, the Purchase Price provided for
in Section 1.3 shall be reduced by the amount of the deficiency; and, if such
Net Book Value is greater than $8,700,000, the Purchase Price provided for in
Section 1.3 shall be increased by the amount of the excess, provided that the
reduction or increase may not exceed $1,000,000 in any case. If the increase
exceeds $1,000,000, Edwards may liquidate and distribute sufficient assets in
the amount of the excess, unless MFC agrees to pay such excess as part of the
Purchase Price. The assets to be liquidated or distributed shall be subject to
MFC's approval, which shall not be unreasonably withheld. If the decrease
exceeds $1,000,000, MFC may terminate this Agreement or may waive the condition
to closing set forth in Section 5.14 of this Agreement and agree to pay the
Purchase Price as adjusted, provided that the adjustment in that case shall not
exceed the sum of $1,000,000 plus the amount of any distributions (other than
distributions from net profits consistent with past practices) made by Edwards
to its partners subsequent to March 31, 1995.
1.4.4 The Preliminary Closing Date Valuation Certificate shall also include the calculations required by Section 1.5 of this Agreement, as of the Closing Date, which shall be determined in accordance with generally accepted accounting principles as applied by Edwards in the "Interim Financial Statements", including, without limitation, as Edwards has historically accounted for valuations, reserves, allowances, write-offs and accruals.
In addition to and independent of the Purchase Price, at the Closing MFC and Edwards shall make the following payments to each other, payable in immediately available funds by wire transfer to the account designated by the payee of such funds:
1.5.1 MFC shall pay to Edwards the sum equal to:
(i) the Accrued Interest Receivable of Edwards as reported in the Preliminary Closing Date Valuation Certificate;
(ii) the Advances to Banks on Loan Participations, as included in the Edwards General Ledger 2100 Series Accounts labeled by bank and borrowers, as historically combined in the Interim Balance Sheet item entitled Prepaid Expenses and Other Assets, as reported in the Preliminary Closing Date Valuation Certificate; and
(iii) the accrued participation agreement servicing income as included by the accountants for Edwards in their work paper schedule entitled Syndicated Income Accrual, as posted to the Miscellaneous Receivables General Ledger Account Number 1785 and as combined in the Interim Balance Sheet item entitled Prepaid Expenses and Other Assets, as reported in the Preliminary Closing Date Valuation Certificate.
1.5.2 Edwards shall pay to MFC the amount of accrued interest payable on the Bank Loans Payable and on the Subordinated Debentures Payable as included by the accountants for Edwards in their work paper account entitled Accounts Payable and Accrued Expenses General Ledger Account Number 2600, as combined in the Interim Balance Sheet item entitled Accounts Payable and Accrued Expenses, as reported in the Preliminary Closing Date Valuation Certificate.
1.5.3 The payments due pursuant to subsections 1.5.1 and 1.5.2 (the
1.6.2 Edwards shall have 30 days after receipt of the Final Closing Date Valuation Certificate to assert any disagreement with such items by written notice to MFC which specifies in reasonable detail the nature and extent of its disagreement. If such notice is not given within 30 days, the amounts reflected on the Final Closing Date Valuation Certificate shall be final and binding on Edwards. If the parties are unable to resolve any properly asserted disagreement within 30 days after Edward's response, an independent accounting firm other than MFC's Auditors (with no material relationship to MFC or Edwards) shall be chosen by mutual agreement of MFC and Edwards. Such independent accounting firm shall review and resolve the disputed items and deliver a report of its conclusions to each party to this Agreement and to the Escrow Agent, which report shall be final and binding on all parties. The cost of such review shall be borne equally by MFC and Edwards. If the report of the independent accounting firm indicates that a correction should be made to the previously delivered Final Closing Date Valuation Certificate, such correction shall be made, and the Final Closing Date Valuation Certificate, as corrected, shall be the Final Closing Date Valuation Certificate for purposes of this Agreement.
1.6.3 If the Net Book Value as of the Closing Date computed on the basis of the Final Closing Date Valuation Certificate is less than the Net Book Value computed and paid at the Closing based on the Preliminary Closing Date Valuation Certificate, the Purchase Price shall be reduced by the amount of the deficiency in the Net Book Value, and the amount of such reduction shall be paid promptly to MFC, by the Escrow Agent to the extent provided in the Escrow Agreement, and otherwise, to the extent that the amount held by the Escrow Agent is insufficient, by Edwards in immediately available funds by wire transfer to an account designated by MFC.
1.6.4 If the Additional Payments as of the Closing Date computed on the basis of the Final Closing Date Valuation Certificate reflects a greater amount payable to or a lesser amount payable by MFC than the Additional Payments computed and paid at the Closing based on the Preliminary Closing Date Valuation Certificate, such amount shall be paid promptly to MFC, by the Escrow Agent to the extent provided in the Escrow Agreement, and otherwise, to the extent that the amount held by the Escrow Agent is insufficient, by Edwards in immediately available funds by wire transfer to an account designated by MFC.
be reasonably necessary and effective to transfer to MFC title to all the Purchased Assets. Such other instruments of transfer (a) shall be in the form and contain warranties, covenants and other provisions (not inconsistent with the provisions hereof) which are usual and customary for transferring the type of property involved under the laws of the jurisdictions applicable to such transfers, (b) shall be in form and substance reasonably satisfactory to MFC and its counsel, and (c) shall effectively vest in MFC good and marketable title to all the Purchased Assets free and clear of all Encumbrances other than Permitted Encumbrances.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF EDWARDS
(i) any material adverse change in the assets, liabilities, condition (financial or otherwise), results of operation, business or prospects of Edwards or any occurrence or circumstance which reasonably could be expected to result in such a material adverse change;
(ii) any material change in the method of operating the business of Edwards, in the manner of keeping the books, accounts or records of Edwards, or in any accounting method or practice of Edwards;
(iii) any sale, lease, mortgage, pledge, encumbrance, abandonment or disposition of, or agreement to sell, lease, mortgage, pledge, encumber, abandon or dispose of, any assets or properties of Edwards, other than in the usual and ordinary course of business;
(iv) any transaction, commitment, contract or agreement entered into by Edwards, or any relinquishment or abandonment by Edwards of any contract or right, or any modification, waiver, amendment, release, recision, or termination of any term, condition or provision of any contract pertaining to Edwards (other than any satisfaction by performance in accordance with the terms thereof), other than in the usual and ordinary course of business;
(v) any adverse relationships or conditions with employees, suppliers, lenders, customers or governmental agencies that may have a material adverse effect on Edwards or the Business or on the Purchased Assets;
(vi) any new material obligation or liability of Edwards for borrowed money, other than borrowings in the usual and ordinary course of business;
(vii) any acquisition by Edwards (other than equipment acquired in the ordinary course of business) of all or any part of the assets, properties, capital stock or business of any other person or entity;
(viii) any redemption or other acquisition by Edwards of any partnership interest in Edwards or any declaration, setting aside or payment of any dividend or distribution of any kind to any partner of or with respect to any partnership interest in Edwards, other than cash distributions of current income in accordance with prior practices;
(ix) any loan or advance by Edwards to any partner, employee or consultant, or any other loan or advance other than in the ordinary course of business; or
(x) any new employment or consulting agreement, any increase in compensation, bonus or other benefits payable or to become payable by Edwards to any partner or employee, other than regularly scheduled increases consistent with past practice in the ordinary course of business, or any new grant of severance or termination rights, or increase in rights or benefits payable under existing severance or termination policies or agreements, to any partner or employee of Edwards.
2.8.2 Edwards has in accordance with applicable law timely filed all Tax reports or returns required to be filed by it through the date hereof and paid all Taxes and other charges shown as due thereon. Each of the Tax reports and returns filed by Edwards correctly and accurately reflects the amount of its Tax liability for such period and other required information. There has not been any audit or other examination of any Tax return filed by Edwards and no audit or other examination of any Tax return of Edwards is in progress and Edwards has not been notified by any Tax authority that any such audit or other examination is contemplated or pending. No extension of time with respect to any date on which a Tax return was or is to be filed by Edwards is in force, and no waiver or agreement by Edwards is in force for the extension of time for the assessment or payment of any Tax. No claim has ever been made by an authority in a jurisdiction where Edwards does not file reports or returns that Edwards is or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of the assets of Edwards that arose in connection with any failure (or alleged failure) to pay any Taxes.
2.9.3 Edwards has timely filed with the SBA all reports required to be filed including all reports on Form 468. Edwards has previously delivered to MFC a correct and complete copy of the report on Form 468 most recently filed with the SBA and dated December 31, 1994. To the best knowledge of Edwards, all information required to be included in said Form 468 is included therein and all such information is correct and complete in all material respects.
Edwards or any of its partnership interests, assets or properties. To the best knowledge of Edwards, there is no fact, event or circumstance that reasonably could be expected to give rise to any such action, suit, claim, proceeding or investigation.
(i) contracts and other agreements with or for the benefit of any current or former partner, employee, consultant, agent or other representative of Edwards and contracts and other agreements for the payment of fees or other consideration to any entity in which any of the foregoing has an interest;
(ii) contracts and other agreements with any labor union or association representing any employee of Edwards or otherwise providing for any form of collective bargaining;
(iii) contracts and other agreements for the purchase or sale of materials, supplies, equipment, merchandise or services in excess of $25,000 or for a term of more than one year that contain an escalation, renegotiation or redetermination clause or that obligate Edwards to purchase all or substantially all of its requirements of a particular product from a supplier, or for periodic minimum purchases of a particular product from a supplier;
(iv) contracts and other agreements for the sale of any of the assets or properties of Edwards other than in the ordinary course of business or for the grant to any person of any options, rights of first refusal, or preferential or similar rights to purchase any of such assets or properties;
(v) partnership or joint venture agreements;
(vi) contracts or other agreements under which Edwards agrees to act as surety or guarantor for or to indemnify any party or to share the tax liability of any party;
(vii) contracts, options, outstanding purchase orders and other agreements for the purchase of any asset, tangible or intangible;
(viii) contracts and other agreements that cannot by their terms be canceled by Edwards and any successor or assignee of Edwards without liability, premium or penalty on less than thirty (30) days' notice;
(ix) contracts and other agreements with customers, suppliers or other parties for the sharing of fees, the rebating of charges or other similar arrangements;
(x) contracts, stipulations or agreements with the SBA;
(xi) contracts and other agreements containing obligations or liabilities of any kind to holders of partnership interests in or other securities of Edwards as such (including, without limitation, an obligation to register any of such securities under any federal or state securities laws);
(xii) contracts and other agreements containing covenants of Edwards not to compete in any line of business or with any person or entity or covenants of any other person or entity not to compete with Edwards in any line of business;
(xiii) contracts and other agreements relating to the acquisition by Edwards of any operating business or the capital stock of any other person or entity;
(xiv) contracts and other agreements requiring the payment to any party of a brokerage or sales commission or a finder's or referral fee;
(xv) contracts, indentures, mortgages, promissory notes, debentures, loan agreements, guaranties, security agreements, pledge agreements, and other agreements and instruments relating to the borrowing or lending of money or securing any such liability;
(xvi) any agreement or series of related agreements requiring aggregate payments by or to Edwards of more than $25,000;
(xvii) contracts under which Edwards will acquire or has acquired ownership of, or license to, intangible property, including software;
(xviii) leases, subleases or other agreements under which Edwards is lessor or lessee of any real property; or
(xix) any other material contract or other agreement whether or not made in the ordinary course of business that has or may have a material effect on Edwards' business or prospects, condition, financial or otherwise, or any of the assets or properties of Edwards.
in default under any of them, nor, to the best knowledge of Edwards, is any other party to any such contract or other agreement in default thereunder, nor, to the best knowledge of Edwards, does any condition exist that constitutes or with notice or lapse of time or both would constitute a default thereunder, except for defaults by borrowers on loans secured by taxicab medallions at levels, individually and in the aggregate, which are not material.
Each Plan has been administered in all material respects in accordance with the
terms of such Plan and the provisions of any and all statutes, orders or
governmental rules or regulations, including without limitation ERISA and the
Code, and to the knowledge of Edwards nothing has been done or omitted to be
done with respect to any Plan that would result in any material liability on the
part of Edwards under Title I of ERISA or Section 4975 of the Code. All reports
required to be filed with respect to all Plans, including without limitation
annual reports on Form 5500, have been timely filed except where the failure to
so file would not have a Material Adverse Effect. No "reportable event" as
defined at Section 4043 of ERISA, other than any such event for which the
thirty-day notice period has been waived, has occurred with respect to any
pension plan subject to Title IV of ERISA. With respect to all pension plans
subject to Title IV of ERISA, such plans have no unfunded benefit liabilities,
all contributions to such plans under the minimum funding requirements of
Section 412 of the Code have been made and all premium payments to the Pension
Benefit Guaranty Corporation with respect to such plans have been made. All
claims for welfare benefits incurred by employees on or before the Closing are
or will be fully covered by third-party insurance policies or programs. Except
for continuation of health coverage to the extent required under Section 4980B
of the Code or as otherwise set forth in this Agreement, there are no
obligations under any welfare plan providing benefits after termination of
employment.
the expiration date and all claims in excess of $10,000 made thereunder within the prior twelve months. Such policies and binders are in full force and effect, are reasonably believed to be adequate for the Business, are in conformity with the requirements of all leases or other agreements to which Edwards is a party and are valid and enforceable in accordance with their terms. All premiums due under such policies and binders have been paid, and Edwards is not in default with respect to any provision contained in any such policy or binder nor has Edwards failed to give any notice or present any claim under any such policy or binder in due and timely fashion. There are no outstanding unpaid claims under any such policy or binder. Edwards has not received notice of cancellation or non-renewal of, or any material amendment to, or any material increase in deductibles or premiums under, any such policy or binder. Correct and complete copies of all such policies and binders have been provided or made available by Edwards to MFC.
information available to Edwards concerning any environmental or health and safety matter relevant to Edwards, whether generated by Edwards or others, including, without limitation, environmental audits, environmental risk assessments, site assessments, documentation regarding off-site disposal of Hazardous Materials, spill control plans, and reports, correspondence, permits, licenses, approvals, consents and other authorizations related to environmental or health and safety matters issued by any governmental agency.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC
MFC represents and warrants to Edwards as follows:
SECTION 4 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
4.1.1 Affirmative Covenants Pending Closing. Edwards will:
-------------------------------------
(i) Preservation of Personnel. Use best efforts to preserve
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|
intact Edwards' business organization and keep available the services of Edwards' present employees (except for the termination of an employee for good cause);
December 31, 1995 and, at MFC's expense, with such other financial statements and other financial reports concerning Edwards as may be required in connection with a public offering of MFC's common stock or as MFC may otherwise reasonably request, such financial statements to be prepared from and in accordance with the books and records of Edwards, to be prepared in accordance with generally accepted accounting principles applied consistently with past practices and to present fairly the financial position and results of operation of Edwards as of the date and for the period indicated; provided, however, that any representations and warranties given by Edwards to MFC's auditors shall not enlarge the representations and warranties of Edwards given to MFC in this Agreement.
4.1.2 Negative Covenants Pending Closing. Edwards will not:
----------------------------------
(i) Disposition of Assets. Sell or transfer, or mortgage, pledge
---------------------
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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 and Permitted Encumbrances;
for borrowed money, enter into any contracts or commitments involving payments to or by Edwards of $25,000 or more, or cancel any debts or claims, provided that nothing herein shall prevent Edwards from increasing its bank lines of credit and SBA debt by not more than $5,000,000 in the aggregate or such additional amount as MFC may approve, its approval not to be unreasonably withheld;
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):
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EDWARDS TO CLOSE
Each obligation of Edwards 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 Edwards):
SECTION 7 - INDEMNIFICATION
document, instrument or agreement delivered pursuant hereto, (ii) the conduct of the business following the Closing (other than to the extent arising from any misrepresentation or breach of warranty by Edwards hereunder) or (iii) any untrue statement or alleged untrue statement of any material fact in the registration statement or prospectus filed or used in connection with MFC's public offering, including without limitation any combining and combined financial statements of MFC, except for information provided by Edwards.
(a) No indemnification shall be payable pursuant to Section 7.2 or
Section 7.3 unless and until the amount of all claims for indemnification
pursuant to the applicable Section exceeds $100,000 in the aggregate, whereupon
indemnification pursuant to such Sections shall be payable for all such claims
without any deduction.
(c) In determining the amount of any indemnity, there shall be taken into account any tax benefit, insurance proceeds or other similar recovery or offset realized, directly or indirectly, by the party to be indemnified.
SECTION 8 - TERMINATION OF AGREEMENT
(i) at the election of Edwards upon written notice to MFC if MFC has 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 Edwards of such breach of representation, warranty, covenant or agreement, cured such breach;
(ii) at the election of MFC upon written notice to Edwards if Edwards has breached any representation, warranty, covenant or agreement contained in this Agreement and has not, within twenty (20) business days of receipt by Edwards of written notice from MFC of such breach of representation, warranty, covenant or agreement, cured such breach;
(iii) at any time on or prior to the Closing Date by written agreement of the parties hereto;
(iv) at the election of MFC upon written notice to Edwards at any time within twenty (20) days after the date hereof if MFC is not satisfied with the results of its evaluation of the Business based on the information regarding Edwards' customers and bank loan and participation agreements and arrangements made available to MFC less than five business days prior to the execution of this Agreement; or
(v) by any party if, without fault of such party, the Closing shall not have occurred by April 30, 1996, which date may be extended by mutual agreement of the parties.
SECTION 9 - MISCELLANEOUS
(i) if to MFC, to:
Medallion Financial Corp.
205 East 42nd Street
New York, NY 10017
Attention: Andrew Murstein
Fax: (212) 983-0351
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Attention: Steven N. Farber, Esquire
Fax: (617) 227-4420
(ii) if to Edwards:
Harvard Servicing Corp.
c/o Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Edward M. Abramson
Fax: (212) 889-7577
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Michael Heitner, Esquire
Fax: (212) 889-7577
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.
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.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written.
MEDALLION FINANCIAL CORP.
By:/s/ Andrew Murstein ---------------------------------- |
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written.
MEDALLION FINANCIAL CORP.
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
/s/ Edward Abramson ----------------------------------- By |
This Instrument of Assumption of Liabilities dated _______ ___, 1996, is made by Medallion Financial Corp., a Delaware corporation (the "Buyer"), in favor of Edwards Capital Company, a New York limited partnership (the "Seller"). All capitalized words and terms used in this Instrument of Assumption of Liabilities and not defined herein shall have the respective meanings ascribed to them in the Asset Purchase Agreement dated as of February ___, 1996 between the Seller and the Buyer (the "Purchase Agreement"). All schedules to the Purchase Agreement which are referred to herein are incorporated herein by reference.
WHEREAS, pursuant to the Purchase Agreement, the Seller has agreed to sell, assign, transfer, convey, and deliver to the Buyer and the Buyer has agreed to purchase, the Purchased Assets;
WHEREAS, in partial consideration therefor, the Buyer has agreed to assume certain specified liabilities of the Seller.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Buyer hereby agrees as follows:
2. The Buyer hereby covenants and agrees that it will, at the request of the Seller and without consideration, execute and deliver, and will cause its employees to execute and deliver, such other instruments of assumption and performance, and take such other action as may be reasonably necessary to cause the Buyer to more effectively assume and perform the Assumed Liabilities and to carry out the purpose and intent of the Purchase Agreement.
3. Nothing contained herein shall require the Buyer to perform, pay or discharge any obligation, liability or commitment expressly assumed by the Buyer herein so long as the Buyer in good faith contests or causes to be contested the amount or validity thereof and has posted any bonds or other surety required in connection therewith, provided that the foregoing shall not relieve the Buyer of its obligation to indemnify and hold harmless the Seller from any Assumed Liabilities being so contested.
4. Nothing herein shall be deemed to deprive the Buyer of any defenses, set-offs or counterclaims which the Seller may have had or which the Buyer shall have with respect to any of the obligations, liabilities and commitments hereby assumed (the "Defenses and Claims"). The Seller hereby transfers, conveys and assigns to the Buyer all Defenses and
Claims and agrees to cooperate with the Buyer to maintain, secure, perfect and enforce such Defenses and Claims, including the signing of any documents, the giving of any testimony or the taking of any such other action as is reasonably requested by the Buyer in connection with such Defenses and Claims.
5. The Buyer, by its execution of this Instrument of Assumption of Liabilities, and the Seller, by its acceptance of this Instrument of Assumption of Liabilities, each hereby acknowledges and agrees that neither the representations and warranties nor the rights and remedies of either party under the Purchase Agreement shall be deemed to be enlarged, modified or altered in any way by such execution and acceptance of this instrument.
IN WITNESS WHEREOF, the Buyer and the Seller have caused this instrument to be duly executed as of and on the date first above written.
BUYER:
MEDALLION FINANCIAL CORP.
By:_________________________________
SELLER:
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
By: _________________________________
This Bill of Sale dated _______ ___, 1996 is executed and delivered by Edwards Capital Company, a New York limited partnership (the "Seller"), to Medallion Financial Corp., a Delaware corporation (the "Buyer"). All capitalized words and terms used in this Bill of Sale and not defined herein shall have the respective meanings ascribed to them in the Asset Purchase Agreement dated as of February ___, 1996 among the Seller and Buyer (the "Purchase Agreement"). All schedules to the Purchase Agreement which are referred to herein are incorporated herein by reference.
WHEREAS, pursuant to the Purchase Agreement, the Seller has agreed to sell, assign, transfer, convey and deliver to the Buyer, and the Buyer has agreed to purchase, the Purchased Assets.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller hereby agrees as follows:
1. The Seller hereby sells, assigns, transfers, conveys, and delivers to the Buyer, its successors and assigns, to have and to hold forever, the Purchased Assets.
2. The Seller hereby covenants and agrees that it will, at the request of the Buyer and without further consideration, execute and deliver, and will cause its employees to execute and deliver, such other instruments of sale, transfer, conveyance and assignment, and take such other action as may reasonably be necessary to more effectively sell, transfer, convey, assign and deliver to, and vest in, the Buyer, its successors and assigns, good, clear, record and marketable title to the Purchased Assets hereby sold, transferred, conveyed, assigned and delivered, or intended so to be, and to put the Buyer in actual possession and operating control thereof, to assist the Buyer in exercising all rights with respect thereto and to carry out the purpose and intent of the Purchase Agreement.
3. The Seller does hereby irrevocably constitute and appoint the Buyer, its successors and assigns, its true and lawful attorney, with full power of substitution, in its name or otherwise, and on behalf of the Seller, or for its own use, to claim, demand, collect and receive at any time and from time to time any and all assets, properties, claims, accounts and other rights, tangible or intangible, hereby sold, transferred, conveyed, assigned and delivered, or intended so to be, and to prosecute the same at law or in equity and, upon discharge thereof, to complete, execute and deliver any and all necessary instruments of satisfaction and release.
4. This sale, transfer, conveyance and assignment has been executed and delivered by the Seller in accordance with the Purchase Agreement and is expressly made subject to (i) Permitted Encumbrances and (ii) those liabilities, obligations and commitments
which the Buyer has assumed and agreed to pay, perform and discharge pursuant to a certain Instrument of Assumption of Liabilities executed by the Buyer of even date herewith.
5. The Seller, by its execution of this Bill of Sale, and the Buyer, by its acceptance of this Bill of Sale, each hereby acknowledges and agrees that neither the representations and warranties nor the rights and remedies of any party under the Purchase Agreement shall be deemed to be enlarged, modified or altered in any way by this instrument.
IN WITNESS WHEREOF, the Seller and the Buyer have caused this instrument to be duly executed under seal as of and on the date first above written.
SELLER:
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
By:_________________________________
ACCEPTED:
BUYER:
MEDALLION FINANCIAL CORP.
By:______________________________
WHEREAS, the Purchase Agreement provides for the payment and delivery by MFC of money into the escrow hereby established, to be held and dealt with by the Escrow Agent as herein provided;
NOW THEREFORE, the parties agree as follows:
The Purchase Agreement is by this reference incorporated herein and made a part of this Agreement to the same extent as if its terms were fully set forth herein. Terms defined in the Purchase Agreement shall have their defined meanings when used herein unless the context otherwise requires.
distribute any amount in excess of One Million Dollars ($1,000,000) then in the Escrow Fund to Edwards. Edwards and MFC agree to promptly give such notice upon completion of the post closing adjustment procedures set forth in Section 1.6 of the Purchase Agreement.
MFC under the Purchase Agreement shall not be satisfied or extinguished to the extent any Claim is not satisfied by payment of the amounts described hereunder, and MFC shall be entitled to recover the balance of any amounts owed to it thereunder, subject to the conditions set forth in the Purchase Agreement.
it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties.
Any party may by notice given in accordance with this Section to the other parties designate another address or person for receipt of notice.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.
MEDALLION FINANCIAL CORP.
By:_____________________________
EDWARDS CAPITAL COMPANY
By: HARVARD SERVICING CORP.,
its sole General Partner
By: ____________________________
[ ], as
Escrow Agent
By:_____________________________
Title:
This Agreement dated _________ ___, 1996 is by and between Medallion Financial Corp., a Delaware corporation ("MFC"), and
______________________________________ (the "Covenantor").
This Agreement is entered into pursuant to an Asset Purchase Agreement dated February __, 1996 (the "Purchase Agreement") among MFC and Edwards Capital Company, a New York limited partnership ("Edwards"), pursuant to which MFC is purchasing from Edwards substantially all of the assets of Edwards. The parties desire to assure to MFC the benefits of the assets purchased by MFC pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties agree as follows:
(a) own, manage, operate, control, finance, promote, or engage in any business involving the financing of taxicabs or taxicab medallions or the making of loans secured by taxicab medallions ("Medallion Lending") in any geographic market in which MFC or its affiliates is or then proposes to be engaged;
(b) solicit the employment of or hire or attempt to hire any person who was employed by Edwards within 90 days prior to the date hereof, or encourage or attempt to induce any such employee to terminate his or her employment with MFC or its affiliates for any reason; or
(c) call upon or solicit any Medallion Lending customer of MFC or its affiliates who was a Medallion Lending customer of Edwards within 12 months prior to the date hereof with a view to doing Medallion Lending business in any geographic market of MFC or its affiliates.
[The covenant set forth above in this Section 1 shall not be violated by and shall not prevent the Covenantor from (i) owning less than one percent (1%) of the capital stock of any publicly-traded company or (ii) being affiliated as a shareholder or director with New York Federal Savings Bank (the "Bank") and acting in such capacity, regardless of whether
or not the Bank engages in Medallion Lending, and nothing herein shall in any way restrict or bind the Bank. Covenantor represents that, to the best of his knowledge, the Bank is not now engaged in and has no plans to engage in the Medallion Lending business.]*
* Applicable to Edward M. Abramson.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date first above written.
MEDALLION FINANCIAL CORP.
By:______________________________
COVENANTOR:
Form of Herrick, Feinstein Opinion
_________ , 1996
Medallion Financial Corporation
205 East 42nd Street
New York, NY 10017
Ladies and Gentlemen:
Medallion Financial Corporation
__________, 1996
standing under the laws of the State of Delaware and has the full corporate power to enter into the Agreement and to all other agreements and documents executed and delivered by the Purchaser in connection with the Agreement; (ii) the execution and delivery of the Agreement and all other documents and instruments executed and delivered by the Purchaser in connection with the Agreement have been duly authorized by all necessary corporate actions and proceedings on the part of the Purchaser; and (iii) the Agreement and all other documents and instruments executed by the Purchaser in connection with the Agreement have been duly executed and delivered by the Purchaser and constitute the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with their respective terms.
In rendering this opinion, we are acting solely in our capacity as counsel to the Seller. Any references in this opinion to matters "with which we are familiar," or that are "known to us" or statements made "to our knowledge" or any similar qualification relating to our knowledge refer only to the actual present knowledge of attorneys of our firm who have been involved as such in rendering this opinion or otherwise engaged in representing the Seller.
Based on the foregoing, but subject to the assumptions and qualifications set forth herein, we are of the opinion that:
1. The Seller is validly existing and in good standing as a limited partnership under the laws of the State of New York with full power and authority to own, lease and operate its assets and to carry on its business as now being conducted, and to execute and deliver the Agreement and to perform its obligations thereunder.
2. The General Partner is validly existing and in good standing as a corporation under the laws of the State of New York with full corporate power and authority to act as general partner of the Seller.
3. The execution and delivery by the Seller of the Agreement and the performance by the Seller of its obligations thereunder have been duly authorized by all necessary action on the part of the Seller and by all necessary corporate action on the part of the General Partner. The Agreement has been duly executed and delivered by the Seller and assuming the receipt of all required consents and approvals set forth in the Agreement or the Schedules thereto, the Agreement constitutes (assuming due authorization, execution and delivery thereof by the Purchaser) the valid and binding obligation of the Seller, enforceable against the Seller 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.
Medallion Financial Corporation
__________, 1996
4. Assuming the receipt of all required consents and approvals set forth in the Agreement or the Schedules thereto have been obtained, the execution and delivery by the Seller of the Agreement and the performance by it of its obligations thereunder will not violate or contravene any provision of the Seller's Certificate of Limited Partnership and Agreement of Limited Partnership or of the articles of incorporation or by-laws of the General Partner or, to our knowledge, violate, conflict with or result in a breach of any agreement to which the Seller or the General Partner is, to our knowledge, a party or to which either of them or their assets are bound or subject.
5. To our knowledge, assuming the receipt of all required consents and approvals set forth in the Agreement or the Schedules thereto have been obtained, no approval or consent of, or registration or filing with, any governmental or regulatory body is required to be obtained or made by the Seller or the General Partner, to our knowledge, in connection with the execution, delivery and performance by the Seller of the Agreement other than those which have been obtained or made.
6. To our knowledge without investigation, there are no actions or proceedings pending or threatened against or involving the Seller or the General Partner or any of their assets seeking to restrain, modify or prevent the carrying out of the transactions contemplated by the Agreement.
7. Upon consummation of the transactions contemplated by the Agreement in accordance with its terms including, without limitation, payment of the Purchase Price to the Seller, the Purchaser will have acquired all of the Seller's right, title and interest in and to the Purchased Assets contemplated to be acquired by the Purchaser under the Agreement.
We have advised you that partners of this law firm or the principals of professional corporations which are partners of this firm, as well as family members and affiliates thereof, are limited partners and shareholders of the corporate general partner of the Seller.
We are members of the Bar of the State of New York and do not express any opinion as to matters governed by any laws other than the internal laws of the State of New York and the federal laws of the United States. As to matters which relate to laws of any other state or jurisdiction, we have assumed, with your permission, that to the extent any other state's or jurisdiction's laws are involved, such laws are the same as the law of the State of New York. We express no opinion as to the effect of any future amendments, changes, additions or modifications of any laws, and we assume no obligation to update or supplement this letter to reflect any facts or circumstances which may come to our attention in the future or any change in law which may occur in the future.
Medallion Financial Corporation
__________, 1996
The foregoing opinions are limited to the matter stated in this letter and no opinion shall be implied or inferred beyond the matters expressly stated. These opinions (i) are rendered solely for your benefit, (ii) may not be relied on by any other person or entity, (iii) may not be used or distributed to any other person or entity, (iv) may not be reproduced, or referred to or quoted in any financial statements, notes to financial statements, offering materials, disclosure materials or similar printed matter, and (v) may not be used in connection with any further or subsequent transactions involving the Purchaser without our prior written consent.
Very truly yours,
AMENDMENT NUMBER 1
TO
AGREEMENT OF MERGER
This Amendment Number 1 to Agreement of Merger is entered into this 22nd day of February, 1996 by and between Medallion Financial Corp. ("MFC"), a Delaware corporation, and Tri-Magna Corporation ("TMC"), a Delaware corporation. Reference is hereby made to the Agreement of Merger dated December 21, 1995 between MFC and TMC (the "Merger Agreement"), pursuant to which TMC shall be merged with and into MFC. Capitalized terms used in this Amendment that are not defined herein shall have the same meanings as contained in the Merger Agreement.
MFC and TMC desire to amend the Merger Agreement in order to extend certain times for performance set forth in Section 7.1 of the Merger Agreement. Accordingly, in consideration of the mutual promises and covenants contained in the Agreement, as amended hereby, MFC and TMC hereby agree as follows:
1. The date "January 31, 1996" in subparagraph (d)(i) of Section 7.1 is hereby deleted and replaced with "February 29, 1996".
2. The date "March 31, 1996" in subparagraph (g) of Section 7.1 is hereby deleted and replaced with "the earlier of May 31, 1996 and sixty (60) days after the notice of meeting of stockholders of TMC to approve the Merger as contemplated by Section 4.6 is first sent or given to the TMC stockholders".
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under seal as of the day and year first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein ---------------------- TRI-MAGNA CORPORATION By: /s/ Maric Russo ---------------------- |
AGREEMENT OF MERGER
between
MEDALLION FINANCIAL CORP.
and
TRI-MAGNA CORPORATION
Table of Contents
SECTION 1 - THE MERGER....................................... 1
1.1 The Merger................................... 1
1.2 Effective Time............................... 1
1.3 Effects of the Merger........................ 2
1.4 Certificate of Incorporation and Bylaws...... 2
1.5 Directors and Officers....................... 2
1.6 Conversion of Stock.......................... 2
1.7 Closing of TMC Transfer Books................ 2
1.8 Dissenting Shares............................ 2
1.9 Exchange of TMC Stock........................ 3
(a) MFC to Make Merger Consideration
Available............................... 3
(b) Exchange Procedures...................... 3
1.10 No Stockholder Liabilities................... 4
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF TMC............ 4
2.1 Organization and Qualification............... 4
2.2 Subsidiaries and Other Affiliates............ 4
2.3 Capitalization............................... 4
2.4 Authority to Execute and Perform Agreements.. 5
2.5 Financial Statements......................... 5
2.6 No Material Adverse Change................... 5
2.7 Consents; No Breach.......................... 6
2.8 Actions and Proceedings...................... 6
2.9 Certain Transactions......................... 6
2.10 Brokerage.................................... 6
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC............ 7
3.1 Organization................................. 7
3.2 Authority to Execute and Perform Agreement... 7
3.3 Consents; No Breach.......................... 7
3.4 Actions and Proceedings...................... 7
3.5 Brokerage.................................... 7
SECTION 4 - COVENANTS AND AGREEMENTS......................... 8
4.1 Conduct of Business.......................... 8
4.2 Corporate Examinations and Investigations.... 10
4.3 Consummation of Agreement.................... 10
4.4 Further Assurances........................... 10
4.5 No Publicity/Confidentiality................. 11
4.6 Stockholder Approval......................... 11
4.7 Exclusive Dealing............................ 12
4.8 Filings Under HSR Act........................ 13
4.9 Other Acquisitions........................... 13
(i)
|
4.10 Indemnification and D&O Insurance............ 13
SECTION 5 - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
MFC TO CLOSE................................. 13
5.1 Representations, Warranties and Covenants.... 13
5.2 Opinion of Counsel to TMC.................... 14
5.3 Consents, Permits, and Approvals............. 14
5.4 Approval by TMC Stockholders................. 14
5.5 Other Acquisitions........................... 14
5.6 Financing.................................... 14
5.7 1940 Act; SBA................................ 14
5.8 Adverse Proceedings.......................... 14
5.9 Certificates................................. 14
5.10 Dissenting Shares............................ 14
5.11 Approval of Documentation.................... 14
SECTION 6 - CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF TMC.................................... 15
6.1 Representations, Warranties and Covenants.... 15
6.2 Opinion of Counsel to MFC.................... 15
6.3 Fairness Opinion............................. 15
6.4 Approval by TMC Stockholders................. 15
6.5 Adverse Proceedings.......................... 15
6.6 Certificates................................. 15
6.7 Approval of Documentation.................... 15
SECTION 7 - TERMINATION OF AGREEMENT......................... 16
7.1 Termination.................................. 16
7.2 Effect of Termination........................ 16
SECTION 8 - MISCELLANEOUS.................................... 17
8.1 Notices...................................... 17
8.2 Entire Agreement............................. 18
8.3 Expenses..................................... 18
8.4 Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies........... 19
8.5 Investigation; No Survival................... 19
8.6 Governing Law................................ 19
8.7 Binding Effect; No Assignment................ 19
8.8 Variations in Pronouns....................... 20
8.9 Counterparts................................. 20
8.10 Exhibits and Disclosure Schedule............. 20
8.11 Headings..................................... 20
(ii)
|
EXHIBITS
A - Opinion of Counsel to TMC
B - Opinion of Counsel to MFC
SCHEDULES
Disclosure Schedule
Schedule A
Schedule B
Schedule C
|
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
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).
(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.
(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.
(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 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.
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:
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.
occurrence or circumstance which reasonably could be expected to result in such a material adverse change.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF MFC
MFC represents and warrants to TMC as follows:
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:
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;
(1) TMC from declaring and paying dividends to its stockholders 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);
(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.
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.
(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 "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).
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):
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):
SECTION 7 - TERMINATION OF AGREEMENT
(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 January 31, 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
(g) by either party if, without fault of such party, the Effective Time shall not have occurred by March 31, 1996, which date may be extended by mutual agreement of the parties.
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
(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:
Stanley Kreitman
Chairman, Special Committee
150 East 52nd Street
New York, NY 10022
Fax: (212) 755-0517
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.
(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 the aggregate amount of expenses to be so paid or reimbursed for which TMC is not otherwise responsible shall not exceed $650,000.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written.
MEDALLION FINANCIAL CORP.
By: /s/ Andrew Murstein ---------------------- TRI-MAGNA CORPORATION By: /s/ Marie Russo ---------------------- |
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:
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 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 filing 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 us, 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 validity and enforceability of the provisions of the Merger Agreement may be subject to or limited by 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 principals (whether such enforceability is considered in an action in equity or at law). Furthermore, no opinion is expressed as to whether any provisions 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 out prior written consent.
Very truly yours,
Nutter, McClennen & Fish
Exhibit B
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.
Based on the foregoing, but subject to the assumptions and qualifications set forth herein, we are of the opinion that:
1. The Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware.
2. The Purchaser has the corporate power and authority to execute and deliver the Merger Agreement and to carry out the terms thereof.
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.
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.
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
[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this registration statement on Form N-2 of our report dated February 21, 1996, on our audit of the balance sheet of Medallion Financial Corp., and to all references to our Firm included in this registration statement.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
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[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this registration statement on Form N-2 of our report dated November 8, 1995 (except with respect to the matter discussed in Note 12, as to which the date is February 12, 1996), on our audit of the financial statements of Transportation Capital Corp. and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
|
[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this registration statement on Form N-2 of our report dated December 14, 1995 (except with respect to the matter discussed in Note 8, as to which the date is February 21, 1996), on our audit of the financial statements of Edwards Capital Company and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
|
[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this registration statement on Form N-2 of our report dated November 6, 1995 (except with respect to the matter discussed in Note 11, as to which the date is December 21, 1995), on our audit of the financial statements of Tri-Magna Corporation and Subsidiaries and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 26, 1996
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form N-2 of our report dated October 24, 1995, on our audits of the financial statements and financial statement schedules of Transportation Capital Corp. We also consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
New York, NY
February 26, 1996
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[Friedman Alpren & Green LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this Form N-2 of our report dated January 28, 1995 included in or made a part of this registration statement.
/s/ FRIEDMAN ALPREN & GREEN LLP
New York, New York
February 23, 1996
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| ARTICLE 6 |
| 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. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1995 |
| PERIOD START | DEC 31 1995 |
| PERIOD END | DEC 31 1995 |
| INVESTMENTS AT COST | 0 |
| INVESTMENTS AT VALUE | 0 |
| RECEIVABLES | 0 |
| ASSETS OTHER | 0 |
| OTHER ITEMS ASSETS | 718,217 |
| TOTAL ASSETS | 718,217 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 0 |
| TOTAL LIABILITIES | 716,217 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 2,000 |
| SHARES COMMON STOCK | 200 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 0 |
| NET ASSETS | 2,000 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 0 |
| OTHER INCOME | 0 |
| EXPENSES NET | 0 |
| NET INVESTMENT INCOME | 0 |
| REALIZED GAINS CURRENT | 0 |
| APPREC INCREASE CURRENT | 0 |
| NET CHANGE FROM OPS | 0 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 0 |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 0 |
| NUMBER OF SHARES REDEEMED | 0 |
| SHARES REINVESTED | 0 |
| NET CHANGE IN ASSETS | 0 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 0 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 0 |
| AVERAGE NET ASSETS | 0 |
| PER SHARE NAV BEGIN | 0.00 |
| PER SHARE NII | 0.00 |
| PER SHARE GAIN APPREC | 0.00 |
| PER SHARE DIVIDEND | 0.00 |
| PER SHARE DISTRIBUTIONS | 0.00 |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 0.00 |
| EXPENSE RATIO | 0.00 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |