FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from __________ to __________
Commission file number 33-75594
MERIDIAN FINANCIAL CORPORATION
(Name of small business issuer in its charter)
Indiana 35-1894846
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9265 Counselor's Row, Suite 106
Indianapolis, Indiana 46240-6402
(Address of principal executive offices)
(317) 814-2000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of common shares, without par value, outstanding at January 30, 1998:
1,081.63
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
MERIDIAN FINANCIAL CORPORATION
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets at December 31, 1997 and
September 30, 1997 3
Condensed Statements of Operations for the three
months ended December 31, 1997 and 1996 4
4
Condensed Statements of Cash Flows for the three months
ended December 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities 11
Item 6. Exhibits and Reports on Form 8-K 11
Index to Exhibits 13
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
MERIDIAN FINANCIAL CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
ASSETS
<S>
Finance receivables, net: <C> <C>
Net investment in direct financing leases $ 12,535,173 $ 9,552,098
Loan held for sale 1,714,745 1,317,707
Total finance receivables 14,249,918 10,869,805
Cash 1,255,559 627,098
Cash held in origination account 3,776 3,658
Debt service reserve funds 106,667 112,467
Debt issue costs, net 673,020 694,381
Other assets 392,556 392,627
Total assets $ 16,681,496 $ 12,700,036
LIABILITIES AND
SHAREHOLDERS' EQUITY
Bonds payable $ 5,263,850 $ 5,472,283
Bank borrowings-warehouse line 1,140,000 1,629,000
Bank borrowings-term loan 4,769,800 -
Subordinated debt 3,624,384 3,536,164
Accounts payable and accrued expenses 209,547 290,776
Total liabilities 15,007,581 10,928,223
SHAREHOLDERS' EQUITY:
Preferred stock 3,203,060 3,203,060
Common stock 241,866 68,533
Note receivable, common stock (173,333) -
Accumulated deficit (1,597,678) (1,499,780)
Total shareholders' equity 1,673,915 1,771,813
Total liabilities and shareholders' equity $ 16,681,496 $12,700,036
The accompanying notes are an integral part of these condensed financial statements.
3
</TABLE>
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<TABLE>
<CAPTION>
MERIDIAN FINANCIAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
<S> <C> <C>
Interest and fee income $500,186 $ 292,146
Interest expense 373,631 218,070
Net interest income 126,555 74,076
Provision for credit losses 49,024 -
Net interest income after provision
for credit losses 77,531 74,076
Other income:
Gains from brokerage activities 26,280 5,194
General and administrative expenses:
Salaries and employee benefits 136,412 87,960
Other 55,297 59,166
191,709 147,126
Net loss (87,898) (67,856)
Preferred stock dividends 10,000 40,000
Loss to common shareholders $ (97,898) $(107,856)
Loss per common share and loss per
common share assuming dilution $ (96.70) $ (107.86)
Weighted average common shares
outstanding 1,012.42 1,000.00
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN FINANCIAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (87,898) $ (67,856)
Adjustments to reconcile net earnings (loss)
to net cash from operating activities-
Depreciation and amortization 100,153 80,190
Capitalization of subordinated debt 88,220 -
interest
Provision for credit losses 49,024 -
Additions to loan held for sale (397,038) -
Decrease in other assets 14,265 6,409
Increase (decrease) in accounts payable
and accrued expenses (66,229) 3,119
Net cash provided by (used in) operating (299,503) 21,862
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to direct financing leases (3,831,954) (1,018,909)
Principal payments received on direct
financing leases and loans receivable 778,249 363,600
Other (21,380) -
Net cash provided by (used in) investing
activities (3,075,085) (655,309)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on bonds payable (208,433) (170,086)
Proceeds from bank borrowings 4,417,000 880,730
Principal payments on bank borrowings (136,200) (120,006)
Decrease in cash held in debt service
reserves and origination accounts 5,682 33,157
Financing costs paid (65,000) -
Preferred stock dividends (10,000) (40,000)
Net cash provided by financing activities 4,003,049 583,795
NET CHANGE IN CASH 628,461 (49,652)
CASH, at beginning of period 627,098 115,744
CASH, at end of period $1,255,559 $ 66,092
The accompanying notes are an integral part of these condensed financial statements.
5
</TABLE>
<PAGE>
MERIDIAN FINANCIAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
1. GENERAL:
THE FINANCIAL INFORMATION INCLUDED HEREIN WAS PREPARED IN CONFORMITY WITH
GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, AND SUCH PRINCIPLES WERE APPLIED ON A BASIS
CONSISTENT
WITH THOSE REFLECTED IN THE ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
SEPTEMBER 30, 1997.
THE INFORMATION FURNISHED INCLUDES ALL ADJUSTMENTS AND ACCRUALS WHICH ARE, IN
THE
OPINION OF MANAGEMENT, NECESSARY FOR A FAIR PRESENTATION OF RESULTS FOR THE
INTERIM PERIODS.
RESULTS FOR ANY INTERIM PERIOD MAY NOT BE INDICATIVE OF THE RESULTS FOR THE
ENTIRE YEAR.
THE DISCLOSURES IN THE NOTES PRESUME THAT THE USERS OF THE INTERIM FINANCIAL
INFORMATION
HAVE READ OR HAVE ACCESS TO THE AUDITED FINANCIAL STATEMENTS INCLUDED IN THE
ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED SEPTEMBER 30, 1997.
2. FINANCE RECEIVABLES:
THE COMPONENTS OF THE COMPANY'S NET INVESTMENT IN DIRECT FINANCING LEASES ARE
AS FOLLOWS:
DECEMBER 31, SEPTEMBER 30,
1997 1997
MINIMUM LEASE PAYMENTS TO $ 16,994,715 $ 12,995,061
BE RECEIVED
LESS - UNEARNED INCOME (4,353,144) (3,385,589)
LESS - ALLOWANCE FOR (106,398) (57,374)
CREDIT LOSSES
NET INVESTMENT IN DIRECT $ 12,535,173 $ 9,552,098
FINANCING LEASES
THE COMPANY HAD LEASES WITH A NET INVESTMENT BALANCE OF APPROXIMATELY $1.6
MILLION AT
DECEMBER 31, 1997, WHICH WERE NOT PERFORMING IN ACCORDANCE WITH THEIR
CONTRACTUAL TERMS.
BASED ON THE COMPANY'S COLLATERAL POSITION, MANAGEMENT EXPECTS NO LOSSES ON
THESE
BALANCES.
3. BONDS PAYABLE:
AT DECEMBER 31, 1997, BONDS PAYABLE CONSIST OF TWO SERIES OF BONDS, BEARING
INTEREST
AT RATES OF EITHER 9% OR 10% ($2,387,719 AT 9% AND $2,876,131 AT 10%)
COLLATERALIZED BY
EQUIPMENT PURCHASED AND LEASES ORIGINATED FROM PROCEEDS OF THE OFFERINGS, CASH
HELD IN
THE ORIGINATION ACCOUNT, AND BY DEBT SERVICE RESERVE FUNDS HELD BY A TRUSTEE.
THE TWO
SERIES ARE NOT CROSS-COLLATERALIZED, BUT ARE CROSS-DEFAULTED. QUARTERLY
PRINCIPAL PAYMENTS
ARE REQUIRED FROM THE PRINCIPAL PORTIONS OF THE RELATED LEASE PAYMENTS RECEIVED
BY THE
COMPANY. BASED ON THE LEASES IN PLACE AS OF DECEMBER 31, 1997, QUARTERLY
PRINCIPAL
PAYMENTS FOR THE NEXT TWELVE MONTHS ARE EXPECTED TO TOTAL APPROXIMATELY
$1,082,000.
6
<PAGE>
MERIDIAN FINANCIAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
4. BANK CREDIT FACILITY:
DURING THE QUARTER ENDED DECEMBER 31, 1997, THE COMPANY CONVERTED $4,906,000
FROM ITS
INITIAL WAREHOUSE LINE INTO ITS INITIAL TERM LOAN. THE COMPANY UTILIZED THE
LIBOR RATE OPTION,
AND ENTERED INTO A LIBOR INTEREST RATE SWAP WITH THE BANK TO EFFECTIVELY FIX
THE INTEREST RATE
RELATED TO THIS TERM LOAN. THE TERM LOAN REQUIRES MONTHLY PAYMENTS OF
PRINCIPAL TOTALING
$89,200 PLUS INTEREST.
AS A RESULT OF THE ABOVE CONVERSION, THE COMPANY ALSO BEGAN BORROWING ON ITS
SECOND
$5 MILLION WAREHOUSE LINE. AS OF DECEMBER 31, 1997, THE COMPANY HAD BORROWED
$1,140,000 ON THIS CREDIT LINE.
5. EARNINGS PER SHARE:
EARNINGS (LOSS) PER COMMON SHARE AND EARNINGS (LOSS) PER COMMON SHARE ASSUMING
DILUTION ARE COMPUTED UNDER A NEW ACCOUNTING STANDARD EFFECTIVE IN THIS QUARTER
ENDED
DECEMBER 31, 1997. ALL PRIOR AMOUNTS HAVE BEEN RESTATED TO BE COMPARABLE.
EARNINGS
(LOSS) PER COMMON SHARE IS BASED ON NET INCOME (LOSS) AFTER PREFERRED
DIVIDENDS, DIVIDED BY
THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. EARNINGS
(LOSS) PER
COMMON SHARE ASSUMING DILUTION SHOWS THE DILUTIVE EFFECT, IF ANY, OF ADDITIONAL
COMMON
SHARES ISSUABLE UNDER CONVERTIBLE SECURITIES.
THE COMPANY HAS PREVIOUSLY ISSUED 3,000 SHARES OF SERIES C CONVERTIBLE
PREFERRED STOCK.
THESE SHARES OF PREFERRED STOCK ARE CURRENTLY CONVERTIBLE INTO 3,000 SHARES OF
THE COMPANY'S
COMMON STOCK, BUT HAVE BEEN EXCLUDED FROM THE COMPUTATION OF EARNINGS PER
COMMON
SHARE ASSUMING DILUTION BECAUSE THEY WERE ANTIDILUTIVE FOR THE THREE MONTHS
ENDED
DECEMBER 31, 1997.
6. NOTE RECEIVABLE, COMMON STOCK:
IN DECEMBER, 1997, THE COMPANY ISSUED 81.63 SHARES OF ITS COMMON STOCK TO A
DIRECTOR
OF THE COMPANY, PURSUANT TO THE TERMS OF A CONSULTING AGREEMENT. THE PURCHASE
PRICE
FOR THE SHARES OF COMMON STOCK WAS $173,333, AND IS EVIDENCED BY A NOTE
RECEIVABLE TO
THE COMPANY, BEARING INTEREST AT 6.5% PER ANNUM.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview:
The profitability of the Company depends largely on the Company's ability to
enter into suitable leases, to realize an adequate spread between the interest
rate paid by the Company on its borrowings and the implicit interest rate
charged on the leases, and to avoid defaults by the lessees. The closing of
two financing transactions during the year ended September 30, 1997 allows the
Company access to significant amounts of capital which previously had not been
available. Accordingly, the Company has been able to grow the its portfolio at
a much faster rate than in prior years, while maintaining a debt-to-equity
ratio that is below industry average.
Liquidity and Capital Resources:
During the fiscal year ended September 30, 1997, the Company entered into a $10
million Credit Agreement with LaSalle National Bank, which consists of two $5
million warehouse lines which convert to term loans. During the quarter ended
December 31, 1997, the Company converted its initial warehouse line, with a
balance of $4,906,000, into a term loan. The Company selected the LIBOR rate
option, and entered into a LIBOR interest rate swap to effectively fix the
interest rate related to this term loan.
As of December 31, 1997, the Company had borrowed approximately $1.1 million on
its second $5 million warehouse line.
The Company intends to continue to expand its lease portfolio during fiscal
year 1998 at a growth rate greater than that experienced in fiscal year 1997.
In order to do so, the Company will need additional sources of financing
beginning in the summer of 1998. If no new or expanded credit facilities or
other funding sources are obtained, the Company's cash flow from its existing
lease portfolio would permit only limited growth; however, the Company believes
it will be successful in establishing one or more new or expanded funding
sources by the summer of 1998.
During the quarter ended December 31, 1997, the Company sold two leases to a
third party on a non-recourse basis as part of its brokerage activity. Total
proceeds were $502,000, and the transaction resulted in a gain of approximately
$26,000. The Company expects this type of brokerage activity to continue in
the future.
Management believes that its overall sources of liquidity will continue to be
sufficient to satisfy the foreseeable financial obligations of the Company.
Management of the Company knows of no material requirements for capital
expenditures other than to enter into leases.
Analysis of Cash Flows:
Net cash flows from operating activities result primarily from net earnings or
losses, adjusted for non-cash items such as depreciation and amortization of
assets and from changes in working capital. The Company experienced a net cash
outflow from operations of $299,503 for the three months ended December 31,
1997, compared to a net cash inflow of $21,862 for the three months ended
December 31, 1996. The primary component of cash outflow from operations was
the continued funding of a loan held for sale, which amounted to $397,038
during the current quarter. The sale of this loan in the future will result in
a cash inflow from operations. Excluding
the outflow from the loan held for sale, the most significant contributor to
operating cash flow is the
8
net earnings before non-cash charges for depreciation and amortization,
capitalization of interest on subordinated debt and provisions for credit
losses. Net earnings before these non-cash charges were $149,499 in 1997
compared to $12,334 in 1996. This increase in income before non-cash charges,
totaling $137,165, benefited from the increase in net interest income for the
period of $52,479, and the continued capitalization of interest on the
Company's subordinated debt as required in the agreement with the subordinated
debt holders.
8
<PAGE>
Net cash flows used in investing activities consist primarily of investments in
leases, which is the Company's primary requirement for cash, and principal
payments received from lessees, which is currently the Company's principal
source of cash. During the three months ended December 31, 1997, the Company
invested $3,831,954 in twenty-two leases, compared to $1,018,909 in ten leases
for the same period in 1996, which reflects the Company's accelerated growth
rate. Principal payments received on leases and loans receivable totaled
$778,249 for the three months ended December 31, 1997 compared to $363,600 for
the same period in 1996. Principal payments received include approximately
$477,000 and $145,000 from brokerage activity in the 1997 and 1996 periods,
respectively. Investments in leases and principal payments received on leases
are expected to continue to grow in future periods.
Cash inflows from financing activities historically have consisted of bank
borrowings and proceeds from the sale of equity and debt securities. In the
quarter ended December 31, 1997, the Company's only significant source of cash
inflows from financing activities was bank borrowings. Cash outflows consist
of costs incurred in the sale of the securities, principal payments on
borrowings and debt securities, and preferred stock dividends. During the three
months ended December 31, 1997, the Company received proceeds from bank
borrowings of $4,417,000 from its credit lines, a substantial increase from the
$880,730 under its previous borrowing arrangements during the 1996 period. The
Company also paid $65,000 during the three months ended December 31, 1997 for
costs related to its previously completed financing transactions. Preferred
dividends for the three months ended December 31, 1997 were $10,000, which is
less than the $40,000 paid in the 1996 period due to the redemption of the
Company's Series B Preferred Stock in March, 1997. Management anticipates that
the Company's primary cash inflows from financing activities in the future will
be from bank borrowings, and that the amount of borrowings will continue to
grow as the Company's growth in leasing transactions continues.
Results of Operations:
For the three months ended December 31, 1997, the Company reflected an
operating loss, before preferred dividend requirements, of $87,898 compared to
a loss for the same period in 1996 of $67,856. Gains from brokerage activities
were $26,280 in the 1997 period compared to $5,194 in the 1996 period.
Brokerage gains will fluctuate from period to period, however the Company
expects these gains to increase in the future.
Interest and fee income from for the three months ended December 31, 1997 was
$500,186 and interest expense was $373,631 in the same period, or a net
interest spread, before a provision for credit losses, of $126,555, compared to
$292,146 of interest income, $218,070 of interest expense, and a net interest
spread of $74,076 in the comparable period in 1996. The 1997 figures reflect
the increased leasing activity resulting from the Company's financing
transactions, which were consummated in March and April of 1997. In future
periods, management expects the interest spread to increase as the Company
continues to invest in new leases, and continues to realize the benefits from
its 1997 financing arrangements which should lower the Company's overall cost
of funds.
9
<PAGE>
The Company has continued to add to its general reserve for losses on finance
receivables based on the volume of new lease production. During the three
months ended December 31, 1997, the Company added approximately $49,000 to the
reserve, resulting in a reserve balance of approximately $106,000. There have
been no chargeoffs against this reserve to date.
General and administrative expenses increased approximately $45,000 during the
three months ended December 31, 1997 compared to the same period in 1996,
primarily due to an increase in payroll related costs, as the number of
employees has increased from five to seven from the 1996 period to 1997 to
handle the increase in leasing activity.
The Company is already experiencing, and expects to continue to experience, a
significant increase in the amount of funded lease transactions. However, with
its management team in place, general and administrative costs going forward
should be relatively fixed, with the exception of a limited number of personnel
additions required by anticipated growth in the Company's lease portfolio.
Therefore, the interest spread on finance receivables is expected to grow at a
much faster pace than general and administrative expenses.
Impact of Interest Rate Changes and the Restaurant Industry:
The Company markets and funds fixed rate leases, and has attempted to raise
funds for investment in new leases at fixed interest rates, and similar
duration, thus virtually eliminating interest rate risk. This was accomplished
in prior years through the issuance of five-year fixed rate bonds. The
Company's more recent funding sources also allow the Company to manage exposure
to interest rate risk. The Subordinated Notes issued in March and September of
1997, bear interest at a fixed rate of 10%. With the use of swaps in
conjunction with the term loans in the new bank credit facility, the Company
expects to be able to virtually fix the rate of interest on the term loans.
The warehouse lines which the Company is utilizing carry a variable rate of
interest, but have a duration of only six months. While a dramatic rise in
future interest rates would not have a direct impact on leases booked to date,
it may have an impact on the restaurant industry's growth rate. A rising
interest rate environment may also impact the Company's future gains on
brokerage activities.
In the last ten years, the franchise restaurant industry has experienced rapid
growth and the number of franchise units continues to grow. As some concepts
begin to reach a mature stage, and it becomes increasingly more difficult to
sustain a high level of growth in sales, the market is experiencing a
significant increase in the number of new concepts emerging. Since the
Company's target market is the smaller chains (from 100 to 500 units), this
increase in new concepts should provide the Company with an increase in
prospective lease deals. In addition, as large metropolitan areas in some
geographic areas begin to reach saturation points from the standpoint of
restaurant locations, the Company is seeing more prospective lease deals in
more rural locations, which would tend to be the smaller type franchisee that
the Company targets.
Inflation has not had a material effect on the Company's operations.
10
<PAGE>
Credit Risk:
The Company's net investment balance at December 31, 1997 in assets which are
not performing in accordance with their contractual terms is approximately $1.6
million. Management of the Company has reviewed its collateral position on
these credits and has consulted with legal counsel. Based on this review and
consultation, management believes that the Company is adequately secured and
will recover all amounts presently owed, including interest and legal and
professional fees. Management of the Company is actively pursuing the
resolution of these finance receivables, and expects that all of the non-
performing leases will either be repaid or brought current in accordance with
their contractual provisions.
Forward-looking Statements:
The statements contained in this filing on Form 10-QSB that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. Actual results may differ materially from
those included in the forward-looking statements. These forward-looking
statements involve risks and uncertainties including, but not limited to, the
following: changes in general economic conditions, including changes in
interest rates and spending on food prepared outside the home; competitive or
regulatory changes that affect the cost of or demand for the Company's lease
product; and the availability of funds or third-party financing sources to
allow the Company to purchase equipment and enter into new leases. The
Company's future results also could be adversely affected if it is unable to
resolve the current non-performing leases in its portfolio without significant
loss. Readers are also directed to other risks and uncertainties discussed in
other documents filed by the Company with the Securities and Exchange
Commission.
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
In December, 1997, the Company issued 81.63 shares of its common stock to
Salvatore F. Mulia, a director of the Company, pursuant to the terms of a
consulting agreement between Mr. Mulia and the Company. The purchase price for
the shares of common stock was $173,333 to be payable by Mr. Mulia pursuant to
the terms of the consulting agreement. The common stock was issued pursuant to
the registration exemption contained in Section 4(2) of the Securities Act of
1933.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the Index to Exhibits appearing on
page 13 are filed herewith.
(b) No reports on Form 8-K dated were filed by the Registrant
during the quarter ended December 31, 1997.
11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MERIDIAN FINANCIAL CORPORATION
By: /s/ Michael F. McCoy
Michael F. McCoy
President
By: /s/ Gerald W. Gerichs
Gerald W. Gerichs
Vice President, Secretary
and Treasurer
(Principal Financial Officer)
Date: February 12, 1998
12
<PAGE>
Index to Exhibits
Page
No.
Exhibit No. Description In this Filing
10-Z (1) Agreement, dated March 28, 1997, between the Company
and RTM Financial Services, Inc.
27 (1) Financial Data Schedule
(1) Filed with this report on Form 10-QSB
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000917214
<NAME> MERIDIAN FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,366,002
<SECURITIES> 0
<RECEIVABLES> 14,249,918
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,681,496
<CURRENT-LIABILITIES> 0
<BONDS> 5,263,850
0
3,203,060
<COMMON> (1,529,145)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,681,496
<SALES> 0
<TOTAL-REVENUES> 526,466
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 191,709
<LOSS-PROVISION> 49,024
<INTEREST-EXPENSE> 373,631
<INCOME-PRETAX> (87,898)
<INCOME-TAX> 0
<INCOME-CONTINUING> (87,898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97,898)
<EPS-PRIMARY> (96.70)
<EPS-DILUTED> (96.70)
</TABLE>
MERIDIAN FINANCIAL CORPORATION
8250 Haverstick Road
Suite 110
Indianapolis, IN 46204
March 28, 1997
RTM Financial Services, Inc.
253 Post Road West
Westport, CT 06880
Attn.: Salvatore F. Mulia
Dear Mr. Mulia:
This letter agreement (this "Agreement") sets forth the terms of the
business relationship agreed upon between RTM Financial Services, Inc. ("RTM")
and Meridian Financial Corporation (the "Company").
1. The Company hereby retains RTM, and RTM agrees to be retained by the
Company, to provide services to the Company, on the terms set forth herein, for
a term (the "Term") commencing on the date hereof and ending on the earlier of
the occurrence of a Liquidity Event (as defined in the Executive Share
Agreement, defined in Paragraph 6 hereof) or the termination of this Agreement
pursuant to Paragraph 8 hereof. RTM agrees to cause all services hereunder to
be provided by Salvatore F. Mulia (the "Designated Consultant"). During the
Term, RTM agrees to cause the Designated Consultant to devote approximately 50%
of his business time and effort (but in no event less than approximately 20
hours per week on average over the Term) (i) to assist the Company in
originating leases of restaurant equipment and, to a lesser extent, leases of
other types of equipment, real estate mortgages and other financing
transactions (each a "Financing Transaction") and arranging for the sale of
Financing Transactions by the Company to third parties ("Sale Transactions")
("Transaction Services"), (ii) to assist the Company in obtaining long-term
debt financing to fund Financing Transactions ("Funding Arrangements")
("Funding Services") and (iii) to provide consulting services relating to
strategic planning and other matters as defined from time to time by the Board
of Directors of the Company (the "Board of Directors") ("Consulting Services").
RTM further agrees that during the Term, it will devote its best efforts (and
will cause the Designated Consultant to devote his best efforts) to the
fulfillment of RTM's obligations under this Agreement and do nothing (and cause
the Designated Consultant to do nothing) which either RTM or the Designated
Consultant knows or should know will harm, in any way, the business or
reputation of the Company. RTM and the Designated Consultant shall be free to
engage in other business activities to the extent that such activities do not
adversely affect the performance of, and are not inconsistent with, RTM's
duties to the Company under this Agreement and are not in competition with the
business of the Company. Notwithstanding anything in this Agreement to the
contrary, neither RTM nor the Designated Consultant shall have any authority to
bind the Company with respect to any Sale Transaction or the origination of any
Financing Transaction and the Company shall have no obligation to effect any
Sale Transaction or the origination of any Financing Transaction, nor any
liability to RTM or the Designated Consultant for Commissions (as defined in
Paragraph 2 hereof) or otherwise for any failure to effect any Sale Transaction
or the origination of any Financing Transaction.
2. As compensation for RTM's services under this Agreement: (a) the
Company will (i) pay to RTM (x) a fee of $3,750 per calendar month for
Consulting Services (the "Consulting Fee"), payable in advance on the first day
of each calendar month during the Term, and (y) commissions pursuant to
Paragraph 3 hereof in connection with Sale Transactions ("Sales Commissions"),
subject to the provisions of Paragraph 7 hereof, (z) commissions pursuant to
Paragraph 3 hereof in connection with Funding Arrangements ("Funding
Commissions"; together with Sales Commissions, "Commissions"), subject to the
provisions of Paragraph 7 hereof, and (ii) issue to RTM common shares of the
Company ("Common Shares") pursuant to Paragraph 5 hereof, subject to the
conditions set forth in Paragraph 5 hereof; (b) the Purchasers (as defined in
Paragraph 6 hereof) and Michael F. McCoy ("McCoy") will cause Executive Shares
(as defined in the Executive Share Agreement) to be delivered to RTM, subject
to the conditions set forth in Paragraph 6 hereof; and (c) RTM shall be
entitled to purchase the RTM Shares (as defined in Paragraph 4 hereof), subject
to the terms of Paragraph 4 hereof. In addition to the Consulting Fee, the
Company shall pay to RTM $3,750 on the first day of each calendar month during
the Term as an advance against Commissions ("Commission Advances") and shall
reimburse RTM for its out-of-pocket expenses incurred in the performance of its
duties hereunder upon submission of appropriate invoices and vouchers in
accordance with the Company's policies in effect from time to time.
3. (a) Upon the consummation by the Company of a Sale Transaction
during the Term in which the purchaser was introduced to the Company by RTM or,
as provided in Paragraph 3(d), upon the consummation by the Company of a Sale
Transaction after the Term, RTM shall be entitled to a Sales Commission
(payable in accordance with Paragraph 7) as follows:
(ii) if the gross proceeds to the Company from such Sale
Transaction (the "Sale Proceeds") are less than $1,000,000 or if such Sale
Transaction involves a Financing Transaction for restaurant equipment
entered into in the ordinary course of the Company's business (whether or
not the Sale Proceeds are less than $1,000,000), RTM shall be entitled to
a Sales Commission in an amount equal to 1.5% of the Sale Proceeds;
(iii) if the Sale Proceeds are $1,000,000 or more and such Sale
Transaction does not involve a Financing Transaction for restaurant
equipment entered into in the ordinary course of the Company's business,
RTM shall be entitled to a Sales Commission in an amount determined as
follows: (x) if the difference between the Sale Proceeds and the Company
Financing Transaction Basis (as defined below) (the "Spread") is $80,000
or less, RTM shall be entitled to a Sales Commission in an amount equal
to 50% of the Spread; (y) if the Spread is greater than $80,000, but less
than $100,000, RTM shall be entitled to a Sales Commission in an amount
equal to $40,000; and (z) if the Spread is $100,000 or more, RTM shall be
entitled to a Sales Commission in an amount equal to 40% of the Spread.
"Company Financing Transaction Basis", with respect to any Sale
Transaction, means the book value of the Financing Transaction sold
pursuant to such Sale Transaction, as reflected on the books of the
Company in accordance with industry practice.
(b) If any Sale Transaction involves the sale of more than one
Financing Transaction (e.g., multiple leases, whether or not related, bundled
for sale as a group), each Financing Transaction shall be considered as a
separate Sale Transaction for purposes of determining the amount of Sales
Commission payable pursuant to Paragraph 3(a).
(c) Upon the consummation by the Company of a Funding Arrangement
(including the satisfaction of all conditions to funding thereunder) during the
Term in which the funding party was introduced to the Company by RTM or, as
provided in Paragraph 3(d), upon the consummation by the Company of a Funding
Arrangement after the Term, RTM shall be entitled to a Funding Commission equal
to 1% of the initial maximum aggregate amount available to the Company under
the terms of such Funding Arrangement.
(d) This Agreement contemplates that RTM will, among other things,
assist in (i) arranging Sale Transactions by introducing the Company to
purchasers who are expected to buy Financing Transactions ("Transaction
Purchasers") and (ii) arranging Funding Arrangements by introducing the Company
to parties who are expected to provide Funding Arrangements ("Funding
Sources"). If RTM has introduced the Company to a Transaction Purchaser during
the Term and the Company consummates a Sale Transaction with such Transaction
Purchaser during the Term or within six (6) months following termination of
this Agreement, then RTM will be entitled to a Sales Commission with respect to
such Sale Transaction, calculated in accordance with Paragraph 3(a), payable at
the time the Company receives the Sale Proceeds from such Sale Transaction,
provided that the Company held material discussions with such Transaction
Purchaser during the Term regarding Sale Transactions. If RTM has introduced
the Company to a Funding Source during the Term and the Company consummates a
Funding Arrangement with such Funding Source during the Term or within twelve
(12) months following termination of this Agreement, then RTM will be entitled
to a Funding Commission with respect to such Funding Arrangement, calculated in
accordance with Paragraph 3(c), payable at the closing for such Funding
Arrangement.
(e) The basis for computing Commissions shall be reviewed by the
Company and RTM on or about April 1, 1998, and, if the Company and RTM mutually
determine that adjustments are appropriate, the basis for computing Commissions
shall be amended in writing at such time as mutually determined.
4. (a) The Company shall issue to RTM, within 15 days after the
execution of this Agreement by RTM, 81.63 Common Shares (the "RTM Shares")
upon receipt from RTM of such certificates or other instruments as the Company
may reasonably request to comply with federal and state securities laws. RTM
shall be solely responsible for any taxes payable as a result of the issuance
of the RTM Shares. As consideration for the RTM Shares, RTM hereby agrees to
pay the Company in accordance with this Paragraph 4 an amount equal to
$173,333.33 (the "RTM Share Amount"), together with interest on the aggregate
unpaid balance of the RTM Share Amount from time to time outstanding at a
compounding annual rate equal to 6.50%.
(b) During the Term, the RTM Share Amount, together with accrued
and unpaid interest thereon, shall be payable solely by application, in
accordance with Paragraph 7 hereof, of Commissions otherwise payable to RTM
hereunder. Upon expiration of the Term, the entire unpaid balance of the RTM
Share Amount, together with all accrued and unpaid interest thereon, shall be
immediately due and payable; provided, however, that if the Term expires as a
result of a termination of this Agreement by the Company for Cause (as defined
in Paragraph 8 hereof) or due to the voluntary termination of this Agreement by
RTM, then the Company shall have the option of applying the unpaid balance of
the RTM Share Amount, together with all accrued and unpaid interest thereon, to
the purchase by the Company of RTM Shares as provided in Paragraph 4(d) hereof.
(c) RTM shall have the right to prepay the RTM Share Amount at any
time, without penalty of any kind. Prepayments shall be applied first to
accrued or unpaid interest on the RTM Share Amount and then to the unpaid
principal balance of the RTM Share Amount.
(d) In the event that (i) this Agreement is terminated by the
Company for Cause or as a result of the voluntary termination of this Agreement
by RTM or (ii) RTM shall default in the payment of any portion of the RTM Share
Amount (or accrued or unpaid interest thereon) when due and payable hereunder,
and such default shall continue unremedied for a period of 30 days (a "Payment
Default"), then the Company shall have the right, exercisable by written notice
delivered to RTM not later than 30 days following the date of such termination
or the expiration of the grace period with respect to such default, to purchase
from RTM (and, if the Company exercises such right, RTM agrees to sell to the
Company, free and clear of all liens and claims of any kind) a number of RTM
Shares (including, for purposes of this Paragraph 4, any shares issued in
respect of RTM Shares as a result of an Adjustment Event (as defined in
Paragraph 5 hereof)) equal to the lesser of (x) the number of RTM Shares and
(y) the number of RTM Shares multiplied by a fraction (A) the numerator of
which shall equal the sum of (1) the outstanding RTM Share Amount and all
accrued and unpaid interest thereon as of the date of such termination or the
expiration of the grace period with respect to such default and (2) the
aggregate amount of Commission Advances that have not been repaid pursuant to
Paragraph 7 as of the date of such termination or the expiration of the grace
period with respect to such default (or, if less, such portion of such
Commission Advances that would not cause the numerator to exceed $173,333.33)
("Applied Commissions") and (B) the denominator of which shall equal
$173,333.33. In full payment for the purchase by the Company of the RTM Shares
pursuant to this Paragraph 4(d), the entire unpaid balance of the RTM Share
Amount, together with all accrued and unpaid interest thereon, shall be
canceled and the aggregate amount of outstanding Commission Advances shall be
reduced by the amount of Applied Commissions.
(e) Prior to the occurrence of the later of a Liquidity Event or
payment in full of the RTM Share Amount together with all accrued and unpaid
interest thereon, the RTM Shares may be transferred, pledged or encumbered
only with the prior written consent of the Board of Directors, which consent
may be granted or withheld in the sole discretion of the Board of Directors
and, if granted, may be subject to whatever conditions the Board of Directors
may reasonably impose.
(f) In connection with the purchase of the RTM Shares, RTM hereby
represents and warrants to, and agrees with, the Company as follows:
(i) RTM is acquiring the RTM Shares for its own account as
principal for investment and not with a view to or for resale or
distribution thereof, and RTM has no present intention of distributing or
selling to any other person any of the RTM Shares.
(ii) RTM will not sell, transfer or otherwise dispose of all or any
part of the RTM Shares without either (i) delivering to the Company an
unqualified opinion of counsel addressed to the Company that the transfer
or any offering in connection therewith is not required to be registered
under either the Securities Act of 1933, as amended, or any applicable
state securities laws, or (ii) making such sale, transfer or other
disposition pursuant to an effective registration statement under such act
and laws.
(iii) RTM acknowledges that the Designated Consultant is a director
of the Company and is familiar with the business and affairs of the
Company. RTM has had an opportunity to make inquiries concerning the
Company and all matters relevant to an investment in the RTM Shares.
(iv) RTM is aware that the RTM Shares are being purchased in a
private offering and that there is no market for resale thereof. Thus,
RTM may not be able to sell or dispose of the RTM Shares. RTM understands
that its right to transfer, pledge or encumber the RTM Shares will be
restricted under federal and applicable state securities laws (and any
certificates representing the RTM Shares will bear a legend restricting
such transfer) and that such laws impose strict restrictions on such
transfer. RTM further understands that transfer, pledge or encumbrance of
the RTM Shares will also be restricted under the terms of this Agreement.
(v) RTM's place of business is located in the State of Connecticut.
5. If a Liquidity Event occurs prior to March 31, 2007 and the
valuation of the Company Equity in such Liquidity Event shall exceed the
Valuation Target, then, immediately prior to such Liquidity Event, the Company
shall issue to RTM a number of Common Shares, appropriately adjusted in the
event of an Adjustment Event (the "Liquidity Event Shares"), equal to 41.23
multiplied by the Liquidity Shares Vested Percentage. "Company Equity" in such
Liquidity Event means the Company's equity, including, without limitation,
common stock and preferred stock, additional-paid-in-capital and retained
earnings, but excluding debt (whether senior or subordinated) and other
obligations of the Company, whether or not such debt or other obligations are
convertible into equity. RTM shall be solely responsible for any taxes payable
as a result of the issuance of the Liquidity Event Shares. The Company shall
have no obligation to issue the Liquidity Event Shares if a Liquidity Event
does not occur prior to March 31, 2007. As used in this Agreement: (a)
"Adjustment Event" means (i) any subdivision (by any stock split, stock
dividend or otherwise) of outstanding Common Shares into a greater number of
shares, (ii) any combination (by any reverse stock split or otherwise) of
outstanding Common Shares into a smaller number of shares or (iii) any
recapitalization or similar transaction in which Common Shares are changed
into, converted into or exchanged for other securities; (b) "Valuation Target",
with respect to any Liquidity Event, means: (i) if the Liquidity Event shall
occur prior to March 31, 2002: 4.5 times the Valuation Base; (ii) if the
Liquidity Event shall occur on or after March 31, 2002 and prior to March 31,
2003: 6.3 times the Valuation Base; (iii) if the Liquidity Event shall occur on
or after March 31, 2003 and prior to March 31, 2004: 8.82 times the Valuation
Base; (iv) if the Liquidity Event shall occur on or after March 31, 2004 and
prior to March 31, 2005: 12.348 times the Valuation Base; (v) if the Liquidity
Event shall occur on or after March 31, 2005 and prior to March 31, 2006:
17.2872 times the Valuation Base; and (vi) if the Liquidity Event shall occur
on or after March 31, 2006 and prior to March 31, 2007: 24.20208 times the
Valuation Base; and (c) "Valuation Base", with respect to any Liquidity Event,
means the sum of (i) the aggregate amount of capital invested by the Purchasers
in the Company through the date of such Liquidity Event plus (ii) the aggregate
amount of capital invested in the Company by parties other than the Purchasers
after the date of this Agreement, in each case whether such capital is
evidenced by equity securities or subordinated debt of the Company. Subject to
Paragraph 8 hereof, the obligations of the Company under this Paragraph 5 shall
survive the expiration of the Term. "Liquidity Shares Vested Percentage," with
respect to a Liquidity Event, means (i) 100%, if this Agreement has not been
terminated pursuant to Paragraph 8 hereof prior to the occurrence of such
Liquidity Event, or (ii) if this Agreement has been terminated pursuant to
Paragraph 8 hereof prior to the occurrence of such Liquidity Event, a fraction,
expressed as a percentage, (x) the numerator of which is the number of annual
periods commencing on April 1 and ending on March 31 that have occurred from
April 1, 1997 to the date of such termination and (y) the denominator of which
is the number of annual periods commencing on April 1 and ending on March 31
that have occurred from April 1, 1997 to the date of such Liquidity Event.
6. Pursuant to that certain Executive Share Agreement dated as of March
28, 1997 among McCoy, INROADS Capital Partners, L.P. ("INROADS"), Mesirow
Capital Partners VII, an Illinois Limited Partnership ("Mesirow") and Edgewater
Private Equity Fund II, L.P. ("Edgewater"; together with INROADS and Mesirow,
the "Purchasers") and the Company (the "Executive Share Agreement"), McCoy
hereby designates RTM as a Recipient (as defined in the Executive Share
Agreement) to receive, upon, and subject to, the occurrence of a Liquidity
Event prior to March 31, 2001, a number of Executive Shares equal to (a) 8 1/3%
of the maximum number of Executive Shares that would be required to be
delivered by the Purchasers pursuant to the Executive Share Agreement at such
time if McCoy were employed by the Company as of such time and the conditions
set forth in Section 3 of the Executive Share Agreement were satisfied
multiplied by (b) the Executive Share Vested Percentage (the "RTM Executive
Share Number"), such Executive Shares to be delivered to RTM prior to, and in
preference to, the delivery of any Executive Shares to McCoy or any other
Recipient. If the number of Executive Shares that the Purchasers are required
to deliver under the Executive Share Agreement upon the occurrence of a
Liquidity Event prior to March 31, 2001 is reduced below the RTM Executive
Share Number, then, upon the occurrence of a Liquidity Event prior to March 31,
2001, if the conditions set forth in Section 3 of the Executive Share Agreement
are met, each Purchaser severally (in proportion to its obligation to deliver
Executive Shares under the Executive Share Agreement) agrees to transfer and
deliver promptly to RTM, in addition to the Executive Shares to be delivered to
RTM pursuant to the preceding sentence (the "Required Executive Shares"),
Executive Shares in an aggregate amount equal to such Purchaser's proportionate
share of the RTM Executive Share Number less the number of Required Executive
Shares. "Executive Share Vested Percentage" means (i) 100%, if this Agreement
has not been terminated pursuant to Paragraph 8 hereof prior to the occurrence
of such Liquidity Event, or (ii) if this Agreement has been terminated pursuant
to Paragraph 8 hereof prior to the occurrence of such Liquidity Event, a
fraction, expressed as a percentage, (x) the numerator of which is the number
of full annual periods commencing on April 1 and ending on March 31 that have
occurred from April 1, 1997 to the date of such termination and (y) the
denominator of which is four. If Executive Shares designated by McCoy to be
delivered to RTM pursuant to this Paragraph 6 shall, in accordance with the
terms of this Agreement, cease to be deliverable to RTM, then for purposes of
the Executive Share Agreement McCoy shall be entitled to re-designate the
Recipient of such Executive Shares in accordance with and subject to the terms
and conditions of the Executive Share Agreement.
7. (a) Commissions, whether payable during or, pursuant to Paragraph
3(d), after the Term, shall be paid as follows: (i) first, by repayment to the
Company of the amount of Commission Advances paid to RTM that have not
theretofore been repaid pursuant to this clause (i), (ii) second, by payment to
the Company of accrued and unpaid interest on, and thereafter of the principal
balance of, the RTM Share Amount, until the RTM Share Amount together with all
accrued interest thereon has been paid in full, provided that the aggregate
amount of Commissions applied pursuant to this clause (ii) shall not exceed
$50,000 during any consecutive 12-month period without the consent of RTM, and
(iii) third to RTM, to the extent of any remaining Commissions. Sales
Commissions payable to RTM pursuant to this Paragraph 7 with respect to any
Sale Transaction shall be paid as soon as practicable following the
consummation of such Sale Transaction. Funding Commissions payable to RTM
pursuant to this Paragraph 7 with respect to any Funding Arrangement shall be
paid as soon as practicable following the consummation of such Funding
Arrangement.
(b) Neither RTM nor the Designated Consultant shall have any
personal liability to the Company for repayment of Commission Advances;
provided, however, that (i) Commissions shall be applied to the repayment of
Commission Advances as provided in Paragraph 7(a) hereof and (ii) the aggregate
amount of Commission Advances that have not been repaid pursuant to Paragraph
7(a) hereof may be applied toward payment for the purchase by the Company of
the RTM Shares as provided in Paragraph 4(d) hereof.
8. (a) This Agreement shall terminate upon the earlier of (i) the
expiration of the Term, (ii) the voluntary termination of this Agreement by
RTM, effective upon 30 days' prior written notice to the Company, (iii) the
death or Permanent Disability of the Designated Consultant, effective as of the
date of such death or the determination of such Permanent Disability, (iv) the
termination of this Agreement by the Company for Cause, effective upon written
notice to RTM, or (v) the termination of this Agreement by the Company other
than for Cause, effective upon 30 days' prior written notice to RTM.
(b) If this Agreement is terminated as a result of the voluntary
termination of this Agreement by RTM: (i) the Company's sole obligation shall
be payment of (x) Consulting Fees through the effective date of such
termination and (y) unpaid Commissions that are earned in accordance with
Paragraph 3 hereof; (ii) the Company shall have the right to purchase the RTM
Shares as provided in Paragraph 4(d) hereof; and (iii) notwithstanding the
provisions of Paragraphs 5 and 6 hereof, the Company shall have no obligation
to deliver Liquidity Event Shares pursuant to Paragraph 5 hereof and Purchasers
shall have no obligation to deliver Executive Shares pursuant to Paragraph 6
hereof.
(c) If this Agreement is terminated as a result of the death or
Permanent Disability of the Designated Consultant or as a result of the
termination of this Agreement by the Company on or after March 28, 1999, other
than for Cause: (i) the Company's sole obligation shall be payment of (x)
Consulting Fees through the effective date of such termination and (y) unpaid
Commissions that are earned in accordance with Paragraph 3 hereof; (ii) the
Company shall have no right to purchase the RTM Shares, except in the event of
a Payment Default; and (iii) the Company shall have the obligation to deliver
Liquidity Event Shares pursuant to (and subject to) Paragraph 5 hereof and
Purchasers shall have the obligation to deliver Executive Shares pursuant to
(and subject to) Paragraph 6 hereof.
(d) If this Agreement is terminated as a result of the termination
of this Agreement by the Company, prior to March 28, 1999, other than for
Cause: (i) the Company's sole obligation shall be payment of (x) Consulting
Fees and Commission Advances through March 28, 1999, when and as otherwise
payable under this Agreement, notwithstanding that neither RTM nor the
Designated Consultant shall have any further obligation to perform Transaction
Services or Consulting Services following such termination and (y) unpaid
Commissions that are earned in accordance with Paragraph 3 hereof; (ii) the
Company shall have no right to purchase the RTM Shares, except in the event of
a Payment Default; and (iii) the Company shall have the obligation to deliver
Liquidity Event Shares pursuant to (and subject to) Paragraph 5 hereof and
Purchasers shall have the obligation to deliver Executive Shares pursuant to
(and subject to) Paragraph 6 hereof.
(e) If this Agreement is terminated by the Company for Cause: (i)
the Company's sole obligation shall be payment of (x) Consulting Fees through
the effective date of such termination and (y) unpaid Commissions that are
earned in accordance with Paragraph 3 hereof; (ii) the Company shall have the
right to purchase the RTM Shares as provided in Paragraph 4(d) hereof; and
(iii) notwithstanding the provisions of Paragraphs 5 and 6 hereof, the Company
shall have no obligation to deliver Liquidity Event Shares pursuant to
Paragraph 5 hereof and Purchasers shall have no obligation to deliver Executive
Shares pursuant to Paragraph 6 hereof.
(f) For purposes of this Agreement, (i) "Cause means" (A) the
conviction, admission or plea of no contest by RTM or the Designated Consultant
with respect to any crime, whether or not involving the Company, which
constitutes a felony in the jurisdiction involved; (B) the embezzlement or
misappropriation of property of the Company by RTM or the Designated
Consultant, or any other act by RTM or the Designated Consultant involving
fraud with respect to the Company; (C) any substance abuse by the Designated
Consultant that interferes with the RTM's ability to discharge its duties under
this Agreement; (D) a material breach by RTM of its obligations under this
Agreement; or (E) the failure of RTM, during any consecutive 24-month period
during the Term to generate Sales Commissions of at least $90,000 or, if the
Transaction Services are changed following the date of this Agreement, the
failure of RTM to meet such performance standards as may be agreed to by RTM
and the Company in connection with such change; and (ii) "Permanent Disability"
means physical or mental incapacity of a nature that prevents or could prevent
the Designated Consultant, in the judgment of a licensed physician practicing
in the Indianapolis, Indiana area designated by the Board of Directors (the
"Designated Physician"), from performing services on behalf of RTM as
contemplated by this Agreement for a period of 120 consecutive days or 180
days, whether or not consecutive, during any 12-month period during the Term.
RTM agrees to cause the Designated Consultant to cooperate fully with any
Designated Physician in determining whether the Permanent Disability of the
Designated Consultant has occurred.
9. All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto whether so
expressed or not.
10. If any party to this Agreement obtains a judgment against any party
hereto by reason of any breach of this Agreement or the failure of such other
party to comply with the provisions hereof, a reasonable attorneys' fee as
fixed by the court shall be included in such judgment. No remedy conferred
upon any party to this Agreement is intended to be exclusive of any other
remedy herein or by law provided or permitted, but each such remedy shall be
cumulative or shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute. Each party hereto
agrees that, in the event of any violation of this Agreement by such party, the
remedies available at law would be inadequate and that such party's obligations
under this Agreement may be specifically enforced. Notwithstanding the
foregoing sentence, nothing herein shall be construed as prohibiting any party
hereto from also pursuing any other rights, remedies or defenses, in connection
with any breach of this Agreement.
11. None of the terms of this Agreement shall be deemed to have been
waived by any party hereto, unless such waiver is in writing and signed by that
party. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other provision
of this Agreement or of any further breach of the provision so waived or of any
other provision of this Agreement. No extension of time for the performance of
any obligation or act hereunder shall be deemed an extension of time for the
performance of any other obligation or act.
12. This Agreement shall be governed by and construed in accordance with
the laws of the State of Indiana, without giving effect to its conflicts of law
rules.
13. This Agreement constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof, and supersedes all prior
agreements between the Company and RTM, whether oral or written (including the
existing oral agreement between RTM and the Company described in the Disclosure
Schedule (as defined in the Securities Purchase Agreement (the "Securities
Purchase Agreement") dated as of March 28, 1997 among the Company, the
Purchasers, Michael F. McCoy and William L. Wildman)), with respect to services
performed by RTM on behalf of the Company, other than the letter agreement
between the Company and RTM relating to senior debt financing.
14. This Agreement may be executed in any number of counterparts, each
of which shall be effective only upon delivery and thereafter shall be deemed
to be an original, and all of which shall be taken to be one and the same
instrument with the same effect as if each of the parties hereto had signed the
same signature page. Any signature page of this Agreement may be detached from
any counterpart of this Agreement without impairing the legal effect of any
signature thereon and may be attached to another counterpart of this Agreement
identical in form hereto and having attached to it one or more additional
signature pages.
15. This Agreement may not be amended, modified or changed in any
respect without the written consent of the party against whom enforcement of
each amendment, modification or change is sought.
16. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be unenforceable or invalid under
applicable law, such provision shall be ineffective only to the extent of such
unenforceability or invalidity, and the remaining provisions of this Agreement
shall continue to be binding and in full force and effect.
17. RTM and the Designated Consultant shall perform the Transaction
Services and Consulting Services as an independent contractor, and nothing
herein shall be construed as creating any other relationship among the parties
hereto, including but not limited to any joint venture, partnership, agency
relationship or employment relationship.
<PAGE>
Please indicate your acceptance of the terms hereof by signing where
indicated below.
MERIDIAN FINANCIAL CORPORATION
By:
Michael F. McCoy
President
Agreed to and accepted as of
this 28th day of March, 1997
RTM FINANCIAL SERVICES, INC.
By: ______________________________
Salvatore F. Mulia
<PAGE>
McCoy and the Purchasers join in this Agreement in recognition of their
undertakings set forth in Paragraph 6, which undertakings are made for the
purpose of inducing RTM to assist the Company in satisfying the conditions set
forth in Section 3 of the Executive Share Agreement. In addition, each of the
Purchasers, by signing below, hereby signifies, for purposes of the Securities
Purchase Agreement and Section 6.5 of the terms of the Company's Series C
Preferred Stock, its approval of, and consent to, the issuance of the RTM
Shares and the Liquidity Event Shares in accordance with and subject to the
terms and conditions of this Agreement.
INROADS CAPITAL PARTNERS, L.P.
By: INROADS GENERAL PARTNERS, L.P., its general partner
By:
Title:
MESIROW CAPITAL PARTNERS VII, an
Illinois Limited Partnership
By: MESIROW FINANCIAL SERVICES, INC., its general partner
By:
Title:
EDGEWATER PRIVATE EQUITY FUND II, L.P.
By: GORDON MANAGEMENT, INC.,
its general partner
By:
Title:
Michael F. McCoy
