<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For The Quarter Ended March 31, 1999 Commission File No. 1-10176
MFN FINANCIAL CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3627010
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)
100 FIELD DRIVE, SUITE 340, LAKE FOREST, ILLINOIS 60045
- ------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 295-8600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for the
past 90 days.
Yes X No ___
---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No ___
---
Indicate the number of shares outstanding of each issuer's class of common
stock, as of the latest practicable date.
Common Stock - $.01 par value, 10,000,000 shares as of April 30, 1999.
1
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MFN FINANCIAL CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
---------------------
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets.................................. 3
Condensed Consolidated Statements of Income............................ 4
Condensed Consolidated Statements of Changes in Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows........................ 6
Notes to Condensed Consolidated Financial Statements................... 7
Review Report of Independent Public Accountants........................ 13
Condensed Consolidated Average Balance Sheets.......................... 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 15
Item 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.............................................................. 32
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings......................................................... 33
Item 2. Changes in Securities..................................................... 33
Item 3. Defaults Upon Senior Securities........................................... 33
Item 4. Submission of Matters to a Vote of Security Holders....................... 33
Item 5. Other Information......................................................... 33
Item 6. Exhibits and Reports on Form 8-K.......................................... 33
SIGNATURES......................................................................... 34
INDEX OF EXHIBITS.................................................................. 35
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MFN FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
March 31, December 31,
1999 1998
-------------- -------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents....................................... $216,105 $ 186,350
Finance receivables............................................. 623,493 643,705
Less: Allowance for finance credit losses...................... 49,938 53,485
Less: Nonrefundable dealer reserves............................ 37,504 36,820
--------- ---------
Finance receivables, net........................................ 536,051 553,400
Income tax receivable........................................... 19,225 8,599
Furniture, fixtures and equipment, net of
accumulated depreciation................................... - 3,709
Goodwill, net of amortization................................... - 12,745
Credit card portfolio held for sale, at net realizable value - 27,894
Other assets (including repossessions).......................... 11,447 5,986
--------- ---------
TOTAL ASSETS............................................... $782,828 $ 798,683
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Liabilities not subject to compromise under reorganization $ - $ 30,833
Liabilities subject to compromise under reorganization.......... - 719,770
Current portion of senior debt payable (Notes 2 and 8).......... 100,707 -
Senior secured debt (Notes 2 and 8)............................. 434,165 -
Senior subordinated debt (Notes 2 and 8)........................ 22,500 -
Income taxes 27,131 -
Litigation accrual 18,950 18,950
Accounts payable and other liabilities.......................... 44,974 -
Excess of revalued net assets over stockholders' investment 49,401 -
--------- ---------
TOTAL LIABILITIES.......................................... 697,828 769,553
Contingencies (Note 6) - -
STOCKHOLDERS' EQUITY
Common stock- Mar 31, 1999-$.01 par value; 50,000,000 shares authorized;
10,000,000 shares outstanding
Dec 31, 1998-$1 par value; 300,000,000 shares authorized;
177,900,671 shares outstanding............................. 100 177,901
Paid in capital................................................. 84,900 8,244
Retained deficit................................................ - (103,351)
Treasury stock-Mar 31,1999-0 shares
Dec 31, 1998-5,402,957 shares at cost................. - (53,664)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY................................. 85,000 29,130
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $782,828 $ 798,683
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
3
<PAGE>
MFN FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Predecessor Company
Three Months Ended
March 31,
(Dollars in thousands) 1999 1998
------------------- -------------------
<S> <C> <C>
Finance charges, fees and investment income...................... $ 37,620 $ 51,141
Interest expense................................................. 474 18,597
-------- --------
Net interest income before provision for finance credit losses... 37,146 32,544
Provision for finance credit losses.............................. 9,857 12,959
-------- --------
Net interest income after provision for finance credit losses.... 27,289 19,585
-------- --------
OTHER INCOME
Insurance premiums............................................... 815 1,357
Fees, commissions and other...................................... 2,238 2,569
-------- --------
Total other income............................................... 3,053 3,926
-------- --------
OTHER OPERATING EXPENSES
Salaries and employee benefits................................... 13,178 13,002
Occupancy expense................................................ 999 1,215
Equipment expense................................................ 767 908
Data processing expense.......................................... 469 480
Insurance claims expense......................................... - 732
Other operating expenses......................................... 4,547 6,362
-------- --------
Total other operating expenses................................... 19,960 22,699
-------- --------
OPERATING INCOME................................................. 10,382 812
NON-OPERATING (INCOME) EXPENSES (Note 10)
Reorganization items............................................. 36,717 4,255
Non-operating income............................................. - (1,965)
-------- --------
Total non-operating expenses..................................... 36,717 2,290
-------- --------
Loss before income taxes and extraordinary credit................ (26,335) (1,478)
Income tax benefit............................................... (5,287) -
-------- --------
Net (Loss) before extraordinary credit........................... (21,048) (1,478)
Extraordinary Credit:
Gain on discharge of indebtedness, net of taxes (Note 3)......... 45,570 -
-------- --------
NET INCOME (LOSS)................................................ $ 24,522 ($1,478)
======== ========
Per Common Share:
Basic ** **
Diluted ** **
</TABLE>
** Income per common share amounts as they relate to the Predecessor Company are
not meaningful due to the reorganization. See Notes 2 and 3.
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
4
<PAGE>
MFN FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands)
Total
Common Paid In Retained Treasury Stockholder's
Stock Capital Deficit Stock Equity
----- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 $ 177,901 $ 8,244 $ (49,781) $(53,664) $ 82,700
Net Income (Loss) - - (1,478) - (1,478)
--------- -------- --------- -------- --------
Balance March 31, 1998 $ 177,901 $ 8,244 $ (51,259) $(53,664) $ 81,222
========= ======== ========= ======== ========
Balance December 31, 1998 $ 177,901 $ 8,244 $(103,351) $(53,664) $ 29,130
Net Income - - 24,522 - 24,522
Effect of Reorganization and
Fresh Start Reporting:
Extinguishment of old stock (177,901) (8,244) 78,829 53,664 (53,652)
Issuance of new stock 100 84,900 - - 85,000
--------- -------- --------- -------- --------
Balance March 31, 1999 $ 100 $84,900 $ - $ - $ 85,000
========= ======== ========= ======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
5
<PAGE>
MFN FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Predecessor Company
Three Months Ended
March 31,
(Dollars in thousands) 1999 1998
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................................... $ 24,522 ($1,478)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for finance credit losses ........................ 9,857 12,959
Deferred income tax provision .............................. 17,372 27,590
Net (Gain) on discharge of indebtedness .................... (68,228) -
Extinguishment of dividend payable ......................... (12,937) -
Write-off of goodwill and fixed assets, net ................ 16,022 -
Depreciation and amortization .............................. 607 673
Net (increase) decrease in other assets .................... (2,756) 1,884
Net increase (decrease) in other liabilities ............... 13,564 (5,852)
--------- --------
Net cash (used in) provided by operating activities .... (1,977) 35,776
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on finance receivables ................. 124,206 159,312
Finance receivables originated or acquired ................. (113,939) (84,556)
Proceeds from sale of credit card portfolio ................ 22,414 -
Net purchases of furniture, fixtures and equipment ......... (175) (132)
--------- --------
Net cash provided by investing activities .............. 32,506 74,624
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of senior debt .............................. (774) (99,000)
--------- --------
Net cash used in financing activities .................. (774) (99,000)
--------- --------
Net increase in cash and cash equivalents .............. 29,755 11,400
Cash and equivalents at beginning of period ................ 186,350 53,896
--------- --------
Cash and equivalents at end of period ...................... $ 216,105 $ 65,296
========= ========
SUPPLEMENTAL CASH DISCLOSURES
Income taxes paid .......................................... $ 13,133 $ -
Interest paid to creditors ................................. 44 21,196
SUPPLEMENTAL NON-CASH DISCLOSURES
Cancellation of indebtedness ............................... 148,978 -
Extinguishment of old stock ................................ (53,652) -
Issuance of new stock ...................................... 85,000 -
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
6
<PAGE>
MFN FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. Basis of Presentation.
---------------------
The accompanying (a) condensed consolidated balance sheet as of December 31,
1998, which has been derived from audited consolidated financial statements, and
(b) unaudited interim condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although MFN Financial Corporation, f/k/a Mercury Finance Company
("MFN" or the "Company") believes that the disclosures made are adequate to make
the information presented not misleading. The condensed consolidated financial
statements of the Company, in the opinion of management, reflect all necessary
adjustments for a fair presentation of results as of the dates and for the
periods covered by the financial statements.
Due to the Company's emergence from the Voluntary Case (as hereinafter defined)
and implementation of Fresh Start Reporting, Condensed Consolidated Financial
Statements for the Reorganized Company as of March 31, 1999 and for the periods
subsequent to March 31, 1999 (the "Reorganized Company") will not be comparable
to those of the Company for the periods prior to March 31, 1999 (the
"Predecessor Company"). For financial reporting purposes, the effective date
(the "Fresh Start Effective Date") of the Plan of Reorganization (as hereinafter
defined) is considered to be the close of business on March 31, 1999. The
results of operations for the period from March 23, 1999 through March 31, 1999
were not material.
A black line has been drawn between the accompanying Condensed Consolidated
Balance Sheets as of March 31, 1999 and December 31, 1998 to distinguish between
the Reorganized Company and the Predecessor Company.
The results of the interim periods shown are for the Predecessor Company and are
not to be considered as being indicative of the results of operations that are
expected for the full year. These results will not be comparable to those of
the Reorganized Company.
The independent public accountants of the Company as of December 31, 1998, have
qualified their report on the Company's 1998 financial statements due to their
doubt as to the ability of the Company to continue as a going concern. The
accompanying financial statements have been prepared assuming that the company
will continue as a going concern. As discussed in these financial statements,
the Company has incurred losses in the years ended December 31, 1998 and 1997.
In addition, the Company emerged from Chapter 11 of the U.S. Bankruptcy Code on
March 23, 1999 and has not had significant operations as a restructured entity.
These matters raise substantial doubt about ability of MFN Financial Corporation
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. It is
suggested that unaudited interim condensed consolidated financial statements
contained herein be used in conjunction with the financial statements and the
accompanying notes to the financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated financial statements
and accompanying notes. The
7
<PAGE>
amounts which are subject to such estimation techniques include the allowance
for finance credit losses. Actual results could differ from these estimates.
2. Chapter 11 Proceedings
----------------------
On July 15, 1998, the Company filed a voluntary petition (the "Voluntary Case")
in the United States Bankruptcy Court for the Northern District of Illinois (the
"Bankruptcy Court" or the "Court") for relief under chapter 11 of title 11 of
the United States Code (the "Bankruptcy Code") along with a plan of
reorganization. The filing of the Voluntary Case and plan of reorganization
conformed to the terms previously agreed upon between the Company and
substantially all of its lenders on May 14, 1998. On July 6, 1998, several of
the litigants in the then pending securities lawsuits filed an involuntary
petition in the Bankruptcy Court asking the Court to place the Company into a
chapter 11 proceeding (the "Involuntary Case"). The Involuntary Case was
consolidated with the Voluntary Case and proceeded under Case No. 98-20763. The
Company continued to operate its business as a debtor-in-possession under the
Bankruptcy Code after the filing of the Voluntary Case.
None of the Company's subsidiaries were included in the Voluntary Case or the
Involuntary Case. After the filing of the Voluntary Case, the Company continued
to conduct its operations in the normal course through its subsidiaries, and to
pay all trade debt and dealer contracts in the ordinary course, without
interruption.
On March 10, 1999, the Court entered an order confirming the Company's Second
Amended Plan of Reorganization (the "Plan" or "Plan of Reorganization"). The
effective date of the Plan was March 23, 1999 (the "Effective Date"). The Plan
provides for the Company's senior lenders to receive their pro rata share of the
new senior secured notes ("New Senior Secured Notes") equal to 75 percent of the
face value of their then current outstanding balance after the receipt of Excess
Cash (as defined in the Plan) of $100,707,261 and their pro rata share of
9,500,000 shares (95% of the outstanding) of the new Common Stock (the "New
Common Stock"), $.01 par value per share, of MFN. The Plan provides for the
holders of subordinated notes to receive $22.5 million in new senior unsecured
subordinated notes ("New Senior Subordinated Notes").
The New Senior Secured Notes are comprised of (i) 10% Senior Secured Notes Due
2001, Series A which have a 10% annual fixed rate of interest, payable quarterly
and (ii) Senior Secured Notes Due 2001, Series B which have a floating rate of
interest based on three month LIBOR (London Interbank Offering Rate), payable
quarterly. The aggregate principal amount of the New Senior Secured Notes is
$434,165,043. Principal payments on the New Senior Secured Notes are not due
until maturity on March 23, 2001. The New Senior Subordinated Notes, with an
aggregate principal amount of $22.5 million, have an 11% annual fixed rate of
interest, payable quarterly and are due March 23, 2002. (See Note 8)
The gain on cancellation of indebtedness (equal to 25% of the face value of the
then current outstanding balance after the receipt of Excess Cash plus interest
not paid less 95% of the New Common Stock valuation) aggregated $68.2 million
before tax has been treated as an extraordinary item in the accompanying
Condensed Consolidated Statement of Income for the three months ended March 31,
1999.
8
<PAGE>
Under the Plan, the shareholders of record as of March 22, 1999 (the "Previous
Shareholders"), of the Company's old Common Stock, $1 par value per share, are
entitled to receive 500,000 shares (5% of the outstanding) of the New Common
Stock and three series (Series A, B and C) of warrants (the "New Warrants"),
each exercisable for 580,000 shares of the New Common Stock, with expiration
dates of March 23, 2002, March 23, 2003 and March 23, 2004, respectively. The
exercise price of the Series A Warrants is $15.34, the exercise price of the
Series B Warrants is $21.81 and the exercise price of the Series C Warrants is
$28.27.
The Plan provides for the Company to transfer to a certain trust established
under the Plan (the "Liquidating Trust"), (i) $5 million in cash, (ii) the
Company's claims against KPMG Peat Marwick and (iii) $250,000 in cash for fees
and costs to be incurred in connection with the Liquidating Trust. The Plan
also provides for the holders of Securities Fraud Claims to receive a share of
the beneficial interests in the Liquidating Trust in complete settlement,
satisfaction and discharge of their claims. In addition, the Plan provides for
the Company to pay (i) $13.35 million into funds established for the benefit of
holders of certain indemnification claims against the Company and (ii) up to an
aggregate amount of $250,000 for costs and expenses of certain officers, agents
and employees who were no longer employed by the Company as of the first day
immediately following March 23, 1999, in connection with their participation in
a government investigation. The Company has also agreed to pay a former
employee $100,000 in connection with a mutual release. All of these costs have
been fully provided for as of March 31, 1999.
The Plan also provides for the grant of 1,500,000 options for shares of New
Common Stock under the Amended and Restated 1989 Stock Option Plan or under
employment arrangements to management and the Board of Directors as of March 23,
1999 at $8.50 per share, the estimated reorganization value per share. (See
Note 3)
The above summary of the Plan does not purport to be complete and is qualified
in its entirety by reference to the Plan which is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. See the Company's Current Report on Form 8-K filed on March
25, 1999, for more information.
3. Fresh Start Reporting
---------------------
As of March 31, 1999, the Company adopted Fresh Start Reporting in accordance
with the American Institute of Certified Public Accountant's Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code", (SOP 90-7). Fresh Start Reporting resulted in material
changes to the Condensed Consolidated Balance Sheet, including valuation of
assets at fair value in accordance with principles of the purchase method of
accounting, valuation of liabilities pursuant to provisions of the Plan and
valuation of equity based on the appraised reorganization value of the ongoing
business.
The reorganization value of $85.0 million (the approximate fair value) was based
on the consideration of many factors and various valuation methods, including
discounted cash flows, selected publicly traded company market multiples and
other applicable ratios and valuation techniques believed by the Company and its
financial advisors to be representative of the Company's business and industry.
The Predecessor Company's equity was eliminated in Fresh Start Reporting.
9
<PAGE>
The finance receivables were valued at fair value in accordance with the
principles of Section 475 of the Internal Revenue Code.
In accordance with fresh start reporting guidelines, certain noncurrent assets,
including goodwill, recorded on the Company's Condensed Consolidated Balance
Sheet at the Fresh Start Effective Date aggregating $16.0 million were reduced
to zero as a result of the fair value of the Company's assets exceeding the fair
value of its liabilities and stockholders' investment. In addition, as a result
of the Plan of Reorganization, the dividends payable liability in the amount of
$12.9 million was extinguished. The net result of the adjustment of assets and
liabilities to fair value was a charge to earnings of $3.1 million during the
period ended March 31, 1999. After reducing the fair value of certain noncurrent
assets to zero, the excess of the fair value of the remaining assets over the
fair value of liabilities and stockholders' investment was recorded as a
deferred credit, "Excess of Revalued Net Assets Over Stockholders' Investment".
This balance will be amortized over 5 years.
10
<PAGE>
The Company's emergence from the Voluntary Case and the adoption of Fresh Start
Reporting resulted in the following adjustments to the Company's Condensed
Consolidated Balance Sheet as of March 31, 1999:
<TABLE>
<CAPTION>
Predecessor Fresh Reorganized
Company Start Adjustments Company
March 31, 1999 Debit Credit March 31, 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 216,105 $ - $ - $216,105
Finance receivables, net 536,051 - - 536,051
Other assets (including repossessions) 30,672 - - 30,672
--------- --------
TOTAL ASSETS $ 782,828 $ - $ - $782,828
========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt $ 674,471 240,306 (a) $ - $434,165
Excess cash payment to
senior debt holders - - 100,707 (b) 100,707
Subordinated Debt 22,500 - 22,500
Interest Payable 30,552 9,008 (a) - 21,544
Accounts payable and other liabilities 23,801 371 (c) - 23,430
Income taxes 4,472 - 22,659 (d) 27,131
Litigation accrual 18,950 - - 18,950
Excess of revalued net assets
over stockholders' investment - - 49,401 (e) 49,401
--------- -------- -------- --------
TOTAL LIABILITIES 774,746 249,685 172,767 697,828
Stockholders' Equity:
Common stock 177,901 177,901 (f) 100 (g) 100
Paid in capital 8,244 8,244 (f) 84,900 (g) 84,900
Accumulated deficit (124,399) - 78,829 (f) -
45,570 (h)
Treasury stock (53,664) - 53,664 (f) -
--------- -------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 8,082 186,145 263,063 85,000
--------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 782,828 $435,830 $435,830 $782,828
========= ======== ======== ========
</TABLE>
(a) To reflect the cancellation of the old debt and related accrued interest.
(b) To setup a payable of Excess Cash to Senior Debt Holders in accordance with
the Plan of Reorganization. Payment occurred subsequent to the balance
sheet date.
(c) To write-off cancelled liabilities of the Company.
(d) To establish deferred income tax liability on the cancellation of
indebtedness.
11
<PAGE>
(e) The excess of revalued net assets over stockholders' investment is
calculated below:
<TABLE>
<CAPTION>
<S> <C> <C>
Fair value of
identifiable assets $ 782,828
Less: Reorganized Value
New Debt $ 456,665
New Equity 85,000 541,665
---------
Fair Value of identifiable
liabilities 191,762
---------
$ 49,401
=========
</TABLE>
(f) To eliminate stockholders' equity of the Predecessor Company.
(g) To record the issuance of 10,000,000 shares of new common stock (par value
$0.01) at $8.50 per share.
(h) To record the extraordinary gain resulting from discharge of indebtedness.
The extraordinary gain, net of taxes is calculated below:
<TABLE>
<S> <C>
Historical carrying value of
old debt securities $ 696,971
Historical carrying value of
related accrued interest 29,405
Value exchanged for old
debt:
Excess Cash Payment, including (121,104)
interest
New Senior Secured Notes (434,165)
New Senior Subordinated Notes (22,500)
New Common Stock (9.5
million shares to creditors) (80,750)
Other 372
-------
68,229
Tax Provision 22,659
-------
Extraordinary Gain $45,570
=======
</TABLE>
4. Earnings Per Share.
---------------------
Basic earnings per share is computed based upon the weighted average number of
shares of the Company's common stock outstanding during the period. Diluted
earnings per share is computed based upon the weighted average number of shares
of common stock outstanding and the dilutive common stock equivalents during the
period. Common stock equivalents include options granted under the Company's
stock option plan and warrants outstanding convertible into shares of common
stock of the Company using the treasury stock method.
Due to the Company's emergence from the Voluntary Case and the implementation of
Fresh Start Reporting, the presentation of earnings per share is not meaningful
for the periods presented in the accompanying financial statements.
5. Reclassifications.
-----------------
12
<PAGE>
Certain data from the prior periods has been reclassified to conform to the 1999
presentation.
6. Contingencies and Legal Matters.
-------------------------------
On July 15, 1998, the Company filed a voluntary petition (the "Voluntary Case")
in the United States Bankruptcy Court (the "Court") for the Northern District of
Illinois for relief under Chapter 11 of title 11 of the United States Code. The
Company's Second Amended Plan of Reorganization (the "Plan" or "Plan of
Reorganization") was confirmed by order of the Court on March 10, 1999. The
effective date of the Plan was March 23, 1999. However, for financial reporting
purposes, the Company is using the close of business on March 31, 1999 as the
effective date of the Plan.
Prior to the filing of the Voluntary Case, the Company had been named as a
defendant in a variety of lawsuits ("Securities Fraud Claims") generally arising
from the Company's announcement on January 29, 1997 that it would restate its
earnings for certain prior periods as a result of the discovery of accounting
irregularities. The Plan provides that the Company transfer to a certain trust
established under the Plan (the "Liquidating Trust"), (i) $5 million in cash,
(ii) the Company's claims against KPMG Peat Marwick and (iii)
$250,000 in cash for fees and costs to be incurred in connection with the
Liquidating Trust. The Plan also provides for holders of Securities Fraud
Claims to receive a share of the beneficial interests in the Liquidating Trust
in complete settlement, satisfaction and discharge of their claims. All of
these costs have been fully provided for as of March 31, 1999.
The Securities and Exchange Commission is investigating the events giving rise
to the accounting irregularities. Those events are also under investigation by
the United States Attorney for the Northern District of Illinois and the Federal
Bureau of Investigation. The Company is cooperating fully in these
investigations.
In the normal course of its business, MFN and its subsidiaries are named as
defendants in legal proceedings. A number of such actions, including cases
which have been brought as putative class actions, are pending in the various
states in which subsidiaries of MFN do business. It is the policy of MFN and
its subsidiaries to vigorously defend litigation, but MFN and (or) its
subsidiaries have and may in the future enter into settlements of claims where
management deems appropriate. Although management is of the opinion that the
resolution of these proceedings will not have a material effect on the financial
position of MFN, it is not possible at this time to estimate the amount of
damages or settlement expenses that may be incurred.
See Item 3 in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, for more information regarding the litigation arising from
the overstatement of earnings and the restatement of previously issued financial
statements.
The Company recognizes the expense for litigation when the incurrence of loss is
probable and the amount of such loss is estimable. Because of the uncertainty
that surrounds the above described litigation, no accrual has been made for the
majority of these lawsuits.
7. Income Taxes.
------------
The Company recorded a deferred tax benefit in the first quarter of 1999 of $5.3
million due to a pre-tax loss that can be offset against the cancellation of
debt income recorded as an extraordinary item. See Note 3 for more information.
The effective tax rate for the first quarter
13
<PAGE>
of 1999 was a benefit of (20.1%). Only the loss that can be offset for tax
purposes during the current period is tax effected ($13.4 million at 39.50%).
The remainder of the current period book loss before extraordinary items
received a full valuation allowance. For the first quarter of 1998, a full
valuation allowance related to the tax benefit for the loss was recorded due to
net operating loss carryback limitations.
In the third quarter of 1997, MFN elected to be treated as a dealer in
securities under section 475 of the Internal Revenue Code. Pursuant to this
election, MFN recognizes as taxable income or loss the difference between the
fair market value of its finance receivables and the income tax basis of its
finance receivables. This election has no impact on the recognition of pre-tax
income for financial reporting purposes.
8. Debt
----
In connection with the Plan of Reorganization, the Company has issued New Senior
Secured Notes and New Senior Subordinated Notes. See Note 2 - Chapter 11
Proceedings. The New Senior Secured Notes are comprised of (i) 10% Senior
Secured Notes Due 2001, Series A which have a 10% annual fixed rate of interest,
payable quarterly and (ii) Senior Secured Notes Due 2001, Series B which have a
floating rate of interest based on three month LIBOR (London Interbank Offering
Rate), payable quarterly. The aggregate principal amount of the New Senior
Secured Notes is $434,165,043. Principal payments on the New Senior Secured
Notes are not due until maturity on March 23, 2001. Holders of the old senior
debt may elect to receive either Series A or Series B Senior Secured Notes.
Final determination of the balances of each individual Series of Senior Secured
Notes has not been determined at this time. While the Series B Senior Secured
Notes bear a variable rate of interest, the Company has purchased interest rate
protection to cap the annual rate of interest at 10.0%, the cost of which is
deducted in determining the spread to LIBOR. The total interest cost of either
series of Senior Secured Notes will not exceed a 10.0% annual rate to the
Company.
As of March 31, 1999, the Company's senior lenders were due a payment of
$100,707,261, representing the Excess Cash (as defined in the Plan). Payment of
the Excess Cash to the debt indenture trustee occurred on April 1, 1999.
The Company's Senior Secured Notes are secured by substantially all of the
assets of the Company and its domestic subsidiaries, which have guaranteed the
Company's obligations under the Senior Secured Notes.
The New Senior Subordinated Notes, with an aggregate principal amount of $22.5
million, have an 11% annual fixed rate of interest, payable quarterly and are
due March 23, 2002.
No dividends may be paid on the common stock of the Company unless certain
conditions in the indentures governing the New Senior Secured Notes and the New
Senior Subordinated Notes are satisfied.
9. Stock Options
-------------
Under the Plan of Reorganization, options to purchase 950,000 shares of the
Company's authorized and unissued New Common Stock were reserved under the
Amended and Restated 1987 Stock Option Plan ("Stock Option Plan"). Of the
options authorized under the Stock Option Plan, options to purchase 500,000
shares were granted to officers and directors, effective March 23, 1999 ("Grant
Date"), at an exercise price of $8.50 per share (the estimated reorganization
value per share). Of the shares granted, fifty percent (50%) vested and became
exercisable on the Grant Date, twenty-five percent (25%) vest and become
exercisable in twelve
14
<PAGE>
(12) equal monthly portions, beginning with the first anniversary of the Grant
Date and twenty-five percent (25%) vest and become exercisable in twelve (12)
equal monthly portions, beginning with the second anniversary of the Grant Date.
The options shall remain in full force and effect for a period of ten (10) years
from the Grant Date.
In addition to shares granted under the Stock Option Plan, an option to purchase
1,000,000 shares was granted to the new chief executive officer pursuant to an
employment agreement approved as part of the Plan of Reorganization. The terms
and conditions of the option granted are identical to the options granted under
the Stock Option Plan as described above. Shares issued under the employment
agreement do not count against the 950,000 aggregate number of options to
purchase shares of New Common Stock that may be granted under the Stock Option
Plan.
10. Non-operating (income) Expenses
-------------------------------
Reorganization Items:
In accordance with SOP 90-7, expenses resulting from the Plan of
Reorganization should be reported separately as reorganization items in the
Condensed Consolidated Statements of Income, and are summarized below:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------ ------
<S> <C> <C>
Adjustments of assets and
liabilities to fair value $ 3,085 $ -
Interest expense 19,847 -
Corporate counsel 2,116 782
Investment banking - 450
Creditor attorneys, advisors
and consultants 8,637 1,763
Independent accountants 550 381
Other 2,482 879
------- ------
$36,717 $4,255
======= ======
</TABLE>
The first quarter of 1998 included non-operating income of approximately $2.0
million related to the termination agreement with a former chief executive
officer.
15
<PAGE>
INSERT TO COME FROM ANDERSEN
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To the Board of Directors and Shareholders
of MFN Financial Corporation (f/k/a Mercury Finance Company)
Report of Independent Public Accountants
We have reviewed the accompanying condensed balance sheets of MFN Financial
Corporation (formerly known as "Mercury Finance Corporation") and subsidiaries
as of March 31, 1999 and 1998, and the related condensed statements of income
and cash flows for the three-month period then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of MFN Financial Corporation and subsidiaries as of
December 31, 1998 (not presented herein), and in our report dated March 10,
1999, we expressed a qualified opinion on that statement. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1998, is fairly stated, in all material respects, in relation
to the balance sheet from which it was derived.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses in the years ended
December 31, 1998 and 1997. In addition, the Company emerged from Chapter 11 of
the U.S. Bankruptcy Code on March 23, 1999 and has not had significant
operations as a restructured entity. These matters raise substantial doubt
about the ability of MFN Financial Corporation to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 14, 1999
16
<PAGE>
MFN FINANCIAL CORPORATION
CONDENSED CONSOLIDATED AVERAGE BALANCE SHEETS
PERIODS ENDED MARCH 31
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in thousands) 1999 1998
ASSETS
<S> <C> <C>
Cash and cash equivalents........................................ $201,228 $ 59,596
Finance receivables.............................................. 633,599 915,981
Less: Allowance for finance credit losses..................... 51,711 95,198
Less: Nonrefundable dealer reserves........................... 37,162 48,199
-------- --------
Finance receivables, net...................................... 544,726 772,584
Income taxes receivable.......................................... 13,912 66,146
Furniture, fixtures and equipment, net of accumulated
depreciation.................................................. 3,600 5,404
Other assets (including repossessions & goodwill)................ 35,302 22,177
-------- --------
TOTAL ASSETS.................................................. $798,768 $925,907
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Interest bearing liabilities $708,371 $802,246
Other liabilities 70,249 41,700
-------- --------
TOTAL LIABILITIES............................................. 778,620 843,946
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................... 20,148 81,961
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY..................................................... $798,768 $925,907
======== ========
RATIOS (Annualized)
Return on average equity......................................... 493.60% (7.31)%
Return on average assets......................................... 12.45% (0.65)%
Yield on earning assets.......................................... 18.28% 22.64%
Rate on interest bearing liabilities............................. 0.27% 9.40%
Net interest margin.............................................. 18.05% 14.41%
</TABLE>
17
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
contains certain forward-looking statements pertaining to the outcome of the
Company's Plan of Reorganization, branch closings, expected operating results,
loss provisions and other matters. These statements are subject to
uncertainties and other factors. Should one or more of these uncertainties or
other factors materialize, or should underlying assumptions prove incorrect,
actual events or results may vary materially from those anticipated. Such
uncertainties and other factors include the Company's ability to acquire finance
receivables on terms it deems acceptable, changes in the quality of finance
receivables, trends in the automobile and finance industries, and general
economic conditions. The Company undertakes no obligation to update any such
factor or to publicly announce the results of any revisions to any forward-
looking statements contained herein to reflect future events or developments.
BACKGROUND
MFN Financial Corporation, f/k/a Mercury Finance Company ("MFN" or the
"Company") is a consumer finance concern engaged, through its operating
subsidiaries, in the business of acquiring individual installment sales finance
contracts from automobile dealers and retail vendors, extending short-term
installment loans directly to consumers and selling credit insurance and other
related products.
MFN's operating subsidiaries commenced operations in February 1984 for the
purpose of penetrating the market for small dollar amount consumer loans
(average of $3,000 or less). The initial focus was toward small, short term,
direct installment loans made to U.S. military servicemen. Building on this
direct lending niche, MFN has also built a substantial, diversified consumer
finance portfolio by acquiring individual installment sales finance contracts
from automobile dealers and retail vendors. Substantially all of MFN's
borrowers are "non-prime" borrowers. These are borrowers which generally would
not be expected to qualify for traditional financing such as that provided by
commercial banks or automobile manufacturers' captive finance companies.
MFN's sales finance contracts and loans generally range for periods from 3
months to 48 months at annual interest rates ranging, with minor exception, from
18% to 40%. Generally all sales finance contracts and loans are repayable in
monthly installments. Late payment fees generally are assessed to accounts
which fail to make their scheduled payments within 10 days of the scheduled due
date.
OVERVIEW
In January 1997, MFN discovered that certain improper adjustments had been made
to overstate earnings in previously issued financial statements. As a result, a
Special Committee of the Board of Directors commenced an investigation of the
misstatements of previously issued financial statements. As a result of this
investigation, MFN restated the financial statements for fiscal 1995, each of
the 1995 quarters, and for the first three quarters of 1996. See the Company's
18
<PAGE>
Annual Report on Form 10-K for the year ended December 31, 1996, the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 and the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 for
more information regarding the impact of the overstatement of earnings and the
restatement of previously issued financial statements.
On July 15, 1998, the Company filed a voluntary petition (the "Voluntary Case")
in the United States Bankruptcy Court for the Northern District of Illinois (the
"Bankruptcy Court" or the "Court") for relief under chapter 11 of title 11 of
the United States Code (the "Bankruptcy Code") along with a plan of
reorganization. The filing of the Voluntary Case and plan of reorganization
conformed to the terms previously agreed upon between the Company and
substantially all of its lenders on May 14, 1998. On July 6, 1998, several of
the litigants in the then pending securities lawsuits filed an involuntary
petition in the Bankruptcy Court asking the Court to place the Company into a
chapter 11 proceeding (the "Involuntary Case"). The Involuntary Case was
consolidated with the Voluntary Case and proceeded under Case No. 98-20763.
On March 10, 1999, the Court entered an order confirming the Company's Second
Amended Plan of Reorganization (the "Plan" or "Plan of Reorganization"). The
effective date of the Plan was March 23, 1999 (the "Effective Date"). On the
Effective Date, the Company cancelled its existing senior and subordinated debt,
and its equity securities, including common stock and options to purchase common
stock. Subsequent to the balance sheet date, the Company distributed to its
exchange agent, for the benefit of holders of Senior Debt Claims (as defined in
the Plan), $121.1 million in cash, $434.2 million principal amount of its New
Senior Secured Notes due March 23, 2001 (the "Senior Secured Notes"), $22.5
million principal amount of its 11.0% New Senior Subordinated Notes due March
23, 2002 (the "Senior Subordinated Notes") and 9.5 million shares of new common
stock (the "New Common Stock") par value $0.01 per share of MFN. In addition,
the Company distributed to the Exchange Agent, for the benefit of former
shareholders of record on March 22, 1999, 500,000 shares of New Common Stock and
three series of new warrants (580,000 of each series) to purchase New Common
Stock. The Series A Warrants expire March 23, 2002 and have an exercise price of
$15.34, the Series B Warrants expire March 23, 2003 and have an exercise price
of $21.81 and the Series C Warrants expire March 23, 2004 and have an
exercise price of $28.27. The emergence from the Voluntary Case resulted in a
reduction of approximately $161.9 million in the liabilities of the Company.
As of March 31, 1999, the Company adopted Fresh Start Reporting in accordance
with the American Institute of Certified Public Accountant's Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code", (SOP 90-7). Fresh Start Reporting resulted in material
changes to the Condensed Consolidated Balance Sheet, including valuation of
assets at fair value in accordance with principles of the purchase method of
accounting, valuation of liabilities pursuant to provisions of the Plan and
valuation of equity based on the appraised reorganization value of the ongoing
business.
Due to the Company's emergence from the Voluntary Case and implementation of
Fresh Start Reporting, Condensed Consolidated Financial Statements for the
Reorganized Company as of March 31, 1999 and for the periods subsequent to March
31, 1999 (the "Reorganized Company") are not comparable to those of the Company
for the periods prior to March 31, 1999 (the "Predecessor Company"). For
financial reporting purposes, the effective
19
<PAGE>
date (the "Fresh Start Effective Date") of the Plan of Reorganization is
considered to be the close of business on March 31, 1999. The results of
operations for the period from March 23, 1999 through March 31, 1999 were not
material.
A black line has been drawn between the accompanying Condensed Consolidated
Balance Sheets as of March 31, 1999 and December 31, 1998 to distinguish between
the Reorganized Company and the Predecessor Company.
The results of the interim periods shown are not to be considered as being
indicative of the results of operations that are expected for the full year.
The results presented for the interim periods shown are for the Predecessor
Company. Future filings will reflect the results of the Reorganized Company for
periods subsequent to March 31, 1999. The following discussion of results of
operations are for the Predecessor Company.
MFN continues to experience strong competition in 1999. Although the industry
shake-out that has occurred in the past two years and into 1999 reduced the
number of companies in the sub-prime specialty finance arena, there still exists
sufficient competitors on a national and regional level to continue the pricing
and credit pressures that had been experienced during the past few years.
MFN had previously responded to the competitive pressures by reducing its credit
standards while accepting lower pricing on sales finance contracts and
introducing new products, which ultimately proved to be unprofitable. During
late 1997 and continuing to date, the Company changed its lending practices by
implementing tighter credit standards and has significantly reduced
delinquencies and charge-offs on new accounts, but at lower volumes of purchased
contracts. Delinquencies and charge-offs on the older accounts continue to be at
the higher historical levels.
For the quarter ended March 31, 1999, the Predecessor Company experienced a loss
before income taxes and extraordinary items of $26.3 million, compared to a loss
of $1.5 million for the same period one year ago. The current period loss
included restructuring charges of $36.7 million and a continuing high level of
charge-offs and the associated provision to replenish the reserve for loan
losses. While nonperforming assets declined in the current quarter, charge-offs
remained at a high level.
The Company's challenge is to acquire sufficient sales finance contracts within
the stricter underwriting standards and reduce operating expense to a level that
will return profitability to the operations.
The following is management's discussion and analysis of the condensed
consolidated financial condition of the Reorganized Company at March 31, 1999
(unaudited) and the Predecessor Company at December 31, 1998, and the results of
operations for the three months ended March 31, 1999 and 1998 (unaudited) for
the Predecessor Company. This discussion should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and notes thereto
appearing elsewhere in this quarterly report. Again, the results of operations
are of the Predecessor Company and are not necessarily indicative of future
results of the Reorganized Company.
FINANCIAL CONDITION
20
<PAGE>
As of March 31, 1999, the Company adopted Fresh Start Reporting in accordance
with the American Institute of Certified Public Accountants' Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code", (SOP 90-7). Fresh Start Reporting resulted in material
changes to the Condensed Consolidated Balance Sheet as previously noted in the
Notes to the Condensed Consolidated Financial Statements.
ASSETS AND FINANCE RECEIVABLES
During the first quarter of 1999, total assets of the Company decreased to
$782.8 million from $798.7 million at December 31, 1998. The decline in total
assets is primarily due to a decrease in net finance receivables of $17.3
million. Subsequent to March 31, 1999, the Company made a payment of
$121.1 million for payment of accrued interest and Excess Cash (as defined in
the Plan of Reorganization). While finance receivables continued to decline in
the first quarter of 1999, the Company did experience an increase in volume of
purchased finance receivables over what had been experienced over the past
several quarters. The Company believes this is the result of increased calling
efforts by the dealer development managers ("DDM's"), dealerships becoming more
familiar with our Centralized Purchasing Office ("CPO") approach and the CPO's
becoming more efficient in processing applications. There can be no assurances
that the increase in volume experienced in the first quarter will continue.
The Company's offices in Illinois, Florida and Texas accounted for approximately
13%, 12%, and 12%, respectively, of all sales and direct finance receivables
outstanding at March 31, 1999. The total number of operating branches at March
31, 1999 was 151 compared to 158 at December 31, 1998. The Company intends to
close or stop acquiring new contracts at approximately 45 branches during the
second quarter of 1999. These branches are being closed because of their size,
location with respect to other branches or their profit potential. In addition,
the Company believes it can be successful in serving the dealers within certain
of the markets through the efforts of its DDMs, which will continue to service
many of the former locations. The costs related to the closings, consist
primarily of lease settlements, severance and relocation costs. Management
anticipates the expense to close these offices will be a charge to second
quarter earnings of approximately $1.0 million.
The additional closings may have a negative impact on future volumes of sales
contracts purchased from these markets. In the first quarter of 1999, total
sales finance contracts purchased and direct loans originated from the offices
identified to be closed in the second quarter amounted to $39.5 million,
compared to total originations of $163.6 million for all offices.
On March 2, 1999, the Company closed on the sale of its credit card portfolio.
As of December 31, 1998, this portfolio had been reduced to its net realizable
value and was classified as held for sale in the December 31, 1998 Consolidated
Balance Sheet of the Company.
The following table summarizes the composition of finance receivables at the
dates indicated (dollars in thousands):
21
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, December 31,
1999 1998
-------------------------------------
<S> <C> <C>
Gross Finance Receivables
Direct ......................................... $100,346 $117,136
Sales .......................................... 675,721 676,132
-------- --------
Total gross finance receivables .................. 776,067 793,268
Less: Unearned Finance Charges .................. 150,500 146,978
Unearned commissions, insurance
premiums and insurance claim
reserves ............................ 2,074 2,585
-------- --------
Total Sales and Direct Finance Receivables ....... $623,493 $643,705
======== ========
</TABLE>
The following sets forth a summary of gross originations (including unearned
finance charges prior to deduction for nonrefundable dealer reserves) excluding
activity of the credit card portfolio for the three months ended March 31,
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Direct finance receivables $ 19,946 $ 24,628
Sales finance receivables 143,670 84,846
-------- --------
$163,616 $109,474
======== ========
</TABLE>
Originations in the current year have shown improvement over the same period of
last year as the Company's strategy of having DDMs call on dealerships to
cultivate relationships takes hold and the CPOs become more efficient in
processing business. Also, as the branch network is consolidated, the Company
is placing a greater emphasis on purchasing sales finance contracts versus
direct lending. The March 31, 1999 balance of gross sales finance contracts
outstanding was essentially flat with the December 31, 1998 balance. This is an
improvement over the trend that was experienced throughout the prior two years.
ALLOWANCE AND PROVISION FOR FINANCE CREDIT LOSSES
MFN originates direct consumer loans and acquires individual sales finance
contracts from third party dealers. The Company maintains an allowance for
finance credit losses that are expected to be incurred on receivables that have
demonstrated a risk of loss based upon delinquency or bankruptcy status.
The sales finance contracts are generally acquired at a discount from the
principal amount. This discount is normally referred to as a non-refundable
dealer reserve. The amount of the discount is based upon the credit risk of the
borrower, the note rate of the contract and competitive factors. The dealer
reserve is available to absorb credit losses over the life of the pool of
receivables. The dealer reserve cannot be utilized to offset provision for
finance credit losses immediately, but
22
<PAGE>
is held to offset future losses. Management believes this method provides for an
appropriate matching of finance charge income and provision for finance credit
losses.
Each period, the provision for finance credit losses in the income statement
results from the combination of (a) an estimate by management of loan losses
that occurred during the current period and (b) the ongoing adjustment of prior
estimated losses. As the specific borrower and amount of a loan loss is
confirmed by gathering additional information, taking collateral in full or
partial settlement of the loan, bankruptcy of the borrower, etc., the loan is
charged off, reducing the allowance for finance credit losses. If, subsequent
to a charge off, the Company is able to collect additional amounts from the
borrower or obtain control of collateral worth more than earlier estimated, a
recovery is recorded. This recovery reduces the current period charge off
amounts.
In 1996, the Company adopted a loss reserving methodology commonly referred to
as "static pooling." The static pooling methodology provides that the Company
stratify the components of its sales finance receivable portfolio (i.e., dealer
reserve, principal loan balances and related charge-offs) into separately
identified pools based upon the period the loans were acquired. MFN defines a
pool as loans acquired within a given month.
Reserve requirements for sales finance and direct receivables are calculated
based on the estimated losses inherent in each category of delinquency (i.e. 30,
60, 90 and 120 days past due). These assumed losses are utilized to determine
the projected cash flows from each impaired category. The projected cash flow
is then discounted to estimate the net present value of the impaired loans. A
reserve is established in an amount sufficient to reduce the book value of the
impaired receivable to its net present value. Repossessed collateral is valued
at an estimate of its net realizable value.
The following table sets forth a reconciliation of the changes in the allowance
for finance credit losses for the three month periods ended March 31 (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of period .................................. $ 53,485 $102,204
Provision of charged to expense ................................. 9,857 12,959
Finance receivables charged-off, net of recoveries .............. (13,404) (26,972)
-------- --------
Balance at end of period ........................................ $ 49,938 $ 88,191
======== ========
Allowance as a percent of net sales and direct finance
receivables outstanding at end of period...................... 8.01% 11.12%
======== ========
</TABLE>
The amount of the provision for credit losses decreased in the first quarter of
1999 compared to one year ago due to the decrease in the size of the receivable
portfolio and an improvement in the relative delinquency of the remaining
portfolio. The overall reduction of the reserve as a percent of the receivable
portfolio is due to improvement in the amount of delinquencies at March 31, 1999
compared to the same period one year ago.
NONREFUNDABLE DEALER RESERVES
23
<PAGE>
MFN acquires a majority of its sales finance contracts from dealers at a
discount. MFN negotiates the amount of the discounts with the dealers based
upon various criteria, one of which is the credit risk associated with the sales
finance contracts being acquired. The following table sets forth a
reconciliation of the changes in nonrefundable dealer reserves for the three
month periods ended March 31 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of period......................................... $36,820 $ 52,731
Discounts acquired on new volume....................................... 8,429 5,330
Losses absorbed, net of recoveries..................................... (7,745) (14,394)
------- --------
Balance at end of period............................................... $37,504 $ 43,667
======= ========
Reserve as a percent of gross sales finance receivables 5.55% 5.21%
======= ========
</TABLE>
The increase in the discounts acquired in 1999 compared to the same period last
year is due to increased volume of contracts purchased.
DEBT
The primary source for funding the Company's finance receivables comes from the
issuance of debt. As a result of the Plan of Reorganization, the Company
cancelled all of its senior debt in exchange for Senior Secured Notes, New
Common Stock and Excess Cash. The Company also cancelled its subordinated debt
in exchange for Senior Subordinated Notes. At March 31, 1999 the Company had
total debt of $456.7 million. See Notes 2 and 8 to the Condensed Consolidated
Financial Statements.
The following table presents the Company's debt instruments and the stated
interest rates on the debt for the dates indicated below (dollars in thousands):
<TABLE>
<CAPTION>
MAR. 31, 1999 DEC. 31, 1998
------------- -------------
Balance Rate Balance Rate
------- ---- ------- ----
<S> <C> <C> <C> <C>
Senior Debt:
Commercial paper and short-
term notes................ $ - - % $339,340 5.7%
Senior secured debt........... 434,165 10.0% 335,905 7.0%
Senior subordinated debt...... 22,500 11.0% 22,500 10.3%
-------- ----- -------- ----
Total.................... $456,665 10.0% $697,745 6.5%
======== ===== ======== ====
</TABLE>
24
<PAGE>
STOCKHOLDERS' EQUITY
As of March 31, 1999, the Company adopted Fresh Start Reporting in accordance
with SOP 90-7. Fresh Start Reporting resulted in material changes to the
Condensed Consolidated Balance Sheet.
The reorganization value of $85.0 million (the approximate fair value) was based
on the consideration of many factors and various valuation methods, including
discounted cash flows, selected publicly traded company market multiples and
other applicable ratios and valuation techniques believed by the Company and its
financial advisors to be representative of the Company's business and industry.
As a result of the Plan of Reorganization and the requirements of Fresh Start
Reporting, stockholders' equity at March 31, 1999 was established at the
Company's reorganization value of $85.0 million. See notes 2 and 3 of the
Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
THE RESULTS OF OPERATIONS SHOWN IN THE ACCOMPANYING FINANCIAL STATEMENTS ARE FOR
THE PREDECESSOR COMPANY. MFN ADOPTED FRESH START REPORTING IN ACCORDANCE WITH
SOP 90-7 EFFECTIVE MARCH 31, 1999.
NET LOSS
For the three months ended March 31, 1999 the Company had a net loss before
income taxes and extraordinary items of $26.3 million compared to a net loss of
$1.5 million for the three months ended March 31, 1998. The increase in net loss
is attributable to an increase in net nonoperating expenses of $34.4 million.
Included in this increase are interest costs incurred by the Company during the
Voluntary Case in the amount of $19.8 million, an adjustment of the assets and
liabilities to fair value of $3.1 million and other reorganization costs of
$9.5 million. See Note 10 of the Condensed Consolidated Financial Statements.
INTEREST INCOME AND INTEREST EXPENSE
The largest single component of net income is net interest income which is the
difference between interest earned on finance receivables and interest paid on
borrowings. For the three months ended March 31, 1999 the Company's net
interest income was $37.1 million compared to $32.5 million in 1998. The
Company's first quarter 1999 net interest income amount does not include a
charge for interest expense during the Voluntary Case. Interest expense was
treated as a restructuring cost in the first quarter financial statements. Had
this cost been recorded as interest expense for the first three months of 1999,
net interest income would be $10.3 million lower. The decrease in net interest
income, after taking into account funding costs during the Voluntary Case, is
primarily a result of a decrease in volume.
The net interest margin is the ratio of net interest income before provision for
finance credit losses divided by average interest earning assets. The net
interest margin was 18.05% in the first quarter of 1999 compared with 14.41% in
the first quarter of 1998. The net interest margin in the first quarter of
1999 is not comparable to the prior period due to the accounting for interest
25
<PAGE>
expense during the Voluntary Case. Had interest expense been reported during the
Voluntary Case, the net interest margin would have been 13.04%.
The following table summarizes the amount of the net interest margin for the
three months ended March 31 (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
1999 1998
---- ----
Annualized Annualized
Interest Rate Average Interest Rate
Average Income/ Earned Out- Income/ Earned
Outstanding Expense and Paid standing Expense and Paid
<S> <C> <C> <C> <C> <C> <C>
Interest bearing assets... $834,827 $37,620 18.28% $915,981 $51,141 22.64%
Interest bearing
Liabilities............ 708,371 474 0.27% 802,246 18,597 9.40%
-------- ------- ----- -------- ------- -----
Net....................... $126,456 $37,146 18.01% $113,735 $32,544 13.24%
======== ======= ===== ======== ======= =====
Net interest margin as a
percentage of average
earning assets......... 18.05% 14.41%
===== =====
</TABLE>
The yield on interest bearing assets declined due to a higher percentage of
short-term investments (classified as cash equivalents on the Condensed
Consolidated Average Balance Sheets) in the first quarter of 1999 compared to
the same period one year ago to total interest bearing assets.
OTHER INCOME
In addition to finance charges and interest, the Company has other income from
the sale of other credit related products. These products include insurance
relating to the issuance of credit life, accident and health and other credit
insurance policies to borrowers of the Company.
For the three months ended March 31, 1999, the Company experienced decreases in
its other income compared to the comparable year earlier period. This is due in
part to the sale of the credit card portfolio and fewer customers. The
following table summarizes the amounts earned from these products for the three
months ended March 31 (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31
--------
1999 1998
---- ----
<S> <C> <C>
Insurance Premiums............................................... $ 815 $1,357
Fees and other................................................... 2,238 2,569
------ ------
Total............................................................ $3,053 $3,926
====== ======
Other income as a % of average interest
earning assets (annualized)...................................... 1.48% 1.74%
</TABLE>
26
<PAGE>
OTHER EXPENSES (EXCLUDING RESTRUCTURING CHARGES)
In addition to interest expense and the provision for finance credit losses, the
Company incurs other operating expenses in the conduct of its business.
During the first quarter of 1999 other operating expenses decreased 12.1% versus
the first quarter of 1998. The decrease was related to lower occupancy,
equipment and other expense resulting primarily from operating fewer branches.
The following table summarizes the components of other expenses for the three
months ended March 31 (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------
1999 1998
---- ----
<S> <C> <C>
Salaries and employees benefits.................................. $13,178 $13,002
Other operating expenses......................................... 6,782 9,697
------- -------
Total............................................................ $19,960 $22,699
======= =======
Other expense as a % of average interest
earning assets (annualized)...................................... 9.70% 10.05%
</TABLE>
RESTRUCTURING CHARGES
During 1997 and 1998, the Company closed a number of branches and implemented a
plan to close approximately 110 branches and to reduce branch personnel by
approximately 260 employees. The Company recorded a provision in 1997 for
restructuring in the amount of $3.725 million all of which was charged against
income during that year. Of this amount, $3.472 million has been utilized to
date and $253,000 remains to be utilized. These charges and their utilization
through March 31, 1999 are summarized in the following table (dollars in
thousands):
<TABLE>
<CAPTION>
Amounts Amounts Amounts Net Adjustments Amounts to be
Charged Utilized Utilized through March 31, Utilized Subsequent
In 1997 1997 and In 1999 1999 (Expense)/ to March, 31, 1999
1998 Income
<S> <C> <C> <C> <C> <C>
Asset and leasehold write-offs $1,200 $1,279 $ 0 $(79) $ -
Lease buyouts and other expenses 1,025 900 318 (203) 10
Employee severance and retention 1,500 652 104 501 243
------ ------ ---- ----- ----
$3,725 $2,831 $422 $ 219 $253
====== ====== ==== ===== ====
</TABLE>
27
<PAGE>
The Company records restructuring charges against operations and provides a
reserve based on the best information available at the time the commitment is
made to undertake the restructuring action. The reserves are considered
utilized when specific restructuring criteria are met, indicating the planned
restructuring action has occurred. Work-force-related reserves are considered
utilized at payment for termination or acceptance of other contractual
arrangements.
The reserve for lease buyouts is utilized when the remaining lease obligations
are settled or the space has been vacated and made available for sublease. It
is the Company's policy to continue to charge depreciation, rental, and other
operating costs relating to excess space to ongoing operations while they remain
in business use. Salaries and benefits are charged to operations while the
employee is actively employed.
Reserves for asset and leasehold improvement write-offs are utilized at the
date of disposal or the final date of the lease.
As stated earlier, the Company anticipates taking a second quarter charge to
earnings of approximately $1 million to cover the costs associated with closing
an additional 45 branches.
OTHER NON-OPERATING INCOME AND EXPENSES
In accordance with SOP 90-7, expenses resulting from the Plan of
Reorganization should be reported separately as reorganization items in the
Condensed Consolidated Statements of Income, and are summarized below:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------ ------
<S> <C> <C>
Adjustments of assets and
liabilities to fair value $ 3,085 $ -
Interest expense 19,847 -
Corporate counsel 2,116 782
Investment banking - 450
Creditor attorneys, advisors
and consultants 8,637 1,763
Independent accountants 550 381
Other 2,482 879
------- ------
$36,717 $4,255
======= ======
</TABLE>
The first quarter of 1998 included non-operating income of approximately $2.0
million related to the termination agreement with a former chief executive
officer.
INCOME TAXES
The Company recorded a benefit for income taxes for the first quarter of 1999
due to reporting a pre-tax loss. This loss will be offset against the
cancellation of indebtedness. The effective tax rate was a benefit of (20.1%)
for the first quarter of 1999. The Company recorded a full
28
<PAGE>
valuation allowance related to the tax benefit for the loss recorded during the
first quarter of 1998. At that time, the Company was unable to carryback the
losses to prior periods of taxable income.
Only the loss that can be offset for tax purposes during the current period is
tax effected ($13.4 million at 39.50%). The remainder of the current period book
loss before extraordinary items received a full valuation allowance.
MFN has elected to be treated as a dealer in securities under section 475 of the
Internal Revenue Code. Pursuant to this election, the Company must recognize as
taxable income or loss the difference between the fair market value of its
finance receivables and the income tax basis of its finance receivables. This
election has no impact on the recognition of pre-tax income for financial
reporting purposes
CREDIT LOSSES AND DELINQUENCIES
CREDIT LOSSES
Direct finance receivables on which no payment is received within 149 days, on a
recency basis, are charged off. Sales finance receivable accounts which are
contractually delinquent 150 days are charged off monthly before they become 180
days delinquent. Accounts which are deemed uncollectible prior to the maximum
charge off period are charged off immediately. Management may authorize an
extension if collection appears imminent during the next calendar month. The
following table sets forth information relating to charge-offs, the allowance
for finance credit losses and dealer reserves:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------
1999 1998
---- ----
<S> <C> <C>
Loss provision charged to income................................. $ 9,857 $12,959
Net charge-offs against allowance................................ 13,404 26,972
Net charge-offs against nonrefundable reserves................... 7,745 14,394
Allowance for finance credit losses at end of period............. 49,938 88,191
Dealer reserves at end of period................................. 37,504 43,667
Ratios:
Net charge-offs annualized against allowance
to average gross finance receivables.......................... 8.58% 11.94%
Net charge-offs annualized against nonrefundable dealer
reserves to average gross finance receivables................. 4.96% 6.37%
Allowance for finance credit losses to gross finance
receivables at end of period.................................. 6.43% 9.10%
Dealer reserves to gross sales finance receivables
at end of period.............................................. 5.55% 5.21%
</TABLE>
DELINQUENCIES AND REPOSSESSIONS
If a borrower has filed for bankruptcy protection or if an account becomes 60 or
more days contractually delinquent and no full contractual payment is received
in the month the account
29
<PAGE>
attains such delinquency status, it is classified as
delinquent. The following table sets forth certain information regarding
contractually delinquent accounts at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------------------------------------
<S> <C> <C>
Delinquent gross receivables............. $13,761 $19,938
Bankrupt accounts........................ 20,788 23,607
Repossessed assets....................... 3,003 3,836
------- -------
Total.................................... $37,552 $47,381
======= =======
Delinquent gross receivables and
bankrupt accounts to gross
finance receivables................... 4.45% 5.49%
Delinquent gross receivables,
bankrupt accounts and repossessed
assets to gross finance
receivables plus repossessed
assets................................ 4.82% 5.94%
</TABLE>
Collateral is generally repossessed when debtors are 120 days late or more on
payments. Automobiles are generally sold within 60 days at auction.
The announced closing of 45 branches in the second quarter of 1999 may have a
negative impact on delinquencies and subsequent charge-offs.
LIQUIDITY AND FINANCIAL RESOURCES
The Company has been acquiring loans by using the cash flow from cash
collections on finance receivables. As a result of the Plan of Reorganization,
the Company has $434.2 million of funding through March 23, 2001 in the form of
Senior Secured Notes and an additional $22.5 million through March 23, 2002 in
the form of Senior Subordinated Notes. See Notes 2 and 8 to the Condensed
Consolidated Financial Statements.
The Senior Secured Notes allow for a subordination of thier position for a $40
million credit facility. This credit facility can be used to fund future growth
of the finance receivable portfolio of the Company beyond current cash
resources.
CONTINGENCIES AND LEGAL MATTERS
On July 15, 1998, the Company filed a voluntary petition (the "Voluntary Case")
in the United States Bankruptcy Court (the "Court") for the Northern District of
Illinois for relief under chapter 11 of title 11 of the United States Code. The
Company's Second Amended Plan of
30
<PAGE>
Reorganization (the "Plan") was confirmed by order of the Court on March 10,
1999. The effective date of the Plan was March 23, 1999.
Prior to the filing of the Voluntary Case, the Company had been named as a
defendant in a variety of lawsuits ("Securities Fraud Claims") generally arising
from the Company's announcement on January 29, 1997 that it would restate its
earnings for certain prior periods as a result of the discovery of accounting
irregularities. The Plan provides that the Company to transfer to a certain
trust established under the Plan (the "Liquidating Trust"), (i) $5 million in
cash, (ii) the Company's claims against KPMG Peat Marwick and
(iii) $250,000 in cash for fees and costs to be incurred in connection with the
Liquidating Trust. The Plan also provides for holders of Securities Fraud
Claims to receive a share of the beneficial interests in the Liquidating Trust
in complete settlement, satisfaction and discharge of their claims. All of
these costs have been fully provided for as March 31, 1999.
The Securities and Exchange Commission is investigating the events giving rise
to the accounting irregularities. Those events are also under investigation by
the United States Attorney for the Northern District of Illinois and the Federal
Bureau of Investigation. The Company is cooperating fully in these
investigations.
In the normal course of its business, MFN and its subsidiaries are named as
defendants in legal proceedings. A number of such actions, including cases
which have been brought as putative class actions, are pending in the various
states in which subsidiaries of MFN do business. It is the policy of MFN and
its subsidiaries to vigorously defend litigation, but MFN and (or) its
subsidiaries have and may in the future enter into settlements of claims where
management deems appropriate. Although management is of the opinion that the
resolution of these proceedings will not have a material effect on the financial
position of MFN, it is not possible at this time to estimate the amount of
damages or settlement expenses that may be incurred.
See Item 3 in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, for more information regarding the litigation arising from
the overstatement of earnings and the restatement of previously issued financial
statements.
The Company recognizes the expense for litigation when the incurrence of loss is
probable and the amount of such loss is estimable. Because of the uncertainty
that surrounds the above described litigation, no accrual has been made for the
majority of these lawsuits.
YEAR 2000 COMPLIANCE
The Company has undertaken a review of its exposure to computer malfunctions
relating to the year 2000 ("Y2K"). The Y2K issue exists because many computer
systems and applications currently use two digit date fields to designate a
year. As the century date change occurs, date sensitive systems may recognize
the year 2000 as 1900 or not at all. This inability to recognize or properly
treat the Y2K issue may cause systems to process critical financial and
operational information incorrectly.
The Company has several systems that it considers critical to operations
including the branch loan system, the operating systems, and the financial
accounting systems. In addition, MFN has other less significant systems in use
by the human resources and legal departments. MFN has evaluated all of these
systems to determine the specific risks related to the year 2000 and has
31
<PAGE>
implemented changes to all of these systems to address any risks. As a result of
these efforts, all of the Company's systems are currently Y2K compliant. MFN
also utilizes computer software maintained by external vendors and has received
written assurances from these vendors that Y2K compliant upgrades are or will be
available to the Company in sufficient time for an orderly transition.
To date, the costs associated with becoming Y2K compliant have been minimal
(i.e., less than $50,000). These costs have been expensed as incurred, while
the cost of new software is capitalized and amortized over the software's
useful life.
During 1998, the FASB issued SFAS 133 and 134, "Accounting for Derivative
Instruments and Hedging Activities" and "Accounting for Mortgage-Backed
Derivative Securities Retained After the Securization of Mortgage Loans Held For
Sale by a Mortgage Banking Enterprise", effective for fiscal years beginning
after June 15, 1999 and December 15, 1998, respectively. Management does not
expect these statements to have a material impact on either the financial
position, results of operations or financial statement disclosures of the
Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None.
32
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings - See "Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Contingencies and
Legal Matters" which is incorporated herein by reference.
Item 2. Changes in Securities -
(a), (b) Pursuant to the Company's Second Amended Plan of
Reorganization (the "Plan"), all of the Mercury Finance Company Common
Stock (the "Old Common Stock"), $1 par value, was cancelled on March
23, 1999. The Plan provides for the Company's senior lenders to
receive new senior secured notes equal to 75 percent of the face value
of their then current outstanding balance after the receipt of Excess
Cash (as defined in the Plan) and their pro rata share of 9,500,000
shares (95% of the outstanding) of MFN Financial Corporation Common
Stock (the "New Common Stock"), par value $.01 per share. The Plan
provides for holders of subordinated notes to receive $22.5 million in
new senior unsecured subordinated notes.
The Plan also provides for the record holders of Old Common Stock as
of March 22, 1999, to receive 500,000 shares (5% of the outstanding)
of New Common Stock and three series of warrants, each exercisable for
580,000 shares of New Common Stock, with expiration dates of three,
four and five years, respectively, from March 23, 1999. The exercise
price of the Series A Warrants is $15.34, the exercise price of the
Series B Warrants is $21.81 and the exercise price of the Series C
Warrants is $28.27.
(c) See the Company's Current Report on Form 8-K filed on March 25,
1999.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities - See the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, which is incorporated
herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index following the signature page
(b) Reports on Form 8-K - The following Current Reports on Form 8-K
were filed during the first quarter of 1999:
(i) Item 3 and Item 7 Current Report on Form 8-K filed March 25,
1999.
(ii) Item 4 and Item 7 Current Report on Form 8-K filed March 26,
1999.
33
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MFN FINANCIAL CORPORATION
(Registrant)
Date: May 14, 1999 /s/ Edward G. Harshfield
------------------------
Edward G. Harshfield
Chairman, President and
Chief Executive Officer
Date: May 14, 1999 /s/ Jeffrey B. Weeden
---------------------
Jeffrey B. Weeden
Executive Vice President, Chief
Financial Officer and Principal Accounting
Officer
34
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
----------- -----------
10A Employment Agreement dated March 23, 1999, between
Jeffrey B. Weeden and the Company.
10B Employment Agreement dated March 23, 1999, between
Mark E. Dapier and the Company.
10C MFN Financial Corporation Amended and Restated 1989
Stock Option and Incentive Compensation Plan.
10D Exchange Agent Agreement dated March 29, 1999,
between Norwest Bank Minnesota and the Company.
10E Form of Indemnification Agreement between the
Company and certain directors and officers of the
Company.
10F Change of Control Agreement dated March 23, 1999,
between the Company and Edward G. Harshfied.
10G Change of Control Agreement dated March 23, 1999,
between the Company and Jeffrey B. Weeden.
10H Change of Control Agreement dated March 23, 1999,
between the Company and Mark E. Dapier.
10I Change of Control Agreement dated March 23, 1999,
between the Company and Mark D. Whitham.
27. Financial Data Schedule
35
<PAGE>
EXHIBIT 10A
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), made as of the 23rd day of March, 1999 by and
between MFN Financial Corporation, a Delaware corporation ("Company"), and
Jeffrey B. Weeden ("Executive").
WITNESSETH THAT:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the Company and the Executive hereby agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive agrees to serve the Company, in the capacities described herein
during the Period of Employment (as defined in Section 2 of this Agreement), in
accordance with the terms and conditions of this Agreement.
2. Period of Employment. The term "Period of Employment" shall mean the
period which commences on March 23, 1999 (the "Effective Date") and, unless
earlier terminated pursuant to Section 6, ends on the third anniversary of the
Effective Date.
3. Duties During the Period of Employment.
(1) Duties. During the Period of Employment, the Executive shall be
employed as Executive Vice President and Chief Financial Officer of the Company
with overall charge and responsibility for the financial matters and affairs of
the Company, and shall perform such appropriate duties as the Executive shall
reasonably be directed to perform by the Company's President and Chief Executive
Officer.
(2) Scope. During the Period of Employment, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive shall devote substantially all of his business time and attention to
the business and affairs of the Company. It shall not be a violation of this
Agreement for the Executive to (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions, or (iii) manage personal investments, so long
as such activities under clauses (i), (ii) and (iii) do not interfere, in any
substantial respect, with the Executive's responsibilities hereunder.
4. Compensation and Other Payments.
(1) Salary. During the Period of Employment the Company shall pay
the Executive an annual base salary ("Base Salary") of two hundred fifty
thousand dollars ($250,000) per year. The Executive's Base Salary shall be paid
in advance, in equal monthly installments. The Base Salary shall be reviewed
annually as of the end of each fiscal year of the
<PAGE>
Company (the "Applicable Year") during the Period of Employment by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board"). Each annual review shall be completed by January 1
following the Applicable Year. Based upon such reviews, the Committee may
increase, but shall not decrease, the Base Salary. Any increase in Base Salary
shall not serve to limit or reduce any other obligation to the Executive under
this Agreement.
(2) Annual Bonuses. The Executive shall be eligible to participate
in the Company's annual bonus program pursuant to which Executive's targeted
bonus amount shall be forty percent (40%) of the Base Salary, subject to a
guaranteed bonus of one hundred thousand dollars ($100,000) for the first year
of the Period of Employment.
(3) Initial Stock Options. On the effective date of a plan of
reorganization for the Company which is confirmed by a bankruptcy court pursuant
to a final order which is no longer subject to appeal, the Company shall grant
the Executive a ten (10) year option to purchase two hundred thousand (200,000)
shares of stock of the Company, which option shall vest and be exercisable as
set forth below and which option shall be transferable by the Executive to
members of his immediate family or to trusts or partnerships formed for the
benefit of the Executive or members of his immediate family:
(1) 100,000 is fully vested and is exercisable from and after
the date of grant ("Grant Date");
(2) 50,000 shall vest and become exercisable in twelve (12)
equal monthly portions, beginning with the first anniversary of the Grant
Date, with one-twelfth (1/12) vesting on the first anniversary and an
additional one-twelfth (1/12) vesting on the first day of each of the next
eleven (11) calendar months thereafter; and
(3) 50,000 shall vest and become exercisable in twelve (12)
equal monthly portions, beginning with the second anniversary of the Grant
Date, with one-twelfth (1/12) vesting on the first day of each of the next
eleven (11) calendar months thereafter.
The Company shall take such reasonable efforts as may be necessary to
cause any shares to be issued in connection with such option awards to be
registered under the Federal Securities Act of 1933, as amended, or under
applicable state securities laws, or to secure an appropriate exemption from
such registration. The terms and conditions of the said option awards are to be
included in a Stock Option Agreement in the form attached hereto as Exhibit A.
The options shall become exercisable immediately upon vesting and shall remain
exercisable until they expire or otherwise terminate in accordance with this
Agreement or the terms and conditions set forth in Exhibit A. To the extent the
Company is unable to provide sufficient shares to comply with this Section 4(c),
the Company shall provide the Executive with the economic equivalent of the
value of the option award(s) described in this Section 4(c) in the form of a
stock appreciation right based upon substantially the same terms and conditions
as set forth in Exhibit A.
2
<PAGE>
(4) Reimbursement of Professional Fees. The Company shall pay on the
Executive's behalf all reasonable fees and expenses shown on statements
submitted to the Executive by the Executive's attorneys, accountants and other
advisors in connection with the negotiation and execution of this Agreement.
5. Other Executive Benefits.
(1) Regular Reimbursed Business Expenses. The Company shall promptly
reimburse the Executive for all expenses and disbursements reasonably incurred
by the Executive in the performance of his duties hereunder during the Period of
Employment.
(2) Benefit Plans. The Executive and his eligible family members
shall be entitled to participate, on terms no less favorable to the Executive
and his eligible family members than the terms offered to other senior
executives of the Company, in any group and/or executive life, hospitalization
or disability insurance plan, health program, vacation policy, pension, profit
sharing, ESOP, 401(k) and similar benefit plans (qualified, non-qualified and
supplemental) or other fringe benefits of the Company, including an automobile
allowance, club memberships and dues, and similar programs (collectively
referred to as the "Benefits"). In the event that any health programs or
insurance policies applicable to the Benefits provided hereunder contain a
preexisting conditions clause, the Company shall either obtain a waiver from
such clause with respect to the Executive and/or his eligible family members or
self-insure the Executive and/or his eligible family members with respect to
such conditions. Anything contained herein to the contrary notwithstanding, the
benefits described herein shall not duplicate benefits made available to the
Executive pursuant to any other provision of this Agreement. In the event that
any benefits coverage requires an interim waiting period, the Company shall pay
all interim premiums on behalf of the Executive and his family for such
coverage. The Company shall reimburse the Executive for all taxes payable by the
Executive due to payments made by the Company pursuant to this paragraph (b),
including tax reimbursement payments; provided however, that such tax
reimbursement shall not apply to payments which constitute vacation pay or
pension, profit-sharing or similar retirement or deferred compensation benefits
normally taxable to recipients.
(3) Perquisites. The Company shall provide the Executive such
perquisites of employment as are commonly provided to other senior executives of
the Company.
6. Termination.
(1) Death or Disability. This Agreement and the Period of Employment
shall terminate automatically upon the Executive's death. If the Company
determines in good faith that the Disability of the Executive has occurred
(pursuant to the definition of "Disability" set forth below), it may give to the
Executive written notice of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the thirtieth day after receipt by the Executive of such
notice given at any time after a period of one hundred twenty (120 consecutive
days of Disability or a period of one hundred eighty (180) days of Disability
within any twelve (12) consecutive months, and, in either case, while such
Disability is continuing ("Disability Effective Date"); provided that, within
the thirty (30) days after such receipt, the Executive shall not have returned
to full-time
3
<PAGE>
performance of the Executive's duties. For purposes of this Agreement,
"Disability" means the Executive's inability to substantially perform his duties
hereunder, with reasonable accommodation, as evidenced by a certificate signed
either by a physician mutually acceptable to the Company and the Executive or,
if the Company and the Executive cannot agree upon a physician, by a physician
selected by agreement of a physician designated by the Company and a physician
designated by the Executive. Until the Disability Effective Date, the Executive
shall be entitled to all compensation and benefits provided for under Section 4
and Section 5 hereof. It is understood that nothing in this Section 6(a) shall
serve to limit the Company's obligations under Section 7(b) hereof.
(2) By the Company for Cause. The Company may terminate the
Executive's employment hereunder for "Cause" upon five (5) days' written notice.
For purposes of this Agreement, "Cause" shall mean (i) Executive's commission of
an act materially and demonstrably detrimental to the Company, which act
constitutes gross negligence or willful misconduct by Executive in the
performance of his material duties to the Company or (ii) Executive's commission
of any material act of dishonesty or breach of trust resulting or intended to
result in material personal gain or enrichment of Executive at the expense of
the Company, or (iii) Executive's conviction of a felony involving theft or
moral turpitude, but specifically excluding any conviction based entirely on
vicarious liability.
(3) By Executive for Good Reason. The Executive's employment
hereunder may be terminated by the Executive for Good Reason upon five (5) days'
written notice. For purposes of this Agreement, "Good Reason" shall mean:
(1) The assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices,
titles and reporting relationships), authority, duties or responsibilities
as contemplated by Section 3 of this Agreement, or any other action by the
Company which results in a significant diminution in such position,
authority, duties or responsibilities, excluding for this Section 6(c) any
isolated, immaterial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(2) Any failure by the Company to comply with any of the
provisions of this Agreement, other than an isolated, immaterial and
inadvertent failure not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(3) The filing of any involuntary bankruptcy petition against
the Company which is not dismissed within sixty (60) days of the filing of
the petition;
(4) The revocation of any significant business license of the
Company by any state, except such a revocation which does not have a
material adverse effect on the business or prospects of the Company taken
as a whole; or
(5) Any criminal indictment of the Company, except for any such
indictment (A) which (1) is based upon the investigation by the federal
Securities and Exchange Commission into actions of the Company which
preceded the July 15, 1998
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filing date of the bankruptcy petition of the Company and (2) does not have
a material adverse effect on the business or prospects of the Company taken
as a whole or (B) which is based primarily upon the Executive's own
actions, but excluding any indictment based upon an allegation of vicarious
liability on the part of the Executive, with vicarious liability meaning
liability which is based on actions of the Company for which the Executive
is alleged to be responsible solely as a result of his offices with the
Company and in which he was not directly involved and of which he did not
have prior knowledge.
(4) By Executive Other Than for Good Reason. The Executive may,
without liability to the Company, terminate his employment hereunder at any time
other than for Good Reason, upon thirty (30) days' written notice to the
Company.
(5) By the Company Without Cause. The Company may, subject to
Section 7(d) hereof, terminate the Executive's employment hereunder at any time
upon thirty (30) days' written notice to the Executive.
(6) Notice of Termination. Any termination of employment under this
Agreement by the Company or by the Executive shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail, if applicable, the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under the provision so
indicated, and (iii) specifies the Date of Termination (as defined below). The
failure by the Executive or Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of the basis for
termination shall not waive any right of such party hereunder or preclude such
party from asserting such fact or circumstance in enforcing his or its rights
hereunder.
(7) Date of Termination. "Date of Termination" means the date
specified in the Notice of Termination; provided, however, that if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
7. Obligations of the Company Upon Termination.
(1) Death. If the Executive's employment is terminated by reason of
the Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than those obligations accrued or earned and vested (if applicable) by the
Executive as of the Date of Termination, including, but not limited to, (i) the
Executive's Base Salary through the Date of Termination at the rate in effect on
the Date of Termination disregarding any reduction in Base Salary in violation
of this Agreement and (ii) any other rights and benefits (including, without
limitation, payments due pursuant to Section 5(a) or Section 5(b) of this
Agreement) available to the Executive under employee compensation and benefit
arrangements of the Company (without duplication) in which the Executive was a
participant on the Date of Termination, determined in accordance with the
applicable terms and provisions of such arrangements (such amounts specified in
clauses (i) and (ii) being hereinafter referred to as "Accrued Obligations").
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<PAGE>
(2) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability, this Agreement shall terminate without
further obligations to the Executive, other than those obligations accrued or
earned and vested (if applicable) by the Executive as of the Date of
Termination, including, but not limited to, all Accrued Obligations.
(3) Cause; Other Than Good Reason. If the Executive's employment
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than those obligations accrued or earned and vested (if
applicable) by the Executive through the Date of Termination, including, but not
limited to, all Accrued Obligations.
(4) Good Reason; Other Than for Cause or Disability. If the Company
shall terminate the Executive's employment other than for Cause or Disability,
or if the Executive shall terminate his employment for Good Reason:
(1) Subject to the limitation set forth in Section 7(c), the
Company shall cause the Executive to receive the aggregate of the following
amounts:
(1) Continuation of Base Salary through the third
anniversary of the Effective Date;
(2) Any options or stock awards previously granted and not
yet vested as of the Date of Termination shall be fully vested
immediately, and all options shall remain exercisable through the end
of their original term; and
(3) All unpaid and vested compensation and Benefits accrued
or earned by the Executive as of the Date of Termination, including,
but not limited to, all Accrued Obligations.
(2) Through the third anniversary of the Effective Date, or such
longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them in
accordance with Section 5(b) of this Agreement if the Executive's
employment had not been terminated, including health insurance and life
insurance. Thereafter, the Executive shall be treated as a retired senior
executive of the Company for purposes of Benefits provided by the Company
to such retirees.
It is understood that the Executive's rights under this Section 7 are in lieu of
all other rights which the Executive may otherwise have had upon termination of
this Agreement; provided, however, that no provision of this Agreement is
intended to adversely affect the Executive's rights under the Consolidated
Omnibus Budget Reconciliation Act of 1985.
8. Mitigation. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement, and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
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9. Indemnification. The Company shall maintain, for the benefit of the
Executive, director and officer liability insurance in form at least as
comprehensive as, and in an amount that is at least equal to, that maintained by
the Company on October 1, 1998. The Executive's rights to such insurance shall
continue so long as the Company maintains director and office liability
insurance for any then current director or officer; provided that such insurance
shall in any event be maintained through December 31, 2003. In addition, the
Executive shall be indemnified by the Company against liability as an officer of
the Company or any subsidiary or affiliate of the Company to the maximum extent
permitted by applicable law.
10. Confidential Information and Noncompetition.
(1) The Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company, or any of its subsidiaries, affiliates and businesses,
which shall have been obtained by the Executive pursuant to his employment by
the Company or any of its subsidiaries and affiliates and which shall not have
become public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. However, in no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
(2) During the Period of Employment and during the one (1)-year
period immediately following (i) the Company's termination of the Executive's
employment for Cause or (ii) the Executive's termination of his employment other
than for Good Reason, the Executive shall not, directly or indirectly, engage
in, be employed by, act as a consultant to, or be a director, officer, owner or
partner of, any business activity or entity which competes significantly and
directly with the Company or any of its subsidiaries in lines of business
conducted by the Company or its subsidiaries during the Period of Employment or,
for purposes of applying this noncompetition restriction after the Period of
Employment, in lines of business conducted by the Company or its subsidiaries as
of the Date of Termination and, in either event, in any geographic area in which
the Company or its subsidiaries engage in such business; provided, however, that
it shall not be a violation of this paragraph (b) for the Executive to continue
to serve in those current directorships which are disclosed to the Company by
the Executive in writing at the time of his execution of this Agreement; and
provided further that it shall not be a violation of this Agreement for the
Executive to own an interest of less than five percent (5%) in any entity whose
ownership interests are publicly traded.
11. Remedy for Violation of Section 10. The Executive acknowledges that
the Company has no adequate remedy at law and will be irreparably harmed if the
Executive breaches or threatens to breach the provisions of Section 10 of this
Agreement and, therefore, agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of such section and
that the Company shall be entitled to specific performance of the terms of such
section in addition to any other legal or equitable remedy it may have. Nothing
in this Agreement shall be construed as prohibiting the Company from pursuing
any other remedies
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<PAGE>
at law or in equity that it may have or any other rights that it may have under
any other agreement.
12. Withholding. Anything in this Agreement to the contrary
notwithstanding, all payments required to be made by the Company hereunder to
the Executive shall be subject to withholding of such amounts, at the time
payments are actually made to the Executive and received by him, relating to
taxes as the Company may reasonably determine it should withhold pursuant to any
applicable law or regulation. In lieu of withholding such amounts, in whole or
in part, the Company may, in its sole discretion, accept other provision for
payment of taxes as required by law, provided that it is satisfied that all
requirements of law affecting its responsibilities to withhold such taxes have
been satisfied.
13. Arbitration. Any dispute or controversy between the Company and the
Executive, whether arising out of or relating to this Agreement, the breach of
this Agreement, or otherwise, shall be settled by arbitration administered in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA") then in effect, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction. Any arbitration
shall be held before a single arbitrator who shall be selected by the mutual
agreement of the Company and the Executive, unless the parties are unable to
agree to an arbitrator, in which case, the arbitrator will be selected by the
then President of the Chicago Bar Association. The arbitrator shall have the
authority to award any remedy or relief that a court of competent jurisdiction
could order or grant, including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency with this
arbitration provision, apply to any court having jurisdiction over such dispute
or controversy and seek interim provisional, injunctive or other equitable
relief until the arbitration award is rendered or the controversy is otherwise
resolved. Except as necessary in court proceedings to enforce this arbitration
provision or an award rendered hereunder, or to obtain interim relief, or as
required by law, neither a party nor an arbitrator may disclose the existence,
content or results of any arbitration hereunder without the prior written
consent of the Company and the Executive. The Company and the Executive
acknowledge that this Agreement evidences a transaction involving interstate
commerce. Notwithstanding any choice of law provision included in this Agreement
the United States Federal Arbitration Act shall govern the interpretation and
enforcement of this arbitration provision. The arbitration proceeding shall be
conducted in Chicago, Illinois or such other location to which the parties may
agree. The Company shall pay the costs of any arbitrator appointed hereunder.
14. Reimbursement of Legal Expenses. In the event that the Executive is
the prevailing party, or is successful to a material degree, in pursuing or
defending, whether in arbitration or litigation, any claim or dispute involving
the Executive's employment with the Company, including any claim or dispute
relating to (a) this Agreement, (b) termination of the Executive's employment
with the Company or (c) the failure or refusal of the Company to perform fully
in accordance with the terms hereof, the Company shall promptly reimburse the
Executive for all reasonable costs and expenses (including, without limitation,
attorneys' fees) relating solely, or allocable, to such claim. In any other
case, the Executive and the Company shall each bear all their own costs and
attorneys' fees.
15. Taxes. In the event that the aggregate of all payments or benefits
made or provided to, or that may be made or provided to, the Executive under
this Agreement and under
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all other plans, programs and arrangements of the Company (the "Aggregate
Payment") is determined to constitute an "excess parachute payment," as such
term is defined in Section 280G(b) of the Internal Revenue Code, the Company
shall pay to the Executive prior to the time any excise tax imposed by Section
4999 of the Internal Revenue Code ("Excise Tax") is payable with respect to such
Aggregate Payment, an additional amount which, after the imposition of all
income and excise taxes thereon, is equal to the Excise Tax on the Aggregate
Payment. The determination of whether the Aggregate Payment constitutes an
excess parachute payment and, if so, the amount to be provided to the Executive
and the time of payment pursuant to this Section 15 shall be made by an
independent auditor (the "Auditor") jointly selected by the Company and the
Executive and paid by the Company. The Auditor shall be a nationally recognized
United States public accounting firm which has not, during the two (2) years
preceding the date of its selection, acted in any way on behalf of the Company
or any affiliate thereof. If the Executive and the Company cannot agree on the
firm to serve as the Auditor, then the Executive and the Company shall each
select one accounting firm and those two firms shall jointly select the
accounting firm to serve as the Auditor. Notwithstanding the foregoing, in the
event that the amount of the Executive's Excise Tax liability is subsequently
determined to be greater than the Excise Tax liability with respect to which any
initial payment to the Executive under this Section 15 has been made, the
Company shall pay to the Executive an additional amount (grossed up for all
taxes), with respect to such additional Excise Tax (and any interest and
penalties thereon) at the time and in the amount reasonably determined by the
Auditor. Similarly, if the amount of the Executive's Excise Tax liability is
subsequently determined to be less than the Excise Tax liability with respect to
which any prior payment to the Executive has been made under this Section 15,
the Executive shall refund to the Company the excess amount received, after
reduction for any nonrefundable tax, penalties and/or interest incurred by the
Executive in connection with the receipt of such excess, and such refund shall
be paid promptly after the Executive has received any corresponding refund of
excess Excise Tax paid to the Internal Revenue Service. The Executive and the
Company shall cooperate with each other in connection with any proceeding or
claim relating to the existence or amount of liability for Excise Tax, and all
expenses incurred by the Executive in connection therewith shall be paid by the
Company promptly upon notice of demand from the Executive.
16. Successors.
(1) This Agreement is personal to the Executive and, without the
prior written consent of the Company, the Executive's rights hereunder shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's heirs and legal representatives.
(2) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(3) As used in this Agreement the term "Company" shall include any
successor to the Company's business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise. The Company
shall require any successor (whether direct or indirect, by purchase, merger,
reorganization, consolidation, acquisition of property or stock, liquidation, or
otherwise) to all or a substantial portion of its assets, by agreement in form
and substance reasonably satisfactory to the Executive, expressly to
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assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform this Agreement if no such
succession had taken place.
17. Representations.
(1) The Company represents and warrants that (i) the execution of
this Agreement has been duly authorized by the Company, including action of the
Board, (ii) the execution, delivery and performance of this Agreement by the
Company does not and will not violate any law, regulation, order, judgment or
decree or any agreement, plan or corporate governance document of the Company
and (iii) upon the execution and delivery of this Agreement by the Executive,
this Agreement shall be the valid and binding obligation of the Company,
enforceable in accordance with its terms (subject to entry of a confirmation
order regarding the plan of reorganization referred to in Section 4, above),
except to the extent enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by the effect of general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
(2) The Executive represents and warrants to the Company that (i) the
execution, delivery and performance of this Agreement by the Executive does not
and will not violate any law, regulation, order, judgment or decree or any
agreement to which the Executive is a party or by which he is bound; (ii) the
Executive is not a party to or bound by any employment agreement, noncompetition
agreement or confidentiality agreement with any other person or entity that
would interfere with this Agreement or his performance of services hereunder;
and (iii) upon the execution and delivery of this Agreement by the Company, this
Agreement shall be the valid and binding obligation of the Executive,
enforceable in accordance with its terms, except to the extent enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and by the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
18. Miscellaneous.
(1) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
choice of law. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(2) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party, by overnight
courier, or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
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If to the Executive:
Mr. Jeffrey B. Weeden
N28W30219 Red Hawk Court
Pewaukee, Wisconsin 53072
If to the Company:
MFN Financial Corporation
100 Field Drive, Suite 340
Lake Forest, Illinois 60045
Attn: President and Chief Executive Officer
with a copy to:
Robert J. Stucker, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601
or to such other addresses as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee, as evidenced by a delivery receipt.
(3) None of the provisions of this Agreement shall be deemed to be a
penalty.
(4) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or unenforceability of any other
provision of this Agreement.
(5) Either party's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof.
(6) This Agreement supersedes any prior agreements or understandings,
written or oral, between the Company and the Executive and contains the entire
understanding of the Company and the Executive with respect to the subject
matter hereof.
(7) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS HEREOF, the parties have executed this Agreement all as of the
day and year first above written.
MFN FINANCIAL CORPORATION
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Edward G. Harshfield, President and Chief
Executive Officer
JEFFREY B. WEEDEN
-----------------------------------------
Exhibit A
---------
STOCK OPTION AGREEMENT
----------------------
Jeffrey B. Weeden
Executive Vice President, Chief Financial Officer March 23, 1999
In accordance with the terms of your March 23, 1999 Employment Agreement
with MFN Financial Corporation (the "Company"), and in consideration of the
mutual covenants contained in that Employment Agreement and other good and
valuable consideration, you are hereby awarded a stock option with the following
terms and conditions:
1. Shares: This option is for a total of two hundred thousand (200,000)
shares of common stock of the Company.
2. Price: The option price under this option is $8.50 per share.
3. When Exercisable: Your rights to purchase shares covered by this
option shall vest and be exercisable as set forth below and shall remain fully
exercisable by you (or by an authorized representative in the event of your
death or disability) throughout the term of this option, as described in Section
4, below, except as otherwise provided in Section 4:
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(a) one-half (1/2) is fully vested and is exercisable from and after
the grant date of this option (the "Grant Date");
(b) one-quarter (1/4) shall vest and become exercisable in twelve
(12) equal monthly portions, beginning with the first anniversary of the Grant
Date, with one-twelfth (1/12) vesting on such first anniversary and an
additional one-twelfth (1/12) vesting on the first day of each of the next
eleven (11) calendar months thereafter; and
(c) one-quarter (1/4) shall vest and become exercisable in twelve
(12) equal monthly portions, beginning with the second anniversary of the Grant
Date, with one-twelfth (1/12) vesting on such second anniversary and an
additional one-twelfth (1/12) vesting on the first day of each of the next
eleven (11) calendar months thereafter.
4. Term. This option shall remain in full force and effect for a term of
ten (10) years ending on March 23, 2009, without regard to the termination of
your employment with the Company; provided, however, that if your employment
with the Company is terminated by you other than for Good Reason (as that term
is defined in your Employment Agreement) or if your employment with the Company
is terminated by the Company for Cause (as that term is defined in your
Employment Agreement), the term of this option shall end immediately upon such
termination.
5. Manner of Exercise. You, or an authorized representative acting on
your behalf in the event of your death or disability, may exercise this option
in whole or in part, from time to time, by written notice delivered to the
Secretary of the Company, which includes the following:
(a) Your name, mailing address and Social Security number;
(b) The date of the notice;
<PAGE>
(c) The number of shares with respect to which this option is being
exercised;
(d) The exercise price for the shares with respect to which this
option is being exercised;
(e) Payment, in accordance with Section 6, below, for the shares
being purchased; and
(f) Your signature or the signature of an authorized representative
acting on your behalf in the event of your death or disability.
6. Payment. Payment under this option may be made in cash or by
transferring shares of the Company's common stock valued at fair market value at
the effective date of exercising this option, or a combination of both. Shares
of Company common stock so delivered must have been held by you for at least six
(6) months. Shares shall be issued promptly after full payment has been made.
7. Tax Withholding. Tax withholding is required upon exercising this
option in whole or in part. Payment for tax withholding may be made in cash or,
pursuant to your election, by transferring shares of the Company's common stock
or the withholding of shares to be issued, or any combination of cash, shares
and withholding of shares. Any election to use or withhold shares must be made
in accordance with applicable tax and securities laws and established
administrative procedures and shall be subject to disapproval by the Company for
failure to comply with such laws and procedures.
8. Transferability. Your rights to purchase shares pursuant to this
option are transferable by you from time to time, in whole or in part, to
members of your immediate family
<PAGE>
or to trusts or partnerships formed for your benefit or the benefit of members
of your immediate family. Such transfer may be effected by delivering to the
Treasurer of the Company a written notice identifying the transferee(s) and the
portion of the option which is being transferred to each transferee.
9. Adjustment. In the event of any change in the common stock of the
Company through stock dividends, stock splits, recapitalization,
reclassification or otherwise, or in the event that any other stock shall be
substituted for the present common stock of the Company as the result of any
merger, consolidation or reorganization, then the Board of Directors of the
Company (or a committee thereof) shall make appropriate adjustment or
substitution in the number, kind and/or price of the shares subject to this
option, so as to preserve the overall value of this option. In connection with
any merger, consolidation or reorganization in which the present common stock of
the Company is converted into the right to receive only cash, the Board of
Directors may require you to tender your options to the Company for cash in an
amount equal to the positive difference, if any, between the cash price per
share in such merger, consolidation or reorganization and the exercise price per
share of such options.
10. Registration of Shares. The Company shall take such reasonable efforts
as may be necessary to cause any shares to be issued in connection with this
option to be registered under the Federal Securities Act of 1933, as amended, or
under applicable state securities laws, or to secure an appropriate exemption
from such registration.
11. Nonstatutory Stock Option. This option shall be a nonstatutory stock
option and is not to be treated as an incentive stock option within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended.
<PAGE>
MFN FINANCIAL CORPORATION
Edward G. Harshfield, President and Chief
Executive Officer
Accepted and agreed to this___
day of _______________, 1999.
- -------------------------------
Jeffrey B. Weeden
<PAGE>
EXHIBIT 10B
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), made as of the 23rd day of March, 1999 by and
between MFN Financial Corporation, a Delaware corporation ("Company"), and Mark
E. Dapier ("Executive").
WITNESSETH THAT:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the Company and the Executive hereby agree as follows:
19. Employment. The Company hereby agrees to employ the Executive, and the
Executive agrees to serve the Company, in the capacities described herein during
the Period of Employment (as defined in Section 2 of this Agreement), in
accordance with the terms and conditions of this Agreement.
20. Period of Employment. The term "Period of Employment" shall mean the
period which commences on March 23, 1999 (the "Effective Date") and, unless
earlier terminated pursuant to Section 6, ends on the third anniversary of the
Effective Date.
21. Duties During the Period of Employment.
(1) Duties. During the Period of Employment, the Executive shall be
employed as Executive Vice President, General Counsel and Secretary of the
Company with overall charge and responsibility for the financial matters and
affairs of the Company, and shall perform such appropriate duties as the
Executive shall reasonably be directed to perform by the Company's President and
Chief Executive Officer.
(2) Scope. During the Period of Employment, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
shall devote substantially all of his business time and attention to the
business and affairs of the Company. It shall not be a violation of this
Agreement for the Executive to (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions, or (iii) manage personal investments, so long
as such activities under clauses (i), (ii) and (iii) do not interfere, in any
substantial respect, with the Executive's responsibilities hereunder.
22. Compensation and Other Payments.
(1) Salary. During the Period of Employment the Company shall pay the
Executive an annual base salary ("Base Salary") of two hundred fifty
thousand dollars
<PAGE>
($150,000) per year. The Executive's Base Salary shall be paid in advance, in
equal monthly installments. The Base Salary shall be reviewed annually as of the
end of each fiscal year of the Company (the "Applicable Year") during the Period
of Employment by the Compensation Committee (the "Committee") of the Board of
Directors of the Company (the "Board"). Each annual review shall be completed by
January 1 following the Applicable Year. Based upon such reviews, the Committee
may increase, but shall not decrease, the Base Salary. Any increase in Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement.
(2) Annual Bonuses. The Executive shall be eligible to participate in
the Company's annual bonus program pursuant to which Executive's targeted bonus
amount shall be forty percent (40%) of the Base Salary, subject to a guaranteed
bonus of sixty thousand dollars ($60,000) for the first year of the Period of
Employment.
(3) Initial Stock Options. On the effective date of a plan of
reorganization for the Company which is confirmed by a bankruptcy court pursuant
to a final order which is no longer subject to appeal, the Company shall grant
the Executive a ten (10) year option to purchase one hundred thousand (100,000)
shares of stock of the Company, which option shall vest and be exercisable as
set forth below and which option shall be transferable by the Executive to
members of his immediate family or to trusts or partnerships formed for the
benefit of the Executive or members of his immediate family:
(1) 50,000 is fully vested and is exercisable from and after the
date of grant ("Grant Date");
(2) 25,000 shall vest and become exercisable in twelve (12)
equal monthly portions, beginning with the first anniversary of the Grant
Date, with one-twelfth (1/12) vesting on the first anniversary and an
additional one-twelfth (1/12) vesting on the first day of each of the next
eleven (11) calendar months thereafter; and
(3) 25,000 shall vest and become exercisable in twelve (12)
equal monthly portions, beginning with the second anniversary of the Grant
Date, with one-twelfth (1/12) vesting on the first day of each of the next
eleven (11) calendar months thereafter.
The Company shall take such reasonable efforts as may be necessary to
cause any shares to be issued in connection with such option awards to be
registered under the Federal Securities Act of 1933, as amended, or under
applicable state securities laws, or to secure an appropriate exemption from
such registration. The terms and conditions of the said option awards are to be
included in a Stock Option Agreement in the form attached hereto as Exhibit A.
The options shall become exercisable immediately upon vesting and shall remain
exercisable until they expire or otherwise terminate in accordance with this
Agreement or the terms and conditions set forth in Exhibit A. To the extent the
Company is unable to provide sufficient shares to comply with this Section 4(c),
the Company shall provide the Executive with the economic equivalent of the
value of the option award(s) described in this Section 4(c) in the form
<PAGE>
of a stock appreciation right based upon substantially the same terms and
conditions as set forth in Exhibit A.
(4) Reimbursement of Professional Fees. The Company shall pay on the
Executive's behalf all reasonable fees and expenses shown on statements
submitted to the Executive by the Executive's attorneys, accountants and other
advisors in connection with the negotiation and execution of this Agreement.
23. Other Executive Benefits.
(1) Regular Reimbursed Business Expenses. The Company shall promptly
reimburse the Executive for all expenses and disbursements reasonably incurred
by the Executive in the performance of his duties hereunder during the Period of
Employment.
(2) Benefit Plans. The Executive and his eligible family members
shall be entitled to participate, on terms no less favorable to the Executive
and his eligible family members than the terms offered to other senior
executives of the Company, in any group and/or executive life, hospitalization
or disability insurance plan, health program, vacation policy, pension, profit
sharing, ESOP, 401(k) and similar benefit plans (qualified, non-qualified and
supplemental) or other fringe benefits of the Company, including an automobile
allowance, club memberships and dues, and similar programs (collectively
referred to as the "Benefits"). In the event that any health programs or
insurance policies applicable to the Benefits provided hereunder contain a
preexisting conditions clause, the Company shall either obtain a waiver from
such clause with respect to the Executive and/or his eligible family members or
self-insure the Executive and/or his eligible family members with respect to
such conditions. Anything contained herein to the contrary notwithstanding, the
benefits described herein shall not duplicate benefits made available to the
Executive pursuant to any other provision of this Agreement. In the event that
any benefits coverage requires an interim waiting period, the Company shall pay
all interim premiums on behalf of the Executive and his family for such
coverage. The Company shall reimburse the Executive for all taxes payable by the
Executive due to payments made by the Company pursuant to this paragraph (b),
including tax reimbursement payments; provided however, that such tax
reimbursement shall not apply to payments which constitute vacation pay or
pension, profit-sharing or similar retirement or deferred compensation benefits
normally taxable to recipients.
(3) Perquisites. The Company shall provide the Executive such
perquisites of employment as are commonly provided to other senior
executives of the Company.
24. Termination.
(1) Death or Disability. This Agreement and the Period of Employment
shall terminate automatically upon the Executive's death. If the Company
determines in good faith that the Disability of the Executive has occurred
(pursuant to the definition of "Disability" set forth below), it may give to the
Executive written notice of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the thirtieth day after receipt by the Executive of such
notice given at any
<PAGE>
time after a period of one hundred twenty (120 consecutive days of Disability or
a period of one hundred eighty (180) days of Disability within any twelve (12)
consecutive months, and, in either case, while such Disability is continuing
("Disability Effective Date"); provided that, within the thirty (30) days after
such receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" means the
Executive's inability to substantially perform his duties hereunder, with
reasonable accommodation, as evidenced by a certificate signed either by a
physician mutually acceptable to the Company and the Executive or, if the
Company and the Executive cannot agree upon a physician, by a physician selected
by agreement of a physician designated by the Company and a physician designated
by the Executive. Until the Disability Effective Date, the Executive shall be
entitled to all compensation and benefits provided for under Section 4 and
Section 5 hereof. It is understood that nothing in this Section 6(a) shall serve
to limit the Company's obligations under Section 7(b) hereof.
(2) By the Company for Cause. The Company may terminate the
Executive's employment hereunder for "Cause" upon five (5) days' written notice.
For purposes of this Agreement, "Cause" shall mean (i) Executive's commission of
an act materially and demonstrably detrimental to the Company, which act
constitutes gross negligence or willful misconduct by Executive in the
performance of his material duties to the Company or (ii) Executive's commission
of any material act of dishonesty or breach of trust resulting or intended to
result in material personal gain or enrichment of Executive at the expense of
the Company, or (iii) Executive's conviction of a felony involving theft or
moral turpitude, but specifically excluding any conviction based entirely on
vicarious liability.
(3) By Executive for Good Reason. The Executive's employment
hereunder may be terminated by the Executive for Good Reason upon five (5) days'
written notice. For purposes of this Agreement, "Good Reason" shall mean:
(1) The assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices,
titles and reporting relationships), authority, duties or responsibilities
as contemplated by Section 3 of this Agreement, or any other action by the
Company which results in a significant diminution in such position,
authority, duties or responsibilities, excluding for this Section 6(c) any
isolated, immaterial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(2) Any failure by the Company to comply with any of the
provisions of this Agreement, other than an isolated, immaterial and
inadvertent failure not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(3) The filing of any involuntary bankruptcy petition against
the Company which is not dismissed within sixty (60) days of the filing of
the petition;
<PAGE>
(4) The revocation of any significant business license of the
Company by any state, except such a revocation which does not have a
material adverse effect on the business or prospects of the Company taken
as a whole; or
(5) Any criminal indictment of the Company, except for any such
indictment (A) which (1) is based upon the investigation by the federal
Securities and Exchange Commission into actions of the Company which
preceded the July 15, 1998 filing date of the bankruptcy petition of the
Company and (2) does not have a material adverse effect on the business or
prospects of the Company taken as a whole or (B) which is based primarily
upon the Executive's own actions, but excluding any indictment based upon
an allegation of vicarious liability on the part of the Executive, with
vicarious liability meaning liability which is based on actions of the
Company for which the Executive is alleged to be responsible solely as a
result of his offices with the Company and in which he was not directly
involved and of which he did not have prior knowledge.
(4) By Executive Other Than for Good Reason. The Executive may,
without liability to the Company, terminate his employment hereunder at any time
other than for Good Reason, upon thirty (30) days' written notice to the
Company.
(5) By the Company Without Cause. The Company may, subject to Section
7(d) hereof, terminate the Executive's employment hereunder at any time upon
thirty (30) days' written notice to the Executive.
(6) Notice of Termination. Any termination of employment under this
Agreement by the Company or by the Executive shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail, if applicable, the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under the provision so
indicated, and (iii) specifies the Date of Termination (as defined below). The
failure by the Executive or Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of the basis for
termination shall not waive any right of such party hereunder or preclude such
party from asserting such fact or circumstance in enforcing his or its rights
hereunder.
(7) Date of Termination. "Date of Termination" means the date
specified in the Notice of Termination; provided, however, that if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
25. Obligations of the Company Upon Termination.
(1) Death. If the Executive's employment is terminated by reason of
the Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than those obligations accrued or earned and vested (if applicable) by the
Executive as of the Date of Termination, including, but not limited
<PAGE>
to, (i) the Executive's Base Salary through the Date of Termination at the rate
in effect on the Date of Termination disregarding any reduction in Base Salary
in violation of this Agreement and (ii) any other rights and benefits
(including, without limitation, payments due pursuant to Section 5(a) or Section
5(b) of this Agreement) available to the Executive under employee compensation
and benefit arrangements of the Company (without duplication) in which the
Executive was a participant on the Date of Termination, determined in accordance
with the applicable terms and provisions of such arrangements (such amounts
specified in clauses (i) and (ii) being hereinafter referred to as "Accrued
Obligations").
(2) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability, this Agreement shall terminate without further
obligations to the Executive, other than those obligations accrued or earned and
vested (if applicable) by the Executive as of the Date of Termination,
including, but not limited to, all Accrued Obligations.
(3) Cause; Other Than Good Reason. If the Executive's employment
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than those obligations accrued or earned and vested (if
applicable) by the Executive through the Date of Termination, including, but not
limited to, all Accrued Obligations.
(4) Good Reason; Other Than for Cause or Disability. If the Company
shall terminate the Executive's employment other than for Cause or Disability,
or if the Executive shall terminate his employment for Good Reason:
(1) Subject to the limitation set forth in Section 7(c), the
Company shall cause the Executive to receive the aggregate of the following
amounts:
(1) Continuation of Base Salary through the third
anniversary of the Effective Date;
(2) Any options or stock awards previously granted and not
yet vested as of the Date of Termination shall be fully vested
immediately, and all options shall remain exercisable through the end
of their original term; and
(3) All unpaid and vested compensation and Benefits accrued
or earned by the Executive as of the Date of Termination, including,
but not limited to, all Accrued Obligations.
(2) Through the third anniversary of the Effective Date, or such
longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them in
accordance with Section 5(b) of this Agreement if the Executive's
employment had not been terminated, including health insurance and life
insurance. Thereafter, the Executive shall be treated as a retired senior
executive of the Company for purposes of Benefits provided by the Company
to such retirees.
<PAGE>
It is understood that the Executive's rights under this Section 7 are in lieu of
all other rights which the Executive may otherwise have had upon termination of
this Agreement; provided, however, that no provision of this Agreement is
intended to adversely affect the Executive's rights under the Consolidated
Omnibus Budget Reconciliation Act of 1985.
26. Mitigation. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment.
27. Indemnification. The Company shall maintain, for the benefit of the
Executive, director and officer liability insurance in form at least as
comprehensive as, and in an amount that is at least equal to, that maintained by
the Company on October 1, 1998. The Executive's rights to such insurance shall
continue so long as the Company maintains director and office liability
insurance for any then current director or officer; provided that such insurance
shall in any event be maintained through December 31, 2003. In addition, the
Executive shall be indemnified by the Company against liability as an officer of
the Company or any subsidiary or affiliate of the Company to the maximum extent
permitted by applicable law.
28. Confidential Information and Noncompetition.
(1) The Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company, or any of its subsidiaries, affiliates and businesses,
which shall have been obtained by the Executive pursuant to his employment by
the Company or any of its subsidiaries and affiliates and which shall not have
become public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. However, in no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
(2) During the Period of Employment and during the one (1)-year
period immediately following (i) the Company's termination of the Executive's
employment for Cause or (ii) the Executive's termination of his employment other
than for Good Reason, the Executive shall not, directly or indirectly, engage
in, be employed by, act as a consultant to, or be a director, officer, owner or
partner of, any business activity or entity which competes significantly and
directly with the Company or any of its subsidiaries in lines of business
conducted by the Company or its subsidiaries during the Period of Employment or,
for purposes of applying this noncompetition restriction after the Period of
Employment, in lines of business conducted by the Company or its subsidiaries as
of the Date of Termination and, in either event, in any geographic area in which
the Company or its subsidiaries engage in such business; provided, however, that
it shall not be a violation of this paragraph (b) for the Executive to continue
to serve in those current directorships which are disclosed to the Company by
the Executive in writing at the time of his execution of this Agreement; and
provided further that it shall not be a violation of this
<PAGE>
Agreement for the Executive to own an interest of less than five percent (5%) in
any entity whose ownership interests are publicly traded.
29. Remedy for Violation of Section 10. The Executive acknowledges that
the Company has no adequate remedy at law and will be irreparably harmed if the
Executive breaches or threatens to breach the provisions of Section 10 of this
Agreement and, therefore, agrees that the Company shall be entitled to
injunctive relief to prevent any breach or threatened breach of such section and
that the Company shall be entitled to specific performance of the terms of such
section in addition to any other legal or equitable remedy it may have. Nothing
in this Agreement shall be construed as prohibiting the Company from pursuing
any other remedies at law or in equity that it may have or any other rights that
it may have under any other agreement.
30. Withholding. Anything in this Agreement to the contrary
notwithstanding, all payments required to be made by the Company hereunder to
the Executive shall be subject to withholding of such amounts, at the time
payments are actually made to the Executive and received by him, relating to
taxes as the Company may reasonably determine it should withhold pursuant to any
applicable law or regulation. In lieu of withholding such amounts, in whole or
in part, the Company may, in its sole discretion, accept other provision for
payment of taxes as required by law, provided that it is satisfied that all
requirements of law affecting its responsibilities to withhold such taxes have
been satisfied.
31. Arbitration. Any dispute or controversy between the Company and the
Executive, whether arising out of or relating to this Agreement, the breach of
this Agreement, or otherwise, shall be settled by arbitration administered in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA") then in effect, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction. Any arbitration
shall be held before a single arbitrator who shall be selected by the mutual
agreement of the Company and the Executive, unless the parties are unable to
agree to an arbitrator, in which case, the arbitrator will be selected by the
then President of the Chicago Bar Association. The arbitrator shall have the
authority to award any remedy or relief that a court of competent jurisdiction
could order or grant, including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency with this
arbitration provision, apply to any court having jurisdiction over such dispute
or controversy and seek interim provisional, injunctive or other equitable
relief until the arbitration award is rendered or the controversy is otherwise
resolved. Except as necessary in court proceedings to enforce this arbitration
provision or an award rendered hereunder, or to obtain interim relief, or as
required by law, neither a party nor an arbitrator may disclose the existence,
content or results of any arbitration hereunder without the prior written
consent of the Company and the Executive. The Company and the Executive
acknowledge that this Agreement evidences a transaction involving interstate
commerce. Notwithstanding any choice of law provision included in this Agreement
the United States Federal Arbitration Act shall govern the interpretation and
enforcement of this arbitration provision. The arbitration proceeding shall be
conducted in Chicago, Illinois or such other location to which the parties may
agree. The Company shall pay the costs of any arbitrator appointed hereunder.
<PAGE>
32. Reimbursement of Legal Expenses. In the event that the Executive is
the prevailing party, or is successful to a material degree, in pursuing or
defending, whether in arbitration or litigation, any claim or dispute involving
the Executive's employment with the Company, including any claim or dispute
relating to (a) this Agreement, (b) termination of the Executive's employment
with the Company or (c) the failure or refusal of the Company to perform fully
in accordance with the terms hereof, the Company shall promptly reimburse the
Executive for all reasonable costs and expenses (including, without limitation,
attorneys' fees) relating solely, or allocable, to such claim. In any other
case, the Executive and the Company shall each bear all their own costs and
attorneys' fees.
33. Taxes. In the event that the aggregate of all payments or benefits
made or provided to, or that may be made or provided to, the Executive under
this Agreement and under all other plans, programs and arrangements of the
Company (the "Aggregate Payment") is determined to constitute an "excess
parachute payment," as such term is defined in Section 280G(b) of the Internal
Revenue Code, the Company shall pay to the Executive prior to the time any
excise tax imposed by Section 4999 of the Internal Revenue Code ("Excise Tax")
is payable with respect to such Aggregate Payment, an additional amount which,
after the imposition of all income and excise taxes thereon, is equal to the
Excise Tax on the Aggregate Payment. The determination of whether the Aggregate
Payment constitutes an excess parachute payment and, if so, the amount to be
provided to the Executive and the time of payment pursuant to this Section 15
shall be made by an independent auditor (the "Auditor") jointly selected by the
Company and the Executive and paid by the Company. The Auditor shall be a
nationally recognized United States public accounting firm which has not, during
the two (2) years preceding the date of its selection, acted in any way on
behalf of the Company or any affiliate thereof. If the Executive and the Company
cannot agree on the firm to serve as the Auditor, then the Executive and the
Company shall each select one accounting firm and those two firms shall jointly
select the accounting firm to serve as the Auditor. Notwithstanding the
foregoing, in the event that the amount of the Executive's Excise Tax liability
is subsequently determined to be greater than the Excise Tax liability with
respect to which any initial payment to the Executive under this Section 15 has
been made, the Company shall pay to the Executive an additional amount (grossed
up for all taxes), with respect to such additional Excise Tax (and any interest
and penalties thereon) at the time and in the amount reasonably determined by
the Auditor. Similarly, if the amount of the Executive's Excise Tax liability is
subsequently determined to be less than the Excise Tax liability with respect to
which any prior payment to the Executive has been made under this Section 15,
the Executive shall refund to the Company the excess amount received, after
reduction for any nonrefundable tax, penalties and/or interest incurred by the
Executive in connection with the receipt of such excess, and such refund shall
be paid promptly after the Executive has received any corresponding refund of
excess Excise Tax paid to the Internal Revenue Service. The Executive and the
Company shall cooperate with each other in connection with any proceeding or
claim relating to the existence or amount of liability for Excise Tax, and all
expenses incurred by the Executive in connection therewith shall be paid by the
Company promptly upon notice of demand from the Executive.
34. Successors.
<PAGE>
(1) This Agreement is personal to the Executive and, without the
prior written consent of the Company, the Executive's rights hereunder shall not
be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's heirs and legal representatives.
(2) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(3) As used in this Agreement the term "Company" shall include any
successor to the Company's business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise. The Company
shall require any successor (whether direct or indirect, by purchase, merger,
reorganization, consolidation, acquisition of property or stock, liquidation, or
otherwise) to all or a substantial portion of its assets, by agreement in form
and substance reasonably satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform this Agreement if no such succession
had taken place.
35. Representations.
(1) The Company represents and warrants that (i) the execution of
this Agreement has been duly authorized by the Company, including action of the
Board, (ii) the execution, delivery and performance of this Agreement by the
Company does not and will not violate any law, regulation, order, judgment or
decree or any agreement, plan or corporate governance document of the Company
and (iii) upon the execution and delivery of this Agreement by the Executive,
this Agreement shall be the valid and binding obligation of the Company,
enforceable in accordance with its terms (subject to entry of a confirmation
order regarding the plan of reorganization referred to in Section 4, above),
except to the extent enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by the effect of general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
(2) The Executive represents and warrants to the Company that (i) the
execution, delivery and performance of this Agreement by the Executive does not
and will not violate any law, regulation, order, judgment or decree or any
agreement to which the Executive is a party or by which he is bound; (ii) the
Executive is not a party to or bound by any employment agreement, noncompetition
agreement or confidentiality agreement with any other person or entity that
would interfere with this Agreement or his performance of services hereunder;
and (iii) upon the execution and delivery of this Agreement by the Company, this
Agreement shall be the valid and binding obligation of the Executive,
enforceable in accordance with its terms, except to the extent enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and by the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
36. Miscellaneous.
<PAGE>
(1) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
choice of law. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(2) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party, by overnight
courier, or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
Mr. Mark E. Dapier
445 E. Deerpath
Lake Forest, Illinois 60045
If to the Company:
MFN Financial Corporation
100 Field Drive, Suite 340
Lake Forest, Illinois 60045
Attn: President and Chief Executive Officer
with a copy to:
Robert J. Stucker, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601
or to such other addresses as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee, as evidenced by a delivery receipt.
(3) None of the provisions of this Agreement shall be deemed to be
a penalty.
(4) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or unenforceability of any other
provision of this Agreement.
(5) Either party's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof.
(6) This Agreement supersedes any prior agreements or understandings,
written or oral, between the Company and the Executive and contains the entire
understanding of the Company and the Executive with respect to the subject
matter hereof.
<PAGE>
(7) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS HEREOF, the parties have executed this Agreement all as of the
day and year first above written.
MFN FINANCIAL CORPORATION
Edward G. Harshfield, President and Chief
Executive Officer
MARK E. DAPIER
_________________________________________
<PAGE>
Exhibit A
---------
STOCK OPTION AGREEMENT
----------------------
Mark E. Dapier
Executive Vice President, General Counsel and Secretary March 23, 1999
In accordance with the terms of your March 23, 1999 Employment Agreement
with MFN Financial Corporation (the "Company"), and in consideration of the
mutual covenants contained in that Employment Agreement and other good and
valuable consideration, you are hereby awarded a stock option with the following
terms and conditions:
1. Shares: This option is for a total of one hundred thousand (100,000)
shares of common stock of the Company.
2. Price: The option price under this option is $8.50 per share.
3. When Exercisable: Your rights to purchase shares covered by this
option shall vest and be exercisable as set forth below and shall remain fully
exercisable by you (or by an authorized representative in the event of your
death or disability) throughout the term of this option, as described in Section
4, below, except as otherwise provided in Section 4:
(a) one-half (1/2) is fully vested and is exercisable from and after
the grant date of this option (the "Grant Date");
(b) one-quarter (1/4) shall vest and become exercisable in twelve
(12) equal monthly portions, beginning with the first anniversary of the Grant
Date, with one-
<PAGE>
twelfth (1/12) vesting on such first anniversary and an additional one-twelfth
(1/12) vesting on the first day of each of the next eleven (11) calendar months
thereafter; and
(c) one-quarter (1/4) shall vest and become exercisable in twelve
(12) equal monthly portions, beginning with the second anniversary of the Grant
Date, with one-twelfth (1/12) vesting on such second anniversary and an
additional one-twelfth (1/12) vesting on the first day of each of the next
eleven (11) calendar months thereafter.
4. Term. This option shall remain in full force and effect for a term of
ten (10) years ending on March 23, 2009, without regard to the termination of
your employment with the Company; provided, however, that if your employment
with the Company is terminated by you other than for Good Reason (as that term
is defined in your Employment Agreement) or if your employment with the Company
is terminated by the Company for Cause (as that term is defined in your
Employment Agreement), the term of this option shall end immediately upon such
termination.
5. Manner of Exercise. You, or an authorized representative acting on
your behalf in the event of your death or disability, may exercise this option
in whole or in part, from time to time, by written notice delivered to the
Secretary of the Company, which includes the following:
(a) Your name, mailing address and Social Security number;
(b) The date of the notice;
(c) The number of shares with respect to which this option is being
exercised;
<PAGE>
(d) The exercise price for the shares with respect to which this
option is being exercised;
(e) Payment, in accordance with Section 6, below, for the shares
being purchased; and
(f) Your signature or the signature of an authorized representative
acting on your behalf in the event of your death or disability.
6. Payment. Payment under this option may be made in cash or by
transferring shares of the Company's common stock valued at fair market value at
the effective date of exercising this option, or a combination of both. Shares
of Company common stock so delivered must have been held by you for at least six
(6) months. Shares shall be issued promptly after full payment has been made.
7. Tax Withholding. Tax withholding is required upon exercising this
option in whole or in part. Payment for tax withholding may be made in cash or,
pursuant to your election, by transferring shares of the Company's common stock
or the withholding of shares to be issued, or any combination of cash, shares
and withholding of shares. Any election to use or withhold shares must be made
in accordance with applicable tax and securities laws and established
administrative procedures and shall be subject to disapproval by the Company for
failure to comply with such laws and procedures.
8. Transferability. Your rights to purchase shares pursuant to this
option are transferable by you from time to time, in whole or in part, to
members of your immediate family or to trusts or partnerships formed for your
benefit or the benefit of members of your immediate family. Such transfer may be
effected by delivering to the
<PAGE>
Treasurer of the Company a written notice identifying the transferee(s) and the
portion of the option which is being transferred to each transferee.
9. Adjustment. In the event of any change in the common stock of the
Company through stock dividends, stock splits, recapitalization,
reclassification or otherwise, or in the event that any other stock shall be
substituted for the present common stock of the Company as the result of any
merger, consolidation or reorganization, then the Board of Directors of the
Company (or a committee thereof) shall make appropriate adjustment or
substitution in the number, kind and/or price of the shares subject to this
option, so as to preserve the overall value of this option. In connection with
any merger, consolidation or reorganization in which the present common stock of
the Company is converted into the right to receive only cash, the Board of
Directors may require you to tender your options to the Company for cash in an
amount equal to the positive difference, if any, between the cash price per
share in such merger, consolidation or reorganization and the exercise price per
share of such options.
10. Registration of Shares. The Company shall take such reasonable efforts
as may be necessary to cause any shares to be issued in connection with this
option to be registered under the Federal Securities Act of 1933, as amended, or
under applicable state securities laws, or to secure an appropriate exemption
from such registration.
11. Nonstatutory Stock Option. This option shall be a nonstatutory stock
option and is not to be treated as an incentive stock option within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended.
MFN FINANCIAL CORPORATION
<PAGE>
Edward G. Harshfield, President and Chief
Executive Officer
Accepted and agreed to this___
day of _______________, 1999.
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Mark E. Dapier
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Exhibit 10C
MFN FINANCIAL CORPORATION
AMENDED AND RESTATED
1989 STOCK OPTION AND INCENTIVE COMPENSATION PLAN
(As approved by the United States Bankruptcy Court for the Northern District
of Illinois pursuant to Section 303 of the General Corporation Law
of the State of Delaware on March 10, 1999)
1. PREAMBLE
MFN FINANCIAL CORPORATION (the "Company") (formerly known as Mercury
Finance Company) hereby amends and restates the Mercury Finance Company
1989 Stock Option and Incentive Compensation Plan, which was established in
1989 to assist the Company in attracting, motivating and retaining
officers, directors and other key employees by (a) providing incentives
based upon and to promote the long-term success of the Company; and (b)
increasing the identification of these officers, directors and key
employees with the Company and its stockholders through increased ownership
of Common Stock.
2. DEFINITIONS AND RULES OF CONSTRUCTION
2.01 "Board" or "Board of Directors" means the board of directors of the
Company.
2.02 "Committee" means the committee appointed to administer the Plan in
accordance with Section 4.
2.03 "Common Stock" means the common stock of the Company, par value $.01
per share.
2.04 "Company" means MFN Financial Corporation, a Delaware corporation,
and any successor thereto.
2.05 "Fair Market Value" of a share of Common Stock on any particular date
equals (a) the average of the closing bid and asked prices of the
Common Stock, as quoted by NASDAQ on such date, or (b) if the Common
Stock is listed on national stock exchange or on the NASDAQ National
Market on such date, its closing price on that date on the principal
exchange or market on which it is listed, or (c) if, on such date,
the Common Stock is not quoted or traded, a Fair Market Value fixed
by the Committee at an amount that, in the Committee's reasonable
determination, represents the fair market value of the Common Stock
on such date.
2.06 "Median Value" of a Performance Unit means the amount that will be
paid with respect to the Unit at the end of a Performance Cycle if
the median Performance
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Goal for that Cycle is achieved. A Unit's Median Value will be
determined by the Committee when the Unit is granted.
2.07 "Option" means the right of a Participant to purchase a specified
number of shares of Common Stock, subject to the terms and conditions
of the Plan.
2.08 "Option Date" means the date upon which an Option is granted to a
Participant.
2.09 "Option Price" per share of Common Stock means the price per share at
which an Option may be exercised and equals the Fair Market Value of
a share of Common Stock on the Option Date.
2.10 "Participant" means an individual to whom an Option or Performance
Unit has been granted under the Plan.
2.11 "Performance Cycle" or "Cycle" means, with respect to any Performance
Unit, a period of three (3) consecutive calendar years specified by
the Committee.
2.12 "Performance Goal" means the performance objective that is used to
determine the value of a Participant's Performance Units at the
conclusion of a Performance Cycle. Performance Goals established by
the Committee may include return on stockholder equity, return on
assets, earnings per share and/or such other goals as may be
established by the Committee in its discretion and reflecting the
Company's long-term performance objectives.
2.13 "Performance Unit" or "Unit" means a bookkeeping unit used to
quantify awards to Participants.
2.14 "Plan" means the MFN Financial Corporation Amended and Restated 1989
Stock Option and Incentive Compensation Plan, as set forth herein and
as from time to time amended.
2.15 "Subsidiary" means any corporation in which the Company directly or
indirectly owns a majority interest.
2.16 Rules of Construction
2.16.1 Governing Law. The construction and operation of this Plan
are governed by the laws of the State of Illinois.
2.16.2 Headings. All headings in this Plan are for reference only
and are not to be utilized in construing the Plan.
2.16.3 Gender. Unless clearly inappropriate, all nouns of whatever
gender refer indifferently to persons of any gender.
2.16.4 "Singular and Plural. Unless clearly inappropriate, singular
terms refer also to the plural and vice versa.
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2.16.5 Severability. If any provision of this Plan is determined to
be illegal or invalid for any reason, the remaining provisions
are to remain in full force and effect and to be construed and
enforced as if the illegal or invalid provision did not exist,
unless the continuance of the Plan in such circumstances is
not consonant with its purposes.
3. STOCK SUBJECT TO THE PLAN
Except as otherwise provided in Section 8, the aggregate number of shares
of Common Stock that may be issued pursuant to the exercise of Options
granted under this Plan and in payment for Performance Units may not exceed
950,000 shares. Reserved shares may be authorized but unissued shares, or
may be treasury shares, in the Committee's discretion. If any Options
granted under this Plan are cancelled or forfeited or otherwise expire for
any reason without having been exercised in full, the shares not purchased
under the expired Options will again be available for purposes of this
Plan. No "covered employee" (as such term is defined in Section 162(m) of
the Internal Revenue Code of 1986, as amended) shall be granted more than
500,000 shares of Common Stock in any calendar year with respect to a stock
option.
4. ADMINISTRATION
4.01 The Committee. The Committee that administers the Plan shall consist
of not fewer than two (2) members of the Board of Directors who are
non-employee directors within the meaning of Securities and Exchange
Commission Rule 16b-3(b)(3)(i). Such persons may be appointed from
time to time by the Board. The Board may remove any member, with or
without cause, upon written notice to the member and may fill any
vacancy occurring in the membership of the Committee.
4.02 Powers of the Committee. In addition to any other powers set forth
in this Plan, the Committee has the following powers:
(a) to construe and interpret the Plan;
(b) to establish, amend and rescind appropriate rules and
regulations relating to the Plan;
(c) subject to the express provisions of the Plan, to determine the
individuals who will receive Options or Performance Units, the
times when they will receive them, the number of shares to be
subject to each Option, the Option Price applicable to each
Option, the Performance Goal applicable to each Performance
Unit, and the Median Value of each Performance Unit;
(d) to contest on behalf of the Company or Participants, at the
expense of the Company, any ruling or decision on any matter
relating to the Plan or to any Option or Performance Unit; and
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(e) generally, to administer the Plan, to make recommendations to
the Board, and to take all such steps and make all such
determinations in connection with the Plan as it may deem
necessary or advisable.
4.03 Action by the Committee. All determinations of the Committee are
made by a majority vote of its members. The Committee's
determinations are final and binding on all Participants.
5. GRANT OF OPTIONS AND PERFORMANCE UNITS
5.01 Eligibility. The Committee may from time to time grant Options and
Performance Units to any officer or other key employee of the Company
or any Subsidiary who in the opinion of the Committee, is in a
position to make significant contributions to the management,
operation or development of the business of the Company, or any
Subsidiary. Subject to ratification by the Board, the Committee may
also grant Options to non-employee directors.
5.02 Award of Options and Performance Units. Each award under Section
5.01 of this Plan will consist of Options or Performance Units or
both in such combination as the Committee may determine. Unless
otherwise expressly provided by the Committee in any specific
instance, the action of the Committee in selecting an individual to
receive an award, determining the number of shares subject to the
Option and the number of Performance Units granted and setting the
Option price and Median Value of Units constitutes the granting of
the Option. The date of the Committee's action is the Option Date
applicable to the Option. If an Option is granted on a day other than
business day, the Option Date is the last preceding business day.
5.03 Establishment of Performance Goals. When Performance Units are
granted to a Participant, the Committee will establish minimum,
median and optimum Performance Goals applicable to the Units and the
three (3) year Performance Cycle over which the achievement of the
goals is to be measured. Performance Goals may vary for different
Participants.
6. EXERCISE OF OPTIONS
6.01 Manner of exercise. To exercise an Option in whole or in part, a
Participant must give written notice to the Committee, stating the
number of shares with respect to which he intends to exercise the
Option. The Company will issue the shares with respect to which the
Option is exercised upon payment in full of the Option Price. With
the consent of the Committee, a Participant may present shares of
Common Stock that he already owns in payment of the Option Price
(based upon the Fair Market Value of such shares on the date of
exercise); provided that such Common Stock has been held by the
Participant for at least six months.
6.02 Termination of employment. Except as otherwise provided in the form
of option agreement or in Section 6.03, (i) a Participant whose
employment with the Company (including its Subsidiaries) terminates
for any reason may not exercise
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any Options after he ceases to be an employee or director of the
Company, and (ii) any Options that are not exercised while the
Participant is an employee or director are forfeited. Options are
not, however, affected by a change of employment if the Participant
continues to be an employee of the Company or a Subsidiary, and a
leave of absence granted by the Company or a Subsidiary is not a
termination of employment, unless the Committee determines otherwise.
As to a qualified director, the foregoing termination provisions
shall not apply if, having ceased to be a director, he immediately
becomes an employee or consultant of the Company or one of its
Subsidiaries, in which case termination shall occur when he ceases to
be an employee or consultant.
6.03 Effect of normal retirement, death or disability. Except as
otherwise provided in the form of option agreement, if the
Participant ceases to be an employee or director by reason of his
normal retirement under the Company's standard personnel practices,
death or total and permanent disability (as determined by a physician
selected by the Committee) after the date on which he was granted an
Option, his outstanding Options may be exercised by himself or, in
the event of his death, by his executor or administrator, at any time
within three (3) months after his termination (but not beyond the
term of the Option).
6.04 Sequence of Exercise. Except as otherwise determined by the
Committee at the time of grant, Options granted to a Participant
under this Plan may be exercised in any order and need not be
exercised in the order in which such Options or any incentive options
(as described in Section 422A of the Internal Revenue Code of 1954,
as amended) granted to a participant under any other plan of the
Company or any parent, Subsidiary or predecessor of the Company, were
granted. Options awarded under this Plan are independent of, and are
not subject to, any options or restrictions contained in any other
plan of the Company or any parent, Subsidiary or predecessor of the
Company.
7. PAYMENT FOR PERFORMANCE UNITS
7.01 Valuation of Performance Units. After the completion of each
Performance Cycle, the Committee will value Performance Units granted
with respect to that Cycle. The value of each Performance Unit will
equal-
(a) zero, if the minimum Performance Goal established for the Cycle
has not been achieved,
(b) fifty percent (50%) of the Unit's Median Value, if the minimum
Performance Goal for the Cycle has been achieved,
(c) one hundred percent (100%) of the Unit's Median Value, if the
median Performance Goal for the Cycle has been achieved,
(d) one hundred fifty percent (150%) of the Unit's Median Value, if
the optimum Performance Goal for the Cycle has been achieved or
exceeded, or
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(e) a prorated percentage of the Unit's Median Value between fifty
percent (50%) and one hundred percent (100%), and between one
hundred percent (100%) and one hundred fifty percent (150%), if
the performance for the Cycle falls, respectively, between the
minimum and median or the median and optimum Performance Goals
for the Cycle.
7.02 Payment of Performance Unit value. A Participant is entitled to
receive payment for his Performance Units if he is employed by the
Company or a Subsidiary on the last day of the Performance Cycle with
respect to which the Units were issued. The amount of this payment
equals the value of a single Unit, determined in accordance with
Section 7.01, multiplied by the number of the Participant's Units
issued with respect to the Performance Cycle. Payment will be made by
the Company as soon as practicable after the completion of the
Performance Cycle. Payment will, in the Committee's sole discretion,
be made in cash or in shares of Common Stock, valued at their Fair
Market Value on the date preceding the date of payment, or in a
combination of cash and shares. Shares distributed in payment for
Performance Units reduce the total number of shares available under
the Plan.
7.03 Effect of normal retirement, death or disability. If a Participant's
employment terminates by reason of his normal retirement under the
Company's standard personnel practices, death or total and permanent
disability (as determined by a physician selected by the Committee)
after the date on which he was granted Performance Units, he (or his
estate, in the event of his death) will be entitled to payment for
any Performance Units that he holds that were issued with respect to
any uncompleted Performance Cycle and have not previously been
forfeited. At the end of the year of his retirement, death or
disability, the Committee will value his Units by determining the
extent to which the Performance Goals for the years comprising the
partial Performance Cycle have been achieved and applying the
valuation formula in Section 7.01. The resulting per-Unit value will
then be multiplied by one-third (1/3), if one year of the Cycle has
been completed, or by two-thirds (2/3), if two (2) years of the Cycle
have been completed. Payment will be made to the Participant or, in
the event of his death, to his estate, as soon as practicable after
his Units have been valued. Payment may be made in cash or in Common
Stock in the manner provided by Section 7.02.
7.04 Effect of other termination of employment. Except as otherwise
provided in Section 7.03, 7.05 and 9, if a Participant's employment
with the Company (including its Subsidiaries) terminates for any
reason, any Performance Units that he holds with respect to
uncompleted Performance Cycles are immediately forfeited. Units are
not, however, affected by a change of employment if the Participant
continues to be an employee of the Company or a Subsidiary, and a
leave of absence granted by the Company or a Subsidiary is not a
termination of employment, unless the Committee determines otherwise.
7.05 Effect of corporate reorganization. Upon (i) the dissolution or
liquidation of the Company, (ii) the declaration by the board of
directors (or, if sought, the approval
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of the Company's stockholders) of a distribution by the Company to its
stockholders of stock of a "significant subsidiary" of the Company, as
defined in the rules and regulations of the Securities and Exchange
Commission, or (iii) or the Company becoming a party to a merger or
consolidation in which it is not the surviving corporation, all
Performance Units granted with respect to Performance Cycles that have
not yet been completed will be valued in the manner set forth in
Section 7.03, and payment for these Units will be made to Participants
as soon as is practicable thereafter.
8. ADJUSTMENTS TO REFLECT CHANGES IN CAPITAL STRUCTURE
If (a) the Common Stock is recapitalized, reclassified, split or
consolidated or (b) the outstanding shares of the Common Stock are
exchanged for a different number or class of shares of the stock or other
securities of the Company or for shares or other securities of another
corporation or (c) any distribution (other than a cash dividend) is made to
holders of the Common Stock, the Committee may make such adjustments as it
deems appropriate and equitable to the terms of any outstanding Options, or
to the Median Value of any outstanding Performance Units whose value is
based upon the value of a share of Common Stock. The Committee's
determination of any such adjustments is binding on the Company and on all
holders of Options or Performance Units.
9. CHANGE IN CONTROL
If any person, corporation or other entity or group thereof (the
"Acquiror"), directly or indirectly makes an acquisition (an
"Acquisition"), other than by merger or consolidation or purchase from the
Company, of the beneficial ownership (as that term is used in Section
13(d)(1) of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder) of shares of the Company which, when
added to any other shares the beneficial ownership of which is held by the
Acquiror, shall have more than thirty (30) percent of the votes that are
entitled to be cast at meetings of stockholders as to matters on which all
outstanding shares are entitled to be voted as a single class, then any
Options shall become immediately vested and fully exercisable and any
Performance Units granted with respect to Performance Cycles that have not
yet been completed will be valued as of the date of Acquisition and paid in
the manner set forth in Section 7.05.
10. NON-TRANSFERABILITY OF OPTIONS AND PERFORMANCE UNITS
Options and Performance Units granted under the Plan are not alienable or
transferable by a Participant, voluntarily or involuntarily, other than by
will or by the laws of descent and distribution. During a Participant's
lifetime, his Options may be exercised only by him, except that if a
conservator or guardian is appointed for the Participant, such conservator
or guardian may exercise such Options. Notwithstanding the foregoing, the
Committee may in its discretion authorize transfer of an Option to the
spouse or members of the immediate family of a Participant or trust or
family partnerships for the benefit of such persons.
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11. RIGHTS AS STOCKHOLDER
No Common Stock may be delivered upon the exercise of any Option until full
payment has been made. A Participant has no rights whatsoever as a
stockholder with respect to any shares covered by an Option until the date
of the issuance of a stock certificate for the shares.
12. PLAN NOT A CONTRACT OF EMPLOYMENT
Nothing in this Plan or in any Option or Performance Unit granted hereunder
confers any right to continue in the employ of the Company or any of its
Subsidiaries or interferes in any way with the right of the Company or any
of its Subsidiaries to terminate any person's employment at any time.
13. STATUS OF PARTICIPANTS' CLAIMS
This Plan is not funded in any manner. The Company's obligation to make
payments under the Plan does not create any lien on, or security interest
in, any property of the Company, and no Participant or other person has
greater rights than those of an unsecured general creditor in enforcing
claims for payment under the Plan.
14. INVESTMENT REPRESENTATIONS
The Committee may require any person in whose name shares are issued upon
the exercise of an Option or payment of a Performance Unit to represent
that all shares so acquired are purchased for investment and not with a
view to distribution or resale.
15. LEGAL RESTRICTIONS
The Company will not be obligated to issue shares of Common Stock or make
any payment if the Company determines that such issuance or payment would
violate any law or regulation of any governmental authority or any
agreement between the Company and any national securities exchange upon
which the Company Stock may be listed. In connection with any stock
issuance or transfer, the person acquiring the shares shall, if requested
by the Company, give assurances satisfactory to the Company regarding such
matters as the Company may deem desirable to assure compliance with all
legal requirements.
16. WITHHOLDING TAXES
The Company may require a Participant, as a condition of exercise of an
Option or receipt of payment in respect of a Performance Unit, to pay or
reimburse any taxes which the Company determines it is required to withhold
in connection with the grant, exercise or payment of the Option or
Performance Unit. The Committee may establish such procedures as it deems
appropriate for the settlement of withholding obligations with Common Stock
of the Company which would otherwise be acquired upon the exercise of the
Option.
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17. AMENDMENT OF THE PLAN
The Board of Directors may from time to time amend or revise the terms of
this Plan in whole or in part, but no amendment shall disqualify the Plan
from the exemption provided by Securities and Exchange Commission Rule
16b-3. In addition no such amendment shall be made without the approval of
the Company's stockholders to the extent such approval is required by law
or regulatory authority.
18. EFFECTIVE DATE AND TERMINATION OF PLAN
18.01 Effective Date. This Restatement is effective as of March __, 1999,
the effective date of the approval of the Bankruptcy Court of the
Northern District of Illinois as if approved by unanimous consent of
the Directors and stockholders.
18.02 Termination of the Plan. The Board of Directors may terminate the
Plan at any time with respect to any shares not yet subject to
Options. Unless terminated earlier by the Board of Directors, the
Plan will terminate ten years from the effective date of this
Restatement. Termination of the Plan will not affect the rights and
obligations of any Participant with respect to Options or
Performance Units granted before termination.
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EXHIBIT 10D
EXCHANGE AGENT AGREEMENT
This Agreement, effective March 29, 1999 is entered into between NORWEST
BANK MINNESOTA, a national banking association, ("Exchange Agent") and MFN
FINANCIAL CORPORATION, f/k/a Mercury Finance Company, a Delaware corporation,
(the "Company").
RECITALS
FIRST: On March 10, 1999, the United States Bankruptcy Court for the Northern
District of Illinois entered an order confirming the Company's Second Amended
Plan of Reorganization (the "Plan"). All terms not otherwise defined herein
shall have the meanings ascribed to them in the Plan.
SECOND: The Plan provides for inter alia, specified distributions to holders of
Allowed Senior Debt Claims ("Class 4 Claims"), Allowed Subordinated Noteholder
Claims ("Class 5 Claims") and Allowed Equity Interests ("Class 7A Claims").
THIRD: The Company desires to appoint Exchange Agent to make such distributions
in accordance with the Plan, and Exchange Agent is willing to accept the
appointment, subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein and other good
and valuable consideration, the Company and Exchange Agent agree as follows:
1. Appointment and Acceptance of Exchange Agent. The Company hereby
appoints Exchange Agent to act in accordance with the terms set forth in this
Agreement and the Plan. Exchange Agent hereby accepts such appointment and
agrees to be bound by and comply with the terms of this Agreement and the
Letters of Transmittal attached hereto. The Exchange Agent will perform those
services as are outlined herein and which are customarily performed by an
exchange agent in connection with an exchange of like nature, including, but not
limited to, accepting tenders of the certificates representing the outstanding
commercial paper, short term loans, senior term notes and Gulfco note (the "Old
Senior Securities"), the outstanding Mercury Subordinated Notes (the "Old Junior
Notes"), and the Old Common Stock (CUSIP No. 589395102) (collectively the "Old
Securities").
2. Holders of Record. As soon as practicable after the Effective Date,
the Company shall cause to be furnished to the Exchange Agent, in electronic
format, if available, and in paper copy, separate journals listing the holders
of record, as of the Distribution Record Date, for (i) the Old Senior Securities
(the "Senior Debt Holders"), (ii) the Old Junior Notes (the "Junior Note
Holder(s)") and (iii) the Old Common Stock (the "Old Stock Holders")
(collectively the "Record Holder Lists"). The Company will use its reasonable
best efforts to cause each Record Holder List to contain such holder information
as the Exchange Agent may request, including: (a) name, (b) address, (c) in
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the case of commercial paper holders (the "CP Holders"), (1) the claim amount
according to Company's records and (2) the record holder list as provided by the
Depository Trust Company ("DTC") and (3) the proportion of (1) to (2). In
performing its duties under this Agreement, the Exchange Agent shall be entitled
to rely exclusively on the Record Holder Lists provided by the Company or its
agents.
3. Letters of Transmittal. As soon as practicable after the Effective
Date, the Exchange Agent shall cause to be mailed to Senior Debt Holders and
Junior Note Holder(s) the Letter of Transmittal (attached hereto as Exhibit C)
to accompany certificates representing the Old Senior Securities and Old Junior
Notes and cause to be mailed to Old Stock Holders the Letter of Transmittal
(attached hereto as Exhibit D) to accompany certificates representing the Old
Common Stock in accordance with the information furnished to the Exchange Agent
in the Record Holder Lists.
4. Exchange of Old Securities.
a) The Exchange Agent will examine each of the Letters of Transmittal
received or electronic instructions transmitted by the Depository Trust Company
(the "DTC Transmissions") and certificates for the Old Securities (or any
confirmations of book-entry transfer of Old Securities into Exchange Agent's
account at DTC (the "Book-Entry Confirmations")), to ascertain whether: (i) the
Letters of Transmittal and any such other documents are duly executed and
properly completed in accordance with the instructions set forth therein (or
that the DTC Transmission contains the proper information required to be set
forth therein) and (ii) that the Old Securities have otherwise been properly
tendered (or that the Book-Entry Confirmations are in due and proper form and
contain the information required to be set forth therein).
b) In the case of properly completed and returned Letters of Transmittal
and tendered Old Senior Securities (or properly completed electronic transfer by
the Book-Entry Confirmation procedure), the Exchange Agent will (i) receive the
Old Senior Securities, (ii) transfer, in Book-Entry form to DTC or the DTC
participant account specified in the Letter of Transmittal (a) the New Senior
Secured Series A Notes and/or (b) New Senior Secured Series B Notes in
accordance with the elections set forth in the Letter of Transmittal (or the DTC
Transmission) and in the principal amount of 75% of such holder's Net Senior
Debt Claims, (iii) transfer, in Book-Entry form the pro rata share of New Common
Stock to DTC or the DTC participant account specified in the Letter of
Transmittal (unless the Senior Debt Holder requests that his pro rata share of
New Common Stock be issued in physical form, in which case the Exchange Agent
shall (a) draw down the Exchange Agent's DTC participant account in the amount
to be issued in physical form and (b) instruct Harris Bank & Trust ("Harris") to
issue a certificate for the pro rata share amount of New Common Stock to the
Senior Debt Holder, (iv) transmit the pro rata share of the Excess Cash and (v)
transmit the interest accrued on the New Senior Secured Series A Notes and/or
New Senior Secured Series B Notes (the "Accrued Senior Note Interest") to DTC or
the Senior Debt Holder pursuant to Section 6 of this Agreement.
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c) In the case of properly completed and returned Letters of Transmittal
and tendered Old Junior Notes, the Exchange Agent will (i) receive the Old
Junior Notes and transfer the New Junior Subordinated Notes, in Book-Entry form,
to DTC or the DTC participant account specified in the Letter of Transmittal and
(ii) transmit the interest accrued on the New Junior Subordinated Note (the
"Accrued Junior Note Interest") to DTC or the Subordinated Debt Holder(s)
pursuant to Section 6 of this Agreement.
(d) In the case of properly completed and returned Letters of Transmittal
and tendered Old Common Stock (or properly completed electronic transfers by the
Book-Entry Confirmation procedure) from Old Stock Holders, the Exchange Agent
will (i) receive the Old Common Stock and transfer the pro rata share of New
Common Stock and New Warrants from the Exchange Agent's DTC account to the DTC
participant account specified in the Letter of Transmittal (unless the Old
Common Stock Holder requests that his pro rata share of New Common Stock and New
Warrants be issued in physical form, in which case the Exchange Agent shall (a)
draw down the Exchange Agent's DTC participant account in the pro rata share
amounts of New Common Stock and New Warrants to be issued and (b) instruct
Harris to issue to the Old Stock Holder certificates for his pro rata share of
New Common Stock and New Warrants).
(e) In each case where the Letters of Transmittal or any other documents
have been improperly completed or executed (or the DTC Transmissions are not in
due and proper form or omit certain information) or certificates for the Old
Securities are not in proper form for transfer (or the Book-Entry Confirmations
are not in due and proper form or omit certain information) or some other
irregularity in connection with the tender or acceptance of the Old Securities
exists, the Exchange Agent will endeavor, subject to the terms and conditions of
the Plan, to advise the tendering holders of the irregularity and to take any
other action as may be necessary or advisable to cause such irregularity to be
corrected. The Exchange Agent may, from time to time, seek direction from the
Company with respect to any irregularity or action as may be necessary or
advisable to cause such irregularity to be corrected. Notwithstanding the above,
the Exchange Agent shall seek direction from the Company with respect to
irregularities that have not been cured in accordance with the terms of this
Agreement, but the Exchange Agent will not be under any duty to give any
notification of all irregularities in tenders or incur any liability for failure
to give any such notification.
(f) Except with respect to distributions made via ATOP, the Exchange Agent
shall provide to the Company written notice of any distributions to be made by
Exchange Agent in accordance with this Agreement no less than 3 days prior to
making such distributions.
(g) With the written approval of the Company, the Exchange Agent is
authorized to waive any irregularities in connection with any tender of the Old
Securities pursuant to the Plan.
(h) Tenders of the Old Securities may be made only as set forth in the
Letter of Transmittal and the Plan and shall be considered properly tendered
only when tendered
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in accordance with such procedures set forth therein. Notwithstanding the
provisions of this paragraph, the Old Securities which have been approved
pursuant to 4(g) above shall be considered to be properly tendered.
(i) The Exchange Agent shall (i) ensure that each Letter of Transmittal is
duly executed and that each signature is guaranteed by an Eligible Institution,
unless the Old Securities are submitted (a) by a record holder of Old Securities
who has not completed either the box entitled "Special Delivery Instructions" or
"Special Payment Instructions" on the Letter of Transmittal, or (b) for the
account of a member firm of a member of a national securities exchange or the
National Association of Securities Dealers, Inc. or by a commercial bank, trust
company, credit union or savings association having an office in the United
States; (ii) in those instances where the person executing the Letter of
Transmittal (as indicated on the Letter of Transmittal) is acting as a fiduciary
or in a representative capacity, ensure that proper evidence of his or her
authority so to act is submitted; and (iii) insure that each Letter of
Transmittal is properly completed and submitted in accordance with the
instructions contained in the Letter of Transmittal.
(j) The Exchange Agent:
i) Shall have no duties or obligations other than those
specifically set forth in the Letter of Transmittal or this
Agreement or as may be subsequently agreed to by the Company and
Exchange Agent in writing;
ii) Will make no representations and will have no
responsibilities as to the validity, value or genuineness of any
of the certificates for the Old Securities deposited pursuant to
the Plan, provided, however, that the Exchange Agent's general
duty to act in good faith and without gross negligence or willful
misconduct is not limited by the foregoing;
iii) May reasonably rely on and shall be indemnified by the
Company in acting in reliance upon any certificate, instrument,
opinion, notice, letter, telegram or other document or security
delivered to the Exchange Agent by the Company and reasonably
believed by the Exchange Agent to be genuine and to have been
signed by the proper party or parties; except to the extent
arising out of Exchange Agent's bad faith, gross negligence or
willful misconduct;
iv) Shall not be obligated to take legal action hereunder
which might in the Exchange Agent's reasonable judgement involve
any expense or liability, unless the Exchange Agent shall have
been furnished with reasonable indemnity; provided, however, that
Exchange Agent shall notify the Company promptly if Exchange
Agent has reason to believe or becomes aware of any
<PAGE>
situation that requires legal action to protect the interests of
the Company;
v) May reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to
its due execution and validity and effectiveness of its
provisions, but also as to the truth and accuracy of any
information contained therein, which the Exchange Agent believes
in good faith to be genuine and to have been signed or
represented by a proper person or persons acting in a fiduciary
or representative capacity (so long as proper evidence of such
fiduciary's or representative's authority so to act is submitted
to the Exchange Agent) and the Exchange Agent examines and
reasonably concludes that such evidence properly establishes such
authority; except to the extent arising out of Exchange Agent's
bad faith, gross negligence or willful misconduct;
vi) May rely on and shall be protected in acting upon
written or oral instructions from the designated officers of the
Company specified in Exhibit B;
vii) May consult with the Company's counsel with respect to
any questions relating to the Exchange Agent's duties and
responsibilities, and the written opinion of such counsel shall
be full and complete authorization and protection in respect of
certain action taken, suffered or omitted to be taken by the
Exchange Agent hereunder in good faith and in accordance with the
written opinion of such counsel; and,
(k) The Exchange Agent shall furnish reports listing the aggregate
principal amount of Old Securities by holder which have been tendered, and the
aggregate amounts of New Securities, Excess Cash payments and Accrued Interest
payments distributed pursuant to and in compliance with the terms of the Plan.
The Exchange Agent shall prepare a final list of all persons whose tenders were
accepted, the aggregate principal amount of the Old Securities tendered, the
aggregate principal amount of the Old Securities accepted and deliver said list
to the Company.
(l) Letters of Transmittal, Book-Entry Confirmations, DTC Transmissions
and Notices of Guaranteed Delivery shall be stamped or have otherwise indicated
by the Exchange Agent as to the date of receipt thereof and shall be preserved
by the Exchange Agent for two years and thereafter shall be delivered by the
Exchange Agent to the Company.
5. Indemnification.
---------------
(a) The Company hereby agrees to protect, defend, indemnify and hold
harmless the Exchange Agent against and from any and all costs, losses,
liabilities,
<PAGE>
expenses (including counsel fees and disbursements) and claims imposed upon or
asserted against the Exchange Agent on account of any action taken or omitted to
be taken by the Exchange Agent in connection with its acceptance of or
performance of its duties under this Agreement and the documents related thereto
as well as the costs and expenses of defending itself against any claim or
liability arising out of or relating to this Agreement and the documents related
thereto. This indemnification shall survive the release, discharge, termination,
or satisfaction of this Agreement. Anything in this Agreement to the contrary
notwithstanding, the Company shall not be liable for indemnification or
otherwise for loss, liability, cost or expense to the extent arising out of the
Exchange Agent's bad faith, gross negligence or willful misconduct. The Company
shall not be liable under this indemnification agreement with respect to any
claim against the Exchange Agent unless the Company shall be notified by the
Exchange Agent, by letter, of the written assertion of a claim against the
Exchange Agent or of any other action commenced against the Exchange Agent,
promptly after the Exchange Agent shall have received any such written assertion
or shall have been served with a summons in connection therewith. The Exchange
Agent agrees that, without the prior written consent of the Company (which
consent will not be reasonably withheld), it will not settle, compromise or
consent to the entry of any judgement in any pending or threatened claim, action
or proceeding in respect of which indemnification could be sought in accordance
with the indemnification provision of this Agreement (whether or not the
Exchange Agent or the Company or any of its directors, officers and controlling
persons is an actual or potential party to such claim, action or proceeding).
(b) In the event that Exchange Agent becomes involved in any litigation
("Litigation") in which an adverse result may give rise to the Company's
obligation to indemnify hereunder, the Exchange Agent will give prompt written
notice to the Company of the pendency of such Litigation, and the Company shall
have the right at any time to participate in and control the contest and defense
of such Litigation at its own cost and expense, including the cost and expense
of attorneys' fees in connection therewith.
6. Holding and Distribution of Excess Cash and Accrued Senior Note
---------------------------------------------------------------
Interest and Accrued Junior Note Interest.
- ------------------------------------------
(a) The Exchange Agent shall establish the (i) MFN Financial Corporation
Excess Cash Distribution Account (the "Excess Cash Account"); (ii) the MFN
Financial Corporation Senior Note Interest Distribution Account (the "Senior
Interest Account"); and (iii) the MFN Financial Corporation Junior Note Interest
Distribution Account (the "Junior Interest Account") (collectively the
"Accounts").
(b) All funds remitted by the Company to the Exchange Agent shall be
deposited pursuant to direction from the Company in the Accounts.
(c) The Exchange Agent is hereby authorized and directed to invest funds
in the Accounts and any interest earned thereon pursuant to the Agency and
Custody Account Direction for Cash Balances forms attached hereto as Exhibits
A1, A2, A3.
<PAGE>
(d) The Exchange Agent shall disburse Excess Cash and Accrued Senior Note
Interest proceeds to Senior Debt Holders (and Accrued Junior Note Interest
proceeds to Junior Note Holders) who have properly completed and returned
Letters of Transmittal and tendered Old Senior Securities (or Old Junior Notes)
(or completed the DTC Book-Entry Confirmation Procedure) in accordance with the
following terms and conditions:
(i) In making the Excess Cash and Accrued Senior Note Interest
payments to Senior Debt Holders (or Accrued Junior Note Interest to Old
Junior Note Holders), the Exchange Agent shall be entitled to rely
exclusively on the Record Holder List for Senior Debt Holders (or Junior
Note Holders) and other information provided by the Company or its Agents.
(ii) All Excess Cash and Accrued Senior Note Interest and Accrued
Junior Note Interest payments (collectively the "Payment(s)") shall be
disbursed in accordance with the schedules furnished by the Company or its
Agents as may be updated by the Company or its Agents in writing from time
to time. All Payments shall be transmitted to DTC or disbursed by wire
transfer in accordance with the wire transfer instructions provided to the
Exchange Agent in the Letter of Transmittal. In the event a Senior Debt
Holder (or an Old Junior Debt Holder) does not furnish wire transfer
instructions to the Exchange Agent (or the wire transfer instructions are
deficient), the Exchange Agent shall issue and transmit the Payment(s) by
check. All check disbursements shall be transmitted to the address listed
on the Letter of Transmittal by United States Post Office First Class Mail.
In the case a check is issued, the Exchange Agent shall transfer
appropriate funds from the Account to a bank controlled demand disbursement
account ("DDA").
(iii) At the direction of the Company, the Exchange Agent shall mail
an information letter to Senior Debt Holders explaining the disbursement in
such form as provided by the Company (the "Information Letter").
(e) Any interest earned on the Accounts shall be returned to the Company
upon receipt by the Exchange Agent of written direction from the Company, but in
no event will the Exchange Agent hold interest earned in the Accounts later than
2 years from the Effective Date. In the event the Exchange Agent does not
receive written direction from the Company to return such interest after 2 years
from the Effective Date, the Exchange Agent shall disburse all remaining funds
in the Accounts, and any interest earnings thereon, to the Company.
7. Unclaimed and Undeliverable Distributions.
-----------------------------------------
(a) If any holder of a Claim or Interest entitled to a distribution
directly from the Exchange Agent under the Plan cannot be located on or after
the Effective Date, such distributions shall be set aside and maintained by the
Exchange Agent. If such holder is located within two years of the Effective
Date, such distributions shall be distributed to such holder. In the case any
holders cannot be located within two years of the Effective
<PAGE>
Date, any unclaimed and undeliverable distributions shall become the property of
and shall be released to the Company; provided, however, that nothing contained
in this Agreement shall require the Exchange Agent to attempt to locate, at any
time, any such holders.
(b) Pending the transfer or distribution of any New Common Stock, the
Exchange Agent will cause all of the New Common Stock held by it in its capacity
as Exchange Agent to be: (i) represented in person or by proxy at each meeting
of the stockholders of the Company; (ii) voted in any election of directors of
the Company, for the nominees recommended by the board of directors of the
Company; and (iii) voted with respect to any other matter, as recommended by the
board of directors of the Company.
8. IRS Form 1099 Reporting. The Exchange Agent shall prepare and mail all
necessary IRS Form 1099s in accordance with the substitute W-9 information
provided by Holders in the Letter of Transmittal. The Company shall specify the
version of IRS Form 1099, if any, to be prepared and distributed to Holders and
the Exchange Agent may rely in full on the Company's specification of the
version of IRS Form1099, and, that such a specification conforms with all
applicable laws. The Exchange Agent may request, and the Company shall provide,
written direction relating to the Exchange Agent's duties and responsibilities
relating to tax reporting.
9. Term of Agreement. This Agreement shall remain in full force and
effect until the earlier of (a) 60 days after notice of termination has been
given by either party or (b) upon the distribution of all New Securities, Excess
Cash and Accrued Interest in accordance with this Agreement. Upon termination of
this Agreement, Exchange Agent shall forward any and all remaining securities,
funds and holder records relating to the exchange of the Old Securities in
electronic format, to the extent available, and paper format pursuant to written
instructions received from the Company.
10. Fees and Expenses. For its services, the Exchange Agent shall be
entitled to compensation from the Company in accordance with Exhibit E attached
hereto.
11. Scope of Exchange Agent's Duties. The Exchange Agent is not obligated
and is not authorized to take any actions in connection with the New Securities,
Excess Cash and the Accrued Interest, and the interest earned thereon or any
other consideration held for distribution except as are expressly set forth in
this Agreement or as provided in the Plan. In performing its obligations
hereunder, the Exchange Agent shall have the right to consult with and rely on
the advice of its legal counsel which shall be treated by the Exchange Agent as
an out-of-pocket expense and shall not have any liability to the Company or to
any other person, except for bad faith, willful misconduct or willful failure to
perform its obligations hereunder or its gross negligence and except such
liabilities as arise in its capacity as the drawee bank of checks issued by the
Exchange Agent in connection with the distribution of moneys in the Accounts. In
any action or proceeding against the Company relating to the activities governed
by this Agreement, the Exchange Agent shall reasonably cooperate with the
Company. This Section shall survive any termination of the Agreement.
<PAGE>
12. Notices. All notices, directions, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (a) on the date of service if served personally on the
party to whom notice is to be given; (b) on the day of transmission if sent by
facsimile transmission to the facsimile number given below, and telephonic
confirmation of receipt is obtained promptly after completion of transmission;
(c) on the day after delivery to an overnight courier or the express mail
service maintained by the United States Postal Service; or (d) on the fifth day
after mailing, if mailed to the party to whom notice is to be given, by first
class mail, registered or certified, postage prepaid, and properly addressed,
return receipt requested, to the party as follows:
IF TO THE COMPANY:
Mr. David Berkow
Treasurer
MFN Financial Corporation
100 Field Drive; Suite 340
Lake Forest, IL 60045
FAX: (847) 295-8785
WITH COPIES TO:
Mr. David Cleary, Esq.
McDermott Will & Emery
227 West Monroe Street
Chicago, IL 60606-5096
FAX: (312) 372-2134
IF TO THE EXCHANGE AGENT:
Mr. Lon LeClair
Norwest Bank Minnesota, N.A.
Corporate Trust Services
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, MN 55479-0069
FAX: (612) 667-9825
If either the Company or the Exchange Agent receives any notice of any third
party claim against amounts to be distributed to a holder of an Allowed Claim
pursuant this Agreement, a copy of the notice shall be promptly forwarded to the
other party.
13. Successors and Assigns. Neither party hereto shall assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the party hereto and any such attempted assignment without such prior
written consent shall be
<PAGE>
void and of no force and effect. This Agreement shall inure to the benefit of
and shall be binding upon the successors and permitted assigns of the parties
hereto.
14. Successor by Merger. Any corporation or association into which the
Exchange Agent may be merged, or with which it may be consolidated, or to which
it may sell, lease or transfer its corporate trust business and assets as a
whole or substantially as a whole, shall be and become successor Exchange Agent
hereunder and shall be vested with all the trusts, powers, rights, obligations,
duties, remedies, immunities and privileges hereunder as was its predecessor,
without the execution or filing of any instrument on the part of any of the
parties hereto, provided, however, that the Exchange Agent shall notify the
Company of any impending merger, consolidation or disposition of its corporate
trust business reasonably in advance of its consummation.
15. Governing Law; Jurisdiction. This Agreement shall be construed,
performed, and enforced in accordance with, and governed by, the laws of the
state of Delaware, without giving effect to the principles of conflicts of laws
thereof; provided, however, until a Final Decree is entered pursuant to the
Plan, the Bankruptcy Court shall retain jurisdiction with respect to the
construction, enforceability or disputes arising under this Agreement. Each
party hereby consents to the personal jurisdiction and venue of federal courts
in the state of Delaware in respect of any claims based upon or arising out of
this Agreement.
16. Severability. In the event that any part of this Agreement is declared
by any court or other judicial or administrative body to be null, void, or
unenforceable, said provision shall survive to the extent it is not so declared,
and all of the other provisions of this Agreement shall remain in full force and
effect.
17. Amendments; Waivers. This Agreement may be amended or modified, and
any of the provision, covenants, representations, warranties, or conditions
hereof may be waived, only by a written instrument executed by the parties
hereto, or in the case of a waiver, by the party waiving compliance. Any waiver
by any party of any condition, or of the breach of any provision, term,
covenant, representation, or warranty contained in this Agreement, in any one or
more instances, shall not be deemed to be nor construed as further or continuing
waiver of any such condition, or of the breach of any other provision, term,
covenant, representation, or warranty of this Agreement.
18. Entire Agreement. This Agreement contains the entire understanding
among the parties hereto and supersedes and replaces all prior and
contemporaneous agreements and understandings, oral or written.
19. Survival. The provisions set forth in Sections 5, 6 and 7 of this
Agreement shall survive termination of this Agreement and the Accounts.
20. Section Headings. The section headings in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
<PAGE>
21. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
MFN FINANCIAL CORPORATION:
BY:
------------------------------------
ITS:
-----------------------------------
NORWEST BANK MINNESOTA, N.A./EXCHANGE AGENT:
BY:
------------------------------------
ITS:
-----------------------------------
<PAGE>
EXHIBIT 10E
INDEMNIFICATION AGREEMENT
-------------------------
THIS AGREEMENT is made as of the 23rd day of March, 1999, by and between
MFN Financial Corporation, a Delaware corporation (the "Corporation") and the
undersigned director and/or officer (the "Indemnitee") of the Corporation,
WHEREAS, it is essential to the Corporation to retain and attract as
directors and/or officers the most capable persons available; and
WHEREAS, through The Corporation's Certificate of Incorporation dated March
__, 1999 (the "Charter") the stockholders of the Corporation have established
that it is the express policy of the Corporation to indemnify its directors and
officers so as to provide them with the maximum possible protection permitted by
law; and
WHEREAS, the vagaries of "public policy" and interpretations of statutes,
certificates of incorporation and by-laws make uncertain the indemnification
protection so provided; and
WHEREAS, the Board of Directors has concluded that such uncertainty and the
continuation of present trends in litigation against corporate directors and
officers will inevitably result in less effective direction and supervision of
the Corporation's business affairs, and the Board deems such consequences to be
so detrimental to the best interests of the Corporation's stockholders that it
is not only reasonable and prudent but necessary for the Corporation to
contractually reaffirm its obligations to indemnify in a reasonable and adequate
manner its directors and officers and to establish procedures and presumptions
with respect thereto to make the process of indemnification more certain; and
WHEREAS, in connection therewith, Section 145 of the General Corporation
Law of the State of Delaware, under which the Corporation is organized, empowers
corporations to indemnify, among others, any person serving as a director and/or
officer of the corporation, and such Section 145 specifies that the
indemnification set forth therein shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under the
certificate of incorporation, bylaws, agreements, vote of stockholders or
disinterested directors or otherwise; and
WHEREAS, the Corporation desires to have Indemnitee serve or continue to
serve as a director or officer of the Corporation or of any other corporation,
subsidiary, partnership, joint venture, or trust or other enterprise of which
he/she has been or is serving at the request, for the convenience of or to
represent the interests of the Corporation free from undue concern for
unpredictable, inappropriate or unreasonable claims for damages by reason of
his/her Corporate Status (as defined below) and Indemnitee desires to serve or
to continue to serve (provided that he/she is furnished the indemnity provided
for hereinafter), in one or more of such capacities;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the Corporation and Indemnitee hereby agree as follows:
1. AGREEMENT TO SERVE. Indemnitee will serve and/or continue to serve, at
------------------
the will of the Corporation or under separate contract, if such exists, the
Corporation or an Affiliate of the Corporation as a director and/or officer
faithfully and to the best of his/her ability so long as he/she is duly elected
and qualified in accordance with the provisions of the By-laws thereof or until
such time as he/she tenders his/her resignation in writing.
2. INDEMNIFICATION. The Corporation shall indemnify, and advance Expenses
---------------
(as hereinafter defined) to, Indemnitee as provided in this Agreement and to the
fullest extent permitted by the Charter Amendment or applicable law. Nothing
herein shall be interpreted so as to reduce or lessen the Corporation's
obligations under the Charter Amendment or applicable law in the absence of this
Agreement.
3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
------------------------------------------------------------
CORPORATION. Indemnitee shall be entitled to the rights of indemnification set
- -----------
forth in Section 2 if, by reason of his/her Corporate Status (as hereinafter
defined), he/she is, or is threatened to be, made a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Corporation. Indemnitee shall be
indemnified against Expenses, liability and loss, including but not limited to,
judgements, fines, and amounts paid in settlement actually and reasonably
incurred by him/her or on his/her behalf in connection with such Proceeding or
any claim, issue or matter related thereto, if he/she acted in good faith and in
a manner he/she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal Proceeding, had
no reasonable cause to believe his/her conduct was unlawful.
4. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Indemnitee shall be
-------------------------------------------------
entitled to the rights of indemnification set forth in Section 2 if, by reason
of his/her Corporate Status, he/she is, or is threatened to be, made a party to
any threatened, pending or completed Proceeding brought by or in the right of
the Corporation to procure a judgment in its favor. Indemnitee shall be
indemnified against Expenses actually and reasonably incurred by him/her or on
his/her behalf in connection with such Proceeding if he/she acted in good faith
and in a manner he/she reasonably believed to be in or not opposed to the best
interests of the Corporation. Notwithstanding the foregoing, no indemnification
against such Expenses shall be made in respect of any claim, issue or matter in
such Proceeding as to which Indemnitee shall have been adjudged to be liable to
the Corporation if applicable law prohibits such indemnification; provided,
however, that if applicable law so permits, indemnification against Expenses
shall nevertheless be made by the Corporation in such event if and only to the
extent that the Court of Chancery of the State of Delaware, or the court in
which such Proceeding shall have been brought or is pending, shall determine.
5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
---------------------------------------------------------------
<PAGE>
SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the
- ----------
extent that Indemnitee is, by reason of his/her Corporate Status, a party to and
is successful, on the merits or otherwise, in any Proceeding or any claim, issue
or matter therein, he/she shall be indemnified against all Expenses actually and
reasonably incurred by him/her or on his/her behalf in connection therewith. If
Indemnitee is not wholly successful in such a Proceeding but is successful, on
the merits or otherwise, as to one or more but less than all claims, issues or
matters in such a Proceeding, the Corporation shall indemnify Indemnitee against
all Expenses actually and reasonably incurred by him/her or on his/her behalf in
connection with each successfully resolved claim, issue or matter. For purposes
of this Section 5 and without limitation, the termination of any claim, issue or
matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other
-----------------------------------------
provision of this Agreement, to the extent that Indemnitee is, by reason of
his/her Corporate Status, a witness in any Proceeding, he/she shall be
indemnified against all Expenses incurred by him/her or on his/her behalf in
connection therewith.
7. INDEMNIFICATION FOR EXPENSES OF ENFORCING RIGHTS. Notwithstanding any
------------------------------------------------
other provision of this Agreement, to the extent that Indemnitee, by reason of
his/her Corporate Status, incurs Expenses in successfully enforcing his/her
rights to indemnification by the Corporation, he/she shall be indemnified
against all Expenses actually and reasonably incurred by him/her or on his/her
behalf in connection therewith.
8. ADVANCEMENT OF EXPENSES. The Corporation shall advance all Expenses
-----------------------
incurred by or on behalf of Indemnitee in connection with any Proceeding within
ten (10) days after the receipt by the Corporation of a statement or statements
from Indemnitee requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by Indemnitee and
shall include or be preceded or accompanied by an undertaking by or on behalf of
Indemnitee to repay any Expenses advanced if it shall ultimately be determined
that Indemnitee is not entitled to be indemnified against such Expenses.
9. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
-------------------------------------------------------------
(a) To obtain indemnification, Indemnitee shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of such a request for indemnification, advise the Board of Directors in writing
that Indemnitee has requested indemnification.
3
<PAGE>
(b) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 9(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case as follows: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined)
(unless Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clauses (ii) or (iii) of this Section 9(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change in Control shall not have occurred, at the
discretion of the Board of Directors (a) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors (as hereinafter defined),
or (b) if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, such quorum of Disinterested
Directors so directs, by Independent Counsel in a written opinion to the Board
of Directors, a copy of which shall be delivered to Indemnitee or (c) by the
stockholders of the Corporation; or (iii) as provided in Section 10(b); and, if
so determined that Indemnitee is entitled to indemnification, payment to
Indemnitee shall be made within ten (10) days after such determination.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 9(b), the Independent
Counsel shall be selected as provided in this Section 9(c). If a Change in
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Corporation shall give written notice to
Indemnitee advising him/her of the identity of the Independent Counsel so
selected. If a Change in Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the
Corporation advising it of the identity of the Independent Counsel so selected.
In either event, Indemnitee or the Corporation, as the case may be, may, within
seven (7) days after such written notice of selection shall have been given,
deliver to the Corporation or to Indemnitee, as the case may be, a written
objection to such selection. Such objection may be asserted only on the ground
that the Independent Counsel so selected does not meet the requirements of
"Independent Counsel" (as hereinafter defined) and the objection shall set forth
with particularity the factual basis of such assertion. The Corporation shall
pay any and all reasonable fees and expenses of Independent Counsel incurred by
such Independent Counsel in connection with acting pursuant to Section 9(b).
10. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
----------------------------------------------
(a) When making a determination with respect to entitlement to
indemnification, the person, persons or entity making such determination shall
presume that
4
<PAGE>
Indemnitee is entitled to indemnification if Indemnitee has submitted a request
for Indemnification in accordance with Section 9(a) and the Corporation shall
have the burden of proof to overcome that presumption in connection with the
making by any person, persons or entity of any determination contrary to that
presumption.
(b) If the person, persons or entity empowered or selected under
Section 9 to determine whether Indemnitee is entitled to indemnification shall
not have made such determination within forty-five (45) days after receipt by
the Corporation of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent a prohibition of such
indemnification under applicable law.
(c) The termination of any Proceeding or of any claim, issue or
matter related thereto by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not (except as otherwise
---- ----------
expressly provided in this Agreement) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which he/she reasonably believed to be in or
not opposed to the best interest of the Corporation or, with respect to any
criminal Proceeding, that Indemnitee had reasonable cause to believe that
his/her conduct was unlawful. In addition, neither the failure of the
Independent Counsel to have made a determination as to whether Indemnitee has
met any particular standard of conduct or had any particular belief, nor an
actual determination by the Independent Counsel that the Indemnitee has not met
such standard of conduct or did not have such belief, prior to the commencement
of proceedings by Indemnitee to secure an arbitral or judicial determination
that Indemnitee should be indemnified under applicable law shall be a defense to
Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief.
11. ARBITRATION.
-----------
(a) All disputes between the parties with respect to the terms or
conditions of this Agreement shall be exclusively resolved by and through an
arbitration proceeding to be conducted under the auspices of the American
Arbitration Association (the "AAA") in Chicago, Illinois pursuant to the AAA's
Commercial Arbitration Rules (the "Arbitration"). Such Arbitration shall be
conducted in as expedited a manner as is then permitted by such rules. The
Arbitrators in any such Arbitration shall be persons who are expert in the
subject matter of the dispute. Both the foregoing agreement of the parties to
arbitrate any and all such claims, and the results, determination, finding,
judgment and/or award rendered through such Arbitration shall be final and
binding on the parties thereto and may be specifically enforced by legal
proceedings.
5
<PAGE>
(b) The Corporation shall appoint one (1) Arbitrator and Indemnitee
shall appoint one (1) Arbitrator within the period of thirty (30) calendar days
commencing on the date of any claim hereunder, and the two Arbitrators so
appointed shall appoint a third Arbitrator within the period thirty (30)
calendar days commencing on the date on which the last of the two Arbitrators
has been selected. If either the Corporation or Indemnitee fails to select its
respective Arbitrator, or in the event that the two Arbitrators chosen by the
Corporation and the Indemnitee are unable or unwilling to select a third
Arbitrator within fourteen (14) calendar days following the selection of the
last of them, then the AAA shall select the Arbitrator that was not selected by
the Corporation, Indemnitee or the first two Arbitrators, as the case may be,
and the three Arbitrators shall constitute the arbitration panel for purposes of
the dispute.
(c) The Corporation shall bear all costs in connection with such
Arbitration including, without limitation, costs of the attorneys, witnesses and
experts; provided, however, that, with respect to any claim subject to this
-------- -------
Section 11 which is brought by Indemnitee, Indemnitee shall be required to repay
to the Corporation his/her respective share of such costs if the arbitration
panel shall have concluded that such claim is frivolous in nature. The parties
hereto acknowledge and agree that time is of the essence in this Arbitration
proceeding, and the Arbitrators shall be instructed and required to render their
decision within ten (10) calendar days following completion of the Arbitration.
(d) Any and legal proceedings to enforce this Agreement (except for
any action to compel arbitration hereunder or any action to enforce any award or
judgment rendered thereby), shall be governed in accordance with this Section
11.
(e) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 11 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
12. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE.
----------------------------------------------
(a) The rights of indemnification and to receive advancement of
Expenses as described by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Charter or other provisions of the Charter, the By-Laws, any agreement,
a vote of stockholders, a resolution of Disinterested Directors or otherwise.
No amendment, alteration or repeal of the Charter or other provisions of the
Charter or the By-Laws or of any provision hereof shall be effective as to
Indemnitee
6
<PAGE>
with respect to any action or omission by such Indemnitee in his/her Corporate
Status prior to such amendment, alteration or repeal. To the extent that a
change in the General Corporation Law of the State of Delaware (whether by
statute or judicial action) permits greater indemnification by agreement than
would be afforded currently under the Charter, By-Laws and this Agreement, it is
the intent of the parties hereto that Indemnitee shall enjoy by this Agreement
the greater benefits so afforded by such change. The provisions of this
Agreement shall continue as to an Indemnitee whose Corporate Status has ceased
and shall inure to the benefit of his/her heirs, executors and administrators.
(b) To the extent that the Corporation maintains an insurance policy
or policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.
(c) The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
13. SEVERABILITY. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement shall not be in any way be affected or impaired thereby; and (b)
to the fullest extent possible, the provisions of this Agreement shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
14. DEFINITIONS. For purposes of this Agreement:
-----------
(a) "Arbitrator" means an attorney who is an Independent Counsel and
who is selected in accordance with Section 10(b) of this Agreement to act as
arbitrator.
(b) A "Change in Control" shall be deemed to have occurred if:
(i) Any "person" (as defined in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), excluding for this purpose the Corporation or any
subsidiary of the Corporation, or any employee benefit plan of
the Corporation or any
7
<PAGE>
subsidiary of the Corporation, or any person or entity organized,
appointed or established by the Corporation for or pursuant to
the terms of such plan which acquires beneficial ownership of
voting securities of the Corporation, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Corporation
representing twenty percent (20%) or more of the combined voting
power of the Corporation's then outstanding securities; provided,
however, that no Change in Control shall be deemed to have
occurred as the result of an acquisition of securities of the
Corporation by the Corporation which, by reducing the number of
voting securities outstanding, increases the direct or indirect
beneficial ownership interest of any person to twenty percent
(20%) or more of the combined voting power of the Corporation's
then outstanding securities, but any subsequent increase in the
direct or indirect beneficial ownership interest of such a person
in the Corporation shall be deemed a Change in Control; and
provided further that if the Board of Directors of the
Corporation determines in good faith that a person who has become
the beneficial owner directly or indirectly of securities of the
Corporation representing twenty percent (20%) or more of the
combined voting power of the Corporation's then outstanding
securities has inadvertently reached that level of ownership
interest, and if such person divests as promptly as practicable a
sufficient amount of securities of the Corporation so that the
person no longer has a direct or indirect beneficial ownership
interest in twenty percent (20%) or more of the combined voting
power of the Corporation's then outstanding securities, then no
Change in Control shall be deemed to have occurred;
(ii) During any period of two (2) consecutive years (not
including any period prior to the Effective Date of this
Agreement), individuals who at the beginning of such two-year
period constitute the Board of Directors of the Corporation and
any new director or directors (except for any director designated
by a person who has entered into an agreement with the
Corporation to effect a transaction described in subparagraph
(i), above, or subparagraph (iii), below) whose election by the
Board or nomination for election by the Corporation's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute at least a majority of the Board (such individuals and
any such new directors being referred to as the "Incumbent
Board"); or
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<PAGE>
(iii) Consummation of (1) an agreement for the sale or
disposition of the Corporation or all or substantially all of the
Corporation's assets, (2) a plan of merger or consolidation of
the Corporation with any other corporation, or (3) a similar
transaction or series of transactions involving the Corporation
(any transaction described in parts (1) through (3) of this
subparagraph (iii) being referred to as a "Business
Combination"), in each case unless after such a Business
Combination (x) the stockholders of the Corporation immediately
prior to the Business Combination continue to own, directly or
indirectly, more than eighty percent (80%) of the combined voting
power of the then outstanding voting securities entitled to vote
generally in the election of directors of the new (or continued)
entity (including, but not by way of limitation, an entity which
as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's former assets either
directly or through one or more subsidiaries) immediately after
such Business Combination, in substantially the same proportion
as their ownership of the Corporation immediately prior to such
Business Combination, (y) no person (excluding any entity
resulting from such Business Combination or any employee benefit
plan (or related trust) of the Corporation or of such entity
resulting from such Business Combination) beneficially owns,
directly or indirectly, twenty percent (20%) or more of the then
combined voting power of the then outstanding voting securities
of such entity, except to the extent that such ownership existed
prior to the Business Combination, and (z) at least a majority of
the members of the board of directors of the entity resulting
from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or
of the action of the Board, providing for such Business
Combination; or
(iv) Approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(c) "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Corporation or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Corporation. Any election or appointment of an Indemnitee as a director, or
officer, employee, agent, or fiduciary of the Corporation or of any corporation,
partnership or joint venture which is a subsidiary or affiliate of the
Corporation,
9
<PAGE>
or of a trust or employee benefit plan of the Corporation or any such subsidiary
or affiliate, shall conclusively evidence that such Indemnitee's service in such
capacity was at the request of the Corporation.
(d) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(e) "Expenses" means all attorneys' fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
(f) "Indemnitee" means any person who is, or is threatened to be
made, a witness in or a party to any Proceeding as described in Sections 3, 4, 5
or 6 by reason of his/her Corporate Status.
(g) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the
Corporation or Indemnitee in any matter (other than with respect to the rights
of Indemnitee under this Agreement or other indemnities under similar indemnity
agreements); or (ii) any other party to the Proceeding giving rise to a claim
for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Corporation or Indemnitee in an action to
determine Indemnitee's rights under this Agreement.
(h) "Proceeding" means any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee unless such Proceeding was authorized by the Board of
Directors or Indemnitee is enforcing his/her rights to indemnification and/or
advancement of Expenses. For purposes of this definition, a counterclaim, cross
claim or third party claim in a Proceeding shall be considered a separate and
distinct Proceeding.
15. NOTICE. Indemnitee shall give the Corporation notice in writing as
------
soon as reasonably practicable of any claim made against him/her for which
indemnity will or could be sought under this Agreement. In addition, Indemnitee
shall, at the Corporation's expense, give the Corporation such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power. Notice to the Corporation shall be directed to Mercury Finance
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<PAGE>
Company, 100 Field Drive, Suite 340, Lake Forest, Illinois 60045, ATTN: General
Counsel (or such other address as the Corporation shall designate in writing to
Indemnitee). Notices to Indemnitee shall be directed to the address set forth
below the signature of the Indemnitee on this Agreement (or such other address
as the Indemnitee shall designate in writing to the Corporation). Notices shall
be deemed received three (3) days after the date postmarked, if sent by prepaid
certified mail, return receipt requested, properly addressed.
16. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute one and the same original.
17 APPLICABLE LAW. This Agreement shall be governed by and construed in
--------------
accordance with Delaware law.
18 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
Corporation and its successors and assigns.
19 AMENDMENT. This Agreement may be amended or modified only by a
---------
writing executed and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
MFN FINANCIAL CORPORATION
Mark E. Dapier, Executive Vice President,
General Counsel and Secretary
INDEMNITEE:
Edward G. Harshfield
Address for Notices:
__________________________________
__________________________________
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<PAGE>
EXHIBIT 10F
CHANGE IN CONTROL AGREEMENT
This AGREEMENT (the "Agreement") by and between MFN Financial Corporation,
a Delaware corporation (the "Company"), and Edward G. Harshfield (the
"Executive"), dated as of the 23rd day of March, 1999.
W I T N E S S E T H:
WHEREAS, the Executive is currently employed as President, Chief Executive
Officer of the Company;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication of the Executive, despite
the possibility, threat or occurrence of a Change in Control (as defined below)
of the Company; and
WHEREAS, the Board believes that it is imperative to diminish the
inevitable distraction of the Executive which would result from the personal
uncertainties and risks created by a threatened or pending Change in Control and
to encourage the Executive's full attention and dedication to the business of
the Company currently and in the event of any threatened or pending Change in
Control and to provide the Executive with appropriate compensation and benefit
protection upon a Change in Control;
WHEREAS, the Executive desires to enter into this Agreement on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Term. This Agreement shall become effective upon the occurrence of a
----
Change in Control (as defined below) (hereinafter called the "Effective Date")
and shall remain in effect for a term continuing for twenty-four (24) months.
2. Termination of Employment. Should the Executive's employment with the
-------------------------
Company or its subsidiaries terminate for any reason (other than for (i) Cause
or (ii) voluntarily by Executive other than for Good Reason) within twenty-four
(24) months after a Change in Control of the Company (the "Termination Date"),
the Company shall cause the Executive to receive the aggregate of the following
within three (3) business days after the Termination Date:
(1) a lump sum cash amount (subject to the usual withholding taxes)
equal (1) to (A) three times the sum of (1) the Executive's salary properly in
effect immediately prior to the Change of Control and (2) a bonus amount equal
to the greater of (A) Five Hundred Thousand Dollars ($500,000) or (B) one
hundred percent (100%) of the Executive's target bonus for the year in which the
Termination Date occurs, plus (B) an amount equal to the compensation (at the
Executive's salary properly in effect immediately prior to the Change of
Control) payable
<PAGE>
for unused and accrued vacation benefits determined under the Company's vacation
pay plan or program covering the Executive immediately prior to the Change in
Control;
(4) Continuation of coverage under the group health, group life,
group long-term disability and similar group insurance plans, if any, maintained
by the Company or any of its subsidiaries, with such continuation being at an
employee cost which is the same as the employee cost in effect immediately
preceding the Change in Control, until the earlier of (i) three (3) years after
Termination Date or (ii) the date on which the Executive becomes employed by a
new employer and qualifies for comparable benefits from that new employer;
provided, however, that if such continued participation is precluded by the
provisions of such plans or by applicable law, the Company shall provide the
Executive with comparable benefits of equal value; provided, further, however,
that execution of this Agreement by the Executive shall not be considered a
waiver of any rights or entitlements he may have under applicable law to
continuation of coverage under the group health plan maintained by the Company
or any of its subsidiaries;
(5) Any options or stock (or other equity-based) awards previously
granted and not yet vested as of the later of the Termination Date or date of
Change in Control shall be fully vested immediately, and all options shall
remain exercisable through the end of their original term;
(6) All unpaid and vested compensation and benefits accrued or earned
by the Executive as of the later of the Termination Date or date of Change in
Control, including, but not limited to, all Accrued Obligations; and
(7) Any amounts that remain unpaid pursuant to Section 4(c) of the
Employment Agreement.
For purposes of this Section 2, the Executive's salary shall be determined prior
to reduction for deferred compensation, salary reduction contributions to a cash
or deferred arrangement under Section 401(k) of the Code, or to a cafeteria plan
under Section 125 of the Code, and similar items. Further, any reduction in the
Executive's salary or group insurance coverage from the Company or any of its
subsidiaries occurring within twenty-four (24) months after the Change in
Control shall be disregarded for purposes of determining the Executive's
benefits pursuant to this Section 2.
3. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify.
4. Full Settlement; Resolution of Disputes. The Company's obligation to
---------------------------------------
make payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be
2
<PAGE>
affected by any set-off, counterclaim, recoupment, defense, mitigation or other
claim, right or action which the Company may have against the Executive or
others. In the event that the Executive is the prevailing party, or is
successful to a material degree, in pursuing or defending, whether in
arbitration or litigation, any claim or dispute relating to (a) this Agreement,
or (b) the failure or refusal of the Company to perform fully in accordance with
the terms hereof, the Company shall promptly reimburse the Executive for all
reasonable costs and expenses (including, without limitation, attorneys' fees)
relating solely, or allocable, to such claim or dispute, plus in each case
interest on any delayed payment at the applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In any other case, the Executive and the
Company shall each bear all their own respective costs and attorneys' fees.
5. Certain Additional Payments by the Company.
------------------------------------------
(1) Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any payment or distribution to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments;
(2) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the
accounting firm then serving as independent auditors for the Company (the
"Accounting Firm"); provided, however, that the Accounting Firm shall not
determine that no Excise Tax is payable by the Executive unless it delivers to
the Executive a written opinion (the "Accounting Opinion") that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. In the
event that the Accounting Firm has served, at any time during the two years
immediately preceding the date of a Change in Control, as accountant or auditor
for the individual, entity or group that is involved in effecting or has any
material interest in the Change in Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations and perform the
other functions specified in this Section 5 (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Within fifteen (15)
business days of the receipt of notice from the Executive that there has been a
Payment or such earlier time as is
3
<PAGE>
requested by the Company, the Accounting Firm shall make all determinations
required under this Section 5, shall provide to the Company and the Executive a
written report setting forth such determinations, together with detailed
supporting calculations, and, if the Accounting Firm determines that no Excise
Tax is payable, shall deliver the Accounting Opinion to the Executive. Any
Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by the
Company to the Executive within five (5) days of the receipt of the Accounting
Firm's determination. Subject to the remainder of this Section 5, any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that it is ultimately
determined in accordance with the procedures set forth in Section 5(c) that the
Executive is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive;
(3) The Executive shall notify the Company in writing of any claims
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than thirty (30) days after the Executive actually
receives notice in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid;
provided, however, that the failure of the Executive to notify the Company of
such claim (or to provide any required information with respect thereto) shall
not affect any rights granted to the Executive under this Section 5. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(1) give the Company information reasonably requested by the
Company relating to such claim; and
(2) if the Company elects not to assume and control the defense
of such claim permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including, without limitation, legal fees and other related expenses
and interest and penalties) incurred by Executive in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed and payment of costs and expenses. The Company's right
to assume the defense of and control the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue
4
<PAGE>
Service or any other taxing authority; and
(4) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 5(c)) promptly pay to the
Company the amount of such refund. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
6. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company, or any of its subsidiaries,
affiliates and business, which shall have been obtained by the Executive
pursuant to his employment by the Company or any of its subsidiaries and
affiliates and which shall not have become public knowledge. After the
Termination Date, the Executive shall not, without the prior written consent of
the Company, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. However, in no event
shall an asserted violation of the provisions of this Section 6 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
7. Definitions. As used in this Agreement, the terms set forth below
-----------
shall have the following respective meanings:
"Accrued Obligations" shall mean (i) the Executive's salary, and (ii) any
other rights and benefits available to the Executive under employee compensation
and benefit arrangements of the Company (without duplication) in which the
Executive was a participant on the Termination Date, determined in accordance
with the applicable terms and provisions of such arrangements.
"Change in Control" shall mean any of the following:
1. The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d) (2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
(excluding any of the Holders (as defined in paragraph (iv), below)
and their affiliates) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of
either (i) the then outstanding shares of capital stock of the Company
(the "Outstanding Company Capital Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in
5
<PAGE>
the election of directors (the "Company Voting Securities"); provided,
however, that if the Holders cease to be, in the aggregate, beneficial
owners of at least 20% of both the Outstanding Company Capital Stock
and the Company Voting Securities, a Change in Control shall mean the
acquisition by any individual, entity or group (other than any of the
Holders and their affiliates) of beneficial ownership of 30% or more
of either the Outstanding Company Capital Stock or the Company Voting
Securities; provided further that (X) any acquisition by or from the
Company or any of its subsidiaries which is recommended or approved by
the Executive, (Y) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of its
subsidiaries or (Z) any acquisition by any entity with respect to
which, following such acquisition, more than 80% of, respectively, the
then outstanding shares of capital stock of such entity and the
combined voting power of the then outstanding voting securities of
such entity entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Capital
Stock and Company Voting Securities immediately prior to such
acquisition, in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the Outstanding Company
Capital Stock and Company Voting Securities, as the case may be, shall
not constitute a Change in Control;
2. A change in the composition of the Board such that
individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute a simple
majority of the Board, provided that any individual becoming a
director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by the
Executive and by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
is in connection with an actual or threatened election contest
relating to the election of the directors of the Company;
3. Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination")
with respect to which all or substantially all of the individuals and
entities who were the respective beneficial owners of the Outstanding
Company Capital Stock and Company Voting Securities immediately prior
to such Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more than 80%
of, respectively, the then outstanding shares of capital stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the entity resulting from the Business Combination, in
substantially the same proportion as their ownership immediately prior
to such Business Combination of the Outstanding
6
<PAGE>
Company Capital Stock and Company Voting Securities, as the case may
be; or
4. (1) A complete liquidation or dissolution of the
Company or (2) a sale or other disposition of all or substantially all
of the assets of the Company other than to an entity with respect to
which, following such sale or disposition, more than 80% of,
respectively, the then outstanding sharers of capital stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Capital Stock and Company
Voting Securities immediately prior to such sale or disposition, in
substantially the same proportion as their ownership of the
Outstanding Company Capital Stock and Company Voting Securities, as
the case may be, immediately prior to such sale or disposition.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Cause" shall mean Executive's commission of an act materially and
demonstrably detrimental to the Company, which act constitutes gross negligence
or willful misconduct by Executive in the performance of his material duties to
the Company or (ii) Executive's commission of any material act of dishonesty or
breach of trust resulting or intended to result in material personal gain or
enrichment of Executive at the expense of the Company, or (iii) Executive's
conviction of a felony involving theft or moral turpitude, but specifically
excluding any conviction based entirely on vicarious liability.
"Disability" shall mean Executive's inability for a period of at least
120 consecutive days to substantially perform his duties under the Employment
Agreement, with reasonable accommodation, as evidenced by a certificate signed
either by a physician mutually acceptable to the Company and the Executive or,
if the Company and the Executive cannot agree upon a physician, by a physician
selected by agreement of a physician designated by the Company and a physician
designated by the Executive.
"Employment Agreement" shall mean that certain employment agreement
between Executive and Company dated March 23, 1999.
"Good Reason" shall mean:
5. The assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting relationships), authority,
duties or responsibilities or any other action by the Company which
results in a significant diminution in such position, authority,
duties or responsibilities, excluding any isolated, immaterial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly
7
<PAGE>
after receipt of notice thereof given by the Executive;
6. Any failure by the Company to comply with any of the
provisions of the Employment Agreement, other than an isolated,
immaterial and inadvertent failure not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive;
7. The filing of any involuntary bankruptcy petition
against the Company which is not dismissed within sixty (60) days of
the filing of the petition;
8. The revocation of any significant business license of
the Company by any state, except such a revocation which does not have
a material adverse effect on the business or prospects of the Company
taken as a whole;
9. Any criminal indictment of the Company, except for any
such indictment (A) which (1) is based upon the investigation by the
federal Securities and Exchange Commission into actions of the Company
which preceded the July 15, 1998 filing date of the bankruptcy
petition of the Company and (2) does not have a material adverse
effect on the business or prospects of the Company taken as a whole or
(B) which is based primarily upon the Executive's own actions, but
excluding any indictment based upon an allegation of vicarious
liability on the part of the Executive, with vicarious liability
meaning liability which is based on actions of the Company for which
the Executive is alleged to be responsible solely as a result of his
offices with the Company and in which he was not directly involved and
of which he did not have prior knowledge; or
10. Termination by the Executive for any reason (or
termination because of Executive's death or Disability) within the
twenty-four (24) month period after a Change in Control.
8. No Obligation to Mitigate Damages. In no event shall the Executive be
---------------------------------
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not the Executive
obtains other employment.
9. Successors.
----------
(1) This Agreement is personal to the Executive and without the prior
written consent of the Company his rights hereunder shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's heirs, executors and other legal representatives.
8
<PAGE>
(2) This Agreement shall inure to the benefit of and be binding upon
the Company and may only be assigned to a successor described in Section 9(c).
(3) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such agreement prior to
the effectiveness of any such succession shall entitle the Executive to
terminate his employment and to receive the payments provided for in Section 2,
above. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement, by operation of
law or otherwise.
10. Miscellaneous.
-------------
(1) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
conflict of laws that would require the application of the laws of any other
state or jurisdiction.
(2) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors,
heirs, executors or other legal representatives.
(3) All notices and other communications hereunder shall be in
writing and shall be given, if by the Executive to the Company, by telecopy or
facsimile transmission at the telecommunications number set forth below or, if
by either the Company or the Executive, by delivery to the other party by hand,
by reputable commercial delivery service, or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Mr. Edward G. Harshfield
132 East Delaware Place
Apartment 5506
Chicago, Illinois 60611
If to the Company:
-----------------
MFN Financial Corporation
100 Field Drive, Suite 340
Lake Forest, Illinois 60045
Attention: General Counsel
9
<PAGE>
or to such other address as either party shall have furnished to the other by
written notice in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(4) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(5) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(6) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof, or the failure to assert any right the
Executive or the Company may have hereunder, shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(7) The headings and section designations of this Agreement are
included solely for convenience of reference and shall in no event be construed
to affect or modify any provisions of this Agreement.
(8) In this Agreement where the context permits, words in any gender
shall include the other genders, words in the plural shall include the singular,
and words in the singular shall include the plural.
(9) This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same document.
11. Post-Termination Obligations. Upon termination of Executive's
----------------------------
employment for any reason during the term of this Agreement, the rights and
obligations of the parties under the Employment Agreement shall cease and the
terms hereof shall govern such post-termination period.
12. Termination of Employment Prior to Change in Control. This Agreement
----------------------------------------------------
shall terminate if the Executive's employment with the Company and all of its
subsidiaries is terminated, either voluntarily or involuntarily, for any reason
prior to a Change in Control of the Company; provided, however, that anything in
this Agreement to the contrary notwithstanding, if a Change in Control occurs
and if the Executive's employment with the Company and all of its subsidiaries
is terminated within two hundred and seventy (270) days prior to the date on
which the Change in Control occurs, then for all purposes of this Agreement the
Change in Control shall be deemed to have occurred on the date immediately prior
to the date of such termination of employment, unless it is reasonably
demonstrated by the Company that such termination of employment was (a) for
Cause or (b) for some other
10
<PAGE>
specific substantial business reason unrelated to the Change in Control.
IN WITNESS WHEREOF, the parties have executed this Agreement, all as of the
day and year first above written.
MFN FINANCIAL CORPORATION
By:
Its: ___________________________________
"Executive"
11
<PAGE>
EXHIBIT 10G
CHANGE IN CONTROL AGREEMENT
This AGREEMENT (the "Agreement") by and between MFN Financial Corporation,
a Delaware corporation (the "Company"), and Jeffrey B. Wheeden (the
"Executive"), dated as of the 23rd day of March, 1999.
W I T N E S S E T H:
WHEREAS, the Executive is currently employed as Executive Vice President
and Chief Financial Officer of the Company;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication of the Executive, despite
the possibility, threat or occurrence of a Change in Control (as defined below)
of the Company; and
WHEREAS, the Board believes that it is imperative to diminish the
inevitable distraction of the Executive which would result from the personal
uncertainties and risks created by a threatened or pending Change in Control and
to encourage the Executive's full attention and dedication to the business of
the Company currently and in the event of any threatened or pending Change in
Control and to provide the Executive with appropriate compensation and benefit
protection upon a Change in Control;
WHEREAS, the Executive desires to enter into this Agreement on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Term. This Agreement shall become effective upon the occurrence of a
----
Change in Control (as defined below) (hereinafter called the "Effective Date")
and shall remain in effect for a term continuing for twenty-four (24) months.
2. Termination of Employment. Should the Executive's employment with the
-------------------------
Company or its subsidiaries terminate for any reason (other than for (i) Cause
or (ii) voluntarily by Executive other than for Good Reason) within twenty-four
(24) months after a Change in Control of the Company (the "Termination Date"),
the Company shall cause the Executive to receive the aggregate of the following
within three (3) business days after the Termination Date:
(1) a lump sum cash amount (subject to the usual withholding taxes)
equal (1) to (A) three times the sum of (1) the Executive's salary properly in
effect immediately prior to the Change of Control and (2) a bonus amount equal
to one hundred percent (100%) of the Executive's target bonus for the year in
which the Termination Date occurs, plus (B) an amount equal to the compensation
(at the Executive's salary properly in effect immediately prior to the Change of
<PAGE>
Control) payable for unused and accrued vacation benefits determined under the
Company's vacation pay plan or program covering the Executive immediately prior
to the Change in Control;
(2) Continuation of coverage under the group health, group life,
group long-term disability and similar group insurance plans, if any, maintained
by the Company or any of its subsidiaries, with such continuation being at an
employee cost which is the same as the employee cost in effect immediately
preceding the Change in Control, until the earlier of (i) three (3) years after
Termination Date or (ii) the date on which the Executive becomes employed by a
new employer and qualifies for comparable benefits from that new employer;
provided, however, that if such continued participation is precluded by the
provisions of such plans or by applicable law, the Company shall provide the
Executive with comparable benefits of equal value; provided, further, however,
that execution of this Agreement by the Executive shall not be considered a
waiver of any rights or entitlements he may have under applicable law to
continuation of coverage under the group health plan maintained by the Company
or any of its subsidiaries;
(3) Any options or stock (or other equity-based) awards previously
granted and not yet vested as of the later of the Termination Date or date of
Change in Control shall be fully vested immediately, and all options shall
remain exercisable through the end of their original term; and
(4) All unpaid and vested compensation and benefits accrued or earned
by the Executive as of the later of the Termination Date or date of Change in
Control, including, but not limited to, all Accrued Obligations.
For purposes of this Section 2, the Executive's salary shall be determined prior
to reduction for deferred compensation, salary reduction contributions to a cash
or deferred arrangement under Section 401(k) of the Code, or to a cafeteria plan
under Section 125 of the Code, and similar items. Further, any reduction in the
Executive's salary or group insurance coverage from the Company or any of its
subsidiaries occurring within twenty-four (24) months after the Change in
Control shall be disregarded for purposes of determining the Executive's
benefits pursuant to this Section 2.
3. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify.
4. Full Settlement; Resolution of Disputes. The Company's obligation to
---------------------------------------
make payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense, mitigation or other claim, right or action which the
Company may have against the Executive or others. In the event that the
Executive is the prevailing party, or is successful to a material degree, in
pursuing or defending, whether in arbitration or litigation, any claim or
dispute relating to (a) this Agreement, or (b) the failure or refusal of the
Company to perform fully in accordance with the terms hereof, the Company shall
promptly reimburse the Executive for all reasonable costs and expenses
(including, without limitation, attorneys' fees) relating solely, or allocable,
to such claim or dispute, plus in each case
2
<PAGE>
interest on any delayed payment at the applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In any other case, the Executive and the
Company shall each bear all their own respective costs and attorneys' fees.
5. Certain Additional Payments by the Company.
------------------------------------------
(1) Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any payment or distribution to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments;
(2) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the
accounting firm then serving as independent auditors for the Company (the
"Accounting Firm"); provided, however, that the Accounting Firm shall not
determine that no Excise Tax is payable by the Executive unless it delivers to
the Executive a written opinion (the "Accounting Opinion") that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. In the
event that the Accounting Firm has served, at any time during the two years
immediately preceding the date of a Change in Control, as accountant or auditor
for the individual, entity or group that is involved in effecting or has any
material interest in the Change in Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations and perform the
other functions specified in this Section 5 (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Within fifteen (15)
business days of the receipt of notice from the Executive that there has been a
Payment or such earlier time as is requested by the Company, the Accounting Firm
shall make all determinations required under this Section 5, shall provide to
the Company and the Executive a written report setting forth such
determinations, together with detailed supporting calculations, and, if the
Accounting Firm determines that no Excise Tax is payable, shall deliver the
Accounting Opinion to the Executive. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to the Executive within
five (5) days of the receipt of the Accounting Firm's determination. Subject to
the remainder of this Section 5, any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been
3
<PAGE>
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that it is ultimately determined in accordance with the
procedures set forth in Section 5(c) that the Executive is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive;
(3) The Executive shall notify the Company in writing of any claims
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than thirty (30) days after the Executive actually
receives notice in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid;
provided, however, that the failure of the Executive to notify the Company of
such claim (or to provide any required information with respect thereto) shall
not affect any rights granted to the Executive under this Section 5. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(1) give the Company information reasonably requested by the
Company relating to such claim; and
(2) if the Company elects not to assume and control the defense
of such claim permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including, without limitation, legal fees and other related expenses
and interest and penalties) incurred by Executive in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed and payment of costs and expenses. The Company's right
to assume the defense of and control the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority; and
(4) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 5(c)) promptly pay to the
Company the amount of such refund. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
4
<PAGE>
6. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company, or any of its subsidiaries,
affiliates and business, which shall have been obtained by the Executive
pursuant to his employment by the Company or any of its subsidiaries and
affiliates and which shall not have become public knowledge. After the
Termination Date, the Executive shall not, without the prior written consent of
the Company, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. However, in no event
shall an asserted violation of the provisions of this Section 6 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
7. Definitions. As used in this Agreement, the terms set forth below
-----------
shall have the following respective meanings:
"Accrued Obligations" shall mean (i) the Executive's salary, and (ii) any
other rights and benefits available to the Executive under employee compensation
and benefit arrangements of the Company (without duplication) in which the
Executive was a participant on the Termination Date, determined in accordance
with the applicable terms and provisions of such arrangements.
"Change in Control" shall mean any of the following:
1. The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
(excluding any of the Holders (as defined in paragraph (iv), below)
and their affiliates) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of
either (i) the then outstanding shares of capital stock of the Company
(the "Outstanding Company Capital Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Company
Voting Securities"); provided, however, that if the Holders cease to
be, in the aggregate, beneficial owners of at least 20% of both the
Outstanding Company Capital Stock and the Company Voting Securities, a
Change in Control shall mean the acquisition by any individual, entity
or group (other than any of the Holders and their affiliates) of
beneficial ownership of 30% or more of either the Outstanding Company
Capital Stock or the Company Voting Securities; provided further that
(X) any acquisition by or from the Company or any of its subsidiaries
which is recommended or approved by the Executive, (Y) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries or (Z) any
acquisition by any entity with respect to which, following such
acquisition, more than 80% of, respectively, the then outstanding
shares of capital stock of such entity and the combined voting power
of the then outstanding voting securities of such entity entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Capital Stock and Company
5
<PAGE>
Voting Securities immediately prior to such acquisition, in
substantially the same proportion as their ownership, immediately
prior to such acquisition, of the Outstanding Company Capital Stock
and Company Voting Securities, as the case may be, shall not
constitute a Change in Control;
2. A change in the composition of the Board such that
individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute a simple
majority of the Board, provided that any individual becoming a
director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by the
Executive and by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
is in connection with an actual or threatened election contest
relating to the election of the directors of the Company;
3. Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination")
with respect to which all or substantially all of the individuals and
entities who were the respective beneficial owners of the Outstanding
Company Capital Stock and Company Voting Securities immediately prior
to such Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more than 80%
of, respectively, the then outstanding shares of capital stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the entity resulting from the Business Combination, in
substantially the same proportion as their ownership immediately prior
to such Business Combination of the Outstanding Company Capital Stock
and Company Voting Securities, as the case may be; or
4. (1) A complete liquidation or dissolution of the
Company or (2) a sale or other disposition of all or substantially all
of the assets of the Company other than to an entity with respect to
which, following such sale or disposition, more than 80% of,
respectively, the then outstanding sharers of capital stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Capital Stock and Company
Voting Securities immediately prior to such sale or disposition, in
substantially the same proportion as their ownership of the
Outstanding Company Capital Stock and Company Voting Securities, as
the case may be, immediately prior to such sale or disposition.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
6
<PAGE>
"Cause" shall mean Executive's commission of an act materially and
demonstrably detrimental to the Company, which act constitutes gross negligence
or willful misconduct by Executive in the performance of his material duties to
the Company or (ii) Executive's commission of any material act of dishonesty or
breach of trust resulting or intended to result in material personal gain or
enrichment of Executive at the expense of the Company, or (iii) Executive's
conviction of a felony involving theft or moral turpitude, but specifically
excluding any conviction based entirely on vicarious liability.
"Disability" shall mean Executive's inability for a period of at least
120 consecutive days to substantially perform his duties under the Employment
Agreement, with reasonable accommodation, as evidenced by a certificate signed
either by a physician mutually acceptable to the Company and the Executive or,
if the Company and the Executive cannot agree upon a physician, by a physician
selected by agreement of a physician designated by the Company and a physician
designated by the Executive.
"Employment Agreement" shall mean that certain employment agreement
between Executive and Company dated March 23, 1999.
"Good Reason" shall mean:
5. The assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting relationships), authority,
duties or responsibilities or any other action by the Company which
results in a significant diminution in such position, authority,
duties or responsibilities, excluding any isolated, immaterial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
6. Any failure by the Company to comply with any of the
provisions of the Employment Agreement, other than an isolated,
immaterial and inadvertent failure not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive;
7. The filing of any involuntary bankruptcy petition
against the Company which is not dismissed within sixty (60) days of
the filing of the petition;
8. The revocation of any significant business license of
the Company by any state, except such a revocation which does not have
a material adverse effect on the business or prospects of the Company
taken as a whole;
9. Any criminal indictment of the Company, except for any
such indictment (A) which (1) is based upon the investigation by the
federal Securities and Exchange Commission into actions of the Company
which preceded the July 15, 1998 filing date of the bankruptcy
petition of the Company and (2) does not have a material adverse
effect on the business or prospects of the Company taken as a whole
7
<PAGE>
or (B) which is based primarily upon the Executive's own actions, but
excluding any indictment based upon an allegation of vicarious
liability on the part of the Executive, with vicarious liability
meaning liability which is based on actions of the Company for which
the Executive is alleged to be responsible solely as a result of his
offices with the Company and in which he was not directly involved and
of which he did not have prior knowledge; or
10. Termination by the Executive for any reason (or
termination because of Executive's death or Disability) within the
twenty-four (24) month period after a Change in Control.
8. No Obligation to Mitigate Damages. In no event shall the Executive be
---------------------------------
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not the Executive
obtains other employment.
9. Successors.
----------
(1) This Agreement is personal to the Executive and without the prior
written consent of the Company his rights hereunder shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's heirs, executors and other legal representatives.
(2) This Agreement shall inure to the benefit of and be binding upon
the Company and may only be assigned to a successor described in Section 9(c).
(3) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such agreement prior to
the effectiveness of any such succession shall entitle the Executive to
terminate his employment and to receive the payments provided for in Section 2,
above. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement, by operation of
law or otherwise.
10. Miscellaneous.
-------------
(1) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
conflict of laws that would require the application of the laws of any other
state or jurisdiction.
(2) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors,
heirs, executors or other legal representatives.
8
<PAGE>
(3) All notices and other communications hereunder shall be in
writing and shall be given, if by the Executive to the Company, by telecopy or
facsimile transmission at the telecommunications number set forth below or, if
by either the Company or the Executive, by delivery to the other party by hand,
by reputable commercial delivery service, or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Mr. Jeffrey B. Wheeden
N28W30219 Red Hawk Court
Pewaukee, Wisconsin 53072
If to the Company:
-----------------
MFN Financial Corporation
100 Field Drive, Suite 340
Lake Forest, Illinois 60045
Attention: General Counsel
or to such other address as either party shall have furnished to the other by
written notice in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(4) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(5) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(6) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof, or the failure to assert any right the
Executive or the Company may have hereunder, shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(7) The headings and section designations of this Agreement are
included solely for convenience of reference and shall in no event be construed
to affect or modify any provisions of this Agreement.
(8) In this Agreement where the context permits, words in any gender
shall include the other genders, words in the plural shall include the singular,
and words in the singular shall include the plural.
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<PAGE>
(9) This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same document.
11. Post-Termination Obligations. Upon termination of Executive's
----------------------------
employment for any reason during the term of this Agreement, the rights and
obligations of the parties under the Employment Agreement shall cease and the
terms hereof shall govern such post-termination period.
12. Termination of Employment Prior to Change in Control. This Agreement
----------------------------------------------------
shall terminate if the Executive's employment with the Company and all of its
subsidiaries is terminated, either voluntarily or involuntarily, for any reason
prior to a Change in Control of the Company; provided, however, that anything in
this Agreement to the contrary notwithstanding, if a Change in Control occurs
and if the Executive's employment with the Company and all of its subsidiaries
is terminated within two hundred and seventy (270) days prior to the date on
which the Change in Control occurs, then for all purposes of this Agreement the
Change in Control shall be deemed to have occurred on the date immediately prior
to the date of such termination of employment, unless it is reasonably
demonstrated by the Company that such termination of employment was (a) for
Cause or (b) for some other specific substantial business reason unrelated to
the Change in Control.
IN WITNESS WHEREOF, the parties have executed this Agreement, all as of the
day and year first above written.
MFN FINANCIAL CORPORATION
By: _______________________________________
Its: _______________________________________
____________________________________________
"Executive"
10
<PAGE>
EXHIBIT 10H
CHANGE IN CONTROL AGREEMENT
This AGREEMENT (the "Agreement") by and between MFN Financial Corporation,
a Delaware corporation (the "Company"), and Mark E. Dapier (the "Executive"),
dated as of the 23rd day of March, 1999.
W I T N E S S E T H:
WHEREAS, the Executive is currently employed as Executive Vice President,
General Counsel and Secretary of the Company;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication of the Executive, despite
the possibility, threat or occurrence of a Change in Control (as defined below)
of the Company; and
WHEREAS, the Board believes that it is imperative to diminish the
inevitable distraction of the Executive which would result from the personal
uncertainties and risks created by a threatened or pending Change in Control and
to encourage the Executive's full attention and dedication to the business of
the Company currently and in the event of any threatened or pending Change in
Control and to provide the Executive with appropriate compensation and benefit
protection upon a Change in Control;
WHEREAS, the Executive desires to enter into this Agreement on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Term. This Agreement shall become effective upon the occurrence of a
----
Change in Control (as defined below) (hereinafter called the "Effective Date")
and shall remain in effect for a term continuing for twenty-four (24) months.
2. Termination of Employment. Should the Executive's employment with the
-------------------------
Company or its subsidiaries terminate for any reason (other than for (i) Cause
or (ii) voluntarily by Executive other than for Good Reason) within twenty-four
(24) months after a Change in Control of the Company (the "Termination Date"),
the Company shall cause the Executive to receive the aggregate of the following
within three (3) business days after the Termination Date:
(1) a lump sum cash amount (subject to the usual withholding taxes)
equal (1) to (A) three times the sum of (1) the Executive's salary properly in
effect immediately prior to the Change of Control and (2) a bonus amount equal
to one hundred percent (100%) of the Executive's target bonus for the year in
which the Termination Date occurs, plus (B) an amount equal to the compensation
(at the Executive's salary properly in effect immediately prior to the Change of
<PAGE>
Control) payable for unused and accrued vacation benefits determined under the
Company's vacation pay plan or program covering the Executive immediately prior
to the Change in Control;
(2) Continuation of coverage under the group health, group life,
group long-term disability and similar group insurance plans, if any, maintained
by the Company or any of its subsidiaries, with such continuation being at an
employee cost which is the same as the employee cost in effect immediately
preceding the Change in Control, until the earlier of (i) three (3) years after
Termination Date or (ii) the date on which the Executive becomes employed by a
new employer and qualifies for comparable benefits from that new employer;
provided, however, that if such continued participation is precluded by the
provisions of such plans or by applicable law, the Company shall provide the
Executive with comparable benefits of equal value; provided, further, however,
that execution of this Agreement by the Executive shall not be considered a
waiver of any rights or entitlements he may have under applicable law to
continuation of coverage under the group health plan maintained by the Company
or any of its subsidiaries;
(3) Any options or stock (or other equity-based) awards previously
granted and not yet vested as of the later of the Termination Date or date of
Change in Control shall be fully vested immediately, and all options shall
remain exercisable through the end of their original term; and
(4) All unpaid and vested compensation and benefits accrued or earned
by the Executive as of the later of the Termination Date or date of Change in
Control, including, but not limited to, all Accrued Obligations.
For purposes of this Section 2, the Executive's salary shall be determined prior
to reduction for deferred compensation, salary reduction contributions to a cash
or deferred arrangement under Section 401(k) of the Code, or to a cafeteria plan
under Section 125 of the Code, and similar items. Further, any reduction in the
Executive's salary or group insurance coverage from the Company or any of its
subsidiaries occurring within twenty-four (24) months after the Change in
Control shall be disregarded for purposes of determining the Executive's
benefits pursuant to this Section 2.
3. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify.
4. Full Settlement; Resolution of Disputes. The Company's obligation to
---------------------------------------
make payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense, mitigation or other claim, right or action which the
Company may have against the Executive or others. In the event that the
Executive is the prevailing party, or is successful to a material degree, in
pursuing or defending, whether in arbitration or litigation, any claim or
dispute relating to (a) this Agreement, or (b) the failure or refusal of the
Company to perform fully in accordance with the terms hereof, the Company shall
promptly reimburse the Executive for all reasonable costs and expenses
(including, without limitation, attorneys' fees) relating solely, or allocable,
to such claim or dispute, plus in each case
2
<PAGE>
interest on any delayed payment at the applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In any other case, the Executive and the
Company shall each bear all their own respective costs and attorneys' fees.
5. Certain Additional Payments by the Company.
------------------------------------------
(1) Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any payment or distribution to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments;
(2) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the
accounting firm then serving as independent auditors for the Company (the
"Accounting Firm"); provided, however, that the Accounting Firm shall not
determine that no Excise Tax is payable by the Executive unless it delivers to
the Executive a written opinion (the "Accounting Opinion") that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. In the
event that the Accounting Firm has served, at any time during the two years
immediately preceding the date of a Change in Control, as accountant or auditor
for the individual, entity or group that is involved in effecting or has any
material interest in the Change in Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations and perform the
other functions specified in this Section 5 (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Within fifteen (15)
business days of the receipt of notice from the Executive that there has been a
Payment or such earlier time as is requested by the Company, the Accounting Firm
shall make all determinations required under this Section 5, shall provide to
the Company and the Executive a written report setting forth such
determinations, together with detailed supporting calculations, and, if the
Accounting Firm determines that no Excise Tax is payable, shall deliver the
Accounting Opinion to the Executive. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to the Executive within
five (5) days of the receipt of the Accounting Firm's determination. Subject to
the remainder of this Section 5, any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been
3
<PAGE>
made by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that it is ultimately
determined in accordance with the procedures set forth in Section 5(c) that the
Executive is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive;
(3) The Executive shall notify the Company in writing of any claims
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than thirty (30) days after the Executive actually
receives notice in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid;
provided, however, that the failure of the Executive to notify the Company of
such claim (or to provide any required information with respect thereto) shall
not affect any rights granted to the Executive under this Section 5. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(1) give the Company information reasonably requested by the
Company relating to such claim; and
(2) if the Company elects not to assume and control the defense
of such claim permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including, without limitation, legal fees and other related expenses
and interest and penalties) incurred by Executive in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed and payment of costs and expenses. The Company's right
to assume the defense of and control the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority; and
(4) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 5(c)) promptly pay to the
Company the amount of such refund. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
4
<PAGE>
6. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company, or any of its subsidiaries,
affiliates and business, which shall have been obtained by the Executive
pursuant to his employment by the Company or any of its subsidiaries and
affiliates and which shall not have become public knowledge. After the
Termination Date, the Executive shall not, without the prior written consent of
the Company, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. However, in no event
shall an asserted violation of the provisions of this Section 6 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
7. Definitions. As used in this Agreement, the terms set forth below
-----------
shall have the following respective meanings:
"Accrued Obligations" shall mean (i) the Executive's salary, and (ii) any
other rights and benefits available to the Executive under employee compensation
and benefit arrangements of the Company (without duplication) in which the
Executive was a participant on the Termination Date, determined in accordance
with the applicable terms and provisions of such arrangements.
"Change in Control" shall mean any of the following:
1. The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
(excluding any of the Holders (as defined in paragraph (iv), below)
and their affiliates) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of
either (i) the then outstanding shares of capital stock of the Company
(the "Outstanding Company Capital Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Company
Voting Securities"); provided, however, that if the Holders cease to
be, in the aggregate, beneficial owners of at least 20% of both the
Outstanding Company Capital Stock and the Company Voting Securities, a
Change in Control shall mean the acquisition by any individual, entity
or group (other than any of the Holders and their affiliates) of
beneficial ownership of 30% or more of either the Outstanding Company
Capital Stock or the Company Voting Securities; provided further that
(X) any acquisition by or from the Company or any of its subsidiaries
which is recommended or approved by the Executive, (Y) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries or (Z) any
acquisition by any entity with respect to which, following such
acquisition, more than 80% of, respectively, the then outstanding
shares of capital stock of such entity and the combined voting power
of the then outstanding voting securities of such entity entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Capital Stock and Company
5
<PAGE>
Voting Securities immediately prior to such acquisition, in
substantially the same proportion as their ownership, immediately
prior to such acquisition, of the Outstanding Company Capital Stock
and Company Voting Securities, as the case may be, shall not
constitute a Change in Control;
2. A change in the composition of the Board such that
individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute a simple
majority of the Board, provided that any individual becoming a
director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by the
Executive and by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
is in connection with an actual or threatened election contest
relating to the election of the directors of the Company;
3. Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination")
with respect to which all or substantially all of the individuals and
entities who were the respective beneficial owners of the Outstanding
Company Capital Stock and Company Voting Securities immediately prior
to such Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more than 80%
of, respectively, the then outstanding shares of capital stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the entity resulting from the Business Combination, in
substantially the same proportion as their ownership immediately prior
to such Business Combination of the Outstanding Company Capital Stock
and Company Voting Securities, as the case may be; or
4. (1) A complete liquidation or dissolution of the
Company or (2) a sale or other disposition of all or substantially all
of the assets of the Company other than to an entity with respect to
which, following such sale or disposition, more than 80% of,
respectively, the then outstanding sharers of capital stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Capital Stock and Company
Voting Securities immediately prior to such sale or disposition, in
substantially the same proportion as their ownership of the
Outstanding Company Capital Stock and Company Voting Securities, as
the case may be, immediately prior to such sale or disposition.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
6
<PAGE>
"Cause" shall mean Executive's commission of an act materially and
demonstrably detrimental to the Company, which act constitutes gross negligence
or willful misconduct by Executive in the performance of his material duties to
the Company or (ii) Executive's commission of any material act of dishonesty or
breach of trust resulting or intended to result in material personal gain or
enrichment of Executive at the expense of the Company, or (iii) Executive's
conviction of a felony involving theft or moral turpitude, but specifically
excluding any conviction based entirely on vicarious liability.
"Disability" shall mean Executive's inability for a period of at least
120 consecutive days to substantially perform his duties under the Employment
Agreement, with reasonable accommodation, as evidenced by a certificate signed
either by a physician mutually acceptable to the Company and the Executive or,
if the Company and the Executive cannot agree upon a physician, by a physician
selected by agreement of a physician designated by the Company and a physician
designated by the Executive.
"Employment Agreement" shall mean that certain employment agreement
between Executive and Company dated March 23, 1999.
"Good Reason" shall mean:
5. The assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting relationships), authority,
duties or responsibilities or any other action by the Company which
results in a significant diminution in such position, authority,
duties or responsibilities, excluding any isolated, immaterial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
6. Any failure by the Company to comply with any of the
provisions of the Employment Agreement, other than an isolated,
immaterial and inadvertent failure not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive;
7. The filing of any involuntary bankruptcy petition
against the Company which is not dismissed within sixty (60) days of
the filing of the petition;
8. The revocation of any significant business license of
the Company by any state, except such a revocation which does not have
a material adverse effect on the business or prospects of the Company
taken as a whole;
9. Any criminal indictment of the Company, except for any
such indictment (A) which (1) is based upon the investigation by the
federal Securities and Exchange Commission into actions of the Company
which preceded the July 15, 1998 filing date of the bankruptcy
petition of the Company and (2) does not have a material adverse
effect on the business or prospects of the Company taken as a whole
7
<PAGE>
or (B) which is based primarily upon the Executive's own actions, but
excluding any indictment based upon an allegation of vicarious
liability on the part of the Executive, with vicarious liability
meaning liability which is based on actions of the Company for which
the Executive is alleged to be responsible solely as a result of his
offices with the Company and in which he was not directly involved and
of which he did not have prior knowledge; or
10. Termination by the Executive for any reason (or
termination because of Executive's death or Disability) within the
twenty-four (24) month period after a Change in Control.
8. No Obligation to Mitigate Damages. In no event shall the Executive be
---------------------------------
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not the Executive
obtains other employment.
9. Successors.
----------
(1) This Agreement is personal to the Executive and without the prior
written consent of the Company his rights hereunder shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's heirs, executors and other legal representatives.
(2) This Agreement shall inure to the benefit of and be binding upon
the Company and may only be assigned to a successor described in Section
9(c).
(3) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such
agreement prior to the effectiveness of any such succession shall entitle
the Executive to terminate his employment and to receive the payments
provided for in Section 2, above. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement, by operation of law or otherwise.
10. Miscellaneous.
-------------
(1) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
conflict of laws that would require the application of the laws of any other
state or jurisdiction.
(2) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors,
heirs, executors or other legal representatives.
8
<PAGE>
(3) All notices and other communications hereunder shall be in
writing and shall be given, if by the Executive to the Company, by telecopy or
facsimile transmission at the telecommunications number set forth below or, if
by either the Company or the Executive, by delivery to the other party by hand,
by reputable commercial delivery service, or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Mark E. Dapier, Esq.
445 East Deerpath
Lake Forest, Illinois 60045
If to the Company:
-----------------
MFN Financial Corporation
100 Field Drive, Suite 340
Lake Forest, Illinois 60045
Attention: President, Chief Executive Officer
or to such other address as either party shall have furnished to the other by
written notice in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(4) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(5) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(6) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof, or the failure to assert any right
the Executive or the Company may have hereunder, shall not be deemed to be
a waiver of such provision or right or any other provision or right of this
Agreement.
(7) The headings and section designations of this Agreement are
included solely for convenience of reference and shall in no event be construed
to affect or modify any provisions of this Agreement.
(8) In this Agreement where the context permits, words in any gender
shall include the other genders, words in the plural shall include the singular,
and words in the singular shall include the plural.
9
<PAGE>
(9) This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same document.
11. Post-Termination Obligations. Upon termination of Executive's
----------------------------
employment for any reason during the term of this Agreement, the rights and
obligations of the parties under the Employment Agreement shall cease and the
terms hereof shall govern such post-termination period.
12. Termination of Employment Prior to Change in Control. This Agreement
----------------------------------------------------
shall terminate if the Executive's employment with the Company and all of its
subsidiaries is terminated, either voluntarily or involuntarily, for any reason
prior to a Change in Control of the Company; provided, however, that anything in
this Agreement to the contrary notwithstanding, if a Change in Control occurs
and if the Executive's employment with the Company and all of its subsidiaries
is terminated within two hundred and seventy (270) days prior to the date on
which the Change in Control occurs, then for all purposes of this Agreement the
Change in Control shall be deemed to have occurred on the date immediately prior
to the date of such termination of employment, unless it is reasonably
demonstrated by the Company that such termination of employment was (a) for
Cause or (b) for some other specific substantial business reason unrelated to
the Change in Control.
IN WITNESS WHEREOF, the parties have executed this Agreement, all as of the
day and year first above written.
MFN FINANCIAL CORPORATION
By: _______________________________________
Its:_______________________________________
____________________________________________
"Executive"
10
<PAGE>
EXHIBIT 10I
CHANGE IN CONTROL AGREEMENT
This AGREEMENT (the "Agreement") by and between MFN Financial Corporation,
a Delaware corporation (the "Company"), and Mark D. Whitham (the "Executive"),
dated as of the 23rd day of March, 1999.
W I T N E S S E T H:
WHEREAS, the Executive is currently employed as Vice President and
Controller of the Company;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication of the Executive, despite
the possibility, threat or occurrence of a Change in Control (as defined below)
of the Company; and
WHEREAS, the Board believes that it is imperative to diminish the
inevitable distraction of the Executive which would result from the personal
uncertainties and risks created by a threatened or pending Change in Control and
to encourage the Executive's full attention and dedication to the business of
the Company currently and in the event of any threatened or pending Change in
Control and to provide the Executive with appropriate compensation and benefit
protection upon a Change in Control;
WHEREAS, the Executive desires to enter into this Agreement on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Term. This Agreement shall become effective upon the occurrence of a
----
Change in Control (as defined below) (hereinafter called the "Effective Date")
and shall remain in effect for a term continuing for twenty-four (24) months.
2. Termination of Employment. Should the Executive's employment with the
-------------------------
Company or its subsidiaries terminate for any reason (other than for (i) Cause
or (ii) voluntarily by Executive other than for Good Reason) within twenty-four
(24) months after a Change in Control of the Company (the "Termination Date"),
the Company shall cause the Executive to receive the aggregate of the following
within three (3) business days after the Termination Date:
(1) a lump sum cash amount (subject to the usual withholding taxes)
equal to (A) three times the sum of (1) the Executive's salary properly in
effect immediately prior to the Change of Control and (2) a bonus amount equal
to one hundred percent (100%) of the Executive's target bonus, if any, for the
year in which the Termination Date occurs, or, if none, such bonus amount of his
most recent annual bonus, plus (B) an amount equal to the compensation (at the
<PAGE>
Executive's salary properly in effect immediately prior to the Change of
Control) payable for unused and accrued vacation benefits determined under the
Company's vacation pay plan or program covering the Executive immediately prior
to the Change in Control;
(2) Continuation of coverage under the group health, group life,
group long-term disability and similar group insurance plans, if any, maintained
by the Company or any of its subsidiaries, with such continuation being at an
employee cost which is the same as the employee cost in effect immediately
preceding the Change in Control, until the earlier of (i) three (3) years after
Termination Date or (ii) the date on which the Executive becomes employed by a
new employer and qualifies for comparable benefits from that new employer;
provided, however, that if such continued participation is precluded by the
provisions of such plans or by applicable law, the Company shall provide the
Executive with comparable benefits of equal value; provided, further, however,
that execution of this Agreement by the Executive shall not be considered a
waiver of any rights or entitlements he may have under applicable law to
continuation of coverage under the group health plan maintained by the Company
or any of its subsidiaries;
(3) Any options or stock (or other equity-based) awards previously
granted and not yet vested as of the later of the Termination Date or date of
Change in Control shall be fully vested immediately, and all options shall
remain exercisable through the end of their original term; and
(4) All unpaid and vested compensation and benefits accrued or earned
by the Executive as of the later of the Termination Date or date of Change in
Control, including, but not limited to, all Accrued Obligations.
For purposes of this Section 2, the Executive's salary shall be determined prior
to reduction for deferred compensation, salary reduction contributions to a cash
or deferred arrangement under Section 401(k) of the Code, or to a cafeteria plan
under Section 125 of the Code, and similar items. Further, any reduction in the
Executive's salary or group insurance coverage from the Company or any of its
subsidiaries occurring within twenty-four (24) months after the Change in
Control shall be disregarded for purposes of determining the Executive's
benefits pursuant to this Section 2.
3. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify.
4. Full Settlement; Resolution of Disputes. The Company's obligation to
---------------------------------------
make payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense, mitigation or other claim, right or action which the
Company may have against the Executive or others. In the event that the
Executive is the prevailing party, or is successful to a material degree, in
pursuing or defending, whether in arbitration or litigation, any claim or
dispute relating to (a) this Agreement, or (b) the failure or refusal of the
Company to perform fully in accordance with the terms hereof, the Company shall
promptly reimburse the Executive for all reasonable costs and expenses
(including, without
2
<PAGE>
limitation, attorneys' fees) relating solely, or allocable, to such claim or
dispute, plus in each case interest on any delayed payment at the applicable
federal rate provided for in Section 7872(f)(2)(A) of the Code. In any other
case, the Executive and the Company shall each bear all their own respective
costs and attorneys' fees.
5. Certain Additional Payments by the Company.
------------------------------------------
(1) Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any payment or distribution to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments;
(2) Subject to the provisions of Section 5(c), all determinations
required to be made under this Section 5, including whether and when Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the
accounting firm then serving as independent auditors for the Company (the
"Accounting Firm"); provided, however, that the Accounting Firm shall not
determine that no Excise Tax is payable by the Executive unless it delivers to
the Executive a written opinion (the "Accounting Opinion") that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. In the
event that the Accounting Firm has served, at any time during the two years
immediately preceding the date of a Change in Control, as accountant or auditor
for the individual, entity or group that is involved in effecting or has any
material interest in the Change in Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations and perform the
other functions specified in this Section 5 (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Within fifteen (15)
business days of the receipt of notice from the Executive that there has been a
Payment or such earlier time as is requested by the Company, the Accounting Firm
shall make all determinations required under this Section 5, shall provide to
the Company and the Executive a written report setting forth such
determinations, together with detailed supporting calculations, and, if the
Accounting Firm determines that no Excise Tax is payable, shall deliver the
Accounting Opinion to the Executive. Any Gross-Up Payment, as determined
pursuant to this Section 5, shall be paid by the Company to the Executive within
five (5) days of the receipt of the Accounting Firm's determination. Subject to
the remainder of this Section 5, any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by
3
<PAGE>
the Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that it is ultimately determined in accordance with the procedures set forth in
Section 5(c) that the Executive is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive;
(3) The Executive shall notify the Company in writing of any claims
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than thirty (30) days after the Executive actually
receives notice in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid;
provided, however, that the failure of the Executive to notify the Company of
such claim (or to provide any required information with respect thereto) shall
not affect any rights granted to the Executive under this Section 5. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(1) give the Company information reasonably requested by the
Company relating to such claim; and
(2) if the Company elects not to assume and control the defense
of such claim permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including, without limitation, legal fees and other related expenses
and interest and penalties) incurred by Executive in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed and payment of costs and expenses. The Company's right
to assume the defense of and control the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority; and
(4) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 5(c)) promptly pay to the
Company the amount of such refund. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall
4
<PAGE>
not be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
6. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company, or any of its subsidiaries,
affiliates and business, which shall have been obtained by the Executive
pursuant to his employment by the Company or any of its subsidiaries and
affiliates and which shall not have become public knowledge. After the
Termination Date, the Executive shall not, without the prior written consent of
the Company, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. However, in no event
shall an asserted violation of the provisions of this Section 6 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
7. Definitions. As used in this Agreement, the terms set forth below
-----------
shall have the following respective meanings:
"Accrued Obligations" shall mean (i) the Executive's salary, and (ii) any
other rights and benefits available to the Executive under employee compensation
and benefit arrangements of the Company (without duplication) in which the
Executive was a participant on the Termination Date, determined in accordance
with the applicable terms and provisions of such arrangements.
"Change in Control" shall mean any of the following:
1. The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
(excluding any of the Holders (as defined in paragraph (iv), below)
and their affiliates) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of
either (i) the then outstanding shares of capital stock of the Company
(the "Outstanding Company Capital Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Company
Voting Securities"); provided, however, that if the Holders cease to
be, in the aggregate, beneficial owners of at least 20% of both the
Outstanding Company Capital Stock and the Company Voting Securities, a
Change in Control shall mean the acquisition by any individual, entity
or group (other than any of the Holders and their affiliates) of
beneficial ownership of 30% or more of either the Outstanding Company
Capital Stock or the Company Voting Securities; provided further that
(X) any acquisition by or from the Company or any of its subsidiaries
which is recommended or approved by the Executive, (Y) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries or (Z) any
acquisition by any entity with respect to which, following such
acquisition, more than 80% of, respectively, the then outstanding
shares of capital stock of such entity and the combined voting power
of the then outstanding voting securities of such entity entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly,
5
<PAGE>
by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company
Capital Stock and Company Voting Securities immediately prior to such
acquisition, in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the Outstanding Company
Capital Stock and Company Voting Securities, as the case may be, shall
not constitute a Change in Control;
2. A change in the composition of the Board such that
individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute a simple
majority of the Board, provided that any individual becoming a
director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by the
Executive and by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
is in connection with an actual or threatened election contest
relating to the election of the directors of the Company;
3. Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination")
with respect to which all or substantially all of the individuals and
entities who were the respective beneficial owners of the Outstanding
Company Capital Stock and Company Voting Securities immediately prior
to such Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more than 80%
of, respectively, the then outstanding shares of capital stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the entity resulting from the Business Combination, in
substantially the same proportion as their ownership immediately prior
to such Business Combination of the Outstanding Company Capital Stock
and Company Voting Securities, as the case may be; or
4. (1) A complete liquidation or dissolution of the
Company or (2) a sale or other disposition of all or substantially all
of the assets of the Company other than to an entity with respect to
which, following such sale or disposition, more than 80% of,
respectively, the then outstanding sharers of capital stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Capital Stock and Company
Voting Securities immediately prior to such sale or disposition, in
substantially the same proportion as their ownership of the
Outstanding Company Capital Stock and Company Voting Securities, as
the case may be, immediately prior to such sale or disposition.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
6
<PAGE>
"Cause" shall mean Executive's commission of an act materially and
demonstrably detrimental to the Company, which act constitutes gross negligence
or willful misconduct by Executive in the performance of his material duties to
the Company or (ii) Executive's commission of any material act of dishonesty or
breach of trust resulting or intended to result in material personal gain or
enrichment of Executive at the expense of the Company, or (iii) Executive's
conviction of a felony involving theft or moral turpitude, but specifically
excluding any conviction based entirely on vicarious liability.
"Disability" shall mean Executive's inability for a period of at least
120 consecutive days to substantially perform his duties, with reasonable
accommodation, as evidenced by a certificate signed either by a physician
mutually acceptable to the Company and the Executive or, if the Company and the
Executive cannot agree upon a physician, by a physician selected by agreement of
a physician designated by the Company and a physician designated by the
Executive.
"Good Reason" shall mean:
5. The assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting relationships), authority,
duties or responsibilities or any other action by the Company which
results in a significant diminution in such position, authority,
duties or responsibilities, excluding any isolated, immaterial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
6. The filing of any involuntary bankruptcy petition
against the Company which is not dismissed within sixty (60) days of
the filing of the petition;
7. The revocation of any significant business license of
the Company by any state, except such a revocation which does not have
a material adverse effect on the business or prospects of the Company
taken as a whole;
8. Any criminal indictment of the Company, except for any
such indictment (A) which (1) is based upon the investigation by the
federal Securities and Exchange Commission into actions of the Company
which preceded the July 15, 1998 filing date of the bankruptcy
petition of the Company and (2) does not have a material adverse
effect on the business or prospects of the Company taken as a whole or
(B) which is based primarily upon the Executive's own actions, but
excluding any indictment based upon an allegation of vicarious
liability on the part of the Executive, with vicarious liability
meaning liability which is based on actions of the Company for which
the Executive is alleged to be responsible solely as a result of his
offices with the Company and in which he was not directly involved and
of which he did not have prior knowledge; or
7
<PAGE>
9. Termination by the Executive for any reason (or
termination because of Executive's death or Disability) within the
twenty-four (24) month period after a Change in Control.
8. No Obligation to Mitigate Damages. In no event shall the Executive be
---------------------------------
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not the Executive
obtains other employment.
9. Successors.
----------
(1) This Agreement is personal to the Executive and without the prior
written consent of the Company his rights hereunder shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's heirs, executors and other legal representatives.
(2) This Agreement shall inure to the benefit of and be binding upon
the Company and may only be assigned to a successor described in Section 9(c).
(3) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such agreement prior to
the effectiveness of any such succession shall entitle the Executive to
terminate his employment and to receive the payments provided for in Section 2,
above. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement, by operation of
law or otherwise.
10. Miscellaneous.
-------------
(1) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without reference to principles of
conflict of laws that would require the application of the laws of any other
state or jurisdiction.
(2) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors,
heirs, executors or other legal representatives.
(3) All notices and other communications hereunder shall be in
writing and shall be given, if by the Executive to the Company, by telecopy or
facsimile transmission at the telecommunications number set forth below or, if
by either the Company or the Executive, by delivery to the other party by hand,
by reputable commercial delivery service, or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
8
<PAGE>
If to the Executive:
-------------------
Mark D. Whitham
W. 169 N. 4972 Heritage Court
Menomonee Falls, WI 53051
If to the Company:
-----------------
MFN Financial Corporation
100 Field Drive, Suite 340
Lake Forest, Illinois 60045
Attention: President, Chief Executive Officer
or to such other address as either party shall have furnished to the other by
written notice in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(4) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(5) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(6) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof, or the failure to assert any right the
Executive or the Company may have hereunder, shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(7) The headings and section designations of this Agreement are
included solely for convenience of reference and shall in no event be construed
to affect or modify any provisions of this Agreement.
(8) In this Agreement where the context permits, words in any gender
shall include the other genders, words in the plural shall include the singular,
and words in the singular shall include the plural.
(9) This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same document.
11. Termination of Employment Prior to Change in Control. This Agreement
----------------------------------------------------
shall terminate if the Executive's employment with the Company and all of its
subsidiaries is
9
<PAGE>
terminated, either voluntarily or involuntarily, for any reason prior to a
Change in Control of the Company; provided, however, that anything in this
Agreement to the contrary notwithstanding, if a Change in Control occurs and if
the Executive's employment with the Company and all of its subsidiaries is
terminated within two hundred and seventy (270) days prior to the date on which
the Change in Control occurs, then for all purposes of this Agreement the Change
in Control shall be deemed to have occurred on the date immediately prior to the
date of such termination of employment, unless it is reasonably demonstrated by
the Company that such termination of employment was (a) for Cause or (b) for
some other specific substantial business reason unrelated to the Change in
Control.
IN WITNESS WHEREOF, the parties have executed this Agreement, all as of the
day and year first above written.
MFN FINANCIAL CORPORATION
By: ____________________________________
Its: ____________________________________
_________________________________________
"Executive"
10
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